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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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, 3 NORTH, SAN FRANCISCO, CALIFORNIA 94107
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (415) 495-8811
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $60,568,000
based on the closing sale price as reported by The Nasdaq National Market on
March 16, 1999.
Number of shares of Common Stock outstanding as of March 16, 1999: 14,045,000
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates information by reference from
the Registrant's definitive Proxy Statement to be used in conjunction with its
1999 Annual Meeting of Stockholders.
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WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-K
INDEX
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PART I
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ITEM 1. BUSINESS....................................................................................... 2
ITEM 2. PROPERTIES..................................................................................... 9
ITEM 3. LEGAL PROCEEDINGS.............................................................................. 10
ITEM 4. SUBMISSION OF MATTERS TO AVOTE SECURITY HOLDERS................................................ 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS....................... 10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA........................................................... 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .................................... 21
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................... 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........... 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................. 39
ITEM 11. EXECUTIVE COMPENSATION......................................................................... 39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................. 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................. 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................ 39
SIGNATURES................................................................................................... 43
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PART I
ITEM 1. BUSINESS
The report on this Form 10-K contains forward-looking statements, including
statements related to industry trends and demand for mainframe products,
expected resolution of legal proceedings, cash commitments, working capital
requirements, Year 2000 related costs and possible additional expansion in
international markets. Discussions containing such forward-looking statements
may be found in the material set forth under "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", generally and specifically therein under the captions "Liquidity
and Capital Resources," "Year 2000 Readiness" and "Additional Risk Factors" as
well as elsewhere in this Annual Report on Form 10-K. 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 17 through 21, among others, should be
considered in evaluating the Company's prospects and future financial
performance.
OVERVIEW
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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 client-server/network computing-enabled enterprise financial, operational and
analytic 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 enterprise financial, operational
and analytical application software solutions to a variety of industries with
best-of-breed software products utilized in a wide variety of cross-industry
solutions. The Walker applications support and enhance enterprise-wide
financial, operational and analytic processes, including planning, budgeting,
forecasting, consolidation, financial, performance, work, materials and
procurement management. The Company's software products utilize the Microsoft
Windows operating systems on the desktop, NT, UNIX and OS/390 operating systems
on the server and industry-leading On Line Analytical Processing ("OLAP"),
Relational Database Management Systems ("RDBMS") including Hyperion Solutions
Essbase, IBM's DB2, Oracle Express 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 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 products integrate with Tamaris and Aptos solutions and also work
standalone 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 customized to fit the customer's particular
requirements. The Company complements its software products by providing
specialized professional consulting services to assist customers with
customization and implementation of financial, analytical and operational
solutions to fuel business advantage.
The Company derives its revenues primarily from software licenses, software
maintenance and professional consulting services. The Company's products and
services are marketed primarily to Fortune 1000 companies and similarly-sized
business and governmental organizations direct sales forces located in the
Company's three geographic regions of North America, Europe and Asia Pacific.
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INDUSTRY BACKGROUND
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Large, geographically diverse organizations generate enormous amounts of
financial, operational, sales, marketing and other data. The transaction-
oriented information systems used by these organizations are strategic resources
that are critical to their efficiency, productivity and competitiveness,
providing the availability of continuous and simultaneous information to
employees, customers and suppliers.
Historically, these transaction-oriented solutions have been host-centric,
operating on mainframe computers providing high levels of performance,
scalability and reliability. During the early 1990s, systems with more
distributed architectures were developed to allow users easier access to
information and distributed processing capabilities. These systems were
inherently more complex and often required more time-consuming and costly
implementation, training and support.
In the day-to-day operations of large organizations, transactional data needs to
be promptly and easily retrieved from a variety of financial and operational
systems, summarized and organized into meaningful business information that has
a consistent business context. The process of integrating the data is complex
because large organizations employ multiple accounting systems, operational
systems and transactional databases, spread their business across many different
geographies and have different information requirements by function and across
the organization.
The current business climate of deregulation and merger/acquisition activities
in many industries has added additional complications as well as the need for
scalable and adaptable business processes. Moreover, growing competition has
increased the demand for more timely business information specific to each
function within the organization.
MARKET OPPORTUNITIES
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The following market dynamics are important factors shaping Walker's strategy
moving forward:
INTERNET-LEVERAGED BUSINESS. The transformation of key business processes
through the use of Internet technologies is occurring at an increasingly rapid
pace. This melding of Internet technologies with key business processes creates
opportunities for powerful interactive, transaction-intensive solutions that let
companies do business in ever more efficient and effective ways. Innovative
companies of all sizes are using the Web and network computing to communicate
with their partners, to connect with their back-end data-systems, and to
transact commerce. The term e-business has been used to describe this
transformation. An e-business scenario means streamlining current business
processes to improve operating efficiencies which in turn will strengthen the
value to the customer. A subset, e-commerce, concentrates on the procurement
process as a portion of a larger e-business strategy.
ANALYTICAL APPLICATIONS. The need for better business information has created a
growing need for analytic application software to help organizations gain
business knowledge from the large volumes of transactional data available from
daily operations. These software solutions work on a stand-alone basis, or in
conjunction with core financial systems to translate data into business insight
and thus to maximize the value of financial information. Walker's Horizon
products, by integrating financial applications and analytic solutions, deliver
a solution that links business goals to operational data so organizations have
the opportunity for deeper insight into their business operations.
ENTERPRISE ASSET MANAGEMENT. Enterprise asset management is the process by which
companies in capital-intensive industries such as paper and pulp manufacturing,
transportation, upstream oil and gas and utilities, gain a competitive
advantage. A company's assets may include buildings, equipment, components,
inventory, documents, people, skills and knowledge. These components allow the
organization's business processes to function. Enterprise Asset Management
software solutions help organizations reduce their costs, raise their production
capacities and maintain regulatory compliance by using software technology to
more effectively and efficiently manage their assets.
SHARED SERVICES. Large organizations can reduce the costs and complexity of
information systems by centralizing many administrative functions. These
centralized functions are now being combined with distributed
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operational procedures. Walker's high-volume, financial solutions support both
models enabling companies to distribute information when and where it is needed
within the extended organization, significantly enhancing the availability of
timely information.
HIGH VOLUME TRANSACTIONS. Large, geographically diverse organizations generate
large volumes of transactions and data. As organizations extend their business
beyond traditional boundaries with e-commerce, their transaction-oriented
systems will require increasing scalability to handle the increased volume from
additional users and ever-growing transaction volumes. The Company believes
that its solutions, operating in the native IBM S/390 environment, provide cost-
effective high transaction volume capabilities.
WALKER STRATEGY
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The Company's objective is to be a leading provider of financial, operational
and analytical solutions to large- and mid-sized organizations worldwide. The
Company's strategy to achieve its objective includes the following:
ENABLE THE TRANSFORMATION OF KEY BUSINESS PROCESSES THROUGH THE USE OF INTERNET
TECHNOLOGIES. The Company believes that the e-business enablement of key
business processes has created opportunities for competitive advantage for its
customers through Internet/Intranet and network computing enabled solutions.
These solutions allow organizations to transform core business processes
utilizing existing information technology investments while taking advantage of
powerful interactive, transaction-intensive solutions that let companies do
business in ever more efficient and effective ways. Because of these Internet
technologies, Walker customers now have the ability to extend the reach of their
business applications directly to employees, customers and suppliers worldwide.
DELIVER SOLUTIONS WHICH PROVIDE MANAGEMENT INSIGHT INTO KEY COMPLEX BUSINESS
PROCESSES IN SELECTED VERTICAL MARKETS. The Company has increased its
experience and expertise in vertical markets whereby the Company has begun to
customize its application suites for key industries including utilities, retail,
transportation, gas and oil, process manufacturing, paper and finance. These
large, complex businesses are best understood in a multidimensional context, by
key performance indicators and across business units, time periods, geographies
and product lines. Walker is able to capture and warehouse key business
processes and business information while retaining the business context of the
information through its Smart Financials for the Enterprise. These solutions
analyze the transactional data within the applications to deliver information
that allow managers to be more informed about their organization's performance.
Empowered by management insight, managers at all levels of the organization have
the opportunity to run their area of business better, enhancing competitiveness
and bottom-line profitability. The Company's solutions use On-Line Analytical
Processing ("OLAP") database technology which was developed specifically for
multidimensional business analysis. Current relational database technology is
increasingly able to handle these tasks. Walker is in the process of developing
applications to support both relational and OLAP databases for its solutions.
PROVIDE ANALYTIC APPLICATIONS WHICH COMPLEMENT MULTIPLE TRANSACTION
APPLICATIONS. The Company's focus is on analytic applications for budgeting,
consolidation and management reporting which it believes offer the greatest
short-term market potential. These applications provide analytical analysis and
reporting capabilities not available in traditional transaction systems. Most
organizations recognize the need to integrate enterprise-wide financial and
operational data to monitor performance company-wide. To respond to this need,
the Walker Horizon series of analytic applications integrate data from both
Walker and non-Walker applications, including leading Enterprise Resource
Planning ("ERP") and best-of-breed applications vendors.
PROVIDE SMART ENTERPRISE ASSET MANAGEMENT. Enterprise Asset Management is a key
business driver in industries with high capital investment in revenue producing
assets. Walker has developed a Smart Enterprise Asset Management ("SEAM")
solution for these industries which include pulp and paper manufacturing,
transportation, upstream oil and gas, and utilities. SEAM utilizes the
Company's IMMPOWER Asset Management offering, enterprise financials and Horizon
Analytics to provide management insight.
EXTEND NEW AND EXISTING LONG-TERM RELATIONSHIPS WITH STRATEGIC PARTNERS. The
Company has expanded its existing strategic relationships with leading hardware
and software suppliers such as IBM, Oracle Corporation, Hyperion Solutions
Corporation (formerly Arbor Software Corporation), Information
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Builders, Inc., and ShowCase Corporation, as well as with third-party providers
including global accounting and consulting firms. The Company believes that the
development of its relationships with these partners as well as the expanded
scope of the relationships to include e-business and e-commerce solutions has
contributed to its recent revenue growth.
DELIVER LOWER COST/HIGHER PERFORMANCE SOLUTIONS. The Company believes that most
other vendors of enterprise software solutions are focusing their technology
efforts on supporting a distributed client/server model. Walker intends to
continue to build and enhance financial applications for the mainframe as an
enterprise network computing server. This puts Walker in a position to support
a high-volume network computing environment which the Company believes, with the
growth of Internet bandwidth and functionality, will expand beyond the
corporation itself, supporting both shared and distributed service models more
cost effectively than other distributed architectures.
RETAIN AND EXTEND LONG-TERM CUSTOMER RELATIONSHIPS. The Company generates
revenues from existing customers through the sales of software licenses and
services from both new and existing products and through warranty maintenance.
In addition, providing consulting and support services to existing customers
represents a significant portion of the Company's total revenues. Follow-on
sales to this existing customer base create efficiencies for deployment of sales
and marketing resources.
WALKER PRODUCTS AND SERVICES
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The Company's best-of-breed financial, operational and analytic applications are
designed to improve most organizations' core business processes and to provide
the functionality to create competitive advantages in an ever-changing global
marketplace. Walker achieves this by offering solutions that combine robust
financial and operational applications, best-of-breed analytic technology,
significant industry knowledge and best practices expertise.
The Walker family of products and services include:
. Walker Horizon series of analytic applications for better managing company
performance
. Tamaris for Fortune 1000 class organizations
. Aptos for mid-size companies or divisions of Fortune 1000 companies
. IMMPOWER for capital intensive companies
WALKER HORIZON SERIES OF ANALYTIC APPLICATIONS
The Horizon suite of analytic applications includes the Planning & Forecasting,
Financial Consolidation and Reporting solutions organizations need to better
manage company performance. By significantly reducing the budgeting and
consolidation process, Horizon allows companies to focus on the analysis, versus
the preparation of financial data.
The Walker Horizon suite employs a flexible architecture that leverages a single
OLAP engine for all of its applications. This provides companies with a
solution that ensures data integrity and is easy to deploy and maintain. As a
result, organizations can gain the ability to make fast, informed business
decisions and continually monitor performance improvement at all levels of the
organization. Additionally, the information delivered by Horizon's architecture
allows companies the opportunity to be more forward thinking and to preview the
effect of potential business decisions.
Horizon is available for multiple operating systems and OLAP databases, which
allow companies to track performance metrics that are specific to their
industry. Any combination of these applications complements Walker Smart
Financials as well as non-Walker financial and operational solutions.
The Horizon suite includes:
. Planning and Forecasting: Automates the planning, forecasting, and budgeting
processes - reducing planning cycles, facilitating continuous planning and
enabling the prediction of company performance;
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. Consolidated Reporting: Manages the collection, adjustment and reporting of
consolidated results for enterprise-wide statutory, management and tax
reporting; and
. OLAP Reporting & Analysis: A powerful reporting and analysis solution for
enabling financial reports and analysis on top of any OLAP technology.
SMART FINANCIALS FOR THE ENTERPRISE
The Tamaris and Aptos suites of financial applications are the foundation for
Walker's Smart Financials.
The Tamaris solution focuses on two main areas: assisting businesses in turning
massive amounts of transaction data into powerful business information, and
assisting in moving businesses into the sphere of electronic business as a smart
financial hub for e-business and/or e-commerce enabled solutions. These highly
scalable applications are designed to adapt quickly and easily to changing
business conditions such as deregulation, technology innovations and structural
reorganizations including mergers and acquisitions. The Company also broadens
the scope of Tamaris with analytic solutions that work with transactional data
to provide in-depth insight into the enterprise. This combination of financial
and analytic applications allows Walker customers the opportunity to better
manage company performance.
The Tamaris application suite is organized into three key operational areas:
. Revenue Management - Billing and Accounts Receivable;
. Financial Management - General Ledger, Fixed Assets, Project Cost Management;
and
. Procurement - Purchase Order Management, Accounts Payable, Inventory
Management.
Tamaris is architected to support organizations with high transaction volumes,
24 hour/7day continuous computing requirements and ever-increasing numbers of
concurrent users. Its network-centric architecture works within existing IT
infrastructures, while responding to the evolving needs of the extended
enterprise by enabling self-service, Web-enabled solutions.
For the mid-market, Walker offers Aptos, a powerful combination of financial
applications and flexible analytic solutions. Aptos is comprised of a
comprehensive suite of NT- and UNIX-based financial applications, designed for
medium-sized companies or divisions of Fortune 1000 -class organizations.
The Aptos suite includes General Ledger, Purchasing, Accounts Payable, Accounts
Receivable and Asset Management. Aptos also delivers value-added analytic
solutions that help better manage company performance--both from the Horizon
Series as well as from the following applications:
. Management Information Desktop - An analytic solution that monitors Key
Performance Indicators ("KPI") and company performance;
. Excel Add-in System - A powerful end-user query and reporting tool; and
. Cash Flow Expert - An advanced analytical application that allows
organizations to accurately track their cash flow and forecast future cash
requirements.
IMMPOWER - SMART ENTERPRISE ASSET MANAGEMENT
The IMMPOWER Smart Enterprise Asset Management system has been architected to
help capital intensive companies increase net capacity and reliability, to
comply with regulatory requirements and to minimize cost.
Walker's IMMPOWER Solution offers a high level of functionality for plant
operations with a flexible, modular design to fit into corporate IT strategies.
The components of the IMMPOWER Solution include Asset Management, Work
Management, Materials Management, Purchasing Management and Financial
Management. All of these components at the transaction layer feed Walker's
Horizon Analytic Applications so that meaningful information can be delivered to
the individuals who can take action to improve the business.
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IMMPOWER is designed to meet the needs of large capital intensive industries:
petro-chemical processing, utilities, paper, mining, metals and transportation.
IMMPOWER helps decrease costs, optimize resources, increase manpower
productivity and increase equipment reliability and uptime.
PRODUCT DEVELOPMENT
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The Company continually enhances its existing products and develops new products
in order to meet its customers' ever-changing requirements and to expand its
product base. The Company's success will depend in part on its ability to
develop product enhancements and new products that keep pace with technological
changes and changes in customers' business practices. Product development costs
(gross) were 20 percent of total revenues in 1998.
Due to the layered architecture of the Company's Tamaris products and the
Company's efforts to continually enhance its products to respond to evolving
technologies, the Company believes that its products have long life cycles. As
operating systems, databases and presentation software technologies evolve, the
Company is able to modify its Tamaris products through means of an upgrade and
by changing only the corresponding layer of software without having to change
the other components of the system. Therefore, the Company's customers do not
have to completely replace the Company's products in response to technological
change. The Company has dedicated significant development resources toward
modifications and extensions of the Horizon, Aptos, and IMMPOWER product lines.
The Company works closely with its customers and prospective customers to
determine their requirements and to define the functionality of the Company's
new products and enhancements to its existing products.
SERVICES
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PROFESSIONAL SERVICES/INFORMATION TECHNOLOGY ("IT") CONSULTING SERVICES.
Organizations are increasingly leveraging information technology to accomplish
their business objectives. Large, multinational organizations rely heavily on
their software investments to remain competitive. The Company's professional
services organization adds significant incremental value, offering
implementation, customization, migration, training and related services to its
customers. Walker has suites of reusable tools and utilities that enable
customers to complete customizations faster and at less cost.
Walker provides a full range of services to support these needs which include:
. Performance Tuning - To increase computer throughput, reduce batch processing
time and otherwise improve performance;
. Migration - Assistance in making cost-effective migrations to a new release
or from one platform to another;
. Conversion and Integration - To integrate third-party applications into the
Walker framework or convert these products to Walker applications through
Walker's re-usable components and methodologies;
. Year 2000 Services - End-to-end solutions for Year 2000 compliance issues;
and
. IT consulting and outsourcing - To shorten time-to-benefit and reducing costs
for large-scale computing environments and applications and Euro currency
conversion and implementation.
CUSTOMER SUPPORT AND MAINTENANCE. The Company's customer support and maintenance
program includes 24-hour hotline telephone support for problem determination and
resolution, account management, ongoing functional and technical enhancements
for installed products and membership in the Company's user groups, which meet
annually and hold periodic conferences throughout the year.
INDUSTRY SEGMENTS
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For the purposes of conforming with Generally Accepted Accounting Principles,
all the Company's products and services are considered part of single industry
segment. Information regarding domestic and international revenues and assets
are contained in Note 11 to the Consolidated Financial Statements. During the
past several years, the Company has derived an increasing percentage of its
total revenues from foreign operations and export sales. In 1998, such revenues
were 31 percent of total revenue.
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SALES AND MARKETING
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Walker sells its products primarily through its direct sales force in the
Company's three geographic regions of North America, Europe and Asia Pacific.
In support of its sales force, the Company conducts marketing programs which
include direct mail, public relations, advertising, seminars, trade shows and
ongoing customer communication programs. The sales cycle begins with the
generation of a sales lead, or often the receipt of a request for proposal
("RFP") from a prospect, which is followed by qualification of the lead, an
analysis of the customer's needs, response to an RFP, one or more presentations
to the customer, customer internal sign-off activities and contract negotiation
and finalization. While the sales cycle varies by product and from customer to
customer, the sales cycle has historically required three to twelve months.
Walker markets its products primarily to large or complex organizations with
intensive data processing and information management requirements. In each of
the last three fiscal years, a substantial portion of the Company's license
revenue was from additional licensing by existing customers of either new
products or products for additional sites. The Company has increased its
commitments to the marketing of products for the NT and UNIX client/server and
network computing environments.
The Company regards its professional services and product development
organizations as integral parts of its marketing strategy because of the length
and technical nature of the sales process. Professional services and product
development employees participate directly in the sales cycle and educate
prospective customers on the advantages of using the Company's solutions.
COMPETITION
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The business and financial applications software market for large complex
organizations is intensely competitive. The Company's principal competitors
with Tamaris solutions are SAP AG, Oracle Corporation and PeopleSoft, Inc. With
Aptos solutions, the Company principally competes with Oracle Corporation,
Lawson Software, Inc., Platinum Software, Inc., Systems Union Group Ltd and
Agresso AS. With the Horizon suite of products, the Company principally
competes with Hyperion Solutions Corporation, Oracle Corporation and Comshare,
Inc. With the IMMPOWER suite of products, the Company principally competes with
Datastream/SQL, Indus International, Marcam, Mincom, PSDI and SAP AG.
The Company also competes to a lesser extent with other independent software
application vendors. Some 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. Most 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. Principal competitors include consulting firms
Andersen Consulting and IBM Global Services, the consulting divisions of the
major accounting firms which possess greater resources than the Company and
niche consulting firms which specialize in the Company's products and 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.
For a description of certain competitive risks, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Additional Risk
Factors."
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PROPRIETARY RIGHTS
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The Company regards its products as proprietary and attempts to protect them
with a combination of trade secret, copyright and trademark laws, its license
agreements with customers and its internal security systems, confidentiality
procedures and employee agreements. Although the Company takes steps to protect
its trade secrets, there can be no assurance that misappropriation will not
occur. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States.
The Company typically provides its products to users under non-exclusive, non-
transferable perpetual licenses. Under the general terms and conditions of the
Company's standard product license agreement, the licensed software may be used
only for internal operations on designated computers at specific sites. The
Company makes source code for some of its products available to its customers
under agreements which restrict access to and use of the source code.
The Company seeks to protect its software, documentation and other written
materials under copyright laws, which afford only limited protection. It also
asserts trademark rights in its product names. The Company has not sought to
protect its products under patent laws. The Company believes that the rapid
pace of technological change in the computer industry makes patent or copyright
protection of less significance than such factors as the knowledge and
experience of management and personnel, name recognition, maintenance and
support of software products and the Company's ability to develop, enhance,
market and acquire software products and services.
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 will not
require the Company to enter into royalty arrangements or result in costly
litigation.
For a description of certain proprietary risks factors, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Additional Risk Factors."
EMPLOYEES
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As of December 31, 1998, the Company employed 539 employees, of which 306 were
based in the United States and 233 were based internationally. Of the total, 94
of such employees were engaged in sales and marketing, 52 were in customer
support, 178 were in professional services, 138 were in product development and
77 were in data processing, administration and finance positions.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in San Francisco, California,
in a leased facility consisting of approximately 101,000 square feet of office
space. The Company occupies 74,000 square feet governed by a lease that expires
in September 2007. The lease and sublease on the remaining 27,000 square feet,
which is considered excess capacity, expired in February 1999. Additionally, the
Company leases office space aggregating approximately 106,000 square feet in the
metropolitan areas of Atlanta, Georgia; Birmingham, Alabama; Boston,
Massachusetts; Chicago, Illinois; Houston, Texas; London, England; Sydney,
Australia; Singapore, Republic of Singapore; Salt Lake City, Utah; and Toronto,
Ontario. The Company believes that it has adequate facilities to accommodate
the Company's operations in the near term and that additional space will be
available at commercially reasonable terms as needed.
Approximately 66,000 square feet of office space in California, Illinois and
England is considered excess capacity. Of the excess, approximately 60,000
square feet are sublet. The difference of approximately $0.7 million between
the Company's total lease commitments for its excess capacity and the total
expected sublease income is included in accrued liabilities at December 31,
1998.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any legal proceedings other than ordinary routine
litigation incidental to the Company's business. The following sentence is a
forward-looking statement. The Company believes that the ultimate resolution of
these matters will not have a material adverse effect on the Company's
consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Walker Interactive Systems, Inc. common stock is traded on The Nasdaq National
Stock Market under the symbol "WALK." As of March 16, 1999, there were
approximately 2,300 stockholders of record of the Company's common stock. The
Company has not paid any cash dividends and does not anticipate paying any cash
dividends in the foreseeable future. Furthermore, the Company has a line of
credit with a financial institution which restricts the Company's ability to pay
dividends while borrowings are outstanding under the line of credit.
The high and low closing prices per share, for the periods set forth below, are
as reported by The Nasdaq National Stock Market System.
<TABLE>
<CAPTION>
PRICE RANGE PER COMMON MARCH JUNE SEPTEMBER DECEMBER
SHARE 31, 1998 30, 1998 30, 1998 31, 1998
- -------------------------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Price range per common share:
High $20 1/16 $20 $15 5/16 $8 1/2
Low 13 13 1/8 6 3 1/2
PRICE RANGE PER COMMON MARCH JUNE SEPTEMBER DECEMBER
SHARE 31, 1997 30, 1997 30, 1997 31, 1997
- -------------------------------- ------------ ------------ ------------- ------------
Price range per common share:
High $14 1/2 $15 1/8 $18 1/8 $17 1/2
Low 12 3/16 10 11/16 12 7/8 12 1/8
</TABLE>
10
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
WALKER INTERACTIVE SYSTEMS, INC.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 (1) 1996 (2) 1995 1994 (3)
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues $101,413 $ 71,409 $ 62,834 $ 58,566 $ 69,180
Income (loss) before income taxes 7,266 (2,179) 86 (10,198) (15,033)
Net income (loss) 4,525 (3,477) (116) (9,357) (12,928)
Basic net income (loss) per share (4) 0.32 (0.26) (0.01) (0.72) (1.01)
Shares utilized to compute basic net
income (loss) per share 14,012 13,291 13,223 12,998 12,750
Diluted net income (loss) per share (4) 0.31 (0.26) (0.01) (0.72) (1.01)
Shares utilized to compute diluted net
income (loss) per share 14,688 13,291 13,223 12,998 12,750
Balance Sheet Data:
Cash, cash equivalents and investments $ 22,597 $ 27,690 $ 38,170 $ 42,318 $ 44,036
Total assets 95,097 91,334 82,319 82,498 89,834
Stockholders' equity 57,051 51,689 46,772 48,734 57,521
</TABLE>
(1) Includes a $4.6 million charge for the write-off of in-process
research and development from the acquisition of Revere, Inc. and a
$1.3 million charge for the termination of an exclusive distribution
agreement.
(2) Includes a $2.8 million charge for the write-off of in-process
research and development from the acquisition of Hunt Systems, Inc.
(3) Includes $23.2 million of charges, of which $12.8 million was the
write-off of in-process research and development from the acquisition
of The Solutions Group Limited and $10.4 million was for severance and
related costs and for the write-off of capitalized software
development costs.
(4) 1996 and prior years have been restated to conform to the requirements
of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share."
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The report on this Form 10-K contains forward-looking statements, including
statements related to industry trends and demand for mainframe products,
expected resolution of legal proceedings, cash commitments, working capital
requirements, Year 2000 related costs and possible additional expansion in
international markets. Discussions containing such forward-looking statements
may be found in the material set forth under "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", generally and specifically therein under the captions "Liquidity
and Capital Resources," "Year 2000 Readiness" and "Additional Risk Factors" as
well as elsewhere in this Annual Report on Form 10-K. 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 17 through 21, among others, should be
considered in evaluating the Company's prospects and future financial
performance.
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 enterprise financial, operational
and analytical application software solutions to a variety of industries with
best-of-breed software products utilized in a wide variety of cross-industry
solutions. The Walker applications support and enhance enterprise-wide
financial, operational and analytic processes, including planning, budgeting,
forecasting, consolidation, financial, performance, work, materials and
procurement management. The Company's software products utilize the Microsoft
Windows operating systems on the desktop, NT, UNIX and OS/390 operating systems
on the server and industry-leading On Line Analytical Processing ("OLAP"),
Relational Database Management Systems ("RDBMS") including Hyperion Solutions
Essbase, IBM's DB2, Oracle Express and Microsoft SQL/Server.
ACQUISITIONS
- ------------
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. 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, from the date of
acquisition, are included in the 1998 and 1997 consolidated statement of
operations. The Company markets the acquired software products as its IMMPOWER
product line.
On May 17, 1996, the Company acquired the business and net assets of Hunt
Systems Group, Inc. ("Hunt") for a total acquisition price of $3.8 million
comprised of a $2.1 million cash payment, $1.6 million payable based on
achievement of certain performance targets during the four year period following
closing and $0.1 million in transaction costs. Additional amounts will be paid
if further performance targets are reached during the same four year period. The
acquisition was accounted for as a purchase transaction. Of the purchase price,
$0.2 million was allocated to identifiable net tangible assets, $0.8 million was
allocated to capitalized software and $2.8 million was allocated to in-process
research and development. The amount of the purchase price allocated to
in-process research and development was charged to the Company's operations in
1996, because technological feasibility had not been established and no
alternative future uses existed at the acquisition date. The results of
operations of Hunt, from the date of acquisition, are included in the 1998, 1997
and 1996 consolidated statement of operations. The Company markets the acquired
software products as it Horizon product line.
OTHER SIGNIFICANT CHARGES
- -------------------------
In 1997, the Company terminated an exclusive distributorship agreement in South
Africa which resulted in an expense of $1.3 million.
12
<PAGE>
RESULTS OF OPERATIONS FOR 1998, 1997 AND 1996
- ---------------------------------------------
REVENUES. The Company recorded total revenues of $101.4 million, $71.4 million
and $62.8 million during the years ended December 31, 1998, 1997 and 1996,
respectively. Total revenues increased 42 percent in 1998, primarily as a result
of increased license and consulting revenues. Revenues increased 14 percent in
1997, primarily as a result of increased license revenues. Total revenues,
excluding Revere operations, were $92.2 million, $70.3 million and $62.8 million
during the years ended December 31, 1998, 1997 and 1996, respectively. Excluding
revenue generated by Revere, which was acquired on December 2, 1997, revenues
increased 31 percent in 1998 and 12 percent in 1997. Consulting revenues
increased 61 percent in 1998 and remained relatively flat in 1997, excluding
related Revere revenues. The Company believes that the increase in 1998
consulting revenues is attributable to engagements associated with the increase
in license revenues and an increase in non-implementation related projects
(e.g., Year 2000, migration and best practice solutions engagements).
The Company's license revenues increased $5.8 million and $7.8 million in 1998
and 1997, respectively. Excluding license revenues from Revere, license revenues
increased $3.8 million and $7.1 million in 1998 and 1997, respectively. The 35
percent increase in license revenue, excluding Revere operations, in 1998 is
attributable to increases in Horizon and Aptos license revenues. The Company
believes that the increase in 1998 Horizon and Aptos license revenues is due to
increased sales and marketing efforts and increased product offerings. The
Company believes that the increase in license revenue, excluding Revere
operations, in 1997 is attributable to increased sales and marketing efforts,
increased product offerings and greater demand for the mainframe as a scalable,
adaptable and cost effective enterprise client/server solution.
License revenues from the Company's Tamaris core financial applications
represented 39 percent, 62 percent and 72 percent license revenues for 1998,
1997 and 1996, respectively. The decline in 1998 Tamaris license revenues as a
percent of total license revenues is attributable to increased license revenues
generated by the Company's IMMPOWER, Aptos and Horizon product lines. The
increase in IMMPOWER license revenue is attributable to a full year of Revere
operations for 1998 as compared to one month of revenue during 1997 (subsequent
to the acquisition). License revenues from Aptos, in absolute dollars and a
percent of total license revenues, increased in 1998, which the Company believes
is attributable to marketing and promotions of the Aptos product line
components. Further contributing to the reduction of Tamaris license revenues as
a percent of total license revenues is an increase in Horizon product line
revenue which the Company believes is attributable to product feature and
functionality enhancements and promotional activities in 1998. The decline in
1997 Tamaris license revenues as a percent of total license revenues is
primarily attributable to increased license revenues generated by the Company's
Horizon product line which the Company believes is a result of product feature
and functionality enhancements and promotional activities in 1997.
Maintenance revenues were $ 31.2 million, $27.7 million and $27.2 million 1998,
1997 and 1996, respectively. The increase in 1998 is attributable to increases
in license revenues and Revere operations. Excluding Revere operations,
maintenance revenues increased 6 percent over 1997 and was offset by the loss of
revenue associated with non-renewed customer maintenance agreements. Maintenance
revenues from operations acquired from Revere during 1997 were not material to
the Company's results of operations.
Consulting revenues were $47.9 million, $27.2 million and $27.0 million 1998,
1997 and 1996, respectively. Consulting revenues are generated from new and
existing customers for services related to training, implementation,
customization, migration, enhancement, Year 2000 readiness engagements, best
practice consulting engagements and other special projects. The Company
generates a majority of its consulting revenues from implementation related
projects.
In 1998, consulting revenues increased 76 percent attributable to North American
and European operations partially offset by a decrease in consulting revenues in
the Asia Pacific region. The increase in North America and Europe is primarily
due to new non-implementation related projects offset by a slight reduction in
revenues generated from implementation related engagements. Consulting revenues
from migration, Year 2000 readiness and best practice consulting engagements all
increased in 1998 over the prior year. Further contributing to the increase in
1998 were revenues generated from 12 months of Revere operations compared to one
month of operations in 1997. In 1997, North American and Asia Pacific consulting
revenue from implementation related projects decreased from 1996 due
13
<PAGE>
to the completion of several large on-going implementation and post-
implementation projects in 1996 and the first quarter of 1997 which were not
subsequently replaced with projects of the same magnitude. North American
consulting revenues for 1998 and 1997 were also adversely affected by a fixed-
fee consulting engagement. Increases in 1997 European revenue offset decreases
in 1997 North American and Asia Pacific consulting revenue. Consulting revenues
from operations acquired from Revere during 1997 were not material to the
Company's results of operations.
GEOGRAPHICAL REVENUE. Total revenues generated in North America were 71 percent,
69 percent and 71 percent of the Company's total revenues for the fiscal years
ended December 31, 1998, 1997 and 1996, respectively. During 1998 and 1997, the
Company experienced a revenue growth rate of 46 percent and nine percent for
North America, respectively. The increase in 1998 is primarily attributable to a
90 percent increase in consulting revenue while the increase in 1997 is
primarily attributable to increased license fee revenues. European revenues
increased 39 percent and 34 percent during 1998 and 1997, respectively. Europe
recognized increases across all revenue sources during 1998 and 1997 which was
primarily attributable to increases in license fee and consulting revenues.
Total revenues for the Asia Pacific region have decreased in 1998 and 1997,
which is primarily attributable to a decrease in license revenues in 1998 and a
decrease in regional consulting revenues in 1997. The Company believes that the
decrease in revenues in Asia Pacific is partially due to the weak economy in the
region.
COSTS OF LICENSES, MAINTENANCE AND CONSULTING. Costs of licenses, maintenance
and consulting represented 41 percent, 40 percent and 40 percent of the
respective revenues in 1998, 1997 and 1996, respectively.
The costs of licenses in absolute dollars increased in 1998 and 1997. As a
percentage of license revenues, cost of licenses remained flat in 1998 when
compared to 1997 and increased in 1997 when compared to the prior year. The
fluctuation in 1997 is due 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.
The costs of maintenance, as a percentage of related revenue, was relatively
unchanged from 1997 to 1998 and from 1996 to 1997.
The costs of consulting, as a percentage of related revenue, has decreased in
1998 and increased in 1997 when compared to the respective prior year. The
decrease in 1998 is primarily attributable to a change in consulting revenue mix
which included a greater proportion of higher margin consulting engagements
during the year. Partially offsetting the higher margins in 1998 was a North
American fixed fee consulting engagement. The increase in 1997 is primarily
attributable to lower than expected consulting revenues, lower profit margins in
North America associated with a fixed fee consulting engagement and an increase
in the use of outside contractors. Further contributing to the 1997 increase was
growth and turnover in the consulting organization.
SALES AND MARKETING. In absolute dollars, sales and marketing expenses increased
36 percent and 31 percent in 1998 and 1997, respectively. As a percentage of
total revenues, sales and marketing expenses were 23 percent, 24 percent and 21
percent in 1998, 1997 and 1996, respectively. Excluding Revere operations, sales
and marketing expenses increased 16 percent and 29 percent for 1998 and 1997,
respectively. Excluding Revere operations, sales and marketing expenses, as a
percentage of total revenues, were 21 percent, 24 percent and 21 percent in
1998, 1997 and 1996, respectively. The increase in 1998 sales and marketing
expenses was attributable to the build up of the Company's sales force, Revere
operations, higher commissions and travel expenses associated with the increase
in license revenues and increased costs associated with marketing promotions for
existing customers. In 1997, the sales and marketing expense increases were
attributable to higher commissions and travel expenses associated with the
increase in license revenues, increased costs associated with marketing
promotions for existing customers and marketing costs associated with a major
campaign in fourth quarter of 1997 to promote the Company, its multiple product
lines and its consulting services. The following sentence is a forward looking
statement. The Company anticipates that sales and marketing expenses to further
promote the Company and its offerings will continue to increase in the future.
14
<PAGE>
PRODUCT DEVELOPMENT. Product development related expenses, excluding
amortization of capitalized software, are detailed as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Product development costs including additions to
capitalized software (gross) $20,261 $18,259 $16,571
Less:
Additions to capitalized software 7,391 7,497 5,201
--------- --------- ---------
Product development expense $12,870 $10,762 $11,370
========= ========= =========
</TABLE>
The increase in 1998 gross product development expense is primarily attributable
to Revere operations which were immaterial in 1997. Excluding Revere operations,
1998 gross product development expense remained relatively flat when compared to
the prior year. The increase in 1997 gross product development expense is
primarily due to the Company's 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 expense, additions to capitalized software were 36
percent, 41 percent and 31 percent in 1998, 1997 and 1996, respectively.
Excluding Revere operations, additions to capitalized software as a percentage
of gross product development expense were 34 percent, 41 percent and 31 percent
in 1998, 1997 and 1996, respectively. The decrease in 1998 is primarily
attributable to product development resources which were allocated to
non-capitalizable projects. The increases in 1997 is attributable to increased
efforts by internal and external resources to develop enhanced releases of
existing products. 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.
AMORTIZATION OF CAPITALIZED SOFTWARE. Amortization of capitalized software
increased 11 percent from 1997 to 1998 and 22 percent from 1996 to 1997. The
increase in 1998 is primarily due to the inclusion of Revere operations.
Excluding Revere operations, amortization increased two percent in 1998. Further
contributing to the 1998 increase was additional amortization associated with
the Company's on-going practice of evaluating the lives of capitalized software
products. The increase in 1997 is attributable to additional amortization
resulting from a major product release during the year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $12.4
million, $8.5 million and $9.0 million in 1998, 1997 and 1996, respectively. The
increase in 1998 is partially attributable to Revere operations which were
immaterial in 1997. Excluding Revere operations, general and administrative
expenses were $10.5 million, $8.3 million and $9.0 million in 1998, 1997 and
1996, respectively. The remaining increase in 1998 is attributable to increases
in professional fees and increased facilities costs. The decrease of $0.5
million in 1997 general and administrative expenses was primarily due to 1996
charges for bad debt and increased labor charges associated with the enhancement
of infrastructure and business processes which did not occur in 1997.
INCOME TAX EXPENSE (BENEFIT). In 1998, the Company provided income taxes equal
to 38 percent on pretax income of $7.3 million. In 1997, the Company provided
income taxes of $1.3 million on pretax loss of $2.2 million. Without the write
off of in-process research and development, for which no tax benefit is allowed,
pretax income in 1997 was $2.4 million. The Company's effective income tax rate
was 243 percent in 1996. The income tax of 243 percent in 1996 was due to the
Company's 1996 pretax loss and a valuation allowance of $0.6 million for
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's operating activities provided cash of $5.9 million in 1998, used
cash of $1.4 million in 1997 and provided cash of $7.9 million in 1996. In 1998,
the Company's net income was the primary reason for the increase in cash
provided for the year. Increases in accounts receivable balances reduced cash
flows from operations in 1997.
15
<PAGE>
Financing activities used $1.1 million in cash during 1998, provided $0.3
million in cash during 1997 and used $2.6 million in 1996. In 1998, 1997 and
1996, proceeds from the issuance of stock under the Company's employee stock
purchase plan and proceeds from stock options exercised provided $2.8 million,
$2.3 million and $2.9 million in cash, respectively. The Company used cash in
the amount of $2.4 million, $2.0 million and $5.2 million for the purpose of
repurchasing Company stock. All stock repurchases were made pursuant to
resolutions of the Company's Board of Directors authorizing the repurchase of
the Company's outstanding shares of common stock, which was not to exceed a
total cost of $17.5 million. As of December 31, 1998, the Company had acquired
837,000 shares of its common stock at a cost of $10.0 million. As of December
31, 1998, the Company had reissued 803,000 of the repurchased shares in
connection with the Company's employee stock purchase plan, one of its employee
stock option plans and the acquisition of Revere.
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 1, 1999. The Company
has never borrowed against this line of credit.
In connection with the December 1997 acquisition of Revere, the Company assumed
a line of credit with an outstanding balance of $1.5 million. The outstanding
balance on the assumed line of credit was subsequently paid in full in January
1998.
As of December 31, 1998, the Company's principal sources of liquidity included
cash, cash equivalents and short- and long-term investments aggregating $22.6
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 READINESS
- -------------------
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company's computer
equipment and software and devices with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operation, including, among other things, a temporary inability
to process transactions, send invoices or engage in normal business activities.
The Company has completed an assessment to determine the effect that the Year
2000 issue will have on it. The Company believes that its currently supported
application software products generally offered for license by the Company to
end-user customers are Year 2000 ready. However, certain versions of these
products currently installed at customers' sites will require upgrading or other
modification to become Year 2000 ready. The Company has identified those
affected customers who are on the Company's warranty maintenance program, has
contacted those customers and is assisting those customers to assess their
readiness. The Company is making availbale to those customers a Year 2000 ready
release of its software and will assist such customers to become Year 2000
ready. The following sentence is a forward-looking statement. The Company
believes that the costs associated with making certain versions of the Company's
products Year 2000 ready will not be material to the Company's business, results
of operations or financial condition.
The Company has completed an assessment of its computer equipment and software,
including information technology systems, such as accounting, data processing
and telephone/PBX systems, and non-information technology systems, such as fax
machines and alarm systems, to determine if they are Year 2000 ready. The
following three sentences are forward-looking statements. The Company believes
that certain of its non-critical computer equipment and software will require
replacement or modification, at a total cost which is not material to the
Company's results of operations or financial condition. The Company believes
that even if such replacements or modifications were not completed, the Year
2000 issue would not have a material adverse effect on the Company's business,
results of operations or financial condition. In addition, even if the Company's
vendors or suppliers fail to become Year 2000 ready in a timely manner, the
Company believes that such failure would not have a material adverse effect on
the Company's business, results of operations or financial condition.
The costs and impact of the Year 2000 issue are based upon management's best
estimates, which were derived using numerous assumptions regarding future
events, including the continued availability of certain resources, the
16
<PAGE>
functioning of its products in accordance with specifications and other factors.
There can be no assurance that these estimates will prove to be accurate and
actual results could differ from those currently anticipated. Specific factors
that could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues and the
functioning of the Company's products in accordance with specifications. In
addition, variability of definitions of "Year 2000 ready" and the number of
products that the Company has sold, may lead to claims whose impact on the
Company is not currently estimable. No assurance can be given that the
aggregate cost of defending and resolving such claims, if any, would not
materially adversely affect 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) a customers may forego or delay software purchases due to increased
attention and spending on Year 2000 related projects;
(vi) the period for a customer to complete product evaluations and to
complete any subsequent purchase approval may be delayed due to
resource limitations; and
17
<PAGE>
(vii) 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
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. The Company may not always 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 after shipment of
a product because specified milestones have not been met or because applicable
services have not been completed.
The Company has and 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 readiness 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. Also,
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. In addition,
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 because 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.
18
<PAGE>
INTERNATIONAL.
The Company plans to increase its presence in international markets by marketing
the Tamaris, Aptos, IMMPOWER and Horizon 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 had
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 complex
organizations is intensely competitive. The Company's principal competitors
with Tamaris solutions are SAP AG, Oracle Corporation and PeopleSoft, Inc. With
Aptos solutions, the Company principally competes with Oracle Corporation,
Lawson Software, Inc., Platinum Software, Inc., Systems Union Group Ltd and
Agresso AS. With the Horizon suite of products, the Company principally
competes with Hyperion Solutions Corporation, Oracle Corporation and Comshare,
Inc. With the IMMPOWER suite of products, the Company principally competes with
Datastream/SQL, Indus International, Marcam, Mincom, PSDI and SAP AG.
The Company also competes to a lesser extent with other independent software
application vendors. Some 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. Most 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. Principal competitors include consulting firms
Andersen Consulting and IBM Global Services, the consulting divisions of the
major accounting firms which possess greater resources than the Company and
niche consulting firms which specialize in the Company's products and 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. The Company's
products are also 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
(i) 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;
(ii) that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of
such products and enhancements; or
(iii) that any new products or enhancements that it may introduce will
achieve market acceptance.
19
<PAGE>
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 plans to continue its investment in product development
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 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
patents and copyrights 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 will not
require the Company to enter into royalty arrangements or result in costly
litigation.
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,
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
sometimes 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.
Commercial building vacancy rates are very low 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 additional
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
20
<PAGE>
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.
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. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has U.S. dollar interest-bearing investments that are subject to
interest rate risk. The Company analyzed its investments at year-end to
determine the sensitivity to interest rate changes. The fair values of these
instruments were determined by net present values. The Company's sensitivity
analysis used the same change in interest rates for all maturities. All other
factors were held constant. If interest rates increased by 10 percent the
expected effect on net income related to the Company's investments would be
immaterial.
The majority of the Company's revenues are denominated in the U.S. dollar. The
Company does not engage in interest rate swaps or enter in foreign currency
forward contracts.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.......................................................................... 22
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997............................ 23
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996............ 24
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996.. 25
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996............ 26
Notes to Consolidated Financial Statements............................................................ 27
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Walker Interactive Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Walker
Interactive Systems, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. Our
audit also included the consolidated financial statement schedule listed in item
14(a)2. These financial statements and the consolidated financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Walker Interactive Systems, Inc.
and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, the consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
San Francisco, California
February 10, 1999
22
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 1998 31, 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 15,556 $ 7,646
Short-term investments 5,135 13,693
Accounts receivable, net of allowance for doubtful
accounts of $1,378 in 1998 and $1,376 in 1997 29,009 22,090
Prepaid expenses 2,347 2,001
Other receivables 1,448 1,017
-------- --------
Total current assets 53,495 46,447
Long-term investments 1,906 6,351
Property and equipment, net 4,962 4,599
Capitalized software, net of accumulated amortization
of $34,555 in 1998 and $29,592 in 1997 18,186 15,777
Deferred tax assets, net 12,501 13,632
Other assets 4,047 4,528
-------- --------
Total assets $ 95,097 $ 91,334
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,435 $ 5,957
Accrued liabilities 13,061 13,335
Deferred revenue 14,819 15,557
-------- --------
Total current liabilities 33,315 34,849
Deferred revenue 1,600 1,190
Accrued rent 954 887
Other long-term obligations 2,177 2,719
-------- --------
Total liabilities 38,046 39,645
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.001 par value: 50,000,000 shares authorized;
issued 14,184,685 shares -December 31, 1998;
13,973,457 shares - December 31, 1997 14 14
Additional paid-in capital 74,719 73,622
Accumulated other comprehensive income 232 240
Accumulated deficit (17,662) (22,187)
Treasury stock, at cost (49,207 shares - December 31, 1998) (252) -
-------- --------
Total stockholders' equity 57,051 51,689
-------- --------
Total liabilities and stockholders' equity $ 95,097 $ 91,334
======== ========
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
WALKER INTERACTIVE SYSTEM , INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
License $22,291 $16,478 $8,647
Maintenance 31,248 27,658 27,231
Consulting 47,874 27,273 26,956
------- ------- -------
Total revenues 101,413 71,409 62,834
OPERATING EXPENSES:
Costs of revenues:
Costs of licenses, maintenance and consulting 41,944 28,856 25,070
Amortization of capitalized software 4,963 4,479 3,662
Sales and marketing 22,973 16,929 12,900
Product development 12,870 10,762 11,370
General and administrative 12,439 8,511 9,032
Write-off of purchased in-process
Research and development - 4,600 2,784
Distributor termination charge - 1,291 -
------- ------- -------
Total operating expenses 95,189 75,428 64,818
Operating income (loss) 6,224 (4,019) (1,984)
Interest income, net 1,042 1,840 2,070
------- ------- -------
Income (loss) before income taxes 7,266 (2,179) 86
Income tax expense (benefit) 2,741 1,298 202
------- ------- -------
NET INCOME (LOSS) $4,525 ($3,477) ($116)
======= ======= =======
BASIC NET INCOME (LOSS) PER SHARE $0.32 ($0.26) ($0.01)
======= ======= =======
Shares utilized to compute basic net income (loss) per share 14,012 13,291 13,223
======= ======= =======
DILUTED NET INCOME (LOSS) PER SHARE $0.31 ($0.26) ($0.01)
======= ======= =======
Shares utilized to compute diluted net income (loss) per share 14,688 13,291 13,223
======= ======= =======
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK TREASURY STOCK PAID-IN COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME
-------------- ----------- -------------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 13,120,105 $13 (55,143) ($383) $67,532 $166
Common stock issued under
stock option and employee
stock purchase plans 374,382 - 99,949 875 2,017
Treasury stock acquired (442,000) (5,245)
Tax benefit from exercise
of stock options 459
Currency translation
adjustment 130
Unrealized loss on
investments (82)
Net loss
-------------- ----------- -------------- ------------ ----------------- ------------------
BALANCE AT DECEMBER 31, 1996 13,494,487 13 (397,194) (4,753) 70,008 214
Common stock issued under
stock option and employee
stock purchase plans 300,442 1 86,700 993 1,335
Common stock issued for
Revere acquisition 178,528 455,494 5,748 1,979
Treasury stock acquired (145,000) (1,988)
Tax benefit from exercise
of stock options 300
Currency translation
adjustment (15)
Unrealized loss on
investments 41
Net loss
-------------- ----------- -------------- ------------ ----------------- ------------------
BALANCE AT DECEMBER 31, 1997 13,973,457 14 - - 73,622 240
Common stock issued under
stock
option and employee stock
purchase plans 211,594 160,703 2,165 626
Treasury stock acquired (200,000) (2,417) -
Tax benefit from exercise
of stock options 475
Currency translation
adjustment (21)
Unrealized loss on
investments 13
Other (366) (9,910) (4)
Net income
============== =========== ============== ============ ================= ==================
BALANCE AT DECEMBER 31, 1998 14,184,685 $14 (49,207) ($252) $74,719 $232
============== =========== ============== ============ ================= ==================
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------------ ------------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1996 ($18,594) $48,734
Common stock issued under
stock option and employee
stock purchase plans 2,892
Treasury stock acquired (5,245)
Tax benefit from exercise
of stock options 459
Currency translation
adjustment 130
Unrealized loss on
investments (82)
Net loss (116) (116)
------------------ ------------------
BALANCE AT DECEMBER 31, 1996 (18,710) 46,772
Common stock issued under
stock option and employee
stock purchase plans 2,329
Common stock issued for
Revere acquisition 7,727
Treasury stock acquired (1,988)
Tax benefit from exercise
of stock options 300
Currency translation
adjustment (15)
Unrealized loss on
investments 41
Net loss (3,477) (3,477)
------------------ ------------------
BALANCE AT DECEMBER 31, 1997 (22,187) 51,689
Common stock issued under
stock
option and employee stock
purchase plans 2,791
Treasury stock acquired (2,417)
Tax benefit from exercise
of stock options 475
Currency translation
adjustment (21)
Unrealized loss on
investments 13
Other (4)
Net income 4,525 4,525
================== ==================
BALANCE AT DECEMBER 31, 1998 ($17,662) $57,051
================== ==================
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,525 ($ 3,477) ($ 116)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 8,446 6,922 6,851
Tax benefit of nonqualified stock options 475 300 459
Gain on property retirements and fixed assets write-downs -- -- (11)
Write-off of purchased in-process research and development -- 4,600 2,784
Changes in operating assets and liabilities:
Accounts receivable, net (7,349) (8,566) (1,716)
Prepaids and other assets (346) (691) 231
Accounts payable (523) 2,129 (1,390)
Accrued liabilities 336 (2,236) 1,271
Deferred tax asset, net 1,131 557 (879)
Deferred revenue (327) (1,206) 467
Other (443) 275 (88)
-------- --------- ---------
Net cash provided (used) by operations 5,925 (1,393) 7,863
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan
issuances and stock options exercised 2,787 2,329 2,892
Treasury stock acquired (2,417) (1,988) (5,245)
Capital lease and loan payments (74) (2) (236)
Repayment of borrowings (1,422) -- --
-------- --------- ---------
Net cash provided (used) by financing activities (1,126) 339 (2,589)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short- and long-term investments (4,449) (29,444) (36,984)
Maturities of short-term investments 10,950 12,916 7,400
Sales of short-term investments 6,506 21,125 21,713
Purchases of property (2,533) (2,192) (2,105)
Additions to capitalized software (7,391) (7,497) (5,201)
Acquisition of Hunt Systems Group, Inc. -- -- (2,034)
Cash acquired from Revere, Inc -- 222 --
Other 28 95 --
-------- --------- ---------
Net cash provided (used) by investing activities 3,111 (4,775) (17,211)
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,910 (5,829) (11,937)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 7,646 13,475 25,412
-------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 15,556 $ 7,646 $ 13,475
======== ======== ========
- -------------------------------------------------------------------------------------------------------
Supplemental Disclosure:
Cash paid for income taxes $ 299 $ 102 $ 5
Non-cash
activities:
Common stock issued for business acquisition $ -- $ 7,727 $ --
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
DESCRIPTION OF THE COMPANY. 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. 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 companies and similarly sized business
and governmental organizations worldwide. The Company's Aptos products
are marketed primarily in Europe 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, Europe
and Asia Pacific. The Company licenses software products directly to
customers and occasionally to distributors for resale.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Walker Interactive Systems, Inc. and its wholly
owned subsidiaries. All intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual amounts could differ
from those estimates.
Significant estimates used in the consolidated financial statements
include the estimates of (i) collectability of accounts receivable,
(ii) anticipated future gross revenues from the products for which
development costs have been capitalized, (iii) expense accruals
associated with the termination of exclusive distributor agreements,
office consolidations and sales and use taxes, (iv) the life of
identifiable intangible assets from acquisitions and (v) realizability
of deferred tax assets. The amounts that the Company will ultimately
incur or recover could differ materially from the Company's current
estimates. The underlying estimates and facts supporting these
estimates could change in 1999 and thereafter.
CAPITALIZED SOFTWARE. Capitalized software includes certain costs of
purchased and internally developed software, and are stated at the
lower of cost or net realizable value. Capitalization of internally
developed software begins upon the establishment of technological
feasibility. Amortization of capitalized development costs begins when
the products are available for general release to customers, and is
computed as the greater of (i) the ratio of current gross revenues for
a product to the total of current and anticipated future gross revenues
for the product, or (ii) the straight-line method over the remaining
estimated economic life of the product (not exceeding five years). It
is possible that these estimates of anticipated future gross revenues,
the remaining estimated economic life of the products, or both, could
be reduced significantly due to either competitive factors or the rate
of technological change.
PROPERTY AND EQUIPMENT. Property and equipment is stated at cost.
Depreciation is computed primarily utilizing the straight-line method
over the estimated useful lives which range from three to ten years.
Leasehold improvements are amortized utilizing the straight-line method
over the lesser of the estimated useful lives or remaining lease terms.
REVENUE RECOGNITION. Software license revenues are recognized when
software revenue recognition criteria pursuant to Statement of Position
97-2 "Software Revenue Recognition" have been met. The portion of
revenues from new license agreements which relate to the Company's
obligations to provide customer support are deferred and recognized
ratably over the contract support period, which is generally three to
twelve months. Software maintenance contracts are usually renewable on
an annual basis,
27
<PAGE>
although the Company may negotiate long-term contracts. Revenues from
maintenance contract renewals are deferred and recognized ratably over
the terms of the agreements. Revenues from consulting and other
services are recognized as the related services are provided or as the
milestones are completed.
CONCENTRATION OF CREDIT RISK. The Company's investment portfolio is
diversified and consists of short- and long-term investment grade
securities. The Company's accounts receivable are derived from sales to
customers located in the United States, Europe and Asia Pacific. The
Company performs ongoing credit evaluations of its customers' financial
condition and maintains reserves for potential credit losses.
TRANSLATION OF FOREIGN CURRENCIES. The U.S. dollar is the functional
currency for the Company's international operations. Gains and losses
from translation of foreign subsidiaries' financial statements are
reported as a separate component of stockholders' equity. Net gains and
losses from foreign currency transactions are included in the
determination of net income (loss).
EARNINGS PER SHARE. Basic EPS is computed by dividing net income (loss)
by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur
from common shares issuable through stock options, warrants and other
convertible securities.
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which defines derivatives, requires that all derivatives
be carried at fair value and provides for hedge accounting when certain
conditions are met. SFAS No. 133 is effective for the Company in fiscal
2000. Although the Company has not fully assessed the implications of
SFAS No. 133, the Company does not believe that adoption of this
statement will have a material impact on the Company's financial
position or results of operations.
The American Institute of Certified Public Accountants issued Statement
of Position ("SOP") 98-1, "Accounting For the Costs of Computer
Software Developed or Obtained For Internal Use," on March 4, 1998. SOP
98-1 provides guidelines for accounting for costs of computer software
developed for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The
adoption of SOP 98-1 is not expected to materially impact the Company's
results of operations or financial position.
SOFTWARE REVENUE RECOGNITION. The American Institute of Certified
Public Accountants issued Statement of Position 97-2, "Software Revenue
Recognition", SOP 98-4 "Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition" and SOP 98-9 "Modification
of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions". SOP 97-2, which was issued in October 1997, supersedes
SOP 91-1 and was effective for transactions entered into for fiscal
years beginning after December 15, 1997. SOP 98-4, which was issued
March 1998, deferred certain passages of 97-2 while SOP 98-9 extends
the deferral of certain passages through fiscal years beginning on or
before March 15, 1999. The Company believes its current revenue
recognition policies and practices are consistent with these standards.
STOCK-BASED COMPENSATION. The Company accounts for stock-based awards
to employees using the intrinsic value of method in accordance with APB
No. 25, "Accounting for Stock Issued to Employees." Accordingly, no
compensation cost has been recognized for its fixed cost stock option
plans or its associated stock purchase plan. The Company provides
additional pro forma disclosures as required under Statement of
Financial Accounting Standards No.123, "Accounting for Stock Based
Compensation" ("SFAS 123").
RECLASSIFICATIONS. Certain reclassifications have been made to prior
years' amounts in order to conform to the 1998 consolidated financial
statement presentation.
28
<PAGE>
2. COMPREHENSIVE INCOME
--------------------
The Company adopted Statement of Financial Accounting Standard (SFAS)
No. 130, "Reporting Comprehensive Income" for the year ended December
31, 1998. SFAS No. 130 requires disclosure of total non-stockholder
changes in equity, which include unrealized gains and losses on
securities classified as available-for-sale under SFAS No. 115, foreign
currency translation adjustments accounted for under SFAS No. 52, and
minimum pension liability adjustments made pursuant to SFAS No. 87.
The reconciliation of net income (loss) to comprehensive income (loss)
for the years ended December 31, 1998, 1997 and 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net income (loss) 4,525 (3,477) (116)
Other comprehensive income (loss) (8) 26 48
---------------- ---------------- ----------------
Total comprehensive income (loss) 4,517 (3,451) (68)
================ ================ ================
</TABLE>
3. ACQUISITIONS
------------
On December 2, 1997, the Company acquired all the outstanding share
capital of Revere, Inc. ("Revere") in exchange for $7,727,000 of the
Company's common stock (634,022 shares) and $587,000 for various
transaction related costs and fees. Associated with the transaction's
closing total purchase price of $8,314,000, the Company allocated
$4,091,000 to goodwill, $4,600,000 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, from the date of acquisition, are included in the
1997 consolidated statement of operations.
The following unaudited pro forma information has been presented as if
the Revere acquisition had occurred on January 1, 1996 (in thousands,
except per share amounts). The unaudited pro forma information is based
on historical results of operations adjusted for acquisition costs and,
in the opinion of management, is not necessarily indicative of what
results would have been if the Company had acquired Revere, Inc. on
January 1, 1996.
<TABLE>
<CAPTION>
(in thousands, except per share amounts) YEAR ENDED DECEMBER 31,
1997 1996
------- -------
<S> <C> <C>
Total revenues $79,869 $73,244
Net loss (6,517) (4,967)
Basic and diluted net loss per share (0.47) (0.36)
Shares utilized to compute basic and
diluted net loss per share 13,925 13,860
</TABLE>
On May 17, 1996, the Company acquired the business and net assets of
Hunt Systems Group, Inc. ("Hunt") for a total acquisition price of
$3,759,000 comprised of a $2,109,000 cash payment, $1,550,000 payable
based on achievement of certain performance targets during the four
year period following closing and $100,000 in transaction costs.
Additional amounts will be paid if further performance targets are
reached during the same four year period. The acquisition was accounted
for as a purchase transaction. Of the purchase price, $190,000 was
allocated to identifiable net tangible assets, $785,000 was allocated
to capitalized software and $2,784,000 was allocated to in-process
research and development. The amount of the purchase price allocated to
in-process research and development was charged to the Company's
operations in 1996, because technological feasibility had not been
established and no alternative future uses existed at the acquisition
date.
29
<PAGE>
4. CASH AND CASH EQUIVALENTS AND SHORT- AND LONG-TERM INVESTMENTS
--------------------------------------------------------------
All liquid investments with original maturities of three months or less
are considered cash and cash equivalents. Cash equivalents are stated
at cost, which approximates fair value. The Company classifies those
investments which mature in less than one year as short-term
investments. The long-term marketable securities held at December 31,
1998 have contractual maturities of three years of less. The Company's
short- and long-term investments are classified as available-for-sale
and reported at fair value. Net unrealized gains and losses are
excluded from earnings and reported net of income taxes as accumulated
other comprehensive income in stockholders' equity. Realized gains and
losses are computed based on the amortized cost of each security. There
were no material gross realized gains or losses from the sales of
investments during 1998 or 1997.
30
<PAGE>
Short- and long-term investments available-for-sale are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
December 31, 1998 Costs Gains Losses Fair Value
--------------------------------------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Corporate debt $7,026 $17 ($2) $ 7,041
Long-term investments 1,895 12 (1) 1,906
----------- ------------ ------------ ------------
Short-term investments $5,131 $ 5 ($ 1) $ 5,135
=========== ============ ============ ============
Gross Gross
Amortized Unrealized Unrealized
December 31, 1997 Costs Gains Losses Fair Value
--------------------------------------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government securities $1,490 $ 2 ($1) $ 1,491
Corporate debt 18,552 9 (8) 18,553
----------- ------------ ------------ ------------
Total investments 20,042 11 (9) 20,044
Long-term investments 6,346 7 (2) 6,351
----------- ------------ ------------ ------------
Short-term investments $13,696 $ 4 ($7) $ 13,693
=========== ============ ============ ============
</TABLE>
5. PROPERTY AND EQUIPMENT
----------------------
Property and equipment at December 31, 1998 and 1997 includes the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------- ----------
<S> <C> <C>
Equipment $ 20,032 $ 17,966
Furniture and fixtures 2,580 2,519
Leasehold improvements 1,787 1,707
--------- ----------
Property under capital leases:
Equipment 2,189 1,638
Furniture 1,760 1,760
--------- ----------
28,348 25,590
Less:
Accumulated depreciation (23,386) (20,991)
--------- ----------
Property and equipment, net $ 4,962 $ 4,599
========= =========
</TABLE>
Depreciation expense totaled $2,552,000, $2,444,000 and $2,992,000 for
1998, 1997 and 1996, respectively.
6. LIABILITIES
-----------
Deferred revenue (current) is primarily comprised of deferred software
maintenance of $13,470,000 and $13,477,000 at December 31, 1998 and
1997, respectively. Accrued liabilities includes sales and use tax
accruals of $686,000 and $1,218,000 at December 31, 1998 and 1997,
respectively. As a result of the Company's acquisition of Revere (see
Note 2), $1,500,000 related to an outstanding line of credit balance
(subsequently paid in January 1998) is included in the accrued
liabilities balance as of December 31, 1997.
31
<PAGE>
7. INCOME TAXES
------------
The Company's deferred tax balances at December 31, 1998 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Deferred revenue recognized for tax $ 225 $ 1,297
Excess book depreciation over tax depreciation 784 1,055
Accrued liabilities and reserves 2,606 2,998
Research and development credits 3,290 3,752
Alternative minimum tax credits carryforward 488 475
Net operating loss carryforward 4,775 4,411
Foreign tax credits carryforward 3,176 2,349
Foreign losses 3,588 3,509
Other 304 540
-------- --------
19,236 20,386
Valuation Allowance (2,844) (2,844)
-------- --------
Total $ 16,392 $ 17,542
======== ========
Deferred Tax Liabilities:
Capitalized software development
costs expensed for tax purposes (3,891) (3,910)
-------- --------
Deferred Tax Assets - net $ 12,501 $ 13,632
======== ========
</TABLE>
At December 31, 1998 and 1997, the Company's valuation allowance balance
was $2,844,000, consisting of tax credits expected to expire unused and
foreign losses from which the Company does not expect to derive any
benefit. As of December 31, 1998, the Company's deferred tax assets
included approximately $13,899,000 of items which will expire with the
passage of time. Realization is dependent on generating sufficient taxable
income prior to the expiration of such benefits. Although realization is
not assured, management believes it is more likely than not that the
deferred tax assets, net of the valuation allowance, will be realized. The
deferred tax assets considered realizable could be reduced if estimates of
future taxable income during the carry-forward periods are reduced.
At December 31, 1998, the Company has federal net operating loss
carryforwards of approximately $13,361,000 which expire in varying amounts
from 2007 through 2012, federal research tax credits of $1,819,000 which
expire in varying amounts from 1999 through 2018, California state research
tax credits of $2,139,000 and alternative minimum tax credits of $493,000
which have no expiration date and foreign tax credits of $3,176,000 which
expire in varying amounts from 1999 through 2003.
32
<PAGE>
Income tax expense (benefit) consists of (in thousands):
<TABLE>
<CAPTION>
1998: Current Deferred Total
--------- ---------- --------
<S> <C> <C> <C>
Federal ($92) $1,048 $956
State 137 274 411
Foreign 1,565 (191) 1,374
--------- ---------- --------
Total $1,610 $1,131 $2,741
========= ========== ========
1997: Current Deferred Total
--------- ---------- --------
Federal $- $1,242 $1,242
State 46 (247) (201)
Foreign 451 (194) 257
--------- ---------- --------
Total $497 $801 $1,298
========= ========== ========
1996: Current Deferred Total
--------- ---------- --------
Federal $501 ($357) $144
State 45 (354) (309)
Foreign 535 (168) 367
--------- ---------- --------
Total $1,081 ($879) $202
========= ========== ========
</TABLE>
The effective income tax rate differs from the amount computed by applying
the federal statutory income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
1998 % 1997 % 1996 %
---------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) at statutory rate -
Federal $2,471 34% ($742) (34%) $28 34%
State income and capital taxes 358 5% 97 4% 4%
3
Provision at statutory rates of controlled
foreign subsidiaries (35) 1% 166 7% 167 200%
Tax-exempt interest - - - - (77) (92%)
Goodwill 232 3% - - - -
Federal research and development credit,
net of expired credits (164) (2%) (217) (10%) (255) (306%)
Write-off of purchased in-process research
and development - - 1,564 72% - -
Decrease in tax credits resulting from the
true-up of assessments and changes in
tax accounting methods 859 12% 493 22% - -
Valuation allowance - - - - 557 668%
Increase in net operating losess resulting
from the true-up of assessments (828) (11%) - - - -
Foreign losses not benefited - - (442) (20%) (510) (611%)
Decrease in tax credits carried back as - -
net operating losses 441 20% - -
Other, net (152) (2%) (62) (2%) 289 346%
---------- -------- -------- -------- -------- -------
Total income tax expense $2,741 38% $1,298 59% $202 243%
========== ======== ======== ======== ======== =======
</TABLE>
33
<PAGE>
8. STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS
---------------------------------------------
401(k) Plan
-----------
The Company has a 401(k) tax-deferred savings plan covering all of its
employees. Company matching contributions, which are not required by the
plan, totaled $1,480,000, $1,159,000 and $1,077,000 in 1998, 1997 and 1996,
respectively.
Stock Based Compensation Plans
At December 31, 1998, the Company had stock-based compensation plans, which
are detailed below. Under SFAS No. 123, the fair value based accounting
method would have affected the Company's net income (loss), diluted net
income (loss) per share on a pro forma basis (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported $4,525 ($3,477) ($116)
Pro forma 785 (5,763) (1,579)
Diluted net income (loss) per share:
As reported $0.31 ($0.26) ($0.01)
Pro forma 0.05 (0.43) (0.12)
</TABLE>
Stock Option Plans
Under the Company's statutory employee stock option plans, shares of common
stock have been made available for grant to certain employees. The exercise
price of each option granted is 100 percent of fair market value on the
date of the grant. Options granted under the plans generally vest over a
period of four years and generally expire ten years from the date of grant.
Options may be granted at prices not less than 85 percent of fair market
value at the date of grant. To date, all options have been granted at fair
market value at the date of grant. At December 31, 1998, 734,000 shares of
common stock were available for future option grants.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Dividend yield 0.0% 0.0% 0.0%
Volatility 65.3% 45.1% 46.8%
Risk free interest rate 4.6% 5.7% 5.7%
Expected term, in years 4.4 4.4 4.3
</TABLE>
The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $5.25, $6.02 and $5.25, respectively.
34
<PAGE>
<TABLE>
<CAPTION>
A summary of the Company's stock option activity follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1996
------------------------- ----------------------- ----------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Options price Options price Options price
------------ ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of period 2,901,977 $9.78 2,590,093 $8.00 2,464,814 $6.98
Granted 2,716,000 9.63 790,500 13.71 785,250 11.66
Exercised (210,344) 7.29 (305,179) 4.95 (342,628) 6.07
Canceled or expired (1,581,178) 13.65 (173,437) 9.54 (317,343) 11.22
------------ ---------- ----------
Outstanding-end of period 3,826,455 $8.22 2,901,977 $9.78 2,590,093 $8.00
============ ========== ==========
Exercisable-end of period 1,249,705 1,013,977 802,110
============ ========== ==========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Range of exercise Outstanding at contractual exercise Exercisable at exercise
price 12/31/98 life price 12/31/98 price
- ----------------- ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$0.35 to $5.38 638,713 6.5 $5.11 418,213 $5.09
5.81 to 7.38 1,729,567 8.0 6.97 304,692 6.94
7.50 to 11.13 904,925 7.6 9.36 302,550 9.40
11.63 to 13.75 406,250 7.9 13.36 200,750 13.37
13.94 to 16.00 147,000 8.8 15.05 23,500 14.10
----------- -----------
3,826,455 7.7 $8.21 1,249,705 $8.08
=========== ===========
</TABLE>
Stock Purchase Plan
The Company has an Employee Stock Purchase Plan, which provides for the sale of
up to 950,000 shares to eligible employees by means of payroll deductions.
Employees may designate up to 10 percent of their earnings, as defined, to
purchase shares at prices not less than 85 percent of fair market value. From
inception through December 31, 1998, 761,703 shares had been purchased at prices
ranging from $4.89 to $12.75 per share.
The fair value of the employee's purchase rights was estimated using the Black-
Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------- --------- ------
<S> <C> <C> <C>
Dividend yield 0.0% 0.0% 0.0%
Volatility 65.3% 45.1% 46.8%
Risk free interest rate 4.5% 5.4% 5.7%
Expected term, in years 0.5 0.7 0.7
</TABLE>
The weighted average fair value for shares purchased through the Company's
Employee Stock Purchase Plan during 1998, 1997 and 1996 was $4.70, $3.97 and
$2.11, respectively.
35
<PAGE>
9. SIGNIFICANT CHARGES
In 1997, the Company terminated an exclusive distributorship agreement
in South Africa which resulted in a charge of $1,291,000. The Company
does not expect further charges or obligations associated with the
termination of this agreement.
10. COMMITMENTS AND CONTINGENCIES
The Company has operating leases for office space with varying
expiration dates through 2016, and for computer equipment with varying
expiration dates through 2003. The leases generally provide for minimum
annual rentals and payment of taxes, insurance and maintenance costs.
Rental expense for operating leases was $5,340,000, $4,694,000 and
$4,009,000 in 1998, 1997 and 1996, respectively.
At December 31, 1998, the Company had office space which was considered
excess capacity. The difference between the Company's total lease
commitments for its excess capacity and the total expected sublease
income is $749,000 and is included in short- and long-term accrued
liabilities.
Future minimum lease payments under noncancelable operating leases are
as follows (in thousands):
1999 $4,861
2000 4,687
2001 3,795
2002 3,283
2003 3,139
Thereafter 15,581
-------
Total $35,346
=======
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 1, 1999.
The Company has never borrowed against this line of credit.
In connection with the acquisition of Revere, Inc., the Company assumed
a line of credit with an outstanding balance of $1.5 million. The
outstanding balance on the assumed line of credit was subsequently paid
in full in January, 1998.
The Company is not party to any legal proceedings other than ordinary
routine litigation incidental to the Company's business. The Company
believes that the ultimate resolution of these matters will not have a
material adverse effect on the Company's consolidated financial
statements taken as a whole.
36
<PAGE>
11. GEOGRAPHIC OPERATIONS
For the purposes of conforming with Generally Accepted Accounting
Principles, all the Company's products and services are considered part
of single industry segment. The Company primarily operates in three
geographic areas, North America, Europe and Asia Pacific. Corporate
assets consist of cash and cash equivalents, short- and long-term
investments, capitalized software and deferred tax assets.
Geographical area data are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
Revenues: 1998 1997 1996
------------------- --------- ------- -------
<S> <C> <C> <C>
North America $71,654 $48,993 $44,811
Europe 26,357 18,923 14,151
Asia Pacific 3,402 3,493 3,872
-------- ------- -------
Total revenues $101,413 $71,409 $62,834
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
Operating income (loss): 1998 1997 1996
------------------------ --------- ------- -------
<S> <C> <C> <C>
North America $1,517 ($129) ($920)
Europe 5,163 2,538 1,612
Asia Pacific (456) (537) 108
Unusual charges (1) - (5,891) (2,784)
------ ------- -------
Total operating income (loss) $6,224 ($4,019) ($1,984)
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
Identifiable assets at: 1998 1997 1996
------------------------ --------- ------- -------
<S> <C> <C> <C>
North America $23,156 $19,707 $8,655
Europe 12,477 7,146 6,672
Asia Pacific 2,604 2,973 2,837
Corporate 56,860 61,508 64,155
------- ------- -------
Total assets $95,097 $91,334 $82,319
======= ======= =======
</TABLE>
(1) Unusual charges consists of $4,600,000 and $2,784,000 for the
write-off of purchased in-process research and development for
the years ended December 31, 1997 and 1996, respectively, and
$1,291,000 for the termination of a distributor agreement for
the year ended December 31, 1997.
12. TREASURY STOCK ACQUISITIONS
Since 1995, the Board of Directors authorized the Company to spend up
to $17.5 million for the repurchase of the Company's outstanding common
stock. As of December 31, 1998, the Company had acquired 837,000 shares
of its common stock at a cost of $10.0 million. As of December 31,
1998, the Company had reissued 803,000 of the repurchased shares in
connection with the Company's employee stock purchase plan, one of its
employee stock option plans and the purchase acquisition of Revere,
Inc.
37
<PAGE>
13. 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. Diluted EPS for 1997 and 1996 excludes any effect of such
instruments because their inclusion would be antidilutive.
The following is a summary of the calculation of the number of shares
used in calculating basic and diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
Shares used to compute basic EPS 14,012 13,291 13,223
Add: effect of dilutive securities 676 - -
--------------- --------------- ----------------
Shares used to compute diluted EPS 14,688 13,291 13,223
=============== =============== ================
</TABLE>
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement in connection with its 1999 Annual Meeting of
Stockholders under the captions "Proposal 1 - Election of Directors,"
"Additional Information - Management" and "Additional Information - Section
16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement in connection with its 1999 Annual Meeting of
Stockholders under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement in connection with its 1999 Annual Meeting of
Stockholders under the caption "Security Ownership of Certain Beneficial Owners
and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement in connection with its 1999 Annual Meeting of
Stockholders under the caption "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
<TABLE>
<CAPTION>
1. Consolidated Financial Statements Page
----
<S> <C>
Independent Auditors' Report.................................................... 22
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997...... 23
Consolidated Statements of Operations for the years ended December 31, 1998,
1997 and 1996............................................................... 24
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1998, 1997 and 1996......................................................... 25
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996............................................................... 26
Notes to Consolidated Financial Statements...................................... 27
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
2. Consolidated Financial Statement Schedule Page
----
<S> <C>
Schedule II - Valuation and Qualifying Accounts..................... 44
</TABLE>
All other financial statement schedules not listed above are
omitted as the required information is not applicable or the
information is presented in the consolidated financial statements
or related notes.
3 Exhibits
The following exhibits are filed herewith or incorporated by
reference:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of
October 29, 1997, among the Registrant, Copper
Acquisition Sub, and Revere, Inc.(6)
3.1 The Company's Amended and Restated Certificate of
Incorporation.(2)
3.2 Bylaws of Registrant.(9)
10.1 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.(3)
10.2 1992 Employee Stock Purchase Plan, as amended to
date.(9)
10.3 1989 Employee Stock Option Plan and related forms of
Incentive Stock Option Grant and Supplemental Stock
Option Grant.(3),(9)
10.4 1986 Employee Stock Purchase Plan and related form of
Employee Stock Purchase Agreement.(3)
10.5 Purchase and Sale Agreement between Registrant and
Global Software, Inc., dated as of August 31, 1990.(3)
10.6 Lease between Registrant and Marathon U. S. Realties,
Inc., dated October 20, 1988 and Amendment No. 1, dated
as of October 31, 1990.(3)
10.7 Lease between Registrant and Chicago Title and Trust
Company, dated as of December 3, 1990.(3)
10.8 Agreement for Lease between Registrant, Walker
Interactive Products International and Alton House
Limited, dated as of March 18, 1991.(3)
10.9 1993 Non-Employee Directors' Stock Option Plan, as
amended to date. (electronic filing only)
10.10 1994 Equity Incentive Plan, as amended to date.
(electronic filing only)
10.11 Agreement for the Sale and Purchase of The Solutions
Group Limited by and among Walker Interactive Products
International, and Adrian J. Dixon and Nigel G. Heath,
dated as of June 30, 1995.(1)
10.12 Form of Executive Employment Agreement entered into
between Registrant and certain of its officers.(5)
10.13 1995 Executive Employment Agreement between the
Registrant and Leonard Y. Liu, as amended to
date.(4),(7)
10.14 1995 Non-Statutory Stock Option Plan for Non-Officer
Employees, as amended to date. (electronic filing only)
</TABLE>
40
<PAGE>
10.15 Lease between Registrant and Equitable Assurance
Society of the United States, dated November 25,
1997.(10)
10.16 1998 Executive Employment Agreement between the
Registrant and Thomas W. Hubbs.(8)
10.17 Form of Executive Severance Benefits Agreement entered
into between the Registrant and certain of its
employees.(7)
21.1 Subsidiaries.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney. Reference is made to the signature
page.
27.1 Financial Data Schedule for fiscal year ended December
31, 1998 (electronic filing only)
List of Management Contracts and Compensatory Plans:
1992 Employee Stock Purchase Plan, as amended to date.(9)
1989 Employee Stock Option Plan and related form of
Incentive Stock Option Grant and Supplemental
Stock Option Grant.(3),(9)
1986 Employee Stock Purchase Plan and related form of
Employee Stock Purchase Agreement.(3)
1993 Non-Employee Directors' Stock Option Plan, as
amended to date.
1994 Equity Incentive Plan, as amended to date.
1995 Non-Statutory Stock Option Plan for Non-Officer
Employees, as amended to date.
Form of Indemnity Agreement entered into between Registrant
and its directors and officers.(3)
Form of Executive Employment Agreement entered into between
Registrant and certain of its officers.(5)
1995 Executive Employment Agreement between the Registrant
and Leonard Y. Liu, as amended to date.(4),(7)
1998 Executive Employment Agreement between the Registrant
and Thomas W. Hubbs.(8)
Form of Executive Severance Benefits Agreement entered into
between the Registrant and certain of its
employees.(7)
(b) Reports on Form 8-K
During the quarter ended December 31, 1998, the Company did not file any reports
on Form 8-K.
___________________
(1) Incorporated by reference to the corresponding exhibit to the Current
Report on Form 8-K, filed July 13, 1995. (2) Incorporated by reference to
the corresponding exhibit to the Annual Report on Form 10-K for the year
ending December 31, 1992.
(3) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-1, as amended (Registration No. 33-45737).
(4) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarter ending September 30,1995.
41
<PAGE>
(5) Incorporated by reference to the corresponding exhibit to the Annual Report
on Form 10-K for the year ending December 31, 1995.
(6) Incorporated by reference to the corresponding exhibit to the Current
Report on Form 8-K, filed December 11, 1997.
(7) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarter ending September 30, 1998.
(8) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarter ending June 30, 1998.
(9) Incorporated by reference to the attachment of the Company's 1998 Proxy
Statement.
(10) Incorporated by reference to the corresponding exhibit to the Annual Report
on Form 10-K for the year ending December 31, 1997.
42
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-K
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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: March 29, 1999 By: /s/ LEONARD Y. LIU
---------------------------------------
Leonard Y. Liu
Chairman of the Board of Directors,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Leonard Y. Liu and Barbara M. Hubbard, and each
or any one of them, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
to this Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisiste and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or his or
her substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ LEONARD Y. LIU Chairman of the Board of Directors. March 29, 1999
- ---------------------- President and Chief Executive Officer
Leonard Y. Liu (Principal Executive Officer)
/s/ BARBARA M. HUBBARD Vice President, Finance and Assistant Secretary March 29, 1999
- ------------------------- (Principal Financial and Accounting Officer)
Barbara M. Hubbard
/s/ RICHARD C. ALBERDING Director March 29, 1999
- ----------------------------
Richard C. Alberding
/s/ TANIA AMOCHAEV Director March 29, 1999
- ----------------------
Tania Amochaev
/s/ WILLIAM A. HASLER Director March 29, 1999
- -------------------------
William A. Hasler
/s/ JOHN M. LILLIE Director March 29, 1999
- ----------------------
John M. Lillie
/s/ DAVID C. WETMORE Director March 29, 1999
- ------------------------
David C. Wetmore
</TABLE>
43
<PAGE>
SCHEDULE II
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-K
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and Amounts End of
Allowance for Doubtful Accounts: of Period Expenses Written-Off Other (1) Period
- ----------------------------------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998 $1,376 $ 506 $ 504 $ - $1,378
Year Ended December 31, 1997 1,584 823 1,381 350 1,376
Year Ended December 31, 1996 1,290 1,076 782 - 1,584
</TABLE>
(1) Related to the Company's acquisition of Revere.
44
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-K
INDEX TO EXHIBITS
Exhibit
Number Description of Document
------ -----------------------
2.1 Agreement and Plan of Reorganization dated as of October 29,
1997, among the Registrant, Copper Acquisition Sub, and
Revere, Inc.(6)
3.1 The Company's Amended and Restated Certificate of
Incorporation.(2)
3.2 Bylaws of Registrant.(9)
10.1 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.(3)
10.2 1992 Employee Stock Purchase Plan, as amended to date.(9)
10.3 1989 Employee Stock Option Plan and related forms of
Incentive Stock Option Grant and Supplemental Stock Option
Grant.(3),(9)
10.4 1986 Employee Stock Purchase Plan and related form of
Employee Stock Purchase Agreement.(3)
10.5 Purchase and Sale Agreement between Registrant and Global
Software, Inc., dated as of August 31, 1990.(3)
10.6 Lease between Registrant and Marathon U. S. Realties, Inc.,
dated October 20, 1988 and Amendment No. 1, dated as of
October 31, 1990.(3)
10.7 Lease between Registrant and Chicago Title and Trust
Company, dated as of December 3, 1990.(3)
10.8 Agreement for Lease between Registrant, Walker Interactive
Products International and Alton House Limited, dated as of
March 18, 1991.(3)
10.9 1993 Non-Employee Directors' Stock Option Plan, as amended
to date. (electronic filing only)
10.10 1994 Equity Incentive Plan, as amended to date. (electronic
filing only)
10.11 Agreement for the Sale and Purchase of The Solutions
Group Limited by and among Walker Interactive Products
International, and Adrian J. Dixon and Nigel G. Heath,
dated as of June 30, 1995.(1)
10.12 Form of Executive Employment Agreement entered into between
Registrant and certain of its officers.(5)
10.13 1995 Executive Employment Agreement between the Registrant
and Leonard Y. Liu, as amended to date.(4),(7)
10.14 1995 Non-Statutory Stock Option Plan for Non-Officer
Employees, as amended to date. (electronic filing only)
10.15 Lease between Registrant and Equitable Assurance Society of
the United States, dated November 25, 1997.(10)
10.16 1998 Executive Employment Agreement between the Registrant
and Thomas W. Hubbs.(8)
10.17 Form of Executive Severance Benefits Agreement entered into
between the Registrant and certain of its employees.(7)
21.1 Subsidiaries.
45
<PAGE>
23.1 Independent Auditors' Consent.
24.1 Power of Attorney. Reference is made to the signature page.
27.1 Financial Data Schedule for fiscal year ended December 31,
1998 (electronic filing only)
List of Management Contracts and Compensatory Plans:
1992 Employee Stock Purchase Plan, as amended to date.(9)
1989 Employee Stock Option Plan and related form of
Incentive Stock Option Grant and Supplemental
Stock Option Grant.(3),(9)
1986 Employee Stock Purchase Plan and related form of
Employee Stock Purchase Agreement.(3)
1993 Non-Employee Directors' Stock Option Plan, as amended
to date.
1995 Non-Statutory Stock Option Plan for Non-Officer
Employees, as amended to date.
Form of Indemnity Agreement entered into between Registrant
and its directors and officers.(3)
Form of Executive Employment Agreement entered into between
Registrant and certain of its officers.(5)
1995 Executive Employment Agreement between the Registrant
and Leonard Y. Liu, as amended to date.(4),(7)
1998 Executive Employment Agreement between the Registrant
and Thomas W. Hubbs.(8)
Form of Executive Severance Benefits Agreement entered into
between the Registrant and certain of its
employees.(7)
_________________
(1) Incorporated by reference to the corresponding exhibit to the Current
Report on Form 8-K, filed July 13, 1995. (2) Incorporated by reference to
the corresponding exhibit to the Annual Report on Form 10-K for the year
ending December 31, 1992.
(3) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-1, as amended (Registration No. 33-45737).
(4) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarter ending September 30,1995.
(5) Incorporated by reference to the corresponding exhibit to the Annual Report
on Form 10-K for the year ending December 31, 1995.
(6) Incorporated by reference to the corresponding exhibit to the Current
Report on Form 8-K, filed December 11, 1997.
(7) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarter ending September 30, 1998.
(8) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarter ending June 30, 1998.
(9) Incorporated by reference to the attachment of the Company's 1998 Proxy
Statement.
(10) Incorporated by reference to the corresponding exhibit to the Annual Report
on Form 10-K for the year ending December 31, 1997.
46
<PAGE>
Exhibit 10.9
WALKER INTERACTIVE SYSTEMS, INC.
1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted on January 28, 1993
Approved by the Stockholders on April 23, 1993
Amended on March 3, 1995
Approved by the Stockholders on May 25, 1995
Amended on March 12, 1996
Approved by the Stockholders on May 9, 1996
Amended on December 14, 1998
1. PURPOSE.
(a) The purpose of the 1993 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Walker Interactive
Systems, Inc., a Delaware corporation (the "Company"), who is not otherwise an
employee of the Company or of any Affiliate of the Company (each such person
being hereafter referred to as a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c).
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate two hundred fifty thousand
(250,000) shares of the Company's common stock. If any option granted under the
Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
<PAGE>
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, after the date of the approval of the Plan by
the Board (the "Adoption Date"), elected for the first time to be a Non-Employee
Director of the Company shall, upon the date of his or her initial election to
be a Non-Employee Director by the Board or stockholders of the Company, be
automatically granted an option to purchase twelve thousand (12,000) shares of
common stock of the Company on the terms and conditions set forth herein;
provided however, that each person elected for the first time as a Non-Employee
Director of the Company after March 12, 1996 shall, upon the date of such
election, be automatically granted an option to purchase fifteen thousand
(15,000) shares of common stock of the Company.
(b) Each person who is, as of the Adoption Date, a Non-Employee
Director of the Company shall, on the Adoption Date, be automatically granted an
option to purchase three thousand (3,000) shares of common stock of the Company
on the terms and conditions set forth herein.
(c) After the Adoption Date, so long as any such person remains a
Non-Employee Director of the Company and the Plan remains in effect, each
Non-Employee Director shall, on January 2 of each calendar year, commencing
January 2, 1994, be automatically granted an option to purchase three thousand
(3,000) shares of common stock of the Company on the terms and conditions set
forth herein; provided however, that, effective January 2, 1997, each
Non-Employee Director of the Company shall be automatically granted an option to
purchase six thousand (6,000) shares of common stock of the Company.
Notwithstanding any of the foregoing, no grant of options pursuant to the
foregoing sentence shall be made on January 2, 1999, but in lieu thereof, on
December 15, 1998, each Non-Employee Director of the Company shall be
automatically granted an option to purchase six thousand (6,000) shares of
common stock of the Company.
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) No option shall be exercisable after the expiration of ten (10)
years from the date it was granted. In any and all circumstances, an option may
be exercised following termination of the optionee's service as a Non-Employee
Director of the Company only as to that number of shares as to which it was
vested (i.e. exercisable) on the date of termination of such service under the
provisions of subparagraph 6(e).
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either (1)
in cash at the time the option is exercised, or (2) provided that at the time of
the exercise the Company's common stock is publicly traded and quoted regularly
in the Wall Street Journal, payment by delivery of shares of common stock of the
Company already owned by the optionee, held for the period required to avoid any
charge to the Company's reported earnings that would not be incurred if the
exercise price was paid in cash, and owned free and clear of any liens, claims,
encumbrances or security interest, which common stock shall be valued at fair
market value on the date preceding the date of exercise, or (3) by a combination
of such methods of payment.
(d) An option shall not be transferable except by will or by the laws
of descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his or her
guardian or legal representative.
(e) An option granted pursuant to the Plan shall vest (i.e. become
exercisable) with respect to each optionee in four (4) equal quarterly
installments commencing on the date three months after the date of grant of the
option, provided that the optionee has, during the entire quarterly period to
such vesting date, continuously served as a Non-Employee Director of the
Company, whereupon such option shall become fully exercisable in accordance with
its terms with respect to that portion of the shares represented by that
installment. Notwithstanding the foregoing, an option granted after March 12,
1996 pursuant to Section 5(a) of the Plan shall vest with respect to each
optionee in three (3) equal annual installments commencing on the first
anniversary after the date of grant of the option, provided that the optionee
has, during the entire annual period prior to such vesting date, continuously
served as a Non-Employee Director
<PAGE>
of the Company where upon such option shall become fully exercisable in
accordance with its terms with respect to that portion of the shares
represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee Director with or without cause.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him or her, shall
have any right, title or interest in or to any option reserved for the purposes
of the Plan except as to such shares of common stock, if any, as shall have been
reserved for him or her pursuant to an option granted to him or her.
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or an affiliate of such Non-Employee Director, or to
evidence the removal of any restrictions on transfer, that such Non-Employee
Director make arrangements satisfactory to the Company to insure that the amount
of any federal or other withholding tax required to be withheld with respect to
such sale or transfer, or such removal or lapse, is made available to the
Company for timely payment of such tax.
<PAGE>
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation; (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (3) any other capital reorganization in which more than fifty
percent (50%) of the shares of the Company entitled to vote are exchanged, then
the time during which outstanding options may be exercised shall be accelerated
to permit the optionee to exercise all such options prior to such merger,
consolidation, reverse merger or reorganization, and the options terminated if
not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once every
six months, with respect to the provisions of the plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code, the Employee Retirement Income Security Act, or the rules thereunder.
Except as provided in paragraph 10 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for options under
the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to comply with the requirements of
Rule 16b-3 promulgated under the Exchange Act); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be altered or impaired by such amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
option was granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on January 28, 2003. No options may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
(c) The Plan shall terminated upon the occurrence of any of the
events described in paragraph 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
<PAGE>
Exhibit 10.10
WALKER INTERACTIVE SYSTEMS, INC.
1994 EQUITY INCENTIVE PLAN
ADOPTED FEBRUARY 17, 1994
AS AMENDED MAY 11, 1994
APPROVED BY THE STOCKHOLDERS MAY 23, 1994
AS AMENDED FEBRUARY 11, 1998
APPROVED BY THE STOCKHOLDERS MAY 21, 1998
AS AMENDED AUGUST 5, 1998 AND NOVEMBER 9, 1998
1. PURPOSES.
(a) The purpose of the 1994 Equity Incentive Plan (the "Plan") is to
provide a means by which employees of and consultants to the
Company, and its Affiliates, may be given an opportunity to
benefit from increases in value of the stock of the Company
through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights
to purchase restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to
the Company, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such
persons to exert maximum efforts for the success of the Company.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated
pursuant to subsection 3(c), be either (i) Options granted pursuant
to paragraph 6 hereof, including Incentive Stock Options and
Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to paragraph 7 hereof. All
Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and in such form as
issued pursuant to section 6, and a separate certificate or
certificates will be issued for shares purchased on exercise of each
type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means termination of an Employee's employment with the
Company for any of the following reasons as determined in good
faith by the Company:
(i) an intentional act which materially injures the Company;
(ii) an intentional refusal or failure to follow lawful and reasonable
directions of the Board or the individual to whom the Employee
reports;
(iii) a willful and habitual neglect of duties; or
<PAGE>
(iv) a conviction of a felony involving moral turpitude which is
reasonably likely to inflict or has inflicted material injury on
the Company.
(d) "Change in Control" means:
(i) a dissolution, liquidation or sale of substantially all of the assets
of the Company;
(ii) a merger or consolidation in which the Company is not the surviving
corporation; or
(iii) a reverse merger in which the Company is the surviving corporation
but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities,
cash or otherwise.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(g) "Company" means Walker Interactive Systems, Inc., a Delaware
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who
is compensated for such services, provided that the term
"Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(i) "Continuous Status as an Employee, Director or Consultant" means the
employment or relationship as a Director or Consultant is not
interrupted or terminated by the Company or any Affiliate. The Board,
in its sole discretion, may determine whether Continuous Status as an
Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal leave;
provided, however, that for purposes of Incentive Stock Options, any
such leave may not exceed ninety (90) days, unless reemployment upon
the expiration of such leave is guaranteed by contract (including
certain Company policies) or statute; or (ii) transfers between
locations of the Company or between the Company, Affiliates or its
successor.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither
service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the common
stock of the Company as determined as follows:
<PAGE>
(i) If the common stock is listed on any established stock exchange or a
national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, the Fair Market Value of a
share of common stock shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of
trading in common stock) on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the common stock is quoted on the Nasdaq System (but not on the
National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the
Fair Market Value of a share of common stock shall be the mean
between the bid and asked prices for the common stock on the last
market trading day prior to the day of determination, as reported in
the Wall Street Journal or such other source as the Board deems
reliable;
(iii) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(p) "Involuntary Termination Without Cause" means an Employee's dismissal
or discharge other than for Cause. The termination of an Employee's
employment as a result of the Employee's death or disability will not
be deemed to be an Involuntary Termination Without Cause.
(q) "Non-Employee Director" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent
or a subsidiary, does not receive compensation (directly or
indirectly) from the Company or its parent or a subsidiary for
services rendered as a consultant or in any capacity other than as a
Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to
the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required
under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item
404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(v) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
<PAGE>
(w) "Outside Director" means a Director who either (A) is not a
current employee of the Company or an affiliated corporation, is
not a former employee of the Company or an affiliated corporation
receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the
Company or an affiliated corporation at any time, and is not
currently receiving compensation for personal services in any
capacity other than as a Director, or (B) is otherwise considered
an "outside director" for purposes of Section 162(m) of the Code.
(x) "Plan" means this 1994 Equity Incentive Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(z) "Securities Act" means the Securities Act of 1933, as amended.
(aa) "Stock Award" means any right granted under the Plan, including
any Option, any stock bonus and any right to purchase restricted
stock.
(bb) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. The Stock Award Agreement is subject
to the terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a committee, including the
Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how Stock Awards
shall be granted; whether a Stock Award will be an Incentive Stock
Option, a Nonstatutory Stock Option, a stock bonus, a right to
purchase restricted stock, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award; and the
number of shares with respect to which Stock Awards shall be
granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in
any Stock Award Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests
of the Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"). All of
the members of such Committee may be Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the
Plan, the
<PAGE>
powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject,
however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board
may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section
3 to the contrary, the Board may delegate to a committee of one or
more members of the Board the authority to grant options to eligible
persons who are not then subject to Section 16 of the Exchange Act
and to eligible persons with respect to whom the Company does not
wish to comply with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate two million
(2,000,000) shares of the Company's common stock. If any Stock
Award shall for any reason expire or otherwise terminate without
having been exercised in full, the stock not purchased under such
Stock Award shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to
Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of its Affiliates unless
the exercise price of such Incentive Stock Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock
at the date of grant and the Incentive Stock Option is not
exercisable after the expiration of five (5) years from the date
of grant.
(c) No employee shall be eligible to be granted Options covering more
than five hundred thousand (500,000) shares of the Company's
common stock in any twelve (12) month period.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The provisions of separate Options need not be
identical, but each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option shall be not less
than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the
<PAGE>
option is exercised, or (ii) at the discretion of the Board or the
duly authorized Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other
common stock of the Company, or (B) in any other form of legal
consideration that may be acceptable to the Board.
(d) Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall
be exercisable during the lifetime of the person to whom the
Incentive Stock Option is granted only by such person. A Nonstatutory
Stock Option shall be transferable to the extent provided in the
Option Agreement. If the Option Agreement for the Nonstatutory Stock
Option does not provide for transferability, then the Nonstatutory
Stock Option shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the
lifetime of the person to whom the Nonstatutory Stock Option is
granted only by such person.
(e) Vesting. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may,
but need not, be equal). The Option Agreement may provide that from
time to time during each of such installment periods, the Option may
become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or
all of the shares allotted to such period and/or any prior period as
to which the Option became vested but was not fully exercised. During
the remainder of the term of the Option (if its term extends beyond
the end of the installment periods) the Option may be exercised from
time to time with respect to any shares then remaining subject to the
Option. The Option may be subject to such other terms and conditions
on the time or times when it may be exercised (which may be based on
performance criteria) as the Board may deem appropriate. The
provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an
Option may be exercised.
(f) Securities Law Compliance. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as
a condition of exercising any such Option, (1) to give written
assurances satisfactory to the Company as to the Optionee's knowledge
and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters,
and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the
Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to
the Option for such person's own account and not with any present
intention of selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the
exercise of the Option has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as
to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
(g) Termination of Employment or Relationship as a Director or
Consultant. In the event an Optionee's Continuous Status as an
Employee, Director or Consultant terminates (other than upon the
Optionee's death or Disability), the Optionee may exercise his or her
Option, but only within such period of time as is determined by the
Board, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option
Agreement). In the case of an Incentive Stock Option, the Board shall
determine such period of time (in no event to exceed three (3) months
from the date of termination) when the Option is granted. If, at the
date of termination, the Optionee is not entitled to exercise his or
her entire Option, the shares covered by the unexercisable portion of
the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time
specified in the
<PAGE>
Option Agreement, the Option shall terminate, and the shares covered
by such Option shall revert to the Plan.
(h) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option,
but only within twelve (12) months from the date of such termination
(or such shorter period specified in the Option Agreement), and only
to the extent that the Optionee was entitled to exercise it at the
date of such termination (but in no event later than the expiration
of the term of such Option as set forth in the Option Agreement). If,
at the date of termination, the Optionee is not entitled to exercise
his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to the Plan.
(i) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within eighteen (18) months
following the date of death (or such shorter period specified in the
Option Agreement) (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent the
Optionee was entitled to exercise the Option at the date of death.
If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the
Optionee's estate or a person who acquired the right to exercise the
Option by bequest or inheritance does not exercise the Option within
the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to the Plan.
(j) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all
of the shares subject to the Option prior to the full vesting of the
Option. Any unvested shares so purchased may be subject to a
repurchase right in favor of the Company or to any other restriction
the Board determines to be appropriate.
(k) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such Option by any
of the following means or by a combination of such means: (1)
tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common
stock of the Company.
(l) Re-Load Options. Without in any way limiting the authority of the
Board or duly authorized Committee to make or not to make grants of
Options hereunder, the Board or duly authorized Committee shall have
the authority (but not an obligation) to include as part of any
Option Agreement a provision entitling the Optionee to a further
Option (a "Re-Load Option") in the event the Optionee exercises the
Option evidenced by the Option agreement, in whole or in part, by
surrendering other shares of common stock in accordance with this
Plan and the terms and conditions of the Option Agreement. Any such
Re-Load Option (i) shall be for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of
such Option; (ii) shall have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to
such Re-Load Option; and (iii) shall have an exercise price which is
equal to one hundred percent (100%) of the Fair Market Value of the
common stock subject to the Re-Load Option on the date of exercise of
the original Option or, in the case of a Re-Load Option which is an
Incentive Stock Option and which is granted to a 10% stockholder (as
described in subparagraph 5(b)), shall have an exercise price which
is
<PAGE>
equal to one hundred ten percent (110%) of the Fair Market Value
of the stock subject to the Re-Load Option on the date of exercise of
the original Option.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonqualified Stock Option, as the Board or duly authorized Committee may
designate at the time of the grant of the original Option, provided, however,
that the designation of any Re-Load Option as an Incentive Stock Option shall be
subject to the one hundred thousand dollars ($100,000) annual limitation on
exercisability of Incentive Stock Options described in subparagraph 10(d) of the
Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a
Re-Load Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under subparagraph 4(a) and shall be subject to such other
terms and conditions as the Board or duly authorized Committee may determine.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such form
and shall contain such terms and conditions as the Board or the duly authorized
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each stock purchase
agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement. Notwithstanding the
foregoing, the Board or the Committee may determine that eligible
participants in the Plan may be awarded stock pursuant to a stock
bonus agreement in consideration for past services actually rendered
to the Company or for its benefit.
(b) Transferability. No rights under a stock bonus or restricted stock
purchase agreement shall be assignable by any participant under
the Plan, either voluntarily or by operation of law, except where
such assignment is required by law or expressly authorized by the
terms of the applicable stock bonus or restricted stock purchase
agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; or (ii) in any other form of legal consideration
that may be acceptable to the Board or the Committee in their
discretion. Notwithstanding the foregoing, the Board or the
Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company
or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the
Company in accordance with a vesting schedule to be determined by
the Board or the Committee.
(e) Termination of Employment or Relationship as a Director or
Consultant. In the event a Participant's Continuous Status as an
Employee, Director or Consultant terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of
stock held by that person which have not vested as of the date of
termination under the terms of the stock bonus or restricted stock
purchase agreement between the Company and such person.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to
satisfy such Stock Awards up to the number of shares of stock
authorized under the Plan.
<PAGE>
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock under the Stock Awards;
provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any
Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock under such Stock
Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock
Award or any part thereof will vest, notwithstanding the provisions
in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares subject to
such Option unless and until such person has satisfied all
requirements for exercise of the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director,
Consultant, Optionee, or other holder of Stock Awards any right to
continue in the employ of the Company or any Affiliate (or to
continue acting as a Director or Consultant) or shall affect the
right of the Company or any Affiliate to terminate the employment or
relationship as a Director or Consultant of any Employee, Director,
Consultant or Optionee with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates
exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in
which they were granted) shall be treated as Nonstatutory Stock
Options.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of any consideration by the
Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to
the Plan pursuant to subsection 4(a) and the maximum number of
securities subject to award to any person pursuant to subsection
5(c), and the outstanding Stock Awards will be appropriately adjusted
in the class(es) and number of securities and price per share of
stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board, the determination of which shall be
final, binding and conclusive. (The
<PAGE>
conversion of any convertible securities of the Company shall not be
treated as a transaction "without receipt of consideration" by the
Company.)
(b) In the event of a Change in Control then, to the extent permitted by
applicable law: (i) any surviving corporation shall assume any Stock
Awards outstanding under the Plan or shall substitute similar Stock
Awards for those outstanding under the Plan; or (ii) such Stock
Awards shall continue in full force and effect. In the event any
surviving corporation refuses to assume or continue such Stock Awards
or to substitute similar Stock Awards for those outstanding under the
Plan, then, with respect to such Stock Awards held by persons then
performing services as employees, consultants or directors for the
Company, the time during which such Stock Awards become vested or may
be exercised shall be accelerated and any outstanding unexercised
rights under any Stock Awards terminated if not exercised prior to
such event.
(c) In the event an Employee's employment is terminated due to an
Involuntary Termination Without Cause within twenty-four (24) months
after the effective date of a Change in Control, then all Stock
Awards issued and outstanding under the Plan and held by the Employee
shall accelerate and become immediately vested and exercisable.
Notwithstanding the foregoing, if the Change in Control was a
transaction that was accounted for as a pooling of interests for
financial reporting purposes, then the unvested portion of such Stock
Awards shall not accelerate unless the Company receives reasonable
assurances from the Company's independent public accountants (and
from the acquiring party's independent public accountants) that in
their good faith judgment such acceleration will not adversely affect
the pooling of interests accounting treatment of such Change in
Control transaction.
12. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments
upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months
before or after the adoption of the amendment, to the extent
stockholder approval is necessary to satisfy the requirements of
Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities
exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations promulgated thereunder
regarding the exclusion of performance-based compensation from the
limit on corporate deductibility of compensation paid to certain
executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees
with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to
whom the Stock Award was granted and (ii) such person consents in
writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
<PAGE>
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on February 16, 2004. No
Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be altered or impaired by suspension or
termination of the Plan, except with the consent of the person to
whom the Stock Award was granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock Awards
granted under the Plan shall be exercisable unless and until the Plan has been
approved by the stockholders of the Company.
<PAGE>
Exhibit 10.14
WALKER INTERACTIVE SYSTEMS, INC.
1995 NONSTATUTORY STOCK OPTION PLAN
FOR NON-OFFICER EMPLOYEES
ADOPTED AUGUST 28, 1995
RATIFIED AND AMENDED SEPTEMBER 20, 1995
AMENDED MAY 9, 1996, OCTOBER 20, 1997, AUGUST 5, 1998
AND NOVEMBER 9, 1998
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees of the Company, and its Affiliates, may be given an opportunity to
purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now non-officer Employees of the Company or its Affiliates, to
secure and retain the services of new Employees in such positions, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall be
only Nonstatutory Stock Options.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means termination of an Employee's employment with the
Company for any of the following reasons as determined in good faith by the
Company:
(i) an intentional act which materially injures the Company;
(ii) an intentional refusal or failure to follow lawful and
reasonable directions of the Board or the individual to whom the Employee
reports;
(iii) a willful and habitual neglect of duties; or
(iv) a conviction of a felony involving moral turpitude which
is reasonably likely to inflict or has inflicted material injury on the Company.
(d) "Change in Control" means:
(i) a dissolution, liquidation or sale of substantially all of
the assets of the Company;
(ii) a merger or consolidation in which the Company is not the
surviving corporation; or
(iii) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(g) "Company" means Walker Interactive Systems, Inc., a Delaware
corporation.
(h) "Continuous Status as an Employee, Director or Consultant" means
the employment relationship, or service as a member of the Board or Consultant,
is not interrupted or terminated. The Board, in its sole discretion, may
determine whether Continuous Status as an Employee, Director or Consultant shall
be considered interrupted in the case of: (i) any leave of absence approved by
the Board, including sick leave, military leave, or any other personal leave; or
(ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(i) "Director" means a member of the Board.
(j) "Disinterested Person" means a Director who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or
<PAGE>
any other plan of the Company or any Affiliate entitling the participants
therein to acquire equity securities of the Company or any Affiliate except as
permitted by Rule 16b-3(c)(2)(i); or (ii) is otherwise considered to be a
"disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any other
applicable rules, regulations or interpretations of the Securities and
Exchange Commission.
(k) "Employee" means any person employed by the Company or any
Affiliate of the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of the
common stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Fair Market Value of a share of common stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(2) If the common stock is quoted on the Nasdaq System (but
not on the Nasdaq National Market) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(3) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(m) "Involuntary Termination Without Cause" means an Employee's
dismissal or discharge other than for Cause. The termination of an Employee's
employment as a result of the Employee's death or disability will not be deemed
to be an Involuntary Termination Without Cause.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(r) "Optionee" means an Employee who holds an outstanding Option.
(s) "Plan" means this Walker Interactive Systems, Inc. 1995
Nonstatutory Stock Option Plan for Non-Officer Employees.
(t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by Compensation Committee of the
Board unless and until the Compensation Committee or the Board delegates
administration to a Committee, as provided in subsection 3(c).
(b) The Compensation Committee shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option shall
be granted; the provisions of each Option granted (which need not be identical),
including the time or times such Option may be exercised in whole or in part;
and the number of shares for which an Option shall be granted to each such
person.
(2) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Compensation Committee, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in any Option
Agreement, in a manner and to the extent it shall deem necessary or expedient to
make the Plan fully effective.
(3) To amend the Plan or an Option as provided in Section 11
of the Plan.
(4) Generally, to exercise such powers and to perform such acts
as the Compensation Committee deems necessary or expedient to promote the best
interests of the Company.
<PAGE>
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Compensation
Committee (and references in this Plan to the Compensation Committee shall
thereafter be to the Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Compensation Committee. The Compensation Committee may abolish the
Committee at any time and revest in the Compensation Committee the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Compensation Committee may delegate to a committee of
one or more members of the Board the authority to grant Options to persons
eligible to receive Options as provided in Section 5 of the Plan.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply if the Board or the Compensation Committee
expressly declares that such requirement shall not apply. Any Disinterested
Person shall otherwise comply with the requirements of Rule 16b-3.
(e) The Board shall at all times have the authority to arrogate to
itself any or all of the powers and responsibilities allocated to the
Compensation Committee or to the Committee under the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate two million (2,000,000) shares of the Company's common
stock. If any Option shall for any reason expire or otherwise terminate, in
whole or in part, without having been exercised in full, the stock not purchased
under such Option shall revert to and again become available for issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
Nonstatutory Stock Options may be granted under the Plan only to
Employees who (i) hold positions below the level of Officer, and (ii) are not
then subject to Section 16 of the Exchange Act.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Compensation Committee shall deem appropriate. The provisions
of separate Options need not be identical, but each Option shall include
(through incorporation of provisions hereof by reference in the Option or
otherwise) the substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) Price. The exercise price of each Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, in one or more of the following forms: (i) in cash at the time the
Option is exercised, (ii) at the discretion of the Compensation Committee or the
Committee, by delivery to the Company of other common stock of the Company, or
(iii) pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board which results in the receipt of cash (or check) by the
Company prior to the issuance of the stock.
(d) Transferability. A Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person or
any transferee pursuant to a QDRO. The person to whom the Option is granted may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times
<PAGE>
when it may be exercised (which may be based on performance or other criteria)
as the Board may deem appropriate. The provisions of this subsection 6(e) are
subject to any Option provisions governing the minimum number of shares as to
which an Option may be exercised.
(f) Securities Law Compliance. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(g) Termination of Service. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates (other than upon the
Optionee's death or disability), the Optionee may exercise his or her Option (to
the extent that the Optionee was entitled to exercise it at the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months after the termination of the Optionee's Continuous
Status as an Employee, Director or Consultant or such longer or shorter period
specified in the Option Agreement, or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the Optionee
does not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
(h) Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(i) Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(j) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
<PAGE>
(k) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state, local or foreign tax
withholding obligation relating to the exercise of such Option by any of the
following means or by a combination of such means: (1) tendering a cash payment;
(2) authorizing the Company to withhold shares from the shares of the common
stock otherwise issuable to the participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered shares of the
common stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available
at all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) The Compensation Committee shall have the power to accelerate the
time at which an Option may first be exercised or the time during which an
Option or any part thereof will vest pursuant to subsection 6(e),
notwithstanding the provisions in the Option stating the time at which it may
first be exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee any right to continue in the
employ of the Company or any Affiliate, or to continue to serve as a member of
the Board or as a consultant, or shall affect the right of the Company or any
Affiliate to terminate the employment relationship of any Employee with or
without cause, to remove a member of the Board pursuant to the terms of the
Company's Bylaws, or to terminate a consultant in accordance with the terms of
this agreement with the Company or Affiliate.
(d) The Compensation Committee shall have the authority to effect, at
any time and from time to time (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of the affected holders of Options,
the cancellation of any outstanding Options and the grant in substitution
therefor of new Options under the Plan covering the same or different numbers of
shares of Common Stock, but having an exercise price per share not less than
eighty-five percent (85%) of the Fair Market Value per share of Common Stock on
the new grant date.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the outstanding Options will be appropriately adjusted in
the class(es) and number of shares and price per share of stock subject to such
outstanding Options.
(b) In the event of a Change in Control, then, to the extent permitted
by applicable law: (i) any surviving corporation shall assume any Options
outstanding under the Plan or shall substitute similar Options for those
outstanding under the Plan; or (ii) such Options shall continue in full force
and effect. In the event any surviving corporation refuses to assume or continue
such options, or to substitute similar options for those outstanding under the
Plan, then, with respect to options held by persons then performing services as
employees, consultants or directors for the Company, the time during which such
Options become vested or may be exercised shall be accelerated and any
outstanding unexercised rights under any Options terminated if not exercised
prior to such event.
<PAGE>
(c) In the event an Employee's employment is terminated due to an
Involuntary Termination Without Cause within twenty-four (24) months after the
effective date of a Change in Control, then all Options issued and outstanding
under the Plan and held by the Employee shall accelerate and become immediately
vested and exercisable. Notwithstanding the foregoing, if the Change in Control
was a transaction that was accounted for as a pooling of interests for financial
reporting purposes, then the unvested portion of such stock options shall not
accelerate unless the Company receives reasonable assurances from the Company's
independent public accountants (and from the acquiring party's independent
public accountants) that in their good faith judgment such acceleration will not
adversely affect the pooling of interests accounting treatment of such Change in
Control transaction.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board or the Compensation Committee at any time, and from
time to time, may amend the Plan.
(b) The Compensation Committee may, in its sole discretion, submit
the Plan or any amendment to the Plan for stockholder approval.
(c) It is expressly contemplated that the Board or the Compensation
Committee may amend the Plan in any respect the Board or the Compensation
Committee deems necessary or advisable to provide Optionees with the maximum
benefits provided or to be provided under the provisions of the Code and the
regulations promulgated thereunder.
(d) Rights and obligations under any Option granted before amendment of
the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
(e) The Board or the Compensation Committee at any time, and from time
to time, may amend the terms of any one or more Options; provided, however, that
the rights and obligations under any Option shall not be impaired by any such
amendment unless (i) the Company requests the consent of the person to whom the
Option was granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board or the Compensation Committee may suspend or terminate
the Plan at any time. Unless sooner terminated, the Plan shall terminate on the
date when all the shares of the Company's common stock reserved for issuance
under the Plan have been issued. No Options may be granted under the Plan while
the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on August 28, 1995.
Adopted by the Compensation Committee on August 28, 1995 with an aggregate
share reserve of 140,000 shares.
Ratified and amended by the Board of Directors on September 20, 1995 to
increase the aggregate share reserve to 600,000 shares.
Amended by the Board of Directors on May 9, 1996 to increase the aggregate
share reserve to 1,100,000 shares.
Amended by the Board of Directors on October 20, 1997 to increase the
aggregate share reserve to 1,600,000 shares.
Amended by the Board of Directors on August 5, 1998 to remove the discretion
of the Board to determine whether acceleration of vesting shall occur in the
event of a Change in Control if the successor entity does not assume or
continue outstanding options or substitute similar options and to provide for
acceleration of vesting upon an employee's Involuntary Termination Without
Cause within twenty-four months after a Change in Control.
Amended by the Board of Directors on November 9, 1998 to increase the
aggregate share reserve to 2,000,000 shares.
<PAGE>
Exhibit 21.1
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-K
SUBSIDIARIES
Walker Interactive Systems Pty. Limited Australia
Walker Interactive Systems (Hong Kong) Limited Hong Kong
Walker Interactive (Singapore) Pte. Limited Singapore
Walker Interactive Products International, Inc. United States
Business Consulting Solutions, Inc. United States
Global Business Solutions Holdings, Inc. United States
Revere, Inc. United States
Walker Solutions Group, Limited United Kingdom
Walker Financial Solutions Limited United Kingdom
Global Business Consulting Solutions, Inc. United States
Revere International PLC United Kingdom
Walker Canada, Inc. Canada
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following Registration
Statements of Walker Interactive Systems, Inc. of our report dated February 10,
1999, appearing in this Annual Report on Form 10-K of Walker Interactive
Systems, Inc. for the year ended December 31, 1998:
Registration Statement No. 33-46721 on Form S-8
Registration Statement No. 33-64424 on Form S-8
Registration Statement No. 33-64426 on Form S-8
Registration Statement No. 333-02942 on Form S-8
Registration Statement No. 333-08629 on Form S-8
Registration Statement No. 333-39913 on Form S-8
Registration Statement No. 333-42031 on Form S-3
Registration Statement No. 333-57199 on Form S-8
/s/ DELOITTE & TOUCHE LLP
- -------------------------
San Francisco, California
March 26, 1999
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WALKER
INTERACTIVE SYSTEMS, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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