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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NO. 0-20740
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PLATINUM SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0277592
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618-2402
(Address of principal executive offices, zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 453-4000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of November 6, 1997, there were 20,306,563 shares of common stock
outstanding.
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INDEX
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PART I - FINANCIAL INFORMATION........................................................................... 3
Item I - Financial Statements..................................................................... 3
Unaudited Condensed Consolidated Balance Sheets.......................................... 3
Unaudited Condensed Consolidated Statements of Operations................................ 4
Unaudited Condensed Consolidated Statements of Cash Flows................................ 5
Notes to Unaudited Condensed Consolidated Financial Statements........................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.... 8
PART II - OTHER INFORMATION.............................................................................. 14
Item 1 - Legal Proceedings........................................................................ 14
Item 6 - Exhibits and Reports on Form 8-K......................................................... 14
SIGNATURE ......................................................................................... 15
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PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS:
PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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September 30, June 30,
1997 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 2,898 $ 6,290
Short-term investments 9,533 9,542
Accounts receivable, net 12,185 12,025
Inventories 475 481
Prepaid expenses and other 1,483 1,467
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Total current assets 26,574 29,805
Property and equipment, net 8,080 8,508
Software development costs, net 2,467 2,660
Acquired software, net 247 278
Other assets 1,418 527
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$ 38,786 $ 41,778
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,841 $ 4,725
Accrued expenses 6,178 8,081
Accrued restructuring costs 2,363 2,609
Deferred revenue 11,058 11,638
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Total current liabilities 22,440 27,053
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Long-term liabilities 75 277
Stockholders' equity:
Preferred stock 30,292 30,292
Common stock 21 20
Additional paid-in capital 117,258 116,747
Less: notes receivable from officers for issuance of restricted stock (11,563) (11,563)
Accumulated foreign currency translation adjustments 575 293
Accumulated deficit (120,312) (121,341)
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Total stockholders' equity 16,271 14,448
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$ 38,786 $ 41,778
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
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PLATINUM SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended
September 30,
1997 1996
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Revenues:
License fees $ 8,991 $ 5,922
Consulting and professional services 3,859 2,221
Support services 4,011 3,616
Royalty income 99 135
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Total revenue 16,960 11,894
Cost of revenues 5,724 4,305
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Gross profit 11,236 7,589
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Operating expenses:
Sales and marketing 6,783 5,416
General and administrative 1,057 1,969
Software development 2,936 2,350
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Total operating expenses 10,776 9,735
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Income (loss) from operations 460 (2,146)
Other income, net 569 199
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Income (loss) before provision for income taxes 1,029 (1,947)
Provision for income taxes - -
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Net income (loss) $ 1,029 $ (1,947)
===================================================================================
Net income (loss) per share $ 0.04 $ (0.10)
===================================================================================
Shares used in computing
net income (loss) per share 26,444 19,021
===================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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Three Months Ended
September 30,
1997 1996
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Cash flows from operating activities:
Net income (loss) $ 1,029 $ (1,947)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Depreciation and amortization 1,283 1,390
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (160) 441
(Increase) decrease in inventories 6 49
(Increase) decrease in prepaid expenses and other (16) 270
(Increase) decrease in other assets (891) (18)
Increase (decrease) in accounts payable (1,884) (727)
Increase (decrease) in accrued expenses (1,903) (228)
Increase (decrease) in accrued restructuring costs (246) (191)
Increase (decrease) in deferred revenue (580) (199)
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Cash used in operating activities (3,362) (1,160)
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Cash flows from investing activities:
Payments received on notes receivable from divestitures - 161
Capital expenditures, net (510) (442)
Capitalized software development costs (121) (500)
Purchase of short-term investments (1,000) (1,000)
Sale of short-term investments 1,009 1,041
Payments of long-term liabilities (202) -
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Cash used in investing activities (824) (740)
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Cash flows from financing activities:
Exercise of common stock options 281 137
Issuance of common stock under the Employee Stock Purchase Plan 231 85
Decrease in restricted cash - 1,006
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Cash provided by financing activities 512 1,228
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Effect of exchange rates on cash 282 89
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Net increase (decrease) in cash and cash equivalents (3,392) (583)
Cash and cash equivalents, beginning of period 6,290 5,440
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Cash and cash equivalents, end of period $ 2,898 $ 4,857
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
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PLATINUM SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements present
the financial position of Platinum Software Corporation (the "Company") as of
September 30, 1997 and June 30, 1997, the results of its operations and its cash
flows for the three months ended September 30, 1997 and 1996, and have been
prepared by the Company in accordance with generally accepted accounting
principles and pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading. The unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1997.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position, results of operations and cash flows.
The results of operations for the three months ended September 30, 1997, are not
necessarily indicative of the results of operations to be expected for the
entire fiscal year ending June 30, 1998.
REVENUE RECOGNITION
Revenue is recognized from licenses of software upon contract execution,
shipment of products and when the Company has performed all of its significant
contractual obligations. When a software license agreement obligates the Company
to provide more than one software module, all license revenue under the
agreement is deferred until all modules achieve general availability and are
delivered, except when the license agreement contains a specific financial
remedy in the event the unavailable module is not delivered. In such instance,
revenue is deferred in the amount attributable to the specific financial remedy.
The Company generally does not provide any post-contract customer service or
support as part of the software license fee; however, when such services are
provided for in the license agreement, an appropriate portion of the license fee
is deferred and amortized over the service or support period. The Company's
customers may enter into maintenance agreements with the Company and such
revenue is recognized ratably over the term of the agreement. Revenue from
consulting services is recognized as services are provided.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents were antidilutive for
the three months ended September 30, 1996, and therefore, have been excluded
from the calculation of net loss per share for such period.
FISCAL 1997 ACQUISITION
On June 30, 1997 the Company acquired Clientele Software, Inc. ("Clientele") a
privately held provider of help desk automation software based in Portland,
Oregon. The acquisition was structured as a triangular merger whereby Clientele
became a wholly-owned subsidiary of the Company. As consideration for the
acquisition, the Company issued 887,636 shares of common stock in exchange for
all of the outstanding shares of common stock of Clientele. The exchange ratio
used with respect to the conversion of the Clientele shares was .19761 (i.e.,
each share of Clientele common stock converted into .19761 shares of the
Company's common stock). In addition, the Company assumed all of the outstanding
employee stock options of Clientele which translated into stock options to
acquire 212,356 shares of common stock of the Company. Ten percent of the shares
issued in the merger, or 88,764 shares, were placed into an escrow for a period
of one year to cover indemnification claims in connection with the transaction.
The transaction was accounted for as a pooling of interests, and accordingly,
the accompanying
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condensed consolidated financial statements have been restated to incorporate
the financial position, results of operations and cash flows of Clientele for
all periods presented.
FISCAL 1994, 1996 AND 1997 RESTRUCTURINGS
In May 1994, the Company announced a restructuring of its business operations,
including plans to sell certain operations and non-core software products, with
the intent to significantly reduce operating expenses. Between May 1994 and
April 1996, the Company reduced its workforce through a reduction in force,
attrition, as well as the sale and closure of certain of its operations and
products.
In the fourth quarter of fiscal 1994, the Company recorded a restructuring
charge of $6.7 million. Such amount included approximately $2.4 million for
severance and other extended benefit costs related to the reduction in force,
$2.3 million in lease termination and buyout costs related to the closure of
facilities and $2.0 million in asset write-downs and other costs. The charge
reflected the net effect of estimated proceeds of operations and products to be
divested. At September 30, 1997, the restructuring was substantially complete.
During the second quarter of fiscal 1996, the Company restructured its business
operations. The restructuring included the cessation of the marketing of the
version of the Company's Platinum SQL Enterprise product that runs on the
Sybase/UNIX server platform as well as the elimination of the Company's direct
sales force for its Platinum SQL Enterprise product line. The restructuring
resulted in a charge of $3.3 million which was recorded in the second quarter of
fiscal 1996. Such amount included approximately $1.2 million for severance and
other extended benefit costs related to the reduction in force, $1.2 million for
lease termination and buyout costs related to the closure of facilities and
$872,000 in asset write-downs and other costs.
In February 1996, the Company had another reduction in force of approximately 40
people. This reduction in force resulted in an additional restructuring charge
of $2.3 million which was recorded in the third quarter of fiscal 1996. Such
amount included approximately $300,000 for severance and other extended benefit
costs related to the reduction in force, $625,000 in lease termination and
buyout costs related to the closure of facilities and $1.4 million in asset
write-downs and other costs.
In June 1997, the Company underwent another restructuring as a result of the
Clientele acquisition. The Company anticipates that Clientele will continue to
operate as an autonomous unit with integration activities focused on the
restructuring and consolidation of Clientele's administrative and support
functions with those of the Company. This resulted in an additional
restructuring charge of $1.6 million which was recorded in the fourth quarter of
fiscal 1997. Such amount included approximately $1.1 million for excess facility
costs, as well as approximately $500,000 for severance and other extended
benefit costs. The Company estimates that expense savings from the 1997
restructuring to be nominal. During the three months ended September 30, 1997,
the Company paid approximately $246,000 for severance, lease termination and
other costs relating to the 1994, 1996 and 1997 restructurings.
CONTINGENCIES
The Company is subject to miscellaneous legal proceedings in the normal course
of business and other legal proceedings related to or arising out of the fiscal
1994 restructuring, reductions in force and the discontinuance of certain
client/server applications. The Company is currently defending these proceedings
and claims, and anticipates that it will be able to resolve these matters in a
manner that will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
SUBSEQUENT EVENT
On November 4, 1997, the Company entered into a definitive agreement and plan of
reorganization pursuant to which it will acquire FocusSoft, Inc. ("FocusSoft"),
a privately held provider of enterprise resource planning and distribution
software based in Louisville, Kentucky. The acquisition was structured as a
triangular merger whereby FocusSoft will become a wholly owned subsidiary of the
Company. As consideration for the acquisition, the Company will issue 2,474,794
shares of common stock in exchange for all of the outstanding shares of common
stock of FocusSoft. The exchange ratio used with respect to the FocusSoft shares
will be 24.747937 (i.e., each share of FocusSoft common stock will convert into
24.747937 shares of the Company's common stock.) In addition, the Company will
assume all of the employee stock options of FocusSoft which translates into
stock options to acquire 225,206 shares of common stock of the Company. Ten
percent of the shares issued in the merger, or 247,479 shares,
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will be placed into an escrow for a period of one year to cover indemnification
claims in connection with the transaction. The transaction will be accounted for
as a pooling of interests and is expected to close by November 20, 1997.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
RESULTS OF OPERATIONS
Net income for the first quarter of fiscal 1998 was $1.0 million, or $0.04 per
share, as compared to a net loss of $1.9 million, or $(0.10) per share, for the
comparable quarter of fiscal 1997. The following summarizes the significant
aspects related to the Company's results of operations.
Revenues
Revenues were approximately $17.0 million and $11.9 million for the three months
ended September 30, 1997 and 1996, respectively, representing an increase of
43%. The increase for the three months ended September 30, 1997 reflected a
general increase in license and service revenues.
Total license fee revenues were approximately $9.0 million and $5.9 million for
the three months ended September 30, 1997 and 1996, respectively, representing
an increase of 52%.
License fee revenues for the Company's Platinum SQL product (formerly named
Platinum SQL NT) were approximately $5.6 million and $3.3 million for the three
months ended September 30, 1997 and 1996, respectively. The increase resulted
primarily from the re-establishment of the Company's direct sales force in the
fourth quarter of fiscal 1996.
License fee revenues for the Platinum for DOS and Platinum for Windows products
were approximately $1.9 million and $1.5 million for the three months ended
September 30, 1997 and 1996, respectively. The increase resulted primarily from
increased demand created by the commercial availability of a complete suite of
Platinum for Windows core modules during the quarter ended September 30, 1997.
The complete set of Platinum for Windows core modules were first available in
December 1996.
License fee revenues for the Clientele product were approximately $1.5 million
and $841,000 for the three months ended September 30, 1997 and 1996,
respectively. The increase resulted from the maturity of the sales force as well
as the significant telesales and marketing efforts during the quarter ended
September 30, 1997.
International license fee revenues were $2.7 million and $2.2 million for the
three months ended September 30, 1997 and 1996, respectively. The increase was
primarily due to the increases in license fee revenues for the Company's
Platinum SQL and Platinum for DOS and Platinum for Windows products.
Consulting and professional services revenue increased 74% from revenues of $2.2
million in the three months ended September 30, 1996 to $3.9 million in the
three months ended September 30, 1997. The increase in the three months ended
September 30, 1997 was primarily attributable to the Company's increased focus
in fiscal 1997 on providing consulting and implementation services to customers.
Support services revenue increased 11% from revenues of $3.6 million in the
three months ended September 30, 1996 to $4.0 million in the three months ended
September 30, 1997. The increase was primarily attributable to an overall rise
in the installed base of end-users of Platinum SQL and an increased effort to
renew customers on maintenance contracts which effort the Company commenced in
early fiscal 1997.
Gross Profit
Gross profit increased as a percentage of revenues from 64% for the three months
ended September 30, 1996 to 66% for the three months ended September 30, 1997.
The increase in gross profit percentage was primarily due to higher license fee
revenues as a percentage of total revenues, which have higher margins than
consulting and professional services revenues.
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Operating Expenses
Total operating expenses increased from $9.7 million for the three months ended
September 30, 1996 to $10.8 million for the three months ended September 30,
1997. The increase was primarily attributable to the re-establishment of a
direct sales force for the Company's Platinum SQL product which commenced in the
fourth quarter of fiscal 1996. Total operating expenses as a percentage of
revenues were 64% and 82% for the three months ended September 30, 1997 and
1996, respectively.
Sales and marketing expenses were approximately $6.8 million and $5.4 million
for the three months ended September 30, 1997 and 1996, respectively, or
approximately 40% and 46% of total revenues. This dollar amount increase was a
result of the re-establishment of a direct sales force for the Company's
Platinum SQL product.
General and administrative expenses were approximately $1.1 million and $2.0
million for the three months ended September 30, 1997 and 1996, respectively, or
approximately 6% and 17% of total revenues. The decreases were primarily due to
the reduction of legal reserves of $500,000 from the September 1996 quarter to
the September 30, 1997 quarter, and the increase in the fair value of a note
receivable from a divestiture as part of the fiscal 1994 restructuring which was
previously written off, offset in part by an increase in the provision for
additional bad debts which netted to a decrease of $200,000.
Software development expenditures were approximately $3.1 million and $2.9
million for the three months ended September 30, 1997 and 1996, respectively,
before capitalization of software costs of approximately $121,000 and $500,000,
respectively. Upon the release for general availability of the Company's
software products, the Company amortizes capitalized software development costs
over a five year period. Such amortization is included in cost of revenues. The
percentage of capitalized software development costs to total software
development costs was 4% for the three months ended September 30, 1997 and 17%
for the three months ended September 30, 1996. During the three months ended
September 30, 1997, costs were capitalized for the translation in different
languages for the Platinum SQL and Platinum for Windows products. During the
quarter ended September 30, 1996, costs were capitalized for the multi-currency
functionality for Platinum SQL.
Other Income
Other income for the three months ended September 30, 1997 and 1996, was
approximately $569,000 and $199,000, respectively. The increase primarily
resulted from additional interest earned on the Company's cash and cash
equivalents and short-term investments, and an increase of $298,000 in the fair
value of an investment. For the three months ended September 30, 1996, other
income primarily represented interest earned on the Company's cash and cash
equivalents and short-term investments.
Provision for Income Taxes
The Company has not provided a provision for income taxes for the quarter ended
September 30, 1997 due to the Company's utilization of operating loss
carryforwards. Valuation allowances were provided against such operating loss
carryforwards at June 30, 1997.
FINANCIAL CONDITION
Liquidity and Capital Resources
As of September 30, 1997, the Company's principal sources of liquidity included
cash and cash equivalents of approximately $2.9 million. Cash and cash
equivalents decreased by approximately $3.4 over the June 30, 1997 balance
primarily due to cash used in operations principally from significant cash
outlays for the year-end sales and professional services commissions owed and
for costs related to the Clientele acquisition. The Company had working capital
of $2.8 million at June 30, 1997 as compared to working capital of $4.1 million
at September 30, 1997. The increase was primarily attributable to the reduction
of accounts payable and accrued expenses.
The Company paid approximately $246,000 in severance, lease and other costs
related to the fiscal 1994 and fiscal 1996 and 1997 restructurings during the
three months ended September 30, 1997. At September 30, 1997, the Company had a
$2.4 million cash obligation related to lease termination and other costs of the
fiscal 1994 and fiscal
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1996 and 1997 restructurings. These obligations will be funded from existing
cash reserves, working capital and operations.
The Company has taken steps to significantly reduce its operating expenses,
through several reductions in work force over the past two years, as well as the
disposition of several business units. See "Fiscal 1994, 1996 and 1997
Restructurings." If the Company is not successful in achieving targeted
revenues, the Company may be required to take further actions to align its
operating expenses with its reduced revenues, such as further reductions in work
force or seek additional debt or equity financing. There can be no assurance
that the Company would be able to reduce expenses or secure additional financing
on reasonable terms or at all.
The Company is dependent upon its ability to generate cash flow from license
fees and other operating revenues, as well as the collection of its outstanding
accounts receivable to maintain current liquidity levels. The Company believes
that its current cash reserves, together with existing sources of liquidity,
will satisfy the Company's projected short-term liquidity and other cash
requirements for the next 12 months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Forward Looking Statements. This quarterly report contains certain
forward looking statements within the meaning of Section 27A of the Securities
and Exchange Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, that involve risks and uncertainties. In
addition, the Company may from time to time make oral forward looking
statements. Actual results are uncertain and may be impacted by the following
factors, among others, which may cause the actual results to differ materially
from those projected in the forward looking statement. Because of these and
other factors that may affect the Company's operating results, past performance
should not be considered an indicator of future performance and investors should
not use historical results to anticipate results or trends in future periods.
Liquidity. The Company's cash and cash equivalents decreased from $6.3
million at June 30, 1997 to $2.9 million at September 30, 1997, principally due
to cash used in operations. The Company incurred significant cash outlays in the
quarter for year-end sales and professional services commissions and for costs
related to the Clientele acquisition. In the second quarter of fiscal 1998, the
Company will incur another significant cash outlay for costs associated with the
FocusSoft acquisition. Although, the Company's fiscal 1994 restructuring is
substantially complete, there will be additional cash outlays in connection with
discontinued products and lease terminations, estimated to be approximately
$68,000. In addition, there will be further cash outlays estimated at
approximately $687,000 in connection with the second quarter fiscal 1996
restructuring, $144,000 in connection with the third quarter fiscal 1996
restructuring and $1.5 million in connection with the fiscal 1997 restructuring.
If the Company is not successful in achieving targeted revenues or positive cash
flow, the Company may be required to take actions to align its operating
expenses with its reduced revenues, such as reductions in work force or other
expense cutting measures, or seek additional debt or equity financing. There can
be no assurance that the Company would be able to reduce expenses or secure
additional financing on reasonable terms or at all.
Fluctuations in Quarterly Operating Results. The Company's operating
results can vary substantially from period-to-period. The Company's quarterly
operating results fluctuate in part due to the number and timing of new product
introductions and enhancements, discontinuance of product lines, the timing of
product orders and shipments, recognition of deferred revenue upon the Company's
completion of its contractual obligations, marketing and product development
expenditures and promotional programs. A significant portion of the Company's
quarterly revenues are recorded in the final month of the quarter, with a
concentration of such revenues in the final 10 business days of that month.
Also, the timing of the closing of direct sales in the latter part of each
quarter increases the risk of quarter-to-quarter fluctuations. Accordingly, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance. If revenues do not meet the Company's expectations in any
given quarter, operating results may be adversely affected. There can be no
assurance that the Company will be profitable in any quarter or at all.
Horizontal Product Strategy. As part of its business strategy, the
Company intends to expand its product offerings to include application software
products that are complementary to financial accounting applications, such as
sales force automation, enterprise resource planning or human resources. This
strategy may involve acquisitions, investments in other businesses that offer
complementary products, joint development agreements or licensing of technology
agreements. See "Fiscal 1997 Acquisition" and "Subsequent Event" in the Notes to
the Unaudited Condensed Consolidated Financial Statements. Any future
acquisitions or investments would be accompanied by the
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risks commonly encountered in the acquisitions of businesses. Some of these
risks include, among other things, the integration of previously distinct
businesses into one business unit, the substantial management time devoted to
such activities, the potential disruption of the Company's ongoing business,
undisclosed liabilities, the failure to realize anticipated benefits (such as
synergies and cost savings), and issues related to product transition (such as
development, distribution and customer support). The Company expects that the
consideration paid in future acquisitions, if any, would be in the form of
stock, rights to purchase stock, cash or a combination thereof. Dilution to
existing stockholders and earnings per share may result to the extent that
shares of stock or other rights to purchase stock are issued in connection with
any such future acquisitions. Some of the risks associated with joint
development agreements or technology licenses include development delays,
product bugs or errors, issues related to the integration or transition of the
new products, such as providing adequate customer support, effectively selling
and marketing the new product and coordinating development efforts.
Dependence on Distribution Channels. The Company distributes its
Platinum for DOS and Platinum for Windows products exclusively through
third-party distributors and Value Added Resellers ("VARs"), and distributes its
Platinum SQL software product through a direct sales force as well as through
VARs and distributors. The Company's distribution channel includes distributors,
VARs and Authorized Consultants, which consist primarily of professional firms.
Although no one of these distribution channel members is responsible for any
material amount of the Company's license fees, the Company's results of
operations could be adversely affected if significant numbers of its VARs or
Authorized Consultants were to cease distributing or recommending the Company's
products or were to choose to emphasize competing products. Generally, the
Company's agreements with its VARs and Authorized Consultants do not require
them to exclusively offer or recommend the Company's products and may be
terminated by either party with or without cause.
In the fourth quarter of fiscal 1996, the Company reestablished a
direct sales force for its middle market client server financial software
product, Platinum SQL. There can be no assurance that the direct sales force
will be successful in generating revenues or that it will not lead to conflicts
with the Company's VAR channel.
The Company's Platinum SQL product (formerly named Platinum SQL NT) was
first introduced on a limited basis to the network of VARs during the quarter
ended December 31, 1994. Platinum SQL, a client/server financial software
application designed to run on Microsoft Windows NT, Microsoft SQL server and
Sybase SQL server, is a more technically complex product than Platinum for
Windows and Platinum-DOS and requires additional skill and training to
successfully implement. The Company presently has over 70 authorized VARs who
have completed training from which approximately 30 VARs generate greater than
90% of the indirect sales of Platinum SQL and is actively seeking additional
skilled VARs to sell Platinum SQL. Delays in training VARs or recruiting
additional skilled VARs could adversely impact the Company's ability to generate
license revenues from its Platinum SQL product line.
Dependence on Platinum SQL Product Line. Platinum SQL, which is a
successor product to Platinum SQL Enterprise, which was first introduced in June
1992, and to Platinum SQL NT, which was first introduced in December 1994, is an
integrated financial and management information software product for use on
client/server computing systems. It is common for complex programs such as
Platinum SQL to contain undetected errors when first released, which are
discovered only after the product has been used with many different computer
systems and in varying applications. The inability of the Company to correct any
serious errors, or any significant delay in correcting any serious errors could
have a material adverse effect on the Company's results of operations. In
addition, there can be no assurance that significant technical problems will not
be discovered, or if discovered, corrected in a timely manner. Technical
problems with the current release of the database platforms on which Platinum
SQL operate could impact sales of these Company products, and any significant
technical problems could have a material adverse effect on the Company's results
of operations.
New Product Introductions. The Company's future success will depend
upon its ability to develop and successfully introduce new products, enhance its
current products on a timely basis and increase customer acceptance of its
existing products. The Company has three principal product lines, Platinum for
Windows (including Platinum for DOS), Platinum SQL and Clientele. The Company
continues to provide maintenance and support services for its Platinum SQL
Enterprise product for existing customers. Platinum SQL was released in the
quarter ended December 31, 1994 and some of the core accounting modules of
Platinum for Windows were released during the quarters ended December 31, 1996,
June 30, 1996 and December 31, 1995. Version 4.2 of Platinum SQL, which will
include enhanced consolidation capabilities and new on-line planning wizards and
troubleshooting utilities as well as maintenance fixes, is scheduled for release
in April 1998. See "Forward Looking Statements." In
11
<PAGE> 12
the past, the Company has occasionally experienced delays in the introduction of
new products and product enhancements. There can be no assurance that the
Company will be successful in developing and marketing these new products or
product enhancements on a timely basis or that the Company will not experience
significant delays in introducing new products in the future, which could have a
material adverse effect on the Company's results of operations. In addition,
there can be no assurance that new products or product enhancements developed by
the Company will achieve market acceptance.
Dependence on Client/Server Environment. The Company's development
tools, application products and consulting and education services are intended
to help organizations build, customize or deploy solutions that operate in a
client/server computing environment. The client/server market is relatively new,
and there can be no assurance that organizations will continue to adopt
client/server environments or that customers of the Company that have begun the
migration to a client/server environment will broadly implement this model of
computing. The Company's future financial performance will depend in large part
on continued growth in the market for client/server software applications and
related services, which in turn will depend in part on the growth in the number
of organizations implementing client/server computing environments and the
number of applications developed for use in those environments. There can be no
assurance that these markets will continue to grow or that the Company will be
able to respond effectively to the evolving requirements of these markets. If
the market for client/server application products and services does not grow in
the future, or grows more slowly than the Company anticipates, or if the Company
fails to respond effectively to evolving requirements of this market, the
Company's business, financial condition and results of operations would be
materially adversely affected.
Competition. The financial computer software industry is intensely
competitive and rapidly changing. A number of companies offer products similar
to the Company's products that target the same markets. Some of the Company's
existing competitors, as well as a number of new potential competitors, have
larger technical staffs, more established and larger marketing and sales
organizations and significantly greater financial resources than the Company.
There can be no assurance that competitors will not develop products that are
superior to the Company's products or that achieve greater market acceptance.
The Company's future success will depend significantly upon its ability to
increase its share of its target markets and to license additional products and
product enhancements to existing customers. There can be no assurance that the
Company will be able to compete successfully or that competition will not have a
material adverse effect on the Company's financial condition and results of
operations.
Exposure to Rapid Technological Change. The market for the Company's
financial accounting and other line of business software products is
characterized by rapid technological advances, changes in end-user requirements,
frequent new product introductions and enhancements and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards could render the Company's existing products
and products under development obsolete and unmarketable. The Company's future
success will depend upon its ability to address the increasingly sophisticated
needs of its customers by enhancing its current products and by developing and
introducing on a timely basis new products that keep pace with technological
developments and emerging industry standards, respond to evolving end user
requirements and achieve market acceptance. Any failure by the Company to
anticipate or adequately respond to technological developments or end-user
requirements, or any significant delays in product development or introduction,
could result in a loss of competitiveness or reduced revenues. If the Company is
unable, for technological or any other reason, to develop, introduce and sell
its products in a timely manner, the Company's business, operating results and
financial condition would be materially adversely affected. From time to time,
the Company or its present or future competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of the Company's existing products. There can be no assurance that
announcements of currently planned or other new products will not cause
customers to delay or alter their purchasing decisions in anticipation of such
products, which could have a material adverse effect on the Company's business,
operating results and financial condition.
Dependence on Key Personnel. The Company's success depends on the
continued service of key management personnel, including L. George Klaus, Chief
Executive Officer, William Pieser, Senior Vice President, Marketing and Business
Development, and Ken Lally, Senior Vice President, Worldwide Field Operations.
None of the Company's personnel is subject to an employment agreement for a
specified time duration with the Company. In addition, the competition to
attract, retain and motivate qualified technical, sales and operations personnel
is intense. The Company has at times experienced, and continues to experience,
difficulty in recruiting qualified personnel, particularly in software
development and customer support. There can be no assurance that the Company can
retain its key personnel or attract other qualified personnel in the future. The
failure to attract or retain such persons could have a material adverse effect
on the Company's business, operating results, cash flows and financial
condition.
12
<PAGE> 13
Risks Associated with International Sales. In fiscal 1995, 1996 and
1997, international sales represented approximately 31%, 32% and 30%,
respectively, of the Company's revenues, and the Company believes that its
future growth is dependent in part upon its ability to increase revenues in
international markets. The Company intends to attempt to continue to expand its
operations outside of the United States and enter additional international
markets, which will require significant management attention and financial
resources. There can be no assurance, however, that the Company will be able to
successfully maintain or expand its international sales. International sales are
subject to inherent risks, including changes in regulatory requirements, tariffs
and other barriers, fluctuating exchange rates, difficulties in staffing and
managing foreign sales and support operations and the possibility of greater
difficulty in accounts receivable collection. There can be no assurance that any
of these factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, operating
results, cash flows and financial condition. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations."
Shares Eligible for Future Sale. As of November 6, 1997, the Company
had 20,306,563 shares of common stock outstanding. There are presently 2,435,000
shares of Series B Preferred Stock and 213,803 shares of Series C Preferred
Stock outstanding. Each share of Series B Preferred Stock is convertible into
one share of common stock, as adjusted for stock dividends, combinations or
splits at the option of the holder. Each share of Series C Preferred Stock is
convertible into ten shares of common stock, as adjusted for stock dividends,
combinations or splits at the option of the holder. As a result, the Series B
and Series C Preferred Stock are convertible into 2,435,000 and 2,138,030 shares
of common stock, respectively. The holders of the Series B and Series C
Preferred Stock have the right to cause the Company to register the sale of the
shares of common stock issuable upon conversion of the Series B and Series C
Preferred Stock. Also, the Company has approximately 4,000,000 shares subject to
stock options which are issuable to employees under employee option plans. As a
result, a substantial number of shares of common stock will be eligible for sale
in the public market at various times in the future. Sales of substantial
amounts of such shares could adversely affect the market price of the Company's
common stock.
Possible Volatility of Stock Prices. The market prices for securities
of technology companies, including the Company, have been volatile. Quarter to
quarter variations in operating results, changes in earnings estimates by
analysts, announcements of technological innovations or new products by the
Company or its competitors, announcements of major contract awards and other
events or factors may have a significant impact on the market price of the
Company's Common Stock. In addition, the securities of many technology companies
have experienced extreme price and volume fluctuations, which have often been
unrelated to the companies' operating performance. These conditions may
adversely affect the market price of the Company's Common Stock.
Because of these and other factors affecting the Company's operating
results, past financial performance should not be considered an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods.
13
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
The Company is subject to miscellaneous legal proceedings in the normal course
of business and other legal proceedings related to or arising out of the fiscal
1994 restructuring, reductions in force and the discontinuance of certain
client/server applications. The Company is currently defending these proceedings
and claims, and anticipates that it will be able to resolve these matters in a
manner that will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
10.47 1997 Nonqualified Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated July 29, 1997
to report under Item 5 its results for the quarter and fiscal year
ended June 30, 1997. In addition, the Company filed an amendment
on Form 8-K/A on September 12, 1997 to the Current Report on Form
8-K dated June 30, 1997. The amendment included pro forma
financial statements for the Company and Clientele Software, Inc.
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLATINUM SOFTWARE CORPORATION
-----------------------------
(Registrant)
Date: November 13, 1997 /s/ MICHAEL J. SIMMONS
-----------------------------
Michael J. Simmons
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
15
<PAGE> 16
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
10.47 1997 Nonqualified Stock Option Plan
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.47
PLATINUM SOFTWARE CORPORATION
NONQUALIFIED STOCK OPTION PLAN - 1997
JULY 29, 1997
<PAGE> 2
PLATINUM SOFTWARE CORPORATION
NONQUALIFIED STOCK OPTION PLAN - 1997
1. Purposes of the Plan.
The purposes of this Nonqualified Stock Option Plan - 1997 (the
"Plan") of Platinum Software Corporation, a Delaware corporation (the
"Company"), are (a) to insure the retention of the services of existing
executive personnel and key employees or its affiliates; (b) to attract and
retain competent new executive personnel and key employees; (c) to provide
incentive to all such personnel and employees to devote their utmost effort and
skill to the advancement and betterment of the Company, by permitting them to
participate in the ownership of the Company and thereby in the success and
increased value of the Company; and (d) to allow consultants, business
associates and others with important business relationships with the Company the
opportunity to participate in the ownership of the Company and thereby have an
interest in the success and increased value of the Company.
2. Shares Subject to the Plan.
The shares of stock subject to nonqualified options having the
terms and conditions set forth in Section 6 below (hereinafter "nonqualified
options") and other provisions of the Plan shall be shares of the Company's
authorized but unused or reacquired common stock (herein sometimes referred to
as the "Common Stock"). The total number of shares of the Common Stock of the
Company which may be issued under the Plan shall not exceed, in the aggregate,
five hundred thousand (500,000) shares. The limitations established by the
preceding sentence shall be subject to adjustment as provided in Section 7
below. In the event that any outstanding nonqualified option granted under the
Plan can no longer under any circumstances be exercised, or in the event that
any shares purchased pursuant to the Plan are reacquired by the Company, for any
reason, the shares of Common Stock allocable to the unexercised portion of such
nonqualified option, or the shares reacquired, as the case may be, may again be
subject to grant or issuance under the Plan.
1
<PAGE> 3
3. Eligibility.
Employees of the Company or of any subsidiary corporation, or
consultants, business associates or others with important business relationships
with the Company, will be eligible to receive nonqualified options under the
Plan. An individual who has been granted a nonqualified option may, if otherwise
eligible, be granted an additional nonqualified option or options if the Board
or Committee shall so determine.
4. Administration of the Plan.
(a) This Plan shall be administered by the Board of Directors of
the Company (the "Board") or by a committee (the "Committee") consisting of two
(2) or more members of the Board. Members of the Committee may be appointed from
time to time by and serve at the pleasure of the Board. No person serving as a
member of the Board or the Committee shall act on any matter relating solely to
such person's own interests under the Plan or any option thereunder. For
purposes of the Plan, the term "Administrator" shall mean the Board, or if the
Board delegates responsibility for any matter to the Committee, the Committee.
The Administrator may from time to time, in its discretion, determine which
persons shall be granted nonqualified options under the Plan, the terms thereof,
and the number of shares for which nonqualified options shall be granted.
(b) The Administrator shall have full and final authority to
determine the persons to whom, and the time or times at which, nonqualified
options shall be granted, the number of shares to be represented by each
nonqualified option and the consideration to be received by the Company upon the
exercise thereof; to interpret the Plan; to amend and rescind rules and
regulations relating to the Plan; to determine the form and content of the
nonqualified options to be issued under the Plan; to amend and modify the terms
of nonqualified options issued under the Plan, including amending and modifying
the exercisability provisions; to determine the identity or capacity of any
persons who may be entitled to exercise a participant's rights under any
nonqualified option under the Plan; to correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any nonqualified option
agreement in the manner
2
<PAGE> 4
and to the extent the Board or Committee deems desirable to carry the Plan or
nonqualified option into effect; to accelerate the exercise date of any
nonqualified option; to provide for an option to the Company to repurchase any
shares issued upon exercise of an option upon termination of employment; and to
make all other determinations necessary or advisable for the administration of
the Plan, but only to the extent not contrary to the express provisions of the
Plan. Any action, decision, interpretation or determination by the Administrator
with respect to the application or administration of the Plan shall be final and
binding on all participants and prospective participants.
5. Option Exercise Price.
(a) Nonqualified Options. The exercise price of the shares
of Common Stock covered by each nonqualified option granted under the Plan shall
not be less than the fair market value of such shares on the date the
nonqualified option is granted.
(b) Fair Market Value. For purposes of this Section 5, fair
market value shall, if the Common Stock is not listed or admitted to trading on
a stock exchange, be the average of the closing bid price and asked price of the
Common Stock in the over-the-counter market on the date the nonqualified option
is granted, or, if the Common Stock is then listed or admitted to trading on any
stock exchange or the Nasdaq National Market in the over-the-counter market, the
closing sale price on such day on the principal stock exchange on which the
Common Stock is then listed or admitted to trading, or, if no sale takes place
on such day on such national market system or principal exchange, then the
closing sale price of the Common Stock on such national market system or
exchange on the next preceding day on which a sale occurred. During such times
as there is not a market price available, the fair market value of the Company's
Common Stock shall be determined by the Administrator, which shall consider,
among other facts which it considers to be relevant, the book value of such
stock and the earnings of the Company. The exercise price or the purchase price,
as the case may be, shall be subject to adjustment as provided in Section 7
below.
3
<PAGE> 5
6. Terms and Conditions of Nonqualified Options.
(a) Terms and Conditions Applicable to Nonqualified
Options. Each nonqualified option granted pursuant to this Plan shall be
evidenced by a written Nonqualified Option Agreement which shall specify that
the options subject thereto are nonqualified options. The granting of a
nonqualified option shall take place only when this written Nonqualified Option
Agreement shall have been duly executed and delivered by or on behalf of the
Company to the optionee to whom such nonqualified option shall be granted.
Neither anything contained in the Plan nor in any resolution adopted or to be
adopted by the Administrator shall constitute the granting of any nonqualified
option. The Nonqualified Option Agreement shall be in such form as the
Administrator shall, from time to time, recommend, but shall comply with and be
subject to the following terms and conditions:
(i) Medium and Time of Payment. The nonqualified option
price shall be payable (i) in United States dollars payable in cash, certified
check, or bank draft; (ii) subject to any legal restrictions on the acquisition
or purchase of its shares by the Company, by the delivery of shares of Common
Stock that have been held by optionee for at least six (6) months, which shall
be deemed to have a value to the Company equal to the aggregate fair market
value of such shares determined at the date of such exercise in accordance with
the provisions of Section 5 above; (iii) by the issuance of a promissory note in
a form acceptable to the Administrator; (iv) by cancellation of indebtedness of
the Company to optionee, (v) by waiver of compensation due or accrued to
optionee for services rendered, (vi) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD" Dealer) whereby the optionee irrevocably elects to exercise
his Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company, (vii)
provided that a public market for the Company's stock exists, through a "margin"
commitment from the optionee and a NASD Dealer whereby the optionee irrevocably
elects to exercise this Option and to pledge the Shares so purchased to the NASD
Dealer in a margin
4
<PAGE> 6
account as security for a loan from the NASD Dealer in the amount of the
exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company, or (viii) any
combination of (i), (ii), (iii), (iv), (v), (vi), or (vii) above.
(ii) Number of Shares. The nonqualified option shall
state the total number of shares to which it pertains.
(iii) Term of Nonqualified Option. Each nonqualified
option granted under the Plan shall expire within a period of not more than ten
(10) years from the date the nonqualified option is granted.
(iv) Date of Exercise. The Administrator may, in its
discretion, provide that a nonqualified option may be exercised immediately or
that it may not be exercised in whole or in part for any specified period or
periods of time or subject to the completion of specified projects or
fulfillment of specified duties or responsibilities or the fulfillment of
specified financial or other objectives. Except as may be so provided, any
nonqualified option may be exercised in whole at any time or in part from time
to time during its term.
(v) Termination of Employment. In the event that an
optionee who is an employee of the Company shall cease to be employed by the
Company or any of its subsidiaries for any reason including without limitation
as a result of his or her death or disability, (i) all nonqualified options
granted to any such optionee pursuant to this Plan which are not exercisable at
the date of such cessation shall terminate immediately and become void and of no
effect, and (ii) all nonqualified options granted to any such optionee pursuant
to this Plan which are exercisable at the date of such cessation may be
exercised as determined by the Administrator, but in any event no later than the
date of expiration of the nonqualified option period, and if not so exercised
within such time shall become void and of no effect at the end of such time.
Notwithstanding the above, the Administrator shall maintain, in its reasonable
discretion, the ability to consider the status of an individual performing
consulting services for
5
<PAGE> 7
the Company or making himself available to perform consulting services for the
Company in determining whether an individual is employed by the Company.
(b) Other Terms and Conditions.
(i) Rights as a Shareholder. A nonqualified optionee
shall have no rights as a shareholder with respect to any shares of Common Stock
covered by his or her nonqualified option until the date of the issuance of a
share certificate to such optionee for such shares. No adjustment shall be made
for dividends or distributions or other rights for which the record date is
prior to the date such share certificate is issued.
(ii) Nonassignability of Rights. No Nonqualified Option
Agreement shall be assignable or transferable by the person receiving same
except (i) by will or the laws of descent and distribution; or (ii) with the
prior written consent of the Administrator, which consent of the Administrator
may be withheld by the Administrator in the Administrator's sole discretion.
(iii) Other Provisions. Any Nonqualified Option Agreement
may contain such other terms, provisions and conditions as may be determined by
the Administrator. Nonqualified options granted to different persons, or to the
same person at different times, may be subject to terms, conditions and
restrictions which differ from each other.
7. Changes in Capital Structure.
(a) In the event that the outstanding shares of Common
Stock of the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation or reorganization in which the
Company is the surviving corporation or of a recapitalization, stock split,
combination of shares, reclassification, reincorporation, stock dividend (in
excess of 2%), or other change in the corporate structure of the Company,
appropriate adjustments shall be made by the Board of Directors in the aggregate
number and kind of shares subject to this Plan, and the number and kind of
shares and the price per share subject to outstanding nonqualified options in
order to preserve, but not to increase, the benefits to persons then holding
nonqualified options.
6
<PAGE> 8
(b) In the event that a Change of Control (as defined
below) occurs, the vesting of all nonqualified options shall be accelerated and,
concurrent with the effective date of the Change of Control, such persons shall
have the right to (i) exercise the nonqualified option in respect to any or all
of the shares then subject thereto, or (ii) to the extent applicable depending
upon the nature of the Change of Control, exchange the nonqualified option for
cash in an amount equal to the number of shares which as of the effective date
of the Change of Control may be acquired upon the exercise of the nonqualified
option, multiplied by the difference between (A) the fair market value of the
consideration to be paid per share in connection with the Change of Control as
determined by the Board of Directors, which determination shall be final and
binding on the optionee, and (B) the exercise price. Such cash payment shall be
paid within thirty (30) days following the consummation of the Change of
Control. Neither the approval of the Board or the Committee shall be required in
connection with such election and the cash distribution. To the extent possible,
the Administrator shall cause written notice of the Change of Control to be
given to the persons holding nonqualified options not less than thirty (30) days
prior to the anticipated effective date of the Change of Control. In the event
of a Change of Control, the Administrator may take such other action as is
equitable and fair. Upon consummation of the Change in Control the Plan and all
unexercised options granted hereunder shall terminate.
(c) For the purposes of this Agreement, the term "Change of
Control" shall mean the occurrence of any of the following:
(i) Any "person," as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, a Company subsidiary, or a Company employee
benefit plan, including any trustee of such plan acting as trustee) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company (or a successor to
the Company) representing fifty percent (50%) or more of the combined voting
power of the then outstanding securities of the Company or such successor; or
7
<PAGE> 9
(ii) At least a majority of the directors of the Company
constitute persons who were not at the time of their first election to the
Board, candidates proposed by a majority of the Board of Directors in office
prior to the time of such first election; or
(iii) A merger or consolidation in which the Company is
not the surviving entity, except for a transaction, the principal purpose of
which is to change the state in which the Company is incorporated; or
(iv) A sale, transfer or other disposition of assets
involving fifty percent (50%) or more in value of the assets of the Company; or
(v) The dissolution of the Company, or liquidation of
more than fifty percent (50%) in value of the Company; or
(vi) Any reverse merger in which the Company is a
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from the persons holding those
securities immediately prior to such reverse merger.
8. Amendment and Termination of the Plan.
The Board of Directors of the Company may from time to time
alter, amend, suspend or terminate the Plan in such respects as the Board of
Directors may deem advisable; provided, however, that no such alteration,
amendment, suspension or termination shall be made which shall substantially
affect or impair the rights of any person under any nonqualified option
theretofore granted to him without his consent. Without limiting the generality
of the foregoing, to the extent permitted by applicable law, the Board of
Directors of the Company may alter or amend the Plan to comply with requirements
under the Internal Revenue Code relating to stock options which give the
optionee more favorable tax treatment than that applicable to options granted
under this Plan as of the date of its adoption. Upon any such alteration or
amendment, to the extent permitted by applicable law, any outstanding option
granted hereunder shall be subject to the more favorable tax treatment afforded
to an optionee pursuant to such terms and conditions as the Administrator may
determine.
8
<PAGE> 10
Unless the Plan shall theretofore have been terminated, the Plan
shall be effective on July 29, 1997, and shall terminate on July 29, 2007.
10. Application of Funds.
The proceeds received by the Company from the sale of Common
Stock pursuant to nonqualified options except as otherwise provided herein, will
be used for general corporate purposes.
11. No Obligation to Exercise Option or Right of Purchase.
The granting of a nonqualified option shall impose no obligation
upon the optionee to exercise such nonqualified option.
12. Continuance of Employment.
The Plan or the granting of any nonqualified option thereunder
shall not impose any obligation on the Company to continue the employment of any
optionee.
9
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