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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _________________
COMMISSION FILE NUMBER 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 (I.R.S 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: (949) 453-4000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF CLASS
COMMON STOCK, PAR VALUE $.001 PER SHARE
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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
--- ---
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 the 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. [ ]
The aggregate market value of the registrant's voting Common Stock held
by non-affiliates of the registrant was approximately $269,741,181 (computed
using the closing sales price of $13.25 per share of Common Stock on September
3, 1998 as reported by the Nasdaq National Market). Shares of Common Stock held
by each officer and director and each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.
There were 28,369,525 shares of the registrant's Common Stock, par
value $.001 per share, outstanding on September 3, 1998.
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Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held on October 28, 1998, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended June 30, 1998, are incorporated by reference in
Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Platinum Software Corporation ("Platinum" or the "Company") designs,
develops, markets and supports an integrated suite of client/server enterprise
resource planning ("ERP") applications targeted for use by midmarket companies
and divisions/subsidiaries of large corporations worldwide. The Company has two
primary software product lines: Platinum(R) SQL, which includes client/server
financial accounting, budgeting, manufacturing, distribution, sales force
automation and customer service and support software applications optimized for
use with Microsoft Windows NT and the Microsoft SQL Server relational database
management system which are targeted at medium-sized organizations; and
Platinum(R) for Windows, an integrated, powerful, Windows-based financial
accounting software application designed for local area networks ("LANs"). In
addition, the Company continues to market the predecessor to the Platinum for
Windows product line, Platinum(R) for DOS. The Company's software products
incorporate a significant number of internationalized features to address global
market opportunities for financial and management information, including support
for national languages, multiple currencies and accounting for value-added
taxation. The Company also offers consulting, training and support services to
supplement the use of its software products by its customers.
The Company was incorporated in Delaware in November 1984 under the
name "Platinum Holdings Corporation." In September 1992, the Company changed its
name to Platinum Software Corporation. The Company has seven operating
subsidiaries: Platinum Software Canada, Ltd., Platinum Software (Aust.) Pty.
Limited, Platinum Software (N.Z.) Limited, Platinum Software (U.K.) Limited,
Platinum Software (Ireland) Limited, Platinum Software (North Asia) Limited and
Platinum Software Asia, Pte. Unless the context otherwise requires, references
to the "Company" herein includes Platinum Software Corporation and its operating
subsidiaries. The Company's headquarters and principal place of business are
located at 195 Technology Drive, Irvine, California 92618-2402, and its
telephone number is (949) 453-4000.
BACKGROUND
In recent years, organizations have increasingly focused on collecting,
analyzing and distributing mission-critical enterprise information as rapidly
and efficiently as possible to improve productivity and to secure a competitive
advantage. Historically, computing environments for large organizations were
dominated by mainframes and minicomputers, which were expensive to purchase,
install and maintain. Due to the centralized nature of these generally
proprietary systems, access to critical data was typically limited to an
organization's management information services ("MIS") department and was not
readily available to key decision makers.
In the 1980s, the advent of more powerful and less expensive personal
computers ("PCs"), coupled with improvements in networking technology, led to
the adoption of LANs in increasing numbers by businesses of all sizes. LANs
enabled organizations to have on-line access to real-time, mission-critical
data. Financial and management information software products were introduced
based on open database architectures. These systems were easier to implement and
modify and critical information could be accessed readily from a variety of
"off-the-shelf" general business productivity applications such as spreadsheet
and database programs.
The continuing advances in both microprocessor and network technology
resulted in corresponding increases in network performance, which caused LAN
systems to be adopted increasingly by many medium and small organizations and
departments of large organizations. For some medium and most small
organizations, LAN-based systems continue to be effective solutions. However, in
heavy processing environments with large numbers of users and tremendous amounts
of data being sent across the network, bottlenecks can significantly reduce the
performance of the LAN-based system. Consequently, the limited client/server
functionality of these LAN systems can create difficulties for larger
organizations that combine heavy data flow requirements on an enterprise-wide
basis with a large number of users. Further, LAN-based systems offer less
control than centralized, host-based systems over the security and integrity of
information, despite increasing access to that information and, therefore, many
MIS departments have been somewhat reluctant to store sensitive,
mission-critical data on LAN systems.
Many of the limitations of LAN technology have been overcome by the
development of advanced client/server technology for storing, accessing and
distributing data. The client/server model consists of PC and workstation
"clients" connected on enterprise-wide networks to "servers," generally more
powerful systems, such as high-performance PCs or workstations, minicomputers,
reduced instruction set computer ("RISC")-based servers or mainframes. The
client/server architecture is designed to partition the processing of
application software between
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the client and the server to allow the clients to handle the user interface and
local data manipulation while allowing the server to perform computing-intensive
functions. This design minimizes network traffic and exploits the server's
powerful processing capability. Because of this partitioning, system throughput
is scaleable and can be increased by replacing the server computer with a more
powerful machine. Client/server systems also offer the degree of data integrity
and security that large MIS departments require, since all data access can be
controlled by server-based relational database management systems ("RDBMSs")
that couple the benefits of open database architectures with the benefits of
centralized control offered by host-based systems.
With the dramatic scalability and performance improvements made
possible with client/server technology, many organizations looked to leverage
this technology to implement enterprise business applications. Enterprise
business applications began as an extension of the corporate reengineering
efforts of the early 1990s. As Fortune 1,000 companies aggressively invested in
information technology to help them streamline and integrate disparate business
processes, they created a tremendous demand for enterprise wide software
applications. At first, only these large organizations had the technological
expertise, budget and ability to support lengthy implementations typified by
early solutions.
This demand helped make the enterprise applications market one of the
largest and fastest growing segments of the software industry. In fact, AMR
Research, Inc., an industry analyst, projects that the enterprise applications
market will grow 37 percent annually for the next several years, reaching more
than $52 billion by 2002, up from just $14.8 billion in 1997.
While smaller companies understood the business value of enterprise
applications, they lacked the extensive resources required to implement and
support such first-generation solutions. Collectively known as the "midmarket,"
these small and mid-sized organizations number in the hundreds of thousands
worldwide. In their own quest to boost productivity, profits and gain a
competitive advantage, midmarket companies increasingly turned to integrated
application software to automate and link business processes. Due to the
midmarket's unique business limitations, "best-of-breed" solutions and
after-market application integration were far too cumbersome and costly to be an
effective enterprise solution. The midmarket required a software application
that leveraged the advances in client/server software technology to deliver a
truly integrated and enterprise wide solution.
Enterprise applications employed by midmarket companies are required to
satisfy business and technology requirements that are significantly different
from those found in Fortune 1,000 organizations. As a group, midmarket companies
face tremendous global competitive pressures because they compete for business
against larger corporations, other midmarket competitors and smaller start-ups.
They understand the need to remain close to their customers and to make the most
effective use of their relatively limited resources. Midmarket companies demand
a quick return on technology investments and require that solutions be
affordable not only to acquire, but also throughout its entire operational
lifecycle.
With respect to technology, midmarket companies are practical
consumers. Midmarket companies generally do not take risks on cutting-edge
technology, but instead typically select affordable, proven solutions. The
decade's dramatic decrease in information technology costs, coupled with a
simultaneous increase in computing power, have made key new technologies
accessible to this cost-conscious market. Microsoft Corporation took advantage
of increased computing capabilities to develop Microsoft BackOffice(R), a robust
network operating system and scaleable relational database that provides smaller
businesses with a sophisticated technology infrastructure previously accessible
only to Fortune 1,000 corporations. Microsoft Windows NT(R) and SQL Server
quickly became the fastest growing technology platforms, attracting midmarket
companies with its features, familiarity and ease-of-use.
The development of cost-effective infrastructures has increased the
midmarket's investment in enterprise applications. Spurred by outside issues,
such as Year 2000 readiness and pending Euro currency mandates, midmarket
companies realized they could finally afford--or, rather not afford to be
without--enterprise business solutions. The Company's product offerings and
product development efforts are focused on meeting the enterprise business
application needs of growing midmarket businesses.
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TECHNOLOGY STRATEGY
The Company's technology strategy is to develop a leading line of
enterprise business software applications using industry-standard tools where
possible, and to take advantage of leading third-party, industry-standard
technologies for database management systems, operating systems, user interfaces
and connectivity (including Internet, Intranet and Extranet access). The Company
developed its own proprietary application development tools to create its first
generation of client/server products, as well as acquired several proprietary
application development tools through recent acquisitions. These technologies
and tools were developed to meet the unique needs of the current marketplace.
However, as industry-standard tools mature, the Company intends to increasingly
exploit these leading tools as they become generally available. The Company's
core product architecture incorporates many of the foundation technologies of
client/server computing, including:
Open Relational Database Technology
The Company utilizes open relational database technology to provide
extremely flexible, integrated financial, operational, customer service and
management information software applications. This open database orientation is
based on widely accepted database managers. The Company's Platinum SQL product
line uses both the Microsoft and Sybase SQL Server relational database
management systems. The Company has based its Platinum SQL product line using
the industry-standard SQL language as the fundamental database access
methodology. The Platinum for Windows product line, as well as the Platinum for
DOS core set of accounting and financial applications, are optimized for the
Pervasive, Inc. database, Pervasive.SQL.
Advanced Networking/Connectivity
The Company's products are designed to operate on LANs, wide area
networks ("WANs"), the Internet, Intranets, Extranets, mobile and dial-up
connections. The Company supports popular industry-standard networking protocols
such as TCP/IP, Novell IPX/SPX and Microsoft NETBEUI/Named Pipes. The Company's
connectivity and networking support offers advanced features such as: (i)
concurrent access to data and critical functions for all network users; (ii) a
high degree of fault tolerance; (iii) high levels of security; (iv) a wide range
of options for configuring different users on the network; (v) remote access and
data processing; and (vi) mobile computing.
Industry Standard User Interfaces
The Company has incorporated numerous features into its user interfaces
to simplify the operation of and access to its products. The Company's products
generally conform to the Common User Access standard and include the ability to
mirror the form of printed output on the screen. The Company's Platinum SQL
(including the Financial, Distribution, Manufacturing and Clientele solution
suites) and Platinum for Windows product lines incorporate the popular Microsoft
Windows graphical user interfaces ("GUIs"). The Company's GUI tools include
industry-standard field controls, pull-down menus, tool bars and tab menus that
facilitate the use of the software. In addition, the Company's Platinum SQL and
Platinum for Windows products incorporate the latest and most advanced GUI
features such as process wizards, cue cards, advanced on-line help and on-line
documentation. These tools and the Windows multiple document interface ("MDI")
give the user interface a popular look and feel. The Company's Platinum for
Windows product was designed using the Windows 95 user interface standards,
incorporating document-centric views, the use of the single document interface,
tab oriented forms and wizards for application set up and configuration.
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Powerful Application Development Tools
The Company provides comprehensive, ground-up application development
and customization capabilities for its Platinum SQL and Platinum for Windows
product lines. To accomplish this, the Company provides extensive, integrated
application development environments for both product lines. The core tools for
the Platinum SQL financial suite delivers a complete client/server development
environment, enabling a user to make changes ranging from a simple field name
change to building an integrated custom application. The intuitive Windows
interface of the Visual Forms Designer provides a powerful tool to modify and
extend the functionality of standard applications. In addition,
industry-standard Visual Basic macro language and ActiveX Automation support
enable all Platinum SQL applications to exchange data and integrate with
external COM-enabled Microsoft Windows applications.
The Platinum SQL Customization Workbench is a software development kit
for Platinum SQL which enables customers and authorized resellers to build
comprehensive software solutions that augment the standard product. The
Customization Workbench includes technical reference guides and diagrams, an OLE
integration kit and certain report script source code. The Company has recently
licensed Visual Basic for Applications and intends to incorporate it into the
next release of Platinum SQL.
The Platinum SQL distribution and manufacturing suites employs
PowerBuilder from Sybase, Inc. to provide its user interface. Due to the
complexity and wide variations of the changes needed for many end users of the
manufacturing and distribution products, the Company offers complete
customization services through its professional services group. In addition to
its Windows-based client, the Company provides a Java-based user interface and
middle-tier application server to provide electronic commerce functionality on
top of the same database platform. Users are provided with complete capabilities
to change the user interface, validation rules and business processing of
business-to-business transactions using a complete application extension
environment.
The Platinum SQL Clientele front office suite uses a proprietary forms
package to build and modify the user interface. The suite also includes
Clientele Basic to enable users and consultants to tailor the look and feel,
behavior and processing of the Clientele application suite to meet their
specific business needs. Clientele Conductor provides workflow routing and rules
capabilities that allow any user, no matter where they are, to receive messages
and tasks from the system. ClienteleNet enables internal users and remote users
and customers to interact with the system via a browser over the Internet.
Platinum for Windows was developed using industry standard development
tools such as Visual Basic and utilizes the industry standard Pervasive.SQL
database engine. As a result, a series of reusable objects have been created. By
exposing certain aspects of the objects, users have the ability to modify and
extend the system without losing a consistent user interface. Platinum for
Windows also includes template definition for easier document entry and wizards
which make it easier for a user to set up the software or define users or
groups.
Client/Server Technology
In order to fully exploit the capabilities of the client/server model
of computing, the Company has optimized its Platinum SQL product line for the
Microsoft SQL Server database and also supports the Sybase SQL Server database.
All major data manipulation functions are implemented in the native language of
both of the database servers, Transact SQL, and thereby are executed as "stored
procedures" and/or "triggers" that are processed solely on the server. This
implementation results in a substantial reduction in network traffic as compared
to other client/server approaches, provides scaleable high performance, and
provides inherent portability of the RDBMS to a large number of server, hardware
and operating system platforms without code change or conversion.
PRODUCTS
The Company designs, develops, markets and supports a broad range of
integrated, client/server enterprise resource planning software applications
that provide organizations with technically advanced business solutions. The
Company's two primary software product lines are Platinum SQL and Platinum for
Windows. The Platinum SQL product suite includes financial accounting,
budgeting, manufacturing, distribution, sales force automation and customer
service and support functionality. In addition, the Company sells and supports
its Platinum for DOS financial accounting software products. The Company also
continues to provide support for the installed base of Platinum(R) SQL
Enterprise (formerly SeQueL to Platinum(R)), a product which the Company
discontinued marketing in 1996.
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Platinum SQL
Platinum SQL, an integrated suite of client/server enterprise resource
planning software applications, is designed to meet the unique business needs of
midmarket companies and subsidiaries or divisions of larger corporations. These
organizations require the power and sophistication of high-end client/server
applications but desire a rapid and unobtrusive product implementation cycle for
managing their critical business information. The Platinum SQL suite of products
includes financial accounting, budgeting, manufacturing, distribution, sales
force automation and customer service and support. The product is optimized for
use with the Microsoft Windows NT operating systems and the Microsoft SQL Server
relational database. Platinum SQL minimizes the complexities of client/server
installation by providing the user with installation wizards which help
configure the Microsoft SQL Server database based upon information provided by
the installer. As previously indicated, Platinum SQL was designed for the
Microsoft Windows NT server platform and runs on Windows NT and Windows 95/98
client platforms. Platinum SQL is integrated with other Microsoft software
products and supports Active X which enables customers to integrate not only
other Microsoft products but any Active X-compliant application. In addition,
Platinum SQL is a 32-bit client and server application that takes full advantage
of the Microsoft SQL server for Windows NT.
The following modules of Platinum SQL are currently generally
available: General Ledger with FRx and System Manager; Multi-Currency Manager;
Accounts Receivable; Accounts Payable; Inventory Control; Cash Management; Order
Entry; Purchase Order; Asset Management; Advanced Allocations; Budget Manager;
FRx remote drill down viewer; Customization Workbench; Platinum SQL Internet
Object Server; Platinum Explorer; Manufacturing; Advanced Distribution; Advanced
Purchasing; Platinum SQL Net Order; Clientele for Customer Support; Clientele
for Sales and Marketing; Clientele for Help Desks; Conductor and ClienteleNet.
Version 7.0 of Platinum SQL is scheduled for general release in November 1998.
See "Certain Considerations - Forward Looking Statements." Platinum SQL 7.0 will
include an increased level of integration between the financial, distribution
and manufacturing applications so that each such application will share the same
customer and vendor data. The 7.0 release of Platinum SQL will also support
Microsoft SQL Server 7.0 and will include enhanced functionality in the
distribution application as well as contain the Platinum Explorer application,
which will allow a user to inquire and drill into data in other integrated
applications throughout the entire Platinum SQL suite. See "Certain
Considerations Forward Looking Statements."
Clientele Version 3.0, introduced in March 1998, is a front office
application (including customer service and sales force automation
functionality) which enables small to mid-sized businesses to organize, maintain
and share customer information to improve customer service and improve support
and sales personnel productivity. The Clientele line of products includes
applications used for managing customer service and support operations including
internal help desk, (in general, the MIS department) supporting the
organization's internal workforce; and external help desk for supporting the
customers, vendors, and suppliers that the Company conducts business with. The
Clientele products also include a sales and marketing automation application
which, when combined with the customer service and support application, enables
organizations to share customer information from the initial contact throughout
the duration of the customer lifecycle. The sales and marketing application
includes contact management, opportunity management, account management,
territory management, a marketing encyclopedia, scheduling and calendaring.
The Company's distribution and manufacturing product suites are
comprehensive, client/server applications designed to improve the efficiency and
responsiveness of manufacturing and distribution operations. The manufacturing
and distribution modules are integrated with the Platinum SQL financial
application suite to ensure that repetitive, make-to-order, configure-to-order,
job shop or hybrid manufacturing operations are always in sync with sales,
distribution, purchasing and financial departments. The customer-centric focus
of Platinum SQL manufacturing and distribution suites enables companies to
respond quickly to customer demands and improve customer service. The suites
also offer advanced functionality, such as an Advanced Planning and Scheduling
engine, product customization and job shop.
License fees for Platinum SQL vary depending upon the number of
concurrent users and platform. Revenues attributable to licenses of Platinum SQL
(including Clientele) were $17,159,000, $24,687,000, and $48,825,000 or 38%, 41%
and 50% of the Company's total revenues in fiscal years 1996, 1997 and 1998,
respectively.
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Platinum for Windows and Platinum for DOS
Platinum for Windows is a Windows-based client/server financial
accounting software package for smaller businesses whose corporate computing
environment consists of LANs comprised of personal computers. Platinum for
Windows is the next generation of the Company's Platinum for DOS and Platinum
Premier financial accounting applications. First introduced in June 1995,
Platinum for Windows includes a Windows-based client which was designed around
the interface standards of Microsoft Windows 95 to handle all user interaction
and data maintenance. The Windows-based client interacts with an application
server which runs postings, reports and utilities. Both the client and the
server communicate with the LAN-based Pervasive.SQL database. No database
conversions are required to upgrade from the Platinum for DOS product to
Platinum for Windows, ensuring a smooth upgrade path for Platinum for DOS users.
The following modules of Platinum for Windows are presently generally
available: Premier Ledger with FRx, Premier Consolidations, Premier Currency
Translation, Premier Inter-Company Processing, Premier Budgeting, Foreign
Currency Manager, System Manager, General Ledger, Bank Book, Accounts
Receivable, Accounts Payable, Purchase Order, Sales Order, Inventory, Project
Costing, Bank Book, Advanced Allocations, and Budget Manager.
In addition, the Company continues to sell and support its Platinum for
DOS integrated financial software applications. First introduced in June 1985,
the core Platinum for DOS accounting modules include General Ledger, Accounts
Receivable, Accounts Payable, Inventory, Order Entry, System Manager, Purchase
Order, Job Costing, Bank Book and Consolidations. In addition, the Company
offers Platinum Premier financial applications, which are extensions of the core
Platinum for DOS modules and are designed to meet the sophisticated financial
reporting requirements of a larger customer. The Platinum Premier financial
applications modules operate in conjunction with other Platinum for DOS and
Windows-based modules and provide downsizing and rightsizing opportunities to
larger organizations whose previous barriers were not the performance or
capacity of LAN-based systems but lack of advanced feature sets available from a
LAN-based program. The next release of Platinum for Windows, version 4.7, is
scheduled for release during the fourth quarter of calendar year 1998. Planned
enhancements to this product include the addition of serial/lot tracking and
drop shipment functionality and enhanced Internet access. See "Certain
Considerations-Forward Looking Statements."
Revenues attributable to licenses of the Platinum for Windows and
Platinum for DOS applications were $6,075,000, $7,436,000 and $8,752,000, or
13%, 12% and 9% of the Company's total revenues in fiscal years 1996, 1997 and
1998, respectively.
Platinum SQL Enterprise
Platinum SQL Enterprise, formerly named SeQueL to Platinum, an
integrated financial and management information software application based on
the Microsoft and Sybase SQL Server databases for use on client/server systems,
was discontinued during fiscal 1996, although the Company continues to provide
maintenance and support for the installed base for this product.
Other Products
The Company also offers a line of integration kits and database
products that support its Platinum for Windows and Platinum for DOS lines of
software products and licenses these products to its Value Added Resellers
("VARs"), distributors, Authorized Consultants and end-users. The Company also
serves as an OEM vendor for certain third-party software applications and pays
royalties to various organizations in connection with the distribution of
third-party software and the sale of products that incorporate third-party
technologies.
PROFESSIONAL SERVICES, TECHNICAL SUPPORT AND SOFTWARE MAINTENANCE
The Company's professional services division provides consulting
services to customers in the design and implementation of the Company's software
products, as well as custom software development, education, training and other
services. The professional services division functions in domestic and
international markets and primarily focuses on larger corporate accounts.
Professional services are generally provided on a time and materials basis. The
Company believes that its provision of professional services, in conjunction
with its current and planned product offerings, facilitates the licensing of
technology to customers, stimulates demand for the Company's products and
provides a key market differentiator over its competition.
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The Company is committed to providing timely, high-quality technical
support, which the Company believes is critical to maintaining customer
satisfaction. The Company provides technical support by offering telephone
support, e-mail support, facsimile support and communications through its World
Wide Web site, http://www.platsoft.com. Telephone support is available five days
a week during normal business hours on a nearly worldwide basis, collectively
from the Company's three support centers in Dublin, Ireland, Sydney, Australia
and Irvine, California. The Company also believes that customer satisfaction
should be maintained by ensuring that its VARs, Distributors and Authorized
Consultants are able to effectively provide front-line technical support and
assistance to end-users. The Company offers comprehensive training, telephone
consultation and product support for its VARs, Distributors and Authorized
Consultants. Training courses are held regularly in major cities worldwide.
The Company offers its Platinum for Windows and Platinum for DOS
customers several software maintenance options, for varying annual fees. The
Company's software maintenance programs are the sole avenue for product updates
and technical support. The annual maintenance fee for the Platinum SQL product
is 18% of the then current list price. Customers who subscribe for maintenance
receive telephone and technical support, timely information on product
enhancements and features and product updates and upgrades. Revenue from these
software maintenance agreements is recognized ratably over the maintenance
period.
The Company provides a three month performance warranty for its
Platinum SQL modules. In addition, the Company provides a three-month warranty
for the media on which its Platinum for Windows and Platinum for DOS products
are licensed.
Services revenues, which include consulting, education, training and
maintenance and support services, were approximately $21,817,000, $27,420,000
and $40,406,000, respectively in fiscal years 1996, 1997 and 1998, or 48%, 45%
and 41% respectively, of total revenues in fiscal 1996, 1997 and 1998.
MARKETING, SALES AND DISTRIBUTION
The Company sells and markets its products and services worldwide,
directly and through a network of VARs, distributors and software consultants
who generally market the Company's products on a nonexclusive basis. The
Company's products are sold to and used by a broad customer base, including
businesses, government bodies, educational institutions and other users. The
Company sells its Platinum for Windows and Platinum for DOS products exclusively
through VARs or distributors. The Company sells its Platinum SQL product through
a hybrid channel that includes a direct sales force as well as a network of
VARs. The Company, in the fourth quarter of fiscal 1996, commenced development
of this direct sales force to supplement the efforts of the VARs and
distributors. The Company's field sales organization is divided into geographic
regions: United States, divided into Northeast, Southeast, Northcentral,
Southcentral, Northwest, and Southwest; Canada; United Kingdom/Europe/Middle
East/Africa; Australia/New Zealand; Asia and other international countries. The
Company sells its Clientele modules through an internal telesales organization
and through a direct sales force.
The Company's network of VARs and Authorized Consultants are required
to undergo extensive training and certification procedures provided by the
Company on the use, installation and implementation of the Company's products as
a condition of being authorized by the Company to sell its products. The
Company's VARs include consulting groups and resellers, the majority of whom
provide computer installations, systems integration and consulting services to
organizations. The Company's Authorized Consultants generally are not resellers
of the Company's products, but professional firms who offer implementation
services and product support to end-users. The Company believes that its
Authorized Consultants are product influencers and are a valuable part of the
Company's marketing, sales and distribution efforts.
To support the Company's network of VARs and Authorized Consultants,
the Company provides experienced personnel who are specifically tasked with
their growth and support. These individuals are responsible for educating and
training the distribution channel, disseminating information, implementing
marketing programs and developing regional markets.
In recognition of international opportunities for its software
products, the Company has committed resources to an international sales and
marketing effort. The Company has established subsidiaries in the United
Kingdom, Australia, New Zealand, Canada, Hong Kong and Singapore to further such
sales and marketing efforts. The Company sells its products in Europe, including
Russia, Latin and South America, Africa, Asia and the Middle
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East principally through third-party distributors and dealers. The Company's
international revenues were approximately $14,079,000, $17,368,000 and
$27,480,000, or 31%, 29% and 28% of total revenues, in fiscal years 1996, 1997
and 1998, respectively. See "Note 9 of Notes to Consolidated Financial
Statements."
The Company currently has sales offices located in the metropolitan
areas of Atlanta, Boston, Chicago, Dallas, Detroit, Houston, Louisville, Irvine,
New York, Portland, San Francisco, St. Louis, Seattle, Tampa, Washington, D.C.,
Calgary, Canada, Toronto, Canada, Auckland, New Zealand, London, England, Sydney
and Melbourne, Australia, Hong Kong and Singapore.
Products are generally shipped as orders are received or within 30 days
thereof and, accordingly, the Company has historically operated with little or
no backlog. Because of the generally short cycle between order and shipment, the
Company does not believe that its backlog as of any particular date is
meaningful.
PRODUCT DEVELOPMENT AND QUALITY ASSURANCE
Since inception, the Company has made substantial investments in
product development, which is evidenced by the following product releases: the
1985 release of a LAN-based client/server accounting package that offered a high
degree of multi-user concurrency; the 1988 release of an accounting package
written for OS/2; the 1990 release of a LAN-based software package that provided
comprehensive support for international accounting requirements; the 1991
release of a Windows graphical accounting system that offered Windows MDI
support; the 1992 release of a graphical, SQL server-based integrated financial
and management information software product line; the 1994 release of a
client/server accounting application designed to run on Windows NT and the
Microsoft SQL server RDBMS; the 1995 release of a Windows and LAN-based
accounting software package; the 1997 release of an international,
multi-currency client/server accounting application; the 1998 release of an
integrated ERP suite of products including manufacturing, distribution, sales
and marketing, customer support and financials. During fiscal years 1996, 1997
and 1998, software development expenses before capitalization were approximately
$14,861,000, $11,855,000, and $12,971,000, respectively.
The Company plans to continue to address the needs of midmarket users
of client/server enterprise resource planning software by continuing to develop
high quality software products that feature advanced technologies. The Company's
technology strategy is to develop leading business application software using
its own technologies combined with leading third-party, industry-standard
technologies in database management systems, application development tools,
operating systems, user interfaces and networks. The Company plans to use
technologies from Microsoft Corporation whenever possible and plans to build
technologies based on Microsoft Corporation's recommended technical
architecture. In particular, the Company believes that it has been an industry
leader in designing and developing products for operation on LANs/WANs and
Microsoft's SQL Server database. The Company has also been a pioneer in the use
of GUIs with integrated business application software. Currently, the Company
pursues object-oriented methodologies that simplify the development, maintenance
and customization of its products. Accordingly, the Company's tools offer a high
degree of customization for its products.
The Company intends to continue to invest in product development. In
particular, the Company plans to continue to (i) develop enhancements, including
additional functions and features, for its Platinum for Windows and Platinum SQL
product lines, and (ii) develop and/or acquire new applications or modules that
build upon the company's business application strategy.
In fiscal 1997 and fiscal 1998, the company acquired two business
application software developers, FocusSoft Inc. and Clientele Inc. See "Recent
Acquisition" and "Management's Discussion of Analysis of Financial Condition and
Results of Operations, Fiscal 1997 and Fiscal 1998 Acquisition." The Company has
integrated to a certain level the products acquired in these acquisitions with
the Company's Platinum SQL core financial application. The Company intends to
further integrate the acquired applications to share common master files (e.g.
customers, vendors, and inventory items) and to process transactions
consistently across all applications. All of the Platinum SQL product line is
built on the Microsoft SQL Server database, supports extensive customization,
and provides a graphical user interface. The Company also is investing to make
the technical architecture more consistent across all of the applications
especially in the area of user interface, object oriented development and
reporting.
The Company is also making investments to improve the marketability of
its products outside of the United States and Canada. The Company has opened a
European localization center ("ELC") based in Dublin, Ireland.
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<PAGE> 10
The ELC will develop the necessary changes to translate and localize the
products for sale in Europe. In addition, the Company has contracted with a
third party to develop the necessary changes to translate and localize the
products for sale in Latin and South America.
The computer software industry is characterized by rapid technological
advances and changes in customer requirements. The Company's future success will
depend upon its ability to enhance its current products and develop and
introduce new products that keep pace with technological developments, respond
to evolving customer requirements and continue to achieve market acceptance. In
particular, the Company believes it must continue to respond quickly to users'
needs for broad functionality and multi-platform support and to advances in
hardware and operating systems. In 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 not experience significant
delays in the introduction of new products or product enhancements in the
future, which could have a material adverse effect on the Company's results of
operations.
The Company's future business is dependent on the execution of the
strategy that is in place to target the client/server ERP software needs of
mid-sized businesses. Any significant delay in shipping new modules or
enhancements could have a material adverse effect on the Company's results of
operations. In addition, there can be no assurance that new modules or product
enhancements developed by the Company will adequately achieve market acceptance.
COMPETITION
The client/server enterprise business applications 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. In addition, a
number of companies offer a product similar or competitive to one product in the
Company's enterprise business application suite. 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 results of operations.
The Company believes that it competes principally in two distinct
software application markets: midmarket enterprise business applications and
LAN-based financial accounting applications. Although the Company does not
target larger, Fortune 1,000 corporations with its enterprise business
applications, it encounters competitors from this market segment who are selling
their products in the midmarket space.
The Company defines the midmarket as being comprised of businesses
ranging in revenue size from $50 million to $750 million and divisions or
subsidiaries of large corporations in the same revenue range. Customers in this
market segment desire proven client/server software solutions that are easy to
install, manage and use, yet are flexible enough to address the challenges of a
specific organization. In addition, customers in this market segment require
strong price-performance metrics. This market segment is relatively new, and as
a result, the competitive landscape is still forming. The Company believes it is
the only vendor in this marketspace dedicated to providing midmarket companies
with comprehensive, integrated enterprise business applications on the Microsoft
Windows NT and SQL Server platform. However, there are competitors from both the
high-end and low-end who are attracted to the business opportunity represented
by midmarket companies and are beginning to offer complete or partial enterprise
business applications for this market.
The Company believes its principal enterprise business application
competitors include Lawson Corporation, JD Edwards, Great Plains Software,
Oracle Corporation, Solomon Software, SQL Financials, PeopleSoft, Inc., Geac,
Baan, SAP and Flexi International. Some of these companies are major
participants in the enterprise market segment who are presently selling an
existing enterprise segment product in the middle market segment, while others
are in the process of developing a client/server product to address middle
market requirements. The Company has addressed the requirements of customers in
this market with its Platinum SQL product, a version of which has been optimized
for use with the Microsoft SQL Server RDBMS. The Company believes that this
product competes favorably against its competitors with respect to the foregoing
competitive factors.
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<PAGE> 11
On occasion, the Company competes with other vendors that sell only one
enterprise business application of the total enterprise business application
solution. This occurs principally with the Company's manufacturing,
distribution, sales force automation and customer service and support
applications. The primary competitors for manufacturing and distribution include
Symix System, Inc., Dataworks Corporation and Fourth Shift. The primary
competitors for sales force automation and customer service and support are
Onyx, Pivotal and Sales Logix. While these competitors offer dedicated
applications, the Company's believes its broader product offerings and level of
product integration provide a significant competitive advantage.
In the LAN-based market, the Company competes with Sage (formerly State
of the Art, Inc.), Macola, Inc., Great Plains Software, and Solomon Software in
North America, and Scala and Systems Union, Ltd. outside of North America.
Products in this market are principally sold through VARs and solution-oriented
computer retail stores with the purchasing decision often influenced by
accounting professionals providing consulting services. The Company believes
that purchases in this market are primarily influenced by functionality,
performance, availability of a Windows-based version, price and quality. The
Company believes it competes favorably with respect to all of these factors.
PRODUCTION
The principal materials and components used in the Company's software
products include computer media, including disks and CD-ROMs, and user manuals.
For each product, the Company prepares a master software disk or CD-ROM, user
manuals, which may be in printed form or distributed on a CD-ROM, and packaging.
Substantially all of the Company's disk and CD-ROM duplication is performed by
third-party vendors, using disks and blank CD-ROMs acquired from various
sources. Outside sources print the Company's packaging and related materials to
the Company's specifications. A portion of the completed packages are assembled
by third-party vendors. To date, the Company has not experienced any material
difficulties or delays in the manufacture and assembly of its products, or
material returns due to product defects.
INTELLECTUAL PROPERTY
The Company regards its software as proprietary, in that title to and
ownership of the software generally exclusively resides with the Company, and
the Company attempts to protect it with a combination of copyright, trademark
and trade secret laws, employee and third-party nondisclosure agreements and
other methods of protection. Despite these precautions, it may be possible for
unauthorized third-parties to copy certain portions of the Company's products or
reverse engineer or obtain and use information the Company regards as
proprietary. Like many software firms, the Company presently has no patents.
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that trademark and
copyright protections are less significant to the Company's success than other
factors such as the knowledge, ability and experience of the Company's
personnel, name recognition and ongoing product development and support.
The Company's software products are generally licensed to end-users on
a "right to use" basis pursuant to a perpetual, non-exclusive license that
generally restricts use of a software for the organization's internal business
purposes. The Company licenses its Platinum for Windows and Platinum SQL (those
sold through VARs and distributors) product lines pursuant to "shrink wrap"
licenses that are not signed by licensees and therefore may be unenforceable
under the laws of certain jurisdictions. 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. Certain components of the Company's products
are licensed from third-parties.
As the number of software products in the industry increases and the
functionality of these products further overlap, the Company believes that
software programs will increasingly become subject to infringement claims. 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 assertion may not require the Company to enter into royalty
arrangements or will result in costly litigation. The Company is not aware of
any material infringement actions or claims.
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<PAGE> 12
EMPLOYEES
As of June 30, 1998, the Company had 624 full-time employees, including
111 in product development, 78 in support services, 144 in professional
services, 163 in sales, 39 in marketing and 89 in finance and administration.
The Company's employees are not represented by any collective bargaining
organization, and the Company has never experienced a work stoppage. The Company
believes that its relations with its employees are good.
RECENT ACQUISITION
On November 14, 1997, the Company acquired FocusSoft, Inc., a privately
held provider of manufacturing and distribution software. As consideration for
the acquisition, the Company issued 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 conversion of the FocusSoft shares was 24.747937.
In addition, each outstanding employee stock option of FocusSoft was assumed by
the Company and has been converted to a right to acquire an aggregate of 225,206
shares of common stock of the Company with appropriate adjustments made to the
exercise price based on the exchange ratio. Ten percent of the shares issued in
the merger, or 247,479 shares were placed into an escrow to cover
indemnification claims in connection with the transaction. The transaction was
accounted for as a pooling of interests.
RESTRUCTURINGS
During the second quarter of fiscal 1996, the Company restructured its
business operations with the intent to reduce operating expenses and minimize
the usage of cash. As part of the restructuring, the Company discontinued the
marketing of the version of its Platinum SQL Enterprise product line that runs
on the Sybase/UNIX server platform. Also, the Company discontinued its direct
sales force for its Platinum SQL Enterprise product line, which resulted in the
termination of approximately 50 employees. In February 1996, the Company
underwent another reduction in force of approximately 40 persons with the intent
again to reduce operating expenses and minimize the usage of cash. In June 1997,
the Company underwent another restructuring as a result of the Clientele
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations, Fiscal 1996 and 1997 Restructurings."
CERTAIN CONSIDERATIONS
Forward Looking Statements. This annual 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. These statements
are generally identified by the words "estimates," "expects," "anticipates,"
"plans," "believes," and similar expressions. 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.
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 its existing client/server enterprise
resource planning applications, such as human resources and payroll. This
strategy may involve acquisitions,
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<PAGE> 13
investments in other businesses that offer complementary products, joint
development agreements or licensing of technology agreements. Any future
acquisitions or investments would be accompanied by the 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.
Liquidity. The Company's cash, cash equivalents and short-term
investments increased from $16,266,000 at June 30, 1997 to $22,779,000 at June
30, 1998, principally due to cash generated by operations and the exercise of
stock options offset in part by capital expenditures. There will be further cash
outlays estimated at approximately $478,000 in connection with the second
quarter fiscal 1996 restructuring and $798,000 in connection with the fiscal
1997 restructuring. The Company intends to fund these requirements from cash
generated from operations. If the Company is not successful in achieving
targeted revenues, the Company may be required to take cost cutting measures to
align its operating expenses with its reduced revenues.
Dependence on Distribution Channels. The Company distributes its
Platinum for DOS and Platinum for Windows products exclusively through
third-party distributors and VARs, and distributes its Platinum SQL product,
including Clientele, 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 enterprise resource
planning application, Platinum SQL. There can be no assurance that the direct
sales force will not lead to conflicts with the Company's VAR channel.
Platinum SQL, a client/server enterprise resource planning application
designed to run on Microsoft Windows NT and Microsoft SQL server, is a more
technically complex product than Platinum for Windows and Platinum for DOS and
requires additional skill and training to successfully implement. The Company 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, is an enterprise
resource planning suite of applications comprised of financial accounting,
budgeting, manufacturing, distribution and customer service and support software
applications. Some of the applications were developed internally by the Company,
while others were acquired through acquisitions or OEM arrangements. 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. From time to
time the Company is informed by customers of certain errors with respect to its
Platinum SQL product which the Company addresses. The inability of the Company
to correct the errors, or any significant delay in correcting the errors in
Platinum SQL, will 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.
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Reliance on Third-Party Suppliers. The Company's products utilize
certain software licensed to it by third-party software developers. Although the
Company believes that there are alternatives for these products, any significant
interruption in the supply of such third-party software could have a material
adverse impact on the Company's sales unless and until the Company can replace
the functionality provided by these products. In addition, the Company is to a
certain extent dependent upon such third parties' abilities to enhance their
current products, to develop new products on a timely and cost-effective basis
and to respond to emerging industry standards and other technological changes.
New Product Introductions and Integration. 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, integrate applications in the
Platinum SQL suite and increase customer acceptance of its existing products.
See "Product Development and Quality Assurance." The Company has two principal
product lines, Platinum for Windows (including Platinum for DOS) and Platinum
SQL. The Company continues to provide maintenance and support services for its
Platinum SQL Enterprise product for existing customers. Version 7.0 of Platinum
SQL, which will include an increased level of integration between the financial,
distribution and manufacturing applications so that each application will share
the same customer and vendor data is scheduled for release in November 1998. See
"Forward Looking Statements." In 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
or product enhancements 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 client/server enterprise resource planning 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
enterprise resource planning 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, as well as 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, introduction or
product integration, could result in
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<PAGE> 15
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,
Chairman, President and Chief Executive Officer, William Pieser, Executive Vice
President, Product Operations and Marketing, and Ken Lally, Executive Vice
President, Field and Customer 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.
Risks Associated with International Sales. In fiscal 1996, 1997 and
1998, international sales represented approximately 31%, 29% and 28%,
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. If revenues generated
by foreign activities are not adequate to offset the expense of maintaining
foreign offices and activities, the Company's business, financial condition and
results of operations could be materially adversely affected. International
sales are subject to inherent risks, including changes in regulatory
requirements, tariffs and other barriers, less favorable intellectual property
laws, 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. In the recent past, the financial
markets in Asia have experienced significant turmoil. There can be no assurance
that such turmoil in the Asian financial markets will not negatively affect the
sales by the Company to that region. A portion of the Company's revenues from
sales to foreign entities, including foreign governments, is in the form of
foreign currencies. The Company has no hedging or similar foreign currency
contracts and fluctuations in the value of foreign currencies could adversely
impact the profitability of the Company's foreign operations.
Shares Eligible for Future Sale. As of September 3, 1998, the Company
had 28,369,525 shares of common stock outstanding. There are presently 95,305
shares of Series C Preferred Stock outstanding. 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 C Preferred Stock is convertible into 953,050 shares of common stock. The
holders of the 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 C Preferred Stock. Also, the Company has a substantial number of options
or shares issuable to employees under employee option or stock grant 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.
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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.
ITEM 2. PROPERTIES
The Company leases approximately 122,000 square feet of office space in
Irvine, California. The leases for the space expire in April 2004. The Company
leases additional facilities and offices, including locations in Louisville,
Kentucky; Foster City, California; Oakbrook, Illinois; East Berlin, Connecticut;
Portland, Oregon; Hasbrouck Heights, New Jersey; Dallas, Texas; Houston, Texas;
Atlanta, Georgia; Plymouth, Michigan; Tampa, Florida; St. Louis, Missouri;
Melbourne and Sydney, Australia; Mississauga, Canada; London, England; Dublin,
Ireland; Auckland, New Zealand; Hong Kong and Singapore. The Company believes
that its present facilities are sufficient to accommodate its near-term
facilities requirements. The Company continues to evaluate new sales
opportunities on an ongoing basis which may result in the leasing of additional
facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to miscellaneous legal proceedings in the normal
course of business. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended June 30, 1998.
PART II
ITEM 5. MARKET VALUE OF THE REGISTRANT'S COMMON STOCK
The Company's Common Stock is traded on the over-the-counter market
(The Nasdaq National Market System) under the symbol PSQL. The following table
sets forth, for the periods indicated, the range of high and low closing sale
prices for the Company's Common Stock.
<TABLE>
<CAPTION>
Fiscal 1997: High Low
------------ ------- ------
<S> <C> <C>
1st Quarter $11.125 $ 6.250
2nd Quarter 13.000 10.625
3rd Quarter 13.375 8.688
4th Quarter 11.000 7.000
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998: High Low
------------ -------- --------
<S> <C> <C>
1st Quarter $12.9375 $10.3750
2nd Quarter 11.750 7.7500
3rd Quarter 24.0000 10.2500
4th Quarter 24.3750 17.5000
</TABLE>
There were approximately 1,518 security holders of record as of
September 3, 1998. The Company has not paid dividends to date and intends to
retain any earnings for use in the business for the foreseeable future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The statement of operations data set forth below with
respect to the fiscal years ended June 30, 1996, 1997 and 1998 and the balance
sheet data at June 30, 1997 and 1998 are derived from, and should be read in
conjunction with, the audited Consolidated Financial Statements included
elsewhere herein. The statement of operations data set forth below with respect
to the fiscal years ended June 30, 1994 and 1995, and the balance sheet data at
June 30, 1994, 1995, and 1996 are derived from audited financial statements not
included in this Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30
----------------------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees $ 31,136 $ 37,925 $ 23,234 $ 32,123 $ 57,577
Services 16,854 20,250 21,817 27,420 40,406
Business forms sales 6,720 -- -- -- --
Royalty income -- 692 619 1,208 505
-------- -------- -------- -------- --------
Total revenues 54,710 58,867 45,670 60,751 98,488
Cost of revenues 25,635 20,205 21,083 21,980 29,961
-------- -------- -------- -------- --------
Gross profit 29,075 38,662 24,587 38,771 68,527
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing 25,961 21,007 21,334 26,024 38,177
Software development 22,059 17,914 14,490 10,398 11,724
General and administrative 10,350 5,569 16,270 6,030 7,145
Charge for restructuring 6,741 -- 5,568 1,600 --
Charge for purchased research
and development 3,570 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses 68,681 44,490 57,662 44,052 57,046
-------- -------- -------- -------- --------
Income (loss) from
operations (39,606) (5,828) (33,075) (5,281) 11,481
Charge for settlement of
class action litigation and
related expenses (20,000) -- -- -- --
Other income (expense), net 341(1) 103(2) (132)(3) 873(1) 1,866(1)
-------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes (59,265) (5,725) (33,207) (4,408) 13,347
Provision for income taxes 308 20 -- -- --
-------- -------- -------- -------- --------
Net income (loss) $(59,573) $ (5,745) $(33,207) $ (4,408) $ 13,347
======== ======== ======== ======== ========
Diluted net income (loss)
per share $ (3.78) $ (0.35) $ (1.83) $ (0.20) $ 0.45
======== ======== ======== ======== ========
Weighted average shares 15,770 16,196 18,128 21,758 29,716
======== ======== ======== ======== ========
</TABLE>
- --------------
(1) Amount represents principally interest income.
(2) Amount represents principally interest income net of interest expense
associated with the Company's $15,000,000 debenture.
(3) Amount represents principally interest expense associated with the Company's
$15,000,000 debenture net of interest income.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $ (9,996) $ 24,443 $ 3,438 $ 3,808 $ 22,319
Total assets 48,479 66,691 41,640 43,156 67,988
Current portion of
long-term obligations 6,000 -- -- -- --
Long-term obligations,
less current portion 10,158 16,035 288 277 35
Stockholders' equity 1,299 30,212 16,199 15,587 34,910
</TABLE>
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
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. 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 0.19761 (i.e., each share of Clientele
common stock converted into 0.19761 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
consolidated financial statements have been restated to incorporate the
financial position, results of operations and cash flows of Clientele for all
periods presented.
Fiscal 1998 Acquisition
On November 14, 1997, the Company acquired FocusSoft, Inc. (FocusSoft),
a privately held provider of enterprise resource planning and distribution
software based in Louisville, Kentucky. As consideration for the acquisition,
the Company issued 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 conversion of the FocusSoft shares was 24.747937 (i.e., each
share of FocusSoft common stock converted into 24.747937 shares of the Company's
common stock.) In addition, the Company assumed all of the employee stock
options of FocusSoft, which translated 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, 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 consolidated financial statements have been restated to incorporate
the financial position, results of operations and cash flows of FocusSoft for
all periods presented.
Fiscal 1996 and 1997 Restructurings
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 $3,300,000. Such amount included approximately
$1,200,000 for severance and other extended benefit costs related to the
reduction in force, $1,200,000 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 $2,300,000 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 $1,400,000
in asset write-downs and other costs.
In June 1997, the Company underwent another restructuring as a result
of the Clientele acquisition. This resulted in an additional restructuring
charge of $1,600,000 which was recorded in the fourth quarter of fiscal 1997.
Such amount included approximately $1,100,000 for excess facility costs, as well
as approximately $500,000 for severance and other extended benefit costs.
During the year ended June 30, 1998, the Company paid approximately
$1,329,000 for severance, lease termination and other costs relating to the 1996
and 1997 restructurings. At June 30, 1998, the Company has a $1,280,000 cash
obligation related to lease terminations and other costs of the fiscal 1996 and
1997 restructurings which will be funded from existing cash reserves and working
capital.
18
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as
a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30
--------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in percents)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees 57 64 51 53 58
Services 31 35 48 45 41
Business forms sales 12 -- -- -- --
Royalty income -- 1 1 2 1
---- ---- ---- ---- ----
Total revenues 100 100 100 100 100
Cost of revenues 47 34 46 36 30
---- ---- ---- ---- ----
Gross profit 53 66 54 64 70
---- ---- ---- ---- ----
Operating expenses:
Sales and marketing 47 36 47 43 39
Software development 40 31 32 17 12
General and administrative 19 9 36 10 7
Charge for restructuring 12 -- 12 3 --
Charge for purchased research
and development 7 -- -- -- --
---- ---- ---- ---- ----
Total operating expenses 125 76 127 73 58
---- ---- ---- ---- ----
Income (loss) from operations (72) (10) (73) (9) 12
Charge for settlement of class
action litigation and related
expenses (37) -- -- -- --
Other income (expense), net -- -- -- 2 2
---- ---- ---- ---- ----
Income (loss) before provision
for income taxes (109) (10) (73) (7) 14
Provision for income taxes -- -- -- -- --
---- ---- ---- ---- ----
Net income (loss) (109) (10) (73) (7) 14
==== ==== ==== ==== ====
</TABLE>
19
<PAGE> 20
COMPARISON OF FISCAL YEAR 1997 TO FISCAL YEAR 1998
Revenues
Revenues were approximately $60,751,000 and $98,488,000 in fiscal years
1997 and 1998, respectively, representing an increase of approximately 62
percent in fiscal 1998.
License fee revenues were approximately $32,123,000 and $57,577,000 for
the years ended June 30, 1997 and 1998, respectively, representing an increase
of 79 percent in fiscal 1998. License fee revenues for the Company's Platinum
SQL product (including Clientele) were approximately $24,687,000 and $48,825,000
for the years ended June 30, 1997 and 1998, respectively, representing an
increase of 98 percent in fiscal 1998. The increase in revenues was primarily
attributable to an overall increase in personnel in the direct sales force for
the Platinum SQL product; the Company's broader product offering following the
FocusSoft acquisition; the release of the Clientele 3.0 product in February
1998, which included sales force functionality; the release of FocusSoft's
version 5.0 product (now named Platinum SQL Advanced Distribution and
Manufacturing) with enhanced distribution and manufacturing functionality;
additional lead generation, telesales and marketing efforts and an increased
effort to sell Platinum SQL internationally. License fee revenues for the
Company's Platinum for Windows and Platinum for DOS products were approximately
$7,436,000 and $8,752,000 for the years ended June 30, 1997 and 1998,
respectively, representing an increase of 18 percent in fiscal 1998. The
increase in revenues was primarily due to increased domestic demand created by
the commercial availability of a complete suite of the Platinum for Windows
modules. International license fee revenues increased from $8,969,000 in fiscal
1997 to $18,713,000 in fiscal 1998. The increase was due to an increased effort
to sell Platinum SQL internationally.
Services revenues, which include consulting, education, training, and
maintenance and support services, increased 47 percent from $27,420,000 in
fiscal year 1997 to $40,406,000 in fiscal year 1998. The increase was primarily
attributable to the increase in installations. Also, the increase was
attributable to an overall rise in the installed base of end-users of Platinum
SQL and the increased effort to renew customers on maintenance contracts.
The number of days sales outstanding was 62 days at June 30, 1997 as
compared to 76 at June 30, 1998. The increase in days sales outstanding was
primarily attributable to increased international revenues, which generally have
longer payment terms than domestic revenues.
Gross Profit
Gross profit increased 77 percent from $38,771,000 in fiscal year 1997
to $68,527,000 in fiscal year 1998 and increased as a percentage of revenues
from 64 percent to 70 percent, respectively. The increases in gross profit and
the gross profit percentage were due to higher license revenues as a percentage
of total revenues, which have higher margins than services revenues.
Operating Expenses
Total operating expenses increased from $42,452,000 for fiscal year
1997 to $57,046,000 for fiscal year 1998, excluding the one time charge for the
fiscal 1997 restructuring. Total operating expenses as a percentage of revenues
were 70 percent and 58 percent for the years ended June 30, 1997 and 1998,
respectively, excluding the one time charge for the fiscal 1997 restructuring.
Included in operating expenses for the fiscal year ended June 30, 1998 were
approximately $800,000 in one time charges for the FocusSoft acquisition. The
increase in dollar amount was primarily attributable to an overall increase in
direct sales personnel as well as additional commissions for the sales personnel
as their quota was exceeded. The Company expects the dollar amount of total
operating expenses to increase in fiscal 1999 but to decrease as a percentage of
total revenues. See "Certain Considerations, Forward Looking Statements."
Sales and marketing costs were approximately $26,024,000 and
$38,177,000 in fiscal years 1997 and 1998, respectively, or approximately 43
percent and 39 percent of total revenues. The increase in the dollar amount of
sales and marketing expenses was primarily due to the increase in the direct
sales force for the Platinum SQL product.
Software development costs were approximately $11,855,000 and
$12,971,000 in fiscal years 1997 and 1998, respectively, or approximately 20
percent and 13 percent of total revenues, before capitalization of software
costs of approximately $1,457,000 and $1,247,000. Upon the release for general
availability of the Company's
20
<PAGE> 21
software products, the Company amortizes capitalized software development costs
over a 5-year period. Such amortization is included in cost of revenues. The
percentage of capitalized software development costs to total software
development costs decreased from 12 percent in fiscal year 1997 to 10 percent in
fiscal year 1998. During fiscal year 1997, costs were capitalized for Platinum
SQL multi-currency functionality, as well as certain Platinum for Windows
development costs for the Inventory and Order Entry modules and development of
Platinum SQL Customization Workbench. During fiscal year 1998, costs were
capitalized for the creation of translations into different languages and
localizations for the Platinum SQL product, the Job Cost module for the Platinum
for Windows product, Year 2000 enhancements for the Platinum for DOS product,
Job Shop and Engineer to Order for the Platinum SQL Advanced Distribution and
Manufacturing applications, Clientele 3.0 sales force automation functionality
and certain applications of the Platinum SQL 4.2 release.
General and administrative expenses were approximately $6,030,000 and
$7,145,000 in fiscal years 1997 and 1998, respectively, or approximately 10
percent and 7 percent of total revenues. The increase was primarily attributable
to management bonuses and employee profit sharing earned in fiscal 1998 due to
the Company's improved operating results.
Other Income
Other income was approximately $873,000 and $1,866,000 in fiscal years
1997 and 1998, respectively. Other income primarily represented interest earned
on the Company's cash and cash equivalents and short-term investments as well as
foreign currency gains realized in fiscal 1998.
Provision for Income Taxes
The Company recorded no provision for income taxes in fiscal years 1997
and 1998. The effective tax rate during these periods was 0 percent for both
years. During 1997 the effective tax rate was lower than the statutory federal
income tax rate of 34 percent, primarily due to the inability to record benefits
from current net operating losses. During 1998, the Company's tax expense was
offset by the reduction of valuation allowances recorded in prior years as a
result of the Company's profitability in the current year. As of June 30, 1998,
the Company had provided a valuation allowance of approximately $46,495,000
because realization of the Company's net deferred tax asset is not more likely
than not due to the historical losses incurred by the Company prior to fiscal
1998, and the uncertainty as to profits in the future. Any realization of the
Company's net deferred tax asset will reduce the Company's effective tax rate in
future periods.
COMPARISON OF FISCAL YEAR 1996 TO FISCAL YEAR 1997
Revenues
Revenues were approximately $45,670,000 and $60,751,000 in fiscal years
1996 and 1997, respectively, representing an increase of approximately 33
percent in fiscal 1997.
License fee revenues were $23,234,000 and $32,123,000 for the years
ended June 30, 1996 and 1997, respectively, representing an increase of
approximately 38 percent in fiscal 1997. License fee revenues for the Company's
Platinum SQL product (including Clientele) were approximately $17,159,000 and
$24,687,000 for the years ended June 30, 1996 and 1997, respectively
representing an increase of 44 percent in fiscal 1997. The increase in revenues
is principally due to the reinstatement of the direct sales force. License fee
revenues for the Company's Platinum for Windows and Platinum for DOS products
were approximately $6,075,000 and $7,436,000 for the years ended June 30, 1996
and 1997, respectively, representing an increase of 22 percent in fiscal 1997.
The increase in revenues was the result of the availability of a complete
Windows based product suite for the entire fiscal 1997 period. International
license fee revenues increased from $7,100,000 in fiscal 1996 to $8,969,000 in
fiscal 1997. The increase was due to increases in international license fee
revenues for the Company's Platinum SQL and Platinum for Windows and Platinum
for DOS products.
21
<PAGE> 22
Services revenues increased 26 percent from $21,817,000 in fiscal 1996
to $27,420,000 in fiscal 1997. The increase was primarily attributable to the
involvement of the consulting and professional services division in providing
consulting and implementation services to customers. Also, the increase was
attributable to an overall rise in the installed base of end-users of Platinum
SQL and the increased effort to renew customers on maintenance contracts.
The number of days sales outstanding was 94 days at June 30, 1996 as
compared to 62 at June 30, 1997. The improvement in days sales outstanding was
primarily attributable to increased efforts in collecting accounts receivable as
well as payment terms on direct Platinum SQL licenses of 50% of net license fee
and maintenance due upon license execution and the remaining 50% of license fees
generally due in 30 days.
Gross Profit
Gross profit increased 58 percent from $24,587,000 in fiscal year 1996
to $38,771,000 in fiscal year 1997 and increased as a percentage of revenues
from 54 percent to 64 percent, respectively. The increases in gross profit and
the gross profit percentage were due to higher license revenues as a percentage
of total revenues, which have higher margins than services revenues.
Operating Expenses
Total operating expenses, excluding restructuring charges, decreased
from $52,094,000 for fiscal year 1996 to $42,452,000 for fiscal year 1997. The
decrease was due to the provision of additional reserves in fiscal 1996 for the
following items: accounts receivable arising from Platinum SQL sales to VARs;
relocation costs associated with the hiring of new senior management executives;
write-downs of property and equipment and notes receivable from divestitures.
Such decrease was also achieved by cost savings from the termination of
approximately 100 employees during the second quarter of fiscal 1996 and 40
employees during the third quarter of fiscal 1996. Such decrease was offset in
part by the investment made in the Platinum SQL direct sales force. Total
operating expenses as a percentage of revenues, excluding restructuring charges,
were 115 percent and 70 percent for the years ended June 30, 1996 and 1997,
respectively.
Sales and marketing expenses were approximately $21,334,000 and
$26,024,000 in fiscal years 1996 and 1997, respectively, or approximately 47
percent and 43 percent of total revenues. The increase in the dollar amount of
sales and marketing expenses was primarily due to the re-establishment of a
direct sales force for the Platinum SQL product.
Software development costs were approximately $14,861,000 and
$11,855,000 in fiscal years 1996 and 1997, respectively, or approximately 33
percent and 20 percent of total revenues, before capitalization of software
costs of approximately $371,000 and $1,457,000. The decrease in the amount of
software development expenses was due to personnel reductions as a result of the
restructurings. Upon the release for general availability of the Company's
software products, the Company amortizes capitalized software development costs
over a 5-year period. Such amortization is included in cost of revenues. The
percentage of capitalized software development costs to total software
development costs increased from 3 percent in fiscal year 1996 to 12 percent in
fiscal year 1997 due principally to the capitalization of Platinum SQL
multi-currency development costs as well as certain Platinum for Windows
development costs for the Inventory and Order Entry modules.
General and administrative expenses were approximately $16,270,000 and
$6,030,000 in fiscal years 1996 and 1997, respectively, or approximately 36
percent and 10 percent of total revenues. The decrease was primarily the result
of the provision of the following additional reserves: approximately $1,636,000
for accounts receivable arising from Platinum SQL sales to VARs; approximately
$1,292,000 relating to accounts receivable from Platinum SQL Enterprise
customers; relocation costs of approximately $1,590,000 associated with the
hiring of new senior management executives; write-down of approximately $500,000
of property and equipment and approximately $2,941,000 provided for notes
receivable from divestitures in fiscal 1996.
22
<PAGE> 23
Other Income (Expense)
Other income (expense) was approximately ($132,000) and $873,000 in
fiscal years 1996 and 1997. Other income (expense) primarily represented
interest earned on the Company's cash and cash equivalents and short-term
investments net of interest expense of $1,236,000 in fiscal 1996 and $0 in
fiscal 1997 on the Company's $15,000,000 debenture, which debenture was repaid
in June 1996, when it was converted into common stock of the Company.
Provision for Income Taxes
The Company recorded no provision for income taxes in fiscal years 1996
and 1997. The effective tax rate during these periods was 0 percent for both
years. The effective tax rates were lower than the statutory federal income tax
rate of 34 percent, primarily due to the inability to record benefits from
current net operating losses. As of June 30, 1997, the Company had provided a
valuation allowance of approximately $41,580,000 because realization of the
Company's net deferred tax asset is not more likely than not due to the
historical losses incurred by the Company, and the uncertainty as to profits in
the future. Any realization of the Company's net deferred tax asset will reduce
the Company's effective tax rate in future periods.
INFLATION AND FOREIGN CURRENCY EXCHANGE
Inflation has not had a significant impact on the Company's operating
results to date. The Company's foreign revenues are substantially all
denominated in the country's respective local currency. The Company's results of
operations of its international subsidiaries are impacted by foreign currency
fluctuations. Significant fluctuation in currency values could have an adverse
effect on the Company's consolidated net revenues, gross margin and
profitability.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's principal sources of liquidity
included cash, cash equivalents and short-term investments of approximately
$22,779,000. These resources increased by approximately $6,513,000 over the June
30, 1997 balance primarily due to cash generated by operations and exercise of
stock options offset in part by capital expenditures. The Company had working
capital of $22,319,000 at June 30, 1998.
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. However,
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.
Year 2000 Issues
Overview. The Year 2000 Problem generally involves whether a computer
system, software product or business system, when working alone or in
conjunction with other software or hardware systems, accepts input of, stores,
manipulates and outputs dates in the Year 2000 or thereafter without error or
interruption (the "Year 2000 Problem"). The Year 2000 Problem potentially
impacts the Company in the following principal areas: (i) The Company's software
products, including products manufactured by third parties that are resold by
the Company; (ii) the Company's internal technology systems; (iii) the Company's
non-internal technology systems which contain embedded computer devices; and
(iv) the business systems of the Company's distributors, resellers and
customers.
Company Products. As a leading supplier of client/server enterprise
resource planning software for the middle market, the Company is aware of the
Year 2000 Problem and committed to offering software products that are Year 2000
compliant. The Company presently believes that the current releases of its
Platinum SQL and Platinum for Windows software products are Year 2000 compliant.
The Company's Platinum for DOS product, which was initially released in the
mid-1980s was not Year 2000 compliant until the recent release of version 4.6 in
August 1998. The version 4.6 release is being offered for free to all existing
Platinum for DOS users on maintenance.
As part of its Platinum SQL and Platinum for Windows product lines the
Company resells certain products that are manufactured by third parties, both on
an OEM and reseller basis. Based upon informal discussions with
23
<PAGE> 24
the third parties, the Company does not believe there will be material Year 2000
Problems with the third party products. The Company is in the process of
formally querying the manufacturers of these products as to their progress in
identifying and addressing Year 2000 Problems. It is possible that such formal
inquiries will uncover unanticipated issues, although the Company does not
presently believe that any issues uncovered would be of a material nature.
Internal Technology Systems. The Company's internal technology systems
include telecommunications (phones, voicemail and network connections), computer
hardware (personal computers and network servers) and software. The Company has
assessed the Year 2000 Problem with respect to telecommunications with the
exception of its Louisville, Kentucky and Portland, Oregon offices. The
assessment with respect to these offices is scheduled to be completed prior to
December 31, 1998. The Company has identified fixes that need to be made to its
telecommunications systems to make them Year 2000 compliant. These fixes relate
primarily to upgrades to voice mail and phone systems at some of the Company's
international offices and sales offices. It is anticipated that these fixes will
be implemented by January 1, 1999 and fully tested by June 30, 1999. The
estimated cost of these fixes is $225,000. To date, the Company has incurred
approximately $100,000 in year 2000 remediation costs, which was funded from
working capital. In addition, the Company has assessed approximately 75 percent
of its hardware used for Year 2000 compliance and has not uncovered any material
non compliance. The assessment of the remaining 25 percent is scheduled to be
completed by December 31, 1998. The Company's principal software systems include
accounting, customer support, order entry and desktop email/word processing. The
Company uses Microsoft Corporation products for email/word processing which have
been certified by Microsoft as Year 2000 compliant. The Company uses its
Platinum SQL and Clientele products for its accounting, order entry and customer
support software needs. The Company is in the process of completing a
contingency plan for its internal technology systems in connection with the
completion of the assessment of its internal technology systems.
Noninternal Technology Systems. Noninternal technology systems include
security systems, elevators and other systems which contain an embedded computer
or computer like device which is used to control the operation of plant,
machinery and equipment. The Company has not assessed whether there are any Year
2000 Problems with its noninternal technology systems and anticipates that the
assessment will be completed by December 31, 1998. The Company is in the process
of completing a contingency plan for its non-internal technology systems in
connection with the completion of the assessment of its noninternal technology
systems.
Third Party Distributors, Resellers and Customers. The Company has over
350 resellers of its software products, including distributors and Vars. No one
of the resellers is responsible for a material amount of the Company's license
fees. The Company, from time to time, queries its resellers as to their progress
in identifying and addressing Year 2000 Problems.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Company required
by this Item are set forth at the pages indicated at Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes or disagreements with respect to the Company's
independent accountants during fiscal 1998.
24
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required hereunder is incorporated by reference from
the sections of the Company's Proxy Statement filed in connection with its
October 28, 1998 Annual Meeting of Stockholders entitled "Nominees" and "Other
Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required hereunder is incorporated by reference from
the sections of the Company's Proxy Statement filed in connection with its
October 28, 1998 Annual Meeting of Stockholders entitled "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required hereunder is incorporated by reference from
the sections of the Company's Proxy Statement filed in connection with its
October 28, 1998, Annual Meeting of Stockholders entitled "Principal
Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required hereunder is incorporated by reference from
the sections of the Company's Proxy Statement filed in connection with its
October 28, 1998 Annual Meeting of Stockholders entitled "Executive
Compensation" and "Compensation Committee Interlocks and Insider Participation."
25
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a)(1) Financial Statements
Index to Financial Statements
-----------------------------
Report of Independent Auditors......................................... 31
Consolidated Balance Sheets as of June 30, 1997 and 1998............... 32
Consolidated Statements of Operations for the years ended
June 30, 1996, 1997 and 1998......................................... 33
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1996, 1997 and 1998................................... 34
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1997 and 1998................................... 35
Notes to Consolidated Financial Statements............................. 36
(2) Financial Statement Schedules
Index to Financial Statement Schedules
--------------------------------------
Report of Independent Auditors......................................... 48
Schedule II - Valuation and Qualifying Accounts........................ 49
</TABLE>
All other schedules are omitted because they are not required or the
required information is included in the consolidated financial statements or
notes thereto.
26
<PAGE> 27
(3) Exhibits
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization and Merger dated as of June 27, 1997 (9)
among the Company, CSI Acquisition Corp., Clientele Software, Inc., Dale E.
Yocum, Pamela Yocum, William L. Mulert (Schedules not included pursuant to
Rule 601(b)(2) of Reg. S-K)
2.2 Agreement and Plan of Reorganization dated as of November 4, 1997 by and (11)
among the Company, FS Acquisition Corp., FocusSoft, Inc., John Lococo,
Michael Zimmerman and Joseph Brumleve (Schedules not included pursuant to
Rule 601(b)(2) of Reg. S-K)
3.1 Second Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to Second Restated Certificate of Incorporation (10)
of the Company
3.3 Amended and Restated Bylaws of the Company, as currently in effect. (8)
3.6 Specimen Certificate of Common Stock. (2)
4.1 Certificate of Designation of Rights, Preferences and Privileges of (4)
Series A Junior Participating Preferred Stock
4.2 Certificate of Designation of Preferences of Series B Preferred Stock (5)
4.3 Certificate of Designation of Preferences of Series C Preferred Stock (6)
10.1 Platinum Software Corporation Incentive Stock Option, Nonqualified Stock
Option and Restricted Stock Purchase Plan - 1990 (the "1990 Plan"). (2)
10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2)
10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2)
10.4 Form of Restricted Share Agreement pertaining to the 1990 Plan. (2)
10.5 Form of Indemnification Agreement for Officers and Directors of the (2)
Company.
10.6 Platinum Software Corporation Employee Stock Purchase Plan, as amended. (2)
10.10 1993 Nonqualified Stock Option Plan (3)
10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993 (3)
Nonqualified Stock Option Plan.
10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted (5)
Stock Purchase Plan.
10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5)
10.28 Stock Purchase Agreement dated September 22, 1994 between the Company and
the Series B Preferred Stock Investors (6)
10.29 Registration Rights Agreement dated September 22, 1994 between the
Company and the Series B Preferred Stock Investors (6)
10.30 Amendment to Stock Purchase Agreement dated May 26, 1995 between the
Company and the Series C Preferred Stock Investors (6)
10.31 Amendment to Registration Rights Agreement dated May 26, 1995 between the
Company and the Series C Preferred Stock Investors (6)
10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7)
10.34 Restricted Stock Purchase Agreement between the Company and L. George
Klaus dated as of February 7, 1996. (7)
10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7)
10.36 Restricted Stock Purchase Agreement between the Company and William L.
Pieser dated as of February 7, 1996. (7)
10.42 Employment Offer letter with Ken Lally dated as of April 1, 1996. (7)
10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally
dated as of April 10, 1996. (7)
10.44 1996 Nonqualified Stock Plan and Form of Nonqualified Option Agreement. (12)
10.45 Platinum Software Corporation Clientele Incentive Stock Plan. (12)
10.47 1997 Nonqualified Stock Option Plan (13)
10.48 Amended and Restated 1998 Nonqualified Stock Option Plan.
10.49 Software Distribution License Agreement with FRx Software Corporation, as
amended to date.
22.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on the signature page of this Annual
Report on Form 10-K).
27.1 Financial Data Schedule.
</TABLE>
27
<PAGE> 28
Executive Compensation Plans and Arrangements
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
10.1 1990 Plan (2)
10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2)
10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2)
10.4 Form of Restricted Share Agreement pertaining to the 1990 Plan. (2)
10.10 1993 Nonqualified Stock Option Plan (3)
10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993
Nonqualified Stock Option Plan. (3)
10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted
Stock Purchase Plan. (5)
10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5)
10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7)
10.34 Restricted Stock Purchase Agreement between the Company and L. George
Klaus dated as of February 7, 1996. (7)
10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7)
10.36 Restricted Stock Purchase Agreement between the Company and William L.
Pieser dated as of February 7, 1996. (7)
10.42 Employment offer letter with Ken Lally dated as of April 1, 1996 (7)
10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally (7)
dated as of April 10, 1996
10.44 1996 Nonqualified Stock Plan and Form of Nonqualified Option Agreement. (12)
10.45 Platinum Software Corporation Clientele Incentive Stock Plan. (12)
10.47 1997 Nonqualified Stock Option Plan. (13)
10.48 Amended and Restated 1998 Nonqualified Stock Option Plan.
</TABLE>
- -------------------
(1) Incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form S-1, Reg. No. 33-57294.
(2) Incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form S-1, Reg. No. 33-51566.
(3) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
(4) Incorporated by reference to the referenced exhibit to the Company's
Registration Statement on Form 8-A, dated April 14, 1994.
(5) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994.
(6) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
(7) Incorporated by reference to the referenced exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(8) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.
(9) Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated June 30, 1997.
(10) Incorporated by reference to the referenced exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ending December 31, 1996.
(11) Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated November 14, 1997.
(12) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.
(13) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8, Reg. No. 333-41321.
28
<PAGE> 29
(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, Other Events, the Company's results for the
quarter and year ending June 30, 1997. In addition, the Company
filed a current report on Form 8-K, dated October 29, 1997, to
report under Item 5, Other Events, the Company's results for the
quarter ending September 30, 1997. The Company also filed a Current
Report on Form 8-K dated November 25, 1997, to report under Item 2
"Acquisition or Disposition of Assets", the acquisition of
FocusSoft, Inc. The Company also filed a Current Report on Form 8-K
dated January 22, 1998, to report under Item 5 "Other Events" the
Company's results for the quarter ending December 31, 1997.
The following trademarks may be mentioned in the foregoing Annual Report on Form
10-K: Platinum, Clientele, and SeQueL to Platinum. Platinum, Clientele and
SeQueL to Platinum are registered trademarks of the Company. All other product
names are trademarks or registered trademarks of their respective companies.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 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, in the City of Irvine,
State of California, on September 25, 1998.
PLATINUM SOFTWARE CORPORATION
By: /s/ L. George Klaus
----------------------------------
L. George Klaus
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
We, the undersigned directors and officers of Platinum Software
Corporation, do hereby constitute and appoint L. George Klaus our true and
lawful attorney and agent, with full power of substitution to do any and all
acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorney and agent may deem necessary or
advisable to enable said corporation to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments (including post-effective amendments) hereto; and we do hereby
ratify and confirm all that said attorney and agent, shall 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/ L. George Klaus Chairman of the Board, September 25, 1998
- ---------------------------- Chief Executive Officer
L. George Klaus and President
(Principal Executive Officer)
/s/ Paul G. Mazzarella Vice President, Corporate September 25, 1998
- ---------------------------- Controller
Paul G. Mazzarella (Principal Financial and
Accounting Officer)
/s/ W. Douglas Hajjar Director September 25, 1998
- ----------------------------
W. Douglas Hajjar
/s/ L. John Doerr Director September 25, 1998
- ----------------------------
L. John Doerr
/s/ Arthur J. Marks Director September 25, 1998
- ----------------------------
Arthur J. Marks
Director September __, 1998
- ----------------------------
Donald R. Dixon
</TABLE>
30
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization and Merger dated as of June 27, 1997 (9)
among the Company, CSI Acquisition Corp., Clientele Software, Inc., Dale E.
Yocum, Pamela Yocum, William L. Mulert (Schedules not included pursuant to
Rule 601(b)(2) of Reg. S-K)
2.2 Agreement and Plan of Reorganization dated as of November 4, 1997 by and (11)
among the Company, FS Acquisition Corp., FocusSoft, Inc., John Lococo,
Michael Zimmerman and Joseph Brumleve (Schedules not included pursuant to
Rule 601(b)(2) of Reg. S-K)
3.1 Second Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to Second Restated Certificate of Incorporation (10)
of the Company
3.3 Amended and Restated Bylaws of the Company, as currently in effect. (8)
3.6 Specimen Certificate of Common Stock. (2)
4.1 Certificate of Designation of Rights, Preferences and Privileges of (4)
Series A Junior Participating Preferred Stock
4.2 Certificate of Designation of Preferences of Series B Preferred Stock (5)
4.3 Certificate of Designation of Preferences of Series C Preferred Stock (6)
10.1 Platinum Software Corporation Incentive Stock Option, Nonqualified Stock
Option and Restricted Stock Purchase Plan - 1990 (the "1990 Plan"). (2)
10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2)
10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2)
10.4 Form of Restricted Share Agreement pertaining to the 1990 Plan. (2)
10.5 Form of Indemnification Agreement for Officers and Directors of the (2)
Company.
10.6 Platinum Software Corporation Employee Stock Purchase Plan, as amended. (2)
10.10 1993 Nonqualified Stock Option Plan (3)
10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993 (3)
Nonqualified Stock Option Plan.
10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted (5)
Stock Purchase Plan.
10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5)
10.28 Stock Purchase Agreement dated September 22, 1994 between the Company and
the Series B Preferred Stock Investors (6)
10.29 Registration Rights Agreement dated September 22, 1994 between the
Company and the Series B Preferred Stock Investors (6)
10.30 Amendment to Stock Purchase Agreement dated May 26, 1995 between the
Company and the Series C Preferred Stock Investors (6)
10.31 Amendment to Registration Rights Agreement dated May 26, 1995 between the
Company and the Series C Preferred Stock Investors (6)
10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7)
10.34 Restricted Stock Purchase Agreement between the Company and L. George
Klaus dated as of February 7, 1996. (7)
10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7)
10.36 Restricted Stock Purchase Agreement between the Company and William L.
Pieser dated as of February 7, 1996. (7)
10.42 Employment Offer letter with Ken Lally dated as of April 1, 1996. (7)
10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally
dated as of April 10, 1996. (7)
10.44 1996 Nonqualified Stock Plan and Form of Nonqualified Option Agreement. (12)
10.45 Platinum Software Corporation Clientele Incentive Stock Plan. (12)
10.47 1997 Nonqualified Stock Option Plan (13)
10.48 Amended and Restated 1998 Nonqualified Stock Option Plan.
10.49 Software Distribution License Agreement with FRx Software Corporation, as
amended to date.
22.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on the signature page of this Annual
Report on Form 10-K).
27.1 Financial Data Schedule.
10.1 1990 Plan (2)
10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2)
10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2)
10.4 Form of Restricted Share Agreement pertaining to the 1990 Plan. (2)
10.10 1993 Nonqualified Stock Option Plan (3)
10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993
Nonqualified Stock Option Plan. (3)
10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted
Stock Purchase Plan. (5)
10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5)
10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7)
10.34 Restricted Stock Purchase Agreement between the Company and L. George
Klaus dated as of February 7, 1996. (7)
10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7)
10.36 Restricted Stock Purchase Agreement between the Company and William L.
Pieser dated as of February 7, 1996. (7)
10.42 Employment offer letter with Ken Lally dated as of April 1, 1996 (7)
10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally (7)
dated as of April 10, 1996
10.44 1996 Nonqualified Stock Plan and Form of Nonqualified Option Agreement. (12)
10.45 Platinum Software Corporation Clientele Incentive Stock Plan. (12)
10.47 1997 Nonqualified Stock Option Plan. (13)
10.48 Amended and Restated 1998 Nonqualified Stock Option Plan.
</TABLE>
<PAGE> 32
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Platinum Software Corporation
We have audited the accompanying consolidated balance sheets of Platinum
Software Corporation as of June 30, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1998. These financial statements 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Platinum Software
Corporation as of June 30, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Orange County, California
July 29, 1998
31
<PAGE> 33
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30
---------------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,724 $ 11,251
Short-term investments 9,542 11,528
Accounts receivable, net of allowance for doubtful accounts
of $6,263 and $5,159 at June 30, 1997 and 1998, respectively 11,976 28,929
Inventories 481 803
Prepaid expenses and other 2,377 2,851
--------- ---------
Total current assets 31,100 55,362
Property and equipment, net 8,587 8,688
Software development costs, net of accumulated amortization
of $3,495 and $4,551 at June 30, 1997 and 1998, respectively 2,660 2,851
Acquired source code, net of accumulated amortization
of $4,200 and $4,272 at June 30, 1997 and 1998, 278 206
respectively
Other assets 531 881
--------- ---------
$ 43,156 $ 67,988
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,752 $ 3,571
Accrued restructuring costs 2,609 1,280
Accrued bonuses and profit sharing 238 2,397
Accrued commissions 1,694 3,408
Accrued royalties 527 1,670
Other accrued expenses 5,834 4,691
Deferred revenue 11,638 16,026
--------- ---------
Total current liabilities 27,292 33,043
--------- ---------
Long-term liabilities 277 35
--------- ---------
Commitments and Contingencies (Note 4)
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized:
Series A preferred stock, none issued and outstanding
at June 30, 1997 and 1998 -- --
Series B preferred stock, 2,435,000 and 1,439,750
shares issued and outstanding at June 30, 1997
and 1998, respectively 13,466 7,962
Series C preferred stock, 213,803 and 162,020 shares
issued and outstanding at June 30, 1997 and 1998,
respectively 16,826 12,751
Common stock, $.001 par value: 60,000,000 shares authorized,
22,584,610 and 26,142,715 shares issued and outstanding
at June 30, 1997 and 1998, respectively 22 26
Additional paid-in capital 116,745 134,550
Less: Notes receivable from officers for issuance of
restricted stock (11,563) (11,563)
Accumulated foreign currency translation adjustments 393 (1,092)
Accumulated deficit (120,302) (107,724)
--------- ---------
Total stockholders' equity 15,587 34,910
--------- ---------
$ 43,156 $ 67,988
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE> 34
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues:
License fees $ 23,234 $ 32,123 $ 57,577
Services 21,817 27,420 40,406
Royalty income 619 1,208 505
-------- -------- --------
Total revenues 45,670 60,751 98,488
-------- -------- --------
Cost of revenues:
Cost of license fees 4,117 5,159 5,990
Cost of services 16,966 16,821 23,971
-------- -------- --------
Total cost of revenues 21,083 21,980 29,961
-------- -------- --------
Gross profit 24,587 38,771 68,527
-------- -------- --------
Operating expenses:
Sales and marketing 21,334 26,024 38,177
Software development 14,490 10,398 11,724
General and administrative 16,270 6,030 7,145
Charge for restructuring 5,568 1,600 --
-------- -------- --------
Total operating expenses 57,662 44,052 57,046
-------- -------- --------
Income (loss) from operations (33,075) (5,281) 11,481
-------- -------- --------
Other income (expense):
Interest income 949 835 940
Interest expense (1,344) (71) (39)
Other 263 109 965
-------- -------- --------
Total other income (expense) (132) 873 1,866
-------- -------- --------
Income (loss) before provision for
income taxes (33,207) (4,408) 13,347
Provision for income taxes -- -- --
-------- -------- --------
Net income (loss) $(33,207) $ (4,408) $ 13,347
======== ======== ========
Basic net income (loss) per share $ (1.83) $ (0.20) $ 0.56
======== ======== ========
Shares used in computing basic net income
(loss) per share 18,128 21,758 23,956
======== ======== ========
Diluted net income (loss) per share $ (1.83) $ (0.20) $ 0.45
======== ======== ========
Shares used in computing diluted net
income (loss) per share 18,128 21,758 29,716
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 35
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock Common Stock
----------------- ----------------------- ---------------------- ----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------- --------- --------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 - $ - 2,490,000 $ 13,770 231,598 $ 18,226 16,538,685 $ 16
Net loss - - - - - - - -
Foreign currency
translation adjustments - - - - - - - -
Issuance of restricted
stock - - - - - - 2,950,000 3
Conversion of debenture - - - - - - 1,528,988 2
Exercise of warrants - - - - - - 60,750 -
Employee stock purchases - - - - - - 47,711 -
Exercise of stock options - - - - - - 345,738 -
----- ------ ---------- ------- -------- ------- ----------- ---
Balance, June 30, 1996 - - 2,490,000 13,770 231,598 18,226 21,471,872 21
Net loss - - - - - - - -
Foreign currency
translation adjustments - - - - - - - -
Subchapter S distributions
to FocusSoft shareholders - - - - - - - -
Conversion of Series B
Preferred Stock - - (55,000) (304) - - 55,000 -
Conversion of Series C
Preferred Stock - - - - (17,795) (1,400) 177,950 -
Issuance of Common Stock - - - - - - 6,600 -
Exercise of warrants - - - - - - 55,000 -
Employee stock purchases - - - - - - 41,540 -
Exercise of stock options - - - - - - 776,648 1
----- ------ ---------- ------- -------- ------- ----------- ---
Balance, June 30, 1997 - - 2,435,000 13,466 213,803 16,826 22,584,610 22
Net income - - - - - - - -
Foreign currency
translation adjustments - - - - - - - -
Subchapter S distributions
to FocusSoft shareholders - - - - - - - -
Conversion of Series B
Preferred Stock - - (995,250) (5,504) - - 995,250 1
Conversion of Series C
Preferred Stock - - - - (51,783) (4,075) 517,830 1
Employee stock purchases - - - - - - 45,968 -
Exercise of stock options - - - - - - 1,999,057 2
----- ------ ---------- ------- -------- ------- ----------- ---
Balance, June 30, 1998 - $ - 1,439,750 $ 7,962 162,020 $12,751 26,142,715 $ 26
===== ====== ========== ======= ======== ======= =========== ====
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Notes Foreign
Additional Receivable Currency Total
Paid-In from Translation Accumulated Stockholders'
Capital Officers Adjustments Deficit Equity
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $ 80,424 $ - $ 404 $ (82,628) $ 30,212
Net loss - - - (33,207) (33,207)
Foreign currency
translation adjustments - - (55) - (55)
Issuance of restricted
stock 11,560 (11,563) - - -
Conversion of debenture 17,046 - - - 17,048
Exercise of warrants 244 - - - 244
Employee stock purchases 269 - - - 269
Exercise of stock options 1,688 - - - 1,688
-------- -------- ------- --------- --------
Balance, June 30, 1996 111,231 (11,563) 349 (115,835) 16,199
Net loss - - - (4,408) (4,408)
Foreign currency
translation adjustments - - 44 - 44
Subchapter S distributions
to FocusSoft shareholders - - - (59) (59)
Conversion of Series B
Preferred Stock 304 - - - -
Conversion of Series C
Preferred Stock 1,400 - - - -
Issuance of Common Stock - - - - -
Exercise of warrants 399 - - - 399
Employee stock purchases 237 - - - 237
Exercise of stock options 3,174 - - - 3,175
-------- -------- ------- --------- --------
Balance, June 30, 1997 116,745 (11,563) 393 (120,302) 15,587
Net income - - - 13,347 13,347
Foreign currency
translation adjustments - - (1,485) - (1,485)
Subchapter S distributions
to FocusSoft shareholders - - - (769) (769)
Conversion of Series B
Preferred Stock 5,503 - - - -
Conversion of Series C
Preferred Stock 4,074 - - - -
Employee stock purchases 435 - - - 435
Exercise of stock options 7,793 - - - 7,795
-------- -------- ------- --------- --------
Balance, June 30, 1998 $134,500 $(11,563) $(1,092) $(107,724) $ 34,910
======== ======== ======= ========= ========
</TABLE>
34
<PAGE> 36
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------
1996 1997 1998
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(33,207) $ (4,408) $ 13,347
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,431 5,822 5,126
Provision for doubtful accounts receivable 6,623 2,095 1,561
Provision for doubtful notes receivable from 2,940 -- --
divestitures
Interest expense on debenture issued in connection
with class action settlement 1,236 -- --
Charge for restructuring 5,568 1,600 --
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,322) (6,197) (18,514)
(Increase) decrease in inventories 212 (21) (322)
(Increase) decrease in prepaid expenses and other 111 176 (474)
(Increase) decrease in other assets 91 (62) (350)
Increase (decrease) in accounts payable (58) 693 (1,181)
Increase (decrease) in accrued restructuring costs (2,683) (912) (1,329)
Increase (decrease) in other accrued expenses 1,998 400 3,873
Increase (decrease) in deferred revenue 2,587 359 4,388
-------- -------- --------
Cash provided by (used in) operating
activities (9,473) (455) 6,125
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,795) (3,035) (4,099)
Capitalized software development costs (371) (1,457) (1,247)
Purchase of source code -- (274) --
Purchase of short-term investments (13,192) (10,500) (13,500)
Sale of short-term investments 8,099 11,056 11,514
Payments received on notes receivable from divestitures 1,016 825 --
Increase (decrease) in long-term liabilities 66 (11) (242)
Increase in notes receivable from divestitures (209) -- --
-------- -------- --------
Cash used in investing activities (7,386) (3,396) (7,574)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Subchapter S distributions to FocusSoft shareholders -- (59) (769)
Exercise of stock options 1,382 3,175 7,795
Exercise of warrants 186 399 --
Employee stock purchases 269 237 435
(Increase) decrease in restricted cash (530) 1,006 --
-------- -------- --------
Cash provided by financing activities 1,307 4,758 7,461
-------- -------- --------
EFFECT OF EXCHANGE RATES ON CASH (55) 44 (1,485)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,607) 951 4,527
CASH AND CASH EQUIVALENTS, beginning of the year 21,380 5,773 6,724
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of the year $ 5,773 $ 6,724 $ 11,251
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1997 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Company Operations and Basis of Presentation
Platinum Software Corporation, a Delaware corporation, and its
subsidiaries design, develop, market and support a broad range of client/server
enterprise resource planning software for use by businesses of all sizes
worldwide. The consolidated financial statements include the accounts of
Platinum Software Corporation and all of its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The term "Company" used herein means Platinum Software Corporation and its
subsidiaries, unless otherwise indicated by the context.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual amounts could differ from these estimates.
c. Short-term Investments
The Company accounts for its investment securities under the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities, (SFAS No. 115). Under SFAS No. 115,
management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities that the Company has both the positive intent and ability to
hold to maturity are carried at amortized cost. Debt securities that the Company
does not have the positive intent and ability to hold to maturity are classified
as available-for-sale and are carried at fair value. Realized and unrealized
holding gains and losses on securities classified as available-for-sale are not
material.
The Company classifies its short-term investments as available-for-sale
securities and carries them at their fair market value. At June 30, 1998,
short-term investments consisted of debt securities with interest rates ranging
from 5.63 percent to 7.38 percent.
At June 30, 1997 and 1998, short-term investments are as follows:
<TABLE>
<CAPTION> Gross
Unrealized Estimated
Cost Losses Fair Value
------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
June 30, 1997:
Corporate debt securities $ 9,664 $122 $ 9,542
======= ==== =======
June 30, 1998:
Corporate debt securites $11,538 $ 10 $11,528
======= ==== =======
</TABLE>
d. 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
36
<PAGE> 38
provided for in the license agreement, an appropriate portion of the license fee
is deferred and recognized 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.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2,
"Software Revenue Recognition," which supersedes SOP 91-1. The Company has
adopted SOP 97-2 for software transactions entered into after July 1, 1998. The
Company's management anticipates that the adoption of SOP 97-2 will not have a
material impact on the Company's results of operations.
e. Product Returns
The Company permits VARs and other software distributors to return
certain products that were returned by the end-user customers and allows a
30-day return period for certain Clientele customers. The Company establishes
reserves for such estimated product returns. Such product return reserve is
included within the allowance for doubtful accounts and was $660,000 at June 30,
1997 and $190,000 at June 30, 1998.
f. Inventories
The Company's inventories consist of software modules in diskette and
CD-ROM form ready for shipment, and manuals, and are stated at the lower of cost
(first-in, first-out) or market.
g. Property and Equipment
The following summarizes the components of property and equipment, at
cost, as of June 30, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Computer equipment $ 19,039 $ 22,222
Furniture and fixtures 3,605 3,653
Leasehold improvements 1,851 2,719
-------- -------
24,495 28,594
Accumulated depreciation and amortization (15,908) (19,906)
--------- --------
$ 8,587 $ 8,688
======== ========
</TABLE>
Depreciation is computed under the straight-line method over the
estimated useful lives of the assets ranging from 3 to 5 years. Maintenance and
repairs are charged to expense as incurred and the costs of additions and
betterments that increase the useful lives of the assets are capitalized.
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairments of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The adoption of this standard had no
material impact on the Company's consolidated financial statements.
h. Software Development Costs
Software development costs incurred subsequent to the determination of
technological feasibility and marketability of a software product are
capitalized. Amortization of capitalized software development costs commences
when the products are available for general release to customers over the
expected useful life of the respective products, which is generally 5 years.
Amortization of software development costs is included in cost of license fees
and totaled $942,000, $1,047,000 and $1,056,000 for the years ended June 30,
1996, 1997 and 1998, respectively.
37
<PAGE> 39
i. Acquired Source Code
Acquired source code is amortized over the shorter of the estimated
economic life of the asset or 5 years. Amortization of acquired source code is
included in cost of license fees and totaled $891,000, $1,084,000 and $72,000
for the years ended June 30, 1996, 1997 and 1998, respectively.
j. Advertising Costs
The Company expenses production costs of advertising upon the first
showing. Other advertising costs are expensed as incurred. Advertising expense
totaled $867,000, $1,490,000 and $1,034,000 for the years ended June 30, 1996,
1997 and 1998, respectively.
k. Income Taxes
The Company uses the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109. Under the
liability method, deferred taxes are determined based on the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates.
l. Statements of Cash Flows
The Company considers investments with an initial maturity of 3 months
or less when purchased to be cash equivalents. The following summarizes the
supplemental disclosures related to the statements of cash flows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(in thousands)
<S> <C> <C> <C>
CASH PAID DURING THE YEAR FOR:
Interest $ 64 $ 56 $ --
==== ==== ====
Income taxes $ -- $ -- $ --
==== ==== ====
</TABLE>
m. Foreign Currency Translation
The functional currency of the Company's foreign operations is the
respective local country's currency. Assets and liabilities of the foreign
operations are translated into U.S. dollars at the exchange rate at the balance
sheet date, whereas revenues and expenses are translated into U.S. dollars at
average exchange rates. Translation adjustments are shown as a separate
component of stockholders' equity.
n. Concentration of Credit Risks and Major Customer Data
The Company sells its products to VARs and other software distributors
generally under credit terms ranging from 30 to 90 days. Also, the Company
presently sells its products directly to end-users generally under credit terms
of 30 to 60 days. The Company believes no significant concentrations of credit
risk existed at June 30, 1998. The Company maintains adequate reserves for
potential credit losses and such losses have been within management's estimates.
Receivables from customers are generally unsecured.
o. Net Income (Loss) per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic net income (loss) per
share is computed by dividing net income (loss) by the weighted average number
of shares of common stock outstanding during the period. Diluted 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 years ended June
30, 1996 and 1997, and, therefore, were excluded from the calculation of diluted
net loss per share for such periods. All earnings per share amounts for all
periods have been presented and, where necessary, restated to conform with the
provisions of SFAS 128.
38
<PAGE> 40
The following table sets forth the computation of basic and diluted net income
(loss) per share:
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------
1996 1997 1998
-------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Numerator:
Net income (loss) - Numerator for basic
and diluted net income (loss) per share $(33,207) $(4,408) $13,347
Denominator:
Denominator for basic net income (loss)
per share - weighted average shares 18,128 21,758 23,956
Effect of dilutive securities:
Employee stock options -- -- 1,942
Preferred stock -- -- 3,818
-------- ------- -------
Dilutive potential common shares -- -- 5,760
Denominator for diluted net income (loss)
per share - adjusted weighted average
shares and assumed conversions 18,128 21,758 29,716
======== ======= =======
Basic net income (loss) per share $ (1.83) $ (0.20) $ 0.56
======== ======= =======
Diluted net income (loss) per share $ (1.83) $ (0.20) $ 0.45
======== ======= =======
</TABLE>
p. Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), which establishes standards for the reporting and display of
comprehensive income and its components in financial statements. Comprehensive
income generally represents all changes in stockholders' equity except those
resulting from investments by and/or distributions to stockholders. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented. The Company plans to adopt SFAS No.
130 in fiscal 1999, and does not expect adoption to have a material impact on
the Company's financial position, results of operations or cash flows.
Also, in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" (SFAS 131), which requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to stockholders for
interim and annual periods. The statement also requires additional disclosures
with respect to products and services, geographical areas of operations, and
major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented. The
Company plans to adopt SFAS No. 131 in fiscal 1999 and does not expect adoption
to significantly change its reportable segments.
q. Reclassifications
Certain reclassifications have been made to fiscal 1996 and 1997 amounts
to conform with the current year presentation.
39
<PAGE> 41
2. ACQUISITIONS AND RESTRUCTURINGS
a. Acquisitions
On June 30, 1997, the Company acquired Clientele Software, Inc.
(Clientele), a privately held provider of help desk automation software based in
Portland, Oregon. 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 0.19761 (i.e., each share of Clientele
common stock converted into 0.19761 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
consolidated financial statements have been restated to incorporate the
financial position, results of operations and cash flows of Clientele for all
periods presented.
On November 14, 1997, the Company acquired FocusSoft, Inc. (FocusSoft),
a privately held provider of enterprise resource planning and distribution
software based in Louisville, Kentucky. As consideration for the acquisition,
the Company issued 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 conversion of the FocusSoft shares was 24.747937 (i.e., each
share of FocusSoft common stock converted into 24.747937 shares of the Company's
common stock.) In addition, the Company assumed all of the employee stock
options of FocusSoft, which translated 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, 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 consolidated financial statements have been restated to incorporate
the financial position, results of operations and cash flows of FocusSoft for
all periods presented.
b. Restructurings
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 $3,300,000. Such amount included approximately
$1,200,000 for severance and other extended benefit costs related to the
reduction in force, $1,200,000 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 $2,300,000 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 $1,400,000
in asset write-downs and other costs.
In June 1997, the Company underwent another restructuring as a result of
the Clientele acquisition. This resulted in an additional restructuring charge
of $1,600,000 which was recorded in the fourth quarter of fiscal 1997. Such
amount included approximately $1,100,000 for excess facility costs, as well as
approximately $500,000 for severance and other extended benefit costs.
During the year ended June 30, 1998, the Company paid approximately
$1,329,000 for severance, lease termination and other costs relating to the 1996
and 1997 restructurings. At June 30, 1998, the Company has a $1,280,000 cash
obligation related to lease terminations and other costs of the fiscal 1996 and
1997 restructurings, which will be funded from existing cash reserves and
working capital.
3. SETTLEMENT OF CLASS ACTION LITIGATION
On January 19, 1994, a complaint was filed against the Company and
certain of its officers and directors requesting certification of a class
action, alleging various violations of the Federal Securities Laws and claiming
40
<PAGE> 42
unspecified compensatory damages and related fees and costs. A first amended
class action complaint was filed on April 18, 1994. On April 18, 1994, a
derivative complaint was filed against the Company and certain of its officers
and directors for violations of the Federal Securities Laws and breach of
fiduciary duties requesting unspecified compensatory and punitive damages from
the individual defendants on behalf of the Company. The Company was named as a
nominal defendant in the derivative action. A second class action suit was filed
on April 21, 1994, against the Company and certain of its officers. On May 23,
1994, the District Court consolidated the class action complaints and the
derivative complaint into one action under the case name In Re Platinum Software
Corporation Securities Litigation, Case No. SACV-94-70-AHS, in the U.S. District
Court for the Central District of California. This consolidated action includes
three separate actions, Tauber v. Platinum Software Corporation, Wolf v.
Platinum Software Corporation, and Neomonitus v. Blackie, et al. In June 1994,
the Company settled the litigation for $17,000,000, $2,000,000 in cash, of which
$1,000,000 was paid immediately, $1,000,000 was paid in December 1994, and
$15,000,000 was paid by issuing a redeemable, convertible subordinated debenture
in the principal amount of $15,000,000. On June 10, 1996, the Company elected to
repay the principal amount of the debenture, plus accrued interest thereon by
issuing shares of common stock and subsequently issued a total of 1,528,988
common shares in repayment of the debenture.
4. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its operating facilities and equipment
under operating leases with terms ranging up to 5 years. The following is a
schedule by years of future minimum lease payments under operating leases:
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
Year ending June 30 (in thousands)
1999 $ 3,299
2000 3,211
2001 2,563
2002 2,298
2003 1,898
Thereafter 6,402
-------
Total $19,671
=======
</TABLE>
Rental expense under operating leases, net of sublease income, for the
years ended June 30, 1996, 1997 and 1998, was $2,154,000, $2,067,000 and
$2,432,000, respectively.
The Company is party to an employment agreement with the President,
Chief Executive Officer and Chairman of the Board, which provides that the
Company shall be required to pay severance compensation to him equal to the
aggregate annual salary and bonus in the event his employment is terminated
without cause or in the event that he is constructively terminated. In the event
of termination without cause or constructive termination, the Company's
repurchase right lapses with respect to the restricted shares that would have
vested during the 12-month period following termination. (See Note 7.) Finally,
the Company agreed to provide a relocation package to assist him in relocating
his principal residence. Such costs were paid in fiscal 1997.
The Company is party to employment agreements with two of the Company's
executive vice presidents, which provides that the Company shall be required to
pay severance compensation equal to the aggregate six months salary and bonus in
the event their employment is terminated without cause or in the event that they
are constructively terminated. In the event of termination without cause or
constructive termination, the Company's repurchase right lapses with respect to
the restricted shares that would have vested during the 6-month period following
termination. (See Note 7.) Finally, the Company agreed to provide a relocation
package to assist them in relocating their principal residences. Such costs were
paid in fiscal 1997.
The Company is subject to miscellaneous legal proceedings in the normal
course of business and other legal proceedings. 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.
41
<PAGE> 43
5. INCOME TAXES
The provision for income taxes for the years ended June 30, 1996, 1997
and 1998 is comprised of the following:
<TABLE>
<CAPTION>
1996 1997 1998
----- ------ -----
(in thousands)
<S> <C> <C> <C>
Federal:
Current $ -- $ -- $ --
Deferred -- -- --
----- ------ -----
-- -- --
----- ------ -----
State:
Current -- -- --
Deferred -- -- --
----- ------ -----
-- -- --
----- ------ -----
Foreign:
Current -- -- --
Deferred -- -- --
----- ------ -----
$ -- $ -- $ --
===== ====== =====
</TABLE>
The income (loss) before income taxes between Federal and foreign
jurisdictions for the years ended June 30, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- -------- -------
(in thousands)
<S> <C> <C> <C>
Federal $ (28,061) $(4,375) $10,676
Foreign (5,146) (33) 2,671
--------- ------- -------
Total $ (33,207) $(4,408) $13,347
========= ======= =======
</TABLE>
The reported provision (benefit) for income taxes for the years ended June
30, 1996, 1997 and 1998 differ from the amount computed by applying the
statutory federal income tax rate of 35 percent to the consolidated income
(loss) before income taxes as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- -------- -------
(in thousands)
<S> <C> <C> <C>
Provision (benefit) computed at
statutory rates $(11,201) $(1,659) $ 4,708
Increase (reduction) resulting from:
State taxes, net of federal benefit (1,354) (414) 574
Valuation allowance 12,795 2,685 (5,372)
Other (240) (612) 90
-------- ------- -------
$ -- $ -- $ --
======== ======= =======
</TABLE>
The components of the Company's net deferred income tax asset
(liability) as of June 30, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards $ 33,250 $ 37,750
Allowance for doubtful accounts 1,940 1,330
Acquisition costs, net 3,015 3,380
Research and development credits 2,010 2,720
Other 1,550 1,820
Accrued restructuring costs 1,210 685
Depreciation (405) (410)
Software capitalization, net (990) (780)
Valuation allowance (41,580) (46,495)
--------- --------
$ -- $ --
========= ========
</TABLE>
42
<PAGE> 44
As of June 30, 1998, the Company had provided a valuation allowance of
approximately $46,495,000 because realization of the Company's net deferred tax
asset is not more likely than not due to the historical losses incurred by the
Company prior to fiscal 1998, and the uncertainty as to profits in the future.
Any realization of the Company's net deferred tax asset would reduce the
Company's effective tax rate in future periods.
The Company has federal, state and foreign net operating loss
carryforwards as of June 30, 1998 of approximately $98,700,000, $69,700,000 and
$24,000,000, respectively. The federal and state losses expire in the years 1998
through 2012. The foreign losses have no expiration date. In addition, the
Company has approximately $2,720,000 of federal research and development credit
carryforwards that expire in the years 2000 through 2011.
Included in the Company's net operating loss carryforwards are tax
deductions relating to the exercise of non-qualified stock options totaling
approximately $44,100,000. These losses are fully offset by a valuation
allowance. Upon future realization of net operating losses, no income tax
benefit will be permitted to the extent the utilized losses reflect a deduction
for the exercise of nonqualified stock options which will be charged to
stockholders' equity.
Utilization of the federal and state net operating loss and research and
development credit carryforwards could be limited in future years if the Company
were to experience a greater than 50 percent change in ownership within a 3-year
period as defined in section 382 of the United States Internal Revenue Code of
1986.
6. STOCK OPTION PLAN AND OTHER EMPLOYEE BENEFITS
The Company adopted a stock option plan effective May 31, 1990, whereby
incentive and nonqualified options and purchase rights may be granted to
officers and other key employees. The total number of shares which may be
granted under this plan is 1,650,000.
The Company adopted an additional nonqualified stock option plan
effective July 21, 1993, whereby nonqualified options may be granted to officers
and other key employees. The total number of shares that may be granted under
this plan is 1,275,000.
The Company adopted an additional stock option plan effective April 20,
1994, whereby incentive and nonqualified stock options, as well as purchase
rights, may be granted to officers, directors and other key employees. The total
number of shares that may be granted under this plan is 2,200,000.
The Company adopted a fourth stock option plan effective January 4,
1996, whereby nonqualified stock options may be granted to nonexecutive officers
and other key employees. The total number of shares that may be granted under
this plan is 500,000.
The Company adopted a fifth stock option plan effective July 29, 1997,
whereby nonqualified stock options may be granted to employees, consultants and
others with important business relationships with the Company. The total number
of shares that may be granted under this plan is 500,000.
The Company adopted a sixth stock option plan effective April 22, 1998,
whereby nonqualified stock options may be granted to officers, directors,
employees and others with important business relationships with the Company. The
total shares that may be granted under this plan is 3,000,000. The shares that
may be granted were increased from 1,000,000 to 3,000,000 effective July 28,
1998.
On June 30, 1997, the Company acquired Clientele Software, Inc. (See
Note 2.) The Company assumed all of the outstanding employee stock options of
Clientele which translated into options to acquire 212,356 shares of common
stock of the Company.
On November 14, 1997, the Company acquired FocusSoft, Inc. (See Note 2).
The Company assumed all of the outstanding employee stock options of FocusSoft,
which translated into options to acquire 225,206 shares of common stock of the
Company.
Effective July 1990, the Company adopted a profit sharing plan pursuant
to Section 401 of the Internal Revenue Code. The Company has not made any
contributions to the profit sharing plan as of June 30, 1998. In addition, the
Company adopted an Employee Stock Purchase Plan in August 1992 authorizing the
issuance of up to an aggregate
43
<PAGE> 45
of 450,000 shares of common stock to participating employees which permits
employees to purchase common stock at a price equal to 85 percent of the fair
market value at the beginning or end of a 6-month plan period. As of June 30,
1998, 260,318 shares have been sold under this plan.
The following is a summary of common stock option transactions as of and
for the years ended June 30, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- -------------------- --------------------
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 Year 3,593,798 $ 6.0563 3,763,658 $5.8039 3,765,837 $ 5.2839
Granted 1,903,375 6.5210 3,771,877 5.4211 1,767,354 13.3240
Exercised (345,738) 3.9864 (776,648) 3.8445 (1,999,057) 3.9693
Expired or Canceled (1,387,777) 7.8937 (2,993,050) 6.4843 (420,596) 9.4058
---------- -------- ---------- ------- ---------- --------
Outstanding, End of
Year 3,763,658 $ 5,8039 3,765,837 $5.2839 3,113,538 $ 9.3080
========== ======== ========== ======= ========== ========
Options Exercisable 1,876,238 $ 4.8565 2,008,293 $4.1165 718,858 $ 5.7045
========== ======== ========== ======= ========== ========
</TABLE>
The following table summarizes information about stock options
outstanding at June 30, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------ ----------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.1107-$1.2650 184,604 3.07 $0.3549 75,328 $0.6356
$3.5000-$3.5000 471,490 6.82 $3.5000 302,659 $3.5000
$5.0000-$7.5000 338,042 8.38 $7.2265 111,049 $6.9340
$7.5910-$8.3125 512,248 8.62 $8.1663 70,015 $7.7492
$8.6030-$9.7500 325,655 8.59 $9.4002 93,142 $9.3198
$9.9375-$10.7500 327,273 9.27 $10.0907 0 $0.0000
$10.8125-$12.1250 384,859 8.72 $11.6968 59,215 $12.1250
$12.3750-$14.9375 324,850 9.12 $12.8554 7,450 $12.7408
$18.8750-$22.1875 50,000 9.71 $20.5313 0 $0.0000
$23.5000-$23.5000 194,517 9.81 $23.5000 0 $0.0000
- -------------------- --------- ------ -------- ------- --------
$0.1107-$23.5000 3,113,538 8.21 $9.3080 718,858 $5.7045
==================== ========= ====== ======== ======= ========
</TABLE>
Effective July 1, 1996, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock-Based Compensation." As permitted in SFAS No. 123, the Company did not
adopt the recognition provisions and has provided the pro forma net income
(loss) and income (loss) per share disclosures required by SFAS No. 123. The
Company continues to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" in accounting for its plans.
Accordingly, no compensation expense has been recognized for its stock option
plans and its stock purchase plan. Had compensation costs for the Company's
stock option plans and stock purchase plan been determined based upon fair value
at the grant date under these plans consistent with the SFAS No. 123
methodology, the Company's net income (loss) and income (loss) per share would
have been the pro forma amounts shown below:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- -----------
<S> <C> <C> <C>
Net income (loss) as reported $(33,207,000) $ (4,408,000) $13,347,000
============ ============= ===========
Net income (loss) -- pro forma $(34,582,000) $(11,426,000) $ 6,753,000
============ ============= ===========
Income (loss) per share as
reported $(1.83) $(0.20) $0.45
============ ============= ===========
Income (loss) per share --
pro forma $(1.91) $(0.53) $0.23
============ ============= ===========
</TABLE>
44
<PAGE> 46
The fair value of shares had been estimated using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Stock Option Plans Purchase Plan
------------------ -------------
<S> <C> <C>
Expected life (years) 4 .5
Risk-free interest rate 5.9375% 5.57%
Volatility 1.4962 1.4962
Dividend rate 0% 0%
</TABLE>
For options granted during fiscal years 1996, 1997 and 1998, the
weighted average fair value at date of grant was $4.3625, $4.0667 and $10.5921
per option, respectively. The weighted average fair value at date of grant for
stock purchase shares during fiscal years 1996, 1997 and 1998 was $2.430, $3.007
and $5.798 per share, respectively. The discounted value of the stock purchase
shares granted in fiscal years 1996, 1997 and 1998 using the Black-Scholes
Option pricing model was $58,000, $42,000 and $158,000 respectively. As of June
30, 1998, the total number of shares of common stock reserved for future
issuance under existing stock option plans and Series B and Series C Preferred
Stock (See Note 8) is approximately 6,173,000.
On March 9, 1994, the Board of Directors adopted a Shareholder Rights
Plan (the Plan) which is intended to protect stockholders from unfair takeover
practices. Under the Plan, each share of common stock carries a right to obtain
additional stock according to terms provided in the Plan. The rights will not be
exercisable or separable from the common stock until a third-party acquires at
least 20 percent of the Company's then outstanding common stock or commences a
tender offer for at least 20 percent of the Company's then outstanding common
stock. In the event the Company is acquired in a merger or other business
combination transaction which the Company is not the surviving corporation or 50
percent or more of its consolidated assets or earning power are sold or
transferred, each right will entitle its holder to receive, at the then current
exercise price, common stock of the acquiring company, having a market value
equal to two times the exercise price of the right. If a person or entity were
to acquire 20 percent or more of the outstanding shares of the Company's common
stock, or if the Company is the surviving corporation in a merger and its common
stock is not changed or exchanged, each right will entitle the holder to receive
at the then current exercise price common stock having a market value equal to
two times the exercise price of the right. Until a right is exercised, the
holder of a right, as such, will have no rights as a stockholder of the Company,
including, without limitation, the rights to vote as a stockholder or receive
dividends. The rights, which expire on March 9, 2004, may be redeemed by the
Company at a price of $0.01 per right.
7. RESTRICTED STOCK
In February 1996, the President, Chief Executive Officer and Chairman of
the Board purchased 2,000,000 shares of restricted stock at a purchase price of
$3.50, the then fair market value of the Company's common stock. In payment of
one-half of the purchase price, the Company executed a secured five-year
promissory note in the principal amount of $3,500,000. The note bears simple
interest at 6 percent per annum and is a recourse promissory note. The Company
retained a repurchase right with respect to the restricted stock. The repurchase
right lapsed with respect to 350,000 shares on the date of the restricted stock
grant, and lapses with respect to 29,167 shares each month for 36 months so that
after 3 years the repurchase right shall not apply to 1,400,000 shares. The
repurchase right with respect to the remaining 600,000 shares lapses based on
fulfillment of certain performance criteria with respect to the Company's
operating revenues and profit after taxes for fiscal 1997, fiscal 1998 and
fiscal 1999 years, or in any event after 10 years. The Company also has loaned
to the President, Chief Executive Officer and Chairman of the Board $3,500,000
pursuant to an unsecured 5-year recourse promissory note, which bears interest
at the rate of 6 percent per annum. This loan was used to fund the restricted
stock purchase along with the secured note referenced above.
In February 1996, one of the Company's senior executive officers
purchased 500,000 shares of restricted stock at a purchase price of $3.50, the
then fair market value of the Company's common stock. In payment of one-half of
the purchase price, the Company executed a secured 5-year promissory note in the
principal amount of $875,000. The note bears simple interest at 6 percent per
annum and is a recourse promissory note. The Company retained a repurchase right
with respect to the restricted stock. The repurchase right lapsed with respect
to 50,000 shares on the date of the restricted stock grant, and lapses with
respect to 8,334 shares each month for 36 months, so that after 3 years the
repurchase right shall not apply to 350,000 shares. The repurchase right with
respect to the remaining 150,000 shares lapses based on fulfillment of certain
performance criteria with respect to the Company's operating revenues and profit
after taxes for fiscal 1997, fiscal 1998 and fiscal 1999 years, or in any event
after 10 years. The Company also has loaned to this senior executive officer
$875,000 pursuant to an unsecured 5-year recourse promissory note, which bears
interest at the rate of 6 percent per annum. This loan was used to fund the
restricted stock purchase along with the secured note referenced above.
45
<PAGE> 47
In April 1996, one of the Company's senior executive officers purchased
450,000 shares of restricted stock at a purchase price of $6.25, the then fair
market value of the Company's common stock. In payment of one-half of the
purchase price, the Company executed a secured 5-year promissory note in the
principal amount of $1,406,250. The note bears simple interest at 6 percent per
annum and is a recourse promissory note. The Company retained a repurchase right
with respect to the restricted stock. The repurchase right lapsed with respect
to 49,980 shares on the date of the restricted stock grant, and lapses with
respect to 6,945 shares each month thereafter for 36 months, so that after 3
years the repurchase right shall not apply to 300,000 shares. The repurchase
right with respect to the remaining 150,000 shares lapses based on fulfillment
of certain performance criteria with respect to the Company's operating revenues
and profit after taxes for fiscal 1997, fiscal 1998 and fiscal 1999, or in any
event after 10 years. The Company also has loaned to this senior executive
officer $1,406,250 pursuant to an unsecured 5-year promissory note, which bears
interest at 6 percent per annum. This loan was used to fund the restricted stock
purchase along with the secured note referenced above.
In April 1998, the Board of Directors forgave any and all interest on
such notes.
8. PREFERRED STOCK
On September 22, 1994, the Company completed a private placement. The
Company issued 2,490,000 shares of its newly created Series B Preferred Stock in
exchange for cash totaling $13,769,700 to a group of venture capital investors.
The preferred shares were issued at a price of $5.53 per share. The price per
share was determined on September 9, 1994, at the completion of a term sheet
satisfactory to the Company and the investors, and reflects a 20 percent
discount from the average trading price for the Company's common stock for 20 of
the 30 preceding days. Such preferred shares are convertible into common shares
of the Company on a one-for-one basis at any time at the option of the holders.
Such shares automatically convert into common stock of the Company 10 days after
formal notification by the Company that the average consecutive 20-trading day
closing stock price of the common stock has exceeded $22.12 per share. The
holder of preferred stock shall be entitled to vote with the holders of common
stock on an as converted basis. The holders of a majority of the outstanding
Series B Preferred Stock, voting together as a class, have the right to
designate two members of the Board of Directors. In fiscal 1998, 995,250 shares
of Series B Preferred Stock were converted to common stock.
On May 26, 1995, the Company completed a second private placement. The
Company issued 231,598 shares of its newly created Series C Preferred Stock in
exchange for cash totaling $18,226,700 to a group of venture capital investors.
The preferred shares were issued at a price of $78.70 per share. The price per
share reflects a 20 percent discount from the average trading price for the
Company's common stock for 20 of the 30 preceding days. Such preferred shares
are convertible into common shares of the Company on a ten-for-one basis at any
time at the option of the holders. Such shares automatically convert into common
stock of the Company 10 days after formal notification by the Company that the
average consecutive 20-trading day closing stock price of the common stock has
exceeded $25.00 per share. The holder of preferred stock shall be entitled to
vote with holders of common stock on an as converted basis. In fiscal 1998,
51,783 shares of Series C Preferred Stock were converted to common stock.
The holders of the Series B and Series C Preferred Stock have the right
to cause the Company to register the sale of shares of common stock issuable
upon conversion of the Series B and Series C Preferred Stock.
Subsequent to June 30, 1998, the remaining outstanding Series B
Preferred Stock automatically converted to common stock.
46
<PAGE> 48
9. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: the design, development,
marketing and support of client/server enterprise resource planning applications
software products.
A summary of the Company's operations by geographic area is as follows:
<TABLE>
<CAPTION>
United Latin
States Australasia Europe Canada America Consolidated
-------- ----------- --------- --------- --------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30, 1996:
Net revenues $ 31,591 $ 8,294 $ 2,134 $ 3,042 $ 609 $ 45,670
======== ======== ======== ======== ====== ========
Operating income (loss) (27,914) (1,823) (3,471) (476) 609 (33,075)
======== ======== ======== ======== ====== ========
Identifiable assets 33,370 3,164 2,857 2,249 -- 41,640
======== ======== ======== ======== ====== ========
Year Ended June 30, 1997:
Net revenues $ 43,383 $ 7,993 $ 4,426 $ 3,957 $ 992 $ 60,751
======== ======== ======== ======== ====== ========
Operating income (loss) (5,422) 388 (1,429) 190 992 (5,281)
======== ======== ======== ======== ====== ========
Identifiable assets 34,822 3,565 2,488 2,281 -- 43,156
======== ======== ======== ======== ====== ========
Year Ended June 30, 1998:
Net revenues $ 71,008 $ 9,560 $ 8,169 $ 7,232 $2,519 $ 98,488
======== ======== ======== ======== ====== ========
Operating income (loss) 9,721 (1,818) 1,109 (50) 2,519 11,481
======== ======== ======== ======== ====== ========
Identifiable assets 51,956 5,809 4,974 5,249 -- 67,988
======== ======== ======== ======== ====== ========
</TABLE>
47
<PAGE> 49
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Platinum Software Corporation
We have audited the consolidated financial statements of Platinum Software
Corporation as of June 30 1997 and 1998, and for each of the three years in the
period ended June 30, 1998, and have issued our report thereon dated July 29,
1998. Our audits also included the financial statement schedule listed in Item
14(a) of this Annual Report on Form 10-K. This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Orange County, California
July 29, 1998
48
<PAGE> 50
PLATINUM SOFTWARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Provision Balance
Beginning for Amounts at End
Description of Year Bad Debt Written Off of Year
- ----------------------------------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts $ 4,860 $ 6,623 $(2,360) $9,123
======== ======= ======= ======
FOR THE YEAR ENDED JUNE 30, 1997:
Allowance for doubtful accounts $ 9,123 $ 2,095 $(4,955) $6,263
======== ======= ======= ======
FOR THE YEAR ENDED JUNE 30, 1998:
Allowance for doubtful accounts $ 6,263 $ 1,561 $(2,665) $5,159
======== ======= ======= ======
</TABLE>
49
<PAGE> 1
EXHIBIT 10.48
PLATINUM SOFTWARE CORPORATION
AMENDED AND RESTATED
NONQUALIFIED STOCK OPTION PLAN - 1998
AUGUST 5, 1998
<PAGE> 2
PLATINUM SOFTWARE CORPORATION
AMENDED AND RESTATED
NONQUALIFIED STOCK OPTION PLAN - 1998
1. Purposes of the Plan.
--------------------
The purposes of this Nonqualified Stock Option Plan - 1998 (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,
three million (3,000,000) 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.
-----------
Officers and employees of the Company or of any subsidiary
corporation, any member of the Board of Directors of the Company, whether he or
she is employed by the Company, 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
2
<PAGE> 4
or reconcile any inconsistency in the Plan or in any nonqualified option
agreement in the manner 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
4
<PAGE> 6
exercise this Option and to pledge the Shares so purchased to the NASD Dealer in
a margin 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 April 22, 1998, and shall terminate on April 22, 2008.
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
<PAGE> 1
EXHIBIT 10.49
SOFTWARE DISTRIBUTION LICENSE AGREEMENT
THIS AGREEMENT ("AGREEMENT") dated as of the day of May, 1996 (the "EFFECTIVE
DATE") is made by and between FRx SOFTWARE CORPORATION, a Colorado corporation
having its principal place of business at 4949 South Syracuse Street, Suite 620,
Denver, Colorado 80237 ("FRx") and PLATINUM SOFTWARE CORPORATION, a California
corporation having its principal place of business at 195 Technology Drive,
Irvine, California 92718-2402 ("PSC").
RECITALS
WHEREAS, FRx has developed and distributed certain Software (as defined below)
and desires to license to PSC the right to market and distribute the Software;
and
WHEREAS, PSC desires to market and distribute the Software directly and through
PSC's reseller channels.
AGREEMENT
Now, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants set forth in this Agreement, FRx and PSC hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "BUNDLED SOFTWARE" means the FRx Standard Edition and the FRx
Advanced Edition to be combined with the PSC Products, with a single
price established for the combined product, as specified in Exhibit A.
1.2 "STAND-ALONE SOFTWARE" means the FRx Advanced Edition of the
Software, Remote DrillDown Viewer and other FRx products to be
distributed by PSC separately to PSC's End Users for use with PSC
Products, as specified in Exhibit A.
1.3 "SOFTWARE" means the Bundled Software and the Stand-Alone Software,
specifically interfaced to PSC products, identified on Exhibit A hereto.
1.4 "DOCUMENTATION" means user manuals and other written material that
relate to the use and operation of a particular version of the Software.
FRx will prepare the Documentation for both the FRx Standard and
Advanced Editions and will deliver such to PSC on diskette in Microsoft
Word or Framemaker format. FRx will also prepare additional
documentation information specific to PSC and deliver on diskette in
Microsoft Word or Framemaker format.
1.5 "PSC PRODUCTS" means general ledger products distributed by PSC as
defined in Exhibit A.
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1.6 "PSC'S REVENUE" means all revenues, computed on an accrual basis,
from the licensing by PSC of the applicable Software during the
applicable time period, exclusive of any commissions or discounts paid
by PSC to PSC Resellers, less returns, shipping and freight charges,
sales and use taxes, customs, duties or other governmental charges.
Revenue does not include installation, training, consulting or other
similar fees or charges associated with the Software.
1.7 "PSC RESELLERS" means any hardware manufacturer, distributor,
dealer, qualified installer, independent sales organization, marketing
entity, or other third party to or through which PSC elects to market
the Software as well as any sub-dealer or other marketing entity to or
through which a PSC Reseller elects to market or distribute the
Software.
1.8 "END USERS" means those persons, firms, corporations or other legal
entities who are users of the PSC Products and who, under the terms of
this Agreement, will acquire the Software from PSC for its own internal
use rather than for distribution or resale.
1.9 "MINIMUM ROYALTY LEVEL" means the cumulative payment by PCS to FRx,
or cumulative obligation to make payment, of license fees totaling [*]
1.10 "SUPPORT PLAN" means the Platinum Support and Maintenance Plan
(Exhibit H-3) and/or the Platinum SQL NT Support Agreement (Exhibit H-4)
sold by PSC to its End Users.
2. LICENSE GRANT
2.1 GRANT OF LICENSE. Subject to the terms and conditions of this
Agreement and in consideration of the agreement of PSC to pay license
fees hereunder, FRx hereby grants to PSC (subject to satisfaction of
conditions specified in Section 2.1(a)) and PSC accepts a non-exclusive
worldwide license to use, copy, distribute and sublicense the Software
as a component part of the PSC Products for distribution to End Users
and to PSC Resellers for redistribution to End Users. Although the right
to license and distribute the Software generally is non-exclusive, FRx
shall not directly market or license to any other party the right to
license and distribute the Software with interfaces to the PSC Products.
The Software may be licensed by PSC to third parties either as Bundled
Software or Standalone Software as specified on Exhibit A to this
Agreement. For purposes of this Section 2.1 the term Software shall
include upgrades and updates to the Software supplied under Article 9 of
this Agreement.
2.1(a) CONDITIONS PRECEDENT TO GRANT. This grant is specifically
contingent upon PSC payment of obligations described in Section 6.1
(a), 6.1(b) and 6.1(c). PSC shall not be authorized to
distribute Software until such payments are made to FRx.
2.1(b) INTERNATIONAL TRANSLATION AND LOCALIZATION. PSC is hereby
granted the authority to translate the Software into languages other
than U.S. English for distribution in international markets. FRx
shall use all reasonable efforts to provide to PSC at no additional
cost an externalized text file to facilitate such translations no
later than six (6) months from the Effective Date. PSC shall fund
such translation efforts and own all rights to its modifications to
the translation files or tables. Should FRx develop a translated
version for specific international markets at its cost, it shall
make such version(s) available to PSC for use with PSC Products at a
fee to be reasonably negotiated between the parties.
[*] CONFIDENTIAL TREATMENT REQUESTED
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2.2 RESERVED RIGHTS. FRx reserves the right to directly license or
distribute the Software, without compensating PSC, as a component of a
multi-site or multi-division financial reporting and consolidation
solution. Such a license would be directed toward larger corporate
clients using other accounting systems in addition to PSC Products. (For
this purpose, PSC Products may not be the primary or controlling
accounting system for the end-user organization, but may be in use at
subsidiary or other levels in the organization) Should PSC assist FRx in
the sale or license of an enterprise-wide reporting and/or consolidation
solution involving non-PSC databases, FRx shall negotiate in good faith
and pay to PSC a sales commission or fee consistent with industry
standards and/or FRx established commission policies for such services.
2.3 TERMS OF LICENSE GRANT.
2.3(a) RIGHT TO USE FRx TRADEMARKS AND TRADE NAMES. In connection
with the distribution or advertising of the Software, PSC may use
trade names or trademarks of FRx, including "FRx" and "FRx: The
Financial Reporting Extender". PSC acknowledges the validity of such
trademarks and trade names and FRx's ownership thereof. All such
marks and names and any additional marks of which FRx may in the
future be the proprietor will bear the designation(TM) or the (R)
designation as specified by FRx. PSC shall not challenge FRx's
rights to use the trademarks or trade names which FRx may apply to
or use in connection with the Software. PSC shall not (nor shall it
attempt to) adopt, use, or register any acronym, trademark, trade
names or other marketing name of FRx or any confusingly similar word
or symbol as part of PSC's own name or the name of any of its
affiliates or the products it markets, except with respect to the
licensing of a prior version of the FRx software as permitted in
Section 10 of this Agreement. PSC agrees to famish to FRx a sample
of each brochure and advertising of any type using FRx trademarks
and trade names for inspection and review. If FRx at any time finds
any brochure or advertising of any type using FRx trademarks and
trade names as prepared by PSC to be inconsistent with its trademark
marketing guidelines, or prepared in a misleading or deceptive
manner, then FRx may notify PSC in writing of such deficiency or
deficiencies, and PSC shall correct or eliminate such deficiency or
deficiencies with 14 days after receipt of such notice.
2.3(b) TERMS OF SOFTWARE SUBLICENSE. Each copy of the Software and
the Documentation shall be sublicensed to End Users pursuant to the
terms and conditions of PSC's end-user license agreement ("END-USER
LICENSE"), which in every instance shall include the language set
forth on Exhibit H-1 and H-2, attached hereto, as applicable.
3. COMMENCEMENT, DURATION AND TERMINATION
3.1 TERM. The term ("Term") of this Agreement shall commence on the
Effective Date of this Agreement and shall continue until the later of
five (5) years thereafter or until the Minimum Royalty Level is
achieved. The term of this Agreement shall be automatically extended for
an additional one (1) year period at the end of the initial term and
each extended term unless either party gives written notice of its
intention not to renew this Agreement at least one (1) year prior to the
end of the then current term. This Agreement may be terminated earlier
as provided below.
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3.2 EARLY TERMINATION.
3.2(a) BREACH OF AGREEMENT. Either party may terminate this
Agreement immediately upon written notice to the other party in the
event that the other party shall be in breach of any obligation on
its part to be performed and shall have failed to remedy such
breach, if such breach is capable of remedy, within thirty (30) days
from the date of written notice specifying the breach and requiring
its remedy; or
3.2(b) BANKRUPTCY OF ANY PARTY. This Agreement shall terminate
immediately should (i) all or a substantial portion of the assets of
either party be transferred to an assignee for the benefit of
creditors, to a receiver or to a trustee in bankruptcy, or (ii) a
proceeding is commenced by or against the other party for relief
under bankruptcy or similar laws and such proceeding is not
dismissed within sixty (60) days.
3.2(b)(1) SOURCE CODE ESCROW. FRx shall deposit the source code
and Documentation for the Software with Data Securities
International, Inc. (DSI) within 30 days of Acceptance of
Software as defined in Section 4.2. PSC shall be named as a
beneficiary under the terms of the "Source Code Escrow
Agreement" form attached as Exhibit 1. Such source code shall be
released to PSC in the event of FRx's bankruptcy, receivership or
assignment for the benefit of creditors pursuant to the attached
agreement. PSC shall pay any incremental costs in connection with
such escrow account in excess of the cost of the standard
"FLEXSAFE" account that FRx currently maintains with DSI.
3.2(c) Upon sixty (60) days prior written notice, PSC may terminate
this Agreement for general economic reasons or customer preferences.
3.3 RIGHTS UPON TERMINATION. Upon termination or expiration of this
Agreement howsoever arising:
3.3(a) all amounts then owed by PSC to FRx shall thereupon become
immediately due and payable; however, if early termination is caused
by FRx or if Agreement terminates under Section 3.1, all amounts
due to FRx shall be payable in accordance with the standard payment
terms provided in Article 6.
3.3(b) FRx shall have no liability or obligation to refund any
unrecovered Prepaid License Fees provided in Section 6.1 on
termination of this Agreement, unless Early Termination is caused by
FRx under Section 3.2.
3.3(c) any provision of this Agreement expressly stated to survive,
or implicitly surviving, termination shall remain in full force and
effect including, but not limited to, the following: Section 5.5
(Proprietary Right), Article 6 (License Fees, Payments, Audit
Rights), Article 7 (Warranties, Limitation of Liability), and
Article 8 (Indemnifications, Trademarks, Confidential Information).
3.3(d) PSC shall, within a reasonable amount of time, return to FRx
all property in PSC's possession which belongs to FRx (including,
without limitation, all Documentation, manuals, software,
specifications, FRx business plans) and shall remove, cancel and/or
cease to use the trademarks, trade names and any signs,
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advertising, or other materials referring either to FRx or to PSC as
a distributor of FRx. FRx shall, within a reasonable amount of time,
return to PSC all property in FRx's possession which belongs to PSC
(including, without limitation, all Documentation, manuals,
software, specifications, PSC business plans) and shall remove,
cancel and/or cease to use the trademarks, trade names and any
signs, advertising, or other materials referring either to PSC or to
PSC as a distributor of FRx. Notwithstanding the above, PSC shall be
authorized to continue to license Software to End Users for a period
not to exceed ninety (90) days following termination for the sole
purpose of liquidating PSC inventory of Software existing at date of
termination and shall be required to pay royalties on such
transactions under the terms of this Agreement.
3.3(e) no rights of either party accrued as of the date of
termination shall be adversely affected or prejudiced; and
3.3(f) no End User License entered into prior to termination shall
be affected, but all licenses FRx granted to PSC hereunder shall
terminate.
3.3(g) In the event of either termination of the Agreement according
to its terms or Early Termination caused by PSC under Section 3.2,
the version of the FRx source code then held by PSC, as provided in
Section 10.1(a), together with any and all rights to use FRx
trademarks, shall be assigned and transferred to FRx without cost or
additional compensation.
3.3 (g)(1) In the event an End User has entered into a source
code escrow agreement with PSC prior to the Effective Date
that included the PSC version of the FRx source code and
such End User has not elected to convert to the FRx version
of Software during this Agreement, PSC shall be permitted to
deliver its version of the FRx source code to such End User,
if and when required by the source code escrow agreement.
3.3(h) PSC and FRx shall issue a joint communication to all
end-users of FRx software products (both DOS and Windows versions)
advising users of options from each company for ongoing technical
support, software maintenance and enhancement plans for existing FRx
products as well as new financial reporting products available
subsequent to termination. Either party shall be authorized to
provide such services and products to existing End Users without
compensation to the other. Notwithstanding the above, FRx is
authorized to continue to provide support services to users then
enrolled in a Support Plan for the FRx product for the duration of
the term of that user's Support Plan and retain the related funds
for providing such services.
3.3 (i) If this Agreement has not terminated under Section 3.2(a)
or (b) caused by PSC, and subject to the continuous timely
performance by PSC of its obligations under this Agreement, FRx
agrees to enter into good faith negotiations with PSC to enter into
a Software Distribution Agreement upon termination of this Agreement
on terms similar to agreements FRx has entered into with other
software vendors. This agreement would authorize PSC to distribute
FRx products, including FRx support and maintenance plans, on a
non-bundled basis to its user base and would include a prohibition
against direct solicitation or marketing by FRx of FRx products to
PSC's customer base as long as PSC actively markets such products.
Further, any unrecovered Prepaid License Fees shall be fully
recoverable against royalties under such a Distribution Agreement at
a recovery
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rate on each license not to exceed 50% of the total License Fee due
to FRx for that license.
3.4 LIMITATION OF RIGHTS UPON TERMINATION
3.4(a) NO CONTINUING RELATIONSHIP. Both parties to this Agreement
acknowledge and agree that, subject to the provisions of Section
3.3(i), they have no expectation and have received no assurances
that their business relationship will continue beyond the stated
term of this Agreement or that either shall obtain any anticipated
amount of profits by virtue of this Agreement.
3.4(b) NO CONTINUING RIGHTS. Neither party to this Agreement shall
have or acquire by virtue of this Agreement or otherwise any vested,
proprietary, or other right in the promotion of the Software or in
any goodwill created by its efforts under this Agreement.
3.5 NO DAMAGES FOR TERMINATION OR EXPIRATION. NEITHER FRx NOR PSC SHALL
BE LIABLE TO THE OTHER FOR DAMAGES OR PAYMENTS OF ANY KIND, INCLUDING
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OR
EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS ARTICLE 3.
4. DUTIES OF FRx
4.1 DELIVERY OF DELIVERABLES. FRx agrees to develop interfaces between
the Software and PSC Products as described on Exhibit C and, in this
regard, FRx shall deliver the Deliverables as defined in Exhibit C. PSC
shall be responsible for reproducing and distributing the Delivered
Software to its End Users in accordance with Section 5.3 and for the
paying FRx license fees as specified in Article 6.
4.1(a) PRODUCT TESTING. Testing of Software will be coordinated
between PSC and FRx. All software shall be distributed to test sites
by FRx and be subject to a beta agreement between FRx and test site.
PSC is not authorized to distribute beta Software directly to End
Users.
4.2 ACCEPTANCE OF THE SOFTWARE. Upon delivery by FRx of all of the
Deliverables, PSC will review the Software, including the interface to
PSC Products and Documentation, and notify FRx should the Software not
function substantially as described in the Documentation, the
Integration Program attached as Exhibit D and comply with the Acceptance
Criteria defined in Exhibit J. In such case, FRx shall modify the
Software and Documentation as necessary within a reasonable time after
FRx's receipt of a notice from PSC describing in detail such
deficiencies and shall deliver the revised material to PSC. PSC shall
use all reasonable efforts to perform the necessary software and system
integration testing as soon as practicable upon receipt of Software.
Should PSC encounter technical difficulties in completing such
integration and these difficulties are communicated to FRx, acceptance
of Software will not occur until integration of Software with PSC
Products is complete. Should PSC fail to advise FRx that Software does
not substantially conform to Documentation or the Integration Program
and advise FRx of the specific technical difficulties in completing the
integration of Software to PSC Products within 30 days of receipt,
Software and Documentation shall be deemed to be accepted by PSC.
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4.3 In order to facilitate PSC's distribution of the Software, FRx shall
deliver to PSC a golden master copy of the Software in object code
format and End User documentation in hard copy and diskette format. In
addition, FRx agrees to supply a golden master copy of all updates and
upgrades.
4.4 FRx COVENANTS. FRx agrees:
4.4(a) to allow any use of the Software that is permitted under the
terms of any End-User Licenses that were entered into prior to
termination or expiration of this Agreement; and
4.4(b) to provide training to PSC personnel and support with respect
to the Software, as detailed in Article 9.
4.4(c) to provide technical support of software directly to PSC
Resellers and End-Users as provided in Section 9(1)(a).
4.4(d) to maintain the Software in accordance with the provisions of
Exhibit G relating to Software Problem Resolution.
5. DUTIES OF PSC
5.1 PROMOTION, PRODUCTION AND DISTRIBUTION OF SOFTWARE. PSC agrees to
use all reasonable efforts to promote, produce and distribute the
Software as a part of or for use with the PSC Products and to maintain
adequate facilities in the performance of its obligations under this
Agreement.
5.2 MARKETING AND ADVERTISING. PSC shall be responsible for all costs
and expenses incurred by PSC as a result of PSC's advertising, promotion
and sales of the Software. PSC and FRx shall jointly prepare and release
an initial press release concerning this Agreement at an agreed time.
5.3 DISTRIBUTION TO END USERS. PSC retains all rights to establish the
sales price of the Software. PSC shall be responsible for all costs
incurred in connection with the production and distribution of the
Software and the Documentation. PSC shall be responsible for the
reproduction, printing, packaging and distribution of the Software,
including maintenance releases and upgrades. Should PSC request FRx to
provide copies of the Stand-Alone Software to PSC for redistribution to
its Resellers and End Users, PSC shall pay FRx a production fee of $50
(or other amount to be agreed upon between the parties) for each
Software and Documentation package produced by FRx plus freight (F.O.B.
point of origin). Should FRx's production costs exceed $50 per package,
PSC shall also pay such additional costs upon receipt of written
notification by FRx and submission of reasonable documentation of such
additional costs.
5.4 PSC CODE AND TEST DATABASES. PSC agrees to promptly provide FRx with
an object code copy of its software products and to promptly update
FRx's copy of such program as modifications or enhancements are
implemented. The Software is to be used for testing and development
purposes and not for internal production use. PSC agrees to promptly
establish and
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provide sample test databases adequate to test the functionality of the
Software and the interface to the PSC Products and to update such
databases as needed to reflect changes to PSC Products.
5.5 PROPRIETARY RIGHTS.
5.5(a) TITLE TO THE SOFTWARE. PSC acknowledges that FRx owns and
retains all right, title and interest in and to the Software and the
Documentation including, but not limited, to all copyrights and
trade secret rights embodied therein. PSC's license under this
Agreement includes only the right to use and make copies of the
Software and related Documentation and to distribute copies of the
Software and the Documentation to PSC's End Users, either directly
or through PSC Resellers, under the terms and conditions set forth
herein.
5.5(b) NO REVERSE ENGINEERING. PSC acknowledges that the Software
contains confidential information and trade secrets developed or
acquired by FRx through the expenditure of a great deal of time and
money. PSC agrees not to, and not to authorize or permit any of its
employees to decompile, disassemble or otherwise reverse engineer
the Software or any portion thereof and shall use its best efforts
to prevent its employees from doing the same and to immediately
notify FRx in writing if to its knowledge any employee or third
party under the direction or control of PSC decompiles, disassembles
or otherwise reverse engineers the Software or any portion thereof
or attempts such actions. Because of the unique and proprietary
nature of the Software, it is agreed that remedies at law are
inadequate to compensate FRx in the event of a breach of this
Section by PSC and, therefore, FRx shall, in the event of such
breach, be entitled to equitable relief (including, without
limitation, injunctive relief and specific performance) in addition
to all other remedies provided under this Agreement or available at
law.
5.5(c) PROPRIETARY RIGHTS NOTICES. PSC shall not remove, alter or
conceal any copyright or other proprietary right notice placed by
FRx in or on the Software or the Documentation. PSC agrees to place
such copyright or other notices on all copies of the Software and
the Documentation made or distributed under this Agreement and on
any other materials referencing the Software or the Documentation
and to comply with all directions which may be submitted by FRx from
time to time regarding the form and reasonable placement of
copyright notices and other proprietary rights notices.
5.5(d) NOTIFICATION OF INFRINGEMENTS. PSC recognizes FRx's
legitimate interest in preventing the unauthorized use,
reproduction, publication, disclosure or distribution of the
Software and the Documentation and will take all reasonable steps to
discover and prevent any such unauthorized use, reproduction,
publication disclosure or distribution. PSC hereby agrees to notify
FRx promptly and in writing whenever PSC has knowledge of any
unauthorized possession, use, reproduction, publication, disclosure
or distribution of the Software or the Documentation or any portion
thereof.
5.6 RECORDS. PSC shall maintain for at least three (3) years following
termination or expiration of this Agreement, and shall make available to
FRx for inspection and copying, all of PSC's books and records relating
to its reproduction and sale of the Software and the calculation of
License and Support Fees under Section 6 of this Agreement.
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5.7 PSC COVENANTS. PSC agrees:
5.7(a) to conduct business in a manner that reflects favorably at
all times on the Software, and the good name, goodwill, and
reputation of FRx;
5.7(b) to avoid deceptive, misleading, or unethical practices that
are or might be detrimental to FRx, the Software, PSC dealers, or
the public;
5.7(c) not to publish or employ or cooperate in the publication or
employment of any misleading or deceptive advertising materials;
5.7(d) to honor all End-User Licenses.
5.7(e) to bundle Software with PSC Products as provided in Exhibit A
and offer Software on a Stand-Alone basis to other PSC End Users.
6. LICENSE FEES, TOTAL PAYMENTS, AUDIT RIGHTS
6.1 INITIAL PAYMENT OBLIGATION. PSC agrees to pay FRx the sum of $[ * ]
within 180 days of acceptance of the Software, as follows:
6.1(a) $[ * ] upon completion of Phase I of Deliverables, as
provided in Exhibit C;
6.1(b) $[ * ] upon completion of Phase II of Deliverables;
6.1(c) Upon acceptance of the Software under Section 4.2
(completion of Phase III of Deliverables), PSC shall pay to FRx the
amount, less the $[ * ] paid above, that is recorded by PSC (as of
the Effective Date) for prepaid support and maintenance fees
("Prepaid Support") paid by End Users in connection with the version
of FRx for Windows currently distributed by PSC. Such amount
(including the payments made under Section 6.1(a) and (b))shall
not be less than $[ * ] Should the actual Prepaid Support amount be
less than $[ * ] the difference shall be treated as additional
Prepaid License Fee and recovered by PSC as provided in Section 6.1
(d). Should the actual Prepaid Support amount be greater than $[ * ]
the difference shall be payable to FRx within fifteen (15) days of
determination of the actual Prepaid Support amount.
6.1(d) The difference between (i) the sum of total payments under
Section 6.1(a) through (c) and license fees paid under Section 6.2
during the first 180 days following acceptance of the Software, and
(ii) the amount of $[ * ] shall be paid to FRx 180 days after
acceptance of the Software. Such payment shall constitute a PREPAID
LICENSE FEE that shall be applied at the rate of 100% to subsequent
license fees until fully recovered by PSC.
6.1(e) SECURITY FOR PAYMENT. To secure the payment of this Initial
Payment Obligation, FRx shall obtain a first security interest in
the shares of FRx corporate Stock owned by PSC as of the Effective
Date. PSC shall provide all necessary assistance, including
execution of appropriate documentation as provided in Exhibit L,
required to perfect such security interest. FRx shall release this
security interest upon receipt of the entire Initial Payment
Obligation.
[*] CONFIDENTIAL TREATMENT REQUESTED
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6.2 LICENSE FEES. The license fee payable by PSC to FRx for each unit of
the Software distributed by PSC is specified in Exhibit B attached
hereto; provided, however, that the license fee submitted by PSC shall
be equal to or greater than the Minimum Royalty, as set forth in Exhibit
B, for each copy of the Software licensed by PSC during the term of this
Agreement.
6.3 SUPPORT AND ENHANCEMENT FEES.
6.3(a) INITIAL SUPPORT FEE PAYMENT. PSC shall pay the amount
provided in Section 6.1(c), in accordance with the payment terms
provided therein.
6.3(b) SUBSEQUENT SUPPORT FEE PAYMENTS. PSC shall use all
reasonable efforts to sell support and maintenance plans for the
Software to new End Users and renewal support and maintenance plans
(the "Support Plans") to existing End Users. PSC shall invoice and
collect funds from End Users for support and maintenance plans and
remit to FRx a percentage of the support and maintenance fees
collected in accordance with Section 6.6. In the case of Support
Plans for Software sold on a Stand-Alone basis, PSC will invoice the
End User at its standard support rate applied to the total license
fee and in such case FRx shall be entitled to receive the entire
maintenance and support fee collected. In the case of support plans
for Software sold as Bundled Software, the allocation rule provided
below shall apply.
6.4 ALLOCATION FORMULA FOR BUNDLED LICENSE AND SUPPORT FEES. In
determining the amount of PSC's Revenue to be paid to FRx in the case
that the Software is licensed as Bundled Software or in the case that
PSC sells Support Plans for the Bundled Software, the allocation factors
provided below shall apply:
FRx Standard Edition bundled with Platinum for Windows [ * ]%
FRx Advanced Edition bundled with Premier Ledger [ * ]%
FRx Advanced Edition bundled with SQL NT [ * ]%
If PSC licenses the Software as Bundled Software, then FRx shall be
entitled to receive the amount of PSC Revenue from the licensing of the
Bundled Software multiplied by the appropriate allocation factor
specified above, multiplied by the applicable royalty rate contained on
Exhibit B. For example, if PSC Revenue from the license of its Platinum
SQL NT General Ledger bundled with the FRx Advanced Edition is $20,000,
PSC shall be obligated to pay to FRx [ * ] as a license fee or royalty.
This amount was determined by taking the $20,000 in revenue and
multiplying it by [ * ] (the applicable allocation percentage) and
multiplying the result by [ * ] (the applicable royalty rate). In the
above example, FRx would also be entitled to receive [ * ] as Support
Plan revenue. This amount is determined by taking the $20,000 in revenue
and multiplying it by 15% (PSC's standard rate for maintenance) and
multiplying the result by [ * ]% (the applicable allocation factor). If
PSC licenses the Software as Stand-Alone Software, then FRx shall be
entitled to receive the amount of PSC Net License Revenue from the
licensing of the Stand-Alone Software multiplied by the applicable
royalty rate contained on Exhibit B. (All amounts payable shall be
subject to the Minimum Royalty payment defined in Exhibit B.) If PSC
materially changes the pricing of the general ledger module relative to
the other modules or if the Software is bundled with different
configurations than reflected above, PSC and FRx will negotiate in good
faith to determine a new allocation percentage that maintains the
reasonable value of FRx relative to the entire system sale.
6.5 DEMONSTRATION, NOT-FOR-RESALE AND EVALUATION COPIES. Royalties or
other charges, such as Support Plan revenues, shall not be payable for
any copies of the Software used for
[*] CONFIDENTIAL TREATMENT REQUESTED
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demonstration, support or training of End Users, "Not-for-Resale"
software provided to resellers or for copies of the Software distributed
as "evaluation copies" of the PSC Products, which are provided to End
Users on a trial basis not to exceed ninety (90) days and for which no
consideration or other value is received by PSC. In addition, royalties
or other similar charges shall not be payable for any copies which are
provided to End Users or PSC Resellers for development purposes or for
backup or archival purposes or for copies of the Software provided to
End Users for beta testing prior to general release.
6.6 PAYMENT TERMS AND MONTHLY ACCOUNTING.
6.6(a) PSC shall provide a statement within 45 days after the end of
each month that provides details of: (i) Bundled and Stand-Alone
Software licensed by PSC during the month; (ii) the names of all PSC
End Users who have licensed Software during the month; and (iii) the
names of all PSC End Users who have purchased Support Plans and
renewals during the month.
6.6(b) Accounting for license fee and Support Plan revenues will be
computed on an accrual basis.
6.6(c) Payment of the license and support fees detailed in the
statement provided under Section 6.6(a) is to be received by FRx
before the expiration of the 45 day period. Interest charges may be
assessed by FRx on any past due amounts at a rate of 1.0% per month,
from due date of payment until payment in full is received.
6.6(d) All statements and payments shall be made to FRx at the
address of FRx set forth at the beginning of this Agreement, or at
such other address as may be designated by FRx.
6.7 MATERIAL BREACH FOR NON-PAYMENT. Failure by PSC to pay all amounts
due within sixty (60) days of the date payment is due as prescribed in
Sections 6.1 and 6.6(c) shall constitute a material breach of this
Agreement.
6.8 AUDIT RIGHT. PSC shall keep at its principal place of business
complete and accurate books and records, in accordance with Section 5.6,
which contain all information necessary to compute payment due FRx under
the terms of the Agreement. Not more than once per calendar year; FRx
may cause an audit to be made of such books and records in order to
verify statements rendered hereunder, and prompt adjustment shall be
made by the proper party to compensate the other party for any errors or
omissions disclosed by such audit. Any such audit shall be conducted by
an independent certified accountant from a firm selected by FRx during
PSC's regular business hours in such a manner as not to unduly interfere
with PSC's normal business activities. FRx shall pay the cost of such
audit unless the license fees paid to FRx are found to be less than
ninety percent (90%) of the license fees due to FRx, in which event PSC
shall pay the cost of such audit. Also, in the event such deficiency
exceeds 25% of the fees due to FRx, PSC shall pay liquidated damages on
the underpayment amount at a rate of 2.0% per month on a compounded
basis for the duration of the underpayment. FRx shall hold all
information contained in PSC's books and records in confidence and shall
use such information only to verify statements rendered under this
Agreement.
6.9 Notwithstanding the terms of this Agreement, if PSC identifies an
opportunity to market multiple licenses of the Software to an End User
in one transaction and a lower royalty amount is
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deemed by PSC to be required for PSC to be competitive, PSC may request
a lower royalty amount from FRx for such transaction. If FRx, in its
discretion, agrees to such lower royalty amount for the transaction, a
letter amendment specifying such lower royalty amount applicable to only
such transaction shall be executed by corporate officers of PSC and FRx.
7. WARRANTIES, LIMITATION OF LIABILITY
7.1 WARRANTY.
7.1(a) SOFTWARE WARRANTY. FRx warrants solely to PSC that the
Software will perform substantially in accordance with the
specifications contained in the Documentation. In the event FRx is
given written notice during the term of this Agreement, specifying
in detail any failure of the Software to function substantially in
accordance with the Documentation, FRx shall use commercially
reasonable efforts consistent with the standards set forth in
Exhibit G to promptly eliminate such failure or refund related
amounts paid, at its option. SUCH EFFORTS BY FRx SHALL BE THE SOLE
REMEDY FOR FAILURE OF THE SOFTWARE TO PERFORM ACCORDING TO THE
DOCUMENTATION. THE WARRANTY SHALL APPLY ONLY IF THE ALLEGED DEFECTS
ACTUALLY EXIST AND WERE NOT CAUSED BY MISUSE, UNAUTHORIZED
MODIFICATIONS, NEGLECT, IMPROPER INSTALLATION OR TESTING, ATTEMPTS
TO REPAIR OR THE LIKE, OR BY ACCIDENT, FIRE, POWER SURGE OR FAILURE
OR OTHER HAZARD.
7.1(b) DISCLAIMER OF IMPLIED WARRANTIES. OTHER THAN AS SET FORTH IN
THIS ARTICLE SEVEN AND IN ARTICLE EIGHT, FRx DOES NOT MAKE BY VIRTUE
OF THIS AGREEMENT, AND HEREBY EXPRESSLY DISCLAIMS, ANY
REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE SOFTWARE,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.1(c) NO PASSING ON OF FRX WARRANTY. PSC shall not have the right
to make or pass on, and shall take any measures necessary to insure
that neither it nor its agents or employees makes or passes on, or
attempts to make or pass on, any warranties or representations on
behalf of FRx to any dealer, end-user or any other third party. Any
attempt by PSC to make or pass on any warranties or representations
on behalf of FRx to any dealer, end-user or any third party shall be
void.
7.1(d) OTHER LIMITS ON SOFTWARE WARRANTY. FRx DOES NOT WARRANT THAT
OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE OR
THAT DATA WILL NOT BE LOST IF FOR ANY REASON OPERATIONS ARE
INTERRUPTED.
7.1(e) FRx warrants that it has the right to enter into this
Agreement and grant the rights and licenses set forth herein without
the consent or approval of any third party and that the terms and
provisions of this Agreement will not breach or violate the terms or
provisions of any other agreement between FRx and any other third
party and that FRx will not be subject to any duty, liability, or
obligation to any third party with respect to the Software. In
addition, FRx warrants that the Software and all other products,
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documentation and other materials required to be delivered to PSC
hereunder and the performance by FRx of its obligations hereunder,
shall be in compliance with all applicable laws, rules and
regulations as of the date of delivery thereof.
7.2 LIMITATION OF LIABILITY. EXCEPT FOR LIABILITY UNDER ARTICLE 8 OF
THIS AGREEMENT, FRx SHALL NOT, UNDER ANY CIRCUMSTANCES, BE LIABLE TO PSC
OR ANY DEALER, END-USER OR ANY OTHER THIRD PARTY FOR CONSEQUENTIAL,
INDIRECT, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN
INCLUDING WITHOUT LIMITATION DAMAGES RELATING TO LOST PROFITS OR LOSS OF
DATA STORED IN THE SOFTWARE, EVEN IF FRx IS APPRISED OF THE LIKELIHOOD
OF SUCH DAMAGES OCCURRING. IN NO EVENT SHALL FRx's LIABILITY TO PSC
HEREUNDER ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED
HEREIN, EXCEED THE FEES PAID BY PSC TO FRx HEREUNDER IN THE TWELVE (12)
MONTH PERIOD PRECEDING THE DATE SUCH ACTION OR CLAIM WAS FILED OR THE
FIRST TWELVE (12) MONTHS FOLLOWING EXECUTION OF THIS AGREEMENT,
WHICHEVER AMOUNT IS GREATER.
8. INDEMNIFICATIONS, TRADEMARKS, CONFIDENTIAL INFORMATION
8.1 PROPRIETARY RIGHTS INDEMNITY BY FRx.
8.1 (a) INDEMNIFICATION BY FRx. FRx represents that, subject to the
effect of the agreement discussed in Article 10, it owns (or shall
own by virtue of this Agreement) all right, title and interest in
and to the Software and Documentation, including copyrights and that
the Software does not and will not infringe or violate any
trademark, copyright, patent right or any trade secret or
proprietary information right of any third party. Subject to PSC's
use of the Software in conformance with this Agreement, FRx agrees
to indemnify, hold harmless (including reasonable attorneys' fees)
and defend any suit or proceeding brought against PSC insofar as
such suit or proceeding shall be based upon a claim that the
Software or Documentation, when used in conformance with the terms
of this Agreement, infringes or constitutes wrongful use of any
patent, trademark, copyright or trade secret within the United
States (a "PROPRIETARY RIGHT"). PSC shall notify FRx in writing of
any such suit or proceeding promptly upon PSC's first learning of
such suit or proceeding, and shall provide FRx at no cost with such
assistance and cooperation as FRx may reasonably request in the
defense thereof. FRx shall have sole control over any such suit or
proceeding, including, without limitation, the right to settle on
behalf of PSC, provided that any settlement contains a complete
release of PSC and its Resellers, and End Users, as applicable, for
any liability or obligation and provided that PSC's continued
ability to license the Software to End Users either directly or
indirectly is not materially affected. Subject to PSC's fulfillment
of its obligations under this section, FRx. shall pay all damages
and costs finally awarded against PSC (or payable by PSC pursuant to
a settlement agreement approved by FRx) in connection with any such
suit or proceeding. In the event that use of the Software or
Documentation is enjoined by any court of competent jurisdiction,
FRx shall have the option, at its expense, to: (i) modify Software
to be non-infringing, with no material change in performance and
functionality; (ii) obtain for PSC the right to continue using and
distributing Software at no charge to
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PSC, its Resellers or End Users; or (iii) terminate this Agreement
with respect to the infringing software and refund fees paid to FRx
for such software by PSC.
8.1(b) LIMITATION OF INDEMNITY. OTHER THAN AS EXPRESSLY SET FORTH IN
THIS ARTICLE 8, FRx SHALL HAVE NO LIABILITY TO PSC WHATSOEVER FOR
ANY DAMAGES ARISING OUT OF OR RELATED TO ANY ALLEGATION OR
DETERMINATION THAT PSC's USE OR DISTRIBUTION OF THE SOFTWARE
INFRINGES OR CONSTITUTES WRONGFUL USE OF ANY PROPRIETARY RIGHT.
8.2 INDEMNIFICATION BY PSC. PSC shall be responsible for any and all
losses or damages incurred by FRx arising out of or in connection with
(i) defects in the media or reproduction of the Software or the
packaging for the Software (if PSC provided these goods), and (ii)
warranties or representations concerning the Software made by PSC or its
agents or employees, other than those contained in the End-User License
or otherwise authorized in writing by FRx and (iii) resulting from a
breach of any obligation of PSC under this Agreement. PSC agrees to
indemnify and hold FRx harmless from and with respect to any such loss
or damage (including, without limitation, reasonable attorney's fees and
costs). FRx shall notify PSC in writing of any suit or proceeding
against FRx for any of the reasons listed above promptly upon FRx's
first learning of such suit or proceeding, and shall provide PSC at no
cost with such assistance and cooperation as PSC may reasonably request
in the defense thereof. PSC shall have sole control over any such suit
or proceeding, provided, however, that PSC shall not effect a settlement
on behalf of FRx without FRx's consent, which will not be unreasonably
withheld. Subject to FRx's fulfillment of its obligations under this
Section, PSC shall pay all damages and costs awarded against FRx (or
payable by FRx pursuant to a settlement agreement) in connection with
any such suit or proceeding.
8.3 ACKNOWLEDGMENT AND LICENSE. Except as otherwise provided herein, PSC
acknowledges the exclusive right, title, and interest of FRx in and to
all of the Software (including without limitation any bug fixes,
modifications or enhancements relating thereto), all of the trademarks
and trade names (as defined in Exhibit B) and all of the copyrights,
trade secrets, and other proprietary rights relating thereto.
8.4 CONFIDENTIAL INFORMATION. By operation of and performance under this
Agreement, each party may have access to information that is
confidential to the other party (the "Confidential Information").
Confidential Information shall be limited to information which is marked
confidential or proprietary or information which should reasonably be
understood by the recipient to be confidential. Confidential Information
shall not include information which: (i) is or becomes a part of the
public domain through no act or omission of the recipient; (ii) the
recipient can demonstrate with competent written proof was in the
recipient's lawful possession prior to such access or disclosure; (iii)
is lawfully disclosed to recipient by a third party without restriction
on such disclosure; or (iv) with respect to information that is the same
as or substantially identical to the Confidential Information, is
independently developed and is so documented by the recipient.
8.5 CONFIDENTIALITY OF AGREEMENT. This Agreement shall specifically be
treated as Confidential Information by both parties. If either party is
required to file or disclose this Agreement in its public filings
pursuant to the Securities Act of 1933 or the Securities Exchange Act of
1934, such parties hereto agree that they shall disclose only the
minimum information required by these acts.
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8.6 CONFIDENTIALITY OBLIGATION. The parties agree that both during the
term of this Agreement and for a period of five (5) years after
termination of this Agreement: (i) to hold the other party's
Confidential Information in confidence; (ii) not to disclose or make the
other party's Confidential Information available, in any form, to any
third party; and (iii) not to use the other party's Confidential
Information for any purpose other than as explicitly specified in this
Agreement.
9. TECHNICAL SUPPORT, SOFTWARE MAINTENANCE AND TRAINING
9.1 In order to provide adequate technical support and other services to
End Users of the Software, FRx and PSC agree to the following:
9.1(a) END USER SUPPORT BY FRx.
9.1(a)(1) SUBSCRIBERS TO EXISTING PSC SUPPORT PLANS. Upon
acceptance by PSC of the Software under Section 4.2,
distribution by PSC of Software to End Users subscribing to
Support Plans for the Software and payment to FRx of prepaid
Support Plan fees under Section 6.1 (c), FRx shall assume
direct responsibility for product technical support service
to such End Users in accordance with the performance
standards prescribed in the Support Plans (see Exhibit H).
This shall include all users of both FRx (DOS) and FRx for
Windows products distributed by PSC that are enrolled in a
Support Plan for the products. PSC shall provide to FRx the
information regarding subscribers to such Support Plans that
is detailed in Exhibit C under PSC Deliverables. FRx has no
responsibility to provide technical support services to any
PSC End User not included in such information.
9.1(a)(1)(1) END USERS NOT UTILIZING LATEST FRX SOFTWARE
UPGRADE. PSC acknowledges that technical support
services provided by FRx may be of a limited
nature in the case of End Users that have not
yet installed the Software Upgrade provided in
Section 9.1(c)(1) or FRx (DOS) users have not
upgraded to FRx for Windows. FRx shall provide
services to such users on a reasonable efforts
basis. FRx shall have no liability to provide
software fixes to such users if the problem or
defect has been corrected or would be resolved
through use of the latest software upgrade
provided by FRx. Also, input from such users
shall not be considered in applying the Support
Service Quality Standards of Section 9.1
(a)(5)(1).
9.1(a)(1)(2) SUPPORT FOR INTERNATIONAL END USERS. Within
sixty (60) days of the Effective Date, FRx shall
submit a plan to PSC which describes in detail
the procedures and techniques FRx will utilize
in providing technical support services to PSC's
international (outside North America) End Users.
Such plan may include arrangements with PSC
Resellers in other countries and regions to
provide front line technical support services on
behalf of FRx for a fee paid to such Resellers
by FRx. Should such plan not be satisfactory to
PSC,
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(based upon reasonable quality standards and
similar levels of support previously provided by
PSC in such locations), PSC shall be authorized
to provide, directly or indirectly, support
services to End User in such locations and
retain a fee not to exceed fifty (50) percent of
the annual Support and Maintenance fee
attributable to affected End Users. In the event
Support and Maintenance fees have already been
paid to FRx relating to such End User(s), PSC
shall be authorized to deduct the appropriate
amount from its payment obligation to FRx under
Section 6.1 (c).
9.1(a)(2) NEW AND RENEWAL SUPPORT PLAN SUBSCRIPTIONS. PSC
shall offer Support Plans for the Software to all new end
users of Software as well as offer renewals to existing
Support Plan subscribers no later than sixty (60) days prior
to conclusion of their Support Plan contract.
9.1(a)(3) SUPPORT PLAN PRICING AND END USER IDENTIFICATION.
The pricing and structure of such plans shall be consistent
with support plans PSC markets in connection with other PSC
Products. FRx's applicable percentage of funds collected from
End Users and resellers in connection with such Support Plans
for Software shall be remitted to FRx in accordance with
Section 6.6. PSC shall provide to FRx a listing of names of
all End Users subscribing to Support Plans for the Software,
together with the expiration date of the Support Plan
agreement for each user. FRx shall have no responsibility to
provide technical support services to any PSC End User not
included in such listing or for which payment has not been
received by FRx in accordance with the payment terms of
Section 6.6.
9.1(a)(3)(1) FRx PREMIUM SUPPORT PLANS. FRx shall offer
Premium Support Plans for PSC End Users that
provide a higher level of service and cost, as
defined in Exhibit K. At its discretion, PSC and
its Resellers are hereby authorized to promote
and sell such Premium Support Plans to its End
Users and retain twenty (20) percent of the
sales price of such plans as a sales commission.
9.1(a)(4) DIRECT SOLICITATION OF SUPPORT PLANS BY FRx. PSC
shall have the primary authority and responsibility to market
and solicit enrollment in Support Plans for the Software. FRx
shall not market or solicit such enrollment directly from PSC
End Users, unless PSC fails to actively market and solicit
enrollment in such plans to End Users and timely remit funds
related thereto to FRx. For this purpose, this "active
marketing and solicitation" requirement shall be satisfied if
PSC performs the following in connection with the FRx
software products:
9.1(a)(4)(1) Support Plans are offered to all End Users
licensing Software to operate with other PSC
products.
9.1(a)(4)(2) Information and invoices to renew Support Plans
are provided to all users enrolled in such a
plan at least sixty (60) days prior to
expiration of each End User's plan year.
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9.1(a)(4)(3) Support Plans are marketed and communicated to
resellers and End Users in the same manner,
frequency and format as support plans for other
PSC products and modules.
Should PSC fail to actively market and solicit enrollment in
Support Plans to End User according to the above standards,
FRx may, upon thirty (30) days prior written notice to PSC,
market its own support plans directly to End Users and
directly collect such funds, without compensation to PSC.
9.1(a)(5) SUPPORT SERVICES PROVIDED BY PSC. Subject to
maintenance of the Software according to standards prescribed
in Exhibit G and performance of technical support service
which is considered Acceptable according to standards defined
in Section 9. 1 (a)(5)(1), PSC is not authorized to provide
direct technical support services to PSC End Users in
connection with Software during the term of this Agreement.
Should the performance standards of FRx not be determined as
Acceptable, FRx shall have ninety (90) days to modify its
service quality to conform to the standards of Section 9. 1
(a)(5)(1). Should such services remain deficient according to
those standards after the 90 day period, PSC shall be
authorized to provide direct technical support services to
PSC End Users in connection with Software. Further, FRx shall
no longer be authorized to provide such support services to
PSC End Users without the specific written authorization of
PSC. In such event, all other terms and conditions of this
Agreement shall remain in full force and effect, including
the obligation of FRx to maintain Software in accordance with
Section 9.1(b). PSC shall be entitled to retain 50% of the
support plan revenues from End Users to whom it provides
direct technical support and FRx shall be entitled to the
remaining 50% of such revenues for its services in
maintaining and enhancing the Software. Notwithstanding the
provisions of this subsection, PSC shall be authorized to
provide technical assistance to End Users of a routine nature
so long as no compensation is received or retained by PSC for
such support.
9.1(a)(5)(1) SUPPORT SERVICE QUALITY STANDARDS. FRx agrees to
provide support services to PSC End Users
according to the standards defined in Exhibit H
(Support Plans). Further, PSC is authorized to
perform a survey of all FRx users enrolled in
Support Plans to determine general customer
satisfaction with the level and quality of
support services provided by FRx. Such survey
shall be performed no more frequently than every
twenty four (24) months and shall be jointly
written by PSC and FRx. The survey shall include
a question comparing the general quality level
of FRx services to support services provided by
PSC on other modules. Should fifty per cent
(50%) of users surveyed consider the support by
FRx to be "acceptable" or exceed the
satisfaction level earned by PSC for support of
other modules, the quality of FRx support
services shall be deemed Acceptable. End Users
not utilizing the latest Software as described
in Section 9.1(a)(1)(1) and End Users located
outside North America shall be excluded from
such survey.
9.1(b) SOFTWARE MAINTENANCE. Subject to timely payment to FRx
of the license fees provided in Article 6, FRx will provide
routine software maintenance releases at no cost
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to PSC for distribution to End Users or to PSC Resellers.
Such maintenance releases, when and if released, are intended
to correct defects that render a currently supported version
of the Software incapable of performing substantially in
accordance with the Documentation. All such defects will be
resolved in accordance with the time frames identified in
Exhibit G after they are reported to and are reproducible by
FRx, provided that the End User reporting such defects is
using the most recent version of the Software. FRx agrees to
provide to End Users of the Software the maintenance and
support services that PSC generally provides to End Users of
PSC Products as described in Exhibits H-3 and H-4.
9.1(b)(1) PSC ACCESS TO FRx SOURCE CODE. Should FRx
fail to correct defects in the Software that are
reproducible by FRx in accordance with the time frames
defined in Exhibit G, PSC may, upon thirty (30) days
prior written notice to FRx and upon FRx's continued
failure to correct such a reproducible defect, gain
access to the FRx source code to correct such defect.
If PSC gains access to the source code, PSC shall
obtain a nonexclusive, personal, nontransferable,
nonassignable license, without the right to
sublicense, to use and modify the source code and
Documentation for the sole purpose of supporting its
End Users and insuring the continued distribution and
sublicensing of the Software to End Users. In the
event PSC gains access to the source code under the
provisions of this subsection, PSC's obligations to
pay license fees under Article 6 shall remain in full
force and effect; provided, however, that the license
fees payable may be reduced by the amount of
reasonable, direct costs incurred by PSC to fix or
maintain Software.
9.1(b)(2) PSC AUDIT RIGHT. FRx shall maintain a list
of identified outstanding Software defects ("PTR's")
which affect operation of the Software with PSC
Products. Such listing will be available to PSC on
FRx's Bulletin Board Service (BBS) or Internet site
and will also be provided in other form (including
electronic mail, diskette or printed document) to PSC
upon request. PSC may, not more frequently than three
times per year, audit the listing of PTR's at FRx's
facilities to determine completeness and compliance
with Exhibit G.
9.1(c) SOFTWARE UPGRADES. FRx may develop enhancements or
increased functionality to the Software defined in Exhibit A.
Such enhancements or upgrades, when and if developed, shall
be provided to PSC for distribution to End Users then
subscribing to a Support Plan for the Software at no
additional cost. Such Software Upgrades shall not be provided
to End Users that do not then participate in such a Support
Plan.
9.1(c)(1) Subject to payment by PSC of its Initial
Payment Obligation under Section 6.1 (c), PSC is
authorized to distribute Software at no additional
cost to all PSC End Users enrolled in a Support Plan
for the FRx products as of the Effective Date of this
Agreement. PSC shall be responsible for all packaging
and distribution costs.
9.1(c)(1)(1) In the event an End User has entered into
a source code escrow agreement with PSC
prior to the Effective Date that included
the PSC version of the FRx source code,
PSC shall obtain a release from such End
User that cancels PSC's obligation to
retain such source code in an escrow
account prior to distribution of Software
to such End User FRx does not assume
PSC's source code escrow
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obligations, unless specifically agreed
to by FRx on a case-by-case basis.
9.1(d) FRx TRAINING SERVICES. At a mutually agreeable time,
FRx shall provide two (2) training programs for employees or
resellers designated by PSC for each major product release of
the Software. In conducting the training programs, FRx shall
provide the training instructors at no charge to PSC and PSC
shall be responsible for all reasonable travel and living
expenses incurred by FRx's training instructors while they
are attending the programs.
9.1(e) END USER TRAINING AND CONSULTING SERVICES. FRx agrees
to not actively market and solicit training and consulting
services to PSC resellers and End Users. FRx further agrees
to cooperate with PSC in providing training and consulting
services on a subcontracting basis through PSC to resellers
and/or End Users. Such services will be provided on an "as
available" basis and will compensate FRx at no less than 80%
of its standard billing rates. Notwithstanding the above,
PSC acknowledges that FRx generally markets its consulting
and training services in a manner that may be accessible to
PSC resellers and End Users, including industry publications,
FRx "Home Page" via Internet, FRx bulletin boards and other
methods. FRx is authorized to provide training and consulting
services in response to requests from PSC resellers and End
Users without compensation to PSC so long as FRx has not
intentionally marketed these services in a direct manner to
PSC resellers and End Users.
10. EFFECT ON PRIOR AGREEMENT BETWEEN PSC AND FRx
10.1 AGREEMENT FOR TRANSFER OF SOFTWARE AND MUTUAL RELEASE. PSC and FRx
entered into Agreement for Transfer of Software and Mutual Release on
July 22, 1994. Under terms of that agreement, PSC acquired rights to the
source code of a version of FRx Software which existed at that date and
accessed PSC Products ("PSC-FRx"). PSC's rights in connection with that
source code are hereby modified as provided below. In addition, other
provisions of the prior agreement are also modified to the extent that
they are inconsistent with the terms of this Agreement. By execution of
this Agreement, both parties agree to modify the previous agreement and
its relevant sections as follows, with all other terms and conditions
remaining in full force and effect:
10.1(a) PSC VERSION OF FRx SOURCE CODE (PSC-FRx).
10.1(a)(1) RESTRICTIONS ON PSC USE. Section 4.1 is modified
as follows:
10.1(a)(1)(1) PSC shall not market, license, convey or
otherwise deliver PSC-FRx or executable
versions of the PSC-FRx. code during the term of
this Agreement.
10.1(a)(1)(2) PSC is authorized to maintain and enhance
PSC-FRx during the term of this Agreement only
to the extent necessary to meet prior
commitments to certain End Users. A listing of
those End Users is included in Exhibit E.
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10.1(a)(1)(3) PSC shall not sell, convey or encumber
PSC-FRx source code, but shall be authorized to
deposit in a third-party escrow account only for
the benefit of specified existing End Users
defined in Exhibit E or fulfill commitments made
as of the date hereof to license source code to
certain End Users specified on Exhibit E
10.1(a)(1)(4) PSC shall maintain and protect the
confidentiality of PSC-FRx, in accordance with
the provisions of Section 8.5 and 8.6.
10.1(a)(1)(5) Upon attainment of the Minimum Royalty Level
or upon early termination by PSC under Section
3.2, PSC shall convey all copies of PSC-FRx to
FRx at no cost, together with any and all rights
to use FRx trademarks, and shall retain no
ongoing interest or ownership.
10.1(b) MODIFICATION OF OTHER PROVISIONS
10.1(b)(1) Section 4.3 of the Agreement of Transfer and
Mutual Release is modified to the extent
necessary to allow performance by FRx and PSC
of their respective obligations under this
Agreement.
10.1(b)(2) FRx and PSC agree that the performance by PSC
and FRx of their obligations under this
Agreement (i.e., PSC licensing a Stand-Alone
version of the Software) shall not be a breach
or violation of Section 4.5 of the Agreement of
Transfer and Mutual Release or an event
triggering the voiding of Section 4.3 of such
agreement
10.1(b)(2)(1) Section 4.9 regarding change of control of
PSC is modified to reflect the language in
Section 11.7 of this Agreement.
11. MISCELLANEOUS
11.1 QUARTERLY MEETINGS. Both parties agree to participate in status
meetings to be held on a quarterly basis to ensure close communication
and problem resolution in connection with this Agreement. Unless
otherwise agreed to by the parties, the meetings will rotate between
PSC's Irvine, CA offices and FRx's Denver, CO offices. Each party will
be responsible for identifying the appropriate personnel to attend such
meetings and for its own travel costs. The meetings should generally
address the status of PTRs, future product development plans for each
party and other matters arising in the course of administration of this
Agreement.
11.2 CUMULATIVE REMEDIES. Except as specifically provided herein, no
remedy made available to either party hereunder is intended to be
exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy provided
hereunder or available at law or in equity.
11.3 NOTICES. Except as otherwise expressly specified herein, all
consents, notices, requests or other communications required hereunder
shall be in writing and all such communications and all payments
required hereunder shall be deemed to have been given or made if
delivered
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personally, or mailed, by Certified or Registered mail, return receipt
requested, postage prepaid, to the parties at their respective addresses
first set forth above, or at such other address as shall be specified in
writing by either of the parties to the other in accordance with the
terms and conditions of this section. All notices, requests,
communications or payments shall be deemed effective upon receipt.
11.4 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.5 NO WAIVER. The waiver or failure of either party to exercise in any
respect any right provided for herein shall not be construed as a
continuing waiver of that right nor be deemed a waiver of any further
right granted herein.
11.6 COMPLETE AGREEMENT. The Agreement and the Exhibits and Schedules
attached hereto constitute the entire understanding and agreement
between the parties hereto and supersedes any and all prior or
contemporaneous oral or written representations or communications with
respect to the subject matter hereof, all of which are merged herein.
This Agreement shall not be modified, amended or in any way altered
except by an instrument in writing signed by both of the parties hereto.
All amendments or modification of this Agreement shall be binding upon
the parties despite any lack of consideration so long as the same shall
be in writing and executed by the parties hereto.
11.7 ASSIGNMENT. This Agreement may not be assigned or sublicensed by
either party without the written approval of the other party, such
approval not to be unreasonably withheld, provided, however, that either
party may assign this Agreement in connection with a sale of all or
substantially all of its assets or capital stock. This Agreement shall
be binding upon and inure to the benefit of each of the parties hereto
and, except as otherwise provided herein, their respective heirs, legal
successors and assigns.
11.8 RESTRICTIONS REGARDING SALE OR CHANGE OF CONTROL OF EITHER COMPANY.
In the event of change of control of either FRx or PSC, the terms and
conditions of this contract will remain in effect. In the event of a
change in control of PSC, the successor or surviving entity may continue
to distribute the Software as a component part of PSC products that are
substantially the same as those existing prior to the change in control
and are marketed in a similar manner at generally equivalent pricing
after the change, subject to all terms and conditions of this Agreement,
including the obligation to pay royalties and support fees pursuant to
Article 6. Such rates shall continue to apply to subsequent versions of
PSC products that represent a continuation of the general code and
architectural structure that existed prior to the change in control. The
acquiring company shall not have the right to distribute the Software in
conjunction with the its separate products , although FRx agrees to
negotiate in good faith with the acquiring company to license programs
for such separate products.
11.9 SEVERABILITY. In the event that any provision hereof is found to be
invalid, illegal, or unenforceable pursuant to a judicial decree to
decision, the remainder of this Agreement shall be binding and
enforceable according to its terms.
11.10 FORCE MAJEURE. Neither party shall be deemed to be in default of
or to have breached any provision of this Agreement, except a provision
relating to the payment of money, as a result of any delay, failure in
performance or interruption of service, resulting directly or indirectly
21
<PAGE> 22
from its acts of God, acts of civil or military authorities, civil
disturbances, wars, strikes or other labor disputes, fires,
transportation contingencies, laws, regulations, acts or orders of any
government agency or official thereof, other catastrophes or any other
similar circumstances beyond such party's reasonable control.
11.11 ARBITRATION. Any controversy or claim arising out of, or relating
to this Agreement, or its breach, shall be settled by arbitration in the
City of Denver, Colorado, in accordance with the then governing
commercial rules of arbitration of the American Arbitration Association.
Judgment upon any award rendered therein may be entered and enforced in
any court of competent jurisdiction. In assembling a panel of
prospective arbitrators, the American Arbitration Association shall
utilize its best efforts to include individuals educated and/or
experienced in the computer software industry. Arbitration does not
prevent either party from obtaining injunctive relief.
11.12 CHOICE OF LAW AND FORUM. This Agreement shall be construed and
enforced in accordance with the laws of the State of Colorado, without
regard to its conflict of law provisions, and both parties consent to
jurisdiction by courts in the State of Colorado.
11.13 RELATIONSHIP. Nothing contained in this Agreement shall be
construed as creating a joint venture, partnership or employment
relationship between the parties hereto. Except as specified herein,
neither party shall have the right, power or implied authority to create
any obligation or duty, express or implied, on behalf of the other party
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date last written below.
PLATINUM SOFTWARE CORPORATION FRx SOFTWARE CORPORATION
By: MICHAEL J. SIMMONS By: MICHAEL L. ROHAN
----------------------------- ------------------------------
Name: MICHAEL J. SIMMONS Name: MICHAEL L. ROHAN
--------------------------- ----------------------------
Title: CFO Title: President
-------------------------- ---------------------------
Date: 5-7-96 Date: 5-9-96
--------------------------- ----------------------------
22
<PAGE> 23
EXHIBIT A
SOFTWARE
The following FRx software products are included in this Agreement. Software to
be provided in executable form (not source code) for production and distribution
by PSC:
FRx FOR WINDOWS STANDARD EDITION (VERSION 4.5) - to be bundled with
every copy of Platinum for Windows (unless bundled with FRx Advanced
Edition). Also available as bundled component of Platinum DOS products.
The features of this Standard Version are detailed below. This product
is not available for distribution on a Stand-Alone basis, but may be
distributed by PSC as an upgrade to End Users who previously licensed
the FRx Standard Edition (DOS) product.
FRx FOR WINDOWS ADVANCED EDITION (VERSION 4.5) - to be bundled with
every copy of Platinum for Windows Premier Ledger, Platinum Premier
Ledger (DOS) and Platinum SQL NT products. Also available on a
Stand-Alone basis to all existing Platinum users.
FRx ENTERPRISE EDITION - New product to be released subsequent to date
of Agreement which may include the following features: FRx Application
Server; Report Manager; OLAP Processing capabilities; FASB 52; and
Automated Electronic Report Distribution. Features and pricing to be
determined upon product release.
ADDITIONAL FRx PRODUCTS - Add-on or ancillary products that are sold
separately on a Stand-Alone basis. This includes the FRx remote
drill-down viewer and any future products that are packaged and sold
separately from current FRx for Windows products.
USER AUTHORIZATION:
BUNDLED AND STAND-ALONE DISTRIBUTION
User Authorization equal to Platinum System Manager user authorization.
(Should the number of authorized General Ledger users for a single
server exceed fifty (50) users, PSC and FRx agree to negotiate in good
faith to determine an equitable revenue allocation to FRx on a
case-by-case basis.)
FEATURES OF FRx STANDARD EDITION:
The FRx Standard Edition shall have the same level of performance and
functionality as FRx Advanced Edition 4.5, including FRx Drill Down viewer,
subject to the following limitations:
Only one reporting tree may be used with two roll-up levels
No multicompany consolidation capability.
Can export to worksheets (i.e., Excel, Lotus 1-2-3) but cannot import data from
worksheets into FRx
Limited to one general ledger link
No row linking capabilities
No FRx independent security
<PAGE> 24
PSC PRODUCTS
o Platinum DOS Ledger 4.la
o Platinum DOS Ledger 2.x; 3.x (to be determined)
o Platinum Premier Ledger 4.la
o Platinum for Windows Premier Ledger 4.3a
o Platinum for Windows Standard Ledger 4.3a
o Platinum SQL NT 3.1 General Ledger
o Platinum SQL NT 3.2a and 3.2b General Ledger
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<PAGE> 25
EXHIBIT B
LICENSE FEES
<TABLE>
<CAPTION>
TIER I* TIER II**
------------------- -------------------
ROYALTY MINIMUM ROYALTY MINIMUM
FRX PRODUCTS RATE ROYALTY RATE ROYALTY
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
FRx Standard Edition*** [ * ] [ * ] [ * ] [ * ]
FRx Advanced Edition:
with PFW Standard Ledger [ * ] [ * ] [ * ] [ * ]
with Premier Ledger [ * ] [ * ] [ * ] [ * ]
with SQL NT Ledger [ * ] [ * ] [ * ] [ * ]
Upgrade to FRx Advanced
from FRx Advanced-DOS**** [ * ] [ * ] [ * ] [ * ]
FRx Enterprise Edition [ * ] [ * ] [ * ] [ * ]
FRx Remote DrillDown Viewer
(per user) [ * ] [ * ] [ * ] [ * ]
All additional FRx products [ * ] [ * ] [ * ] [ * ]
</TABLE>
* Prior To Attainment of Minimum Royalty Level defined in Section 1.8.
** Subsequent To Attainment of Minimum Royalty Level defined in
Section 1.8.
*** Includes upgrades from FRx Standard Edition (DOS). License fee waived if
upgrading End User purchases Support Plan for Software.
**** License fee waived if upgrading End User purchases Support Plan for
Software.
TBD: "To be determined"
Royalty Rate is to be applied to PSC Revenue (Section 1.6) using the following
Allocation Formulas detailed in Section 6.4 for Bundled Products:
FRx Standard Edition bundled with Platinum for Windows [*]
FRx Advanced Edition bundled with Premier Ledger [*]
FRx Advanced Edition bundled with SQL NT [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 26
EXHIBIT C
DELIVERABLES
FRx DELIVERABLES
BETA DELIVERABLES:
o FRx application program executables, files and licensed supporting
components (dll, vbx, ocx, etc.)
o Conversion utility program executables, files and licensed supporting
components for conversion of FRx DOS and Platinum FRx for Windows data to
the new release.
o labeled and identified as Beta version X.X on the delivery media and Help
About menu.
o Installation program for installing the beta software.
o Documentation of product, including:
o Beta release notes (wt. installation instructions)
o Conversion utility
o FRx user guide
o Platinum interface guide
o Current PTR list documenting outstanding PSC-specific PTRs and their
severity.
PHASE I*: ABOVE DELIVERABLES FOR THE FOLLOWING PSC PRODUCTS:
o Platinum DOS Ledger 4.1a
o Platinum Premier Ledger 4.la
o Platinum for Windows Premier Ledger 4.3a
o Platinum for Windows Standard Ledger 4.3a
PHASE II*: Above DELIVERABLES FOR THE FOLLOWING PSC PRODUCTS:
o Platinum SQL NT 3.1 General Ledger
o Platinum SQL NT 3.2a and 3.2b General Ledger
26
<PAGE> 27
PHASE III*: FINAL ACCEPTANCE OF SOFTWARE
GENERAL AVAILABILITY DELIVERABLES:
o Application program executables, files and licensed supporting components
(dll, vbx, ocx, etc.)
o Conversion utility program executables, files and licensed supporting
components for conversion of FRx DOS and Platinum FRx for Windows data to
the new release.
o Installation program for installing the software.
o Documentation of product, including:
o GA release notes (with installation instructions)
o Conversion utility documentation
o FRx user guide
o Platinum interface guide
o Current PTR list documenting outstanding PSC-specific PTRs and
their severity.
*See payment requirements in Section 6.1 upon completion of each phase.
PSC DELIVERABLES
Listing of all users enrolled in a PSC Support Plan covering FRx products as of
Effective Date of Agreement. Listing to be provided no later than thirty (30)
days after the Effective Date and prior to distribution of Software to End
Users. The following shall be included for each End User:
o User name and address
o PSC Product version
o FRx Product version
o Expiration date of current plan
o Annual cost of plan
o Remaining Cost to Plan Expiration
o Restrictions or limitations on coverage
o Type of Plan (MP, CSP, PSP, other)
27
<PAGE> 28
EXHIBIT D
INTEGRATION PROGRAM
ISSUES TO BE RESOLVED THROUGH JOINT EFFORTS BY FRx AND PSC SUBSEQUENT TO
EFFECTIVE DATE:
o Software Registration Procedures
o Installation
o Integration with PSC menus
o Security
o Software licensing methods for international distribution
28
<PAGE> 29
EXHIBIT E
LISTING OF END USERS REQUIRING
SOURCE CODE ESCROW/SUPPORT
Information to be provided to FRx by PSC within thirty (30) days of Effective
Date.
29
<PAGE> 30
EXHIBIT F
TRADEMARKS
FRx
FRx: The Financial Reporting Extender
30
<PAGE> 31
EXHIBIT G
SOFTWARE PROBLEM RESOLUTION
During the term of this agreement, FRx will use all reasonable efforts to
correct defects in the Software in accordance with the schedule set forth below.
SEVERITY I ERROR: A severity I error will consist of an Error or group of Errors
that render a significant portion of the program unusable and no immediate means
of circumvention is available, or an Error in which the program is causing
damage to data files or databases. FRx will provide a circumvention to a
Severity I Error within three (3) business days and will provide a resolution
to a Severity I Error within five (5) business days.
SEVERITY II ERROR: A severity II error will consist of an Error or group of
Errors that render certain significant and fundamental features or portions of
the program unusable and no immediate means of circumvention is available. FRx
will provide a circumvention to a Severity II Error within five (5) business
days and will provide a resolution to a Severity II Error within fifteen (15)
business days.
SEVERITY III ERROR: A severity III error will consist of an Error or group of
Errors that render use of the program difficult and for which inconvenient means
of circumvention are available to the user. FRx will provide resolution to a
Severity III Error in thirty (30) business days.
SEVERITY IV ERROR: A severity IV error will consist of an Error or group of
Errors that can be easily circumvented or tolerated by the user of the Program.
FRx will provide resolution to a Severity IV Error in the next upgrade of the
program.
DETERMINATION OF TIME FRAME FOR ERROR CORRECTION.
The time in which FRx will provide a circumvention or resolution of an Error
will be measured from the later of identification of the Error through
communication from PSC, Reseller or End User or delivery to FRx of materials
required by FRx to replicate the Error. Further, should the Error be caused or
directly related to an error or design flaw in any PSC module, the time in which
FRx will provide a circumvention or resolution of an Error will be measured from
the date the error or design flaw is corrected in the related PSC module and
such corrected module is provided to FRx.
CHANGES TO PSC TABLE STRUCTURES OR FILES
Should PSC modify its data model, table structures or files in a manner that
affects the operation of FRx, the above Error correction policies will not
apply. If PSC notifies FRx prior to the change and provides FRx an opportunity
to assess and comment on the impact of such change, then FRx will use all
reasonable efforts to ensure the continued compatibility of Software with PSC
product within 60 days of receipt of all the following items: (i) written
notification of specific changes; (ii) PSC software reflecting such changes; and
(iii) a test PSC database for FRx use in testing changes to its Software. If FRx
does not receive prior notification of and an opportunity to comment on proposed
change, FRx will make a reasonable effort to accommodate change but cannot
commit to a specific time frame for completion.
31
<PAGE> 32
EXHIBIT H
PSC LICENSE AGREEMENTS AND SUPPORT PLANS
EXHIBIT H-1 PLATINUM SOFTWARE LICENSE AGREEMENT
EXHIBIT H-2 PLATINUM SQL NT SOFTWARE LICENSE AGREEMENT
EXHIBIT H-3 PLATINUM SUPPORT AND MAINTENANCE AGREEMENT
EXHIBIT H-2 PLATINUM SQL NT SUPPORT AGREEMENT
<PAGE> 33
EXHIBIT H-1
--------------------------------
PLATINUM SOFTWARE LICENSE
--------------------------------
[LOGO] PLATINUM(R)
PLATINUM [Multi-User Version]
SOFTWARE CORPORATION
BY OPENING THE SEALED PACKET(S) CONTAINING THE SOFTWARE, YOU INDICATE YOUR
ACCEPTANCE OF THE FOLLOWING PLATINUM SOFTWARE LICENSE AGREEMENT ("AGREEMENT").
IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT, PROMPTLY RETURN THIS PRODUCT
UNOPENED TO THE PLACE YOU OBTAINED IT FOR A FULL REFUND.
PLATINUM LICENSE AGREEMENT
PLATINUM SOFTWARE LICENSE
1. GRANT OF LICENSE. Platinum Software Corporation or the applicable Platinum
country organization or subsidiary ("Platinum") grants you the following rights
with respect to the Platinum software program identified above (the "SOFTWARE"):
(a) Installation. You may install one (1) copy of the SOFTWARE on a single
computer if you are licensing the single user version or on a single computer
acting as a network server (the "SERVER") if you are licensing the multi-user
version.
(b) Use. SOFTWARE may only be used on one and the same computer or SERVER. As
part of the multi-user version three (3) concurrent users may access the network
and use the services provided by the SERVER. In order to authorize additional
concurrent users a customer must purchase additional user blocks. Concurrent
users are the number of users logged on to and using the SOFTWARE.
(c) Notice to Users. You shall inform all users of the SOFTWARE of the terms and
conditions of this Agreement.
2. COPYRIGHT. You acknowledge and agree that the SOFTWARE and SOFTWARE
documentation are proprietary products of Platinum and are owned by Platinum or
its suppliers and, as such, are protected by United States copyright laws and
international treaty provisions. Therefore, you must treat the SOFTWARE like any
other copyrighted material (e.g. a book or musical recording) except that you
may either (a) make one copy of the SOFTWARE solely for backup or archival
purposes, or (b) transfer the SOFTWARE to a single hard disk provided you keep
the original solely for backup or archival purposes. You may not copy the
written materials accompanying the SOFTWARE. You may copy on-line documentation
for internal business use only provided all copies contain Platinum's
proprietary rights notice. Platinum retains all title and ownership of the
SOFTWARE.
3. OTHER RESTRICTIONS. This Agreement is your proof of license to exercise the
rights granted herein and must be retained by you. You may not rent or lease the
SOFTWARE, but you may transfer your rights under this Agreement on a permanent
basis provided you transfer this Agreement, all copies of the SOFTWARE and all
written materials, and the recipient agrees to the terms of this Agreement. You
may not reverse engineer, decompile, or disassemble the SOFTWARE. Any transfer
of the SOFTWARE must include the most recent update and all prior versions.
4. LIMITED WARRANTY. Platinum warrants that the magnetic media, disk or CD ROM
on which the SOFTWARE is recorded and any SOFTWARE documentation will be free
from defects in material and workmanship under normal use for a period of ninety
(90) days from date of receipt. Other than the media warranty, the SOFTWARE is
licensed on an "AS IS" basis.
10
<PAGE> 34
5. LIMITATION OF LIABILITY. Platinum's entire liability to you or any other
party for any loss or damage resulting from any claims, demands or actions
arising out of this Agreement shall not exceed the license fee paid to Platinum
for the SOFTWARE, net of dealer or distributor margins.
6. NO OTHER WARRANTIES. PLATINUM DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SOFTWARE AND THE
ACCOMPANYING SOFTWARE DOCUMENTATION. THIS LIMITED WARRANTY GIVES YOU SPECIFIC
LEGAL RIGHTS. YOU MAY HAVE OTHERS, WHICH VARY FROM STATE TO STATE.
7. NO LIABILITY FOR CONSEQUENTIAL DAMAGES. In no event shall Platinum or its
suppliers be liable for any indirect, incidental, consequential, special or
exemplary damages whatsoever (including, without limitation, damages for loss of
business profits, business interruption, loss of business information, or other
pecuniary loss) arising out of the use or inability to use the SOFTWARE, even if
Platinum has been advised of the possibility of such damages. Because some
states do not allow the exclusion or limitation of liability for consequential
or incidental damages, the above limitation may not apply to you.
8. EXPORT RESTRICTIONS. You agree that neither you nor your customers intend to
or will, directly or indirectly, export or transmit the SOFTWARE or related
documentation and technical data to any country to which such export or
transmission is restricted by any applicable U.S. regulation or statue, without
the prior written consent, if required, of the Bureau of Export Administration
of the U.S. Department of Commerce, or such other governmental entity as may
have jurisdiction over such export or transmission.
9. TERMINATION. This Agreement is effective until terminated. This Agreement
will terminate automatically without notice from Platinum if you fail to comply
with any provision of the Agreement. Upon termination you shall destroy all
copies of the SOFTWARE, including modified copies, if any.
10. GOVERNMENT RESTRICTED RIGHTS. The SOFTWARE and documentation are provided
with Restricted Rights. Use, duplication or disclosure by the Government is
subject to restrictions as set forth in subparagraph (c) (1) (ii) of the Rights
in Technical Data and Computer Software clause at DFARS 252.227-7013 or
subparagraphs (c) (1) and (2) of the Commercial Computer Software - Restricted
Rights at 48CFR 52.227-19 as applicable. Manufacturer is Platinum Software
Corporation, 195 Technology Drive, Irvine, CA 92718.
If you acquired this product in the United States, this Agreement is governed by
the laws of the State of California.
Should you have any questions concerning this Agreement, or if you desire to
contact Platinum for any reason, please contact your local Platinum sales
office, or write Platinum Software Corporation Sales and Service, 195 Technology
Drive, Irvine, CA 92718.
11
<PAGE> 35
EXHIBIT H-2
--------------------------------
PLATINUM SOFTWARE LICENSE
--------------------------------
[LOGO] PLATINUM(R) SQL NT
PLATINUM [AUTHORIZED CONCURRENT USERS: 5]
SOFTWARE CORPORATION
BY OPENING THE SEALED PACKET(S) CONTAINING THE SOFTWARE, YOU INDICATE YOUR
ACCEPTANCE OF THE FOLLOWING PLATINUM SOFTWARE LICENSE AGREEMENT ("AGREEMENT").
IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT, FOR A FULL REFUND, PROMPTLY
RETURN THIS PRODUCT UNOPENED TO THE PLACE YOU OBTAINED IT.
PLATINUM LICENSE AGREEMENT
PLATINUM SOFTWARE LICENSE
1. GRANT OF LICENSE. Platinum Software Corporation ("Platinum") grants you the
following rights with respect to the Platinum software program identified above
(the "SOFTWARE"):
(a) Installation. You may install the server portion of the SOFTWARE on a single
computer acting as a network server (the "SERVER"). You may install the client
portion of the SOFTWARE, which includes client interface libraries and client
utilities on workstations or computers operating on a single computer network
which are connected to the SERVER.
(b) Use. The components of the SERVER portion of the SOFTWARE may only be used
on one and the same SERVER. As part of this license, five (5) concurrent users
may access the network and use the services provided by the SERVER. In order to
authorize additional concurrent users a customer must purchase additional user
blocks. Concurrent users are the number of users logged on to the system manager
module. If one user is logged on to more than one application at the same time,
each application will be counted as a separate concurrent user. In addition, the
SOFTWARE may be used on an additional server, at no additional charge, for the
purpose of training your employees on the use of the SOFTWARE, provided that the
SOFTWARE is removed from the second server once the training session is
completed.
(c) Developer Tools. If you have purchased a license for the developer tools,
you may use the developer tools, in machine-readable form only and for
modification and enhancement of the SOFTWARE for internal business use only. The
developer tools may not be used to design or develop any products to be
sublicensed or distributed.
(d) Notice to Users. You shall inform all users of the SOFTWARE of the terms and
conditions of this Agreement.
(e) License Limitation. The magnetic media, disk or CD-ROM on which the SOFTWARE
is recorded may contain modules or applications for which you do not have a
fully paid license to use. You agree to install and use only those applications
or modules of the SOFTWARE for which you have a fully paid license.
2. COPYRIGHT. You acknowledge and agree that the SOFTWARE and SOFTWARE
documentation are proprietary products of Platinum and are owned by Platinum or
its suppliers and, as such, are protected by United States copyright laws and
international
12
<PAGE> 36
treaty provisions. Therefore, you must treat the SOFTWARE like any other
copyrighted material (e.g. a book or musical recording) except that you may
either (a) make one copy of the SOFTWARE solely for backup or archival purposes,
or (b) transfer the SOFTWARE to a single hard disk provided you keep the
original solely for backup or archival purposes. You may not copy the written
materials accompanying the SOFTWARE. Platinum retains all title and ownership of
the SOFTWARE.
3. OTHER RESTRICTIONS. This Agreement is your proof of license to exercise the
rights granted herein and must be retained by you. You may not rent or lease the
SOFTWARE, but you may transfer your rights under this Agreement on a permanent
basis provided you transfer this Agreement, all copies of the SOFTWARE and all
written materials, and the recipient agrees to the terms of this Agreement. You
may not reverse engineer, decompile, or disassemble the SOFTWARE. Any transfer
of the SOFTWARE must include the most recent update and all prior versions.
4. LIMITED WARRANTY. Platinum warrants that the magnetic media on which the
SOFTWARE is recorded and any SOFTWARE documentation will be free from defects in
material and workmanship under normal use for a period of ninety (90) days from
date of receipt. Platinum also warrants that the original copy of the SOFTWARE
will perform substantially in accordance with the accompanying SOFTWARE
documentation for a period of ninety (90) days from the date of receipt.
Platinum does not warrant that functions contained in the SOFTWARE will meet
your requirements or that the operation of the SOFTWARE will be error-free or
uninterrupted. Your exclusive remedy for breach of Platinum's warranty shall be
(i) in case of defects in the media, the replacement by Platinum of any magnetic
media not meeting the warranty and (ii) in case of any defect in the SOFTWARE,
Platinum shall use reasonable efforts to provide corrections or fixes in a
timely manner, or at its option replace the SOFTWARE, provided the SOFTWARE is
returned with a copy of your receipt. This limited warranty is void if failure
of the SOFTWARE has resulted from accident, abuse, or misapplication. Any
replacement SOFTWARE will be warranted for the remainder of the original
warranty period or thirty (30) days, whichever is longer.
5. LIMITATION OF LIABILITY. Platinum's entire liability to you or any other
party for any loss or damage resulting from any claims, demands or actions
arising out of this Agreement shall not exceed the license fee paid to Platinum
for the SOFTWARE, net of dealer or distributor margins.
6. NO OTHER WARRANTIES. PLATINUM DISCLAIMS ALL OTHER WARRANTIES, TERMS OR
CONDITIONS EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES, TERMS OR CONDITIONS OF MERCHANTABILITY, SATISFACTORY QUALITY AND
FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SOFTWARE AND THE
ACCOMPANYING SOFTWARE DOCUMENTATION. THIS LIMITED WARRANTY GIVES YOU SPECIFIC
LEGAL RIGHTS. YOU MAY HAVE OTHERS, WHICH VARY FROM STATE TO STATE.
7. NO LIABILITY FOR CONSEQUENTIAL DAMAGES. In no event shall Platinum or its
suppliers be liable for any indirect, incidental, consequential, special or
exemplary damages whatsoever (including, without limitation, damages for loss of
business profits, business interruption, loss of business information, or other
pecuniary loss) arising out of the use or inability to use the SOFTWARE, even if
Platinum has been advised of the possibility of such damages. Because some
states do not allow the exclusion or limitation of liability for consequential
or incidental damages, the above limitation may not apply to you.
8. EXPORT RESTRICTIONS. You agree that neither you nor your customers intend to
or will, directly or indirectly, export or transmit the SOFTWARE or related
documentation and technical data to any country to which such export or
transmission is restricted by any applicable U.S. regulation or statue, without
the prior written consent, if required, of the Bureau of Export Administration
of the U.S. Department of Commerce, or such other governmental entity as may
have jurisdiction over such export or transmission.
9. TERMINATION. This Agreement is effective until terminated. This Agreement
will terminate automatically without notice from Platinum if you fail to comply
with any provision of the Agreement. Upon termination you shall destroy all
copies of the SOFTWARE, including modified copies, if any.
10. MAINTENANCE AND SUPPORT. Maintenance, including the provision of upgrades
and updates to the SOFTWARE, and telephone support is available from Platinum
only through a maintenance plan. Upgrades and updates are not available
separately.
The SOFTWARE and documentation are provided with Restricted Rights. Use,
duplication or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c) (1) (ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c) (1) and (2) of the
Commercial Computer Software - Restricted Rights at 48CFR 52.227-19 as
applicable. Manufacturer is Platinum Software Corporation, 195 Technology Drive,
Irvine, CA 92718.
If you acquired this product in the United States, this Agreement is governed by
the laws of the State of California. If you acquired this product in Australia
or New Zealand, this Agreement is governed by the laws of New South Wales and
New Zealand, respectively.
Should you have any questions concerning this Agreement, or if you desire to
contact Platinum for any reason, please contact your local Platinum sales
office, or write Platinum Software Corporation Sales and Service, 195 Technology
Drive, Irvine. CA 92718.
13
<PAGE> 37
EXHIBIT H-3
--------------------------------
PLATINUM SOFTWARE CORPORATION
--------------------------------
[LOGO]
PLATINUM
SOFTWARE CORPORATI0N
MAINTENANCE COMMENCEMENT DATE ____________________________________
REGISTERED USER NAME _____________________________________________
PLATINUM SUPPORT AGREEMENT
(PLATINUM(R) SQL NT)
This document certifies that the registered user identified above is entitled to
receive the following maintenance services for the one year period beginning on
the Maintenance Commencement Date.
1. UNLIMITED TELEPHONE OR FACSIMILE SUPPORT. The hours of operation are 6:00 AM
to 6:00 PM, Pacific Standard Time, during normal business hours (Monday through
Friday), excluding holidays. The registered user shall appoint three (3)
individuals within its organization to serve as the primary contacts between
Platinum and the registered user and to receive support through the telephone
support center.
2. SOFTWARE UPDATES/UPGRADES. Platinum shall provide to the registered user
without additional charge, all updates to the Software Program specified above
(including related documentation) commercially released by Platinum during the
term of the maintenance agreement. Updates consist of new releases of a
particular software version which provide functional enhancements and error
corrections. Platinum shall provide to the registered user without additional
charge, all upgrades to the Licensed Software commercially released by Platinum
during the term of the agreement. Upgrades consist of new releases with a higher
Platinum version number such as from version 1.0 to 2.0.
3. REMOTE DIAGNOSTICS. Platinum may provide remote access software to facilitate
remote diagnostics. In order to take advantage of remote diagnostics, Customer
may be required to purchase a compatible modem.
4. LIMITED WARRANTY. Platinum warrants that the maintenance services will be
performed in a professional workmanlike manner. PLATINUM DISCLAIMS ALL OTHER
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO THE MAINTENANCE SERVICES. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL
RIGHTS. YOU MAY HAVE OTHERS, WHICH VARY FROM STATE TO STATE.
PLATINUM SOFTWARE TELEPHONE SUPPORT NUMBER: (800) 285-7877
14
<PAGE> 38
5. LIMITATION OF LIABILITY. Platinum's entire liability to you or any other
party for any loss or damage resulting from any claims, demands or actions
arising out of this Agreement shall not exceed the maintenance fee paid to
Platinum for the SOFTWARE, net of dealer or distributor margins.
6. NO LIABILITY FOR CONSEQUENTIAL DAMAGES. In no event shall Platinum or its
suppliers be liable for any indirect, incidental, consequential, special or
exemplary damages whatsoever (including, without limitation, damages for loss of
business profits, business interruption, loss of business information, or other
pecuniary loss) arising out of the use or inability to use the SOFTWARE or the
performance or failure to perform maintenance services, even if Platinum has
been advised of the possibility of such damages. Because some states do not
allow the exclusion or limitation of liability for consequential or incidental
damages, the above limitation may not apply to you.
7. TERM. The registered user will be invoiced for annual maintenance for
subsequent periods beginning on the anniversary of the Maintenance Commencement
Date, unless the registered user notifies Platinum in writing of its desire to
not renew maintenance 60 days prior to the end of existing maintenance period.
If you acquired the software product in the United States, this Agreement is
governed by the laws of thc State of California.
Should you have any questions concerning this Agreement, or if you desire to
contact Platinum for any reason, please contact your local Platinum sales
office, or write Platinum Software Corporation Sales and Service, 195 Technology
Drive, Irvine, CA 92718.
PLATINUM SOFTWARE TELEPHONE SUPPORT NUMBER: (800) 285-7877
15
<PAGE> 39
EXHIBIT H-4
[LOGO]
PLATINUM
SOFTWARE CORPORATI0N
PLATINUM SUPPORT AND MAINTENANCE AGREEMENT
(PLATINUM(R) AND PLATINUM(R) FOR WINDOWS)
This document certifies that the registered user identified on the attached or
accompanying receipt is entitled to receive the following benefits during the
subscription term specified on the receipt.
1. MAINTENANCE PLAN (MP) BENEFITS. For MP subscribers, Platinum shall provide
the following to the registered user without additional charge: all updates for
the installed and registered Software Program(s) specified above (including
related documentation) commercially released by Platinum during the term of the
subscription (updates consist of new releases of a particular software version
which provide functional enhancements and error corrections); annual tax
updates; a subscription to the on-line Platinum Bulletin Board Service; a 10%
discount on registration for the annual Platinum user conference; a 50% discount
on all version and product upgrades to the Software Programs commercially
released by Platinum during the term of the subscription (version upgrades
consist of new releases with a higher Platinum version number such as from 1.0
to 2.0 and product upgrades are different products within the Platinum(R) line,
such as from Platinum(R) to Platinum(R) for Windows).
2. COMPREHENSIVE SUPPORT PLAN (CSP) BENEFITS. For CSP subscribers, Platinum
shall provide the following to the registered user without additional charge:
all benefits associated with the MP Plan above, plus unlimited telephone and
facsimile support. The hours of support operation are 5:00 AM to 6:00 PM,
Pacific Standard Time, during normal business hours (Monday through Friday),
excluding holidays. The registered user shall appoint up to two (2) individuals
within its organization to serve as the primary contacts between Platinum and
the registered user, and to receive support through the telephone support
center. Additional contacts may be purchased for a fee. Phone support will be
offered for the current version, plus one previous version (e.g., version 4 and
3).
3 . PREMIER SUPPORT PLAN (PSP) BENEFITS. For PSP subscribers, Platinum shall
provide the following to the registered user without additional charge: all
benefits associated with the CSP Plan above, plus the following: all version
upgrades to the Software Programs commercially released by Platinum during the
subscription term. Product upgrades must be purchased separately.
4. LIMITED WARRANTY. Platinum warrants that the support services will be
performed in a professional workmanlike manner. PLATINUM DISCLAIMS ALL OTHER
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO THE SUPPORT SERVICES. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS.
YOU MAY HAVE OTHERS, WHICH VARY FROM STATE TO STATE.
5. LIMITATION OF LIABILITY. Platinum's entire liability to you or any other
party for any loss or damage resulting from any claims, demands or actions
arising out of this Agreement shall not exceed the support fee paid to Platinum
for the Software, net of dealer or distributor margins.
6. NO LIABILITY FOR CONSEQUENTIAL DAMAGES. In no event shall Platinum or its
suppliers be liable for any indirect, incidental, consequential, special or
exemplary damages whatsoever (including, without limitation, damages for loss of
business profits, business interruption, loss of business information, or other
pecuniary loss) arising out of the use or inability to use the Software or the
performance or failure to perform support services, even if Platinum has been
advised of the possibility of such damages. Because some states do not allow the
exclusion or limitation of liability for consequential or incidental damages,
the above limitation may not apply to you.
7. TERM. The subscription term shall begin on the commencement date specified
above and shall expire annually on March 31. The registered user will be
invoiced for annual renewals unless Platinum receives written notification
canceling the subscription 60 days prior to the expiration date.
8. CONDITIONS. If a subscriber allows its support plan to expire and desires to
resume support, the subscriber shall be required to pay a fee equal to one half
of the annual fee for the maintenance plan that the subscriber is signing up
for. Program maintenance for
16
<PAGE> 40
previous versions may be discontinued with a 1-year advance notice. Maintenance
and support plans are nontransferable. If an end user cancels its subscription
anytime during a subscription period, no refund, pro-rated or otherwise, will be
given. This Agreement is for one plan, per registered user, for all registered
modules. If the use of a specific licensed and registered module is
discontinued, a letter must be sent on company letterhead (signed by an officer
of the company) indicating the company is no longer using the module. Serial
numbers for discontinued modules must be included in the letter. Add-on modules
will be pro-rated to the subscription expiration date for the current plan and
suggested retail price.
This Agreement is governed by the laws of the State of California in the United
States of America.
Should you have any questions concerning this Agreement, or if you desire to
contact Platinum for any reason, please contact your local Platinum sales
office, or write Platinum Software Corporation, Sales and Service, 195
Technology Drive, Irvine, CA 92718. The Platinum Software telephone technical
support number is (800) 333-5242.
17
<PAGE> 41
EXHIBIT I
FORM OF SOURCE CODE ESCROW AGREEMENT
<PAGE> 42
FLEXSAFE
TECHNOLOGY DEPOSIT AGREEMENT
Deposit Account Number 0618024-00001
Recitals
This FlexSAFE Technology Deposit Agreement including any Exhibits ("Agreement")
is effective this 1st day of August 1995, by and between Data Securities
International, Inc. ("DSI") a Delaware corporation, and FRx Software Corporation
("Depositor").
Notices to Depositor and DSI should be sent to the parties at the addresses
identified in the attached Exhibit A.
WHEREAS, Depositor has deposited or will deposit with DSI proprietary data to
provide for retention and controlled access under the conditions specified;
WHEREAS, Depositor desires the Agreement to be supplementary to the license
agreement between Depositor and FlexSAFE Licensee pursuant to 11 United States
Code Section 365(n).
NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Deposit Account. Following the execution and delivery of the Agreement and
the payment of the first year escrow fee to DSI, DSI shall open a deposit
account ("Deposit Account") and a FlexSAFE enrollment system for Depositor. The
opening of the Deposit Account means that DSI shall establish an account ledger
in the name of Depositor, calendar renewal notices to be sent to Depositor as
provided in Section 4, and periodically request deposit materials ("Deposit")
from Depositor. Unless and until Depositor makes the Deposit with DSI, DSI shall
have no further obligation to Depositor except as defined by this section.
Depositor agrees to designate one individual to receive notices from DSI and to
act on behalf of Depositor in relation to the performance of its obligations as
set forth in the Agreement and to notify DSI immediately in the event of any
change from one designated contact to another as stipulated in Exhibit A.
2. Exhibit B. Depositor will submit material to DSI for retention and
administration in the Deposit Account together with a completed document
describing the Deposit called a "Description of Deposit Materials", hereinafter
referred to as Exhibit B. Each Exhibit B should be signed by Depositor prior to
submittal to DSI.
<PAGE> 43
3. Deposit Obligations of Confidentiality. DSI agrees to establish a locked
receptacle in which it shall place the Deposit and shall put the receptacle
under the administration of one or more of its officers, selected by DSI, whose
identity shall be available to Depositor at all times. DSI shall exercise a
professional level of care in carrying out the terms of the Agreement.
DSI acknowledges Depositor's assertion that the Deposit shall contain
proprietary data and that DSI has an obligation to preserve and protect the
confidentiality of the Deposit.
Except as provided for in the Agreement, DSI agrees that DSI shall not divulge,
disclose, make available to third parties, nor make any use whatsoever of the
Deposit.
4. Term of Agreement. The initial term of the Agreement is for a period of one
(1) year. Thereafter the Agreement shall automatically renew from year-to-year
unless the Depositor elects not to pay the renewal fee. In the event of the
nonpayment of fees owed to DSI, DSI shall provide written notice of the
delinquency to Depositor. The Depositor shall have the right to make the payment
to DSI to cure the default.
If the past-due payment is not received in full by DSI within one (1) month of
the date of such notice, then DSI shall have the right to terminate the
Agreement any time thereafter by sending written notice of termination to all
parties. DSI shall have no obligation to deliver the Deposit or to take any
other action under the Agreement so long as any payment which is due to DSI
remains unpaid. Upon termination, DSI, at its sole discretion, will either
destroy the Deposit or return the Deposit to Depositor, provided that DSI will
return the Deposit to the Depositor at Depositor's request. IN NO EVENT SHALL
DSI HAVE ANY LIEN ON OR INTEREST IN THE DEPOSIT.
5. FlexSAFE Enrollment System. After DSI's acceptance of the Deposit, Depositor
may enroll one or more licensees as "FlexSAFE Licensee" to the Deposit Account.
Depositor will execute and submit to DSI a "FlexSAFE Licensee Enrollment"
document ("Exhibit T") , listing each licensee to be enrolled as a FlexSAFE
Licensee under the Agreement. Upon DSI's acceptance of an Exhibit T and payment
of the enrollment fee, client will become a FlexSAFE Licensee ("FlexSAFE
Licensee").
6. Other Third Parties. DSI shall have no obligation to any other third party
except FlexSAFE Licensee accepted by DSI. DSI and Depositor shall have the right
to modify or cancel the Agreement without the consent of any third party.
7. FlexSAFE Licensee Account. Following the execution of Exhibit T by Depositor
and DSI, DSI will open a FlexSAFE Licensee Account for FlexSAFE Licensee. The
opening of the FlexSAFE Licensee Account means that DSI shall establish a unique
enrollment number ("FlexSAFE Licensee Number") in the name of FlexSAFE Licensee.
DSI shall issue to FlexSAFE Licensee an enrollment letter, a copy of the
Agreement and an account history.
Page 2
<PAGE> 44
8. Notices and Communications. Notices and invoices (if appropriate) to FlexSAFE
Licensee should be sent to the party at the address identified in Exhibit T.
If the designated contact identified in Exhibit T is not correct, FlexSAFE
Licensee or Depositor will designate another individual ("Designated Contact")
to receive notices from DSI.
9. Term and Renewal of FlexSAFE Licensee Account. Upon receipt by DSI of
Depositor's executed Exhibit T, the FlexSAFE Licensee Account will have an
initial term of one (1) year, unless the Deposit Account terminates earlier,
causing the FlexSAFE Licensee Account to terminate.
After the initial term, the FlexSAFE Licensee Account may be adjusted to a term
coincident with the current term of the Agreement. FlexSAFE Licensee or
Depositor has the right to pay enrollment renewal fees. Only Depositor may pay
Deposit Account fee and other fees related to Deposit Account. In the event
FlexSAFE Licensee pays the enrollment renewal fees and Depositor is of the
opinion that any necessary condition for renewal is not met, Depositor may so
notify DSI and FlexSAFE Licensee in writing. DSI shall then terminate that
FlexSAFE Licensee.
10. Account History. DSI agrees to keep records of the activities undertaken,
and materials prepared pursuant to the Agreement. DSI may issue an account
history to FlexSAFE Licensee profiling the Deposit Account. Such account history
will identify Depositor, FlexSAFE Licensee, current Designated Contact, selected
special services , and Exhibit B history which includes Deposit Material
acceptance and destruction or return dates. Depositor will notify DSI if the
account history is not to be provided to FlexSAFE Licensee.
11. Release of Deposit Copy to FlexSAFE Licensee Upon Depositor Instruction.
Upon receipt by DSI of a valid written instruction directly from Depositor,
Depositor's trustee in bankruptcy, or a court of competent jurisdiction, and
payment to DSI of the deposit copying and delivery fees, DSI will prepare and
release a copy of the Deposit for the FlexSAFE Licensee identified in the
instruction.
12. Filing for Release of Deposit by FlexSAFE Licensee. Upon notice to DSI by
FlexSAFE Licensee of the occurrence of a filing condition as defined in Section
14, DSI shall notify Depositor by certified mail or commercial express mail
service with a copy of the notice from FlexSAFE Licensee. If Depositor provides
DSI with contrary instruction within sixty (60) days, DSI shall not deliver a
copy of the Deposit to FlexSAFE Licensee. "Contrary Instruction" is a notice to
DSI stating that a Contrary Instruction is in effect. DSI shall send a copy of
the notice by certified mail or commercial express mail service to FlexSAFE
Licensee. DSI shall notify both Depositor and FlexSAFE Licensee that there is a
dispute to be resolved.
Page 3
<PAGE> 45
13. Release of Deposit Copy Upon No Contrary Instruction. Depositor and DSI
agree that, pursuant to the terms and conditions of the Agreement, and provided
that Depositor does not provide a Contrary Instruction in accordance with
Section 12, the Deposit shall be held for delivery by DSI to the FlexSAFE
Licensee who provides DSI with all of the following:
a. Copy of a current, valid license agreement between Depositor and
FlexSAFE Licensee;
b. Written demand that a copy of the Deposit be released and delivered to
FlexSAFE Licensee;
C. Written notice that the copy of the Deposit being released to,
FlexSAFE Licensee be used only as permitted under the license
agreement;
d. Specific delivery instructions along with deposit copying and delivery
fees; and
e. Written notice that the release of the Deposit copy is pursuant to,
11 United States Code Section 365(n).
14. Filing Conditions of Deposit to FlexSAFE Licensee. Filing conditions are:
Existence of any one or more of the following circumstances,
uncorrected for more than thirty (30) days: entry of an order for
relief under Title 11 of the United States Code; the making by
Depositor of a general assignment for the benefit of creditors;
the appointment of a general receiver or trustee in bankruptcy of
Depositor's business or property; or action by Depositor under
any state insolvency or similar law for the purpose of its
bankruptcy, reorganization, or liquidation.
15. Indemnification. DSI shall be responsible to perform its obligations under
this Agreement and to act in a reasonable and prudent manner with regard to this
escrow arrangement. Provided DSI has acted in the manner stated in the preceding
sentence, Depositor agrees to indemnify, defend and hold harmless DSI from any
claims, actions, damages, costs, attorney's fees and other liabilities incurred
by DSI relating in any way to this escrow arrangement.
16. General. DSI may act in reliance upon any instruction, instrument, or
signature believed to be genuine and, unless Depositor has informed DSI in
writing that only certain employees of Depositor are authorized to provide
notices or instructions hereunder, DSI may assume that any employee giving any
written notice, request, advice or instruction in connection with or relating to
the Agreement has apparent authority and has been duly authorized to do so. DSI
is not responsible for failure to fulfill its obligations under the Agreement
due to causes beyond DSI's control.
Page 4
<PAGE> 46
The Agreement is to be governed by and construed in accordance with the laws of
the State of California.
The Agreement constitutes the entire agreement between the parties concerning
the subject matter hereof, and supersedes all previous communications,
representations, understandings, and agreements, either oral or written, between
the parties.
Any term or provision of the Agreement may be amended, and the observance of any
term of the Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by a writing signed by
the party to be bound thereby.
No party may assign or delegate the Agreement or any of its rights, duties, or
obligations hereunder to any person or entity without the prior written approval
of the other parties hereto, which consent shall not be unreasonably withheld,
except that a party may assign and delegate the Agreement in its entirety
incidental to a transfer of all or substantially all of such party's business.
Any assignment which is made in violation of the Agreement shall be void.
If any provision of the Agreement is held by any court to be invalid or
unenforceable, that provision will be severed from the Agreement and any
remaining provisions will continue in full force.
17. Fees. Fees are due upon receipt of signed contracts, receipt of Deposit
materials, or when service is requested, whichever is earliest. Renewal fees
will be due in full upon the receipt of invoice unless otherwise specified by
the invoice. If invoiced fees are not paid within ninety (90) days of the date
of invoice, DSI may terminate the Agreement. If the payment is not timely
received by DSI within thirty (30) days of the date of invoice, which shall not
be earlier than the date of mailing of the invoice, DSI shall have the right to
accrue and collect interest at the rate of one and one-half percent per month
(18% per annum) from the date of the invoice for all late payments.
All service fees and renewal fees will be those specified in DSI's Fee and
Services Schedule in effect at the time of renewal or request for service,
except as otherwise agreed. For any increase in DSI's standard fees, DSI shall
notify Depositor at least ninety (90) days prior to the renewal of the
Agreement. For any service not listed on the Fee and Services Schedule, DSI
shall provide a quote prior to rendering such service.
Data Securities
FRx SOFTWARE CORPORATION International, Inc.
- ---------------------------------- DSI
Depositor
By: /s/ MICHAEL L. ROHAN By: /s/ CHRISTIE WOODWARD
------------------------------- --------------------------------
Name: Michael L. Rohan Name: Christie Woodward
----------------------------- ------------------------------
Title: President Title: Contract Administrator
---------------------------- -----------------------------
Date: July 27, 1995 Date: August 1, 1995
----------------------------- ------------------------------
Page 5
<PAGE> 47
EXHIBIT A
FLEXSAFE
TECHNOLOGY DEPOSIT AGREEMENT
Deposit Account Number 0618024-00001
Designated contact and locations
Notices to Depositor regarding
Agreement terms and conditions Invoices should
should be addressed to: be addressed to:
Depositor: FRx Software Corporation
------------------------ ------------------------------
Address: 4949 So. Syracuse St
------------------------ ------------------------------
Suite 620
------------------------ ------------------------------
Denver, CO 80237
------------------------ ------------------------------
------------------------ ------------------------------
Designated
contact: Michael L. Rohan
------------------------ ------------------------------
Telephone: (303) 741-0900
------------------------ ------------------------------
Facsimile: (303) 741-3335
------------------------ ------------------------------
All requests from Depositor to change the designated contact must be given in
writing and signed by the designated contact or an authorized representative of
Depositor.
Contracts, Deposits and Invoice inquiries and
official notifications to DSI remittance of fees to DSI
should be addressed to: should be addressed to:
DSI DSI
Attn: Contract Administration Attn: Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date: July 27, 1995
--------------
Page 6
<PAGE> 48
EXHIBIT T
FLEXSAFE LICENSEE ENROLLMENT
Deposit Account Number ___________________________
Depositor, pursuant to the Technology Deposit Agreement ("Agreement"), hereby
enrolls the following as FlexSAFE Licensee:
Notices and communication, If appropriate, invoices to
including delinquencies to FlexSAFE Licensee should be
FlexSAFE Licensee should addressed to:
be addressed to:
Company Name:_____________________ ______________________________
Address: _____________________ ______________________________
_____________________ ______________________________
_____________________ ______________________________
_____________________ ______________________________
Designated Invoice
Contact:__________________________ Contact:______________________
Telephone:________________________ ______________________________
Facsimile:________________________ ______________________________
__________________________________ Data Securities
Depositor International, Inc.
By:_______________________________ By:___________________________
Name:_____________________________ Name:_________________________
Title:____________________________ Title:________________________
Date:_____________________________ Date:_________________________
<PAGE> 49
EXHIBIT J
SOFTWARE ACCEPTANCE CRITERIA
THE FOLLOWING SOFTWARE ACCEPTANCE CRITERIA WILL BE USED BY PSC IN COMPLETING ITS
ACCEPTANCE OF SOFTWARE DESCRIBED IN SECTION 4.2:
BETA RELEASE
- All currently documented features are fully functional
- Audit and acceptance of FRx's test plan by PSC to insure sufficient
coverage and quality
- Installation and conversion utility testing has been completed on all
platforms identified for beta sites.
- All known Severity 1 Errors are fixed and closed.
- All known Severity 2 Errors are fixed or documented for situations
that unlikely to occur in the test sites.
- No Severity 1 Errors in the week prior to release.
- A minimum of l week testing on latest drop before sending to beta
sites.
- Functional readiness review with members of FRx Software QA,
Development and Platinum Acceptance team. Any functions that don't get
a passing grade must be documented.
GENERAL AVAILABILITY (GA) RELEASE
- All documented features are fully functional.
- Review adequacy and completeness of GA release notes.
- Completion of beta test cycle with 90% of sites signing off evaluation
forms indicating accepting the product as stable, usable and meeting
their functional requirements. For this purpose, functional
requirements applies to functions of the product as defined in product
documentation and excludes issues relating to other PSC modules.
- Installation and conversion utility testing has been completed on all
supported platforms and Platinum products.
- Audit test criteria and results to verify the following:
- The following client and server platforms are supported:
- Clients: Win 3.1, Win 3.11, Win 95, Win NT Workstation
3.51
- File Servers: Novell 3.12 & 4.1, Windows NT 3.51
- All Severity 1 Errors are fixed and closed
- All Severity 2 Errors are fixed and closed
- The Platinum Products described in Exhibit A are supported:
- A minimum of 2 weeks testing on last drop before declaring it GA
- Functional readiness review with members of FRx Software QA,
Development and Platinum Acceptance team. Any functions that have a
Pass with Qualifications grade must be documented.
- Any item in this list which is not met must be fully documented.
<PAGE> 50
EXHIBIT K
FRx PREMIUM SUPPORT PLANS
All Premium FRx Support Plans include software maintenance and enhancements at
no additional charge. In addition to the other performance standards included in
the PSC Support Plans in Exhibit H, FRx will commit to the guaranteed response
times to inquiries as detailed below. Note that response to an inquiry does not
necessarily imply or include resolution of the related issue, which will be
handled on a reasonable efforts basis and consistent with the Software Problem
Resolution standards prescribed in Exhibit G. In addition, Premium Support Plan
subscribers receive a twenty (20%) discount on FRx training classes.
<TABLE>
<CAPTION>
SUPPORT PLAN LIST PRICE*
------------------------
SURCHARGE OVER EXISTING COST OF
SUPPORT PLAN NEW PLAN
------------ --------
<S> <C> <C>
PREMIUM SUPPORT LEVEL A
Guaranteed response to inquiries within FOUR (4) hours 10% 25%
and progress updates every 48 hours.
PREMIUM SUPPORT LEVEL B
Guaranteed response to inquiries within TWO (2) hours 15% 30%
and progress updates every 24 hours.
PREMIUM SUPPORT LEVEL C
Guaranteed response to inquiries within ONE (1) hour 20% 35%
and progress updates every 24 hours.
</TABLE>
* Percentages shown are to be applied to FRx product list price (for Stand-Alone
Software) or to the list price of Bundled Software after application of the
allocation formulas provided in Section 6.4.
<PAGE> 51
EXHIBIT L
STOCK PLEDGE AGREEMENT
<PAGE> 52
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement ("Pledge Agreement") is made and dated as
of this ____ day of May, 1996 by and between Platinum Software Corporation
("Platinum") and Frx Software Corporation (the "Company").
RECITALS
A. Concurrently with the execution and delivery of this Pledge
Agreement, Platinum and the Company are executing a Software Distribution
License Agreement ("License Agreement").
B. It is a requirement of the License Agreement that Platinum execute
and deliver this Pledge Agreement to secure payment under section 6.1 (a)-(d) of
the License Agreement.
AGREEMENT
1. Grant of Security Interest. In order to secure payment by Platinum
of its payment obligations under Section 6.1 (a)-(d) of the License Agreement
Platinum hereby grants the Company a security interest in, and assigns,
transfers to and pledges the Company the following securities and other
property:
(i) 199,000 shares of Company Class B common stock ("Common Stock");
(ii) any and all new, additional or different securities or other
property subsequently distributed with respect to the shares identified in
subparagraph (i).
All securities, property and money so assigned, transferred to and
pledged with the Company shall be herein referred to as the "Collateral" and
shall be accompanied by one or more stock power assignments properly endorsed by
Platinum.
2. Indebtedness Secured. The indebtedness secured by this Pledge
Agreement shall consist of the obligation of Platinum to make payments under
Section 6.1 (a)-(d) of the License Agreement (the "Indebtedness").
3. Warranties. Platinum warrants that the Platinum is the owner of the
Collateral and has the right to pledge the Collateral and that the Collateral,
is free from all liens, adverse claims and other security interests (other than
those created hereby).
<PAGE> 53
4. Rights and Powers. So long as there exists no event of default
under Section 8 of this Agreement, the undersigned may exercise all stockholder
voting rights, if applicable, and be entitled to receive any and all regular
cash dividends paid on the Collateral. Accordingly, until such time as an event
of default occurs under this Agreement, all proxy statements and other
stockholder materials pertaining to the Collateral shall be delivered to the
undersigned at the address indicated below.
5. Duty to Deliver. Any new, additional or different securities that
may now or hereafter become distributable with respect to the Collateral by
reason of (i) any stock dividend, stock split or reclassification of the Common
Stock of the Company, or (ii) any merger, consolidation or other reorganization
affecting the capital structure of the Company, shall, upon receipt by Platinum,
be promptly delivered to and deposited with the Company as part of the
Collateral hereunder. Such securities shall be accompanied by one or more
properly endorsed stock power assignments.
6. Care of Collateral. The Company shall exercise reasonable care in
the custody and preservation of the Collateral. The Company shall not be
obligated to take any action with respect to the Collateral requested by
Platinum unless the request is made in writing and the Company determines that
the requested action will not unreasonably jeopardize the value of the
Collateral as security for the Indebtedness.
The Company may at any time release and deliver all or part of the
Collateral to Platinum, and the receipt hereof by Platinum shall constitute a
complete and full acquittance for the Collateral so released and delivered. The
Company shall accordingly be discharged from any further liability or
responsibility for the Collateral, and the released Collateral shall no longer
be subject to the provisions of this Agreement.
7. Release of Collateral. Provided (i) there does not otherwise exist
any event of default under Section 8 and the pledged shares of Class B Common
Stock together with any additional Collateral that may hereafter be pledged and
deposited hereunder, shall be released from pledge and returned to Platinum in
accordance with he following provisions.
Upon payment or prepayment of the Indebtedness, the shares of the
Class B Common Stock held as Collateral hereunder shall be released to the
undersigned within five (5) days after such payment or prepayment.
8. Events of Default The occurrence of one or more of the following
events shall constitute an event of default under this Agreement:
(a) the failure of the undersigned to pay the Indebtedness when due
under the License Agreement; or
2
<PAGE> 54
(b) the failure of the undersigned to perform a material obligation
imposed upon the undersigned by reason of this Pledge Agreement and the failure
to cure such default within sixty (60) days of written notice of the Company to
the undersigned.
Upon the occurrence of any such event of default, the Company may
exercise any or all of the rights and remedies granted to a secured party under
the provisions of the Colorado Uniform Commercial Code (as now or hereafter in
effect).
9. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado and shall be binding upon
the executors, administrators, heirs and assigns of the undersigned.
10. Severability. If any provision of this Agreement is held to be
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and neither the remainder of such provisions nor
any other provisions of this Agreement shall be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PLATINUM SOFTWARE CORPORATION
195 Technology Drive
Irvine, CA 92718
By:_________________________________
Its:________________________________
Dated:______________________________
Agreed to and Accepted by:
FRX SOFTWARE CORPORATION
By:_________________________________
Its:________________________________
Dated:______________________________
3
<PAGE> 55
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement ("Pledge Agreement") is made and dated as
of this ____ day of May, 1996 by and between Platinum Software Corporation
("Platinum") and Frx Software Corporation (the "Company").
RECITALS
A. Concurrently with the execution and delivery of this Pledge
Agreement, Platinum and the Company are executing a Software Distribution
License Agreement ("License Agreement").
B. It is a requirement of the License Agreement that Platinum execute
and deliver this Pledge Agreement to secure payment under section 6.1 (a)-(d)
of the License Agreement.
AGREEMENT
1. Grant of Security Interest. In order to secure payment by Platinum
of its payment obligations under Section 6.1 (a)-(d) of the License Agreement
Platinum hereby grants the Company a security interest in, and assigns,
transfers to and pledges the Company the following securities and other
property:
(i) 199,000 shares of Company Class B common stock ("Common Stock");
(ii) any and all new, additional or different securities or other
property subsequently distributed with respect to the shares identified in
subparagraph (i).
All securities, property and money so assigned, transferred to and
pledged with the Company shall be herein referred to as the "Collateral" and
shall be accompanied by one or more stock power assignments properly endorsed by
Platinum.
2. Indebtedness Secured. The indebtedness secured by this Pledge
Agreement shall consist of the obligation of Platinum to make payments under
Section 6.1 (a)-(d) of the License Agreement (the "Indebtedness").
3. Warranties. Platinum warrants that the Platinum is the owner of the
Collateral and has the right to pledge the Collateral and that the Collateral is
free from all liens, adverse claims and other security interests (other than
those created hereby).
<PAGE> 56
4. Rights and Powers. So long as there exists no event of default
under Section 8 of this Agreement, the undersigned may exercise all stockholder
voting rights, applicable, and be entitled to receive any and all regular cash
dividends paid on the Collateral. Accordingly, until such time as an event of
default occurs under this Agreement, all proxy statements and other stockholder
materials pertaining to the Collateral shall be delivered to the undersigned at
the address indicated below.
5. Duty to Deliver. Any new, additional or different securities that
may now or hereafter become distributable with respect to the Collateral by
reason of (i) any stock dividend, stock split or reclassification of the Common
Stock of the Company, or (ii) any merger, consolidation or other reorganization
affecting the capital structure of the Company, shall, upon receipt by Platinum,
be promptly delivered to and deposited with the Company as part of the
Collateral hereunder. Such securities shall be accompanied by one or more
properly endorsed stock power assignments.
6. Care of Collateral. The Company shall exercise reasonable care in
the custody and preservation of the Collateral. The Company shall not be
obligated to take any action with respect to the Collateral requested by
Platinum unless the request is made in writing and the Company determines that
the requested action will not unreasonably jeopardize the value of the
Collateral as security for the Indebtedness.
The Company may at any time release and deliver all or part of the
Collateral to Platinum, and the receipt hereof by Platinum shall constitute a
complete and full acquittance for the Collateral so released and delivered. The
Company shall accordingly be discharged from any further liability or
responsibility for the Collateral, and the released Collateral shall no longer
be subject to the provisions of this Agreement.
7. Release of Collateral. Provided (i) there does not otherwise exist
any event of default under Section 8 and the pledged shares of Class B Common
Stock together with any additional Collateral that may hereafter be pledged and
deposited hereunder, shall be released from pledge and returned to Platinum in
accordance with the following provisions.
Upon payment or prepayment of the Indebtedness, the shares of the
Class B Common Stock held as Collateral hereunder shall be released to the
undersigned within five (5) days after such payment or prepayment.
8. Events of Default. The occurrence of one or more of the following
events shall constitute an event of default under this Agreement:
(a) the failure of the undersigned to pay the Indebtedness when due
under the License Agreement; or
<PAGE> 57
(b) the failure of the undersigned to perform a material obligation
imposed upon the undersigned by reason of this Pledge Agreement and the failure
to cure such default within sixty (60) days of written notice of the Company to
the undersigned.
Upon the occurrence of any such event of default, the Company may
exercise any or all of the rights and remedies granted to a secured party under
the provisions of the Colorado Uniform Commercial Code (as now or hereafter in
effect).
9. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado and shall be binding upon
the executors, administrators, heirs and assigns of the undersigned.
10. Severability. If any provision of this Agreement is held to be
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and neither the remainder of such provisions nor
any other provisions of this Agreement shall be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PLATINUM SOFTWARE CORPORATION
195 Technology Drive
Irvine, CA 92718
By: /s/ [SIG]
--------------------------------
Its: CFO
-------------------------------
Dated: 5-7-96
-----------------------------
Agreed to and Accepted by:
FRX SOFTWARE CORPORATION
By: /s/ [SIG]
--------------------------------
Its: President
-------------------------------
Dated: 5-9-96
-----------------------------
3
<PAGE> 58
FRx SOFTWARE CORPORATION
AND
PLATINUM SOFTWARE CORPORATION
SOFTWARE DISTRIBUTION LICENSE AGREEMENT
SECOND ADDENDUM
This Second Addendum dated 12/12/96 hereby amends and supplements the Software
Distribution License Agreement between FRx Software Corporation ("FRx") and
Platinum Software Corporation ("PSC") dated May 9, 1996 and amended on June 24,
1996 (the "Agreement").
1. PSC hereby accepts, in accordance with Section 4.2 of the Agreement, as of
the date of this Second Addendum ("Acceptance Date") the Phase III
Deliverables (also known as General Availability Deliverables as detailed
in Exhibit C) with respect to all PSC Products defined on Exhibit A.
2. The terms and conditions of the Agreement are hereby modified and amended
as follows:
SECTION 2.1(b), second sentence, is hereby replaced as follows: "FRx shall use
all reasonable efforts to provide to PSC at no additional cost an externalized
text file for FRx Version 5.0 to facilitate such translations (single-byte
character sets) no later than three months after the Acceptance Date. Support
for double-byte character sets will be provided to PSC when developed by FRx."
Section 3.2(b)(1) is hereby modified by changing the term "within 3O days of
acceptance of the Software" to "within 30 days following the Acceptance Date".
SECTION 6.1 is hereby modified by changing the term "within 180 days of
acceptance of the Software" to "within 180 days following the Acceptance Date".
SECTION 6.1(c) is modified in its entirety as follows:
6.1(c)(1) "On the Acceptance Date as defined herein, PSC shall pay to FRx $ [*]
which reflects the estimated amount (less the $ [*] previously paid to FRx under
Section 6.1 (a) and (b)) that is recorded as of the Acceptance Date by PSC for
prepaid support and maintenance ("Prepaid Support") paid by End Users in
connection with the versions of FRx for Windows and FRx (DOS) distributed by PSC
prior to the Acceptance Date.
6.1(c)(2) Within thirty (30) days after the Acceptance Date, PSC shall provide a
listing of all users enrolled in a PSC Support Plan for the FRx products (FRx
for Windows and FRx(DOS)) as of the Acceptance Date and a computation of the
Prepaid Support amount from such users at the Acceptance Date. Should the actual
Prepaid Support amount in the aggregate be less than [*] the difference shall be
treated as additional Prepaid License Fee and recovered by PSC
[*] CONFIDENTIAL TREATMENT REQUESTED
1
<PAGE> 59
as provided in Section 6.1(d). Should the actual Prepaid Support amount in the
aggregate be greater than [*] the difference shall be payable to FRx at the same
time the Prepaid Support listing is provided to FRx.
SECTION 6.1(d) are hereby modified by changing the term "within 180 days
following acceptance of Software" to "within 180 days following the Acceptance
Date".
SECTION 9.1(a)(1) is modified by deleting the first sentence and replacing it
with the following: "Upon acceptance by PSC of the Software under Section 4.2
and receipt of payment by FRx under Section 6.1 (c)(1), FRx shall assume direct
support responsibility for product technical support services to End Users
enrolled in a Support Plan in accordance with the performance standards
prescribed in the Support Plans (see Exhibit H)."
SECTION 9.1(a)(1)(1) is modified to add the words "received and" after the
phrase "have not yet" in the first sentence.
SECTION 9.1(a)(5)(1), third sentence, is modified to read "Such survey shall be
performed no more frequently than every eighteen (18) months after the
Acceptance Date and shall be jointly written by PSC and FRx.
SECTION 9.1(b) is modified in full to read as follows.
9.1(b) SOFTWARE MAINTENANCE. Subject to timely payment to FRx of the
license fees provided in Article 6, FRx will provide routine software
maintenance releases at no cost to PSC for distribution to End Users or to PSC
Resellers. Such maintenance releases, when and if released, are intended to
correct defects that render a currently supported version of the Software
incapable of performing substantially in accordance with the Documentation. The
maintenance standards for the FRx products are as follows:
(i) FRX FOR WINDOWS. All such defects will be resolved in
accordance with the time frames identified in Exhibit G after they are reported
to and are reproducible by FRx, provided that the End User reporting such
defects is using the most recent version of the Software. FRx agrees to provide
to End Users of the Software the maintenance and support services that PSC
generally provides to End Users of PSC Products as described in Exhibits H-3 and
H-4.
(ii) FRX (DOS). FRx shall use commercially reasonable efforts
to correct Severity I Errors, as defined in Exhibit G, within ninety (90) days
of identification and reproduction of such defect by FRx, and to use
commercially reasonable efforts to correct Severity II Errors, without a
specific time commitment. Such Errors shall be limited to those reported after
the Acceptance Date by current users of FRx (DOS) that are enrolled in a support
and/or maintenance plan for that product. Should FRx be unable to correct such
Severity I and II Errors using such commercially reasonable efforts, the limit
of its liability shall be to provide the affected End Users with an upgrade to
an applicable FRx for Windows version at no cost to PSC or the End User.
FRx makes no commitment regarding correction of Severity III and IV Errors
for FRx (DOS) versions.
[*] CONFIDENTIAL TREATMENT REQUESTED
2
<PAGE> 60
Section 9.1(c)(1) is modified in its entirety as follows: "Subject to payment
by PSC of its Initial Payment Obligation under Section 6.1(c)(1), PSC is
authorized to distribute Software at no additional cost to all PSC End Users
enrolled in a Support Plan for the FRx for Windows products as of the Acceptance
Date. PSC is not authorized to distribute FRx for Windows versions of the
Software to End Users enrolled in a Support Plan for the FRx(DOS) products
except as provided under the terms of Exhibit B. PSC shall be responsible for
all packaging and distribution costs.
SECTION 10.1(a)(1)(1) is modified to read as follows: Thirty days following the
Acceptance Date, PSC shall cease marketing, licensing, conveying or otherwise
delivering PSC-FRx or executable versions of the PSC-FRx code. During the thirty
day period following the Acceptance Date, PSC may continue to license and ship
the PSC-FRx code to End Users and PSC Resellers until it has completed
duplication, packaging and kitting of the FRx Software products that were
accepted. PSC shall pay License Fees to FRx on all licenses of PSC-FRx during
the thirty day period following the Acceptance Date in accordance with Section 6
of the Agreement. When the End Users who licensed PSC-FRx during the thirty day
period following the Acceptance Date upgrade to the FRx Software, PSC shall not
be obligated to pay an additional license or upgrade fee.
EXHIBITS A AND B ARE modified in their entirety to read as attached.
Except as modified by this Addendum, the terms and conditions of the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Second Addendum as of
the date last written below.
FRx SOFTWARE CORPORATION PLATINUM SOFTWARE CORPORATION
By: /s/ ROBERT C. ROHAN By: /s/ TIMOTHY J. MCMULLEN
-------------------------- -----------------------------------
Name: Robert C. Rohan Name: Timothy J. McMullen
------------------------ ----------------------------------
Title: Vice President Title: CTO and V.P. Product Marketing
----------------------- ---------------------------------
Date: December 12, 1996 Date: Dec. 11, 1996
------------------------ ----------------------------------
3
<PAGE> 61
EXHIBIT A
SOFTWARE
The following FRx software products are in this Agreement. Software to be
provided in executable form (not source code) for production and distribution by
PSC:
FRx FOR WINDOWS STANDARD EDITION (VERSION 4.70) - to be bundled with
every copy of Platinum for Windows Standard Ledger (unless bundled
with FRx Advanced Edition). The features of this Standard Version are
detailed below. This product is not available for distribution on a
Stand-Alone basis, but may be distributed by PSC as an upgrade to End
Users who previously licensed the FRx Standard Edition (DOS) product.
FRx FOR WINDOWS ADVANCED EDITION (VERSION 4.70) - to be bundled with
every COPY of Platinum for Windows Premier Ledger and Platinum SQL
products. Also available on a Stand-Alone basis to all existing
Platinum users.
FRx (DOS) ADVANCED EDITION - to be licensed on Stand-Alone or bundled
basis to users of Platinum Standard and Premier (DOS) Ledgers.
FRx ENTERPRISE EDITION-NEW product to be released subsequent to date
of Agreement which may include the following features: FRx Application
Server; Report Manager; OLAP Processing capabilities; FASB 52; and
Automated Electronic Report Distribution. Features and pricing to be
determined upon product release.
ADDITIONAL FRx PRODUCTS - Add-on or ancillary products that are sold
separately on a Stand-Alone basis. This includes the FRx, remote
drill-down viewer and any future products that are packaged and sold
separately from current FRx for Windows products. Features and pricing
to be determined upon product release.
The FRx Enterprise Edition and Additional FRx Products listed above
are not developed as of the date of this Agreement and inclusion under
this Agreement does not represent an obligation of FRx to develop any
such products. PSC shall not be entitled to any recourse against FRx
or refunds of amounts paid to FRx in the event such products are not
developed. Availability of these products, if developed, is subject to
written agreement between FRx and PSC of the appropriate license fees
for each such product.
4
<PAGE> 62
EXHIBIT A
SOFTWARE
(CONT.)
USER AUTHORIZATION:
BUNDLED AND STAND-ALONE DISTRIBUTION
User Authorization equal to Platinum System Manager user
authorization. (Should the number of authorized General Ledger users
for a single server exceed fifty (50) users, PSC and FRx agree to
negotiate in good faith to determine an equitable revenue allocation
to FRx on a case-by-case basis.)
FEATURES OF FRx STANDARD EDITION:
The FRx Standard Edition shall have the same level of performance and
functionality as FRx Advanced Edition 4.70, including FRx Drill Down viewer,
subject to the following limitations:
Only one reporting tree may be used with two roll-up levels
No multicompany consolidation capability
Can export to worksheets (i.e., Excel, Lotus 1-2-3) but cannot import data from
worksheets into FRx
Limited to one general ledger link
No row linking capabilities
No FRx independent security
PSC Products
- Platinum DOS Ledger 4.la
- Platinum DOS Ledger 2.x; 3.x (to be determined)
- Platinum Premier Ledger 4.la
- Platinum for Windows Premier Ledger 4.3a, 4.4, 4.5
- Platinum for Windows Standard Ledger 4.3a, 4.4, 4.5
- Platinum SQL NT 3.1 General Ledger
- Platinum SQL NT 3.2a and 3.2b General Ledger
- Platinum SQL NT 3.3 General Ledger
5
<PAGE> 63
EXHIBIT B
LICENSE FEES
(SECOND ADDENDUM)
<TABLE>
<CAPTION>
TIER I* TIER II**
------- ---------
ROYALTY MINIMUM ROYALTY MINIMUM
FRx PRODUCTS RATE ROYALTY RATE ROYALTY
------------ ---- ------- ---- -------
<S> <C> <C> <C> <C>
FRx FOR WINDOWS:
FRx Standard Edition*** [*] [*] [*] [*]
FRx Advanced Edition:
with Standard Ledger (PFW and DOS) [*] [*] [*] [*]
with Premier Ledger (PFW and DOS) [*] [*] [*] [*]
with Platinum SQL [*] [*] [*] [*]
Upgrade to FRx Advanced
from FRx Advanced-DOS**** [*] [*] [*] [*]
Upgrade from FRx Advanced for PFW
Standard Ledger to Premier Ledger # [*] [*] [*] [*]
Upgrade from FRx for Premier
Ledger to FRx for Platinum SQL # [*] [*] [*] [*]
FRx Enterprise Edition [*] [*] [*] [*]
FRx Remote DrillDown Viewer (per user) [*] [*] [*] [*]
All additional FRx products [*] [*] [*] [*]
FRx (DOS):
with Platinum DOS Standard Ledgers [*] [*] [*]
with Platinum Premier DOS Ledgers [*] [*] [*]
</TABLE>
NOTES:
* Prior To Attainment of Minimum Royalty Level defined in Section 1.8.
** Subsequent To Attainment of Minimum Royalty Level defined in Section
1.8.
*** Includes upgrades from FRx Standard Edition (DOS). License fee waived
if upgrading End User purchases Support and Maintenance Plan for
Software.
**** License fee waived if upgrading End User purchases Support and
Maintenance Plan for Software.
# End User surrenders existing interface and re-registers upgraded
interface.
TBD: "To be determined"
[*] CONFIDENTIAL TREATMENT REQUESTED
6
<PAGE> 64
EXHIBIT B
LICENSE FEES
(CONT.)
Royalty Rate is to be applied to PSC Revenue (Section 1.6) using the
following Allocation Formulas detailed in Section 6.4 for Bundled Products:
FRx Standard Edition bundled with Platinum for Windows [*]
FRx Advanced Edition bundled with Standard and Premier Ledger [*]
FRx Advanced Edition bundled with SQL ledgers [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
7
<PAGE> 65
June 24, 1996
Mr. Michael L. Rohan, President
FRx Software Corporation
4449 So. Syracuse Street, Suite 620
Denver, CO 80237
Re: Platinum Software Corporation; Modifications to
Software Distribution Agreement
Dear Mike:
Platinum Software Corporation ("Platinum") and FRx Software Corporation ("FRx")
recently entered into a Software Distribution License Agreement dated as of May
9, 1996 ("License Agreement") regarding the integration of the FRx product with
Platinum's financial accounting software. I am writing to notify you that
Platinum accepts the Phase I deliverables with respect to the PSC products as
specified on Exhibit C to the License Agreement and considers Phase I to be
satisfied, subject to your agreement with the following, terms:
1. PSC and FRx agree to amend Exhibit C to the License Agreement so that under
Phase II an additional deliverable will include integration of the FRx
standard edition product with Platinum DOS Standard General Ledger, version
4.la and Platinum for Windows Standard General Ledger, versions 4.3a and
4.4a. FRx agrees to allow additional beta sites to participate in the
second beta drop, which is scheduled to be approximately two weeks after
Phase I shipping. The additional beta sites will include customers that
were previously committed by Platinum prior to FRx notifying Platinum of
beta cutoff, which includes four Platinum SQL sites and four Platinum for
Windows sites. Additional beta sites may be added upon request by Platinum
and approval by FRx. The [*] payment specified in Section 6.1(a) of the
License Agreement is modified to be due on or before July 5, 1996.
2. Section 10.1(a)(1) of the license Agreement limits Platinum's ability to
market and license the Platinum version of FRx. Notwithstanding this
clause, FRx agrees to allow Platinum to continue to license the Platinum
version of FRx with its upcoming 4.4 release Of its Platinum for Windows
product so that Platinum may meet its planned delivery dates, subject to
the agreement of Platinum to pay royalties to FRx
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 66
Mr. Michael L. Rohan, President
FRx Software Corporation
Page 2
June 24, 1995
on all shipments of the Platinum version of FRx. The royalty will be
calculated in accordance with the fees described on Exhibit B to the
License Agreement and shall be credited against amounts owed by Platinum
under Section 6.1 (d) of the License Agreement. Platinum shall stop
shipping this version of Platinum FRx at such time as the FRx version to be
integrated with Platinum for Windows, version 4.4 is completed, accepted in
accordance with the License Agreement and generally available.
If you have any questions regarding the terms of this letter, please don't
hesitate to contact me. Please evidence your agreement with the terms described
in this letter by signing in the space indicated below and returning a copy of
this letter to me.
Very truly yours,
/s/ TIM MCMULLEN
Tim McMullen
Chief Technology Officer
TM:cl
cc: Tom Clark
Perry Tarnofsky
Agreed and accepted:
FRx Software Corporation
By: /s/ ROBERT C. ROHAN
--------------------
Its: Vice President
-------------------
Date: June 28, 1996
------------------
<PAGE> 1
EXHIBIT 22.1
SUBSIDIARIES OF THE COMPANY
Cypher Business Systems, Inc.
Platinum (Colorado) Inc.
Platinum Software (Aust.) Pty., Ltd.
Platinum Software BVI, Ltd.
Platinum Software Canada, Ltd.
Slatershelfco 173 Limited
Platinum Software Foreign Sales Corporation, Inc.
Platinum Software (Holdings) Limited
Platinum Software (Ireland) Limited
Platinum Software (North Asia) Limited
Platinum Software (NZ) Limited
Platinum Software (UK) Limited
Platinum Software Asia Pte
Platinum Software Corporation Sdn. Bhd.
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No. 33-54604) pertaining to the 1990 Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Option Purchase Plan, (Form S-8,
No. 33-70518) pertaining to the 1993 Nonqualified Stock Option Plan and Key
Employee Warrants, (Form S-8, No. 33-71876) pertaining to the 1993 Key Employee
Warrants, (Form S-8, No. 33-92270) pertaining to the 1994 Incentive Stock
Option, Nonqualified Stock Option and Restricted Stock Purchase Plan, (Form S-8,
No. 333-06419) pertaining to the 1996 Nonqualified Stock Option Plan, (Form S-8,
No. 333-06415) pertaining to Key Employee Restricted Stock Purchase Plan, (Form
S-8, No. 333-28259) pertaining to the Key Employee Restricted Stock Purchase
Plan, (Form S-8, No 333-46393) pertaining to Key Employee Options and FocusSoft
Stock Option Plan, (Form S-8, No. 333-41321), pertaining to the 1997
Nonqualified Stock Option Plan and Platinum Software Corporation Clientele
Incentive Plan, (Form S-3, No. 333-38105) pertaining to the registration of
450,935 shares, (Form S-3, 333-46395) pertaining to the registration of
2,474,794 shares, of our reports dated July 29, 1998, with respect to the
consolidated financial statements and schedule of Platinum Software Corporation,
included in the Annual Report (Form 10-K) for the year ended June 30, 1998.
Orange County, California
September 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 11,251
<SECURITIES> 11,528
<RECEIVABLES> 34,088
<ALLOWANCES> 5,159
<INVENTORY> 803
<CURRENT-ASSETS> 55,362
<PP&E> 28,594
<DEPRECIATION> 19,906
<TOTAL-ASSETS> 67,988
<CURRENT-LIABILITIES> 33,043
<BONDS> 35
0
20,713
<COMMON> 26
<OTHER-SE> 14,171
<TOTAL-LIABILITY-AND-EQUITY> 67,988
<SALES> 57,577
<TOTAL-REVENUES> 98,488
<CGS> 5,990
<TOTAL-COSTS> 29,961
<OTHER-EXPENSES> 53,619
<LOSS-PROVISION> 1,561
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,347
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,347
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.45
</TABLE>
