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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1997 or
[_] Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-26886
OBJECTIVE SYSTEMS INTEGRATORS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 68-0239619
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 BLUE RAVINE ROAD, FOLSOM, CALIFORNIA 95630
(Address of principal executive office, including zip code)
Registrant's telephone number, including area code: (916) 353-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ---X--- No _______.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. X
---
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on August 29,
1997 as reported on the Nasdaq National Market, was approximately $70,798,662.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of August 31, 1997, the registrant had outstanding 32,585,131 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated by reference into Part III of this Form 10-K
portions of its Proxy Statement for the Annual Meeting of Stockholders to be
held November 21, 1997.
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OBJECTIVE SYSTEMS INTEGRATORS, INC.
FISCAL YEAR 1997 FORM 10-K ANNUAL REPORT
Table of Contents
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PART I. Page
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Item 1. Business............................................................. 1
Item 2. Properties........................................................... 10
Item 3. Legal Proceedings.................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................. 10
Item 4a. Executive Officers of the Registrant................................. 10
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data.............................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 14
Item 7a. Quantitative and Qualitative Disclosure About Market Risk............ 19
Item 8. Financial Statements and Supplementary Data.......................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. 19
PART III.
Item 10. Directors and Executive Officers of the Registrant................... 20
Item 11. Executive Compensation............................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and Management....... 20
Item 13. Certain Relationships and Related Transactions....................... 20
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 20
Signatures........................................................... 41
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PART I
FORWARD-LOOKING STATEMENTS
Some of the statements in this Report are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995 ("Reform Act").
They have been identified with an asterisk (*). Underlying these statements are
a number of assumptions regarding risks, both known and unknown, which may cause
the actual results of Objective Systems Integrators, Inc. ("OSI" or "the
Company") or its industry to materially differ from those that are expressed or
implied. These factors include, among other things, potential fluctuations in
OSI's quarterly results, effective management of growth, expansion of
professional services and customer support, management of product transitions,
product and customer concentration risks, retention and attraction of key
employees, the dependence on emerging services, markets and technologies,
product defect risks, the high degree of competition and technological change in
the industry, OSI's limited operating history and uncertain future operating
results, international licensing and operations risks, dependence on third-party
relationships, the uncertainty of proprietary technology protection, reliance on
technology licensed from third parties, changes in, or failure to comply with,
government regulations, general economic and business conditions and other
factors referred to in this Report.
Objective Systems Integrators(TM), NetExpert(TM), WebOperator(TM), iSAC(TM),
loopMASTER(TM), mobileMASTER(TM), switchMASTER(TM), transportMASTER(TM),
trafficMASTER(TM), VisualAgent(TM), AccessCNM(TM), Data Archiver(TM),
DBSync(TM), IDEAS(TM), IPMH(TM), Intelligent Gateway(TM), Package
Administration(TM), Peer-to-Peer(TM), Replica(TM), SNMP Assistant(TM) and the
Company's logo are trademarks of Objective Systems Integrators, Inc. This report
also includes trademarks of companies other than Objective Systems Integrators,
Inc.
ITEM 1. BUSINESS
GENERAL
OSI is a leading provider of software solutions that simplify network
integration and management. Its principal product, NetExpert, allows complex
networks and business processes to be modeled in a flexible, object-oriented
manner. Introduced in 1989, NetExpert has significant market share in several
vertical telecommunications industry markets. It has achieved this market share
by meeting the time-to-market requirements of communications service providers,
giving them the tools to integrate emerging technologies and quickly generate
revenue with new services.
NetExpert provides a foundation for building distributed, easily customizable
solutions. The NetExpert component suite is pre-integrated, offering a support
structure for creating and delivering comprehensive network management and
operations support solutions. Based on the industry standard Telecommunications
Management Network ("TMN") architecture, the object-oriented design of NetExpert
provides functional building blocks that can be used to build customized systems
and to add new products and services without additional programming.
NetExpert's development aids include graphically oriented tools and intelligent
rule-based systems.
OSI distributes and licenses NetExpert to end-users around the world. In North
America, which contributed 72% of OSI's 1997 revenues, NetExpert is sold
primarily through a direct sales organization. Internationally, OSI has
regional sales organizations that work principally with systems integrators and
local distributors. International sales for 1997 were 28% of revenues.
Over the past year, OSI has strengthened its sales and marketing organizations,
expanded its distribution channels and established several strategic alliances
with global partners, such as Andersen Consulting.
OSI delivers software solutions to many established and emerging
telecommunications service providers. These include (1) local exchange carriers,
such as the Regional Bell Operating Companies, including SBC Communications,
Pacific Bell and Ameritech, (2) emerging carriers, such as Electric Lightwave
and ACSI, (3) cellular and personal communications services ("PCS") providers,
including AT&T Wireless, and Omnipoint, (4) interexchange carriers, including
MCI Communications and SPRINT and (5)
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international carriers, such as British Telecommunications, NTT, and Optus
Vision. OSI also provides NetExpert solutions to leading operators of voice,
data and video networks, including First Union Bank, @Home and Time Warner
Cable.
INDUSTRY BACKGROUND
The Telecommunications Act of 1996 dramatically changed the competitive terrain
of the communications industry. The impact of deregulation was seen in late
1996 and throughout 1997, with high-profile initiatives by interexchange
carriers to offer local telephone service, attempts by local carriers to enter
the long-distance business and presentation of the first international
telecommunications merger for regulatory approval.
New Network Infrastructure and Services. Telecommunications providers continue
trying to differentiate themselves by improving existing services and
introducing new ones. Consumer-oriented enhancements include wider availability
of call waiting, call forwarding, caller identification, voicemail and personal
toll-free numbers. Improvements in corporate communication services include
expanded offerings of high-speed asynchronous transfer mode ("ATM"), frame
relay, ISDN, various digital subscriber line products and video
teleconferencing. In addition to these wireline offerings, wireless carriers
continue to expand the market for cellular and new digital PCS services.
Rapid adoption of these and other new services -- most notably, the Internet --
by both organizations and individuals has increased the burden on the existing
telecommunications infrastructure and has accelerated demand for new
infrastructure to be built.
To quickly deliver both new services and enhancements to their existing services
quickly, while simultanenously responding to increased competition and use, U.S.
telecommunications service providers have been implementing new, rapidly
evolving technologies to increase their capacity. For example, many service
providers have begun augmenting or replacing traditional copper wireline
infrastructure with new networks composed of fiber optics, hybrid fiber coaxial
cable, radio frequency signals and satellite transmission.
They also are implementing a variety of new network and wireless protocols
which, together with the new transmission networks, enable the delivery of
higher bandwidth and higher quality services. In addition to ATM and frame
relay, widely used network protocols include Synchronous Optical Network
("SONET"), Switched Multimegabit Data Service ("SMDS") and Synchronous Digital
Hierarchy ("SDH"). As standards emerge in the new digital wireless market,
various protocols under current implementation include Cellular Digital Packet
Data, Code Division Multiple Access ("CDMA"), Time Division Multiple Access and
Global System for Mobile Communications ("GSM"). New technologies such as
Common Channel Signaling System Number 7 ("SS7") and Advanced Intelligent
Network ("AIN") are also being implemented in existing networks, allowing new
voice and data communications services to be quickly and efficiently created and
deployed.
In other parts of the world, telecommunications service providers are
implementing new systems by expanding traditional wireline networks, expanding
capacity and building new wireless communications infrastructures.
All of these developments -- expansion of existing services, introduction of new
services and adoption of new transmission technologies -- represent
opportunities for OSI*.
Operations Support Systems and Network Management. To develop, deploy and
manage networks and services, telecommunications service providers rely on
operations support systems ("OSSs") and network management systems ("NMSs").
Among other crucial functions, these systems establish communications
connections between service providers and their users (configuration), monitor
equipment performance to detect errors (fault management), report network
performance and traffic loads (traffic reporting) and collect and consolidate
usage information (billing data collection).
Historically, OSSs and NMSs were developed and deployed in an environment of
limited competition, slowly changing technologies and limited services. Many of
the network management platforms now used by the U.S. telephone companies were
developed by Bellcore, the then applied research and development laboratory of
the former Regional Bell Operating Companies. These legacy systems, which are
generally mainframe-based and written in early-generation programming languages,
were mainly developed to manage basic voice services.
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As a result, legacy systems are typically not well designed to meet requirements
for rapid deployment, new services and the need to support heterogeneous
networks. To better meet the needs of its members, in 1988 the International
Telecommunications Union ("ITU") formally defined a new standard. This
standard, the Telecommunications Management Network ("TMN"), is an overlay
management system designed to provide a standard means for managing
telecommunications networks. Based initially on the UNIX operating system, and
later expanded to include Microsoft's Windows NT, TMN's object-oriented design
provides a framework to achieve interconnectivity and communications across
heterogeneous operating systems and telecommunications networks.
The TMN framework allows a telecommunications service provider to implement OSSs
and NMSs that can be:
. Deployed rapidly and adopted easily to meet changing business and network
requirements.
. Integrated with a wide variety of existing network equipment and systems.
. Accommodated to new equipment and systems as they are deployed.
. Customized to provide a wide variety of OSS and NMS functions tailored to
specific business needs.
. Scaled to address rapid growth in network size and use.
. Configured to enable new or enhanced services to be brought to market
rapidly and cost-effectively.
Service providers are migrating to packaged, TMN-based OSSs and NMSs to replace
or supplement their legacy systems and to establish management systems for their
new telecommunications infrastructure. The market outlook for non-legacy,
externally developed, TMN-based OSSs appears to be strong*. OSI believes that
growth in this market will result from emerging carriers deploying new
infrastructure and by traditional carriers transitioning away from their in-
house legacy systems*.
THE OSI SOLUTION
OSI develops, markets and supports TMN-based software solutions for network
operations support and management. The Company's principal product, NetExpert,
allows the modeling of complex networks and business processes in a flexible and
object-oriented manner. The result is that NetExpert can be more easily adapted
to changing standards, transmission protocols and equipment data models. The
Company believes that NetExpert delivers the following benefits:
Reduced Time-to-Market: NetExpert has easy-to-use development tools and
application components that allow quicker deployment of new and enhanced
services. NetExpert's framework components and development tools allow users to
focus more directly on their business requirements by reducing the time needed
to develop, integrate and deploy a supporting software and hardware
infrastructure.
Management of Heterogeneous Systems: NetExpert has been designed to manage
heterogeneous networks regardless of the transmission technology, management
protocols or media that they use. The NetExpert framework and its gateways allow
management of network devices such as computers, transmission equipment and
switches, including those that use advanced transmission technologies such as
ATM, SMDS, frame relay and SONET. These devices are managed using standard
management protocols, such as Common Management Information Protocol ("CMIP"),
Simple Network Management Protocol ("SNMP") and selected industry-specific
protocols. The ability to manage networks that include a variety of elements
from different vendors allows users to protect their investment in their legacy
systems. It also facilitates a user's ability to migrate to and install advanced
new technologies.
Flexibility: The NetExpert framework consists of several components that can be
configured in different ways to support a variety of management solutions. For
example, NetExpert can be used to handle fault management, provisioning, billing
data collection, work crew dispatch, network traffic reporting and traffic
analysis. The ability to build these functions on a single framework allows
users to leverage their time and their resource investments. It also allows
them to quickly and more cost-effectively deploy new applications.
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Distribution and Scalability: Because of its modular architecture, various
elements of NetExpert can be distributed to different computer systems. These
computers can be located in the same area, for performance scalability, or in
multiple locations, for geographic scalability. Multiple systems can be
configured in both peer-to-peer and hierarchical structures.
PRODUCTS
The NetExpert family of products includes a software framework and configurable
application components for network operations support and management. In
addition, development tools replace complex programming languages, allowing
network analysts to model desired system behaviors by using simple, graphically-
oriented rule editors. NetExpert also supports the development and deployment
of applications for the main TMN management areas of fault, configuration,
performance, accounting, security and layered management architectures.
OSI supports open computing standards. NetExpert products run on the current
versions of UNIX platforms offered by Hewlett Packard, Sun and IBM.
WebOperator, an interface that allows users to access functionality via a
corporate intranet, is a Java application that can operate across different
platforms. It supports UNIX, Windows 95 and Windows NT clients. In addition,
NetExpert operates with databases offered by Oracle, Sybase. and Informix.
Customers may choose a configuration of NetExpert products that meets their
specific requirements, adding new functions as their needs grow. License fees
for production NetExpert installations typically range from $250,000 to $1
million, although significantly higher fees may be reached depending on the
scope of the network and the functionality required for a given customer
application. OSI has also instituted price scaling to allow smaller accounts to
be penetrated with entry-level solutions, which can then be expanded as the
customer's needs grow. OSI and its customers generally enter into maintenance
agreements that provide for ongoing service and product upgrades for a fixed
annual fee.
NetExpert Framework. The NetExpert framework is a set of high-level building
blocks that are integrated to create a support structure for the development and
delivery of network management and operations solutions. NetExpert framework
software modules include:
================================================================================
NETEXPERT FRAMEWORK
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NETEXPERT CORE SERVICES NETEXPERT HIGH AVAILABILITY
NetExpert Administrator Replica
IPMH Daemon Process Monitor
Authorization Agent Heartbeat
NETEXPERT INTELLIGENT GATEWAYS DBSync
Generic Gateway NETEXPERT DISTRIBUTED MANAGEMENT
SNMP Server Gateway Peer-to-Peer Server
and Trap Daemon AccessCNM
Multiplexing Gateway NETEXPERT VISUAL AGENT
CMIP Protocol Agent VisualAgent Server
Shell Protocol Agent VisualAgent Client
X.25 Protocol Agent NETEXPERT CLIENT SERVICES
TCP/IP Protocol Agent Client Manager
Database Protocol Agent Alert Display
SONET TL1 Protocol Agent Command and Response
Serial Protocol Agent Managed Object Configuration
BCN Protocol Agent Inhibit Alert
Datakit Protocol Agent Paging
NETEXPERT ANALYSIS Data Browser
Intelligent Dynamic Event Analysis Report Maker
System ("IDEAS") Polling
Intelligent Gateways Gateway Control
NETEXPERT DATA COLLECTION SNMP Assistant
DataArchiver WebOperator
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NetExpert Core Services are at the heart of the NetExpert solution and are used
by all other NetExpert processes. They include a messaging infrastructure that
allows modules to communicate in a distributed computing environment, object
management and repository services, object and action authorization services,
standard routines for error handling, licensing and logging and a number of
other common services. These services can also be used to develop programs to
extend NetExpert's capabilities.
NetExpert Intelligent Gateways are the means by which NetExpert communicates
with other computers, transmission equipment, switches and testing equipment.
NetExpert intelligent gateways execute predefined rules to communicate with
hardware elements, customer subscriber databases and management systems,
including billing, service order and inventory. NetExpert's Generic, SNMP and
CMIP gateways permit two-way communications using both standard and non-standard
protocols. They have the ability to analyze messages enabling applications to be
distributed. They also insulate other NetExpert modules from protocol
dependencies.
NetExpert Analysis is a NetExpert feature that receives and filters large
volumes of messages from other NetExpert modules and from external systems
through the NetExpert Intelligent Gateways. It also executes actions based on a
user's predefined rules. These actions can include analysis of received error
messages, initiation of provisioning commands, analysis of network performance,
generation of alarms and other actions based on changes in network elements or
operator requests. The interpretive, rules-based design of NetExpert Analysis
allows a user to modify NMS behavior by changing rules, without the need for
complex programming.
NetExpert Data Collection gathers and normalizes data from other NetExpert
modules and stores it in user-defined databases. This allows large amounts of
data to be stored, which can be analyzed by a user or forwarded to other
management systems. This NetExpert module facilitates performance management,
traffic management and billing data collection, all of which require large
amounts of data to be manipulated and analyzed.
NetExpert Distributed Management, which includes Peer-to-Peer Server and Access
CNM, forwards NetExpert data to other NetExpert and third-party management
systems via standard and customized interfaces. These specialized servers allow
other management systems to interface, access stored information and trigger
actions within NetExpert. The Peer-to-Peer Server allows NetExpert systems to
communicate and share information with each other, increasing scalability and
enhancing management system performance through distributed processing.
NetExpert High Availability is designed to minimize system downtime by providing
support for a secondary "hot standby" server if there is a failure in the
primary system. NetExpert High Availability services include automated
monitoring and restart of NetExpert processes, "heartbeat monitoring" between
primary and secondary systems, real-time replication of data, automated
switchover and automated redirection of NetExpert intelligent gateways and
client services.
NetExpert VisualAgent facilitates the development of custom screens for graphic
visualization of management information and control of managed objects, such as
OSS applications, transmission devices, computer systems and switches. Users
implement templates to display classes of objects, define the actions operators
can perform against them and create a menu of operations from which the
operators can initiate defined actions. Network and element conditions and
performance can be dynamically presented, with performance changes displayed in
real-time.
NetExpert Client Services are special-purpose management utilities. These
include processes that display alarm information to users, automatically page
technicians, display stored management data, provide reports on historical
conditions, initiate actions on a scheduled basis, control gateways and browse
and graph SNMP data. Some of these user interfaces are Web-based.
NetExpert Development Tools are editors, configuration management utilities, and
application programming interfaces ("APIs"). These tools are used to develop or
modify applications that direct the functions of other NetExpert products.
NetExpert Editors are GUI-based tools for implementation of specific network
operations support and management applications. They also enable configuration
and customization of OSI's application components or the addition of enhanced
functionality to NetExpert itself. Package Administration allows customers to
combine user and OSI developed applications and to control the migration of new
applications from a test environment into a production environment. Many of
these tools can be Web-based. APIs also facilitiate the integration of
NetExpert with third-party applications.
NetExpert Development Tools include:
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===============================================================================
NETEXPERT DEVELOPMENT TOOLS
===============================================================================
Rule Editor Package Administration
Dialog Editor Trouble Ticket Agent API
Managed Object Editor NetExpert Object Workspace("NOW")
Administration Editor IPMH ToolKit
Authorization Editor Protocol Agent ToolKit
High Availability Editor CMIP Toolkit
Peer-to-Peer Editor
===============================================================================
NetExpert Application Components. These off-the-shelf rulesets perform common
operations and management functions. NetExpert application components range
from element interfaces that control a particular type of device, such as a
switch, to more complete systems that have the core functionality for managing
complex multivendor network domains. For example, NetExpert trafficMASTER
monitors the volume of data flowing through a multivendor switch network,
identifies and displays areas of congestion to the operator, automatically
initiates plans to correct congestion, provides traffic data reports and stores
those reports. All NetExpert application components can be customized to meet
specific requirements.
NetExpert Applications include:
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NETEXPERT APPLICATIONS
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TRANSPORTMASTER TRAFFICMASTER
SONET MULTIPLEXERS Lucent 5ESS Performance
Lucent DDM2000 Fault/Provisioning Nortel DMS FAMILY Performance
Lucent FT2000 OC48 Fault/Provisioning Ericsson AXE10 Performance
Lucent SLC2000 Fault Siemens S1240 Performance
Alcatel 1603 Fault Alcatel Performance
Fujitsu FLM150,600,2400 Fault/Provisioning
Fujitsu FlexR Plus Fault
Nortel OC3 Express Fault
Nortel S/DMS Transport Node Fault MOBILEMASTER
NEC ITS Fault MOBILE SERVICES SWITCHING CENTER
Positron Osiris Fault Lucent 5ESS Autoplex (CDMA) Fault
SDH MULTIPLEXERS Ericsson AXE-10 (Analog/USDC) Fault
Alcatel SM, SL Fault Ericsson AXE-10 (GSM) Fault/Provisioning
DIGITAL CROSS CONNECTS Nortel MSC (GSM) Fault/Prov/Performance
Lucent DACS Fault/Provisioning Nortel MTX (trunk) Provisioning
Lucent SLC2000 Fault RADIO FREQUENCY ENVIRONMENT
Alcatel 1630 Cross Connect Fault Lucent (CDMA) Fault
DSC DEX Fault Lucent BSS (Analog) Fault
Tellabs Titan Fault/Prov/Performance Nortel OMCR Fault/Performance
Nortel AccessNode Fault Ericsson GSM Fault/Performance
OTHER HOME LOCATION REGISTER/AUTHORIZATION
TTC Centest 550 Test Test Nortel HLR Fault/Performance
Dantel GPP Fault Ericsson HLR Fault/Performance
SWITCHMASTER SHORT MESSAGE SERVICE
SWITCHES Aldiscon Fault/Performance
Lucent 5ESS Fault VOICE MAIL SYSTEM
=============================================================================================================================
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Lucent 5ESS Line-Basic Provisioning Comverse Fault/Performance
5ESS Trunk Provisioning INTEGRATED SERVICE ACTIVATION CONTROLLER (ISAC)
Nortel DMS Fault Service Activation Controller
Nortel DMS Trunk Side Provisioning LOOPMASTER
Nortel DMS Trunk-Side Shadow Database HOST DIGITAL TERMINALS (CABLE TELEPHONY)
Configuration ADC Homeworx TR-303 Fault/Provisioning/Performance
Nortel DMS Line-Basic Provisioning Motorola CableComms TR-008 Fault
Ericsson AXE-10 Fault HYBRID FIBER COAXIAL CABLE TRANSPORT MONITORING SYSTEM
Siemens EWSD (Asia) Fault ADC NMCS Fault
Alcatel S12 (Asia) Fault AM Communications LanGuard (DOS) Fault
NEC NEAX 61 (Asia) Fault Superior Electronics CheetahDOS Fault
SIGNAL TRANSFER POINTS CABLE MODEMS
Tekelec STP SS7 Fault LanCity Fault
INTRANETEXPERT
Cisco Routers Fault/Provisioning
=============================================================================================================================
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CUSTOMERS
As of June 30, 1997, OSI had directly or indirectly licensed its products to
more than 180 customers around the world. The Company's primary markets are the
telecommunications, cable, cellular/wireless and Internet service provider
industries. The Company also sells, mainly through its distributors, to
commercial enterprises and government agencies.
A significant portion of OSI's revenues in each fiscal period generally involves
substantial orders from large organizations. As a result, the Company's
revenues have often been concentrated among a relatively small number of
customers. In fiscal 1997, 1996 and 1995, revenues from the license of
NetExpert products and services to OSI's five largest customers were
approximately 23%, 30% and 45% respectively, of total revenues. There were no
customers accounting for more than 10% of total revenues in either fiscal 1997
or fiscal 1996. In fiscal 1995, customers accounting for more than 10% of total
revenues were AT&T Wireless Services (16%) and Sprint Communications (11%). OSI
expects that it will continue to depend on a limited number of customers for a
significant portion of its future revenues*. As a result, its business,
operating results and financial condition would be materially adversely affected
if anticipated orders did not materialize, were deferred or were canceled due to
changes in customer requirements*. There can also be no assurance that revenues
from key customers, individually or as a group, will continue at historical
levels*.
SALES AND MARKETING
OSI has a sales organization, consisting of account managers and sales
engineers, that sells directly to end-users and assists in sales by strategic
partners, systems integrators and distributors. The Company also has domain
experts in its Product Marketing organization that are knowledgeable in
NetExpert and work directly with the sales organization to define product
objectives and market requirements. As of June 30, 1997, OSI had 139 people in
its sales and marketing organization.
During fiscal 1997, OSI expanded its worldwide sales and support organizations
significantly. It expects to continue expanding its direct sales force, opening
additional customer support and sales offices, adding distributors and pursuing
additional strategic relationships*. This expansion will require significant
management attention and the expenditure of significant financial resources*.
Doing so could adversely affect the OSI's operating margins if the expansion is
not accompanied by significant revenue growth*.
OSI has 14 sales and customer support offices in the following greater
metropolitan areas in its Americas geographic region: Atlanta, Chicago, Los
Angeles, Dallas, Denver, Sacramento, Kansas City, Philadelphia, New York, San
Francisco, Seattle, Toronto and Washington, D.C.
Outside of the Americas, OSI licenses its products and services principally
through systems integrators and local distributors that have cultural
familiarity, specific industry expertise and the ability to respond to customer
needs on a timely basis. In fiscal 1997, the
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Company added a number of international direct sales and support facilities. It
also purchased certain assets from its Australian distributor. OSI currently has
a sales engineering, technical support and training organization in Sydney, with
25 people. In addition, the Company has technical sales support offices in
Bangalore, Bangkok, Beijing, Manila, Seoul, and Singapore. The entire Asia-
Pacific organization consists of 50 people. There are currently four people in
the Company's sales office in Sophia Antipolis, France.
License, service and other revenues outside of the United States accounted for
28%, 31%, and 24% of OSI's total revenues in 1997, 1996 and 1995, respectively.
The Company expects that international license, service, and other revenues will
continue to account for a significant portion of its total revenues*.
To the extent OSI does not establish additional foreign operations in a timely
manner, its ability to grow international sales may be limited*. This could, in
turn, materially adversely affect its business, operating results and financial
condition*. In addition, these international operations involve a number of
inherent risks, such as (1) longer collection periods, (2) greater difficulty in
collections, staffing and managing, (3) longer sales cycles, (4) unexpected
changes in regulatory requirements, including a slowdown in the rate of
privatization of telecommunications service providers, (5) reduced protection
for intellectual property rights in some countries and (6) other trade
barriers*.
To supplement its sales efforts, OSI has also established relationships with
strategic partners, including systems integrators, value-added resellers and
distributors. Whenever possible, the Company works closely with its partners to
facilitate a complete customer solution. In addition to assisting OSI's sales
efforts, these relationships provide the Company with insight into new and
emerging customer applications.
There can be no assurance that OSI will be able to retain its current partners
or attract new partners that can market its products effectively*. The Company
believes that its success in penetrating markets depends in large part on its
ability to maintain these relationships, to cultivate additional relationships
and to cultivate alternative relationships if its distribution needs change*.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
OSI believes that a high level of professional services and customer support is
critical to its continuing success in developing long-term relationships with
customers*.
To augment its sales efforts, the Company offers comprehensive professional
services. Professional services engineers work closely with direct sales
personnel, applications specialists, and others to assist with pre- and post-
sales support, including the implementation and use of the Company's products.
OSI offers a range of services, including requirements analysis, project
management, system design, customization, installation, training, ongoing
consultation and upgrade management. The Company also offers 12-month support
contracts to its customers. These contracts entitle users to unlimited
technical support, product updates and product maintenance during the support
period. Substantially all of OSI's customer base was covered by support
contracts in fiscal 1997.
As of June 30, 1997, OSI had 78 people performing professional services in the
Americas. Effective in the fourth quarter of fiscal 1997, this organization
reports to the Vice President, Research and Development and Professional
Services. This change was made to more closely align the organizations
responsible for rule-set development and implementation. It also strengthens
the Company's ability to satisfy its customers and build reusable application
components. Because most sales outside the United States are through local
partners, the international professional services organizations continue to
report to their respective regional sales management. Their headcount is
included in the headcount of the regional sales organizations discussed above.
No assurances can be made that OSI's professional services and customer support
resources will be sufficient to manage the future growth of its business*.
Failure to expand the professional services and customer support organizations
commensurate with the expansion of its installed base, or failure to adeqately
train those organizations properly in its products, would have a material
adverse effect on OSI's business, operating results and financial condition*.
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<PAGE>
RESEARCH AND DEVELOPMENT
Because of the complexity of its products and the close interaction needed to
properly serve its customers, OSI's product development process differs from
other providers of network operation support and management applications. The
Company's research and development efforts focus on addressing specific
requirements of its customers and its markets. This development process is
typically achieved by working directly with a selected cutomer to design and
develop a prototype product before it is made commercially available to all
customers. As a result OSI believes that the final product should most closely
meet the requirements of its markets.
The market for OSI's products is noted for rapidly changing technologies,
evolving industry standards, frequent new product introductions and rapid
changes in customer requirements. This can quickly render existing products
obsolete and unmarketable. As a result, life cycles for OSI's products are
difficult to estimate. The Company's success depends on its ability to enhance
its existing products while developing and introducing, on a timely and cost-
effective basis, new products and product features*. No assurances can be made
that OSI will be able to do so*. If it cannot, its business, operating results
and financial condition will be materially, adversely affected*.
Furthermore, products as complex as OSI's are highly likely to contain defects.
While OSI does extensive testing, as do its customers, errors may well be found
in existing and new products after commercial licensing has begun*. This could
result in delayed or lost revenues, loss of market share or failure to gain
market acceptance*. Any of these would materially, adversely effect the
Company's business, operating results and financial condition*.
As of June 30, 1997, OSI had 121 people in its Research and Development
organization. In fiscal 1997, 1996 and 1995, research and development expenses
were $12.6 million, $7.1 million and $4.0 million, respectively. In future
periods, OSI expects to increase the resources devoted to research and
development so that it can enhance and extend its product lines*.
COMPETITION
Competition in OSI's markets is intense and, as noted above, involves rapidly
changing technologies, evolving industry standards, frequent new product
introductions and rapid changes in customer requirements. To maintain and
improve its competitive position, OSI must continue to develop and introduce, on
a timely and cost-effective basis, new products and features that keep pace with
the increasingly sophisticated needs of its customers*. The principal
competitive factors affecting the market for OSI's products are product
reputation, quality, performance, price, professional services, customer support
and product features such as adaptability, scalability, ability to integrate
with other products, functionality and ease of use.
OSI's competitors offer a variety of solutions to address the OSS and NMS
markets. They generally fall within four categories: (1) custom software
developers, which includes in-house development by telecommunications carriers
or outside integrators such as Andersen Consulting, (2) telecommunications
equipment vendors that offer software for managing their own equipment, such as
Lucent Technologies, Northern Telecom and LM Ericsson, (3) hardware and software
vendors, including IBM, Sun, Hewlett Packard and Microsoft and (4) providers of
specific market applications, such as Remedy and Bellcore. Most of its
competitors have longer operating histories than OSI. They also have greater
name recognition, a larger installed base and significantly greater financial,
technical, sales, customer support, marketing and other resources.
Most existing and potential customers for OSI's products continuously evaluate
whether they should develop their own OSS and NMS systems or license them from
outside vendors. These customers typically have large, internal staffs with
responsibility for meeting their particular needs. As a result, OSI must engage
in a continuous education program regarding the advantages of its products over
internally developed OSSs and NMSs. In fiscal 1997, OSI began to focus its
sales, marketing, and product development efforts on emerging carriers and
wireless service providers. These companies typically do not have large
internal staffs.
-9-
<PAGE>
OSI believes that its open systems architecture is a product differentiator in
the marketplace. However, an open systems architecture can lead to increased
competition as third parties develop competitive OSS and NMS systems*.
Competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements*. They may also be able to devote greater
resources to the development, promotion and sale of their products*.
OSI also believes that its products offer higher functionality than those of its
competitors. Therefore, its products are frequently priced at a premium.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which could materially, adversely affect OSI's
business, operating results and financial condition*.
PROPRIETARY TECHNOLOGY
OSI relies on a combination of trade secret, copyright and trademark laws, and a
variety of technical measures and nondisclosure or other contractual agreements
to protect its proprietary rights. OSI currently has no patents or patent
applications pending. As part of its confidentiality procedures, OSI generally
enters into invention assignment and proprietary information agreements with its
employees and consultants, and into nondisclosure agreements with its customers,
system integrators, value-added resellers and distributors. It also limits
access to and distribution of its software, documentation and other proprietary
information.
Despite its efforts to protect its rights, others may attempt to copy OSI's
products or to obtain and use information that it regards as proprietary*. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain countries, making the possibility of misappropriation more
likely*. The steps that OSI has taken may prove insufficient to protect its
proprietary technology or prevent its misappropriation*. Moreover, they may not
stop competitors from developing products with functionality or features similar
to OSI's products*. The Company believes that, because of the rapid pace of
technological change in the market for its products, legal protections of
proprietary technology are not as significant to its success as the knowledge,
technical expertise, ability and experience of its employees, the frequency of
product enhancements and the quality of professional services and customer
support it provides*.
OSI does not believe that it infringes on the proprietary rights of third
parties, and there are currently no pending claims to that effect. However, the
Company expects that software companies will be increasingly subject to
infringement claims as the number of products and competitors grows and the
functionality of products in different industry segments overlaps*. Claims of
this kind, with or without merit, could be time consuming, result in costly
litigation and diversion of technical and management personnel, cause product
shipment delays, require the Company to develop noninfringing technology or
cause it to enter into royalty or licensing agreements*. Moreover, royalty or
licensing agreements, if required, may not be available or may be available only
on terms that OSI finds unacceptable*. A successful claim of product
infringement against OSI, if noninfringing technology could be neither developed
nor licensed, would materially, adversely affect its business, operating results
and financial condition*.
OSI also relies on software that it licenses from others, including software
that is integrated with internally developed software and used to perform key
functions. For instance, it has licensed SL/GMS from SL Corporation, Open
Interface from Neuron Data and FLEXlm from Globetrotter Software. This third-
party software may, at some future point, be unavailable to OSI on commercially
reasonable terms*. In addition, the suppliers of that software may not enhance
their current products or develop new products on a timely and cost-effective
basis*. OSI may not be able to replace the functionality provided by third-
party software if it becomes obsolete or incompatible with future versions of
the Company's products*. The loss of any of these software licenses, or the
inability of the third parties to enhance their products, could result in delays
or reductions in product shipments by OSI until equivalent software could be
developed internally or identified, licensed and integrated*. This could also
have a material, adverse effect on its business, operating results and financial
condition*.
EMPLOYEES
As of June 30, 1997, OSI had 486 employees, including 121 engaged in research
and development, 139 in sales and marketing, 148 in professional services and 78
in administration and finance. None of OSI's employees is represented by a
collective bargaining agreement, nor has the Company experienced work stoppages.
The Company believes that its relations with its employees are good.
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<PAGE>
OSI's success depends to a significant degree on continuing contributions by its
key personnel, the loss of whom could have a material, adverse effect on it.*
OSI also believes that its future success will depend in large part upon its
ability to attract and retain highly skilled employees*. Competition for
qualified personnel in the software industry is intense, and the Company may not
be successful in attracting and retaining such personnel*. Failure to do so
would have a material, adverse effect on its business, operating results and
financial condition*.
ITEM 2. PROPERTIES
OSI's principal administrative, sales and marketing, customer support and
product development facilities are located in Folsom, California, in three
buildings of approximately 35,000 square feet, 22,000 square feet and 10,000
square feet, respectively. These facilities are leased, with the leases
expiring in 1999, 1997 and 1999, respectively. OSI has decided to extend its
term for the 22,000 square foot facility to 1998. It also has an option to
renew the lease with respect to the 35,000 square foot facility for up to an
additional five years. In July 1997, OSI consummated the purchase of a parcel
of land which will be used to replace certain of its current facilities and to
allow for further expansion. The purchase price of the parcel was $2.6 million.
In conjunction with this land purchase, OSI expects to subdivide the parcel and
enter into sale-lease back arrangements with a developer as buildings are
constructed*.
In addition, OSI leases offices in the following greater metropolitan areas:
Atlanta, Beijing, Chicago, Dallas, Denver, Reno, Kansas City, New York, Paris,
Philadelphia, Toronto, San Francisco, Seattle, Seoul, Singapore, Sydney and
Washington, D.C.
OSI believes that its existing facilities are adequate to meet its current needs
and that suitable additional or alternative space will be available in the
future on commercially reasonable terms as needed*.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and key employees of OSI are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David M. Allen 39 Vice President, Finance and Administration, and Chief Financial Officer
Jeffrey T. Boone 33 Vice President, Technical Support Services
Philip N. Cardman 49 Vice President, General Counsel and Secretary
Albert J. Germek 54 Vice President, Planning and Development
Tom L. Johnson 52 Co-Chief Executive Officer and Co-Chairman of the Board
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Dan D. Line 46 Vice President, Global Accounts and Partner Alliances
Kevin C. McCoy 45 Vice President, Research and Development and Professional Services
Patric R.R. Olenczak 46 Vice President and Managing Director, Europe, Middle East and Africa
Tim J. Sebring 33 Vice President, Sales and Marketing
Christopher T. Simon 42 Vice President, Service Provider Solutions
James K.R. Souders 38 Vice President and Managing Director, Asia-Pacific Operations
Richard G. Vento 57 Co-Chief Executive Officer and Co-Chairman of the Board
R. Jay West 50 Vice President, Americas Sales
Judith D. Wheatley 55 Vice President, Marketing
</TABLE>
Mr. Allen joined OSI as Vice President and Chief Financial Officer in July 1996.
From 1991 to July 1996, he was Vice President and Chief Financial Officer at
Telecommunications Techniques Corporation ("TTC"), which is a subsidiary of
Maryland-based communications test equipment manufacturer, Dynatech Corporation.
He joined TTC in 1985 as Controller and Accounting Manager, and was Director of
Finance and Administration from 1988 to 1991. Previously, he was with Automata,
Inc., and Stoy, Malone & Co. Mr. Allen holds a BS degree in Accounting from the
University of Maryland and is a Certified Public Accountant.
Mr. Boone became Vice President, Technical Support Services in July of 1997.
From January 1996 to July 1997, was Director, Technical Support Services, and
from November 1994 to January 1996, was Manager, International Professional
Services. He held various technical management positions with OSI starting in
November of 1993. From September 1990 to August 1992, Mr. Boone was Senior
Software Engineer of Systems Center Inc. From September 1992 to February 1993,
he was Senior Systems Engineer for ICOT Corporation. From May 1993 to October
1993, he was a consultant with Walker Interactive Systems, Inc. Mr. Boone holds
a BS degree in Computer Science from California State University, Sacramento.
Mr. Cardman joined OSI as Vice President, General Counsel and Secretary in May
1996. From 1989 to May 1996, he was Vice President and General Counsel as well
as Vice President, Business Development at Convex Computer Corporation, a
manufacturer of supercomputer systems. From 1981 to 1989, he served in various
management positions at Tandem Computers Inc. Mr. Cardman holds a BA degree
from Washington University and a JD degree from Duke University. He is a member
of the California and Texas Bars.
Mr. Germek joined OSI as Vice President, Planning and Development, in February
1996. From 1992 to 1996 and from 1986 to 1990, he was a Principal at Princeton
Associates, a management consulting firm specializing in business planning,
financial management and information systems planning. From 1990 to 1992, he
was Vice President, Business Development, at Fidelity Investments. From 1981 to
1986, he held senior management positions at Bell Atlantic Corporation and AT&T,
most recently as Vice President, Personal Communications Group. Mr. Germek
holds a BA degree in Liberal Arts from Cornell University, and an MBA degree
from Case Western University. He is a Certified Public Accountant.
Mr. Johnson is OSI's Co-Chief Executive Officer and Co-Chairman of the Board of
Directors. He co-founded Objective Systems Integrators, a partnership and the
predecessor to the Company, in January 1989, and was Co-Chief Executive Officer
and Chairman of the Board of Directors from 1989 to 1995. He also was President
from May 1991 to June 1994, Chief Financial Officer from July 1989 to November
1993, and Vice President, Product Development from July 1990 to July 1995. From
January 1987 to February 1989, he co-founded and served as Vice President,
Product Development of TelWatch, Inc., a telecommunications software and
hardware company. Before January 1987, he was for more than 22 years involved
in a number of software companies, including
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<PAGE>
TelAccount, Inc., Schmidt Associates, Computer Sciences Corporation, Control
Data Service Bureau, University Computing Company and MRI Systems, serving in a
variety of management and technical positions, Mr. Johnson received a BS degree
in Abstract Mathematics with a minor in Business Management from the University
of Houston.
Mr. Line became OSI's Vice President, Global Accounts and Partner Alliances, in
July 1996. From October 1993 to June 1996 he served as Managing Director,
Europe. From 1986 to August 1993, he served in a variety of executive sales and
marketing positions for GTE, most recently as Regional Sales Manager, Major
Accounts. From 1982 to 1986, Mr. Line served as Director of International Sales
for TMC Limited, a division of Philips NV, a voice and data communications
company. He studied Business at San Jose State University and International
Business at London University.
Mr. McCoy became Vice President, Research and Development and Professional
Services in April 1997. From April 1997, he was Vice President, Research and
Development. He was previously a senior manager at Apple Computer Inc., where,
from June 1995 to January 1996, he was Director of Component Software
Engineering and, from February 1992 to June 1995, was Director of Macintosh
Desktop Systems Software. Before joining Apple, he spent 13 years with NCR
Corporation, where he held a number of management positions. Mr. McCoy holds BS
degrees in both Mathematics and Computer Science from the University of Oregon.
Mr. Olenczak joined OSI as Managing Director, Europe, Middle East and Africa,
in January 1997. From January 1996 until January 1997, he was Vice President of
Integris Telecommunications, Group Bull's worldwide systems integration
division. From Februray 1995 to December 1995, he was Vice President of Bull
Worldwide Telecommunications and from 1993 to January 1995 was
Telecommunications Marketing Manager at Digital Equipment Europe. From 1978 to
1986, he served in a variety of marketing and management positions at Texas
Instruments, Europe. Mr. Olenczak holds an AA degree in Business Administration
from Burlington Community College.
Mr. Sebring became OSI's Vice President, Sales and Marketing, in January 1996.
From July 1995 to January 1996, he was Vice President, Telecommunications
Industry and Americas. From July 1991 to July 1995, he was Director of Sales
and Marketing, Telecommunications Industry and Americas. From September 1986 to
July 1991, he served in a variety of engineering and sales positions at GTE, a
telecommunications company. Mr. Sebring received a BS degree in Industrial and
Management Systems Engineering from Pennsylvania State University.
Mr. Simon became OSI's Vice President, Service Provider Solutions, in July 1997.
From July 1996 to July 1997, he was the Company's Director of Communications
Infrastructure. From 1994 to 1996, he was an independent consultant working on
AIN switch management applications. Before coming to OSI, Mr. Simon had 15
years experience with the development and management of operational support
systems for Bell Canada and Stentor.
Mr. Souders became OSI's Managing Director, Asia-Pacific Operations, in October
1994. He was named a Vice President in July 1996. From February 1993 to October
1994, he was OSI's Managing Director, New Business Development, Asia-Pacific
Region. From 1988 to January 1993, he served in several sales and marketing
positions, most recently as International Market Manager, Telco Industry, for
GTE Information Services. He holds a BS degree in Accounting from Lewis & Clark
College.
Mr. Vento is OSI's Co-Chief Executive Officer and Co-Chairman of the Board of
Directors. He co-founded Objective Systems Integrators, a partnership and the
predecessor to the Company in January 1989. He served as President from June
1994 to July 1995, as Secretary from July 1989 to November 1993 and as Vice
President, Sales and Marketing from July 1990 to June 1994. From January 1987
to February 1989, he co-founded and served as Vice President, Business
Development of TelWatch, Inc., a telecommunications software and hardware
company. Before January 1987 he was for more than 23 years involved with a
number of software companies, including TelAccount, Inc., Schmidt Associates,
Computers Sciences Corporation, ADP Network Services and TYMSHARE, Inc., serving
in a variety of management positions. Mr. Vento received a BA degree in
Mathematics, a BS degree in Business and a BS degree in Econometric Statistics
from San Francisco State University and an AA degree in Liberal Arts from
Foothill College.
Mr. West became OSI's Vice President, Americas Sales, in June 1997. He joined
OSI as Director, Sales, South Region, in August 1996. From 1992 to 1996, he was
Director, National Sales, for Premisys Communications. Previously, he was Vice
President, Sales and Marketing, for ADC/Kentrox. He also was Director, National
Sales for Infotron Systems and held sales executive and manager positions for
AT&T Paradyne, Intelco, Inc., Northern Telecom, TDX Communications, Brandt
Banking Systems and Travelers Insurance. Mr. West attended the University of
Texas.
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<PAGE>
Ms. Wheatley joined OSI as Vice President, Marketing, in February 1997. From
1993 to 1997, she was the Director, Strategic Alliance Marketing, and Group
Manager, Emerging Platforms, for Sybase, Inc. Ms. Wheatley holds an MBA degree
from River College, Nashau, New Hampshire, and a BA degree from Merrimack
College, Andover, Maryland.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
COMMON STOCK PRICES AND DIVIDENDS
OSI's common stock has been traded on the Nasdaq National Market since its
initial public offering in November 1995. It trades under the Nasdaq symbol
OSII. According to the records of its transfer agent, OSI had approximately 108
stockholders of record as of June 30, 1997. Because many of its shares are held
by brokers and other institutions on behalf of stockholders, OSI is not able to
estimate the total number of stockholders represented by its record holders. The
following table sets forth the high and low sales price for OSI's common
stock:
<TABLE>
<CAPTION>
FISCAL 1997: High Sale Price Low Sale Price
--------------- --------------
<S> <C> <C>
First Quarter.............. $40.25 $17.00
Second Quarter............. $29.25 $18.00
Third Quarter.............. $23.62 $ 9.50
Fourth Quarter............. $11.50 $ 3.37
FISCAL 1996: High Sale Price Low Sale Price
--------------- --------------
Second Quarter(1).......... $54.75 $39.25
Third Quarter.............. $54.50 $31.50
Fourth Quarter............. $56.25 $35.75
</TABLE>
(1) From date of initial public offering through Second Quarter.
OSI's policy has been to reinvest earnings for future growth. Accordingly, it
has not paid dividends and does not anticipate declaring dividends on its common
stock in the foreseeable future*.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
Year Ended June 30,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATION DATA:
Total revenues.............................. $ 51,712 $ 55,918 $ 36,011 $19,069 $ 8,659
Gross profit................................ 28,414 42,733 26,421 13,583 5,663
Income (loss) from operations............... (31,228) 13,847 11,822 6,375 2,806
Net income (loss)........................... (18,464) 9,675 7,178 3,729 1,936
Net income (loss) per share................. $ (0.58) $ 0.29 $ 0.23 $ 0.13 $ 0.07
Shares used in per share computation........ 32,080 33,447 31,410 29,013 27,617
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-
term investments.......................... $ 43,241 $ 53,988 $ 763 $ 405 $ 742
Working capital............................. 63,169 85,370 3,925 3,872 1,641
Total assets................................ 108,031 107,078 21,011 10,511 4,138
Long-term debt.............................. -- -- -- 1 29
Total stockholders' equity.................. 85,443 95,058 14,062 6,502 2,303
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
OSI develops, markets and supports object-oriented, client/server software
systems for network operations support and management. The Company was founded
in June 1989 and began shipments of NetExpert in August 1990. As of June 30,
1997, it had directly or indirectly licensed its products to more than 180
customers around the world.
Revenue from licenses, service and support of OSI's NetExpert product line has
accounted for substantially all of its revenues since inception. A typical
NetExpert sale generally includes a combination of license fees, fees for
professional services and fees for customer support and training. OSI believes
that revenue from the licenses, services and support of the NetExpert product
line will continue to account for substantially all of its total revenue for the
foreseeable future*. A significant portion of its revenues has been, and will
continue to be, derived from substantial orders placed by large organizations*.
The timing of these orders and their fulfillment has caused and will continue to
cause material fluctuations in its operating results, particularly on a
quarterly basis*. OSI believes that its quarterly revenues and operating results
are likely to vary significantly in the future, that period-to-period
comparisons of its revenue and results of operations are not necessarily
meaningful and that quarterly revenues should not be relied upon as indications
of future performance*.
In the second half of fiscal 1996 and continuing through fiscal 1997, OSI
experienced a shift in its customer base and in its product and services
offerings. The shift in customer base was toward a growing percentage of sales
to new emerging communications service providers. These new service providers,
often referred to as competitive local exchange carriers (CLECs), competitive
access providers (CAPs) and wireless PCS companies have come into existence
following deregulation in the telecommunications market. OSI has found that its
product and services offerings to these new customer segments has also changed.
In particular, they are frequently procuring a full suite of network operational
support systems using NetExpert and NetExpert-based application components. OSI
has also found that many of these customers do not have adequate in-house staff
to rapidly deploy a full suite of its NetExpert-based solutions. As a result,
OSI has experienced an increase in the proportion of professional services
business, extended customer deployment period and increasing delays in
customer payments. During fiscal 1997, realization of this shift resulted in a
changed approach to selling and deploying products and services to these
customer segments. It also resulted in a change in when the Company deems
collection is probable. OSI expects that one effect of these changes will be an
increase in time between when a customer contract is executed and when it is
recognized as revenue*. The Company also expects that this trend will
continue*.
OSI distributes and sells NetExpert to end users in North America primarily
through a direct sales organization. Outside of North America, it sells its
products and services through systems integrators, local distributors and to a
lesser extent, through an in-region direct sales force. OSI intends to enter
into additional international markets and to continue, to grow its operations
outside of North America by expanding its direct sales force, opening additional
in-region customer support and sales offices, adding distributors and pursuing
additional strategic relationships*. In fiscal 1997, OSI acquired certain
NetExpert-based assets from its distributor in Australia. This acquisition
resulted in the establishment of a regional sales and support headquarters for
the Company's Asia-Pacific operations. OSI also opened a sales and support
office in France to support its operations in Europe, Africa and the Middle
East.
In fiscal 1997, OSI had a net loss of $18.5 million. This compares with
net income of $9.7 million in fiscal 1996 and net income of $7.2 million in
fiscal 1995. To address this loss, management has put into place a strategy that
it believes will return OSI to profitability and growth*. In the fourth quarter
of fiscal 1997, OSI began a program to (1) increase its focus on the
requirements of the emerging carrier and wireless service provider markets, (2)
narrow its product development and professional services efforts to achieve more
reusable application components, (3) build stronger sales and professional
services organizations, and (4) forge new strategic alliances while strengthing
its existing relationships. Refer to discussions above and in Results of
Operations below for a fuller explanation. OSI cannot give any assurances that
its new strategy will be successful or how it will affect operating results and
financial condition.
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RESULTS OF OPERATIONS
REVENUES:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PERCENTAGES) FISCAL YEAR FISCAL YEAR FISCAL YEAR
1997 CHANGE 1996 CHANGE 1995
------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
License.............................. $31,376 (19%) $38,525 67% $23,119
Percentage of revenues............... 61% 69% 64%
Services and other................... $20,336 17% $17,393 35% $12,892
Percentage of revenues............... 39% 31% 36%
Total revenues.................... $51,712 (8%) $55,918 55% $36,011
</TABLE>
OSI's revenues are derived from license fees and fees for a full range of
services complementing its products, including professional services, software
maintenance, customer support and training. The decrease in total revenue in
fiscal 1997 compared with fiscal 1996 can be primarily attributed to large
orders not closing within the period and a shift in OSI's focus toward new
emerging service providers who generally have longer sales cycles and increased
credit risks. The increase in total revenues in fiscal 1996 compared with fiscal
1995 is primarily due to increased licenses of NetExpert and to a lesser extent,
an increase in professional services and support fees. The list prices for
OSI's products and services did not change significantly during the comparison
periods.
License Revenues. Software licenses are generally granted and priced on a per-
seat basis, although OSI may grant site, network-wide or enterprise-wide
licenses for larger installations. License revenues are generally recognized
when a noncancellable license agreement has been signed, the product has been
shipped, OSI has no significant obligations to fulfill, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable and collection is probable. Revenue and profits under contracts
requiring significant customization are recognized using the percentage-of-
completion method of contract accounting based on the ratio of incurred costs to
total estimated costs. Although OSI's license agreements generally do not
provide for a right of return, reserves are maintained for returns and potential
credit losses. In fiscal 1997, OSI increased its reserve for sales returns by
approximately $5.4 million to account for the risks associated with actual and
potential customer returns. Additions to the reserve for sales returns in fiscal
1996 and 1995 were not significant.
The decrease in license revenues as a percentage of total revenues in fiscal
1997 results mainly from a shift in sales to the new emerging services
providers. Generally, these customers have slower network deployment cycles and
a limited number of qualified staff for implementing complicated network
management systems. This requires the customer to obtain additional services
from third parties, including the Company. In addition, OSI has experienced an
increase in the number of orders for its pre-built application rule-sets, which
generally require a higher level of installation services than the NetExpert
framework. The increase in license revenues as a percentage of total revenues
in fiscal 1996 when compared with fiscal 1995 results mainly from continued
market acceptance of NetExpert coupled with additional licenses of applications
and development tools to existing customers.
OSI anticipates that license revenues will continue to represent a majority of
its total revenues for the foreseeable future*. However, it also believes that
historic growth rates of its license revenues should not be relied upon as an
indication of growth rates for future periods*. In addition, it believes that
competition in its markets is likely to increase, which could result in price
reductions, reduced gross margins or loss of market share, any of which would
have a material adverse effect on its business, operating results and financial
condition*.
Services and Other Revenues. Revenues for training, consulting and professional
services are recognized as the services are performed and acceptance criteria
have been met. OSI offers support contracts to its customers which entitle them
to unlimited telephone support, product updates and product maintenance during
the support period. Maintenance revenues from ongoing customer support and
product upgrades are deferred and recognized ratably over the term of the
maintenance agreement, typically 12 months. Payments for maintenance fees are
generally made in advance and are nonrefundable.
The growth in service and other revenues in absolute dollars for each period can
be attributed to higher demand for OSI's professional services, including
requirements analysis, project management and system design, customization and
installation in connection with
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<PAGE>
the increased number of NetExpert licenses. To a lesser extent it can also be
attributed to an incremental increase in maintenance, customer support and
training revenues resulting from the larger installed base of NetExpert. The
increase in service and other revenues as a percentage of total revenues in
fiscal 1997 can be attributed to the same factors described above in "License
Revenues."
OSI anticipates that service and other revenues will continue to represent a
significant portion of its total revenues in future periods, primarily as a
result of continued demand for professional services in connection with licenses
of NetExpert, renewal of existing support contracts and incremental support
revenues attributable to a growing installed base of NetExpert*. The Company
also believes that prior growth rates for its service and other revenues may not
be sustainable and should not be relied on as an indication of growth rates in
the future*.
International Revenues. Revenues from outside of the United States represented
28%, 31% and 24% of total revenues for fiscal 1997, 1996 and 1995, respectively.
Revenues from customers in Asia and the Pacific Rim accounted for 17% of total
revenues in fiscal 1997 compared with 23% in fiscal 1996 and 12% in fiscal 1995.
Sales to European customers accounted for 7% of total revenues in fiscal 1997
compared with 5% in fiscal 1996 and 6% in fiscal 1995. OSI expects that
international revenues will continue to account for a significant portion of its
total revenues in future periods*. It intends to enter additional international
markets and continue expanding its existing international operations*. The
Company's international business involves a number of inherent risks, including
longer receivable collection periods, greater difficulty in collections,
difficulty in staffing and managing operations, a longer sales cycle,
potentially unstable political and economic conditions, language barriers,
cultural differences, unexpected changes in regulatory requirements, including a
slowdown in the rate of privatization of telecommunications services providers,
reduced protection for intellectual property rights, potentially adverse tax
consequences and tariffs and other trade barriers. In addition, access to
foreign markets is often difficult due to the established relationships between
government owned or controlled communications companies and local suppliers of
communications products. OSI cannot give any assurances that it will be able to
penetrate international markets successfully*. In addition, OSI cannot give any
assurances that it will be able to sustain or increase revenue from
international licensing and services or that the factors listed above will not
adversely affect its future international business and, consequently, its
overall business, operating results and financial condition*.
COST OF REVENUES:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PERCENTAGES) FISCAL YEAR FISCAL YEAR FISCAL YEAR
1997 CHANGE 1996 CHANGE 1995
------------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cost of license revenues............. $ 1,599 29% $ 1,242 (27%) $ 1,690
Percentage of revenues............... 3% 2% 5%
Cost of services and other
revenues.......................... $21,699 82% $11,943 51% $ 7,900
Percentage of revenues............... 42% 21% 22%
Total cost of revenues............ $23,298 77% $13,185 37% $ 9,590
Percentage of revenues............... 45% 24% 27%
Gross profit......................... $28,414 (34%) $42,733 62% $26,421
Percentage of revenues............... 55% 76% 73%
</TABLE>
Cost of License Revenues. Cost of license revenues consists primarily of
license fees paid to third-party software vendors and the costs of product media
and duplication, manuals, packaging materials, shipping expenses, amortization
of capitalized software costs and related labor costs. Cost of license revenues
as a percentage of license revenues has remained consistent, with some absolute
dollar increase due to increased production costs in fiscal 1997 compared with
fiscal 1996. A reduction in fees paid to third-party software vendors
contributed largely to the decrease to fiscal 1996 compared with fiscal 1995.
Gross profit from license revenues was 95%, 97% and 93% in fiscal years 1997,
1996 and 1995, respectively.
Cost of Service and Other Revenues. Cost of service and other revenues consists
primarily of personnel costs related to providing professional services and
maintenance services in connection with the licensing of OSI's products. It
also includes outside service fees paid to third-party providers of professional
services, related travel costs, overhead and estimated losses related to
professional service contracts. OSI continued to build its professional service
and customer support organizations in fiscal 1997. Costs increased
-17-
<PAGE>
in fiscal 1997 compared with fiscal 1996 due mainly to increased salaries and
related expense from increased head count. This includes employees joining OSI
as a result of its acquisition of the NetExpert-based operations of its
Australian distributor, and increased costs related to third-party providers of
professional services. During the fourth quarter of fiscal 1997, OSI made
project management adjustments and established a $2.2 million accrual for
estimated losses on contracts currently in progress. The cost of performing
certain fixed-price contracts exceeded initial estimates resulting in reduced
margins. Costs increased in fiscal 1996 compared with fiscal 1995 due mainly to
personnel-related costs from increased head count as OSI continued to build its
professional services and customer support organizations. Gross margin
percentages from service and other revenues were (7%), 31% and 39% in fiscal
1997, 1996 and 1995, respectively. The deficit in this area is primarily
responsible for the decrease in gross profit in fiscal 1997 compared with fiscal
1996. Gross profit increased in fiscal 1996 compared with fiscal 1995 following
the increased volume of services and other revenues in relation to their cost.
OSI believes that the cost of service and other revenues may increase in
absolute dollars and may continue to result in losses in this segment of its
business*.
OPERATING EXPENSES:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PERCENTAGES) FISCAL YEAR FISCAL YEAR FISCAL YEAR
1997 CHANGE 1996 CHANGE 1995
--------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Sales and marketing.................. $26,396 75% $15,070 93% $ 7,815
Percentage of revenues............... 51% 27% 22%
Research and development............. $12,586 77% $ 7,117 78% $ 3,994
Percentage of revenues............... 24% 13% 11%
General and administrative........... $20,660 208% $ 6,699 140% $ 2,790
Percentage of revenues............... 40% 12% 8%
Total operating expenses.......... $59,642 106% $28,886 98% $14,599
Percentage of revenues............ 115% 52% 41%
</TABLE>
Sales and Marketing. Sales and marketing expenses consist mainly of salaries,
commissions and bonuses for sales and marketing personnel, facilities costs
associated with OSI's sales and customer support offices, promotional expenses
and contract administration. The increase in sales and marketing expenses in
fiscal 1997 compared with fiscal 1996, as well as fiscal 1996 compared with
fiscal 1995, was mainly the result of expanding OSI's sales and marketing
organization, expanding its indirect sales channels, particularly outside of
North America, increased facility costs related to that expansion and increased
expenses for trade shows, advertising and other marketing programs. The increase
in sales and marketing expenses as a percentage of revenues in 1997 compared
with fiscal 1996 resulted from the absolute increase in those expenses coupled
with the decrease in revenues over the same period. OSI has also entered into
marketing agreements with certain other companies for the marketing and
distribution of its products. These agreements may result in significant
commissions being paid, in addition to the ongoing costs of OSI's direct selling
costs*. OSI expects that sales and marketing expenses in future periods may
continue to increase in absolute dollars and may increase as a percentage of
total revenues*.
Research and Development. The increase in research and development expenses in
fiscal 1997 compared with fiscal 1996, as well as fiscal 1996 compared with
fiscal 1995 was primarily the result of increased staffing and associated
equipment, facilities and support for software engineers. Personnel head count
increased approximately 48% during fiscal year 1997 and increased approximately
75% in fiscal 1996. OSI anticipates that it will continue to commit significant
resources to research and development in future periods to enhance and extend
its core technology and product lines*. OSI expects that research and
development expenses in the future periods will continue to increase in absolute
dollars, and may increase as a percentage of total revenues*.
General and Administrative. General and administrative expenses consist mainly
of personnel costs for finance, human resources, network and information systems
and general management. Also included are outside professional service fees,
corporate insurance expense, provision for bad debts and in fiscal 1997, a
restructuring charge. The increase in general and administrative expenses, in
fiscal 1997 compared with fiscal 1996 was mainly the result of the increase in
the provision for bad debts and increased costs for additional personnel. This
latter category included incentive compensation, recruiting and relocation
charges related to the hiring of executive management. Outside professional
service fees and insurance expenses increased in fiscal 1997 from fiscal 1996 as
a result
-18-
<PAGE>
of the increased complexity in the Company's business as it expands its
operations. With the growth in offices and personnel, network and communications
have also increased in fiscal 1997 compared with fiscal 1996. In fiscal 1997,
OSI had a charge to operations of approximately $2.0 million for a management
restructuring. This charge followed from the resignation of OSI's then president
and chief executive officer and the termination of certain other employees. In
fiscal 1997, OSI increased its provision for bad debts in the amount of $8.8
million based on customer accounts receivable balances it believed might be
uncollectible. This provision included a charge in the amount of $2.5 million
for one customer that filed bankruptcy late in fiscal 1997.
The increase in general and administrative expenses in fiscal 1996 compared with
fiscal 1995 was mainly the result of increased staffing, facilities costs and
associated expenses necessary to manage and support OSI's growth.
General and administrative expenses may increase in the future with continued
growth of OSI and the hiring of additional executive personnel*. Although OSI
believes its allowance for doubtful accounts adequate as of the end of fiscal
1997, it will continue to review this allowance and adjust it as needed. This
may result in additional charges to general and administrative expense*.
OSI has recorded deferred compensation expense for certain stock options that it
has granted since February 1994. The amortization of deferred compensation
expense is allocated among sales and marketing, research and development and
general and administrative expenses. Amortization resulted in a charge to
operations of $415,000, $424,000 and $382,000 for fiscal 1997, 1996 and 1995,
respectively. It will result in charges in the future of approximately $581,000
to be amortized through June 1999 over the vesting periods of the stock
options.
OTHER INCOME, NET:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PERCENTAGES) FISCAL YEAR FISCAL YEAR FISCAL YEAR
1997 CHANGE 1996 CHANGE 1995
--------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Other income, net.................... $2,537 27% $2,003 * $260
Percentage of revenues............... 5% 4% 1%
</TABLE>
* Not meaningful
Other Income, Net. The increases in other income, net were due to additional
interest income earned on OSI's cash, cash equivalents and short-term
investments from the net proceeds of its initial public offering in December
1995.
PROVISION (BENEFIT) FOR INCOME TAXES:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) FISCAL YEAR FISCAL YEAR FISCAL YEAR
1997 CHANGE 1996 CHANGE 1995
--------------- ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Provision (benefit) for income
taxes............................. $(10,227) * $6,175 26% $4,904
Percentage of revenues............... (20%) 11% 14%
</TABLE>
* Not meaningful
Provision (benefit) for Income Taxes. The effective tax rate was 36%, 39%, and
41% in fiscal 1997, 1996 and 1995, respectively. The effective tax rates for
these periods differ from the federal statutory rate primarily due to state
income taxes, partially offset by certain research and development tax credits.
See Note 6 of Notes to Consolidated Financial Statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
OSI's quarterly operating results have varied significantly in the past and will
vary significantly in the future*. The fluctuation in quarterly license
revenues is caused by the timing of large orders by the Company's customers,
including global telecommunication providers and the new emerging communication
service providers as described more fully in the "Overview" section. Large
orders
-19-
<PAGE>
are typically preceded by long sales cycles and, accordingly, it has been and
will continue to be difficult to predict when these orders will be received*.
OSI expects that quarterly license revenues will continue to vary significantly
depending on the timing of large orders*. The failure to obtain a large order
during any given reporting period, for whatever reason, would have a material,
adverse effect on OSI's business, operating results and financial condition*.
OSI's quarterly operating results also have varied and will vary significantly
based on factors such as the capital spending patterns of its customers, changes
in pricing policies by OSI or its competitors, increased competition, the
cancellation of licenses or support agreements, changes in operating expenses,
personnel changes, fluctuation in the demand for NetExpert, the number, timing
and significance of new product and product enhancement announcements by OSI and
its competitors, the ability of OSI to develop, introduce and market new and
enhanced versions of NetExpert on a timely basis, the mix of direct and indirect
sales, OSI's assessment of its allowance for bad debts, sales returns and
general economic factors, among others*.
Due to these factors, quarterly revenue and operating results have been and will
continue to be difficult to forecast*.
Revenues are also difficult to forecast because OSI's sales cycle, from initial
evaluation to product installation, varies substantially from customer to
customer. The purchase of a network operations support and management
application generally involves a significant commitment of capital, with the
attendant time requirements often associated with a customer's internal approval
procedures. It also involves the need to test and accept new technologies that
affect crucial operations. For these and other reasons, the sales cycle for
OSI's products is typically lengthy and subject to a number of significant risks
over which it has little or no control. See further discussion of the shift of
OSI's customer base in the "Overview" section.
In addition, OSI typically receives a significant portion of its orders, and
records the resulting revenue, in the last month of a quarter, and frequently in
the last weeks or even days of a quarter. OSI's expense levels are based, in
part, on its expectations as to future revenues. If actual revenues are below
expectations, operating results can be adversely affected. In particular,
because only a small portion of its expenses varies with revenue, net income may
be disproportionately affected by a shortfall in anticipated revenue. OSI
believes this pattern will continue*.
OSI's transactions have been primarily in US dollars through fiscal 1997. As OSI
expands its operations and establishes more sales offices in foreign countries,
transactions in foreign currencies may increase*. This would result in a
corresponding increase in exchange rate risk. If exchange rates change
unfavorably, this could result in charges to operations*.
Based upon all of the above, OSI believes its quarterly revenues and operating
results are likely to vary significantly in the future*. OSI also believes that
period-to-period comparisons of its results are not necessarily meaningful and
should not be relied upon as indications of future performance*. Further, it is
likely that in some future quarter OSI's revenue or operating results will be
below the expectations of public market analysts and investors*. If that occurs,
the price of OSI's Common Stock could be materially, adversely affected*.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1997, OSI had an increase in cash provided by operations. This was
mainly the result of decreased levels of accounts receivable from increased
collection efforts, receipts from income tax refunds, and increases in accounts
payable and accrued liabilities. Cash was used in fiscal 1997 primarily for
purchases of $12.2 million of property and equipment for OSI's growing
operations and the approximately $6.0 million purchase of assets from its
Australian distributor. OSI purchased $25.4 million of short-term investments to
maximize its return on cash equivalents held. Proceeds from the sale of common
stock through the OSI employee stock purchase plan contributed to the $1.8
million provided by financing activities.
As of June 30, 1997, OSI had working capital of approximately $63.2 million,
including $43.2 million in cash, cash equivalents and short-term investments. In
addition, OSI has a $2.5 million unsecured revolving line of credit. Under the
line of credit, which expires in December 1998, borrowings bear interest at
either (1) a fluctuating rate per year equal to the prime lending rate in effect
or (2) a fixed rate per year that is equal to 2% above the London Inter-Bank
Offered Rate. As of June 30, 1997, nothing had been borrowed under the line of
credit. The agreement for the line of credit has certain financial covenant's,
and as of June 30, 1997, OSI was in compliance with those provisions.
-20-
<PAGE>
From time to time, some of OSI's accounts receivable are beyond their payment
terms. OSI maintains an allowance for doubtful accounts that it believes is
adequate to cover potential credit losses. In fiscal 1997, OSI increased this
allowance by approximately $8.8 million to reflect increased exposure on certain
accounts receivable. As of June 30, 1997, accounts receivable of approximately
$12.2 million had been outstanding for more than 120 days, of which
approximately $10.6 million were beyond payment terms. The reasons these
accounts were beyond payment terms varies, but generally relates to (1) delays
in the launch of a customer's system in which OSI's products are included, (2)
disputes regarding to acceptance of completed systems and (3) the failure of
some customers to make scheduled contract payments. While some customers may not
be complying with the terms of their contract, OSI has generally taken the
position that it is in its best interests not to litigate at this time. The
factors involved in these decisions mainly relate to customer goodwill, OSI's
reputation in the industry and the effect on anticipated future business.
Approximately $9.2 million of these past-due accounts receivable were due from
12 customers. Many of them continue to license products and purchase services
from OSI. At June 30, 1997, OSI's reserves for bad debts and sales returns were
$4.2 million and $2.3 million, respectively. OSI believes this is adequate to
provide for potential credit losses or sales returns.
OSI currently has no material commitments for capital expenditures, although
management intends to continue supporting the growth of OSI's operations*. In
fiscal 1997, OSI spent $9.6 million for capital items principally computer
hardware and software and communications equipment. In 1997, OSI also spent $2.6
million to purchase certain undeveloped land for future expansion of its
facilities. In conjunction with the land purchase, OSI expects to subdivide the
parcel and enter into sale-leaseback arrangements with a developer as buildings
are constructed*. Capital expenditures are likely to continue, at significant
levels in fiscal 1998 and in the future*.
OSI believes that its cash balances and its cash flow from operations are
sufficient to support its working capital requirements for at least the next
twelve months. Thereafter, if cash generated from operations cannot satisfy its
working capital requirement, OSI may is need to raise additional funds.
Financing may not be available or, if it is, may not be obtainable on terms
that are favorable to OSI or its stockholders*. If OSI raises additional capital
by issuing equity or convertible debt securities, ownership dilution to
stockholders will result. If funds are unavailable, OSI's business may be
adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The response to this item is not required for the current fiscal year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section Part IV, Item
14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning OSI's directors is incorporated
by reference from the section "Election of Directors" in OSI's Proxy Statement
for the Annual Meeting of Stockholders to be held November 21, 1997, and to be
filed by OSI with the Securities and Exchange Commission within 120 days of the
end of its fiscal year ("Proxy Statement"). The information required by this
item concerning executive officers is set forth in Part I of this Report. The
information required by this item regarding compliance with Section 16(a) of the
Exchange Act is incorporated by reference from the section captioned "Compliance
with Section 16(a) of the Exchange Act" in the Proxy Statement.
-21-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section captioned "Executive Compensation and Other Matters" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "Record Date and Principal Share Ownership" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
sections captioned "Compensation Committee Interlocks and Insider Participation"
and "Certain Transactions With Management" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report................................................................ 24
Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 1997 and 1996..................................... 25
Consolidated Statements of Operations for the years ended June 30, 1997,
1996, and 1995.......................................................................... 26
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1997, 1996 and 1995................................................................ 27
Consolidated Statements of Cash Flows for the years ended June 30,
1997, 1996 and 1995..................................................................... 28
Notes to Consolidated Financial Statements................................................ 29
</TABLE>
(a)(2) Financial Statement Schedules
II - Valuation and Qualifying Accounts
Additional schedules are not required under the related schedule instructions or
are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
3.1/2 Certificate of Incorporation.
3.2/2 Bylaws, as amended to date.
10.1/1 Stock Option Plan and form of agreement
10.2 1994 Stock Option Plan, as amended and form of agreement
10.3 1995 Employee Stock Purchase Plan, as amended and form of
agreement
10.4/1 1995 Director Stock Option Plan and form of agreement
10.5/1 Form of Indemnification Agreement between the Registrant and
its Officers and Directors
10.8/1 Standard Office Lease-Gross between Registrant and PIWI
Investments dated February 14, 1994.
10.10/1* Stockholder Rights Agreement among Registrant, Tom L.
Johnson, Richard G. Vento and the purchasers of Preferred
Stock named therein dated Sept. 27, 1995.
10.11/1 Voting Agreement among Registrant, Tom L. Johnson, Richard
G. Vento and the purchasers of Preferred Stock named therein
dated September 27, 1995.
10.12/1 Letter Agreement between Registrant and Joseph T. Ambrozy
dated as of November 24, 1995.
10.13/2 Form of Indemnification Agreement between the Registrant and
its directors and officers
10.14 Settlement Agreement between the Registrant and Joseph T.
Ambrozy dated April 19, 1997.
10.15 Business Sale Agreement between the Registrant and Open
Technology Pty Limited dated March 14, 1997
10.16 Contract of Purchase and Sale for purchase of real property
between Registrant and The John A. Sobrato 1979 Trust dated
April 7, 1997.
11.1 Statement regarding computation of per share earnings.
23.1 Independent Auditors' Consent
24.1 Power of Attorney (See page 23).
27.1 Financial Data Schedule.
_______________________
* Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the SEC.
/1 Incorporated by reference to exhibits filed with OSI's Registration
Statement on Form S-1 (Reg. No. 33-97506) as declared effective by the
Commission on November 30, 1995.
/2 Incorporated by reference to exhibits filed with OSI's Registration
Statement on Form 8-B (Reg. No. 000-26886) as declared effective by the SEC
on February 4, 1997.
(b) Reports on Form 8-K. OSI did not file any reports on Form 8-K during
the quarter ended June 30, 1997.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: September 25, 1997 OBJECTIVE SYSTEMS INTEGRATORS, INC.
By: /s/ Tom L. Johnson
------------------------------------------
Tom L. Johnson, Co-Chief Executive Officer
and Co-Chairman of the Board of Directors
Dated: September 25, 1997 OBJECTIVE SYSTEMS INTEGRATORS, INC.
By: /s/ Richard G. Vento
--------------------------------------------
Richard G. Vento, Co-Chief Executive Officer
and Co-Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Tom L. Johnson, Richard G. Vento and David M.
Allen, and each of them, his true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, to sign any and all
amendments (including post-effective amendments) to this Annual Report on Form
10-K and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or their substitute or substitutes, or any of them, shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
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/ Richard G. Vento Co-Chief Executive Officer and September 25, 1997
- ---------------------------
(Richard G. Vento) Co-Chairman of the Board of Directors
/s/ Tom L. Johnson Co-Chief Executive Officer and September 25, 1997
- ---------------------------
(Tom L. Johnson) Co-Chairman of the Board of Directors
/s/ David M. Allen Vice President, Finance and Administration September 25, 1997
- --------------------------- and Chief Financial Officer (Principal
(David M. Allen) Financial and Accounting Officer)
/s/ Jonathan B. Shantz Director September 25, 1997
- ---------------------------
(Jonathan B. Shantz)
/s/ Dr. Kornel Terplan Director September 25, 1997
- ---------------------------
(Dr. Kornel Terplan)
/s/ George F. Schmitt Director September 25, 1997
- ---------------------------
(George F. Schmitt)
</TABLE>
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<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Objective Systems Integrators, Inc.
We have audited the accompanying consolidated balance sheets of Objective
Systems Integrators, Inc. and subsidiaries (the Company) as of June 30, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended June 30,
1997. Our audit also included the financial statement schedule listed in Item
14(a)(2). These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Objective Systems Integrators, Inc.
and subsidiaries at June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
August 5, 1997
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<PAGE>
OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 17,817 $ 53,988
Short-term investments........................................................ 25,424 --
Accounts receivable, net of allowances of $4,212 in 1997 and $987 in 1996..... 21,029 32,198
Income tax refund receivable.................................................. 2,334 7,710
Deferred income taxes......................................................... 16,812 2,011
Prepaid expenses and other current assets..................................... 860 918
---------------- ----------------
Total current assets....................................................... 84,276 96,825
Property and equipment, net...................................................... 17,449 9,822
Other assets, net................................................................ 6,306 431
---------------- ----------------
Total assets............................................................... $108,031 $107,078
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 7,344 $ 3,462
Accrued compensation.......................................................... 4,450 2,353
Accrued liabilities........................................................... 2,795 291
Deferred revenue.............................................................. 6,518 5,349
---------------- ----------------
Total current liabilities.................................................. 21,107 11,455
Deferred income taxes............................................................ 1,481 565
Commitments (Note 7)
Stockholders' equity:
Preferred stock, $0.001 par value; authorized 5,000,000 shares in 1997 and
1996; issued and outstanding, none in 1997 and 1996........................... -- --
Common stock, $0.001 par value; authorized 100,000,000 shares in 1997 and
50,000,000 shares in 1996; shares outstanding 32,571,000 in 1997
and 31,301,000 in 1996........................................................ 81,967 73,207
Deferred stock compensation...................................................... (581) (996)
Accumulated translation adjustment............................................... (326) --
Retained earnings................................................................ 4,383 22,847
---------------- ----------------
Total stockholders' equity................................................. 85,443 95,058
---------------- ----------------
Total liabilities and stockholders' equity................................. $108,031 $107,078
================ ================
</TABLE>
See notes to consolidated financial statements.
-25-
<PAGE>
OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
License.......................................... $ 31,376 $ 38,525 $ 23,119
Service and other................................ 20,336 17,393 12,892
------------- -------------- --------------
Total revenues................................ 51,712 55,918 36,011
------------- -------------- --------------
Cost of revenues:
License.......................................... 1,599 1,242 1,690
Service and other................................ 21,699 11,943 7,900
------------- -------------- --------------
Total cost of revenues........................ 23,298 13,185 9,590
------------- -------------- --------------
Gross profit........................................ 28,414 42,733 26,421
------------- -------------- --------------
Operating expenses:
Sales and marketing.............................. 26,396 15,070 7,815
Research and development......................... 12,586 7,117 3,994
General and administrative....................... 20,660 6,699 2,790
------------- -------------- --------------
Total operating expenses...................... 59,642 28,886 14,599
------------- -------------- --------------
Income (loss) from operations....................... (31,228) 13,847 11,822
Other income, net................................... 2,537 2,003 260
------------- -------------- --------------
Income (loss) before income taxes................... (28,691) 15,850 12,082
Provision (benefit) for income taxes................ (10,227) 6,175 4,904
------------- -------------- --------------
Net income (loss)................................... $(18,464) $ 9,675 $ 7,178
============= ============== ==============
Net income (loss) per share......................... $(0.58) $0.29 $0.23
============= ============== ==============
Shares used in per share computation................ 32,080 33,447 31,410
============= ============== ==============
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE>
OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
TRANSLATION
ADJUSTMENT
AND
SERIES A DEFERRED
CONVERTIBLE STOCK RETAINED
PREFERRED STOCK COMMON STOCK COMPENSATION EARNINGS TOTAL
---------------- ------------ ------------ -------- -----
SHARES AMOUNT SHARES AMOUNT
-------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at July 1,
1994.................. -- $ -- 27,038 $ 1,263 $ (755) $ 5,994 $ 6,502
Conversion of common
stock to Series A
preferred stock....... 27,037 37 (27,037) (37) -- -- --
Deferred stock
compensation.......... -- 1,047 -- -- (1,047) -- --
Amortization of
deferred stock
compensation.......... -- -- -- -- 382 -- 382
Net income............. -- -- -- -- -- 7,178 7,178
-------- --------- ---------- ----------- ------------- ---------- ---------
BALANCE at June 30,
1995.................. 27,037 1,084 1 1,226 (1,420) 13,172 14,062
Conversion of
preferred stock to
common stock at
initial public
offering.............. (27,037) (1,084) 27,037 1,084 -- -- --
Common stock issued at
initial public
offering, net of
offering costs
of $6,059........... -- -- 3,450 59,491 -- -- 59,491
Common stock issued
under stock plans..... -- -- 813 672 -- -- 672
Amortization of
deferred stock
compensation........ -- -- -- -- 424 -- 424
Tax benefit from
exercise of stock
options............... -- -- -- 10,734 -- -- 10,734
Net income............. -- -- -- -- -- 9,675 9,675
-------- --------- ---------- ----------- ------------- --------- ---------
BALANCE at June 30,
1996.................. -- -- 31,301 73,207 (996) 22,847 95,058
Common stock issued
under stock option
plans, net............ -- -- 1,270 1,986 -- -- 1,986
Amortization and
adjustment of
deferred stock
compensation.......... -- -- -- (45) 415 -- 370
Tax benefit of
exercise of stock
options............... -- -- -- 6,819 -- -- 6,819
Accumulated
translation
adjustment -- -- -- -- (326) -- (326)
Net loss -- -- -- -- -- (18,464) (18,464)
-------- --------- ---------- ----------- ------------- ---------- ---------
BALANCE at June
30, 1997............. -- -- 32,571 $81,967 $ (907) $ 4,383 $ 85,443
======== ========= ========== =========== ============= ========== =========
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE>
OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(18,464) $ 9,675 $ 7,178
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization.......................... 5,020 3,092 1,523
Deferred income taxes.................................. (8,050) (345) (368)
Amortization of deferred stock compensation............ 532 424 382
Interest received (earned) on loans to stockholders.... -- 212 (212)
Effect of changes in:
Accounts receivable............................... 11,159 (23,280) (1,806)
Income tax refund receivable...................... 5,376 (7,710) --
Prepaid expenses and other current assets......... 58 (187) (368)
Accounts payable.................................. 3,938 1,601 986
Accrued liabilities............................... 4,597 1,196 682
Income taxes payable.............................. -- 9,862 (315)
Deferred revenue.................................. 1,169 2,342 1,228
-------------- ------------ ------------
Net cash provided by (used for) operating activities........ 5,335 (3,118) 8,910
-------------- ------------ ------------
Cash flows from investing activities:
Purchases of short-term investments.................... (25,424) -- --
Purchases of property and equipment.................... (12,186) (7,577) (4,538)
Purchases of other assets.............................. (5,705) (43) (210)
Loans to stockholders collected (issued)............... -- 4,200 (4,200)
--------------- ------------ ------------
Net cash used for investing activities...................... (43,315) (3,420) (8,948)
-------------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............ 1,824 60,163 --
Principal payments on capital leases................... -- -- (4)
Proceeds (repayments) of line of credit, net........... -- (400) 400
-------------- ------------ ------------
Net cash provided by financing activities................... 1,824 59,763 396
-------------- ------------ ------------
Effect of exchange rates on cash............................ (15) -- --
-------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents........ (36,171) 53,225 358
Cash and cash equivalents:
Beginning of the year.................................. 53,988 763 405
-------------- ------------ ------------
End of the year........................................ $ 17,817 $ 53,988 $ 763
============== ============ ============
Cash paid during the period for:
Interest............................................... $ -- $ 49 $ 78
Income taxes........................................... $ -- $ 3,790 $ 5,586
</TABLE>
See notes to consolidated financial statements.
-28-
<PAGE>
OBJECTIVE SYSTEMS INTEGRATORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Objective Systems Integrators, Inc. ("OSI") develops, markets and supports
object-oriented, client/server software solutions for network operations support
and management. OSI's NetExpert family of products includes a software
framework, off-the-shelf network operations support and management application
components, programmerless development tools and related professional services.
These products and services are designed for use in complex, critical networks
to enable the rapid deployment of new and enhanced services.
Principles of Consolidation
The consolidated financial statements include the accounts of OSI and its
wholly owned subsidiaries after elimination of significant intercompany
transactions and balances.
Use of Estimates
The preparation of financial statements that conform to generally accepted
accounting principles requires management to make estimates and assumptions that
affect (1) the reported amounts of assets and liabilities, (2) disclosure of
contingent assets and liabilities at the date of the financial statements,
(3) the reported amounts of revenues and expenses during the reporting period.
Actual results inevitably will differ from those estimates and the differences
may be material to the financial statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit with banks and high-quality
money market instruments with original maturities of 90 days or less. Due to
the short period of time to maturity, fair values of cash equivalents
approximate cost.
Short-term Investments
Short-term investments are classified as available-for-sale. Securities, at
June 30, 1997, consisted of approximately $9.1 million of debt securities issued
by U.S. Government agencies and approximately $16.3 million of corporate debt
securities. Both carried at fair value. At June 30, 1997, gross unrealized
gains and losses on available for sale investments were not significant.
Amortized cost approximates fair value. Contractual maturities of short-term
investments at June 30, 1997, were generally within one year.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets, which range from three to seven years.
Other Assets
Other assets consist primarily of goodwill and intangible assets, and include
software development costs. Costs for the research and development of new
software products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established. At
that time, additional costs are capitalized (until product is available for
general release to customers). Amortization of software development costs is
computed using the straight-line method over the estimated economic life of the
products, not to exceed three years. Goodwill and intangible assets are being
amortized over the estimated usefulness of the assets which range from three to
seven years.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. SFAS No. 121 requires impairment losses to be recorded on long-
lived assets used in
-29-
<PAGE>
operations when indicators of impairment are present and the undiscounted cash
flows that will be generated by the assets are less than their carrying amount.
SFAS No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. OSI adopted SFAS No. 121 in fiscal year 1997. The
adoption did not have a significant effect on its results of operations or
financial position.
Revenue Recognition
Revenues consist primarily of fees for licenses of OSI's software products,
maintenance and customer support and consulting contracts.
License Revenue: Software licenses are generally granted and priced on a per
seat basis, although OSI may grant site, network-wide or enterprise-wide
licenses for larger installations. License revenues are generally recognized
when a noncancellable license agreement has been signed, the product has been
shipped, OSI has no significant obligations to fulfill, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable and collection is probable. Revenue and profits under contracts
requiring significant customization are recognized using the percentage-of-
completion method of contract accounting based on the ratio of incurred costs to
total estimated costs. Although OSI's license agreements generally do not
provide for a right of return, reserves are maintained for returns and potential
credit losses.
Service and Other Revenue: Revenue from customer support contracts is recognized
ratably over the term of the agreement, which is typically one year. Other
revenue is derived primarily from professional services. This revenue is
generally recognized using the percentage-of-completion method or on a time-
and-materials basis. At June 30, 1997, accrued liabilities included an accrual
of $2.2 million for estimated losses on service contracts in progress.
Deferred Revenue: Deferred revenue includes unearned amounts received under
support contracts, amounts billed to customers but not recognized as revenue and
reserves for sales returns.
Concentration of Credit Risks
OSI primarily licenses its products to customers in the telecommunications
industry. It performs periodic credit evaluations of its customers and generally
does not require collateral or other security to support accounts receivable. It
maintains reserves for credit losses. An estimate for those losses has been
provided for in the consolidated financial statements.
Net Income (Loss) Per Share
Net income (loss) per share is computed on the weighted average number of common
and common equivalent shares outstanding during the period. Based on SEC Staff
Accounting Bulletins and Staff Policy, the computation includes all common and
common equivalent shares issued within 12 months of OSI's initial public
offering as if they had been outstanding before the offering. The treasury
stock method was used. Common equivalent shares are calculated using the
treasury stock method and represent incremental shares that will be used if
outstanding stock options are exercised.
SFAS No. 128, Earnings per Share, will be adopted by OSI in the second quarter
of fiscal 1998. SFAS 128 requires computation of net income per share using two
different methods, basic and diluted, and disclosure of the methods used for
calculation. If SFAS No. 128 had been in effect in fiscal 1997, 1996 and 1995
basic net income (loss) per share would have been $(0.58), $0.31 and $0.26 and
diluted net income (loss) per share would have been $(0.58), $0.27 and $0.23,
respectively.
Stock-Based Compensation
OSI accounts for stock-based awards to employees using the intrinsic value
method under Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and its related interpretations.
-30-
<PAGE>
Foreign Currency Translation
The functional currency of OSI's foreign operations is the local country's
currency. Consequently, assets and liabilities of operations outside of the
United States are translated into U.S. dollars using year-end exchange rates.
Results of operations are translated using average rates. The effects of foreign
currency translation adjustments are included as a component of stockholders'
equity.
Income Taxes
Income taxes are recorded using a method that requires recognizing deferred tax
assets and liabilities based on the expected future tax consequences of
temporary differences between the amounts carried on the financial statements
and the tax bases of those assets and liabilities.
New Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
establishes annual and interim reporting standards for a company's business
segments. It also establishes standards for related disclosures about products,
services, geographic areas and major customers. Adoption of SFAS No.131 will
not impact OSI's consolidated financial position, results of operations or cash
flows. The statement is effective for fiscal years beginning after December 15,
1997, with earlier application permitted.
Reclassification
Certain prior-year balances have been reclassified to conform with current year
presentation. This did not have an effect on net income (loss) or
stockholders' equity.
2. Acquisitions
In March 1997, OSI acquired certain assets of its Australian distributor for
approximately $6.0 million. OSI has recorded the assets acquired as of the date
of acquisition at their fair market values.
3. Property and Equipment
Property and equipment at June 30 consists of (in thousands, estimated useful
lives in parenthesis):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land............................................... $ 2,592 $ --
(3 to 7 years)
Computer equipment................................. 19,143 11,609
(7 years)
Furniture and fixtures............................. 2,094 1,298
(5 years)
Machinery and equipment............................ 2,004 1,001
(5 years)
Trade show equipment............................... 399 399
(5 years)
Leasehold improvements............................. 573 312
----------- -----------
Total............................................ 26,805 14,619
Accumulated depreciation and amortization.......... (9,356) (4,797)
----------- -----------
Property and equipment, net $17,449 $ 9,822
=========== ===========
</TABLE>
-31-
<PAGE>
4. Other Assets
Other assets at June 30, consists of (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Software Development costs......................... $ 1,139 $1,073
Deposits........................................... 323 106
Goodwill and other intangibles..................... 6,055 --
---------- ----------
Total............................................ 7,517 1,179
Accumulated amortization........................... (1,211) (748)
---------- ---------
Other assets, net............................. $ 6,306 $ 431
========== =========
</TABLE>
5. Line of Credit
OSI has a $2.5 million unsecured revolving line of credit. Under the line of
credit, which expires in December 1998, borrowings bear interest at either (1) a
fluctuating rate per year equal to the prime lending rate in effect or (2) a
fixed rate per year that is 2% above the London Inter-Bank Offered Rate. As of
June 30, 1997, nothing had been borrowed under the line of credit. The
agreement for the line of credit has certain financial covenants and, as of June
30, 1997, OSI was in compliance with those provisions.
-32-
<PAGE>
6. Income Taxes
The provision (benefit) for income taxes for the years ended June 30, consists
of (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal........................................... $ (2,334) $5,144 $3,841
State............................................. -- 1,172 1,195
Foreign........................................... 157 204 236
-------------- -------------- --------------
Total current.................................... (2,177) 6,520 5,272
-------------- -------------- --------------
Deferred:
Federal.......................................... (6,642) (206) (220)
State............................................ (1,408) (139) (148)
-------------- -------------- --------------
Total deferred................................... (8,050) (345) (368)
-------------- -------------- --------------
Total provision (benefit) for income taxes......... $(10,227) $6,175 $4,904
============== ============== ==============
</TABLE>
The income tax benefit related to the exercise of stock options reduces taxes
currently payable and is credited to common stock. This amount was approximately
$6.8 million and $10.7 million in 1997 and 1996, respectively.
Total income tax expense for the years ended June 30, differs from the amounts
computed by applying the statutory federal income tax rate to income before
taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- ---------------
<S> <C> <C> <C>
Income tax (benefit) expense at statutory rate..... $(10,042) $5,548 $4,229
State tax (benefit) expense, net of federal benefit (940) 951 725
Tax benefit of exempt FSC income................... -- (184) --
Research and other tax credits..................... (482) (254) (132)
Other.............................................. 1,237 114 82
-------------- --------------- ---------------
Total provision (benefit) for income taxes........ $(10,227) $6,175 $4,904
============== =============== ===============
</TABLE>
The components of deferred tax assets and liabilities at June 30, consist of (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
Deferred tax assets:
Allowances for doubtful accounts ans sales returns.......... $ 2,698 $ 461
Deferred compensation....................................... 1,169 293
Accrued expense............................................. 53 618
Net operating loss carryforwards and tax credit carryforwards 12,892 639
-------------- ---------------
Total deferred tax assets................................ 16,812 2,011
-------------- ---------------
Deferred tax liabilities:
Depreciation and amortization............................... (278) (201)
Capitalized software........................................ (77) (138)
Goodwill and intangible assets............................. (927) --
Other...................................................... (199) (226)
-------------- ---------------
Total deferred tax liabilities............................ (1,481) (565)
-------------- ---------------
Deferred income taxes, net................................... $15,331 $1,446
============== ===============
</TABLE>
-33-
<PAGE>
As of June 30, 1997, OSI had net operating loss carryforwards of approximately
$27.0 million and $21.0 million for federal and California purposes,
respectively. It also had federal and state credit carryforwards of
approximately $2.0 million which will expire at various dates between 2001 and
2012.
7. Lease Obligations and Commitments
OSI leases its office facilities under operating lease agreements. Rent expense
was approximately $1.9 million, $1.2 million and $713,000 for 1997, 1996 and
1995, respectively.
Future minimum lease payments under noncancellable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------------------
<S> <C>
1998 $ 2,127
1999 1,919
2000 996
2001 714
2002 458
--------
Total $ 6,214
========
</TABLE>
In July 1997, OSI consummated the purchase of a parcel of land which will be
used to replace certain of its current facilities and to allow for further
expansion. The purchase price of the parcel was $2.6 million and was recorded
as of June 30, 1997. In conjunction with this land purchase, OSI expects to
subdivide the parcel and enter into sale-lease back arrangements with a
developer as buildings are constructed.
8. Employee Benefit Plan
OSI has adopted a qualified 401(k) profit sharing plan ("401(k) Plan") for all
eligible employees who have attained the age of 21 years and completed three
months of service. OSI may contribute a discretionary matching contribution as
a percentage of an employee's salary contribution. OSI currently makes a
discretionary matching contribution on a payroll-by-payroll basis The amount of
this contribution is 50% of the employee's salary contribution, up to a maximum
of 4% of that contribution. OSI's contributions to the 401(k) Plan were
approximately $557,000, $328,000 and $275,000 in fiscal 1997, 1996 and 1995,
respectively. Vesting on all employer contributions is on a graduated schedule,
fully vesting after the seventh year of service.
9. Related Party Transactions
In 1997 and 1996, OSI had revenues of approximately $1.0 million and $3.2
million, respectively, from Omnipoint Communications, Inc. ("Omnipoint"). The
President and Chief Executive Officer of Omnipoint is a member of the Board of
Directors of OSI. Accounts receivable from Omnipoint were approximately $36,000
and $3.2 million as of June 30, 1997 and 1996, respectively. Additionally, in
1997 OSI had revenues of approximately $3.0 million from Cisco Systems, Inc.
("Cisco"). Cisco currently owns 1,315,789 shares of OSI common stock and a Vice
President of Cisco is a member of OSI's Board of Directors. Accounts receivable
from Cisco as of June 30, 1997 are insignificant.
10. Segment and Geographic Information and Significant Customers
OSI conducts its business in one business segment. In 1997 and 1996, no
customer accounted for more that 10% of total revenues. In 1995, two customers
accounted for 16% and 11% of total revenues, respectively.
Export sales information as a percentage of total revenues is as follows
("Other" consists of export sales to Latin America and Canada):
-34-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Europe 7% 5% 6%
Asia and Pacific Rim 17 23 12
Other 4 3 6
============ ============ ============
Total 28% 31% 24%
============ ============ ============
</TABLE>
11. Stockholders' Equity
Reincorporation
OSI's shareholders approved a proposal to change the Company's state of
incorporation to Delaware from California ("Reincorporation") through a merger
of Objective Systems Integrators, Inc., a California corporation ("OSI
California"), with OSI's wholly-owned subsidiary, Objective Systems Integrators,
Inc., a Delaware corporation ("OSI Delaware"). Among other things in connection
with the Reincorporation, the authorized shares of OSI's common were increased
from 50,000,000 shares to 100,000,000 shares and a par value was established of
$0.001 per share. In January 1997, OSI completed the Reincorporation. As of
the effective date of the merger, OSI California ceased to exist. The
Reincorporation resulted only in change in the legal domicile of OSI. It did
not result in any change of name, business, management, employees, fiscal year,
assets or liabilities, Nasdaq National Market Trading symbol (OSII) or the
location of any of OSI's facilities.
Common Stock
In November 1995, OSI completed the initial public offering of its common stock.
It sold 3,450,000 shares of common stock for net proceeds of approximately $59.5
million.
Preferred Stock
On the closing of OSI's initial public offering, all issued and outstanding
shares of Series A convertible preferred stock were converted into 27,037,000
shares of common stock.
Stock Option Plans
OSI's 1994 Non-Qualified Stock Option Plan ("Non-Qualified Plan") provides for
grants of nonqualified stock options to officers, key employees, consultants and
directors of OSI. The option price cannot be less than the fair value of the
stock at the date of grant. Options granted under the Non-Qualified Plan
generally become exercisable after one year in 20% annual increments and expire
ten years from the date of grant. OSI has reserved 4,070,000 shares of common
stock for issuance under the Non-Qualified Plan. No shares are available for
future grant under this plan.
In November 1994, OSI adopted the 1994 Stock Option Plan ("1994 Plan") and
reserved 3,624,500 shares of common stock, as amended, for issuance to employees
and consultants. Options granted under the 1994 Plan generally vest ratably
over four years and expire ten years from the date of grant.
In August 1995, OSI adopted the 1995 Director Stock Option Plan ("Director
Plan") and reserved 550,000 shares of common stock for issuance under it. Non-
employee directors are granted options to purchase common stock under the
Director Plan at the fair market value on the date of grant. Initial options
vest ratably over four years and expire ten years from the date of grant.
Subsequent options vest ratably over one year and expire ten years from the date
of grant.
At the close of fiscal 1997, 1,494,000 shares were available for future issuance
under the stock option plans. Option activity under all plans was as follows
(in thousands, except prices):
-35-
<PAGE>
<TABLE>
OPTIONS WEIGHTED
OUTSTANDING AVERAGE PRICE
-------------------------------------------------
<S> <C> <C>
Balance at July 1, 1994 3,658 $ 0.08
Granted 1,536 $ 2.10
Canceled (619) $ 2.11
-------------------------------------------------
Balance at June 30, 1995 4,575 $ 0.48
Granted 1,196 $19.70
Exercised (776) $ 0.09
Canceled (52) $ 4.51
-------------------------------------------------
Balance at June 30, 1996 4,943 $ 5.14
Granted 3,529 $ 9.76
Exercised (977) $20.84
Canceled (1,873) $18.98
-------------------------------------------------
Balance at June 30, 1997 5,622 $ 4.29
=================================================
</TABLE>
In April 1997, OSI repriced outstanding options to purchase approximately
1,430,000 shares of common stock having exercise prices ranging from $10.18 to
$43.25 per share. The new exercise price is $6.00 per share. The closing price
of the common stock on the date of the repricing was $4.38. The repriced options
are included as canceled and re-granted options in the table above.
A summary of outstanding and exercisable stock options as of June 30, 1997 is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------ --------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------- ------------------ ----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.08-$0.18 2,077 6.73 $ 0.09 1,343 $ 0.09
$2.10-$4.37 1,542 9.13 $ 3.77 275 $ 2.11
$6.00-$13.00 1,801 8.66 $ 7.19 481 $ 7.81
$25.50 202 9.05 $25.50 3 $25.50
------------------ -----------------
$0.08-$25.50 5,622 8.09 $ 4.29 2,102 $ 2.15
================== =================
</TABLE>
Employee Stock Purchase Plan
In August 1995, OSI adopted an Employee Stock Purchase Plan ("Purchase Plan")
under Section 423 of the Internal Revenue Code and reserved 687,500 shares of
Common Stock for issuance under it. Eligible employees can purchase common
stock at a price no less than 85% of the lower of the fair market value at the
beginning of each twenty-four month offering period or at the end of each six-
month exercise period. The six-month periods begin in May and November.
Purchases are limited to 15% of an employee's compensation. In fiscal 1997 and
1996, 37,000 and 260,000, respectively, of common stock were issued under the
Purchase Plan and 390,500 shares were reserved for future issuance.
Additional Stock Plan Information
OSI continues to follow the provisions of APB No. 25, Accounting for Stock
Issued to Employees, for financial reporting purposes. It has adopted the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation.
The weighted average "estimated grant date fair value," as defined by SFAS 123,
for options granted under OSI's stock option plans in fiscal 1997 and 1996 was
$5.96 and $9.96 per share, respectively. That weighted average "estimated grant
date fair value," for purchase under OSI's Employee Stock Purchase Plan in
fiscal 1997 and 1996 was $4.37 and $ 6.55 per share, respectively. These
estimates by OSI are calculated using the Black-Scholes model. The Black-
Scholes model was developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions. This significantly differs
from OSI's stock option awards. The
-36-
<PAGE>
Black-Scholes model also requires highly subjective assumptions, including
future stock price volatility and expected time until exercise, which greatly
affect the calculated grant date fair value.
The following weighted average assumptions are included in the estimated grant
date fair value calculations for OSI's stock option and purchase awards:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
STOCK OPTION PLANS:
Expected dividend yields 0% 0%
Expected stock price volatility 80% 75%
Risk free interest rate 6.8% 6.7%
Expected life following vesting (years) 1.7 1.7
STOCK PURCHASE PLAN:
Expected dividend yields 0% 0%
Expected stock price volatility 80% 75%
Risk free interest rate 5.4% 5.5%
Expected life (years) 0.5 0.5
</TABLE>
Pro Forma Net Income (Loss) and Net Income (Loss) Per Share:
If OSI recorded compensation based on the estimated grant date fair value, as
defined by SFAS 123, for awards under its stock option plans and stock purchase
plan, OSI's net income (loss) and net income (loss) per share would have been
changed to the pro forma amounts below for its 1997 and 1996 fiscal years (in
thousands, except for per share amounts):
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Net income (loss) as reported $(18,464) $9,675
Pro forma net income (loss) $(26,915) $7,883
Net income (loss) per share as reported $ (0.58) $ 0.29
Pro forma net income (loss) per share $ (0.84) $ 0.24
</TABLE>
However, the impact of outstanding nonvested stock options granted before 1997
has been excluded from this pro forma calculation. As a result, the 1997 and
1996 pro forma adjustments will not reflect future period pro forma adjustments
where the calculation is applied to all applicable stock options.
Deferred Stock Compensation
OSI recorded deferred compensation of $2,272,000 to reflect the difference
between the grant price and the deemed fair value of certain options granted in
1995 and 1994 for its common stock. This amount is being amortized over the
vesting period of the individual options, generally four years. Amortization of
this compensation expense was $415,000, $424,000 and $382,000 for the fiscal
years ended 1997, 1996 and 1995, respectively.
Stock Grant
In November 1995, OSI granted 33,077 shares of common stock to its former Chief
Executive Officer. These shares fully vested in 1997. Compensation expense of
$356,000 and $74,000 related to the granting of shares was recorded in 1997 and
1996, respectively, based on the fair market value at the date of grant.
-37-
<PAGE>
SCHEDULE II
OBJECTIVE SYSTEMS INTEGRATORS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance
Beginning Charged to at End
Classification of Period Operations Deductions of Period
- -------------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended:
June 30, 1995.................... $ 245 $ 360 $ (245) $ 360
======= ====== ======= ======
June 30, 1996.................... $ 360 $ 963 $ (336) $ 987
======= ====== ======= ======
June 30, 1997.................... $ 987 $8,846 $(5,621) $4,212
======= ====== ======= ======
Allowance for Sales Returns
Year Ended:
June 30, 1995.................... $ -- $ 250 $ -- $ 250
======= ====== ======= ======
June 30, 1996.................... $ 250 $ -- $ (150) $ 100
======= ====== ======= ======
June 30, 1997.................... $ 100 $5,371 $(3,171) $2,300
======= ====== ======= ======
</TABLE>
-38-
<PAGE>
Exhibit Index
3.1/2 Certificate of Incorporation.
3.2/2 Bylaws, as amended to date.
10.1/1 Stock Option Plan and form of agreement
10.2 1994 Stock Option Plan, as amended and form of agreement
10.3 1995 Employee Stock Purchase Plan, as amended and form of
agreement
10.4/1 1995 Director Stock Option Plan and form of agreement
10.5/1 Form of Indemnification Agreement between the Registrant and
its Officers and Directors
10.8/1 Standard Office Lease-Gross between Registrant and PIWI
Investments dated February 14, 1994.
10.10/1* Stockholder Rights Agreement among Registrant, Tom L.
Johnson, Richard G. Vento and the purchasers of Preferred
Stock named therein dated Sept. 27, 1995.
10.11/1 Voting Agreement among Registrant, Tom L. Johnson, Richard
G. Vento and the purchasers of Preferred Stock named therein
dated September 27, 1995.
10.12/1 Letter Agreement between Registrant and Joseph T. Ambrozy
dated as of November 24, 1995.
<PAGE>
10.13/2 Form of Indemnification Agreement between the Registrant and
its directors and officers
10.14 Settlement Agreement between the Registrant and Joseph T.
Ambrozy dated April 19, 1997.
10.15 Business Sale Agreement between the Registrant and Open
Technology Pty Limited dated March 14, 1997
10.16 Contract of Purchase and Sale for purchase of real property
between Registrant and The John A. Sobrato 1979 Trust dated
April 7, 1997.
11.1 Statement regarding computation of per share earnings.
23.1 Independent Auditors' Consent
24.1 Power of Attorney (See page 23).
27.1 Financial Data Schedule.
_______________________
* Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the SEC.
/1 Incorporated by reference to exhibits filed with OSI's Registration
Statement on Form S-1 (Reg. No. 33-97506) as declared effective by the
Commission on November 30, 1995.
/2 Incorporated by reference to exhibits filed with OSI's Registration
Statement on Form 8-B (Reg. No. 000-26886) as declared effective by the SEC
on February 4, 1997.
<PAGE>
Exhibit 10.2
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1994 STOCK OPTION PLAN
(AS AMENDED THROUGH JULY 18, 1997)
1. Purposes of the Plan. The purposes of this Stock Option Plan are
--------------------
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as
amended, and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means a Committee appointed by the Board of
---------
Directors in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Objective Systems Integrators, Inc., a
-------
California corporation.
(g) "Consultant" means any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company
registers any class of any equity security pursuant to the Exchange Act, the
term Consultant shall thereafter not include directors who are not compensated
for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon
expiration of a leave of absence approved by the Company is not so guaranteed,
on the 91st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated for
tax purposes as a Nonstatutory Stock Option.
(i) "Employee" means any person, including Officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
<PAGE>
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Option" means a stock option granted pursuant to the Plan.
------
(p) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(q) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(r) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1994 Stock Option Plan.
----
(t) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 below.
(u) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 7,434,830 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
--------
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which
----------------------
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
-2-
<PAGE>
(b) Plan Procedure after the Date, if any, upon Which the Company
-------------------------------------------------------------
becomes Subject to the Exchange Act.
- -----------------------------------
(i) Administration with Respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Options to Employees who are also Officers or
directors of the Company, the Plan shall be administered by (A) the Board if the
Board may administer the Plan in compliance with Rule 16b-3 promulgated under
the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-
------------------------------
3, the Plan may be administered by different bodies with respect to directors,
non-director Officers and Employees who are neither directors nor Officers.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options to Employees or Consultants who
- ---------
are neither directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, of the Code, and of any
applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
-3-
<PAGE>
(d) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:
(i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,375,000 Shares.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
(iii) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the cancelled Option will be counted against the limit
set forth in Section 5. For this purpose, if the exercise price of an Option is
reduced, the transaction will be treated as a cancellation of the Option and the
grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
-4-
<PAGE>
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan, but in no case at a rate of less than 20% per year over five (5) years
from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
-5-
<PAGE>
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company (but not in the event of an Optionee's change of
status from Employee to Consultant (in which case an Employee's Incentive Stock
Option shall automatically convert to a Nonstatutory Stock Option on the ninety-
first (91st) day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the day three months and
one day following such termination. To the extent that Optionee is not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided,
-6-
<PAGE>
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into
------
another corporation, the Option may be assumed or an equivalent option may be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option for
each Share of Optioned Stock subject to the Option to be solely common stock of
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-7-
<PAGE>
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
-8-
<PAGE>
STOCK OPTION AGREEMENT
----------------------
1. DEFINITIONS. Unless expressly stated otherwise in this Stock Option
-----------
Agreement ("Agreement"), the terms in this Agreement will have the same
meanings as in the Objective Systems Integrators 1994 Stock Option Plan
("Plan").
2. GRANT OF OPTION. OSI grants to the Optionee ("you" or "Optionee") named in
---------------
the Notice of Stock Option Grant attached as the first page of the
Agreement ("Notice"), an option ("Option") to purchase the total number of
shares of Common Stock ("Shares") set forth in the Notice, at the exercise
price per share set forth in the Notice ("Exercise Price") subject to the
terms, definitions and provisions of the Plan, which is incorporated into
this Agreement by reference.
If described in the Notice as an Incentive Stock Option ("ISO"), the Option
is intended to qualify an Incentive Stock Option as defined in Section 422
of the Code. However, Incentive Stock Options, to the extent they exceed
the $100,000 rule of Code Section 422(d), will be treated as Nonstatutory
Stock Options ("NSOs").
3. VESTING SCHEDULE. The Option may be exercised, in whole or in part, as
----------------
follows:
(A) 25% of the Shares subject to the Option will vest on the Vest Date in
the Notice; and
(B) 1/48 of the Shares subject to the Option will vest each month
thereafter.
4. EXERCISE. The Option can be exercised with respect to vested Shares, as
--------
follows:
(A) RIGHT TO EXERCISE.
-----------------
(1) The Option may not be exercised for a fraction of a Share.
(2) The Option may be exercised only before it expires and only in
accordance with the Plan and this Agreement. The limitations in
Section 7 of the Plan regarding Options designated as ISOs and
Options granted to more than 10% shareholders will apply.
(3) Subject to the limitation in subsection 4(a)(1), if you die,
become disabled or your employment or consulting relationship
with OSI ends, your ability to exercise the Option is governed by
Sections 8, 9 and 10.
(4) Vesting of Options is earned by continued employment or by a
continued consulting relationship with OSI. The grant of an
Option is not an express or implied promise of continued
employment or a continued consulting relationship for the vesting
period or for any other period.
(B) METHOD OF EXERCISE. This Option can only be exercised by written
------------------
notice to OSI. The notice must (1) state that the Option is being
exercised, (2) recite the number of Shares being acquired, (3) contain
such other representations and agreements concerning the Shares as OSI
may require, (4) be signed by you, (5) be delivered in person or by
certified mail to the Secretary of OSI, and (6) be accompanied by
payment of the Exercise Price. Options will only be deemed to have
been exercised when OSI receives this notice accompanied by the
Exercise Price.
5. METHOD OF PAYMENT. Payment of the exercise price will be by cash, check,
-----------------
surrender of previously owned Common Stock which, on the date of surrender,
has been owned by you for more than six months (or was not acquired
directly from OSI) and has a fair market value equal to the aggregate
exercise price of the Shares being exercised, by delivery of a properly
executed exercise notice together with an irrevocable instruction to a
broker to promptly deliver the exercise price to OSI, or by a combination
of any of the above.
<PAGE>
6. RESTRICTIONS ON EXERCISE. The Option may not be exercised if the exercise
------------------------
itself, the issuance of the Shares or the type of consideration being paid
for the Shares, violates any applicable law, rule or regulation, including
any rule under Part 207 of Title 12 of the Code of Federal Regulations
("Regulation G") or any requirement of a stock exchange on which the Shares
are listed. Assuming no such violation exists, the Shares will be
considered issued on the date the Option is exercised.
7. CHANGE IN STATUS. If your status changes from being an Employee to being a
----------------
Consultant or vice versa (expressed in the Plan as maintaining Continuous
Status as an Employee or Consultant), this Agreement will remain in effect.
8. TERMINATION OF RELATIONSHIP. If you cease being an Employee or Consultant
---------------------------
of OSI (expressed in the Plan as a termination of Continuous Status as an
Employee or Consultant), you may exercise the Option at any time within 30
days after termination to the same extent that you could exercise it on the
date of your termination. To the extent that you were not entitled to
exercise the Option on your termination date, or if you do not exercise the
Option within the thirty-day period, the Option will expire.
9. DISABILITY. Notwithstanding Section 8, if you cease being an employee or
----------
consultant of OSI as a result of your disability, you may exercise the
Option at any time within 12 months after termination to the same extent
you were entitled to exercise it on the date of termination,. To the extent
you were not entitled to exercise the Option on your termination date, or
if you do not exercise the Option within the twelve-month period, the
Option will expire. Moreover, if your disability is not a "disability" as
defined in Section 22(e)(3) of the Code, ISOs will be treated for tax
purposes as a NSOs effective three months and one day after termination.
10. DEATH. Notwithstanding Section 8, if you die while an employee or
-----
consultant of OSI, your estate (or the person who acquired the right to
exercise the Option by bequest or inheritance) may exercise the Option at
any time within 12 months after your death to the same extent that you were
entitled to exercise it on the date of your death,. To the extent you were
not entitled to exercise the Option on the date of your death, or the
Option is not exercised within the twelve-month period, the Option will
expire.
11. NON-TRANSFERABILITY. Options may not be transferred in any manner otherwise
-------------------
than by will or by the laws of descent and distribution. During your
lifetime, the Option may be exercised only by you. The terms of an Option
will be binding upon your executors, administrators, heirs, successors and
assigns.
12. TAX CONSEQUENCES. Below is a brief summary of some of the current U.S.
----------------
Federal tax consequences of exercising an Option and disposing of the
resulting Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE AND THE TAX LAWS
AND REGULATIONS CAN CHANGE. YOU SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
(A) EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no
---------------
regular U.S. Federal income tax liability on exercise. The excess, if
any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price will be treated as an adjustment to the
alternative minimum tax and may subject you to alternative minimum tax
in the year of exercise. However, you may be required at some point to
satisfy tax withholding obligations for a disqualifying disposition of
an ISO. This tax withholding obligation must be satisfied either by
paying the required amounts or having them withheld by OSI from your
compensation.
(B) EXERCISE OF ISO FOLLOWING DISABILITY. If your Continuous Status as an
------------------------------------
Employee or Consultant ends as a result of a disability that is not
total and permanent as defined in Section 22(e)(3) of the Code then,
to the extent permitted on the date of termination, you must exercise
the ISO within 90 days of termination for it to be qualified as an
ISO.
(C) EXERCISE OF NSO. There may be a regular U.S. Federal income tax
---------------
liability on the exercise of an NSO. You will be treated as having
received income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price ("Gain").
<PAGE>
However, the timing for recognizing this Gain may be deferred for up
to six months if you are subject to Section 16 of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). If you are an
Employee or a former Employee, OSI must collect from you or withhold
from your compensation, and pay to the applicable tax authorities, a
percentage of the Gain at the time of exercise. OSI may refuse to
honor the exercise or refuse to deliver Shares if these withholding
amounts are not delivered at the time of exercise.
(D) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for
---------------------
at least one year any gain realized on their disposition will be
treated as long-term capital gain for U.S. Federal income tax
purposes. In the case of an ISO, if the Shares are held for at least
one year after exercise and are disposed of at least two years after
the Date of Grant, any gain realized on their disposition will be
treated as long-term capital gain. If Shares purchased under an ISO
are disposed of within the one-year period or within two years after
the Date of Grant, gain realized on the disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (1) the
Fair Market Value of the Shares on the date of exercise, or (2) the
sale price of the Shares.
(E) NOTICE OF DISQUALIFYING DISPOSITION. If the Option is an ISO, and if
-----------------------------------
you sell or otherwise dispose of any of the Shares acquired under the
ISO on or before the later of (1) two years after the Date of Grant,
or (2) one year after the date of exercise, you agree to immediately
give OSI written notice of the disposition. You may be subject to
income tax withholding by OSI on the compensation income that you
recognize.
13. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and this Agreement constitute the
-------------------------------
entire agreement of the parties with respect to their subject matter and
supersede all prior undertakings and agreements of Optionee and OSI with
respect to that subject matter. This Agreement may not be modified
adversely to your interest except by means of a writing signed by you and
OSI. This Agreement is governed by California law except for that body of
law pertaining to conflict of laws.
VESTING OF SHARES IS EARNED ONLY BY CONTINUED EMPLOYMENT AT THE WILL OF OSI (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
UNDER IT). NEITHER THE OPTION NOR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED EMPLOYMENT FOR
THE VESTING PERIOD OR FOR ANY OTHER PERIOD.
Optionee acknowledges receipt of a copy of the Plan, the Prospectus relating to
the Plan and the OSI Insider Trading Policy ("Policy"). You represent that you
are familiar with the terms of the Plan and accept the Option subject to those
terms. You further represent that you are familiar with the Policy and agree to
abide by the Policy in dealing with OSI securities.
Optionee has reviewed the Plan, the Option and the Policy, has had an
opportunity to obtain legal advice before executing this Agreement, fully
understands the provisions of the Option and specifically acknowledges that the
vesting of shares is earned only by continuing employment or consulting at the
will of OSI (and not through the act of being hired, being granted the Option or
acquiring shares under the Option). You accept as binding, conclusive and final
all decisions or interpretations of the Board of Directors upon any questions
arising under the Plan.
OBJECTIVE SYSTEMS INTEGRATORS, INC.
By: ______________________________ __________________________________
OPTIONEE
Date: ____________________________ Date: ________________________
<PAGE>
EXHIBIT 10.3
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED THROUGH JULY 18, 1997)
The following constitute the provisions of the 1995 Employee Stock Purchase
Plan of Objective Systems Integrators, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Objective Systems Integrators, Inc. and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all W-2 compensation of the
------------
participant.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(4) For purposes of the Enrollment Date under the first Offering
Period, the Fair Market Value shall be the initial price to the public as set
forth in the final Prospectus included within the Registration Statement in Form
S-1 filed with the Securities and Exchange Commission for the initial public
offering of the Company's Common Stock.
(k) "Offering Period" shall mean the period of approximately twenty-
---------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after April 30 and October
31 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later. The first Offering Period shall begin on the effective
date of the Company's initial public offering of its Common Stock that is
registered with the Securities and Exchange Commission and shall end on the last
Trading Day on or before October 31, 1997. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee (as defined in Section 2(g)), who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate in
the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase such stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of the capital stock of the Company or of any Subsidiary, or (ii) which
permits his or her rights to purchase stock under all employee stock purchase
plans of the Company and its subsidiaries to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) worth of stock (determined at the fair
market value of the shares at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after April 30 and October 31 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 19 hereof. The first Offering Period shall begin on the
Effective Date of the Company's initial public offering of its Common Stock that
is registered with the Securities and Exchange Commission. The Board shall have
the power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without shareholder approval if
such change is announced at least five (5) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing
<PAGE>
it with the Company's payroll office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed fifteen percent (15%) of the participant's Compensation during
said Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions once during any Purchase Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Purchase Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% at such time during any Purchase
Period which is scheduled to end during the current calendar year (the "Current
Purchase Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Purchase Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make
<PAGE>
adequate provision for the Company's federal, state, or other tax withholding
obligations, if any, which arise upon the exercise of the option or the
disposition of the Common Stock. At any time, the Company may, but will not be
obligated to, withhold from the participant's compensation the amount necessary
for the Company to meet applicable withholding obligations, including any
withholding required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by the
Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the
-5-
<PAGE>
participant's payroll deductions credited to his or her account will be paid to
such participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions will not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof), for any reason, he or she will be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 1,487,500, subject to
adjustment upon changes in capitalization of the Company as provided in Section
18 hereof. If, on a given Exercise Date, the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall deter mine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the
-------------------
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have
<PAGE>
full and exclusive discretionary authority to construe, interpret and apply the
terms of the Plan, to determine eligibility and to adjudicate all disputed
claims filed under the Plan. Every finding, decision and determination made by
the Board or its committee shall, to the full extent permitted by law, be final
and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
----------------------
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such participant
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
-7-
<PAGE>
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Periods will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Periods then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Board shortens the Offering
Periods then in progress in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for his option has been changed to the New Exercise Date and that his
option will be exercised automatically on the
-8-
<PAGE>
New Exercise Date, unless prior to such date he has withdrawn from the Offering
Period as provided in Section 10 hereof. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock and the sale of
assets or merger.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under
-9-
<PAGE>
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
23. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________________________ hereby elects to participate in
the Objective Systems Integrators, Inc. 1995 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
_____ of my Compensation on each payday (1-15%) during the Offering Period
in accordance with the Employee Stock Purchase Plan. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete "Objective Systems Integrators, Inc.
1995 Employee Stock Purchase Plan." I understand that my participation in
the Employee Stock Purchase Plan is in all respects subject to the terms of
the Plan. I understand that my ability to exercise the option under this
Subscription Agreement is subject to obtaining shareholder approval of the
Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and spouse only):
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased
<PAGE>
such shares) or one year after the Exercise Date, I will be treated for
federal income tax purposes as having received ordinary income at the time
of such disposition in an amount equal to the excess of the fair market
value of the shares at the time such shares were purchased over the price
which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN
---------------------------------------
WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I
---------------------------------------------------------------------------
WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING
------------------------------------------------------------------------
OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK.
-------------------------------------------------------------------------
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
__________________________________ __________________________________________
Relationship
__________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Objective Systems
Integrators, Inc. 1995 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:__________________________
-4-
<PAGE>
OBJECTIVE SYSTEMS INTEGRATORS, INC.
ID:
OPTION NUMBER:
PLAN: ISO
ID:
Effective, you have been granted an Incentive Stock Option to buy_________
----------------------
shares of Objective Systems Integrators, Inc. ("OSI") stock at ___________ per
share.
The total option price of the shares granted is ______________.
Shares in each period will become fully vested on the date shown.
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
By your signature and OSI's signature below, you and OSI agree that these
options are granted under. and governed by the terms and conditions of. OSI's
Stock Option Plan. as amended, and the Option Agreement, all of which are
attached and made a part of this document.
- ----------------------------------- ---------------------------------
OBJECTIVE SYSTEMS INTEGRATORS, INC. Date
- ----------------------------------- ---------------------------------
Date
<PAGE>
Exhibit 10.14
SEVERANCE AGREEMENT, GENERAL RELEASE AND
COMPROMISE AND CONSULTING AGREEMENT ("Agreement")
For good and valuable consideration, receipt of which is hereby
acknowledged, and in order to resolve and settle finally, fully and completely
any and all matters and disputes that may exist between them, the parties agree
as follows:
1. In exchange for the promises contained in this Agreement, JOSEPH T.
AMBROZY, his heirs, representatives, successors, beneficiaries and assigns
(hereinafter referred to collectively as "Ambrozy"), hereby waives, releases and
discharges, and agrees that he will not institute, prosecute or pursue, any and
all complaints, claims, demands, suits, actions and causes of action, whether in
law or in equity, which he asserts or could assert at common law or under any
statute, rule, regulation, order, or law, whether federal, state or local, or on
any grounds whatsoever, against OBJECTIVE SYSTEMS INTEGRATORS, INC., and/or any
of its current or former owners, officials, directors, officers, shareholders,
affiliates, agents, representatives, servants, employees, successors, attorneys,
subsidiaries, parents, predecessors, divisions, branches, employee benefit
plans, and assigns (hereinafter referred to as "OSI"), with respect to any
event, matter, claim, damages or injury, of any kind whatsoever, arising at any
time prior to execution of this Agreement by Ambrozy. The claims which are
hereby waived, released and discharged by Ambrozy include, but are not limited
to, all rights or claims under the Age Discrimination in Employment Act, 29
U.S.C.[ ]621 et seq.
2. As a further consideration and inducement for this Agreement, Ambrozy
hereby waives all rights under Section 1542 of the California Civil Code or any
analogous state, local or federal law, statute, rule, order or regulation.
California Civil Code Section 1542 reads as follows: A General Release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor.
Notwithstanding the quoted paragraph, Ambrozy hereby expressly agrees that this
Agreement shall extend to and apply to all unknown, unsuspected and
unanticipated injuries and damages, as well as those that are now known or
suspected, which have arisen on or before the date of execution of this
Agreement.
3. In exchange for the promises contained in this Agreement, OSI hereby
waives, releases and discharges, and agrees that it will not institute,
prosecute or pursue, any and all complaints, claims, demands, suits, actions,
and causes of action, whether in law or in equity, which it or they assert or
could assert at common law or under any statute, rule, regulation, order, or
law, whether federal, state or local, or on any grounds whatsoever, against
Ambrozy, with respect to any event, matter, claim, damages, or injury, of any
kind whatsoever, arising at any time prior to execution of this Agreement, by
OSI. The claims which are hereby waived, released, and discharged by OSI
include, but are not limited to, all rights or claims arising out of or relating
to the employment relationship between Ambrozy and OSI.
4. As a further consideration and inducement for this Agreement, OSI
hereby waives all rights under Section 1542 of the California Civil Code or any
analogous state, local or federal law, statute, rule, order or regulation.
California Civil Code Section 1542 reads as follows: A General Release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor.
Notwithstanding the quoted paragraph, OSI hereby expressly agrees that this
Agreement shall extend to and apply to all unknown, unsuspected and
unanticipated injuries and damages, as well as those that are now known or
suspected, which have arisen on or before the date of execution of this
Agreement.
5. The parties hereby agree and understand, as the following terms are
generally used and interpreted, that:
<PAGE>
(a) Immediately following his separation from OSI, OSI will retain Ambrozy
as an independent consultant. From April 21, 1997 through December 31, 1997, the
rate of compensation for duties performed as an independent consultant will be
equal to Ambrozy's base salary rate of $350,000 per year. Such compensation
shall be paid periodically in accordance with normal Company payroll practices
and subject to the usual required withholding. As an independent consultant,
Ambrozy will retain, through December 31, 1997, all the medical and insurance
benefits, including long term disability, he enjoyed as an employee of OSI.
Thereafter, to ensure that the option to purchase the shares of OSI Common
Stock, identified below in subsections (d)(e) and (f), remain valid and in
effect, OSI will retain Ambrozy as an independent consultant, at a fee of $1.00
per year, without any additional benefits, for the remaining vesting period of
each of the separate stock options as provided for in the applicable stock
option plan. In return, Ambrozy will perform such duties for OSI during this
period as reasonably requested by OSI.
(b) Twenty-one (21) business days after the execution of this Agreement by
Ambrozy, Ambrozy shall also receive as severance One Million Dollars
($1,000,000.00), less all legally mandated withholding, in full compromise of
any claim or potential claim as set forth above. Said severance payment is in
lieu of the severance payments identified in Section 6(i) of the Employment
Agreement attached hereto as Exhibit A, and any accrued vacation pay. Upon
receipt of said amount by Ambrozy, OSI's obligation to provide severance
payments pursuant to Section 6(i) of the Employment Agreement will be fully
satisfied.
(c) Ambrozy's restricted stock grant of 33,077 shares of OSI Common Stock,
as set forth in Section 4(b)(ii) of the Employment Agreement and the Restricted
Stock Award Agreement (attached hereto as Exhibit B), is currently 100% vested
as of July 20, 1996, notwithstanding the provisions of OSI's 1994 Stock Option
Plan, amended August 14, 1995. (Attached hereto as Exhibit C.) The certificates
confirming ownership of the restricted stock grant of 33,077 shares of OSI
Common Stock will be transferred to Ambrozy within twenty-one (21) business days
after execution of this Agreement.
(d) Ambrozy's option to purchase 240,000 shares of OSI Common Stock at
$13.00 per share shall remain valid and in effect pursuant to the terms of the
1994 Stock Option Agreement executed November 29, 1995. (Attached hereto as
Exhibit D, including Attachments A and B thereto). The aforesaid stock options
shall continue to vest according to the vesting schedule set forth in said Stock
Option Agreement.
(e) Ambrozy's option to purchase 200,000 shares of OSI Common Stock at
$25.50 per share as of July 20, 1996, shall remain valid and in effect pursuant
to the terms of the Stock Option Agreement executed August 13, 1996. (Attached
hereto as Exhibit E, including Attachments). The aforesaid stock options shall
continue to vest according to the vesting schedule set forth in said Stock
Option Agreement.
(f) Ambrozy's option to acquire the 50,000 shares of OSI Common Stock
pursuant to the Employment Agreement and the Stock Option Agreement (attached
hereto as Exhibit F), executed November 7, 1995, shall remain valid and in
effect pursuant to the terms of said Stock Option Agreement. The aforesaid stock
options shall continue to vest according to the besting schedule set forth in
said Stock Option Agreement and sections 8(c) and 10 of the 1995 Director Option
Plan. (Attached hereto as Exhibit G.)
//
(g) Within twenty-one (21) business days after the execution of this
Agreement, Ambrozy will have listed his Granite Bay house (the "House") for
sale. Ambrozy agrees to use his best efforts to sell the house subject to
reasonable terms and at a price reflective of its market rate value at the time
of the sale. In connection with the foregoing, OSI will do one of the following,
as applicable: (1) if the House is not subject to a contract for sale entered
into before December 31, 1997, OSI will promptly thereafter arrange for its
purchase by a reputable relocation company and will reimburse Ambrozy, at the
time of closing, for any capital loss he may suffer on his sale of the House,
based on an agreed capital basis of $757,500; (2) if the House is subject to a
contract for sale entered into before December 31, 1997, OSI will reimburse
Ambrozy, at the time of closing, for any capital loss he may suffer on his sale
of the House, based on an agreed capital basis of $757,500. In either event, all
closing costs will be for Ambrozy's account and any payments made by OSI to
Ambrozy related to this item will be grossed up for federal income tax purposes.
<PAGE>
(h) OSI will pay for the relocation of Ambrozy's personal possessions to
such location in the continental United States as he may choose. Any payment to
Ambrozy related to this item will be grossed up for federal income tax purposes.
(i) OSI will pay, as they become due, the four remaining premium payments
(each approximately $5,800) on Ambrozy's existing One Million Dollar
($1,000,000.00) life insurance policy. Any income imputed to Ambrozy for this
item will be grossed up for federal income tax purposes.
(j) In the event of a change of control of OSI, as defined herein,
Ambrozy's stock options, as identified above in Section 5(c)(d)(e) and (f),
shall immediately become 100% vested. Upon said vesting of the identified stock
options pursuant to a change in ownership, Ambrozy will have the opportunity to
exercise the options pursuant to the terms of the appropriate governing stock
option plan. For purposes of this Agreement, the following terms have the
meanings as set forth below:
(i) A "Change in Control" will occur if (1) any person, as
that term is used in Section 13(d) and 14(d)(2) of the Securities and Exchange
Act of 1934 ("Exchange Act"), other than OSI, is or becomes the beneficial
owner, as defined in Rule 13(d)3 under the Exchange Act, directly or indirectly
(including by holding securities which are exercisable for or convertible into
shares of capital stock of OSI, of 50% or more of the combined voting power of
the outstanding shares of capital stock of OSI entitled to vote generally in the
election of directors (calculated as provided in Rule 13(d) under the Exchange
Act in the case of rights to acquire capital stock), whether by means of a
tender offer or exchange offer, a Transaction or otherwise, (2) a Transaction is
consummated, (3) the Continuing Directors at any time during the term of this
Agreement, for any reason including, but not limited to, resignation, removal,
death, or disability of a Continuing Director or an increase in the number of
members of the Board, fail to constitute a majority of the Board, or (4) a
majority of OSI's Outside Directors determine that a Change of Control has
occurred. Notwithstanding the foregoing, a "Change in Control" will not be
deemed to have occurred in respect of any transfer of stock ownership within or
among the Johnson family or the Vento Family, respectively, provided that, both
before and after the transfer, either Tom L. Johnson or Richard G. Vento retain
the sole right to vote such shares in all matters related to OSI.
//
(ii) A "Continuing Director" is (1) a member of the Board
serving on January 1, 1997, other than Ambrozy or (2) a person thereafter
elected by shareholders or appointed by the Board whose election, appointment or
recommendation by the Board was approved by at least a majority of the
Continuing Directors then serving on the Board.
(iii) "Disability" means that the Officer, in the reasonable
judgment of the Board, is incapable or performing the duties of his office by
reason of illness or physical or mental disability, where the condition has
continued for a period of more than three consecutive months.
(iv) "Johnson Family" is Tom L. Johnson, Donna Johnson, any
descendant of either, including by adoption, and any legal entity of which Tom
L. Johnson exercises sole voting power and control.
(v) "Vento Family" is Richard G. Vento, Lana J. Vento, any
descendant of either, including by adoption, and any legal entity of which
Richard G. Vento exercises sole voting power and control.
(vi) "Outside Director" is a person other than Tom L. Johnson
and Richard G. Vento, who is not, and who during the past six months was not, an
employee or officer of OSI.
(vii) A "Transaction" is (1) a consolidation or merger
involving OSI, other than a merger solely to effect a reincorporation or a
merger as to which stockholder approval is not required under Sections 251(f) or
253 of the Delaware General Corporation Law, (2) a sale, lease, exchange or
other transfer (in one transaction of a series of related transactions) of 50%
or more of OSI's assets, or (3) the adoption of any plan or proposal for the
liquidation of dissolution of OSI.
(k) Should any OSI stock options be repriced at any time, Ambrozy will not
be eligible to receive, nor will he accept, the benefit of any such repricing.
6. Ambrozy and OSI understand and agree that this Agreement, and each and
every provision hereof, is confidential and shall be maintained in strictest
confidence except as to reasonably announce Ambrozy's departure from OSI. It is
further agreed that neither party will disclose the amount of settlement nor any
other provision of this Agreement except for Ambrozy's departure from OSI, to
any
<PAGE>
other person, firm, organization or entity, of any and every type, public or
private, including, but not limited to, news media, for any reason, at any time,
except as required by law. Moreover, OSI and Ambrozy agree that neither party
will undertake any course of action or make any representation about the other
that will harm or damage the reputation of the other party.
7. Ambrozy warrants and represents that he has the full right, title and
interest in and to the claims being released herein, that no other entity has
any lien or other interest therein, or in the payments referred to in Paragraph
5, above.
8. OSI agrees to indemnify Ambrozy pursuant to the terms of the
Indemnification Agreement entered into on or about January 18, 1997. (Attached
hereto as Exhibit H.)
9. The acceptance of the Agreement is expressly conditioned on each
party's approval of any press releases published or disseminated by either party
with respect to Ambrozy's separation of employment from OSI. Neither party shall
unreasonably withhold approval of any pending press release.
10. The prevailing party in any action brought to enforce the terms of
this Agreement, or to cure or remedy any breach thereof, shall be entitled to
costs and reasonable attorneys' fees.
11. Ambrozy has read this Agreement and represents that he fully
understands and appreciates the meaning of each of its terms. He also
acknowledges that he has consulted with an attorney regarding its terms prior to
executing this Agreement. Ambrozy also understands that he may take twenty-one
(21) days in which to consider this Agreement before executing it, and that
after executing it, he will have seven (7) days following the date of its
execution in which he may revoke this Agreement by promptly delivering written
notice to OSI and by returning to OSI any portion of the consideration set forth
in paragraph 5, above, which may have been paid to him. The parties acknowledge
that this Agreement shall not become effective or enforceable until after the
expiration of the seven (7) day revocation period and that Ambrozy is not
entitled to retain any consideration hereunder if he revokes this Agreement
prior thereto.
12. The parties to this Agreement represent that this Agreement may be
used as evidence in a subsequent proceeding in which any of the parties allege a
breach of this Agreement, or seek to enforce the provisions of this Agreement.
13. This Agreement constitutes the complete understanding between Ambrozy
and OSI and supersedes any and all prior agreements, promises or inducements, no
matter what its or their form, concerning its subject matter. No promises or
agreements made subsequent to the execution of this Agreement by these parties
shall be binding unless reduced to writing and signed by authorized
representatives of these parties.
14. Ambrozy represents that he has not filed any complaints, claims or
actions against OSI, or their agents or assigns, including OSI's officers,
agents, directors, supervisors, employees, or representatives with any state,
federal, or local agency or court, that he will not do so at any time hereafter
for any act which occurred prior to signing this Agreement, and that if he did,
he will withdraw any such charges which may have been filed.
15. Should any provision of this Agreement be declared or be determined by
a court of competent jurisdiction to be wholly or partially illegal, invalid, or
unenforceable, the legality, validity and enforceability of the remaining parts,
terms or provisions shall not be affected thereby, and said // illegal,
unenforceable or invalid part, term, or provision shall be deemed not to be part
of this Agreement.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts entered into herein,
and with this Agreement.
DATED: April 19, 1997.
/s/ Joseph T. Ambrozy
JOSEPH AMBROZY
DATED: April 19, 1997. OBJECTIVE SYSTEMS /s/ Philip N. Cardman
INTEGRATORS, INC.
<PAGE>
By:
Its: Vice President and General Counsel
307A"Ambrozy No. 2"
<PAGE>
Exhibit 10.15
S/325226DeedSydney
OBJECTIVE SYSTEMS INTEGRATORS PTY LIMITED
OPEN TECHNOLOGY PTY LIMITED
BUSINESS SALE AGREEMENT
CORRS CHAMBERS WESTGARTH
Solicitors
Level 32
Governor Phillip Tower
1 Farrer Place
SYDNEY NSW 2000
AUSTRALIA
Tel: (02) 9210 6500
Fax: (02) 9210 6611
DX: 133 Sydney
Ref: WJK/GAH
OSII3333-001
325226
CONTENTS
RECITALS
OPERATIVE PROVISIONS
1 INTERPRETATION
1.1 Definitions
1.2 Construction
1.3 Headings
2 SALE AND PURCHASE OF THE BUSINESS
2.1 Sale and purchase of the Business
2.2 Purchase Price
2.3 Time and manner of payment
2.4 Investment of the Escrow Amount
2.5 Release of the Escrow Amount
2.6 Conversion to Australian Dollars after Completion
3 CONDITIONS PRECEDENT TO COMPLETION
3.1 Conditions to be satisfied by OT
3.2 Fulfilment of conditions
3.3 Termination Date
4 COMPLETION
4.1 Time and place of Completion
4.2 Delivery by OSI
4.3 Delivery by OT
4.4 Further actions by OT
4.5 Passing of title
4.6 Passing of risk
4.7 Interdependence of obligations
4.8 Risk Assumption Date
5 EMPLOYEES
5.1 Termination of employment
5.2 Employees not employed by OSI
<PAGE>
5.3 Transferring Employees
5.4 Terms of employment
5.5 OT's indemnity with respect to the Transferring Employees
5.6 OSI's indemnity with respect to the Transferring Employees
5.7 Superannuation
6 CONTINUITY OF BUSINESS
7 ASSIGNMENT OF CONTRACT
7.1 Assignment of the Specified Contract
7.2 Non-assignment of the Specified Contracts
7.3 Assumption of liabilities by OSI
8 WARRANTIES
8.1 The Warranties
8.2 The Warranties repeated
8.3 Access to facilities
8.4 Warranties survive Completion
8.5 Limitation of liability for breach of Warranties
9 WARRANTY RETENTION RESERVE CLAIM PROCEDURE
9.1 Warranty Claim Notice
9.2 Warranty Payment Amount
10 OT'S OBLIGATIONS
10.1 Accounting records
10.2 Confidentiality
10.3 Conduct of the Business and the Assets pending Completion
10.4 Litigation
10.5 Availability of information to OSI
10.6 Compliance with the Law
10.7 Statutory notices
10.8 Costs of obtaining third party consents
10.9 Correct information
10.10 Obligation to update information
11 OSI'S OBLIGATIONS
11.1 Prior to Completion
12 INDEMNITY BY OT
13 TERMINATION
13.1 OSI's termination events
13.2 Other termination events
13.3 Termination prior to Completion
14 WARRANTY BY OSI
15 ANNOUNCEMENTS
15.1 Confidentiality
15.2 Stock Exchange
16 NOTICES
16.1 General
16.2 Method of service
16.3 Address for service
16.4 Service by post
16.5 Service by facsimile
16.6 Form received
16.7 Process service
16.8 Service after hours
17 MISCELLANEOUS
17.1 Stamp Duty
17.2 Legal Costs
17.3 Amendment
<PAGE>
17.4 Waiver and Exercise of Rights
17.5 Rights Cumulative
17.6 Approvals and Consent
17.7 Further Assurance
17.8 Computation of Time
17.9 Governing Law and Jurisdiction
17.10 Assignment
17.11 Joint and Several Liability
17.12 Counterparts
17.13 Entire Understanding
SCHEDULE 1
1.1 Ownership of Assets
1.2 Accurate information
1.3 Litigation
1.4 Insolvency etc.
1.5 Contracts and Specified Contracts
1.6 Employees
1.7 Compliance with law/licences
1.8 Business Records
1.9 Statutory notices
1.10 Corporate power
1.11 Corporate action
1.12 Plant and equipment
1.13 Stamp duty
1.14 Effects of this agreement
1.15 Accounts
1.16 Position since Accounts Date
1.17 Liabilities and commitments
1.18 Agent
SCHEDULE 2
SCHEDULE 3
SCHEDULE 4
EXECUTION
ANNEXURE A
ANNEXURE B
ANNEXURE C
ANNEXURE D
ANNEXURE E
ANNEXURE F
ANNEXURE G
ANNEXURE H
ANNEXURE I
ANNEXURE J
ANNEXURE K
THIS Deed is made on 14 March 1997 BETWEEN OBJECTIVE SYSTEMS INTEGRATORS PTY
LIMITED ACN 077 810 596 of Level 6, 90 Mount Street, North Sydney, New South
Wales ("OSI") AND OPEN TECHNOLOGY PTY LIMITED ACN 056 010 121 of 4/41 Sutherland
Street, Cremorne, New South Wales, Australia, 2090 ("OT") RECITALS
A OT is the owner of the Assets and carries on the Business.
<PAGE>
B OT desires to sell the Business and the Assets and OSI has agreed to
purchase the Business and the Assets on the terms of this agreement.
C To induce OSI to enter into this agreement OT has made representations
to OSI in the terms of the Warranties with the intention that OSI should rely
upon the Warranties.
OPERATIVE PROVISIONS
INTERPRETATION
Definitions
In this document:
"Accounting Standards" means:
the accounting standards as defined in the Corporations Law;
where not inconsistent with the accounting standards referred to in paragraph
(a) Australian Accounting Standards; and
where not inconsistent with the accounting standards referred to in paragraph
(a) or Australian Accounting Standards, generally accepted accounting principles
and practices in Australia consistently applied.
"Accounts" means profit and loss accounts and balance sheet of OT and includes
all statements, reports and notes attached to or intended to be read with any of
those profit and loss accounts or balance sheets, a copy of which comprises
Annexure A.
"Accounts Date" means 31 December 1996.
"Assets" means all the assets used in the Business comprising without
limitation:
the Plant and Equipment;
the Business Records; and
the Contract Benefits,
but excludes Book Debts and cash relating to the Business up to Risk Assumption
Date and OT's rights under this agreement.
"Australian Accounting Standards" means the accounting standards issued by the
Institute of Chartered Accountants in Australia and the Australian Society of
Certified Practising Accountants.
"Book Debts" means any receivable of OT referable to the conduct of the Business
sent out prior to 21 February 1997.
"Budget Schedule" means the budget schedule of expected expenses for the period
from the Risk Assumption Date up to Completion, a copy of which is annexed as
Annexure K.
"Business" means the Net Expert business of OT which involves the use of OSI's
Net Expert products and includes without limitation the Specified Contracts
including computer software importation, creation, implementation, distribution
and maintenance as well as technical consulting associated with the software and
implementation of projects forming part thereof.
"Business Day" means a day on which banks are open for general banking business
in Sydney.
"Business Handover Period" means the period of 90 days from Completion during
which OT will provide reasonable assistance to OSI to conduct the Business and
during which time OSI will provide the necessary funds to OT to conduct the
Business in accordance with clause 6.
"Business Handover Period Adjustment" means a financial adjustment between OSI
and OT at the expiry of the Business Handover Period in respect of the
assistance provided by OT to OSI in its conduct of the Business during the
Business Handover Period.
"Business Records" means, in respect of the Business only, all of OT's books of
account, customer and supplier lists, financial and business data, employee
data, technical data and all OT's other records, data, information and documents
used in the creation or calculation of such information relating to the
Business, the Assets and Employees whether recorded or stored in written form,
electronically or otherwise.
"Completion" means completion of the sale and purchase of the Business in
accordance with the terms of this agreement.
"Completion Amount" means 75% of the Purchase Price.
"Completion Date" means the date on which the sale and purchase of the Business
is completed, in accordance with clause 4.1.
"Confidential Information" means information of every kind concerning or in any
way relating to the customers, business transactions, business methods, records,
forms, charges, financial affairs, trade secrets
<PAGE>
and knowhow of the Business other than information which is in the public domain
and excluding all the foregoing which is not related to the Business.
"Consultant" means the services of any person retained by OT in respect of the
Business at the date of this agreement otherwise than as a PAYE employee in
respect of more than 15 hours per week.
"Consulting Agreement" means a consulting agreement substantially in the form of
Annexure J.
"Contract Benefits" means all express or implied interest of OT in the Specified
Contracts.
"Corporations Law" means the Corporations Law and the Corporations Regulations
in each Australian jurisdiction and (where the context so permits) includes any
statute, ordinance, code or any prior corresponding legislation.
"Deed of Novation" means a deed of novation substantially in the terms of
Annexure E.
"Disclosure Letter" means the disclosure letter in the form of Annexure G.
"Distribution Agreement" means the distribution agreement entered into by OT and
OSI dated 16 June 1995.
"Employee Offer Letter" means a letter of offer of employment to an Employee
from OSI substantially in the form of Annexure I.
"Employee Retention Claim Event" means less than all 29of the named Employees in
Annexure D accepting bona fide offers of permanent employment or engagement by
OSI in respect of the Business on the terms set out in the Employee Offer Letter
and the Consulting Agreement.
"Employee Retention Claim Notice" means a written notice from OSI to OT and to
the Escrow Agent which makes a claim on OT in respect of an Employee Retention
Claim Event which is in accordance with the provisions of this agreement.
"Employee Retention Payment Amount" means the amount determined by multiplying
the number by which the number of Employees who accept offers of employment and
engagement from OSI (as determined by clause 5) is less than 30 29by the amount
of US$30,000 provided that where OT does not agree with an Employee Retention
Claim Notice, the number of Employees not accepting offers of employment or
engagement from OSI is the number determined by the Expert. The parties
acknowledge that the amount of US$30,000 is a genuine pre-estimate of loss that
will be suffered by OSI in the circumstances.
"Employee Retention Reserve" means 12.5% of the Purchase Price.
"Employees" means all the employees and Consultants of OT engaged in the
Business comprising the Key Employees and those listed in Part B of Annexure D.
"Encumbrance" means any mortgage, charge (whether fixed or floating) pledge,
lien (including, without limitation any unpaid vendor's lien or similar),
option, hypothecation, title retention or conditional sale agreement, lease,
hire or hire purchase agreement, option, restriction as to transfer, use or
possession, easement, subordination to any right of any other person, and any
other encumbrance or security interest.
"Escrow Agent" means the accounting firm Williams, Hatchman and Kean or such
other party agreed to in writing by the parties
"Escrow Amount" means the amount calculated in accordance with clauses 2.3(b)
and 2.3(c).
"Escrow Agreement" means an agreement to be entered into by OSI, OT and the
Escrow Agent pursuant to which the Escrow Agent will hold the Escrow Amount.
"Existing Employment Terms" means the remuneration and other allowances and
general work conditions and incentives to which all Employees are entitled.
"Expert" means the accounting firm Pannell Kerr Forster, or such other expert as
the parties may agree to in writing.
"Insolvency Event" means:
the bankruptcy of the person concerned; the appointment of an official manager
in respect of all or any part of the property of the person concerned;
the entry by the person concerned into a scheme of arrangement or a composition
with, or assignment for the benefit of, all or any class of its creditors, or a
moratorium involving any of them;
the person concerned being or stating that it is unable to pay its debts when
they fall due;
the appointment of a receiver, receiver and manager or provisional liquidator in
respect of the person concerned or any part of its property;
<PAGE>
the making of a winding up order, or the passing of or attempted passing of a
resolution for winding up, in respect of the person concerned except for the
purposes of reconstruction including, without limitation, the issue of a notice
of meeting at which it is proposed to consider such resolutions;
an application being made (which is not dismissed within five Business Days) for
an order, resolution being passed or proposed, a meeting being convened or any
other action being taken to cause anything described above;
anything analogous to or of a similar effect to anything described above under
the law in any relevant jurisdiction; and
any valid attempt to enforce any Encumbrance over any of the Assets.
"Key Employees" means all the key employees of OT engaged in the Business
including those listed in Part A of Annexure D.
"Loss" means any loss (including loss of profit and loss of expected profit but
not consequential loss), claim, action, liability, damage, cost, charge,
expense, diminution in value or deficiency of any kind or character which acting
reasonably OSI pays, suffers or incurs or is liable for including, without
limitation:
all liabilities on account of Taxes;
all interest and other amounts payable to third parties; and
all legal (on a full indemnity basis) and other expenses incurred in connection
with investigating or defending any claim or action, whether or not resulting in
any liability and all amounts paid in settlement of claim or action,
but taking into account any Offsetting Benefit.
"Management Agreement" means a management agreement substantially in the form of
Annexure B.
"Non-Compete Agreement" means the non-compete agreement to be entered into
between OSI and Leone Frances Passlow, substantially in the form of Annexure H.
"Offsetting Benefit" means any saving or benefit on the part of OSI including a
reduction in cost or in any Tax which is attributable to any Warranty Claim
Event.
"Operative Date" means the date of this document.
"Plant and Equipment" means all plant and equipment specified in Annexure C.
"Premises" means the location from which the Business is conducted as specified
in Schedule 2.
"Proceeding" includes any claim, suit or litigation whether:
criminal, administrative or by way of arbitration; or
before any court, arbitrator, expert, tribunal, governmental board, commission,
authority, agency, department, officer or otherwise.
"Purchase Price" means the amount set out in clause 2.2, adjusted for the
Employee Retention Payment Amount and the Warranty Payment Amount and for any
other adjustments required to be made hereunder.
"Related Body Corporate" of a corporation means another corporation which is
related to the first corporation within the meaning of s 50 of the Corporations
Law.
"Release Date" means the date that is one year after the Completion Date.
"Relevant Information" means all information which has been given to OSI or
OSI's advisers by or on behalf of OT or which has otherwise been obtained by
them including, without limitation, information supplied by the directors,
auditors or other officers or employees of OT.
"Risk Assumption Date" means 21 February 1997.
"Specified Contract" means each and every contract, agreement and arrangement
relating to the Business, whether oral or written, as at the Completion Date
specified in Schedule 3
"Taxes" includes:
all taxes levied, imposed or assessed under to the Income Tax Act or any other
statute, ordinance or law, in Australia or elsewhere: and
taxes in the nature of sales tax, consumption tax, value added tax, payroll tax,
group tax, PAYE, undistributed profits tax, fringe benefits tax, recoupment tax,
withholding tax, land tax, water rates, municipal rates, stamp duties, gift
duties or other state, territorial, Commonwealth or municipal charges or
impositions levied, imposed or collected by any government body, together with
any additional tax, interest, penalty, charge, fee or other amount of any kind
assessed, charged or imposed in relation to the non, late or short payment of
the same or the failure to file any return.
"Termination Date" means 28 March 1997 or such other date as may be agreed by OT
and OSI in writing.
"Termination Deed" means the deed to be entered into by OT and OSI in the form
of Annexure F.
<PAGE>
"Transferring Employee" means each of the Employees to whom OSI makes an offer
of employment or engagement and who accepts OSI's offer of employment or
engagement.
"Warranties" means all of the representations of OT in this document including
those set out in Schedule 1.
"Warranties Retention Reserve" means 12.5% of the Purchase Price.
"Warranty Claim Event" means a circumstance which entitles OSI to make a claim
upon OT for a breach of the Warranties.
"Warranty Claim Notice" means a written notice from OSI to OT and to the Escrow
Agent which makes a claim on OT for breach of the Warranties and which specifies
what the Warranty Claim Event is and what Loss OSI has sustained each in
sufficient detail to enable OT to determine the sustainability of the claim
together with a statement of what, if any, Offsetting Benefit arose.
"Warranty Payment Amount" means:
the amount specified in a Warranty Claim Notice as the Loss minus any Offsetting
Benefit specified therein; or
where the Expert makes a decision, the amount, if any, so determined by the
Expert.
Construction
Unless expressed to the contrary:
words importing:
the singular include the plural and vice versa; and
any gender includes the other genders;
if a word or phrase is defined cognate words and phrases have corresponding
definitions;
a reference to:
a person includes a firm, unincorporated association, corporation and a
government or statutory body or authority;
a person includes its legal personal representatives, successors and assigns;
a statute, ordinance, code or other law includes regulations and other statutory
instruments under it and consolidations, amendments, re-enactments or
replacements of any of them;
a right includes a benefit, remedy, discretion, authority or power;
an obligation includes a warranty or representation and a reference to a failure
to observe or perform an obligation includes a breach of warranty or
representation;
provisions or terms of this document or another document, agreement
understanding or arrangement include a reference to both express and implied
provisions and terms;
time is to local time in New South Wales;
unless otherwise indicated, "$" or "dollars" is a reference to the lawful
currency of Australia;
this or any other document includes the document as varied or replaced and
notwithstanding any change in the identity of the parties;
writing includes any mode of representing or reproducing words in tangible and
permanently visible form, and includes facsimile transmission;
any thing (including, without limitation, any amount) is a reference to the
whole or any part of it and a reference to a group of things or persons is a
reference to any one or more of them.
a reference to this agreement includes all schedules, annexures and
appendices referred to in it;
Headings
Headings do not affect the interpretation of this document.
SALE AND PURCHASE OF THE BUSINESS
Sale and purchase of the Business
Subject to clause 3, on the Completion Date OT shall, as beneficial owner, sell
free from Encumbrances, and OSI, or a Related Body Corporate of OSI, (relying on
the Warranties and the indemnities in this agreement) shall purchase as at and
from Completion free from Encumbrances the Business together with all rights
attaching to the Business including, without limitation, the Assets for the
Purchase Price.
Purchase Price
The purchase price is US$3.5 million in respect of the Assets, adjusted in
accordance with clause 5.3.
Time and manner of payment
OSI shall pay, or cause a Related Body Corporate to pay:
<PAGE>
to OT (or as OT's solicitors direct in writing) by unendorsed bank cheque issued
by a bank acceptable to OT on the Completion Date the Completion Amount;
to the Escrow Agent by unendorsed bank cheque issued by a bank acceptable to OT
on the Completion Date the Warranties Retention Reserve; and
to the Escrow Agent by unendorsed bank cheque issued by a bank acceptable to OT
on the Completion Date the Employee Retention Reserve.
Investment of the Escrow Amount
The parties shall ensure that pending the release of any Escrow Amounts, the
Escrow Amounts shall be invested by the Escrow Agent in a cash management
account. The interest therefrom shall belong exclusively to OT.
Release of the Escrow Amount
On the date that is 2 weeks from Completion, the Escrow Agent is to:
pay to OSI the amount of the Employee Retention Payment Amount that is not in
dispute; and
pay to OT the amount of the Employee Retention Reserve held pursuant to this
agreement less the amount of the Employee Retention Payment Amount (but for the
avoidance of doubt, any amount of the Employee Retention Payment Amount in
dispute will be paid in accordance with clause 2.5(a)(iii);
pay any amount of the Employee Retention Amount that is disputed in accordance
with the written directions of the parties or the Expert, as the case may be, as
determined in accordance with clause 5.2(d); and
On the Release Date, the Escrow Agent is to release to OT the amount of the
Warranties Retention Reserve held pursuant to this agreement as is remaining
less:
any Warranty Payment Amounts paid to OSI in accordance with clause 9; and
any amount of Warranty Payment Amount in dispute and being determined in
accordance with clause 9.
Following the resolution of any dispute in accordance with the procedures set
out in clause 9, the Escrow Agent shall pay the balance of the Warranties
Retention Reserve (if any) to the parties entitled thereto.
Conversion to Australian Dollars after Completion
The parties acknowledge that, to facilitate transactions and adjustments
pursuant to this agreement, on Completion the Purchase Price will be converted
to Australian Dollars at the exchange rate prevailing at the time of Completion
and all obligations and adjustments to be made pursuant to this agreement may be
thereafter settled in Australian Dollars.
CONDITIONS PRECEDENT TO COMPLETION
Conditions to be satisfied by OT
All of the obligations of OSI under this agreement are subject to the
satisfaction, at Completion, of each and every one of the conditions precedent
set out in this clause 3.1 in form and substance to the satisfaction of OSI in
its sole and absolute discretion.
OSI may waive any or all of these conditions in whole or in part without prior
notice. No such waiver of a condition constitutes a waiver by OSI of any of its
other rights or remedies at law or in equity:
accuracy of the Warranties: the Warranties being true and correct in all
material respects on and as of the Completion Date as though made on, applicable
at, and updated through and including, that time;
compliance with this document: OT having performed, satisfied and complied with
all covenants, agreements and conditions required by this document to be
performed or complied with or by OT;
no material adverse change: during the period from the Operative Date to the
Completion Date, there not having been any material adverse change in the
Business or the condition or value of the Assets;
Management Agreements: the Key Employees entering into Management Agreements on
or before the Completion Date with OSI or a Related Body Corporate of OSI;
Release of Liens: OT, on or before Completion procuring that any and all
Encumbrances against the Assets are released, including but not limited to the
Commonwealth Bank fixed and floating charge, Australian Securities Commission
charge number 424483 and the JNA fixed and floating charge, Australian
Securities Commission charge number 505463;
Escrow Agreement: the Escrow Agent entering into the Escrow Agreement;
Deed of Novation: the parties entering into the Deed of Novation in respect of
the Specified Contracts with effect on and from Completion;
Non-Compete Agreement: OT procuring the execution of the Non-Compete Agreement
with effect on and from Completion;
<PAGE>
Termination Deed: the parties entering into the Termination Deed in respect of
the Distribution Agreement with effect on and from Completion;
Optus Confirmation: confirmation from Optus Vision Pty Limited, in a form
satisfactory to OSI, of the material terms of the Specified Contract.
Fulfilment of conditions
Each of the parties shall use their best efforts and endeavours to procure the
due fulfilment of the conditions precedent referred to in clause 3.1.
Termination Date
If the conditions precedent in clause 3.1 are not fulfilled by the Termination
Date then this agreement may be terminated by OSI at any time after the
Termination Date by notice given by OSI to OT. If so terminated this agreement
is of no further force and effect and the parties are released from their
obligations under this document and no party is under any obligation to any
other party otherwise than in respect of a breach committed prior to such
termination.
COMPLETION
Time and place of Completion
Completion is to take place on 17 March 1997 in the offices of Corrs Chambers
Westgarth or at such other place as may be agreed in writing between OT and OSI
or at such other date agreed by OT and OSI in writing.
Delivery by OSI
On Completion OSI shall:
Purchase Price: pay the Purchase Price in accordance with clause 2.3 and make
the other payments referred to in clause 2.3; and
Specified Contract: accept from OT an assignment or novation of the Specified
Contracts and take possession of the Assets; and
Termination Deed: provide OT with an executed counterpart of the Termination
Deed.
Delivery by OT
On Completion OT shall cause to be delivered to OSI:
Contract Benefits: the Contract Benefits;
Business Records: the Business Records including without limitation all lists of
customers, books of account and records relating to the Business (but not those
relating to the general affairs of OT or to any assets of OT not being sold to
OSI save that, insofar as such excluded lists, books and records relate to the
Business and be reasonably required by OSI, OSI has the right to examine them at
all reasonable times and freely to make copies of the record and to take
extracts from the record) and OSI shall cause all information other than that
which relates to the Business to be kept confidential;
Termination Deed: an executed counterpart of the Termination Deed; Specified
Contract: an assignment or novation of the Specified Contracts and the Assets;
and
other: all such other documents and things as are reasonably required by OSI for
vesting in OSI the full possession of the Business and Assets and all right,
title, interest and benefit to the Business and the Assets.
Further actions by OT
OT shall do all such other things as are required by this agreement to be done
by OT at Completion or as are reasonably required by OSI whether before or after
Completion for vesting in OSI the full possession of the Business and the Assets
and all interest in the Business and the Assets, including all things reasonably
required by OSI to transfer or assign any future projects or opportunities that
OT or a Related Body Corporate of OT receives after Completion that relate to
the Distribution Agreement or the Specified Contracts, and includes, without
limitation, any arrangement or agreement entered into with Optus Vision Pty
Limited in respect of "On-Line" services.
Passing of title
Unencumbered legal and beneficial title to the Business and in the Assets passes
to OSI on Completion.
Passing of risk
Risk in the Business and in all the Assets passes to OSI on the Risk Assumption
Date in accordance with clause 4.8.
Interdependence of obligations
<PAGE>
The obligations of the parties in relation to Completion are interdependent so
that OSI is not obliged to complete the purchase of the Business unless the
purchase of all the Assets is completed simultaneously.
All actions at Completion take place simultaneously and no delivery or payment
is to be taken to have been made until all deliveries and payments have been
made.
Risk Assumption Date
The parties have agreed that OT will conduct the Business with effect from the
Risk Assumption Date in accordance with the Budget Schedule for the benefit of
OSI and accordingly, OSI shall reimburse and indemnify OT against the expenses
of normal operations of the Business after the Risk Assumption Date, provided
such expenses are consistent with the types and amounts in the Accounts, and OT
shall pay to OSI all revenues derived from the Business after the Risk
Assumption Date. OT may not set off any of its costs and expenses against
revenue without the prior consent of OSI.
EMPLOYEES
Termination of employment
OT shall, effective from the Completion Date, terminate the employment of all of
the Employees. OSI must, on the Completion Date, offer to employ all of the
Employees on the terms set out in the Employee Offer Letters and Consulting
Agreements.
Employees not employed by OSI
OT shall pay to those of the Employees who do not work for OSI all amounts due
and owing to them in respect of accrued salary or wages, holiday pay and long
service leave pay and any other lawful or customary severance or termination
payment; and
OT acknowledges that the Employees are a valuable component of the Business and
Assets being acquired by OSI pursuant to this agreement and that OSI is seeking
to employ all the Employees named in Annexure D.
OSI may not give an Employee Retention Claim Notice unless it has made bona fide
offers of employment in accordance with clause 5.1 on or about Completion.
If there is an Employee Retention Claim Event and OSI wishes to make a claim on
OT in respect of that Employee Retention Claim Event OSI must give an Employee
Retention Claim Notice on or before the end of two weeks after Completion. OT
must advise OSI within 7 days whether it agrees with such Notice and if it does
not agree it must give its reasons in such detail as the Notice and the
circumstances permit. Where OT does not agree, OT and OSI will meet to discuss
and resolve their disagreement acting in good faith. If they are unable to do so
within 30 days from the commencement of discussions, the matter shall be
referred to the Expert who will make a decision on the matter and in so acting
the Expert will be acting as an expert and not an arbiter and its decision will
be final. The Expert may include in its decision a determination as to the
payment of its costs provided that where it does not, OT and OSI will bear such
costs equally.
For the avoidance of doubt, the Employee Retention Reserve is the maximum amount
by which OSI may claim against in respect of an Employee Retention Claim Event.
Transferring Employees
In respect of each Transferring Employee, OT shall:
deliver to OSI or its representative not less than three Business Days prior to
Completion full details in writing of his or her accrued or accruing
entitlements in respect of holiday pay and long service leave and any other
lawful or customary severance or termination payment or entitlement whether
accruing or due and whether actually payable or conditionally payable upon the
happening of a contingency or fulfilment of a condition precedent (arising out
of any legislation, award, agreement or otherwise) as at the Completion Date
which would be payable to such Transferring Employee if his or her employment
were terminated at Completion and in the case of long service leave as if each
Transferring Employee's entitlement accrued from the commencement of that
Transferring Employee's employment in the Business;
allow to OSI on Completion an amount equal to such accrued or accruing
entitlements referred to in clause 5.3(a) but reduced by all entitlements which
have accrued since the Risk Assumption Date.
be allowed by OSI on Completion an amount equal to the total amount of wages or
salaries paid by OT to the Transferring Employees in respect of any period after
the Risk Assumption Date; and
Terms of employment
In consideration of the allowance made in clause 5.3(b), OSI shall take over the
responsibility for accrued salary, holiday pay, sick leave and long service
leave as at the Completion Date for each of the
<PAGE>
Transferring Employees. The Transferring Employees will be, subject to any
statutory entitlements to the contrary, offered allowances and entitlements in
accordance with the Employee Offer Letter and/or the Consulting Agreements, and
in any event the remuneration package of each Transferring Employee will be at
least as favourable to each Transferring Employee as his/her existing
remuneration entitlements.
OT's indemnity with respect to the Transferring Employees
OT indemnifies OSI in respect of the workers' compensation and common law claims
in relation to any Transferring Employee arising from service prior to the Risk
Assumption Date. After the Risk Assumption Date OSI shall provide suitable
records and otherwise use its best endeavours to assist OT to defend claims for
workers compensation and common law claims payments for which it is alleged OT
is liable.
OSI's indemnity with respect to the Transferring Employees
OSI indemnifies OT (but only to the extent of any allowance) against all losses
incurred by OT in respect of any Transferring Employee's entitlement to wages
and salaries, holiday pay or long service leave pay against OT by any
Transferring Employee.
Superannuation
OSI shall, subject to any statutory entitlement to the contrary, fund each
Transferring Employees' superannuation fund in accordance with OSI's current
policies for employment.
CONTINUITY OF BUSINESS
On Completion, OT will grant to OSI a licence to occupy and use the Premises for
the Business Handover Period (or such other period as agreed between the parties
in writing) to enable OSI to continue the Business after Completion. OSI will
pay OT the reasonable ongoing expenses attributable to that part of the Premises
used by OSI. OT will invoice OSI on a monthly basis for the actual reasonable
on-going expenses incurred by OT on behalf of OSI and OSI will promptly pay such
invoices. OT shall provide to OSI with each invoice a detailed expense report to
substantiate that invoice.
OT will provide assistance to OSI during the Business Handover Period in
relation to the conduct of the Business (which will be conducted by OSI or a
Related Body Corporate of OSI entirely at the risk of OSI). OSI will indemnify
OT against all costs, expenses and losses incurred by OT as a result of any
action or omission on the part of OSI in relation to the conduct of the Business
during the Business Handover Period. OSI and OT will, at the expiry of the
Business Handover Period, meet to determine the Business Handover Period
Adjustment.
ASSIGNMENT OF CONTRACT
Assignment of the Specified Contract
OT novates to OSI each and every Specified Contract by way of a Deed of
Novation, with effect from the Completion Date. If any other party to any
Specified Contract objects to such assignment or novation the provisions of
clause 7.2 shall apply:
Non-assignment of the Specified Contracts
OT undertakes to OSI, in the situation where any third party to a Specified
Contract refuses its consent to an assignment or novation:
to duly perform the contract with the assistance of such employees and materials
of OSI which OSI shall make available as and when reasonably necessary at no
expense to OT;
to delegate management to OSI if it is reasonably possible to do so;
to enforce the contract against the other party or parties to the relevant
Specified Contract in such manner as OSI may direct from time to time, at no
expense to OT;
not to agree to any amendment to the Specified Contract or waiver of OT's rights
under the relevant Specified Contract without the prior written approval of OSI;
to account to OSI forthwith for all monies received by OT or goods or services
supplied to OT in respect of the performance by it of the relevant Specified
Contract;
OSI will indemnify OT for the costs and liabilities OT incurs as a result of
acting under the direction of OSI pursuant to clause 7.2.
Assumption of liabilities by OSI
OSI assumes only those liabilities of OT specifically relating to the Specified
Contracts, the Transferring Employees and the Assets as assumed by OSI under
this agreement.
WARRANTIES
The Warranties
<PAGE>
OT warrants to OSI that on the signing of this document and as at Completion the
Warranties, Schedules, Annexures and Recitals are true, complete, accurate and
not misleading in any way subject to each and every matter expressly disclosed
in the Disclosure Letter.
The Warranties repeated
The Warranties are taken to be repeated immediately before Completion with
reference to the facts then existing subject always to each and every matter
expressly disclosed in the Disclosure Letter.
Access to facilities
OT shall give OSI or its representatives access to all such facilities as OSI
reasonably requires to enable OSI to be satisfied with regard to the accuracy of
the Warranties. Neither this clause 8.3 nor the exercise by OSI of any of the
rights comprised in this clause in any way reduces or otherwise affects the
liability of OT.
Warranties survive Completion
The Warranties do not merge but survive Completion for the benefit of OSI.
Limitation of liability for breach of Warranties
OT is not liable to OSI in connection with the Warranties unless OSI has given a
Warranty Claim Notice to OT in accordance with clause 9 within one year of
Completion. In no event is OT liable to indemnify OSI for any Loss greater than
the Purchase Price.
WARRANTY RETENTION RESERVE CLAIM PROCEDURE
Warranty Claim Notice
If there is a Warranty Claim Event and OSI wishes to make a claim on OT in
respect of that Event, OSI must give a Warranty Claim Notice. OT must advise OSI
within 30 days whether it agrees with such Warranty Claim Notice and if it does
not agree it must give its reasons in such detail as the Notice and the
circumstances permit. Where OT does not agree OT and OSI will meet to discuss
and resolve their disagreement acting in good faith. If they are unable to do so
within 30 days from the commencement of discussions, the matter shall be
referred to the Expert who will make a decision on the matter and in so acting
the Expert will be acting as an expert and not an arbiter and its decision will
be final. The Expert may include in his decision a determination as to the
payment of its costs provided that where it does not, OT and OSI will bear such
costs equally.
Warranty Payment Amount
The Escrow Agent must pay to OSI the Warranty Payment Amount once it has been
finally determined.
OT'S OBLIGATIONS
Accounting records
OT covenants that for such time as is required by law it shall keep and make
available to OSI all accounting records and the documents of OT with respect to
the Business and the Assets which remain in the possession or control of OT
after Completion (whether on computer or otherwise) for such purposes as OSI may
require including, without limitation, for the purpose of making or considering
a claim against OT.
Confidentiality
Save for disclosure in accordance with statutory and other legal obligations no
disclosure is to be made of any of the financial or trade secrets of the
Business by OT to any third party except to OT's professional advisers and
bankers.
Conduct of the Business and the Assets pending Completion
OT covenants that from the Risk Assumption Date until the date of this document
the Business has been carried on in accordance with the Budget Schedule and from
the date of this document until Completion, OT shall carry on the Business and
maintain the Assets in the ordinary course consistent with past practice. In
addition, OT covenants that it shall not do any of the following in relation to
the Business and the Assets without the prior written consent of OSI:
actions in relation to Warranties: take any action that would or might result in
any of the Warranties becoming untrue in any respect;
compliance with law: do any act or thing or suffer or permit any omission in
contravention or breach of any of the provisions of any law including, without
limitation, any exchange control regulation, Taxation statute, the Corporations
Law or the Trade Practices Act;
<PAGE>
unusual contracts: enter into any contracts, agreements, arrangements,
obligations, undertakings, purchase or sale agreements in respect of the
Business or the Assets not capable of termination on 90 days notice or less or
any service employment or other agreement not capable of termination on 30 days
notice or less; industrial award: do any act or thing the doing or suffer or
permit any omission of which is or could be a breach of:
any industrial or similar award; or
any determination or order of any tribunal, person or body empowered to
determine any dispute relating to the rights or duties of the Business, or of
any trade union or member of a trade union pursuant to any industrial or similar
award;
any term contained or implied in any industrial agreement between OT and any
trade or labour union;
Employees: alter the basis of remuneration payable to any of the Employees;
Specified Contracts: breach any term contained in or implied in any of the
Specified Contracts; or
agree, whether in writing or otherwise, to do any of the above.
Litigation
If OT becomes aware of any Proceedings actual, pending or threatened against the
Assets prior to Completion OT shall immediately disclose all facts and
circumstances known to OT relating to such proceedings and continue to keep OSI
informed about any such Proceedings and use its best endeavours not to become
involved in any Proceedings. The parties acknowledge that OT has complied with
this obligation in relation to Proceedings instituted by JNA Telecommunications
Limited.
Availability of information to OSI
Both before and after Completion OT covenants to make available to OSI free of
charge all information which OT has available to it which OSI may reasonably
require relating to the Business and the Assets.
Compliance with the Law
OT covenants that prior to the Completion Date all returns and other documents
which may be required to be filed in respect of the Business and the Assets
under any applicable legislation shall be properly filed.
Statutory notices
OT covenants to comply with any notice affecting or relating to OT, the Business
or the Assets issued by any competent authority issued on or before the
Completion Date.
Costs of obtaining third party consents
Except where OSI has an obligation to do so pursuant to this agreement, OT will
promptly pay all legal and other costs relating to the obtaining of any consent
from any third party in connection with this agreement.
Correct information
All Relevant Information relating to the revenue and cost information in respect
of the Specified Contracts, the Employees and the Accounts was when given and is
true, complete and accurate in all respects.
Obligation to update information
Where a prediction, projection or expectation concerning any future matter or
state of affairs is included in the Relevant Information which was provided by
OT and any event occurs or becomes known to OT before Completion which adversely
affects the accuracy of that prediction, projection or expectation in a material
particular OT shall immediately notify OSI of all relevant particulars of that
event.
OSI'S OBLIGATIONS
Prior to Completion
OSI covenants that on or prior to Completion it shall:
supply references: promptly supply such references and do all such other acts
matters and things as may reasonably be required by third parties in considering
applications for the novation of the Specified Contracts to OSI; and
information supplied to OSI: OSI covenants that it will at all times keep and
maintain confidential all information obtained by it during the course of any
access granted to OSI pursuant to this agreement and not otherwise conveyed to
OSI by this agreement. This clause will not merge on Completion.
INDEMNITY BY OT
OT indemnifies OSI from and against any Loss incurred or suffered by OSI arising
from or in connection with a Warranty Claim Event or a breach of any other term
of this agreement. Subject to clause 9, and in
<PAGE>
circumstances where the Loss attributable to a Warranty Claim Event cannot be
met by funds available in the Warranty Retention Reserve, OT shall pay to OSI
upon demand an amount equal to the difference (determined pursuant to the
provision appearing immediately below) between the actual value of any asset
affected by any Warranty which is breached and the value it would have had if
the Warranty were correct or in the case of an undisclosed liability the amount
of that liability determined in the same way.
The difference in value or the amount of liability referred to in the above
paragraph is the amount as OT and OSI agree or failing agreement determined by
the Expert. The Expert shall determine the difference acting as an expert and
not as an arbiter and its decision in writing and signed by it is conclusive and
binding upon the parties and the costs of that determination may at its
discretion be added to the difference so determined and payable or otherwise
awarded.
TERMINATION
OSI's termination events
This agreement may be terminated by OSI at any time prior to Completion upon the
happening of any of the following events:
the occurrence of any Insolvency Event with respect to OT;
by mutual agreement of OT and OSI.
Other termination events
This agreement may be terminated at any time prior to Completion by either OSI
or OT upon written notice to the other if:
any of the representations or warranties of the other party or parties as the
case may be contained in this agreement proves to be inaccurate or untrue in any
material respect; or
any obligation to be performed kept or observed by such other party or parties
as the case may be under this agreement has not been performed kept or observed
in any material respect at or prior to the time specified in this agreement.
A breach or non-observance of any one or more of the representations,
warranties, covenants or obligations set out in this agreement is of a material
nature if singularly or in the aggregate it has or they have or are likely to
have a materially adverse affect on the Business. If such notice is given the
party or parties receiving such notice has 10 days within which to cure, if
capable of cure, the specified defect before this agreement may be terminated
and, when appropriate, the Completion Date is to be delayed accordingly.
Termination prior to Completion
If this agreement is validly terminated prior to the Completion Date the parties
are discharged from all their obligations under this agreement and no party is
entitled to claim against the other for any compensation for costs or expenses
incurred as a result of entering into this agreement.
WARRANTY BY OSI
OSI warrants to OT that:
it has the legal right and power to enter into this agreement and to purchase
the Assets from OT on and subject to the terms of this agreement;
the execution, delivery and performance of this agreement by OSI has been duly
and validly authorised by all necessary corporate action on its part;
this agreement is a valid and binding agreement on OSI, enforceable in
accordance with its terms; and
the execution and performance of this agreement by OSI and the other
transactions contemplated by this agreement does not violate or conflict with or
result in a breach of or constitute a default under the provisions of the
memorandum and articles of association of OSI.
ANNOUNCEMENTS
Confidentiality
Prior to Completion:
the negotiations of the parties or the subject matter or terms of this agreement
are to be kept confidential and released to third parties (other than the
parties' professional advisers or where disclosure is required by law) only with
the mutual written consent of the parties to this agreement; and
<PAGE>
the parties shall mutually consent in writing to any press release, circular or
announcement (such consent not to be unreasonably withheld) related to the
subject matter of this agreement.
Stock Exchange
In relation to any report to any stock exchange pertaining to the negotiations
of the parties or the subject matter or the terms of this agreement the
notifying party shall whenever practicable, in advance of reporting to the stock
exchange, advise the other of the text of the proposed report and provide the
other party with a reasonable opportunity of making comment upon the form and
content before the report is issued.
NOTICES
General
A notice, demand, certification or other communication under this document:
is to be given in writing and in the English language; and
may be given by an agent of the sender.
Method of service
In addition to any means authorised by law a communication may be given by:
being delivered personally;
being left at the party's current address for service;
being sent to the party's current address for service by pre-paid ordinary
mail or if the address is outside Australia, by pre-paid air mail; or
facsimile to the party's current facsimile number.
Address for service
The addresses and facsimile numbers are initially:
in the case of OSI:
Objective Systems Integrators Inc.
100 Blue Ravine Road
Folsom, California
United States of America
Tel: 0011 1 916 353 2400
Fax: 0011 1 916 353-5060
Attention: AJ Germek/Philip Cardman
with a copy to:
Corrs Chambers Westgarth
Governor Phillip Tower
1 Farrer Place
Sydney, New South Wales
Australia
Tel: 612 9210 6500
Fax: 612 9210 6611
Attention: W J Koeck
in the case of OT:
Wayne Passlow
Level 12, 80 Mount Street
North Sydney, New South Wales
Australia
Tel: 61 2 9964 9633
Fax: 61 2 9957 5342
Attention: Mr Wayne Passlow
with a copy to:
Larbalestier & Co
Level 15, Currency House
23 Hunter Street
Sydney, New South Wales
Australia
<PAGE>
Tel: 612 9232 7077
Fax: 612 9232 7078
Attention: Paul Larbalestier
A party may from time to time change its address or numbers for service by
notice to the other party.
Service by post
A communication given by post is taken to be received:
if posted within Australia to an Australian address three Business Days after
posting; and
in any other case, seven Business Days after posting.
Service by facsimile
A communication given by facsimile is taken to be received when the sender's
facsimile machine produces a transmission report stating that the facsimile was
sent to the addressee's facsimile number.
Form received
A communication given by facsimile is taken to be given in the form transmitted
unless the message is not fully received in legible form and the addressee
immediately notifies the sender of that fact.
Process service
Any process or other document relating to litigation, administrative or arbitral
proceedings in relation to this document may be served by any method
contemplated by this clause in addition to any means authorised by law.
Service after hours
If a communication to a party is received by it:
after 5.00pm in the place of receipt; or
on a day which is not a Business Day,
it is taken to have been received at the commencement of the next Business
Day.
MISCELLANEOUS
Stamp Duty
OSIOSI shall, as between the parties, be liable for and duly pay all stamp duty
(including any fine or penalty except where it arises from default by the other
party) on or relating to this agreement and any document executed under it.
If a party other than OSI pays any stamp duty (including any fine or penalty) on
or relating to this agreement or any document executed under it, OSI shall pay
that amount to that party upon demand.
Legal Costs
Subject to any express provision in this document to the contrary, each party
shall bear its own legal and other costs and expenses relating directly or
indirectly to the preparation of, and performance of its obligations under, this
agreement.
Amendment
This agreement may only be varied or replaced by a document duly executed by
the parties.
Waiver and Exercise of Rights
A single or partial exercise or waiver of a right relating to this agreement
will not prevent any other exercise of that right or the exercise of any other
right.
A party will not be liable for any loss, cost or expense of any other party
caused or contributed to by the waiver, exercise, attempted exercise, failure to
exercise or delay in the exercise of a right.
Rights Cumulative
Subject to any express provision in this document to the contrary, the rights of
a party under this agreement are cumulative and are in addition to any other
rights of that party.
Approvals and Consent
Subject to any express provision in this agreement to the contrary, a party may
conditionally or unconditionally give or withhold any consent to be given under
this agreement and is not obliged to give its reasons for doing so.
Further Assurance
Each party shall promptly execute all documents and do all things that any other
party from time to time reasonably requires of it to effect, perfect or complete
the provisions of this agreement and any transaction contemplated by it.
<PAGE>
Computation of Time
Where time is to be reckoned by reference to a day or event, that day or the day
of that event is excluded.
Governing Law and Jurisdiction
This document is governed by and is to be construed in accordance with the laws
in force in New South Wales.
Each party irrevocably and unconditionally submits to the non exclusive
jurisdiction of the courts of New South Wales and any courts which have
jurisdiction to hear appeals from any of those courts and waives any right to
object to any proceedings being brought in those courts.
Assignment
A party shall not dispose of or encumber any right under this agreement without
the prior written consent of the other party.
Joint and Several Liability
An obligation of two or more persons binds them jointly and severally.
Counterparts
This agreement may consist of a number of counterparts and if so the
counterparts taken together constitute one and the same instrument.
Entire Understanding
This document embodies the entire understanding and agreement between the
parties as to the subject matter of this agreement.
All previous negotiations, understandings, representations, warranties,
memoranda or commitments in relation to, or in any way affecting, the subject
matter of this document are merged in and superseded by this document and shall
be of no force or effect whatever and no party shall be liable to any other
party in respect of those matters.
No oral explanation or information provided by any party to another shall:
affect the meaning or interpretation of this document, or
constitute any collateral agreement, warranty or understanding between any
of the parties.
EXECUTION
Executed as a deed in New South Wales.
SIGNED for and on behalf of )
OBJECTIVE SYSTEMS )
INTEGRATORS PTY LIMITED ) /s/ Albert J. Germek
by a director of the company ) --------------------------
in the presence of: ) Albert J. Germek, Director
/s/ Becky A. Wagner Witness
- ------------------------------------
BECKY A. WAGNER Name of Witness (print)
- ------------------------------------
THE COMMON SEAL of )
OPEN TECHNOLOGY PTY LIMITED )
was affixed in the presence of: ) [SEAL]
/s/ Leone Frances Passlow Director
- ------------------------------------
LEON FRANCES PASSLOW Name of Director (print)
/s/ Wayne Passlow Secretary/Director
- ------------------------------------
WAYNE PASSLOW Name of Secretary/Director (print)
SCHEDULE 1
WARRANTIES
Index to Warranties
Ownership of Assets
Accurate information
Litigation
Insolvency etc.
Contracts and Specified Contracts
Employees
Compliance with law/licences
Business Records
Statutory notices
Corporate power
Corporate action
Plant and equipment
Stamp duty
Effects of this agreement
Taxation
Accounts
Position since Account Date
Liabilities and commitments
Agent
("Warranties")
Except as disclosed in the Disclosure Letter, OT hereby represents and warrants:
<PAGE>
Ownership of Assets
OT is the sole absolute beneficial owner of the Assets and the Assets are
entirely free from all Encumbrances or charges of any description and no other
person has or will have any adverse claim in respect of the Assets.
The Assets are in the possession or under the control of OT and have not been
depleted by any unlawful act on the part of any person.
Accurate information
All Relevant Information relating to the revenue and cost information in respect
of the Specified Contracts, the Employees and the Accounts is accurate in all
respects and there are no material omissions.
Litigation
Except as plaintiff in the collection of debts arising in the ordinary course of
business (none of which exceeds $5,000), OT (nor any person for whose acts or
defaults OT may be vicariously liable) is not a plaintiff or defendant in or
otherwise a party to any Proceedings in progress or threatened or pending by or
against or concerning OT or any of its assets used in connection with the
Business.
No investigation or inquiry is in progress or pending in connection with OT or
the Assets.
OT is not aware of any circumstances which could give rise to any of the events
specified in clauses SC1.3(a) and (b).
Insolvency etc.
No Insolvency Event has occurred in relation to OT.
There are no unsatisfied or partly satisfied judgments or writs of execution
against either OT or the Assets.
OT is not aware of any circumstances which could give rise to any of the events
specified in clauses SC1.4(a) and (b).
Contracts and Specified Contracts
There are no contracts, agreements, arrangements, obligations, undertakings,
purchase or sale agreements in respect of the Assets (including the Specified
Contracts) which arose other than in the ordinary course of business or in any
case of longer than 90 days duration incurred or entered into by OT.
There are no service, employment or other agreements not terminable on 30 days
(or shorter) notice.
OT has not made any offers, tenders or quotations in relation to the Business
other than at the request of OSI which are still outstanding and capable of
giving rise to a contract by the unilateral act of a third party, other than in
the ordinary course of ordinary business and on customary terms. No notice or
process has been served on OT which might impair the exercise of its rights
under any agreement to which it is a party which would affect the subject matter
of this agreement.
There has been no material breach or non-performance of any term of any
Specified Contract occurring before the Completion Date.
OT has made full and accurate disclosure regarding the total amount of work to
be performed after Completion in respect of the Specified Contracts, including
an estimate of the projected income and expense of such work.
All work performed by OT in respect of the Specified Contracts up to Risk
Assumption Date has been fully invoiced in accordance with the Specified
Contracts.
OT has, from the Risk Assumption Date until Completion, performed the
obligations required by it under the Specified Contracts in good faith and in
accordance with the Budget Schedule.
The Specified Contract Representations set out in Schedule 4 are accurate in all
material respects and there are no material omissions.
Employees
The basis of the remuneration payable to the employees of OT at the Operative
Date is materially the same as that in force at the Accounts Date.
OT is not under any present, future or contingent liability to pay compensation
for loss of office or employment to any ex-officer or ex-employee.
There are no payments due in connection with the redundancy of any employee of
OT.
There are no retirement benefit schemes, pension schemes or other pension
arrangements whether legally enforceable or not relating to OT in operation
which are administered by OT itself.
If the services of all of the employees of OT had been terminated on the
Accounts Date then the amount provided for in the Accounts as at that date for
long-service leave and holiday pay would have been
<PAGE>
sufficient to provide for all long-service leave and holiday pay which would
have then been due to (or properly accrued in favour of) such employees.
All amounts of Tax and Superannuation Guarantee Charge which are required by law
to be deducted by OT from the salary or wages of employees have been duly
deducted and, where appropriate duly paid.
Compliance with law/licences
OT has conducted the Business up to and including the Completion Date in
accordance with the law in force in the States and/or Territories for the time
being in which it carries on business.
Business Records
All the Business Records have been fully, properly and accurately kept and
completed (and in relation to Tax records have been kept for the period of time
prescribed by the Income Tax Act and include all necessary information and
records required to be kept under the Income Tax Act in connection with the
calculation and assessment of Tax).
There are no material inaccuracies or discrepancies of any kind contained or
reflected in the Business Records.
The Business Records give and reflect a true and fair view of the financial,
contractual and trading position of OT in connection with the Business and the
Assets (including all working papers that supplement the calculation of Tax), of
its plant and machinery, fixed and current assets and liabilities (actual or
contingent).
All returns, particulars, resolutions and other documents required to be filed
or delivered by OT in connection with the Business and the Assets have been
correctly and properly made out and filed or delivered within the appropriate
time periods.
Statutory notices
There is no outstanding notice affecting or relating to the Business or any of
the Assets issued by any competent authority.
Corporate power
OT is a company duly incorporated and validly existing under the laws of the
State of New South Wales and has full corporate power and authority to own,
operate and conduct the Business.
Corporate action
OT has the legal right and power to enter into this agreement and to sell the
Business and the Assets to OSI on and subject to the terms of this agreement.
The execution, delivery and performance of the agreement by OT has been duly and
validly authorised by all necessary corporate action on its part.
This document is a valid and binding agreement on OT, enforceable in accordance
with its terms.
The execution and performance of this agreement by OT and the other transactions
contemplated by this agreement does not violate or conflict with or result in a
breach of or constitute a default under or result in the imposition of any
Encumbrance under the provisions of the memorandum and articles of association
of OT.
Plant and equipment
The Plant and Equipment specified in the Accounts is in good repair and
condition and in satisfactory working order consistent with its age.
Stamp duty
All documents in the possession of or under the control of OT in connection with
the Business which attract stamp duty in any State of Australia or elsewhere
have been properly stamped and no such documents which are outside any such
State would attract stamp duty if they were bought into such State.
Effects of this agreement
Neither this agreement nor Completion gives rise to a right to terminate any
contractual relationship between OT and any third party which may adversely
affect the Business.
Accounts
Annexure A contains a true, fair and correct copy of the Accounts. The Accounts
have been prepared in accordance with the Accounting Standards without making
any revaluations of any assets and are true, fair and accurate in all respects
and disclose a true and fair view of the state of affairs of OT, its financial
position and the Assets as at the Accounts Date and of its income, expenses and
results of its operations for the financial period ended on that date and there
are no material omissions or inaccuracies.
No material change has occurred in the Assets and liabilities shown in the
Accounts.
<PAGE>
The basis of depreciation adopted by OT in the Accounts constitutes proper
provision for depreciation and the values attributable to Assets in the Accounts
as at the Accounts Date.
The Accounts have been prepared in accordance with Accounting Standards and on a
basis consistent with the manner of preparation of the prior year's accounts.
Position since Accounts Date
Since the Accounts Date the Business has been carried on in the ordinary and
usual course and without limiting the generality of the foregoing there has not
been any alteration to the terms of employment of OT's executives or employees.
Liabilities and commitments
There are no Encumbrances on the Assets which have not been disclosed in writing
to OSI.
Agent
No agent has been engaged by OT in obtaining the execution of this document by
OSI; and
No person is entitled to recover any brokerage or commission in relation to this
document.
SCHEDULE 2
PREMISES DETAILS
Address
Use
Lessor
Suite 5, 53 Walker Street
North Sydney NSW
Australia
Commercial Office
Tonicalon Pty Ltd
SCHEDULE 3
SPECIFIED CONTRACTS
OptusVision VNMS Supply Agreement OV 00025-GS between Optus Vision Pty Limited
and Open Technology Pty Limited dated 11 January 1996;
Optus On-Line Contract between Optus Vision Pty Limited and Open Technology Pty
Limited for an estimated revenue of $900,000 (unsigned, but expected to be
signed by 30 June 1997 and work has been already performed as at the date of
this agreement).
SCHEDULE 4
SPECIFIED CONTRACT REPRESENTATIONS
OPTUS VISION SUPPLY CONTRACT
Estimated billings remaining:
US $
AUS $
Notes
Invoiced to Date
$5,109,813.00
<PAGE>
$831.031.00
Q3 & Q4 FY97
Year 2 Payment
$647,500.00
Alarms & Performance
$128,343.00
NPS
$106,340.00
24 x 7 Support
$25,000.00
CSPC Enhancements
$130,500.00
ETSI Provisioning
$20,000.00
Subject to Vendor Product Deliveries
A&P for Motorola
<PAGE>
$99,000.00
Subject to Vendor Product Deliveries
Q1 FY 98
Balance of A&P
$250,000.00
Q2 FY 98
Warranty Payment
$170,000.00
Year 3 Q1 Payment
$175,750.00
Q3 FY 98
Year 3 Q2 Payment
$175,750.00
Q4 FY 98
Year 3 Q3 Payment
$175,750.00
<PAGE>
Q1 FY 99
Year 3 Q4 Payment
$175,750.00
Q2 FY 99
Year 4 Q1 Payment
$148,000.00
Q3 FY 99
Year 4 Q2 Payment
$148,000.00
Q4 FY 99
Year 4 Q3 Payment
$148,000.00
<PAGE>
Q1 FY 2000
Year 4 Q4 Payment
$148,000.00
TO BE INVOICED
$2,597,183.00
$274,500.00
<PAGE>
Billings in Financial Years 1998 & 1999 are to be billed quarterly in advance.
Invoices are outstanding from OT to Optus Vision Pty Ltd, being invoices up to
21 February 1997.
Estimated costs to complete:
US$400,000
Outline of Tasks required to complete:
Balance of Alarms and Performance
Balance of Networking Provisioning System 2 & 3
24 x 7 Support
ETSI Switch provisioning
Alarms and Procedures for Motorola
Customer Service Provisioning Systems
No additional tasks required to collect US$1.295 million from Optus Vision
Pty Ltd due between July 97 and April 99.
The Plant and Equipment represents sufficient Plant and Equipment to complete
the tasks required under this contract or alternatively, such plant and
equipment will be provided without charge from Optus Vision Pty Limited.
Expected due date for completion:
June 1997
Status of Contract Liabilities:
Description
Status
100 free consulting days.
Completed
3 month warranty for completed software delivered.
Warranty period commences on date of acceptance and most software was delivered
more than three months prior to the Operative Date.
10% penalty on undelivered software which may delay project.
Only applies to original scope of project and therefore very limited as project
schedules have been significantly extended by Optus Vision Pty Ltd - no
significant risk
AUD$7,000 per month system downtime penalty.
This liability may arise under certain situations. However, there are no
outstanding conditions which would invoke this liability.
AUD$150,000 per year penalty for non-compliance with specifications.
Not Applicable: only complying software is accepted by Optus Vision Pty Ltd.
<PAGE>
1 Year free technical support
Not Applicable.
EXECUTION
Executed as a deed in New South Wales.
SIGNED for and on behalf of )
OBJECTIVE SYSTEMS )
INTEGRATORS PTY LIMITED )
by a director of the company )
in the presence of: ) Albert J Germek, Director
Witness
Name of Witness (print)
THE COMMON SEAL of )
OPEN TECHNOLOGY PTY LIMITED )
was affixed in the presence of: )
Director
Name of Director (print)
Secretary/Director
Name of Secretary/Director (print)
ANNEXURE A
ACCOUNTS
(Attached)
ANNEXURE B
MANAGEMENT AGREEMENT
(Attached)
ANNEXURE C
PLANT AND EQUIPMENT
(Attached)
ANNEXURE D
EMPLOYEES
(See attached)
ANNEXURE E
<PAGE>
DEED OF NOVATION
CORRS CHAMBERS WESTGARTH
Level 33
1 Farrer Place
Sydney New South Wales 2000
AUSTRALIA
Telephone (02) 9210 6500
Facsimile (02) 9210 6611
DX 133 Sydney
Ref: WJK/GAH
OSII3333-001
THIS DEED is made on 19
BETWEEN [ ] (ACN *** *** ***) incorporated in *** of [ADDRESS]
("the Supplier/Customer")
AND OPEN TECHNOLOGY PTY LIMITED ACN 056 010 121 of 4/41 Sutherland Street,
Cremorne, New South Wales, Australia, 2090 ("the Assignor") AND OBJECTIVE
SYSTEMS INTEGRATORS INC of 100 Blue Ravine Road, Folsom, California, USA, 95630
("the Assignee")
RECITALS
A The Supplier/Customer and the Assignor are parties to the Principal
Agreement.
B The Supplier/Customer has agreed on the terms set out in this document
to release the Assignor from its obligations under the Principal Agreement in
consideration of the Assignee agreeing to perform the Principal Agreement in
substitution for the Assignor on and from the Effective Date.
C The Assignee has agreed to perform the Principal Agreement on the terms
set out in this document.
OPERATIVE PROVISIONS
1 INTERPRETATION
1.1 Definitions
In this document:
"Business Day" means a day on which trading banks are open in Sydney;
"Effective Date" means ***.
"Principal Agreement" means ***.
1.2 Construction
Unless expressed to the contrary:
(a) words importing:
the singular include the plural and vice versa;
any gender includes the other genders;
(b) if a word or phrase is defined cognate words and phrases have
corresponding definitions;
(c) a reference to:
a person includes a firm, unincorporated association, corporation and a
government or statutory body or authority;
a person includes its legal personal representatives, successors and assigns;
a statute, ordinance, code or other law includes regulations and other statutory
instruments under it and consolidations, amendments, re-enactments or
replacements of any of them;
<PAGE>
a right includes a benefit, remedy, discretion, authority or power;
an obligation includes a warranty or representation and a reference to a failure
to observe or perform an obligation includes a breach of warranty or
representation.
provisions or terms of this document or another document, agreement
understanding or arrangement include a reference to both express and implied
provisions and terms;
time is to local time in Sydney, Australia;
"$" or "dollars" is a reference to the lawful currency of Australia;
this or any other document includes the document as varied or replaced and
notwithstanding any change in the identity of the parties;
writing includes any mode of representing or reproducing words in tangible and
permanently visible form, and includes facsimile transmission;
any thing (including, without limitation, any amount) is a reference to the
whole or any part of it and a reference to a group of things or persons is a
reference to any one or more of them;
1.3 Headings
Headings do not affect the interpretation of this document.
2 NOVATION
With effect from the Effective Date the Assignor transfers to the Assignee all
its interest in the Principal Agreement.
With effect from the Effective Date:
subject to clause 2(b)(iii), the Supplier/Customer releases the Assignor from
all obligations and liabilities under the Principal Agreement arising on or
after the Effective Date and accepts the undertaking of the Assignee in clause
2(b)(ii) in substitution for the Assignor's obligations and liabilities under
the Principal Agreement;
in consideration of the Assignor's agreement to the release in clause 2(b)(i),
the Assignee undertakes with the Supplier/Customer to observe and be bound by
the terms of the Principal Agreement in substitution for the Assignor as if,
from the Effective Date, the Assignee had been named in the Principal Agreement
in substitution for the Assignor;
notwithstanding the foregoing, the Assignor is bound by all such duties of
confidentiality and non-disclosure as would have been applicable to it under the
Principal Agreement had it continued to be a party to the Principal Agreement.
Each party agrees that clause 2(b) applies without prejudice to any claim or
dispute which may exist or arise with respect to or under the Principal
Agreement in relation to any event or circumstance which occurred prior to the
Effective Date.
3 MISCELLANEOUS
3.1 Stamp Duty
(a) The Assignee shall, as between the parties, be liable for and duly pay
all stamp duty (including any fine or penalty except where it arises from
default by the other party) on or relating to this document and any document
executed under it.
(b) If a party other than the Assignee pays any stamp duty (including any
fine or penalty) on or relating to this document or any document executed under
it, the Assignee shall pay that amount to that party upon demand.
3.2 Legal Costs
Subject to any express provision in this document to the contrary, the Assignor
and the Assignee shall each bear their own legal and other costs and expenses
relating directly or indirectly to the preparation of, and performance of its
obligations under, this document.
3.3 Amendment
This document may only be varied or replaced by a document duly executed by the
parties.
3.4 Further Assurance
Each party shall promptly execute all documents and do all things that any other
party from time to time reasonably requires of it to effect, perfect or complete
the provisions of this document and any transaction contemplated by it.
3.5 Counterparts
This document may consist of a number of counterparts and if so the counterparts
taken together constitute one of the same instrument.
<PAGE>
3.6 Governing Law and Jurisdiction
(a) This document is governed by and is to be construed in accordance with
the laws in force in New South Wales.
(b) Each party irrevocably and unconditionally submits to the non-exclusive
jurisdiction of the courts of New South Wales and any courts which have
jurisdiction to hear appeals from any of those courts and waives any right to
object to any proceedings being brought in those courts.
3.7 Notices
(a) Any notice, demand or other communication given under or pursuant to
this deed must be in writing and will be deemed duly given or made if delivered
or sent by post, telex or facsimile transmission as follows:-
(i) to the Supplier/Customer at:
(ii) to the Assignor at:
(iii) to the Assignee at:
(b) Any party may change its address, telex or facsimile numbers for the
purpose of this deed by giving notices of the change to the other parties
pursuant to the provisions of sub-clause (a) above.
(c) Any notice, demand or other communication will be deemed to have been
received by the person to whom it was sent:-
(1) in the case of hand delivery, upon delivery;
(2) in the case of registered mail, upon receipt;
(3) in the case of telex, at the time of despatch provided that the
recipient's telex answerback code appears on the sender's copy of the telex; or
(4) in the case of facsimile transmission, upon receipt.
3.16 Attorneys
Each of the attorneys executing this deed states that he has no notice of the
revocation of the power of attorney under which he executed this deed.
EXECUTED by the parties as a deed
THE COMMON SEAL of (ACN *** *** ***) is affixed in accordance with its
articles of association in the presence of:
)
)
)
)
.........................................
.........................................
.........................................
.........................................
Director
Name of Director (print)
Secretary
Name of Secretary (print)
THE COMMON SEAL of (ACN *** *** ***) is affixed in accordance with its
articles of association in the presence of:
)
)
)
)
<PAGE>
.................................
.................................
.................................
.................................
Director
Name of Director (print)
Secretary
Name of Secretary (print)
THE COMMON SEAL of (ACN *** *** ***) is affixed in accordance with its
articles of association in the presence of:
)
)
)
)
.................................
.................................
.................................
.................................
Director
Name of Director (print)
Secretary
Name of Secretary (print)
ANNEXURE F
Termination Deed
(Attached)
ANNEXURE G
Disclosure Letter
(Attached)
ANNEXURE H
Non-Compete Agreement
(Attached)
ANNEXURE I
Employee Offer Letter
(Attached)
ANNEXURE J
Consulting Agreement
(Attached)
ANNEXURE K
<PAGE>
Budget Schedule
(Attached)
3
52
325226v4
S/325226
S/325226325226v4
- -55-
<PAGE>
Exhibit 10.16
CONTRACT OF PURCHASE AND SALE
THIS CONTRACT OF PURCHASE AND SALE ("Agreement") is made this ___ day of April,
1997, and constitutes an agreement by Objective Systems Integrators, Inc. or its
assigns ("Buyer"), to purchase from the John A. Sobrato 1979 Trust, a California
limited partnership ("Seller"), the real property of approximately 14 acres
located within Lake Forest Business Park in Folsom, California, together with
all improvements, licenses, rights and easements attached to, appurtenant to,
located on or used in connection with such real property (collectively, the
"Property"), legally defined as follows:
Lot 3, as shown on the official Plat of Lake Forest Industrial Park, recorded in
the office of the County Recorder of Sacramento County, on October 22, 1980, APN
071-0530-003.
The Property shall be purchased on the following terms and conditions:
1. Purchase and Sale. Seller agrees to sell to Buyer, and Buyer
agrees to purchase from Seller, the Property upon the terms and conditions
herein set forth.
2. Purchase Price. The purchase price ("Purchase Price") for the
Property below shall be Two Million Five Hundred Ninety One Thousand Eight
Hundred Twenty and No/100 Dollars ($2,591,820.00), subject to adjustment as
provided in this paragraph. The foregoing Purchase Price is based on the
assumption that the area of the Property is exactly fourteen (14) acres. On or
before the Revocation Date (as defined herein), Buyer shall have the right to
cause to be prepared and delivered to Seller a survey of the Property prepared
by a licensed civil engineer or licensed land surveyor containing such
engineer's or surveyor's certification of the area of the Property contained
within the boundary lines of the Property (including landscape, utility and
other easements but excluding any area which is within the right of way of any
existing public street or highway). Such survey shall establish the area of the
Property, absent manifest error. If the area of the Property established by such
survey is more or less than fourteen (14) acres, the Purchase Price shall be
adjusted to that amount which is equal to the product obtained by multiplying
Four Dollars and Twenty-Five Cents ($4.25) per square foot by the area of the
Property expressed in square feet.
3. Payment of Purchase Price. The Purchase Price for the Property
shall be payable as follows:
A. Deposit. The date upon which an original of this
Agreement is executed by Seller and delivered to Buyer shall be deemed the
"Effective Date". Within three (3) days following the Effective Date, Buyer
shall deliver to Santa Clara Land Title Insurance Company ("Title Company") cash
or certified funds in the amount of Fifty Thousand and No/100 Dollars
($50,000.00) ("Initial Cash Deposit"). The Initial Cash Deposit shall be
returnable upon demand by Buyer until 5:00 p.m. (PST) on the date that is sixty
(60) days after the Effective Date ("Revocation Date"). If Buyer does not make
such demand on or before the Revocation Date, Buyer shall increase the Initial
Cash Deposit to a total of One Hundred Thousand and No/100 Dollars ($100,000.00)
("Total Cash Deposit"). Except as otherwise provided in the Agreement, after the
Revocation Date the Initial and Total Cash Deposits shall be either (i) paid to
Seller as part of the Purchase Price at Close of Escrow, (ii) returned to Buyer
in the event this Agreement is terminated because of the failure of a condition
for the benefit of Buyer or because of a material default by Seller, or (iii)
paid to Seller as liquidated damages pursuant to paragraph 16A hereof in the
event this Agreement is terminated because of a default by Buyer of its
obligation to purchase the Property. The Total Cash Deposit shall be deposited
by Escrow Holder in an interest bearing account and interest shall be payable to
Buyer's account and shall be applied and credited toward payment of the Purchase
Price. In the event of Buyer's default hereunder, Escrow Holder is authorized to
deliver to Seller the Total Cash Deposit, including accrued interest upon demand
from Seller.
<PAGE>
B. Cash Balance. Buyer shall deliver additional cash or
certified funds (the "Cash Balance") which, when added to the Total Cash
Deposit, shall equal closing ("Closing"), which Closing shall occur on or before
ninety (90) days following the Effective Date ("Scheduled Closing Date").
4. Buyer's Conditions Precedent to Close of Escrow. Buyer's
obligation to purchase the Property pursuant to this Agreement is subject to the
following conditions and contingencies:
A. Approval of Preliminary Title Report. Buyer shall have
fourteen (14) business days from Seller's delivery of a current preliminary
title report on the Property issued by the Title Company (including copies of
all underlying exceptions to title referenced in such title report) to notify
Seller in writing ("Buyer's Title Notice") of any objections or conditional
approval of any matters shown in the Report. The failure of Buyer to give
Buyer's Title Notice within the 14 day period shall be deemed to constitute
Buyer's approval of condition of title to the property. If Buyer disapproves or
conditionally approves any matter of title shown, in the report, then Seller
may, but is not obligated to, within 10 days after its receipt of Buyer's Title
Notice, elect to eliminate or ameliorate to Buyer's satisfaction, the
disapproved or conditionally approved title matters, by giving Buyer written
notice of those disapproved or conditionally approved title matter's ("Seller's
Title Notice"), if any, that Seller agrees to eliminate or ameliorate, by the
closing date, provided that Seller shall have no obligation to pay any
consideration or incur any liability in order to eliminate or ameliorate such
disapproved title matters. If Seller does not elect to eliminate or ameliorate
disapproved or conditionally approved title matters, or if Buyer reasonably
disapproves Seller's Title Notice, or if Seller fails to timely deliver Seller's
Title notice, then Buyer shall have the right, upon delivery to Seller and
Escrow Holder (on or before five days following the expiration of Seller's
election period) of a written notice to either: (i) waive its prior disapproval
in which event said disapproved matters shall be deemed approved; or (ii)
terminate this Agreement and the Escrow created pursuant hereto and receive a
refund of the Initial Cash Deposit. Failure to take either one of these actions
described above shall be deemed Buyers election to take the action described in
(i) above. If the Title Company issues any supplement to the preliminary title
report for the Property delivered to Buyer which supplement identifies any new
matters not contained in the first preliminary title report, then Buyer shall
have the right to deliver written notice of its objection to the same, in the
manner described above, and Seller shall have the same right to eliminate or
ameliorate such new title matter, all in accordance with the same procedure, and
the same time frames, as stated above, but measured from the date Buyer receives
such supplement to the preliminary title report (and Close of Escrow shall be
extended to the extent necessary to allow the procedures described in this
subparagraph 4(A) to be completed with respect to any such new matter described
by an such supplement to the first preliminary title report.) Notwithstanding
anything contained herein, Buyer shall have no obligation to approve, and seller
shall eliminate prior to Close of Escrow as exceptions to title, any mortgage,
deed of trust, judgment lien, tax lien, mechanic's lien, or other encumbrance
securing the payment of money.
B. Inspection of Property. Buyer and its consultants shall
have the right to enter the Property only during normal business hours upon
reasonable notice to Seller for the purpose of inspecting all aspects of the
Property to determine its present condition including the right to conduct
reasonable soils tests, environmental assessment work, engineering studies and
surveys. Buyer shall indemnify and hold Seller and the property harmless from
any damage, liability, expense, claim, cost, lien, action or judgment including
the cost of Seller's reasonable attorney's fees for or related to labor or
services performed or materials furnished to or for Buyer or for personal
injury, death or property damage arising out of or resulting from actions taken
by Buyer or any of its employees, agents or independent contractors during any
entries upon the Property. Buyer shall restore the Property to good, safe, and
clean condition and repair after concluding such tests and activities. Buyer
further agrees to reimburse Seller for all physical damage to the Property
caused by such testing if Buyer does not purchase the property.
C. Review of Documents. Seller shall, within five (5)
business days following the Effective Date, deliver to Buyer for Buyer's review
and approval (collectively "Property Documents"): (i) a copy of the most recent
tax bills for the Property; and (ii) copies of any soil and groundwater
<PAGE>
contamination reports, and any other environmental audit report to the extent
such reports have been prepared and are within Seller's possession or control;
and (iii) copies of all documents in Seller's possession or control which relate
to the ownership, development, or condition of the Property (excluding documents
recorded in the public records.) Buyer may order such environmental site
assessments as Buyer may desire and Seller will cooperate to enable the reports
to be made. Buyer shall pay the costs of such reports and agrees to reimburse
Seller for any physical damage to the Property caused by such testing. In the
event Buyer discovers any substance or material that has been determined by any
state, federal or local authority or regulatory body to be capable of posing a
risk of injury to health, safety, and/or property ("Hazardous Materials") on the
Property at any time prior to Closing, or if Buyer discovers that contamination
of property adjacent to the Property poses a material threat of contaminating
the Property by migration, Buyer shall have the option to terminate this
agreement by written notice and shall receive a full refund of the Total Cash
Deposit with accrued interest thereon.
D. Independent Judgment. make its own determination as to
the scope of the due diligence investigation of the Property within the time
period as provided for in this Section 4. In making such determination, Buyer
acknowledges and agrees that Buyer has not and shall not rely on any of the
studies, reports, documents, work product, maps or other materials or
information pertaining to the soil and ground water contamination or other
environmental contamination reports, if any, delivered or made available to
Buyer from Seller, Seller's agents or representatives (collectively, "Seller's
Reports"). It is specifically understood and agreed that, to the extent that
Seller delivers (or makes available) to Buyer any Seller's Reports, Seller does
so strictly as an accommodation to Buyer. In the event Buyer does not purchase
the Property, Buyer shall use reasonable efforts to keep all information
obtained by Buyer relating to the Property (which information is referred to
herein as "Confidential Information") confidential and shall not disclose any
Confidential Information to a third party without the consent of Seller. Buyer's
obligation to use reasonable efforts shall include, but not be limited to the
following: (i) notifying its employees (but not any agents or contractors of
Buyer) of the confidential nature of the Confidential Information and of the
agreement contained in the immediately preceding sentence, and (ii) not
disclosing the Confidential Information to any newspaper, journal, magazine or
other news media, or any other person. Nothing in the paragraph shall be deemed
to preclude Buyer from disclosing any information (a) that has been released
into the public domain, or (b) pursuant to law or judicial process.
E. Buyer's Right to Terminate. In the event Buyer, in its
sole and absolute discretion, does not desire to purchase the Property for any
reason, Buyer shall have until 5:00 p.m. (PST) on the Revocation Date to elect
to terminate this Agreement and receive a full refund of its Initial Cash
Deposit plus any interest earned on the Initial Cash Deposit. Buyer shall
exercise such right to terminate, if at all, by delivering to Seller a written
notice to terminate which notice shall be received by Seller on or before the
Revocation Date. In the event Buyer does not timely notify Seller of its
intention to terminate this Agreement on or before the Revocation Date, this
Agreement shall remain in full force and the parties shall proceed to closing in
accordance with the terms of the Agreement. In the event Seller fails to deliver
any of the Property Documents to Buyer within five business (5) days following
the Effective Date, the Revocation Date and Scheduled Closing Date shall
automatically be extended by the number of days equal to the number of days
delay in delivering all Property Documents beyond such five (5) business-day
period.
5. Policy of Title Insurance on Real Property. Seller agrees to
convey to Buyer (or its assignee), by grant deed, good, marketable and insurable
title to the Property, subject only to the title exceptions approved or deemed
approved by Buyer pursuant to Section 4(A) above ("Permitted Exceptions"). For
purposed of this Agreement, good, marketable and insurance title shall mean such
title as evidenced by the Title Company issuing to Buyer at the Closing a CLTA
Owner's Policy of Title Insurance in form and substance reasonably satisfactory
to Buyer (the "Policy"), insuring Buyer or its assignee in the amount of the
Purchase Price that title to the Property is vested in Buyer on the Closing,
subject only to the exceptions to title approved by Buyer under Section 4(A).
Buyer may elect to obtain ALTA title insurance coverage, rather than the CLTA
Owner's Policy described above, subject to the
<PAGE>
following conditions: (I) provision of such coverage shall not delay the close
of escrow; (ii) Buyer shall pay all additional costs of obtaining such coverage,
including the cost of any required survey; (iii) Buyer shall obtain and deliver
to the Title Company any required survey and order the Title Company's
inspection of the Property in sufficient time in advance so that any additional
exceptions resulting from the Title Company's review of the survey and
inspection will be reviewed and approved or disapproved by Buyer in the manner
described in subparagraph 4A hereof, and (iv) Seller shall have the option (but
not the obligation ) to cure any such disapproved exceptions as described in
subparagraph 4A hereof;
6. Covenants Regarding Closing.
A. Seller's Deliveries to Title Company. Seller agrees to
deliver to Title Company on or prior to the Closing, (i) a Grant Deed duly
executed and acknowledged by Seller, conveying the Property to Buyer (or its
assignee); (ii) a federal non-foreign person affidavit (FIRPTA Affidavit); (iii)
a California Form 590 withholding exemption certificate; and (iv) Seller's share
of costs and prorations for closing required to be paid by Seller hereunder.
B. Other Covenants of Seller. Prior to Closing, Seller
covenants and agrees that it will: (i) keep in full force all insurance policies
affecting the Property; (ii) keep the Property in its present condition; and
(iii) keep the Property free and clear from any and all claims, liens, demands
arising out of any work performed or materials furnished with respect to the
Property.
C. Buyer's Deliveries to Title Company. Buyer agrees to
deliver to Title Company, on or prior to the Closing, for disbursement as
provided in the Agreement (i) the Cash Balance, together with Buyer's share of
costs and prorations required to be paid buy Buyer under this Agreement; and
(ii) evidence satisfactory to Title Company that Buyer is qualified to hold and
own real estate in the State of California.
7. Escrow Opening and Closing Costs. Upon Effective Date, an escrow
shall be opened by the Parties at Title Company for the Closing which shall
occur on or before the Scheduled Closing Date. In the event Buyer elects to
close escrow before the Scheduled Closing Date, Buyer shall give written notice
to Seller of such election at least five (5) business days preceding the elected
earlier date for Closing and the closing shall occur on such earlier date. Buyer
and Seller agree to execute such documents as the Title Company may reasonable
require to open escrow and close the transaction contemplate by this Agreement.
8. Costs and Expenses. Seller shall pay the premium for the Policy,
the escrow fee, and one-half (1/2) of the documentary transfer taxes and city
transfer taxes payable in connection with the recordation of the Grant Deed, and
all such other closing costs related to the conveyance of the Property
customarily paid by sellers in Sacramento County. Buyer shall pay one-half (1/2)
of the documentary transfer taxes and city transfer taxes payable in connection
with the recordation of the Grant Deed and all such other closing costs related
to the conveyance of the Property customarily paid by Buyer in Sacramento County
and shall assume all assessments of record. Buyer shall pay legal fees and fees
of other consultants retained by Buyer and Seller shall be responsible for the
payment of legal fees and fees of other consultants retained by Seller. Real
estate taxes, rents, utilities and other expenses shall be prorated as of the
date of the Closing.
9. Disbursements and Other Actions At the Closing. When, and only
when the Title Company (i) has received all the funds, documents and items
described in Section 6, and (ii) is in a position to issue the Policy to Buyer
in the form described in Section 5 above, then the Title Company is authorized
to take the following actions at or immediately after the Closing:
A. Recording. Cause the Grant Deed, and any other documents
which the parties may mutually direct, to be recorded in the Official Records of
Sacramento County;
<PAGE>
B. Funds. All items chargeable to the account of Seller
pursuant hereto, including the payment for recording and escrow fees shall be
deducted from the Purchase Price deposited by Buyer as follows and the remaining
balance shall be paid to Seller or as Seller may direct;
C. Disbursement of Documents to Buyer. Disburse to Buyer
the Bill of Sale and Assignment of Rights, and, after recording, the Grant Deed;
and
D. Issuance of Policy. Cause the Title Policy to be issued
and delivered to Buyer in accordance with Section 5.
10. Seller's Representations and Warranties. The following
constitute representations and warranties of Seller which are true and accurate
as of the date hereof and which shall be true and correct as of the Closing.
A. Seller has the legal power, right and authority to enter
into this Agreement and to consummate the transactions contemplated hereby and
no other action by Seller is requisite to the valid and binding execution,
delivery and performance of this Agreement.
B. This Agreement and all documents required hereby to be
executed by Seller shall be valid, legally binding obligations of and
enforceable against Seller in accordance with their terms.
C. Neither the execution and delivery of this Agreement,
nor the assumption of the obligations herein set forth, nor the consummation of
the transactions herein contemplated will conflict with or result in a breach of
any conditions or provisions of, or constitute a default under, any contract,
agreement, or other obligation to which Seller is a party.
D. Seller has no knowledge, except as otherwise disclosed
to Buyer in this Agreement or in writing delivered prior to close of escrow, of
the existence or prior existence on the Property of any Hazardous Material. To
Seller's knowledge, no summons, citation, directive, order or other
communication has been issued to Seller arising out of or relating to the
presence of Hazardous Materials on the Property.
E. Seller has not received written notice of any pending or
planned public improvements or assessments that involve or will involve the
Property or result in any charge or lien against the Property.
F. Seller has received no written notice of, and has no
knowledge of, (I) any pending or threatened action or proceedings relating to
the Property or, if such claim relates to the Property, against Seller, or (ii)
any pending or threatened condemnation or zoning proceeding affecting the
Property.
G. To Seller's knowledge, title to the Property is not
subject to any liens, encumbrances, easements, licenses, leases or other
exceptions to fee title except those which are described by the preliminary
title report received by Buyer.
H. To Seller's knowledge, there is no agreement or other
undertaking with any person or governmental entity that limits the use or
development of the Property or the availability of all necessary utilities for
the development of the Property, nor is there any state of facts or condition
affecting the Property which would materially and adversely affect Seller's
ability to develop the Property, except as set forth in the zoning, building
codes and other laws of general applicability to the Property.
11. Buyer's Representations. The following constitute
representations and warranties of Buyer which are true and accurate as of the
date hereof and which shall be true and correct as of the Closing:
<PAGE>
A. Buyer has the legal power, right and authority to enter
into this Agreement and to consummate the transactions contemplated hereby and
no other action by Buyer is requisite to the valid and binding execution,
delivery and performance of the Agreement, except as expressly set forth herein.
B. This Agreement and all documents requires hereby to be
executed by Buyer shall be valid, legally binding obligations of and enforceable
against Buyer in accordance with their terms.
C. Neither the execution and delivery of this Agreement,
nor the assumption of the obligations herein set forth, nor the consummation of
the transactions herein contemplated will conflict with or result in a breach of
any conditions or provisions of, or constitute a default under, any contract,
agreement, or other obligation to which Seller is a party.
12. Sold in "As Is" Condition. Buyer is acquiring the Property
strictly "AS-IS" and "WITH ALL FAULTS", in the condition of the Building that
exists on the Revocation Date and assumes the risk that adverse physical
conditions may not have been revealed by its investigation. Except with respect
to those express covenants, representations and warranties made in Section 10,
Buyer acknowledges and agrees that neither Seller or Seller's agents or
representatives, have made any covenants, representations or warranties of any
kind or nature whatsoever, either express or implied, oral or written, with
respect to (i) the physical condition of the Property, (ii) the development
potential of the Property (iii) any Seller Reports furnished pursuant to Section
4, or (iv) any other matters related thereto or to this Agreement. Except for
those express representations made in Section 10 by Seller, Buyer further agrees
that it is not relying on any covenant, representation or warranty, express or
implied, oral or written, with respect to (i) the physical condition of the
Property, (ii) the development potential of the Property (iii) any Seller
Reports furnished pursuant to Section 4, or (iv) any other matters related
thereto or to this Agreement.
13. Condemnation and Destruction. If, prior to the Closing, all or
any of the Property is destroyed by fire or other cause or if the property is
made the subject of eminent domain proceedings, Buyer may, at its option, elect
to (i) terminate the Agreement, in which event each party shall pay one-half the
costs of any cancellation fee charged by Title Company, or (ii) continue this
Agreement in effect and proceed to close in accordance with this Agreement. If
Buyer elects to close, Buyer shall be entitled to receive and keep any
compensation, awards, insurance proceeds or other relief and Buyer and Seller
shall proceed with the Closing without modification of the terms of the
Agreement and without any reduction in the Purchase Price. If Buyer does not
elect to close, Buyer shall receive a refund of the Initial Cash Deposit or
Total Cash Deposit plus any accrued interest. Upon the request of Buyer, Seller
agrees to execute such reasonable documents and take such actions as may be
reasonably necessary for Buyer to receive the insurance proceeds and/or
condemnations awards described in this Section 13.
14. Notices. All notices of other communications required or
permitted hereunder shall be in writing, and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt requested,
and shall be deemed given upon delivery (if personally delivered) or forty eight
(48) hours after deposit in the United States Mail (if mailed):
To Buyer: To Seller: To Title Company:
Objective Integrators, Inc. Sobrato Development Santa Clara Land Title
Blue Ravine Road 10600 N. DeAnza Blvd. 701 Miller Street
Folsom, CA 95630 Cupertino, CA 95014 San Jose, CA 95110
Attn: Phil Cardman Attn: Phil Taylor Attn: Linda Tugade
Notice of change of address shall be given to the other party by written notice
in accordance with this Section 14.
15. Brokers. Each party represents and warrants to the other that it
has engaged no broker, agent, or finder, licensed or otherwise, except CB
Commercial Real Estate and Colliers Ileff Thorn whose commission shall be paid
by Seller provided escrow closes in accordance with Section 9 above. In such
<PAGE>
event, the amount of commission paid to CB Commercial shall be equal to 3% of
the Purchase Price and the amount of commission paid to Colliers Ileff Thorn
shall be equal to 2% of the Purchase Price. In the event that escrow fails to
close for any reason, no commission shall be payable (including as a result of a
default by Seller or Buyer, the failure of a condition, or rescission), and
under no circumstances shall Buyer have any obligation to pay any commission or
damages for failing to close to any broker engaged either by Seller or Buyer in
connection with this transaction. In the event of any additional claim for a
finder's fee or commission in connection with the negotiation, execution, or
consummation of this transaction based upon either party's representation, or
agreement, such party shall indemnify, hold harmless, and defend the other party
from and against such claim or liability including without limitation reasonable
attorney's fees and court costs.
16. Legal and Equitable Enforcement of this Agreement:
A. Default by Buyer. IN THE EVENT THE CLOSING DOES NOT
OCCUR AS HEREIN PROVIDED BY REASON OF ANY DEFAULT OF BUYER, BUYER AND SELLER
AGREE THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ESTIMATE THE
DAMAGES WHICH SELLER MAY SUFFER AS A RESULT THEREOF. THEREFORE BUYER AND SELLER
DO HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT THAT
SELLER WOULD SUFFER IN THE EVENT THAT BUYER DEFAULTS AND FAILS TO COMPLETE THE
PURCHASE OF THE PROPERTY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT AS A
RESULT THEREOF IS AND SHALL BE, AS SELLER'S SOLE AND EXCLUSIVE REMEDY, AN AMOUNT
EQUAL TO THE INITIAL CASH DEPOSIT OR TOTAL CASH DEPOSIT (IN ACCORDANCE WITH THE
TERMS OF THIS AGREEMENT ONLY) THEN IN THE POSSESSION OF THE TITLE COMPANY AND
ANY ACCRUED INTEREST THEREON. BUYER AND SELLER ACKNOWLEDGE AND AGREE THAT SAID
AMOUNT IS A REASONABLE SUM AND SHALL BE THE FULL, AGREED AND LIQUIDATED DAMAGES
FOR BREACH OF THIS AGREEMENT BY BUYER, ALL OTHER CLAIMS TO DAMAGES AND ANY OTHER
RELIEF, RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO WHICH SELLER MIGHT OTHERWISE BE
ENTITLED BY REASON OF BUYER'S DEFAULT BEING HEREIN EXPRESSLY WAIVED BY SELLER.
IN THE EVENT THAT BUYER DEFAULTS AND FAILS TO COMPLETE THE PURCHASE OF THE
PROPERTY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, THIS AGREEMENT SHALL BE
TERMINATED AND NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS
HEREUNDER, EACH TO THE OTHER EXCEPT FOR THE RIGHT OF SELLER TO RECEIVE SUCH
LIQUIDATED DAMAGES.
Initials: Buyer ________ Seller ________
B. Default by Seller. In the event the Closing does not
occur as herein provided by reason of any default by available at law or in
equity under California law, including the right (i) to terminate this Agreement
and to receive the prompt refund of the Initial Cash Deposit or Total Cash
Deposit (together with all accrued interest thereon), as applicable, plus
reimbursement by Seller of all costs, fees, and expenses incurred by Buyer in
connection with this transaction, including reasonable attorney's fees, or (ii)
to enforce specific performance of this Agreement or (iii) to pursue any other
remedy available to Buyer in law or in equity, including its claim for damages.
17. Work Product. Effective upon and in the event of a termination
of this agreement for any reason, Buyer shall assign and deliver to Seller, and
does hereby assign without the need for any further act or instrument, all
reports, plans, studies, documents, written information and the like which has
been generated by buyer in house or by Buyer's third party consultants, whether
prior to the opening of escrow or during the period of escrow in connection with
Buyers proposed acquisition, use, sale or development of the property
(collectively "Work Product"). In such event , Buyer shall deliver the Work
Product which has been assigned to seller not later than five (5) days after the
termination of this Agreement. The work product shall be fully paid for and
shall not be subject to any lien, encumbrance or claim of any kind.
<PAGE>
Buyer shall also return all information and materials given to it by Seller or
its consultants during escrow, in the same condition as delivered to Buyer.
18. Miscellaneous.
A. Attorney's Fees. In the event of the bringing of any
action or suit by a party hereto against another party hereunder by reason of
any breach or interpretation of this Agreement, then in that event the
prevailing party shall be entitled to recover from the other party all costs and
expenses of the action or suit, including reasonable attorneys' fees. In
addition, the prevailing party shall be entitled to recover all costs and
expenses including reasonable attorney's fees incurred by the prevailing party
in enforcing any judgment against the other party. The foregoing provision
relating to post-judgment costs is intended to be severable from all other
provisions of this Agreement.
B. Buyer's cooperation in a Section 1031 Tax Deferred
Exchange. Seller shall have the right to require the transfer of the Property be
effected by means of an IRS code Section 1031 tax deferred exchange and that the
Seller's rights and obligations under this Agreement may be assigned and/or
novated to another party for the purpose of completing such exchange without the
consent of Buyer. Buyer agrees to cooperate with the Seller and said other party
in a manner reasonably necessary to complete said exchange at no additional cost
or liability to Buyer, which cooperation shall include, without limitation,
executing such documents as made be reasonably necessary to effectuate such
exchange.
Seller shall hold Buyer harmless from and indemnify and defend it
against any and all actions, causes of actions, claims, liens or other
proceedings, judgments, obligations, damages, losses or other liabilities, and
from all costs incurred in connection with the defense of any such claim or
claims, including reasonable attorney's fees and costs arising from, relating to
or connected with (i) any claim against Buyer arising out of or relating to its
participation in any exchange effectuated or attempted by Seller involving the
Property, and (ii) any other aspect of the accommodation by Buyer of any
exchange effected or attempted by Seller involving the Property. Seller's
indemnity obligation under this Section shall survive the Closing. In no event
shall (i) Buyer be required to take title to any other property in carrying out
this provision; or (ii) any such exchange extend the Scheduled Closing Date or
(iii) Buyer be required to assume any debt or execute any representation,
warranty, or indemnity for the benefit of a third party. Seller shall be
responsible for all costs and expenses reasonably incurred by Buyer in
implementing a tax deferred exchange benefiting Seller.
C. Costs. Unless otherwise specifically provided for
herein, Seller shall be responsible for all costs and expenses incurred by
Seller in effecting these transactions and Buyer shall be responsible for all
costs and expenses incurred by Buyer in effecting these transactions.
D. Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties relating to the subject matter
hereof and may only be modified or amended by a written instrument executed by
the party against which enforcement of such amendment is sought. This Agreement
supersedes any prior agreements or negotiations of the parties. If any provision
or portion hereof shall be unenforceable, the remaining provisions or portions
of this Agreement shall be construed as if such provision or portion had not
been inserted herein. Each party has had independent legal advice on this
Agreement, or the opportunity to do so, and the meaning of the provisions
hereof; any interpretation shall be made in a neutral manner not for or against
either party based upon any attribution to such party as the source of the
language in question.
E. Time of Essence. Time is of the essence of each and
every term, condition, obligation and provision hereof and failure to comply
with this provision shall be a material breach of this Agreement.
<PAGE>
F. 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 agreement binding all parties
signatory to any counterpart.
G. Governing Law. This Agreement shall be governed by,
interpreted under, and construed and enforceable in accordance with, the laws of
the State of California. Venue shall be in Sacramento County.
H. No Third Party Benefit. This Agreement is intended to
benefit only the Buyer and Seller and no other person or entity shall acquire
any rights hereunder provided that this sentence shall not limit the right of
Buyer to assign its rights under this Agreement.
I. No Waiver. No failure to act or enforce a right
available to either party shall act as a waiver of that party's right and no
waiver of any right shall act as a waiver of any other right or of any future
application of the same right.
J. Severability: If any term or provision of this Agreement
is held unenforceable or invalid by a court of competent jurisdiction, the
remainder of the Agreement shall not be invalidated thereby but shall be
enforceable in accordance with its terms, omitting the invalid or unenforceable
term.
K. Successors And Assigns: The covenants and conditions of
this Agreement shall apply to and bind the heirs, successors, executors,
administrators and assigns of all the parties hereto; and all of the parties
hereto shall be jointly and severally liable hereunder. Notwithstanding anything
to the contrary in the Agreement, Buyer shall have the right to assign the
Agreement, or any of its rights, duties or obligations hereunder, to an entity
in connection with the implementation of any financing for the purchase of the
Property, including a sale/leaseback, any transaction commonly known as a
"synthetic lease", "tax ownership/operating lease", or "off balance sheet
financing", or any other arrangement with a related or unrelated entity pursuant
to which the assignee grants to Buyer (or any subsidiary or affiliate of Buyer)
the right to lease the Property following closing of the transaction
contemplated by this Agreement. In connection with any assignment by Buyer
permitted by this subparagraph, Buyer shall not be required to delegate any of
its duties under the Agreement, nor shall the assignee be required to assume any
of the obligations or liabilities of Buyer under the Agreement (including
liability for Buyer's representations and warranties under the Agreement), but
whether or not such duties are delegated or assumed, Buyer shall remain
personally liable for the performance of all of its obligations under this
Agreement following any such assignment. Additionally, Buyer, at no cost to
Seller, may cause Seller to transfer the Property at Close of Escrow to a
designee or nominee of Buyer.
IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement and year first
above written.
Buyer: Seller:
Objective Systems Integrators, Inc. The John A. Sobrato 1979 Trust
By: /s/ Philip N. Cardman By: _____________________________
------------------------------
Date: April 7, 1997 Date: ___________________________
------------------------------
Its: VP and General Counsel Its: ____________________________
------------------------------
The undersigned brokerage firms execute this Agreement solely for the purpose of
approving and accepting the provisions and limitations of Paragraph 15 hereof
entitled "Brokers."
<PAGE>
CB COMMERCIAL REAL ESTATE
By: ____________________________________
COLLIERS ILEFF THORN
By: ____________________________________
Page
Page
<PAGE>
EXHIBIT 11.1
OBJECTIVE SYSTEMS INTEGRATORS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1997 1996 1995
-------- ------- -----
<S> <C> <C> <C>
Weighted average common shares outstanding..................... 32,080 31,014 11,266
Equivalent shares from options granted during the twelve
month period prior to the Company's initial public offering.. -- 322 773
Weighted average common equivalent shares from
convertible preferred stock (if-converted method)............ -- -- 15,772
Equivalent shares attributable to options
(treasury stock method)...................................... -- 2,111 3,599
-------- ------- -------
Total.......................................................... 32,080 33,447 31,410
======== ======= =======
Net income (loss).............................................. $ (18,464) $ 9,675 $ 7,178
======== ======= =======
Net income (loss) per share.................................... $ (0.58) $ 0.29 $ 0.23
======== ======= =======
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
Objective Systems Integrators, Inc.:
We consent to the incorporation by reference in Registration Statement Nos.
333-00986 and 333-18189 of Objective Systems Integrators, Inc on Forms S-8 of
our report dated August 5, 1997, appearing in this Annual Report on Form 10-K of
Objective Systems Integrators, Inc. for the year ended June 30, 1997.
DELOITTE & TOUCHE LLP
San Jose, California
September 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 17,817
<SECURITIES> 25,424
<RECEIVABLES> 25,241
<ALLOWANCES> (4,212)
<INVENTORY> 0
<CURRENT-ASSETS> 84,276
<PP&E> 26,805
<DEPRECIATION> (9,356)
<TOTAL-ASSETS> 108,031
<CURRENT-LIABILITIES> 21,107
<BONDS> 0
0
0
<COMMON> 81,967
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 108,031
<SALES> 0
<TOTAL-REVENUES> 51,712
<CGS> 23,298
<TOTAL-COSTS> 82,940
<OTHER-EXPENSES> (2,537)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (28,691)
<INCOME-TAX> (10,227)
<INCOME-CONTINUING> (18,464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,464)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
