<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-22466
FTP SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2906463
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 BRICKSTONE SQUARE, FIFTH FLOOR
ANDOVER, MASSACHUSETTS 01810
(Address of principal executive offices)
(Zip Code)
(508) 685-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 33,948,934
- ------------------------------------ ----------------------------------
Class Outstanding at August 11, 1997
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FTP SOFTWARE, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 (unaudited) 3
Consolidated Statements of Operations for the three and six
months ended June 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 (unaudited) 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 22
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FTP SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,423 $ 22,036
Short-term investments 28,587 29,026
Accounts receivable, net of allowance for doubtful
accounts of $1,300 for 1997 and 1996 10,223 16,586
Prepaid expenses and other current assets 3,945 4,430
Income taxes 3,892 4,197
Net assets of discontinued operations 3,054 5,263
-------- --------
Total current assets 68,124 81,538
Property and equipment, net 18,915 20,734
Purchased software, net 4,377 6,962
Investments 38,823 47,971
Other assets 1,429 830
-------- --------
Total assets $131,668 $158,035
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,983 $ 12,446
Accrued employee compensation and benefits 5,803 4,000
Current portion of long-term obligations 14 191
Deferred revenue 8,516 10,058
-------- --------
Total current liabilities 25,316 26,695
Long-term obligations -- 63
-------- --------
Total liabilities 25,316 26,758
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued and outstanding -- --
Common stock, $.01 par value; authorized 100,000,000
shares; issued and outstanding 33,876,638 and
33,646,203 in 1997 and 1996, respectively 339 336
Additional paid-in capital 136,651 136,151
Accumulated deficit (30,897) (5,447)
Equity adjustments 259 237
-------- --------
Total stockholders' equity 106,352 131,277
======== ========
Total liabilities and stockholders' equity $131,668 $158,035
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Product revenue $ 13,073 $ 21,758 $ 29,899 $ 44,680
Service revenue 4,673 4,024 9,202 7,934
-------- -------- -------- --------
Total revenue 17,746 25,782 39,101 52,614
-------- -------- -------- --------
Cost of revenue:
Product cost 3,964 1,765 6,953 2,802
Service cost 2,924 2,510 5,818 4,874
-------- -------- -------- --------
Total cost of revenue 6,888 4,275 12,771 7,676
-------- -------- -------- --------
Gross margin 10,858 21,507 26,330 44,938
-------- -------- -------- --------
Operating expenses:
Sales and marketing 13,115 11,922 27,396 22,169
Product development 8,375 6,133 16,230 12,681
General and administrative 4,612 5,046 8,947 9,170
-------- -------- -------- --------
Total operating expenses 26,102 23,101 52,573 44,020
-------- -------- -------- --------
Income (loss) from continuing operations (15,244) (1,594) (26,243) 918
Investment and other income, net 1,150 1,156 1,785 2,185
-------- -------- -------- -------
Income (loss) from continuing operations
before income taxes (14,094) (438) (24,458) 3,103
Provision (benefit) for income taxes 342 (4,333) 992 (3,023)
-------- -------- -------- --------
Net income (loss) from continuing
operations (14,436) 3,895 (25,450) 6,126
Operating loss from discontinued operations,
net of income tax benefits -- (17,042) -- (27,715)
-------- -------- -------- --------
Net loss $(14,436) $(13,147) $(25,450) $(21,589)
======== ======== ======== ========
Net income (loss) per share:
Continuing operations $ (.43) $ .14 $ (.75) $ .23
Discontinued operations -- (.63) -- (1.03)
-------- -------- -------- --------
$ (.43) $ (.49) $ (.75) $ (.80)
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding 33,842 26,966 33,775 26,953
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $(25,450) $ 6,126
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by (used for) operating activities:
Provision for doubtful accounts -- 200
Depreciation and amortization 6,548 4,660
Loss on disposition of property and equipment 650 --
Amortization of discounts and premiums on investments (83) 20
Changes in operating assets and liabilities:
Accounts receivable 6,363 13,625
Prepaid expenses and other current assets 485 (3,428)
Income taxes 743 (3,946)
Other assets (591) 521
Accounts payable and accrued expenses (1,463) (8)
Accrued employee compensation and benefits 1,803 (1,490)
Deferred revenue (1,542) (264)
-------- --------
Net cash provided by (used for) continuing operations (12,537) 16,016
Net cash provided by (used for) discontinued operations 2,209 (11,100)
-------- --------
Net cash provided by (used for) operating activities (10,328) 4,916
-------- --------
Cash flows from investing activities:
Capital expenditures (2,576) (5,699)
Maturities of investments, net 9,011 11,130
-------- --------
Net cash provided by continuing operations 6,435 5,431
Net cash used for discontinued operations -- (27,715)
-------- --------
Net cash used for investing activities 6,435 (22,284)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 503 758
Principal payments on long-term obligations (240) (235)
-------- --------
Net cash provided by financing activities 263 523
-------- --------
Effect of exchange rate changes on cash 17 (27)
-------- --------
Net decrease in cash and cash equivalents (3,613) (16,872)
Cash and cash equivalents, beginning of period 22,036 30,237
-------- --------
Cash and cash equivalents, end of period $ 18,423 $ 13,365
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL DATA
The accompanying unaudited consolidated financial statements have been
prepared by FTP Software, Inc. (the "Company") in accordance with generally
accepted accounting principles. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments, consisting
only of those of a normal recurring nature, necessary for a fair presentation of
the Company's financial position, results of operations and cash flows at the
dates and for the periods indicated. While the Company believes that the
disclosures presented are adequate to make the information not misleading, these
financial statements should be read in conjunction with the audited consolidated
financial statements and notes related thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
The results of the three- and six-month periods ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full fiscal year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. DISCONTINUED OPERATIONS AND RECLASSIFICATIONS
The accompanying consolidated financial statements for the three- and
six-month periods ended June 30, 1996 have been restated to report separately in
all periods presented the net assets and operating results of discontinued
operations. Prior year operating results have been restated to reflect
continuing operations. Net assets of discontinued operations consist primarily
of purchased software and fixed assets less accounts payable and accrued
expenses. Summary operating results for the discontinued operations (which
include charges of approximately $9.8 million and $21.8 million for certain
acquired in-process technology in the three- and six-month periods ended June
30, 1996) are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------- -------------
Revenue $ 2,349 $ 4,521
Gross margin 1,022 1,369
Operating loss before income taxes (13,198) (30,139)
Net loss (12,673) (23,346)
In addition, certain prior year amounts have been reclassified to conform
to the current year's presentation.
3. LEGAL PROCEEDINGS
In March 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming the Company and certain
of its current and former officers as defendants. The lawsuit, captioned
LAWRENCE M. GREEBEL V. FTP SOFTWARE, INC. ET AL., Civil Action No. 96-10544,
alleges that the defendants publicly issued false and misleading statements and
omitted to disclose material facts
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FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
necessary to make such statements not false and misleading, which the plaintiffs
contend caused an artificial inflation in the price of the Company's common
stock. Specifically, the original complaint alleged that the defendants
knowingly concealed adverse facts and made false or misleading forward and
non-forward looking statements concerning the operating results and financial
condition of the Company, the effects of the Company's July 1995 corporate
restructuring and changing competitive factors in the Company's industry. The
lawsuit, which is purportedly brought on behalf of a class of purchasers of the
Company's common stock during the period from July 14, 1995 to January 3, 1996,
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 10b-5 thereunder and seeks
relief in the form of unspecified compensatory damages, costs and expenses and
such other relief as the court deems proper and just. In August 1996, plaintiffs
filed an amended complaint adding allegations concerning what plaintiffs claim
were wrongful sales and accounting practices by the Company during the class
period, but asserting the same causes of action as the original complaint. In
October 1996, the Company filed a motion to dismiss the complaint on the grounds
that the plaintiffs had not met the pleading requirements of the Private
Securities Litigation Reform Act of 1995. The motion was denied by the court on
February 13, 1997. As a result, the case is now in the discovery phase.
The Company has reviewed the allegations in the lawsuit, believes them to
be without merit, and intends to defend itself and its officers vigorously. In
order to support an adequate defense, the Company has spent and expects to
continue to spend substantial sums for legal and expert fees and costs. The cost
of defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to the Company,
the Company could be required to pay a substantial judgment, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In February 1996, a class action lawsuit, captioned RICHARD ZEID AND SIOM
MISRAH ET AL. V. JOHN KIMBERLEY, FRANK M. RICHARDSON, MARK A. ROWLINSON AND
FIREFOX COMMUNICATIONS, INC., Case No. C96 20136, was filed in the United States
District Court for the Northern District of California, San Francisco Division
(transferred to the San Jose Division), naming Firefox and certain of its
current and former officers and former directors as defendants. The original
complaint alleged that the defendants misrepresented or failed to disclose
material facts about Firefox's operations and financial results, which the
plaintiffs contended resulted in an artificial inflation in the price of
Firefox's common stock. The suit was purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from August 3, 1995 to
January 2, 1996. The complaint alleged claims for violations of Sections 10(b)
and 20(a) of the Exchange Act and Rule 10b-5 thereunder and sought relief in the
form of unspecified compensatory damages, pre- and post-judgment interest,
attorneys' and expert witness fees and such extraordinary, equitable and/or
injunctive relief as permitted by law, equity and the federal statutory
provisions under which the suit was brought. In June 1996, the District Court
entered an order dismissing plaintiffs' complaint. In the order, the court
dismissed with prejudice certain of plaintiffs' claims that warnings and
disclosures in Firefox's Form 10-Qs were false and misleading, while granting
plaintiffs permission to amend their complaint as it concerned certain of
plaintiffs' claims that Firefox was responsible for false and misleading
analysts reports, Firefox statements and financial statements.
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FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
In July 1996, plaintiffs filed their amended complaint. The amended
complaint alleged that defendants misrepresented or failed to disclose material
facts about Firefox's operations and financial results which the plaintiffs
contended resulted in an artificial inflation of the price of Firefox's common
stock. The amended complaint was purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from July 20, 1995 to
January 2, 1996. The amended complaint again alleged claims for violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and
sought relief in the form described above. Specifically, the amended complaint
alleged that defendants knew allegedly material adverse non-public information
about Firefox's financial results and business conditions which allegedly was
not disclosed, that they improperly directed that certain sales and revenues be
recognized and failed to keep adequate reserves and that they participated in
drafting, reviewing and/or approving allegedly misleading statements, releases,
analysts reports and other public representations, including disclaimers and
warnings of and about Firefox. The amended complaint also alleged that John A.
Kimberley, then an officer and director of Firefox, and Frank Richardson, a
former officer and director of Firefox, were liable as "controlling persons" of
Firefox. In September 1996, Firefox filed a motion to dismiss the amended
complaint on the grounds that the plaintiffs had not met the pleading
requirements of the Private Securities Litigation Reform Act of 1995. The motion
was heard by the court on December 3, 1996, and on May 8, 1997, the court
dismissed the amended complaint on such grounds, without leave to amend.
Plaintiffs have appealed the dismissal; plaintiffs' appellate brief is due in
September 1997.
Firefox has reviewed the allegations in the lawsuit, believes them to be
without merit, and intends to defend itself and its officers and directors
vigorously. In order to support an adequate defense, Firefox has spent and
expects to continue to spend substantial sums for legal and expert fees and
costs. The cost of defending the litigation and the outcome of the litigation
are uncertain and cannot be estimated. If the lawsuit were determined adversely
to Firefox, Firefox could be required to pay a substantial judgment, which
could have a material adverse effect on Firefox's business, financial condition
and results of operations.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
is effective for fiscal years ending after December 15, 1997, including interim
periods, and requires the presentation of basic and diluted earnings per share
("EPS"). Basic EPS, which replaces primary EPS, excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding during the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS under the
existing rules. This Statement requires restatement of all prior period EPS
amounts presented after the effective date.
Adoption of the provisions of SFAS No. 128 will have no impact on reported
EPS for the three-month periods ended June 30, 1997 and 1996, as the effect of
common stock equivalents would be anti-dilutive during such periods.
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FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
5. SUBSEQUENT EVENTS
On July 17, 1997, the Company announced the restructuring of its business
into three strategic business units, consistent with its VIP Network vision:
the VIP Network Applications Business Unit, to develop and market the Company's
client and web-based network applications products; the IP Technology Business
Unit, to develop and market the Company's server-based networking products; and
the Agent/Directory Management Business Unit, to develop and market network
administration and management applications based on the Company's Java agent
and directory technologies. The Company is effecting this restructuring in
order to create greater focus on the different product, sales and economic
models that will most effectively enable the Company to take advantage of
strategic opportunities in its various product categories. The Company
announced on June 16, 1997 its intention to reorganize into business units; as
part of this reorganization, each business unit was to have up to 60 days to
develop a business plan. While this process was substantially complete for both
the VIP Network Applications and IP Technology Business Units as of the July 17
announcement, the Company continues to analyze the opportunities that may be
available to its Agent/Directory Management Business Unit.
In connection with the announcement of the restructuring, the Company also
announced a workforce reduction which the Company expects to result in a
decrease in the number of employees of approximately 38% by the end of the
year; such percentage could increase if the Company either experiences
significant attrition during the remainder of 1997 or decides to adjust its
ongoing investment in its Agent/Directory Management Business Unit. The Company
anticipates that the restructuring will be substantially complete, and that the
Company will have paid a substantial majority of all related expenses
(including severance expenses), by the end of the third quarter of 1997. The
Company expects to recognize a pretax charge of approximately $13 to $16
million in the third quarter of 1997 relating to such workforce reduction as
well as the consolidation of the Company's Andover, Massachusetts offices into
its North Andover, Massachusetts offices and a reduction of other physical
assets.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW; RECENT DEVELOPMENTS
The following discussion and analysis provides information that management
of FTP Software, Inc. ("FTP" or the "Company") believes is relevant to an
assessment and understanding of the Company's consolidated results of operations
and financial condition. This discussion should be read in conjunction with the
Company's unaudited consolidated financial statements and the related notes
included above.
FORWARD-LOOKING STATEMENTS IN THIS SECTION AND ELSEWHERE IN THIS REPORT ARE
MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES, AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED
IN THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT FOR A VARIETY OF
REASONS. THESE REASONS INCLUDE, BUT ARE NOT LIMITED TO, COMPETITION, COMPETITIVE
PRICING PRESSURES, TECHNOLOGICAL AND OTHER MARKET CHANGES, THE EFFECTS OF THE
COMPANY'S JULY 1997 RESTRUCTURING DESCRIBED BELOW, DEPENDENCE ON NEW PRODUCTS,
DISTRIBUTION RISKS, CHANGES IN PERSONNEL AND OTHER RISKS THAT ARE OUTLINED BELOW
AND IN APPENDIX A, "CAUTIONARY FACTORS RELEVANT TO FORWARD-LOOKING STATEMENTS,"
TO THIS REPORT.
The Company is engaged in the design, development, marketing and support of
client and server network connectivity products. In September 1996, the Company
announced its VIP Network(TM) strategy to develop products intended to help
customers manage IP networks in a user-based, secure and transparent manner.
Continuing to implement its VIP Network vision, on July 17, 1997 the
Company announced the restructuring of its business into three strategic
business units: the VIP Network Applications Business Unit, to develop and
market the Company's client and web-based network applications products; the IP
Technology Business Unit, to develop and market the Company's server-based
networking products; and the Agent/Directory Management Business Unit, to
develop and market network administration and management applications based on
the Company's Java agent and directory technologies. The Company is effecting
this restructuring in order to create greater focus on the different product,
sales and economic models that will most effectively enable the Company to take
advantage of strategic opportunities in its various product categories. The
Company announced on June 16, 1997 its intention to reorganize into business
units; as part of this reorganization, each business unit was to have up to 60
days to develop a business plan. While this process was substantially complete
for both the VIP Network Applications and IP Technology Business Units as of
the July 17 announcement, the Company continues to analyze the opportunities
that may be available to its Agent/Directory Management Business Unit.
In connection with the announcement of the restructuring, the Company also
announced a workforce reduction which the Company expects to result in a
decrease in the number of employees of approximately 38% by the end of the
year; such percentage could increase if the Company either experiences
significant attrition during the remainder of 1997 or decides to adjust its
ongoing investment in its Agent/Directory Management Business Unit. The Company
anticipates that the restructuring will be substantially complete, and that
Company will have paid a substantial majority of all related expenses
(including severance expenses), by the end of the third quarter of 1997. The
Company expects to recognize a pretax charge of approximately $13 to $16
million in the third quarter of 1997 relating to such workforce reduction as
well as the consolidation of the Company's Andover,
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Massachusetts offices into its North Andover, Massachusetts offices and a
reduction of other physical assets.
In its September 1996 announcement, the Company also announced a formal
plan to spin off, through the sale to third parties, its collaborative lines of
business and to discontinue other selected product lines. Accordingly, these
operations are treated as discontinued operations in the accompanying financial
statements. As described in the notes to such financial statements, such
financial statements have been restated to report separately in all periods
presented the net assets and operating results of the discontinued operations.
Except as otherwise indicated below, the following discussion of the Company's
results of operations relates to continuing operations.
Looking forward, the Company intends to continue to make substantial
investments in its businesses (including through internal and joint third party
development activities, royalty agreements and technology acquisitions) over the
foreseeable future, through the use of the Company's internal cash resources,
the issuance of shares of its common stock or other securities, or a combination
thereof. There can be no assurance, however, that the capital resources
necessary in order to fund such investments will be available or that, if
available, such resources will be on terms acceptable to the Company.
RESULTS OF CONTINUING OPERATIONS
TOTAL REVENUE
Total revenue consists of product revenue and service revenue. Product
revenue includes revenue from product sales and royalties from certain OEM
customers. Service revenue includes revenue from support, consulting and
training. Payments received in advance for support contracts are initially
recorded as deferred revenue and are recognized ratably over the term of the
contract. Revenue from consulting and training is recognized as the services are
performed.
Total revenue decreased to approximately $17.7 million for the second
quarter of 1997 from approximately $25.8 million for the second quarter of 1996.
Product revenue decreased to approximately $13.1 million for the second quarter
of 1997 from approximately $21.8 million for the second quarter of 1996. Service
revenue increased to approximately $4.7 million for the second quarter of 1997
from approximately $4.0 million for the second quarter of 1996. As a percentage
of total revenue, product revenue decreased to approximately 74% for the second
quarter of 1997 from approximately 84% for the second quarter of 1996 while
service revenue increased to approximately 26% for the second quarter of 1997
from approximately 16% for the second quarter of 1996.
The Company's total revenue decreased to approximately $39.1 million in the
first six months of 1997 from approximately $52.6 million in the first six
months of 1996. Product revenue decreased to approximately $29.9 million in the
first six months of 1997 from approximately $44.7 million in the first six
months of 1996. Service revenue increased to approximately $9.2 million in the
first six months of 1997 from approximately $7.9 million in the first six months
of 1996. As a percentage of total revenue, product revenue decreased to
approximately 76% for the first six months of 1997 from approximately 85% for
the first six months of 1996 while service revenue increased to approximately
24% for the first six months of 1997 from approximately 15% for the first six
months of 1996.
PRODUCT REVENUE. Product revenue decreased for the three- and six-month
periods ended June 30, 1997 compared to same periods of 1996 primarily as a
result of decreases in sales volumes and sales prices for certain of the
Company's products over such periods, which the Company believes were primarily
attributable to the increase in lower-priced or no cost TCP/IP connectivity
products introduced
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by certain of the Company's competitors commencing in late 1995, and, to a
lesser extent, the decrease in customer demand for DOS-based products commencing
in 1996. The Company also believes that the announcement in May 1997 of changes
in its sales organization and future distribution strategy (as described below)
and its preliminary announcement in June 1997 of its planned restructuring may
have resulted in a decrease in sales for the second quarter of 1997. See also
"-- Factors Affecting Revenue" below. Product revenue for the three- and
six-month periods ended June 30, 1997 were lower than expected by the Company
due in significant part to lower than expected sales in the Asia Pacific region,
to the U.S. government and from the Company's gateway and server products, the
latter of which factors the Company believes is attributable in significant part
to difficulties in the integration of the organizations of the Company and
Firefox Communications Inc. ("Firefox"), which the Company acquired in July
1996.
SERVICE REVENUE. The dollar increase in service revenue in 1997 compared to
1996 was primarily attributable to growth over such periods in FTP's installed
product base from which such revenues are obtained.
INTERNATIONAL REVENUE. International sales consist of export sales,
primarily to customers in Europe, Asia Pacific, Canada and Latin America.
International sales of approximately $8.2 million and $9.5 million accounted for
approximately 46% and 37% of the Company's total revenue for the second quarter
of 1997 and 1996, respectively. International sales of approximately $17.7
million and $22.6 million accounted for approximately 45% and 43% of the
Company's total revenue for the first six months of 1997 and 1996, respectively.
The dollar decreases in the second quarter of 1997 and the first six months of
1997 compared to the same periods in 1996 were attributable in substantial part
to a decrease in sales to customers in the Asia Pacific region, which decrease
is primarily attributable both to the factors that resulted in the decrease in
product revenue described above under "-- Product Revenue" as well as to a delay
in the localization of certain of the Company's products. International sales
increased as a percentage of total revenue in the three- and six-month periods
ended June 30, 1997 compared to the same periods of 1996 primarily as a result
of more effective sales channels in Europe compared to the Company's sales
channels in the U.S.
The Company prices, invoices and collects international sales primarily in
United States dollars. To date, currency fluctuations have not had a material
effect on the Company's results of operations and financial condition. The
Company intends to begin selling certain of its products in Europe directly from
the U.K. commencing in the second half of 1997; however, the Company anticipates
that substantially all of such sales will continue to be paid in U.S. dollars.
FACTORS AFFECTING REVENUE. As indicated above, the Company has experienced
a decrease in sales volumes since 1995 and a decrease in sales prices for
certain of the Company's products during 1996 and early 1997, all of which the
Company believes are primarily attributable to increased competition as well as
to technological changes in the market. Looking forward, the Company anticipates
that some or all of these trends will continue, and believes that the Company's
future is substantially dependent on the successful implementation of its new
business unit strategy and VIP Network vision. This in turn depends on the
ability of the Company (i) to successfully reorganize its operations into such
units, (ii) to create greater focus on specific product opportunities and
customer needs within the Company's product categories, (iii) to formulate and
implement its sales and distribution strategies to most effectively take
advantage of strategic opportunities in its various product categories,
particularly in the United States, (iv) to successfully develop and timely
release new products and product enhancements and (v) to a certain extent, to
enter into and implement strategic alliances and OEM relationships to develop
necessary products or technologies, to expand the Company's distribution
channels or to jointly market the Company's products. If the Company is
unsuccessful in any such
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<PAGE> 13
regard, the Company believes that the trends described above will continue to
have a material adverse effect on the Company's business, results of operations
and financial condition. Even if the Company is successful in implementing its
new business strategy, there can be no assurance that it will result in a
material improvement in the Company's business, results of operations or
financial condition.
The restructuring of the Company described above has required the
dedication of management and other resources that has temporarily detracted from
attention to the daily business of the Company, which has caused a disruption of
the business activities and a loss of momentum in the business of the Company
and, as a result, may have had an adverse effect on the Company's results of
operations for the second quarter of 1997 and is expected to have such an effect
on the Company's operating results for the third quarter of 1997.
In addition to the workforce reduction described above, the Company
believes that wide fluctuations in the number of personnel during 1996 and the
first quarter of 1997 also may have contributed to the decline in the Company's
operating results for the second quarter of 1997. The Company experienced a
substantial loss of personnel during the latter half of 1996 and the first
quarter of 1997, which the Company believes was attributable to increased
competition for qualified personnel in the industry, the decline in the
Company's financial results and the trading prices of its common stock during
1996 and, to a lesser extent, the integration of Firefox. The Company expects
that it will experience additional attrition during the remainder of 1997 as a
result of the foregoing factors and the restructuring of the Company and
workforce reduction described above. The Company's ability to maintain or
increase revenue will also depend upon its ability to hire, retain and train
qualified personnel.
The Company is increasing its focus in the United States on sales through
distributors, value-added resellers, systems integrators and OEMs rather than
direct sales. Changes in distribution channels may adversely affect sales of the
Company's products and consequently may adversely affect the Company's business,
financial condition and results of operations, at least in the near term. Any
material increase in sales through indirect channels may have an adverse effect
on the Company's operating margins due to the lower per unit revenue realized by
the Company on sales through indirect channels if the Company is unable to
proportionately reduce selling, general and administrative expenses.
Due to the encryption technology contained and expected to be contained in
certain of the Company's current and planned products, such products are and
will be subject to U.S. export controls, and there can be no assurance that such
export controls will not limit the Company's ability to distribute such products
outside the United States or that international customers will accept the
products that the Company is allowed to export under such controls, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
During the second quarter of 1997, the Company implemented two changes to
its customer support and service programs that may affect both product and
service revenue and expense for future periods. First, the Company modified its
customer support program to separately provide and invoice for customer support
and customer product updates. Second, the Company opened a service and support
center in Europe. While these changes are intended to increase revenue, there
can be no assurance that this will be the case or that such changes will not
have a material adverse effect on the Company's revenue if customers react
negatively to these changes.
See "-- Liquidity and Capital Resources" below for a description of certain
legal proceedings and Appendix A, "Cautionary Factors Relevant to
Forward-Looking Statements," for additional discussion of the factors described
above and other factors which may affect the Company's business, financial
condition and results of operations.
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<PAGE> 14
GROSS MARGIN
Product gross margin as a percentage of product revenue was approximately
70% and 92% in the second quarter of 1997 and 1996, respectively. Product gross
margin as a percentage of product revenue was approximately 77% and 94% in the
first six months of 1997 and 1996, respectively. These decreases resulted
primarily from the decrease in total revenue described under "-- Total Revenue"
above. Amortization expense was approximately $1.6 million and $0.3 million in
the second quarter of 1997 and 1996, respectively, and approximately $2.7
million and $0.8 million in the first six months of 1997 and 1996, respectively.
Service gross margin as a percentage of service revenue was approximately
37% and 38% in both the second quarter and first six months of 1997 and 1996,
respectively.
The gross margins reported above are not necessarily indicative of gross
margin for future periods, which may vary significantly depending on, among
other things, changes in product mix resulting from the Company's new corporate
strategy, price competition, technological changes, cost changes and changes in
product distribution channels.
SALES AND MARKETING
Sales and marketing expenses increased to approximately $13.1 million in
the second quarter of 1997 from approximately $11.9 million in the second
quarter of 1996. Such expenses as a percentage of total revenue were
approximately 74% and 46% in the second quarter of 1997 and 1996, respectively.
Sales and marketing expenses increased to approximately $27.4 million in the
first six months of 1997 from approximately $22.2 million in the first six
months of 1996. Such expenses as a percentage of total revenue were
approximately 70% and 42% for the six-month periods ended June 30, 1997 and
1996, respectively. The $1.2 million increase in the second quarter of 1997 and
the $5.2 million increase in the first six months of 1997 were primarily the
result of (i) an increase in compensation expenses resulting from a general
increase in the compensation levels of sales and marketing employees over such
periods, (ii) expenses related to an increase in sales personnel over such
periods and (iii) increases in the levels of advertising, trade show and
international marketing activities over such periods. The percentage increases
over these periods were due to both the dollar increase in such expenses
described above and the dollar decrease in total revenue described above under
"-- Total Revenue."
FTP expects that sales and marketing expenses during the remainder of 1997
will decrease as a result of the Company restructuring described above under
"-- Overview; Recent Developments."
PRODUCT DEVELOPMENT
Product development expenses increased to approximately $8.4 million in the
second quarter of 1997 from approximately $6.1 million in the second quarter of
1996, representing approximately 47% and 24% of total revenue for each period,
respectively. Product development expenses increased to approximately $16.2
million in the first six months of 1997 from approximately $12.7 million in the
first six months of 1996, representing approximately 42% and 24% of total
revenue for each period, respectively. The $2.3 million increase in the second
quarter of 1997 and the $3.5 million increase in the first six months of 1997
were primarily due to an increase in compensation expenses related to an
increase in development personnel over such periods (resulting primarily from
the Firefox acquisition). The percentage increases over these periods were due
to both the dollar increase in such expenses described above and the decrease in
total revenue described above under "-- Total Revenue."
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<PAGE> 15
FTP expects that product development expenses during the remainder of 1997
will decrease as a result of the Company restructuring described above under
"-- Overview; Recent Developments."
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased to approximately $4.6 million
in the second quarter of 1997 from approximately $5.0 million in the second
quarter of 1996, representing approximately 26% and 20% of total revenue for
each period, respectively. General and administrative expenses decreased to
approximately $8.9 million in the first six months of 1997 from approximately
$9.2 million in the first six months of 1996. Such expenses as a percentage of
total revenue were approximately 23% and 17% for the six month periods ended
June 30, 1997 and 1996, respectively. The $0.4 million decrease in the second
quarter of 1997 and the $0.3 million decrease in the first six months of 1997
were primarily the result of the incurrence in the second quarter of 1996 of
approximately $1.0 million in severance related expenses related to the
Company's May 1996 workforce reduction, partially offset by an increase in
administrative expenses incurred in 1997 resulting primarily from the Firefox
acquisition. The percentage increases over these periods were primarily due to
the decrease in total revenue described above under "-- Total Revenue."
FTP expects that general and administrative expenses during the remainder
of 1997 will decrease as a result of the Company restructuring described above
under "-- Overview; Recent Developments."
INCOME (LOSS) FROM CONTINUING OPERATIONS
The Company experienced a loss from continuing operations of approximately
$14.4 million in the second quarter of 1997 compared to income from continuing
operations of approximately $3.9 million in the second quarter of 1996,
representing approximately 81% and 15% of total revenue for each period,
respectively. The Company had a loss from continuing operations of approximately
$25.5 million in the six months ended June 30, 1997 compared to income from
operations of approximately $6.1 million in the six months ended June 30, 1996,
representing approximately 65% and 12% of total revenue for each period,
respectively. These decreases were primarily due to the decrease in total
revenue over such periods described under "-- Total Revenue" above, as well as
to the increases in sales and marketing and product development expenses
described above.
INVESTMENT AND OTHER INCOME, NET
Investment and other income, net, was approximately $1.2 million in the
second quarters of 1997 and 1996. Investment and other income, net, decreased to
approximately $1.8 million in the first six months of 1997 from approximately
$2.2 million in the first six months of 1996. This decrease was primarily due to
the loss on disposals during the first quarter of 1997 of approximately $0.6
million in office equipment and leasehold improvements in connection with the
subleasing by the Company of excess space at certain of its offices. The Company
invests excess cash in high grade municipal bonds, U.S. government treasury
obligations, high grade corporate obligations and equity investments.
PROVISION FOR INCOME TAXES
The provision for income taxes was approximately $0.3 million in the second
quarter of 1997 and $1.0 in the first six months of 1997 compared to an income
tax benefit of approximately $4.3 million in the second quarter of 1996 and $3.0
million for the first six months of 1997. The provisions in 1997
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<PAGE> 16
represent certain foreign and state tax obligations where the Company cannot use
net operating losses. Due to the uncertainty as to when the deferred tax assets
may be realized, the Company has recorded a valuation allowance for all tax
assets in excess of amounts available to be recovered pursuant to tax loss
carrybacks. The 1996 relationship of the income tax benefit to operating loss is
not meaningful due to the application of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," to restated discontinued operations.
DISCONTINUED OPERATIONS
As noted above, in September 1996, the Company announced a formal plan to
spin off, through the sale to third parties, its collaborative lines of business
and to discontinue other selected product lines. Accordingly, these operations
are treated as discontinued operations in the accompanying financial statements.
As described in the notes to the accompanying financial statements, such
financial statements have been restated to report separately in all periods
presented the net assets and operating results of the discontinued operations.
Net assets of discontinued operations consist primarily of purchased software
and fixed assets less accounts payable and accrued expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had an aggregate of approximately $85.8
million in cash and cash equivalents, short-term investments and long-term
investments. Of this amount, approximately $18.4 million was invested primarily
in highly liquid investments with original maturities of three months or less,
approximately $28.6 million was invested in short-term investments consisting of
U.S. government obligations and commercial paper with maturities of less than
one year and in equity investments, and approximately $38.8 million was invested
in U.S. government obligations, commercial paper and municipal obligations with
maturities of greater than one year.
The Company used approximately $12.8 million of cash for continuing
operations in the first six months of 1997 and generated funds from continuing
operations of approximately $16.0 million in the first six months of 1996. The
Company made capital expenditures of approximately $2.4 million and $5.7 million
in the first six months of 1997 and 1996, respectively.
Accounts receivable, net, decreased to approximately $10.2 million at June
30, 1997 from approximately $16.6 million at December 31, 1996. This decrease is
primarily attributable to the decrease in total revenue in the first six months
of 1997 described above.
To date, inflation has not had a material impact on the Company's financial
results.
On March 14, 1996, a class action lawsuit was filed against FTP and certain
of its current and former officers alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 10b-5 thereunder. On February 23, 1996, a class action lawsuit was
filed against Firefox and certain of its current and former officers and former
directors also alleging violations of Sections 10(b) and 20(a) of the Exchange
Act and Rule 10b-5. For a more detailed description of these legal proceedings,
see Note 3 to the Company's unaudited consolidated financial statements included
above. Each of FTP and Firefox has reviewed the allegations in the lawsuit
against it, believes such allegations to be without merit and intends to defend
itself and its officers vigorously. In order to support an adequate defense,
each of FTP and Firefox has spent and expects to continue to spend substantial
sums for legal and expert fees and costs. The costs of defending each lawsuit
and the ultimate outcome of each lawsuit are uncertain and cannot be estimated.
If the lawsuit against FTP were
16
<PAGE> 17
ultimately determined adversely to FTP, or if the lawsuit against Firefox were
ultimately determined adversely to Firefox, such company could be required to
pay a substantial judgment, which could have a material adverse effect on the
Company's consolidated business, financial condition and results of operations.
Looking forward, the Company believes that its available cash, cash
equivalents and short-term investments will be sufficient to fund its operations
at least through 1997. As noted under "-- Overview; Recent Developments" above,
the Company intends to make substantial investments in the development of
products and technologies necessary to implement its new corporate strategy.
There can be no assurance, however, that the capital resources necessary to
continue to fund such investments will be available or that, if available, such
resources will be on terms acceptable to the Company.
17
<PAGE> 18
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a description of certain legal proceedings involving FTP and a
description of certain legal proceedings involving Firefox, see "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part I of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 19, 1997, the Company held its 1997 annual meeting of stockholders.
The only item of business was the re-election of David D. Clark and F. David
Fowler as Class I Directors, to serve until the 2000 annual meeting of
stockholders of the Company or until the qualification and election of their
successors. The results of the votes were as follows:
<TABLE>
<CAPTION>
Nominee For Against Withheld Broker Non-Votes
- ------- --- ------- -------- ----------------
<S> <C> <C> <C> <C>
David D. Clark 29,694,112 0 800,764 0
F. David Fowler 29,542,710 0 952,166 0
</TABLE>
The following persons continued as directors following the meeting: Class II
Directors -- Kevin J. Burns and John A. Kimberley; Class III Directors -- Vinton
G. Cerf, Glenn C. Hazard and Louise A. Mathews.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<S> <C>
3.1 Restated Articles of Organization of the Company(1)
3.2 Certificate of Designation, Preferences and Rights of Junior Preferred
Stock of the Company(1)
3.3 Articles of Amendment to Restated Articles of Organization of the
Company(3)
3.4 Amended and Restated Bylaws of the Company(1)
4.1 Specimen common stock certificate(1)
4.2 Rights Agreement dated as of December 1, 1995 between the Company and State
Street Bank and Trust Company, as Rights Agent (including form of Rights
Certificate)(1)
4.3 Amendment to Rights Agreement dated as of November 7, 1996 between the
Company and State Street Bank and Trust Company, as Rights Agent(3)
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<S> <C>
10.1 Indenture of Lease between the Company and North Andover Mills Realty dated
November 19, 1991(1)
10.2 Amendment No. 1 to Indenture of Lease between the Company and North Andover
Mills Realty dated as of September 1, 1992(1)
10.3 Amendment No. 2 to Indenture of Lease between the Company and North Andover
Mills Realty dated as of January 6, 1993(1)
10.4 Amendment No. 3 to Indenture of Lease between the Company and North Andover
Mills Realty dated as of June 18, 1993(1)
10.5 Amendment No. 4 to Indenture of Lease between the Company and North Andover
Mills Realty dated as of September 30, 1993(1)
10.6 Amendment No. 5 to Indenture of Lease between the Company and North Andover
Mills Realty Limited Partnership dated August 12, 1995(1)
10.7 Employment Agreement between the Company and Glenn C. Hazard dated as of
July 29, 1996(3)
10.8 Amendment No. 1 to Employment Agreement between the Company and Glenn C.
Hazard dated as of June 19, 1997*
10.9 Employment Agreement between the Company and Douglas F. Flood dated as of
July 23, 1996(3)
10.10 Amendment No. 1 to Employment Agreement between the Company and Douglas F.
Flood dated as of June 19, 1997*
10.11 Employment Agreement between the Company and John H. Keller dated as of
July 23, 1996(3)
10.12 Employment Agreement between the Company and John A. Kimberley dated as of
the "Effective Date" of the Firefox merger(3)
10.13 Amendment No. 1 to Employment Agreement between the Company and John A.
Kimberley dated as of June 19, 1997*
10.14 Employment Agreement between the Company and Peter R. Simkin dated as of
the "Effective Date" of the Firefox merger, together with Amendment No. 1
thereto dated August 24, 1996(3)
10.15 Amendment No. 2 to Employment Agreement between Company and Peter R.
Simkin dated as of December 15, 1996(4)
10.16 Amendment No. 3 to Employment Agreement between Company and Peter R.
Simkin dated as of June 19, 1997*
10.17 Employment Agreement between the Company and James A. Tholen dated as of
April 6, 1997*
10.18 FTP Software, Inc. Stock Option Plan(1)
10.19 FTP Software, Inc. 1996 Executive Equity Incentive Plan(3)
10.20 FTP Software, Inc. 1997 Employee Equity Incentive Plan(4)
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<S> <C>
10.21 Composite FTP Software, Inc. 1993 Non-Employee Directors' Stock Option
Plan incorporating Amendment No. 1 effective as of June 2, 1995 and
Amendment No. 2 effective as of August 22, 1996(3)
10.22 FTP Software, Inc. 1994 Executive Compensation Plan(1)
10.23 FTP Software, Inc. 1995 Executive Compensation Plan(1)
10.24 FTP Software, Inc. 1995 V-P Sales Plan(1)
10.25 Indenture of Lease between the Company and Andover Mills Realty Limited
Partnership dated as of October 1, 1993(1)
10.26 Amendment No. 1 to Indenture of Lease between the Company and Andover
Mills Realty Limited Partnership dated as of February 10, 1994(1)
10.27 Amendment No. 2 to Indenture of Lease between the Company and Andover
Mills Realty Limited Partnership dated as of June 7, 1995(1)
10.28 Amended and Restated Agreement and Plan of Merger by and among the
Company, Firefox Acquisition Corp. and Firefox Communications Inc. dated as
of May 21, 1996(2)
11 Weighted Shares Used in Computation of Earnings Per Share*
27 Financial Data Schedule*
99 Cautionary Statements Relevant to Forward-Looking Statements(5)
</TABLE>
- ---------------------
*Filed with this Report.
(1) Included as an exhibit to, and incorporated in this Report by reference to,
the Company's Registration Statement on Form S-4 (No. 333-06917) filed with
the Securities and Exchange Commission (the "Commission") on June 26, 1996.
(2) Included as Appendix A to, and incorporated in this Report by reference to,
the Company's Joint Proxy Statement/Prospectus filed with the Commission on
July 1, 1996.
(3) Included as an exhibit to, and incorporated in this Report by reference to,
the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 filed with the Commission on November 14, 1996.
(4) Included as an exhibit to, and incorporated in this Report by reference to,
the Company's Annual Report on Form 10-K for the year ended December 31,
1996 filed with the Commission on March 31, 1997.
(5) Included as, and incorporated by reference to, Appendix A to this Report.
b. REPORTS ON FORM 8-K
The Company filed the following Reports on Form 8-K during the quarter
ended June 30, 1997:
Report on Form 8-K dated June 16, 1997, relating to the Company's press
release announcing its intention to realign its business into three strategic
business units, together with related information.
20
<PAGE> 21
Report on Form 8-K dated July 17, 1997, relating to the Company's press
release announcing the restructuring of its business into three strategic
business units, including a reduction in the Company's worldwide workforce and a
related restructuring charge, as well as certain information relating to the
Company's financial results for the quarter ended June 30, 1997.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FTP SOFTWARE, INC.
Date: August 14, 1997 By:/s/ James A. Tholen
----------------------------------
James A. Tholen,
Senior Vice President and
Chief Financial and Operating Officer
(principal financial and accounting officer)
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<PAGE> 23
APPENDIX A
CAUTIONARY FACTORS
FROM TIME TO TIME MANAGEMENT OF FTP SOFTWARE, INC. ("FTP" OR THE "COMPANY")
HAS MADE, AND MAY IN THE FUTURE MAKE, FORWARD-LOOKING STATEMENTS, BASED ON
MANAGEMENT'S THEN-CURRENT EXPECTATIONS, INCLUDING STATEMENTS MADE IN SECURITIES
AND EXCHANGE COMMISSION FILINGS, STATEMENTS MADE IN PRESS RELEASES AND ORAL
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE MADE PURSUANT TO THE SAFE
HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ALL
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS
FOR A VARIETY OF REASONS. THESE REASONS INCLUDE, BUT ARE NOT LIMITED TO,
COMPETITION, TECHNOLOGICAL AND OTHER MARKET CHANGES AND OTHER FACTORS OUTLINED
BELOW AND IN "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" OF THE COMPANY'S REPORT ON FORM 10-Q FOR
THE QUARTER ENDED JUNE 30, 1997 (THE "FORM 10-Q") TO WHICH THIS APPENDIX IS
ATTACHED.
As used in this Appendix, the term the "Company" generally refers to FTP
and its subsidiaries, including Firefox Communications Inc. ("Firefox"), which
the Company acquired in July 1996.
Competition. The software industry is extremely competitive, and is
characterized by evolving industry standards, frequent introduction of new
products and product enhancements, and continuous improvement in product
reliability, compatibility, memory use and performance. The Company's networking
software products compete with major computer and communications systems
vendors, including Microsoft Corporation ("Microsoft"), Novell, Inc. ("Novell")
and Sun Microsystems, Inc. ("Sun"), as well as smaller networking software
companies, such as NetManage, Inc. Some of the Company's competitors have
substantially greater financial, technical, sales, marketing and other resources
than the Company, as well as greater name recognition and a larger customer
base. In addition, the Company's core product lines are based upon the
Transmission Control Protocol/Internet Protocol ("TCP/IP"), an open
non-proprietary data communications protocol suite. Several of the Company's
competitors have developed proprietary networking applications and certain of
such vendors, including Microsoft, provide a TCP/IP protocol suite in their
products at little or no additional cost. The introduction of such protocol
suites has resulted in a decrease in sales volumes of, and sales prices for,
certain of the Company's products, which materially adversely affected the
Company's results of operations in 1996 and the first six months of 1997 and is
expected to continue to have this effect, at least in the near term. The Company
anticipates that other companies may also enter the market with their own
implementations of TCP/IP. The Company is also facing competition from makers of
terminal emulation software, such as Attachmate Corporation and Wall Data, Inc.
In addition, existing competitors could devote additional resources to the
development of TCP/IP or expand their existing TCP/IP product lines. Increased
competition from existing or new products could adversely affect demand for the
Company's products and has led, and could continue to lead, to increased price
competition and other concessions, adversely affecting the Company's gross
margins and operating results.
The market for agent, directory services and security software products and
technologies is new, intensely competitive, rapidly evolving and subject to
rapid technological change. The Company expects competition in this market to
persist, intensify and increase in the future. The Company competes with many
software companies in these areas, such as Microsoft, Novell and Sun. Many of
such competitors have longer operating histories, greater name recognition,
larger installed customer bases and significantly greater financial, technical
and marketing resources than does the Company. Further, the
A-1
<PAGE> 24
Company's current products and technologies are being designed around certain
standards, and industry acceptance of competing standards could adversely affect
demand for the Company's products. For example, Microsoft is proposing an
alternative security standard, and widespread adoption of that standard could
have a material adverse effect on the Company's business, financial condition
and results of operations.
There can be no assurance that the Company will be able to compete
successfully against current or future competitors. Competitive pressures faced
by the Company had a material adverse effect on its business, financial
condition and results of operations during 1996 and have had and are expected to
continue to have such an effect during 1997.
Rapid Technological and Other Market Changes; Dependence on New Products.
The market for networking, agent, directory services and security software
products and technologies is subject to rapid changes in technology and customer
preferences, such as the recent decline in the use of DOS-based computing
systems and the embedding of competing products into new PCs. The Company's
growth and future financial performance will depend upon its ability to
successfully and timely implement the Company's new business unit strategy
described under "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview; Recent Developments" of the
Form 10-Q and to develop and introduce new products and enhancements of existing
products that accommodate the latest technological advances and customer
requirements, and also on its ability to increase unit volume sales of its
connectivity and other products and to generate significant product revenues
from products currently under development. Any failure to increase revenues from
connectivity products or to generate significant revenues from such other
products could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
new products or product enhancements will be developed or marketed successfully
by the Company on a timely basis or at all, that any new product or product
enhancements will achieve market acceptance, that other software vendors will
not develop and market solutions or products which are superior to the Company's
products or that any such other solutions or products will not achieve greater
market acceptance. In addition, the ability of the Company to develop and market
new products and product enhancements is dependent in part on upon its ability
to enter into and implement certain strategic alliances as described below under
"Strategic Alliances" and its ability to retain qualified employees as described
below under "Changes in Personnel." Any failure by the Company to anticipate or
respond adequately to changes in technology and customer preferences, to develop
and introduce new products or product enhancements in a timely fashion, or to
retain qualified employees, could have a material adverse effect on its
business, financial condition and results of operations.
Software products as complex as those offered by the Company may contain
undetected errors or failures when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company and
current and potential customers, errors will not be found in new products and
product enhancements after commencement of commercial shipments, resulting in
loss of or delay in market acceptance. Such loss or delay could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Impact of Restructuring; Changes in Personnel. As described in the Form
10-Q, in July 1997 the Company announced the restructuring of its operations
into three strategic business units. This restructuring has required the
dedication of management and other resources that has temporarily detracted from
attention to the daily business of the Company, which has caused a disruption of
the business activities and a loss of momentum in the business of the Company
and, as a result, may have had an adverse effect on the Company's results of
operations for the second quarter of 1997 and is
A-2
<PAGE> 25
expected to have such an effect on the Company's operating results for the
third quarter of 1997.
As also described in the Form 10-Q, in connection with the announcement of
the restructuring, the Company also announced a workforce reduction which the
Company expects to result in a decrease in the number of employees of
approximately 38% by the end of the year; such percentage could increase if the
Company experiences significant attrition during the remainder of 1997. In
addition to such workforce reduction, the Company believes that wide
fluctuations in the number of personnel during 1996 and the first quarter of
1997 also may have contributed to the decline in the Company's operating results
for the second quarter of 1997. The Company experienced a substantial loss of
personnel during the latter half of 1996 and the first quarter of 1997, which
the Company believes was attributable to increased competition for qualified
personnel in the industry, the decline in the Company's financial results and
the trading prices of its common stock during 1996 and, to a lesser extent, the
integration of Firefox.
The success of the Company will depend to a significant degree upon its
ability to retain qualified personnel and the continued contributions of its key
management, marketing, sales, product development and operational personnel. As
a result of the workforce reduction and other factors described above, the
Company expects that it will experience additional attrition during the
remainder of 1997. If the Company is unable to hire, retain and train key
technical, sales and other personnel, the Company's business, financial
condition and results of operations could be materially adversely affected.
Interoperability with Third Party Products and Technologies. Because
certain of the Company's products incorporate software and other technologies
developed and maintained by third parties, the Company is to a certain extent
dependent upon such third parties' ability to enhance their current products, to
develop new products that will meet changing customer needs on a timely and
cost-effective basis, and to respond to emerging industry standards and other
technological changes. There can be no assurance that the Company would be able
to replace the functionality provided by the third party technologies currently
offered in conjunction with the Company's products if those technologies become
unavailable to the Company or obsolete or incompatible with future versions of
the Company's products or market standards. The absence of or any significant
delay in the replacement of that functionality could have a material adverse
effect on the Company's business, financial condition and results of operations.
As described below under "Reliance on Strategic Alliances," the Company intends
to enter into strategic alliances providing for the joint development of certain
future products, and therefore expects that its products will increasingly
include technologies of third parties.
In connection with the development and enhancement of certain of its
products, the Company from time to time receives pre-release access to products
of some of the major software companies. There can be no assurance that such
third parties will continue to make such pre-release access available on a
timely basis or at all, and any discontinuance of or delay in such access could
have a material adverse effect on the Company's ability to provide timely
enhancements to its products, which could have a material adverse effect on the
business, financial condition and results of operations of the Company.
Similarly, the Company's ability to provide timely enhancements to its products
and, as a consequence, its business, financial condition and results of
operations could be materially adversely affected by market developments adverse
to such other software companies or their products.
Distribution Risks. The Company relies significantly on its independent
distributors, systems integrators and value-added resellers for certain elements
of the marketing and distribution of its products. The agreements in place with
these organizations are generally non-exclusive. These organizations are not
within the control of the Company, may represent other product lines in addition
to
A-3
<PAGE> 26
those of the Company and are not obligated to purchase products from the
Company. There can be no assurance that such organizations will give a high
priority to the marketing of the Company's products, and such organizations may
give a higher priority to other products, which may include the products of the
Company's competitors. Actions of this nature by such organizations could result
in a lower sales effort applied to the Company's products and a consequent
reduction in the Company's operating results. The Company's results of
operations can also be materially adversely affected by changes in the inventory
strategies of its resellers, which can occur rapidly and in many cases may not
be related to end user demand.
The Company is increasing its focus in the United States on sales through
distributors, value-added resellers, systems integrators and OEMs rather than
direct sales. Changes in distribution channels may adversely affect sales of the
Company's products and consequently may adversely affect the Company's business,
financial condition and results of operations, at least in the near term. Any
material increase in sales through indirect channels may have an adverse effect
on the Company's operating margins due to the lower per unit revenue realized by
the Company on sales through indirect channels if the Company is unable to
proportionately reduce selling, general and administrative expenses.
The Company may grant its distributors limited rights to exchange unsold
products for other products and provide inventory price protection in the event
of price reductions by the Company. While the Company provides allowances for
projected returns and price protection in certain instances, there can be no
assurance that allowances will be sufficient to offset product returns and price
protection in the future. Substantial returns of products or a decrease in the
price of the Company's products could have a material adverse effect on the
Company's business, financial condition and results of operations.
Declining Sales Prices. Until 1995, the market for the Company's products
was not characterized by significant price competition; however, as noted above,
the Company is facing increasing pricing pressures from competitors. These
pressures are likely to continue to increase, led to a decrease in sales prices
for certain of the Company's products during 1996 and the first quarter of 1997,
could continue to have this effect on sales prices for the Company's products,
and have had and could continue to have a material adverse effect on the
Company's results of operations and financial condition.
International Sales. Sales outside the United States accounted for
approximately 42%, 46% and 44% of the Company's total revenues in 1996, 1995 and
1994, respectively. Sales in the United Kingdom accounted for approximately 39%
and 40% of Firefox's net revenues in 1995 and 1994, respectively. The Company
expects that sales outside the United States will continue to account for a
substantial portion of revenue for the foreseeable future. Growth in
international sales is expected to be a significant factor in the future success
of the Company. The Company's international sales decreased in 1996 and the
first six months of 1997 primarily as a result of increased competition, lower
sales prices and, beginning in the second half of 1996, decreased sales volumes
as described above. There can be no assurance that the Company will be able to
maintain or increase international sales of its products or that its
international distribution channels will be able to service and support its
products adequately.
Due to the encryption technology contained and to be contained in certain
of the Company's current and planned products, such products are and will be
subject to U.S. export controls, and there can be no assurance that such export
controls will not limit the Company's ability to distribute such products
outside the United States or that international customers will accept the
products that the Company is allowed to export under such controls, which could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Government Regulation and Legal
A-4
<PAGE> 27
Uncertainties" below.
There are certain general risks inherent in conducting international
business, including exposure to currency exchange rate fluctuations, changes in
markets caused by various political, social and economic factors, unexpected
changes in regulatory requirements, tariffs and other trade barriers, costs and
risks of localizing products for foreign countries, longer payment terms,
potentially adverse tax consequences, repatriation of earnings, the burdens of
complying with a wide variety of foreign laws and the difficulties of managing
international operations. In addition, revenue of the Company earned in various
countries where the Company does business may be subject to taxation by more
than one jurisdiction, thereby adversely affecting the Company's earnings. There
can be no assurance that such factors will not have a material adverse effect on
the revenue from the Company's future international sales and, consequently, the
Company's business, financial condition and results of operations.
Reliance on Strategic Alliances and OEM Relationships. In addition to
internal development of new products and technologies, the future success of the
Company depends to a certain extent on the ability of the Company to enter into
and implement strategic alliances and OEM relationships to develop necessary
products or technologies, to expand the Company's distribution channels or to
jointly market the Company's products. There can be no assurance that the
Company will be successful in identifying or developing such alliances and
relationships or that such alliances and relationships will achieve their
intended purposes.
Potential Fluctuations in Operating Results. The Company's operating
results have in the past and may in the future fluctuate from period to period
as a result of a variety of factors, including, among other things: the
purchasing patterns of its customers; the lengthening of sales cycles;
competitive pricing pressures; the mix of products sold; customer order
deferrals in anticipation of new products or product enhancements; market
acceptance and timing of the introductions of new products and product
enhancements by the Company and its competitors; variations in sales by product
and distribution channel; changes in resellers' inventory practices; the
exercise of stock rotation or inventory price protection practices by
distributors; the accuracy of resellers' forecasts of customer demands;
fluctuations in domestic and foreign economic conditions; and the Company's
sales compensation programs, which are based on both quarterly and annual sales
levels. In addition, substantially all of the Company's product revenue and
profit in each quarter result from orders received in that quarter, and an
increasingly large portion of orders are received during the last month of such
quarter. If revenue does not meet expectations in any given quarter, operating
results may be materially adversely affected. There can be no assurance that the
Company will not experience significant fluctuations in operating results in the
future. Quarterly sales and operating results generally depend on the volume and
timing of and ability to fulfill orders received within the quarter, which are
difficult to forecast. The Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall of demand for the Company's products and services in
relation to the Company's expectations would have an immediate adverse impact on
the Company's business, financial condition and results of operations. To the
extent that expenses precede or are not subsequently followed by increased
revenue, the Company's business, financial condition and results of operations
will be materially adversely affected. Based on the foregoing, the Company
believes that period to period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as an indicator of future
performance.
Proprietary Rights. The Company considers its implementations of the TCP/IP
protocol, its OnNet Kernel software and PC/TCP Kernel software, to be
proprietary and relies primarily on a combination of copyrights, trademarks,
trade secret law and contracts to protect such proprietary
A-5
<PAGE> 28
implementations. However, the basic TCP/IP protocols are non-proprietary and
other parties have developed their own versions. See "Competition" above.
The Company generally enters into confidentiality and/or license agreements
with its employees, consultants, distributors, customers and potential customers
and limits access to and distribution of its source code and other proprietary
information. Despite these precautions, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and, while the Company is unable to determine the extent
to which piracy of software exists, software piracy can be expected to be a
persistent problem, particularly in some international markets. The laws and
enforcement authorities of some foreign countries do not protect the Company's
proprietary rights to as great an extent as the laws of the United States, and
because of the Company's significant international presence, there can be no
assurance that the Company will be able to protect its proprietary rights
abroad. Although the Company's implementation of TCP/IP is proprietary, the
basic TCP/IP protocols are non-proprietary. Anyone who wishes to use them may do
so, without having to pay for the right.
Although the Company currently has no issued patents, the number of patents
granted on software inventions is increasing. Consequently, there is a growing
risk of third parties asserting patent claims against the Company. As of August
11, 1997, the Company had not received any notice from a third party alleging
any material patent infringement. However, in the future, the Company may
receive communications from third parties asserting that the Company's products
infringe, or may infringe, the patents or other proprietary rights of such third
parties, or seeking indemnification against such infringement, or asserting that
the Company must obtain a license from such third parties. Such communications,
and any resulting litigation, could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations. If any claims or actions were to
be asserted against the Company and the Company were required to seek a license
of a third party's intellectual property, there can be no assurance that the
Company would be able to acquire such a license on reasonable terms or at all,
and no prediction can be made about the effect that such license might have on
the Company's business, financial condition or results of operations. Should
litigation with respect to any such claim commence, such litigation could be
extremely expensive and time consuming and could materially adversely affect the
Company's business, financial condition and results of operations regardless of
the outcome of the litigation.
Government Regulation and Legal Uncertainties. The Company is not currently
subject to direct regulation by any government agency, other than regulations
applicable to business generally, and (with the exception of regulations
controlling the export and import of encryption technology referred to below)
there are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use of
the Internet, it is possible that various laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in turn
decrease the demand for certain of the Company's products and increase the
Company's cost of doing business or otherwise have an adverse effect on the
Company's business, financial condition and results of operations. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is uncertain.
Due to the encryption technology contained in certain of the Company's
products, such products are subject to U.S. export controls. There can be no
assurance that such export controls, either in their current form or as may be
subsequently enacted, will not limit the Company's ability to distribute
A-6
<PAGE> 29
products outside of the United States or electronically or that international
customers will accept the products that the Company is allowed to export within
the limits of those controls. While the Company takes precautions against
unlawful exportation, the global nature of the Internet makes it virtually
impossible to effectively control the distribution of the Company's products. In
addition, federal or state legislation or regulation may further limit levels of
encryption or authentication technology. Any such export restrictions, new
legislation or regulation or unlawful exportation could have a material adverse
effect on the Company's business, financial condition and results of operations.
Legal Proceedings Against FTP and Firefox. See Note 3 of the notes to the
Company's unaudited consolidated financial statements included in the Form 10-Q
for a description of certain legal proceedings against FTP and Firefox which
could materially adversely affect the Company's future business, operations and
financial condition.
A-7
<PAGE> 30
EXHIBIT INDEX
-------------
EXHIBIT NO. TITLE
- ----------- -----
3.1 Restated Articles of Organization of the Company(1)
3.2 Certificate of Designation, Preferences and Rights of Junior
Preferred Stock of the Company(1)
3.3 Articles of Amendment to Restated Articles of Organization of the
Company(3)
3.4 Amended and Restated Bylaws of the Company(1)
4.1 Specimen common stock certificate(1)
4.2 Rights Agreement dated as of December 1, 1995 between the Company
and State Street Bank and Trust Company, as Rights Agent (including
form of Rights Certificate)(1)
4.3 Amendment to Rights Agreement dated as of November 7, 1996 between
the Company and State Street Bank and Trust Company, as Rights
Agent(3)
10.1 Indenture of Lease between the Company and North Andover Mills
Realty dated November 19, 1991(1)
10.2 Amendment No. 1 to Indenture of Lease between the Company and
North Andover Mills Realty dated as of September 1, 1992(1)
10.3 Amendment No. 2 to Indenture of Lease between the Company and
North Andover Mills Realty dated as of January 6, 1993(1)
10.4 Amendment No. 3 to Indenture of Lease between the Company and
North Andover Mills Realty dated as of June 18, 1993(1)
10.5 Amendment No. 4 to Indenture of Lease between the Company and
North Andover Mills Realty dated as of September 30, 1993(1)
10.6 Amendment No. 5 to Indenture of Lease between the Company and
North Andover Mills Realty Limited Partnership dated August 12,
1995(1)
10.7 Employment Agreement between the Company and Glenn C. Hazard
dated as of July 29, 1996(3)
10.8 Amendment No. 1 to Employment Agreement between the Company and
Glenn C. Hazard dated as of June 19, 1997*
10.9 Employment Agreement between the Company and Douglas F. Flood
dated as of July 23, 1996(3)
10.10 Amendment No. 1 to Employment Agreement between the Company and
Douglas F. Flood dated as of June 19, 1997*
10.11 Employment Agreement between the Company and John H. Keller dated
as of July 23, 1996(3)
10.12 Employment Agreement between the Company and John A. Kimberley
dated as of the "Effective Date" of the Firefox merger(3)
10.13 Amendment No. 1 to Employment Agreement between the Company and
John A. Kimberley dated as of June 19, 1997*
i
<PAGE> 31
EXHIBIT NO. TITLE
- ----------- -----
10.14 Employment Agreement between the Company and Peter R. Simkin
dated as of the "Effective Date" of the Firefox merger, together
with Amendment No. 1 thereto dated August 24, 1996(3)
10.15 Amendment No. 2 to Employment Agreement between Company and Peter
R. Simkin dated as of December 15, 1996(4)
10.16 Amendment No. 3 to Employment Agreement between Company and Peter
R. Simkin dated as of June 19, 1997*
10.17 Employment Agreement between the Company and James A. Tholen
dated as of April 6, 1997*
10.18 FTP Software, Inc. Stock Option Plan(1)
10.19 FTP Software, Inc. 1996 Executive Equity Incentive Plan(3)
10.20 FTP Software, Inc. 1997 Employee Equity Incentive Plan(4)
10.21 Composite FTP Software, Inc. 1993 Non-Employee Directors' Stock
Option Plan incorporating Amendment No. 1 effective as of June 2,
1995 and Amendment No. 2 effective as of August 22, 1996(3)
10.22 FTP Software, Inc. 1994 Executive Compensation Plan(1)
10.23 FTP Software, Inc. 1995 Executive Compensation Plan(1)
10.24 FTP Software, Inc. 1995 V-P Sales Plan(1)
10.25 Indenture of Lease between the Company and Andover Mills Realty
Limited Partnership dated as of October 1, 1993(1)
10.26 Amendment No. 1 to Indenture of Lease between the Company and
Andover Mills Realty Limited Partnership dated as of February 10,
1994(1)
10.27 Amendment No. 2 to Indenture of Lease between the Company and
Andover Mills Realty Limited Partnership dated as of June 7,
1995(1)
10.28 Amended and Restated Agreement and Plan of Merger by and among
the Company, Firefox Acquisition Corp. and Firefox Communications
Inc. dated as of May 21, 1996(2)
11 Weighted Shares Used in Computation of Earnings Per Share*
27 Financial Data Schedule*
99 Cautionary Statements Relevant to Forward-Looking Statements(5)
- ---------------------
*Filed with this Report.
(1) Included as an exhibit to, and incorporated in this Report by reference to,
the Company's Registration Statement on Form S-4 (No. 333-06917) filed with
the Securities and Exchange Commission (the "Commission") on June 26, 1996.
(2) Included as Appendix A to, and incorporated in this Report by reference to,
the Company's Joint Proxy Statement/Prospectus filed with the Commission on
July 1, 1996.
(3) Included as an exhibit to, and incorporated in this Report by reference to,
the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 filed with the Commission on November 14, 1996.
ii
<PAGE> 32
(4) Included as an exhibit to, and incorporated in this Report by reference to,
the Company's Annual Report on Form 10-K for the year ended December 31,
1996 filed with the Commission on March 31, 1997.
(5) Included as, and incorporated by reference to, Appendix A to this Report.
iii
<PAGE> 1
EXHIBIT 10.8
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (this "Amendment") is made and
entered into by and between FTP Software, Inc., a Massachusetts corporation (the
"Company"), and Glenn C. Hazard ("Employee"), effective as of the 19th day of
June, 1997.
WHEREAS, the Company and Employee have entered into an Employment Agreement
dated as of July 29, 1996 (the "Agreement") (capitalized terms used but not
defined herein shall have the meanings specified in the Agreement);
WHEREAS, the Company and Employee desire to extend the term of the Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. EXTENSION OF TERM. The term of the Agreement is hereby extended to September
30, 1997. From and after the date hereof, the term "Term" as used in the
Agreement shall mean the period beginning on the Effective Date and ending on
September 30, 1997.
2. EFFECT ON AGREEMENT. Except as specifically amended hereby, the Agreement
shall continue in full force and effect. From and after the date hereof,
references in the Agreement to "this Agreement" shall be deemed to be references
to the Agreement as amended hereby.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by
the Company, by its duly authorized representative, and by Employee, effective
as of the date first above written.
EMPLOYEE: FTP SOFTWARE, INC.
/s/ GLENN C. HAZARD By:/s/ DOUGLAS F. FLOOD
- ------------------------------- ----------------------------------
Glenn C. Hazard Douglas F. Flood
Senior Vice President
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (this "Amendment") is made and
entered into by and between FTP Software, Inc., a Massachusetts corporation (the
"Company"), and Douglas F. Flood ("Employee"), effective as of the 19th day of
June, 1997.
WHEREAS, the Company and Employee have entered into an Employment Agreement
dated as of July 23, 1996 (the "Agreement") (capitalized terms used but not
defined herein shall have the meanings specified in the Agreement);
WHEREAS, the Company and Employee desire to extend the term of the Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. EXTENSION OF TERM. The term of the Agreement is hereby extended to September
30, 1997. From and after the date hereof, the term "Term" as used in the
Agreement shall mean the period beginning on the Effective Date and ending on
September 30, 1997.
2. EFFECT ON AGREEMENT. Except as specifically amended hereby, the Agreement
shall continue in full force and effect. From and after the date hereof,
references in the Agreement to "this Agreement" shall be deemed to be references
to the Agreement as amended hereby.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by
the Company, by its duly authorized representative, and by Employee, effective
as of the date first above written.
EMPLOYEE: FTP SOFTWARE, INC.
/s/ DOUGLAS F. FLOOD By: /s/ GLENN C. HAZARD
- ----------------------------- -------------------------------------
Douglas F. Flood Glenn C. Hazard
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.13
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 3 to Employment Agreement (this "Amendment") is made and
entered into by and between FTP Software, Inc., a Massachusetts corporation (the
"Company"), and John A. Kimberley ("Employee"), effective as of the 19th day of
June, 1997.
WHEREAS, the Company and Employee have entered into an Employment Agreement (the
"Agreement") dated as of the Effective Time (as defined in that certain Amended
and Restated Agreement and Plan of Merger, dated as of May 21, 1996, among the
Company, Firefox Acquisition Corp. and Firefox Communications Inc.); and
WHEREAS, the Company and Employee desire to extend the term of the Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. EXTENSION OF TERM. The term of the Agreement is hereby extended to September
30, 1997. From and after the date hereof, the term "Term" as used in the
Agreement shall mean the period beginning at the Effective Time and ending on
September 30, 1997.
2. EFFECT ON AGREEMENT. Except as specifically amended hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by
the Company, by its duly authorized representative, and by Employee, effective
as of the date first above written.
EMPLOYEE: FTP SOFTWARE, INC.
/s/ JOHN A. KIMBERLEY By: /s/ GLENN C. HAZARD
- ----------------------------- -------------------------------------
John A. Kimberley Glenn C. Hazard
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.16
AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT
This Amendment No. 3 to Employment Agreement (this "Amendment") is made and
entered into by and between FTP Software, Inc., a Massachusetts corporation (the
"Company"), and Peter R. Simkin ("Employee"), effective as of the 19th day of
June, 1997.
WHEREAS, the Company and Employee have entered into an Employment Agreement
dated as of the Effective Time (as defined in that certain Amended and Restated
Agreement and Plan of Merger, dated as of May 21, 1996, among the Company,
Firefox Acquisition Corp. and Firefox Communications Inc.), as amended by
Amendment No. 1 to Employment Agreement effective as of August 22, 1996 and
Amendment No. 2 to Employment Agreement effective as of December 15, 1996 (as so
amended, the "Agreement"); and
WHEREAS, the Company and Employee desire to further amend the Agreement to
extend the term thereof;
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. EXTENSION OF TERM. The term of the Agreement is hereby extended to September
30, 1997. From and after the date hereof, the term "Term" as used in the
Agreement shall mean the period beginning at the Effective Time and ending on
September 30, 1997.
2. EFFECT ON AGREEMENT. Except as specifically amended hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by
the Company, by its duly authorized representative, and by Employee, effective
as of the date first above written.
EMPLOYEE: FTP SOFTWARE, INC.
/s/ PETER R. SIMKIN By: /s/ GLENN C. HAZARD
- ----------------------------- -------------------------------------
Peter R. Simkin Glenn C. Hazard
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between FTP Software, Inc., a
Massachusetts corporation (the "Company"), and James A. Tholen ("Employee"),
effective as of the 6th day of April, 1997 (the "Effective Date").
In consideration of the mutual promises, terms and conditions set forth in this
Agreement, the parties hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and Employee hereby accepts employment.
2. TERM. Subject to earlier termination pursuant to Section 5, the term of
Employee's employment hereunder (the "Term") shall be two years, commencing on
the Effective Date. The Term may be renewed or extended only by a written
agreement signed by both Employee and an expressly authorized representative of
the Company; provided, however, that if a Change of Control (as defined in
Section 5) occurs, the then-current Term shall be automatically extended so that
the remainder of the Term is not less than twelve (12) full calendar months from
the date of the Change of Control.
3. DUTIES; CONFLICTING INTERESTS. During the Term, Employee agrees to serve
the Company as its Senior Vice President of Finance and Chief Financial Officer
or in such other executive position as the Board of Directors of the Company
(the "Board") or the President of the Company (the "President") may designate
from time to time with Employee's consent. In addition, and without further
compensation, Employee shall serve as a director and/or officer of one or more
of the Company's Affiliates (as hereafter defined) if so elected or appointed
from time to time. Employee shall, on a full-time basis, perform such duties and
responsibilities for the Company and its Affiliates as are intrinsic to
Employee's position and status with the Company or as may otherwise reasonably
be designated from time to time by the Board or by the President or any
designees of the President. Employee shall devote his best efforts, business
judgment, skill and knowledge exclusively to the advancement of the business and
interests of the Company and its Affiliates. Employee shall not engage in any
other business activity (whether or not such business activity is pursued for
gain, profit or other pecuniary advantage) or serve on any other board of
directors or in any industry, trade, professional, governmental or academic
position during the term of this Agreement, except as may be expressly approved
in advance in writing by the Board or the President, which approval shall not be
unreasonably withheld, delayed or conditioned. Notwithstanding the foregoing, it
is agreed that Employee may continue his board of director membership for
Spectro Logic, Inc., and Net Start, Inc.
For the purposes of this Agreement, the term "Affiliates" shall mean all
persons and entities directly or indirectly controlling, controlled by or under
common control with the Company, where control may be by either management
authority or equity interest.
4. COMPENSATION AND BENEFITS.
--------------------------
a. BASE SALARY. During the Term, the Company shall pay Employee a base
salary at the rate of Two Hundred Thousand dollars ($200,000) per annum, payable
in accordance with the payroll practices of the Company and subject to
adjustment from time to time by the Board in its sole discretion. Such base
salary, as adjusted from time to time, is referred to as the "Base Salary."
b. CASH INCENTIVE AND BONUS COMPENSATION. If a cash incentive or bonus
compensation plan is made available to executives of the Company generally and
Employee is not then covered by any other cash incentive or bonus compensation
plan, Employee shall be entitled during the Term to participate in such plan (if
any) in accordance with the plan's then current terms. Any compensation paid to
Employee under such an incentive or bonus compensation plan (hereafter, "Bonus")
shall be in addition to the Base Salary. Except as otherwise provided under the
terms of such incentive or bonus compensation plan or this Agreement, any Bonus
payable to Employee
<PAGE> 2
shall be pro-rated during Employee's first and last year of service as an
executive officer of the Company, provided, in each case, that Employee has been
employed for at least three (3) months of the twelve (12) month period on which
the cash incentive or bonus compensation plan is based.
c. STOCK OPTIONS. Upon a "Change of Control," as hereafter defined, any and
all stock options granted to Employee by the Company and not yet exercised,
expired, surrendered or canceled shall automatically vest and become exercisable
in full, but shall remain exercisable only in accordance with the terms of any
applicable stock option plan, certificate or agreement.
d. OTHER BENEFITS. During the term hereof, Employee shall be entitled to
participate in any and all employee benefit plans from time to time in effect
for employees of the Company generally, except to the extent such plans are in a
category of benefit otherwise provided to Employee. Such participation shall be
subject to the terms of the applicable plan documents and generally applicable
Company policies.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. Notwithstanding the
provisions of Section 2, Employee's employment hereunder shall terminate prior
to the expiration of the Term under the following circumstances.
a. DEATH. In the event of Employee's death, Employee's employment
hereunder shall immediately and automatically terminate and the Company shall
pay to Employee's designated beneficiary or, if none, to Employee's estate, a
sum equal to three (3) months' Base Salary plus any Bonus due Employee,
pro-rated through the date of Employee's death.
b. DISABILITY.
-----------
i. The Company may terminate Employee's employment hereunder, upon
written notice to Employee, if Employee becomes disabled (whether physically or
mentally) and, as a result, is unable to perform substantially all of his duties
and responsibilities hereunder for any 180 (whether or not consecutive) days
during any period of 365 consecutive calendar days.
ii. Notwithstanding that someone else may be performing Employee's
tasks while Employee is disabled, Employee shall continue to receive the Base
Salary in accordance with Section 4.a and benefits in accordance with Section
4.d to the extent permitted by the then-current terms of the applicable benefit
plans, until Employee becomes eligible for disability income benefits under the
Company's disability income plan or until the termination of Employee's
employment, whichever occurs first. While receiving disability income payments
under the Company's disability income plan, Employee shall not be entitled to
receive any Base Salary under Section 4.a, but shall continue to participate in
Company benefit plans in accordance with Section 4.d (to the extent permitted by
the then-current terms of such plans) until the termination of Employee's
employment.
iii. If any question arises as to whether during any period Employee
is disabled so as to be unable to perform substantially all of his duties and
responsibilities hereunder, Employee, at the request of the Company, shall
submit to a medical examination by a physician reasonably selected by the
Company to determine whether Employee is so disabled and such determination
shall for the purposes of this Agreement be conclusive of the issue. If such
question arises and Employee fails to submit to such medical examination, the
Company's determination of the issue shall be binding on Employee.
c. BY THE COMPANY FOR CAUSE. The Company may terminate Employee's
employment hereunder for Cause at any time upon written notice to Employee
setting forth in reasonable detail the nature of such Cause. The following, as
determined by the Board, shall constitute Cause for termination by the Company:
i. Employee's willful failure to perform (other than by reason of
disability), or gross negligence in the performance of, Employee's duties and
responsibilities to the Company or any of its Affiliates; or
2
<PAGE> 3
ii. Material breach by Employee of any provision of this Agreement or
the Employee Confidentiality and Inventions Agreements dated as of April 1, 1997
between the Company and Employee (the "Confidentiality and Inventions
Agreement"); or
iii. Fraud, embezzlement or other material dishonesty on the part of
Employee with respect to the Company or any of its Affiliates or conviction of
or plea of nolo contendere by Employee to a felony or any crime involving moral
turpitude; or
iv. Willful failure of Employee to meet specific performance criteria,
reasonably appropriate to Employee's position, as such criteria are approved by
the President from time to time.
Upon the giving of notice of termination of Employee's employment hereunder for
Cause, the Company shall have no further obligation or liability to Employee,
other than for Base Salary earned and unpaid at the date of termination.
For purposes of this Agreement, no act, or failure to act, on Employee's
part shall be considered "willful" unless such act, or failure to act, was not
in good faith and was without reasonable belief that Employee's action or
omission was in the best interest of the Company.
With the exception of Section (c)(iii), for which there will be no cure
period, Employee will be granted thirty (30) days in which to cure an alleged
breach of this Agreement.
d. BY THE COMPANY OTHER THAN FOR CAUSE. The Company may terminate
Employee's employment hereunder other than for Cause at any time upon written
notice to Employee. If such termination occurs either before or after a Change
of Control Period (as defined in Section 5.g) and provided that Employee
executes a release of claims in the form attached hereto and marked "A" (the
"Employee Release") and does not revoke the same within the period stated in
Employee Release, then the Company shall (i) pay Employee, within ten (10)
business days after such termination, a lump sum payment equal to twelve (12)
months' Base Salary at the rate in effect on the date of termination and (ii)
shall pay the full cost of Employee's continued participation in the Company's
group health and dental insurance plans for so long as Employee remains entitled
to continue such participation under the federal law known as "COBRA" or any
successor law and the applicable plan terms.
e. BY EMPLOYEE FOR GOOD REASON. Employee may terminate employment hereunder
for Good Reason at any time upon written notice to the Company setting forth in
reasonable detail the nature of such Good Reason. The following shall constitute
Good Reason for termination by Employee:
i. Failure of the Company to continue Employee in the position
specified in the first sentence of Section 3 or in such other position to which
Employee may subsequently be assigned with Employee's consent; or
ii. Material diminution in the nature or scope of Employee's
responsibilities, duties or authority; provided, however, that the Company's
failure to continue Employee in the position of director or officer of any of
its Affiliates and any diminution of the business of the Company or any of its
Affiliates, including without limitation the sale or transfer of any or all of
the assets of the Company or any of its Affiliates, shall not constitute "Good
Reason"; or
iii. Except as stated in section 4(e), transfer of Employee, without
Employee's consent, to a work site located such that Employee's commute to and
from work is more than fifty (50) miles each way; or
iv. A decrease in the Base Salary of more than fifteen percent (15%)
or the material failure of the Company to provide Employee benefits in
accordance with the terms of Section 4.b or 4.d hereof.
v. A "Change of Control" event occurs, as such is described section
5(g)(iii).
3
<PAGE> 4
Except for a termination for Good Reason resulting from section 5.e(v), in the
event of termination in accordance with Section 5.e (i), (ii), (iii), or (iv),
the Company shall provide Employee pay and benefits in accordance with Section
5.d. In the event of termination in accordance with section 5.e(v), the phrase
"twelve (12) months' Base Salary" in section 5.d shall be deemed to read "six
(6) months' Base Salary"; the remainder of section 5.d shall be as written.
Provided, however, that no severance shall be paid to Employee unless Employee
executes the Employee Release and does not revoke the same within the period
stated in the Employee Release.
f. BY EMPLOYEE OTHER THAN FOR GOOD REASON. Employee may terminate
employment hereunder at any time upon thirty (30) days' prior written notice to
the Company.
g. UPON A CHANGE OF CONTROL.
------------------------
i. If a Change of Control occurs and if on the date of, or within one
year following, such Change of Control (a "Change of Control Period"), the
Company terminates Employee's employment with the Company other than for Cause
or Employee terminates his employment with the Company for Good Reason and, in
either event, Employee executes the Employee Release and does not revoke the
same within the period stated in the Employee Release, then, in lieu of any
payments to or on behalf of Employee under Section 5.c or 5.e, the Company (A)
shall pay Employee, within ten (10) business days after such termination, a lump
sum payment equal to two times the greater of (i) the sum of the Base Salary and
the amount of any Bonus paid or payable during the twelve (12) months following
the month during which such termination occurs or (ii) the sum of the Base
Salary and the amount of any Bonus paid or payable to Employee during the twelve
(12) months preceding the month during which such termination occurs and (B)
shall pay the full cost of Employee's continued participation in the Company's
group health and dental insurance plans for so long as Employee remains entitled
to continue such participation under COBRA or any successor law and the
applicable plan terms.
ii. Notwithstanding the foregoing, the payments and benefits to which
Employee would be entitled pursuant to Section 5.g.i as a result of a Change of
Control shall be reduced to the maximum amount for which the Company will not be
limited in its deduction pursuant to Section 280G of the Internal Revenue Code
or any successor provision. Any such reduction shall be applied to the amounts
due under Section 5.g.i as Employee may reasonably determine or, if Employee
fails to make such determination promptly following notice from the Company, as
the Company may reasonably determine.
The limitations of the immediately preceding paragraph shall not apply
if (A) the present value, net of all federal, state and other income and excise
taxes, of all payments and benefits to which Employee is entitled hereunder
without such limitations exceeds (B) the present value, net of all federal,
state and other income and excise taxes, of all payments and benefits to which
Employee would be entitled hereunder if such limitations applied.
iii. A Change of Control shall be deemed to take place if after the
Effective Date: (A) within twenty-four (24) months after the commencement of a
tender offer or exchange offer for voting securities of the Company (other than
by the Company or any of its Affiliates), the individuals who were directors of
the Company immediately prior to the commencement of such offer shall cease to
constitute a majority of the Board; or (B) the stockholders of the Company
approve a merger or consolidation of the Company with any Person, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than seventy-five percent (75%) of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or (C) there occurs
a closing of a sale or other disposition by the Company of all or substantially
all of the assets of the Company other than to any of its Affiliates or any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its Affiliates.
iv. The Company shall promptly reimburse Employee for the amount of
all reasonable attorneys' fees and expenses incurred by Employee in seeking to
obtain or enforce any right or benefit provided Employee under this Section 5.g.
4
<PAGE> 5
h. POST-AGREEMENT EMPLOYMENT. If Employee remains in the employ of the
Company or any of its Affiliates following the end of the Term, then such
employment shall be at will.
6. EFFECT OF TERMINATION OF EMPLOYMENT. The provisions of this Section 6 shall
apply to any termination of employment hereunder, whether due to the expiration
of the Term or pursuant to Section 5 or otherwise.
a. Payment by the Company of any Base Salary, pro-rated Bonus or
contributions to the cost of Employee's continued participation in the Company's
group health and dental plans or of out placement services that may be due
Employee in each case under the applicable termination provision of Section 5
hereof shall constitute the entire obligation of the Company to Employee.
Employee shall promptly give the Company notice of all facts necessary for the
Company to determine the amount and duration of its obligations in connection
with any termination pursuant to Section 5.d, 5.e or 5.g.
b. Except for medical and dental plan coverage continued pursuant to
Section 5.d, 5.e or 5.g, benefits shall terminate pursuant to the term of the
applicable benefit plans based on the date of termination of Employee's
employment without regard to any continuation of Base Salary or other payment to
Employee following such date of termination.
c. The obligations of Employee set forth in Sections 7 and 10 and in the
Confidentiality and Inventions Agreement shall survive the termination of
Employee's employment hereunder. Employee recognizes that, except as expressly
provided in Section 5.d, 5.e or 5.g, as applicable, no compensation is earned
after termination of employment.
7. RESTRICTED ACTIVITIES. In consideration of the terms of this Agreement,
Employee agrees that some restrictions on Employee's activities during and after
employment are necessary to protect the goodwill, confidential information and
other legitimate interests of the Company and its Affiliates:
a. Employee hereby acknowledges that the activities carried on by the
Company and its Affiliates have worldwide business and commercial implications
for the Company and its Affiliates, without geographic limit. In consideration
of the payments set forth herein, Employee agrees not to engage, directly or
indirectly, for a period of six (6) months following the termination of his
employment for any reason whatsoever (the "Non-Competition Period"), in any line
of business which competes in the United States with a line of business carried
on by the Company or any of its Affiliates on the date of such termination, or
any line of business in which the Company or any of its Affiliates, as of the
date of such termination, has made definite plans to become engaged in the
United States. Employee will be deemed to have engaged in such line of business
if he participates therein as an employee, consultant, partner, proprietor or
investor (provided that Employee shall not be deemed to have engaged in such
line of business solely by reason of any passive equity investment in any entity
that does not exceed 5% of the outstanding capital stock of such entity).
b. Employee agrees that he shall not, during the Non-Competition Period,
engage in any activity for the purpose of (i) inducing, diverting or taking away
any employee of the Company or any of its Affiliates or (ii) inducing, diverting
or taking away any consultant of the Company in a manner which would deprive the
Company or any of its Affiliates of the consultant's services.
8. ENFORCEMENT OF COVENANTS. Employee acknowledges and agrees that, were
Employee to breach any of the covenants contained in Section 7 or in the
Confidentiality and Inventions Agreement, the damage to the Company and its
Affiliates would be irreparable, that the damage would be extremely difficult to
ascertain, and that money damages alone would not be an adequate remedy.
Accordingly, Employee agrees that the Company and its Affiliates and their
successors and assigns, in addition to any other remedies available to them,
shall be entitled to preliminary and permanent injunctive relief against any
breach or threatened breach by Employee of any of said covenants, without having
to post bond. The parties further agree that, if any provision of Section 7 or
of the Confidentiality and Inventions Agreement shall be determined by any court
of competent jurisdiction to be unenforceable by reason of its being extended
over too great a time, too large a geographic area or too great a range
5
<PAGE> 6
of activities, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by applicable law.
9. CONFLICTING AGREEMENTS. Employee hereby represents and warrants that the
execution of this Agreement and the performance of Employee's obligations
hereunder will not breach or be in conflict with any other agreement to which
Employee is a party or is bound and that Employee is not now subject to any
covenants against competition, covenants of confidentiality or similar covenants
with any person or entity other than the Company that would affect the
performance of Employee's obligations hereunder. Employee shall not disclose to
or use on behalf of the Company any proprietary information of any third party
without such party's consent.
10. LITIGATION ASSISTANCE. Employee covenants and agrees that he shall, upon
reasonable notice, during the Term and for three (3) full years after the
expiration or termination of this Agreement, furnish such information and
assistance to the Company as may be reasonably required by the Company in
connection with any litigation in which it or any of its Affiliates is, or may
become, a party. The Company shall reimburse Employee for all reasonable
out-of-pocket expenses incurred by Employee in furnishing such information and
assistance.
11. INDEMNIFICATION. The Company shall indemnify and hold Employee harmless to
the extent provided in its then-current Articles of Organization or By Laws.
Employee agrees to promptly notify the Company of any actual or threatened claim
arising out of or as a result of Employee's employment with the Company.
12. WITHHOLDING. All payments made by the Company under this Agreement shall be
reduced by any tax or other amounts required to be withheld by the Company under
applicable law.
13. ASSIGNMENT. Neither the Company nor Employee may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without the consent of
Employee if the Company shall hereafter effect a reorganization, consolidate
with or merge into any entity or transfer all or substantially all of its
properties or assets to any entity. This Agreement shall inure to the benefit of
and be binding upon the Company and Employee, their respective successors,
executors, administrators, heirs and permitted assigns.
14. SEVERABILITY. The terms of this Agreement are severable. If any portion or
provision of this Agreement shall to any extent be declared illegal or
unenforceable by a court of competent jurisdiction, then the remainder of this
Agreement, or the application of such portion or provision in circumstances
other than those as to which it is so declared illegal or unenforceable, shall
not be affected thereby, and each portion and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
15. NOTICES. Any and all notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered in person or deposited in the United States mail, postage prepaid,
registered or certified, or by recognized overnight courier and addressed to
Employee at Employee's last known address on the books of the Company or, in the
case of the Company, at its principal place of business, attention of the
President, or to such other address as either party may specify by written
notice to the other actually received.
16. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement, together with the
Confidentiality and Inventions Agreement, which is incorporated herein by
reference, constitutes the entire agreement between the parties and supersedes
all prior communications, agreements and understandings, written or oral, with
respect to the terms and conditions of Employee's employment, other than the
Confidentiality and Inventions Agreement. This Agreement may be amended or
modified only by a written instrument signed by Employee and by an expressly
authorized representative of the Company. Employee and the Company agree that
their respective rights and remedies against the other are cumulative and that
they may be exercised singularly or collectively, successively or concurrently.
A waiver of any violation or failure to enforce any provision of this Agreement
shall not constitute a waiver of any rights under this Agreement with respect to
any other or continued violation of any provision of this Agreement. Any waiver
shall be enforceable only if in writing and signed by an expressly authorized
representative of the Company and by Employee.
6
<PAGE> 7
17. HEADINGS, REFERENCES AND COUNTERPARTS. The headings and captions in this
Agreement are for convenience only and in no way define or describe the scope or
content of any provision of this Agreement. References in this Agreement to
Sections are references to the specified Sections of this Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be an
original and all of which together shall constitute one and the same instrument.
18. GOVERNING LAW. This is a Massachusetts contract and shall be construed and
enforced under and be governed in all respects by the laws of the Commonwealth
of Massachusetts, USA, without regard to the conflict of laws principles
thereof. Employee and the Company consent to the exclusive jurisdiction of the
state and federal courts of the Commonwealth of Massachusetts, USA.
EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ AND CONSIDERED ALL THE TERMS
AND CONDITIONS OF THIS AGREEMENT, INCLUDING THE RESTRAINTS IMPOSED UPON EMPLOYEE
PURSUANT TO SECTION 7 AND PURSUANT TO THE CONFIDENTIALITY AND INVENTIONS
AGREEMENT. EMPLOYEE AGREES THAT SAID RESTRAINTS ARE NECESSARY FOR THE REASONABLE
AND PROPER PROTECTION OF THE COMPANY AND ITS AFFILIATES AND THAT EACH AND EVERY
ONE OF THE RESTRAINTS IS REASONABLE IN RESPECT TO SUBJECT MATTER, LENGTH OF TIME
AND GEOGRAPHIC AREA.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by
the Company, by its duly authorized representative, and by Employee, effective
as of the Effective Date.
EMPLOYEE: FTP SOFTWARE, INC.
/s/ JAMES A. THOLEN By: /s/ GLENN C. HAZARD
- -------------------------- --------------------------------------------
James A. Tholen Title: President and Chief Executive Officer
<PAGE> 1
EXHIBIT 11
FTP SOFTWARE, INC.
WEIGHTED SHARES USED IN COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
------------ ----------
<S> <C> <C>
FOR THE PERIOD ENDED JUNE 30, 1997:
Common stock outstanding, beginning of the period 33,801,769 33,646,203
Weighted average common stock issued during the
period ended June 30, 1997 40,583 128,338
---------- ----------
Weighted average shares of common stock outstanding 33,842,352 33,774,541
========== ==========
FOR THE PERIOD ENDED JUNE 30, 1996:
Common stock outstanding, beginning of the period 26,966,222 26,506,729
Weighted average common stock issued during the
period ended June 30, 1996 190 445,922
---------- ----------
Weighted average shares of common stock outstanding 26,966,412 26,952,651
========== ==========
</TABLE>
For the three- and six-month periods ended June 30, 1997 and 1996 there
was no material difference between the computation of fully diluted and primary
weighted shares of common stock equivalents outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 18,423
<SECURITIES> 28,587
<RECEIVABLES> 11,523
<ALLOWANCES> 1,300
<INVENTORY> 623
<CURRENT-ASSETS> 68,124
<PP&E> 38,608
<DEPRECIATION> 19,693
<TOTAL-ASSETS> 131,668
<CURRENT-LIABILITIES> 25,316
<BONDS> 0
0
0
<COMMON> 339
<OTHER-SE> 106,013
<TOTAL-LIABILITY-AND-EQUITY> 131,668
<SALES> 29,899
<TOTAL-REVENUES> 39,101
<CGS> 6,953
<TOTAL-COSTS> 12,771
<OTHER-EXPENSES> 52,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (24,458)
<INCOME-TAX> 992
<INCOME-CONTINUING> (25,450)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,450)
<EPS-PRIMARY> (.75)
<EPS-DILUTED> (.75)
</TABLE>
