<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission File Number 0-23446
SOFTWARE PROFESSIONALS, INC.
(Exact Name as registrant specified in its charter)
CALIFORNIA 94-3008888
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
999 BAKER WAY, FIFTH FLOOR, SAN MATEO, CALIFORNIA 94404
(Address of principal executive offices) (Zip code)
(415) 578-0700
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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 March 31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING
CLASS MARCH 31, 1996
----- --------------
<S> <C>
Common Stock, no par value 2,823,775
</TABLE>
This is Page 1 of 40 Pages.
The Index to Exhibits begins on Page 13
<PAGE> 2
SOFTWARE PROFESSIONALS, INC.
QUARTERLY REPORT ON FORM 10-QSB
QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
Page No.
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
As of March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations - 4
Three months ended March 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows - 5
Three months ended March 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
- --------------------------------------------------------------------------------
SIGNATURES 12
- --------------------------------------------------------------------------------
Page 2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOFTWARE PROFESSIONALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,303,430 $2,124,525
Short term investments 1,002,000 1,320,727
Accounts receivable, less allowance for doubtful accounts 881,289 1,100,625
Refundable income taxes 327,453 288,265
Prepaid expenses and other assets 132,790 116,536
---------- ----------
Total current assets 4,646,962 4,950,678
Property and equipment, net 1,233,587 1,268,337
Acquired technology and software development costs, net 857,736 720,667
Deferred income taxes 210,512 210,512
Other assets 183,545 178,577
---------- ----------
$7,132,342 $7,328,771
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings and current portion of long-term debt $ 80,000 $ 129,188
Trade accounts payable 399,791 276,151
Accrued and other current liabilities 56,258 333,176
Deferred revenue 1,640,675 1,539,074
---------- -----------
Total current liabilities 2,176,724 2,277,589
---------- -----------
Shareholders' equity:
Common stock 4,650,062 4,639,954
Retained earnings 305,556 411,228
---------- -----------
Total shareholders' equity 4,955,618 5,051,182
---------- -----------
$7,132,342 $ 7,328,771
========== ===========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
Page 3
<PAGE> 4
SOFTWARE PROFESSIONALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenue:
Product license fees $ 327,618 $ 851,148
Product maintenance fees 914,842 914,566
Consulting services 226,136 48,454
---------- ----------
Total revenue 1,468,596 1,814,168
Cost of revenue 301,780 430,207
---------- ----------
Gross profit 1,166,816 1,383,961
---------- ----------
Operating expenses:
Research and development 399,902 317,425
Sales and marketing 581,953 631,072
General and administrative 321,082 329,222
---------- ----------
Total operating expenses 1,302,937 1,277,719
---------- ----------
Operating income (loss) (136,121) 106,242
---------- ----------
Other income (expense):
Interest income net of interest expense 32,946 39,145
Foreign exchange gain (loss), net (37,326) 41,262
---------- ----------
Total other income (expense) (4,380) 80,407
---------- ----------
Income (loss) before income taxes (140,501) 186,649
Income tax expense (benefit) (34,828) 63,736
---------- ----------
Net income (loss) $ (105,673) $ 122,913
========== ==========
Net income (loss) per share $ (0.04) $ 0.04
========== ==========
Shares used in computing net income (loss) per share 2,827,160 2,877,217
========== ==========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
Page 4
<PAGE> 5
SOFTWARE PROFESSIONALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (105,673) $ 122,913
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 124,774 250,102
Changes in operating assets and liabilities:
Accounts receivable, net 219,336 (142,127)
Refundable income taxes (39,188) -
Prepaid expenses and other assets (21,222) (57,030)
Trade accounts payable 123,640 (104,451)
Accrued and other current liabilities (276,918) (180,019)
Deferred revenue 101,601 124,575
---------- -----------
Net cash provided by operating activities 126,350 13,963
---------- -----------
Cash flows from investing activities:
Sales (purchases) of short-term investments 318,727 (1,581,818)
Acquired technology and software development costs (189,574) (95,427)
Purchases of property and equipment (37,518) (235,910)
---------- -----------
Net cash (used for) provided by investing activities 91,635 (1,913,155)
---------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock and other stock transactions 10,108 8,759
Principal payments under notes payable to bank and third parties (49,188) (64,163)
---------- -----------
Net cash used for financing activities (39,080) (55,404)
---------- -----------
Net increase (decrease) in cash and cash equivalents 178,905 (1,954,596)
Cash and cash equivalents at beginning of period 2,124,525 3,659,607
---------- -----------
Cash and cash equivalents at end of period $2,303,430 $ 1,705,011
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Income taxes $ - $ 110,000
========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
Page 5
<PAGE> 6
SOFTWARE PROFESSIONALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The Consolidated Financial Statements of Software Professionals, Inc. and
Subsidiary (the "Company") included in the Company's Form 10-KSB for the year
ended December 31, 1995 contain additional information about the Company, its
operations, and its financial statements and accounting practices, and should be
read in conjunction with this Quarterly Report on Form 10-QSB. These unaudited
condensed consolidated financial statements have been prepared in accordance
with the instructions for Form 10-QSB and therefore certain information and
footnote disclosures normally contained in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted.
The accompanying unaudited condensed consolidated financial statements of the
Company reflect all adjustments of a normal recurring nature which are, in the
opinion of management, necessary to present a fair statement of the financial
position as of March 31, 1996, and the results of operations and cash flows for
the interim periods presented.
2. Revenue Recognition
Product license fees are recognized after the following events have occurred: a
product evaluation has been shipped to the customer; the customer elects to
purchase the software following an evaluation period; and the customer signs the
related contract. Product maintenance fees committed as part of new product
licenses and maintenance resulting from renewed maintenance contracts are
deferred and recognized ratably over the contract period, generally one year.
Consulting service revenue is recognized when services are performed for time
and material contracts and on a percentage of completion basis for fixed price
contracts.
3. Cost of Revenue
Included in cost of revenue are royalties, amortization of capitalized software
and acquired technology, and direct costs relating to consulting services
revenue.
4. Cash and Cash Equivalents
The Company considers all liquid investments purchased with an original maturity
of three months or less to be cash equivalents. The Company accounts for its
investments in debt and equity securities in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). Under the provisions of SFAS 115, the
Company has classified its investments in commercial paper and U.S. Treasury
notes as "held-to-maturity." All such investments mature in less than one year
and are stated at amortized cost, which approximates fair value. Interest income
is recorded using an effective interest rate, with the associated discount or
premium amortized to interest income.
Additionally, the Company has classified its investments in preferred stock as
"available-for-sale." Such investments are recorded at fair market value based
on quoted market prices, with unrealized gains and losses reported as a separate
component of stockholders' equity. As of March 31, 1996, unrealized gains and
losses were not material.
Page 6
<PAGE> 7
SOFTWARE PROFESSIONALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
5. Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line basis over the estimated useful lives of the assets, generally
five years. Leasehold improvements are amortized on a straight-line basis over
the lease term or the estimated useful life of the asset, whichever is less.
6. Acquired Technology and Software Development Costs
A summary of acquired technology and software development costs as of March 31,
1996 and December 31, 1995 follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Acquired technology $2,205,837 $2,205,837
Software development costs 1,957,198 1,767,624
--------- ---------
4,163,035 3,973,461
--------- ---------
Less accumulated amortization:
Acquired technology 1,995,524 1,972,086
Software development costs 1,309,775 1,280,708
--------- ---------
3,305,299 3,252,794
--------- ---------
$ 857,736 $ 720,667
========== ==========
</TABLE>
7. Recent Accounting Pronouncements
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 will be effective for fiscal years beginning after
December 15, 1995, and will require that the Company recognize in its financial
statements costs related to its employee stock-based compensation plans, such as
stock option and stock purchase plans, or pro forma disclosures of such costs in
a footnote to the financial statements.
The Company will continue to use the intrinsic value-based method of Accounting
Principles Board Opinion No. 25, as allowed under SFAS No. 123, to account for
all of its employee stock-based compensation plans. Therefore, in its financial
statements for fiscal 1996, the Company will make the required pro forma
disclosures in a footnote to the financial statements. SFAS No. 123 is not
expected to have a material effect on the Company's results of operations or
financial position.
Page 7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis Of Financial Condition and
Results Of Operations includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates", "believes", "expects", "intends", "future", and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
OVERVIEW
Software Professionals develops, markets, and supports software products
designed to automate the management of computer systems used by some of the
world's largest companies in banking, finance, telecommunications, health care,
information technology, and other major industries. The Company develops
software products internally and enhances and packages other software products
it acquires.
The Company intends to continue expansion of its market presence through
hiring additional staff, diversifying its product line, and/or adding features
to existing products. This may require the Company to incur substantial
additional operating expenses prior to its receipt of material additional
revenues, if any, resulting from those expenditures. The combination of these
expenses and this revenue lag may adversely affect the Company's quarterly net
income in 1996 and, perhaps, thereafter.
VARIABILITY OF QUARTERLY RESULTS
The Company has experienced significant quarterly fluctuations in
operating results and expects that these fluctuations will continue in future
periods. These fluctuations have been caused by a number of factors, including
the timing of new product or product enhancement introductions by the Company or
its competitors, purchasing patterns of its customers, size and timing of
individual orders, the rate of customer acceptance of new products, and pricing
and promotion strategies undertaken by the Company or its competitors. Future
operating results may fluctuate as a result of these and other factors,
including the Company's ability to continue to develop, acquire, and introduce
new products on a timely basis. Additionally, the Company's operating results
may be influenced by seasonality (principally in Europe where sales are
typically lower in the summer months) and overall trends in the global economy.
Because the Company operates with a relatively small backlog, quarterly sales
and operating results generally depend on the volume and timing of orders
received during the quarter, which are difficult to forecast.
RESULTS OF OPERATIONS
Total revenue. Total revenue for the first quarter of 1996, totaled
$1,469,000, a 19% decrease when compared to the same quarter in 1995. Product
license fees decreased, while revenues from maintenance fees remained constant
and consulting services revenue increased slightly over the same quarter of the
prior year.
Product license fees decreased by $524,000, or 62%, in the first quarter
of 1996 when compared to the same quarter of 1995. The decrease is primarily
related to a single foreign order recorded in the first quarter of 1995 which
accounted for 34% of that quarter's license fees. There was no comparable sale
in the first quarter of 1996. Excluding that transaction,
Page 8
<PAGE> 9
product license fees across product families decreased by $235,000, or 42%,
compared with the same quarter of the prior year. License revenue from the
Company's most significant product family, the performance family of products,
decreased $15,000, or 7%, during the period. License fees from the storage
family of produces decreased $72,000, or 54%, due to decreased unit sales of the
Company's DFM II product, which is to be released in mid-1996. The license fees
from Company's security products decreased $62,000, or 73%, compared to the
first quarter of 1995. This decrease resulted from the replacement of the
Company's SAFEGUARD MANAGER product with a new product, ENTRUST, during the
quarter. Entrust was released in March 1996. Additionally, license fees during
the quarter were impacted by a change in sales executive management. In March
1996, Byron Jacobs was hired as the Vice President of Sales and Marketing. Mr.
Jacobs has begun implementing a new sales strategy for the Company which
includes setting up remote field sales offices, staffing a larger telesales
organization, and leveraging an increased number of VARs and other third party
distribution channels. The effects of such changes on the Company's revenues may
take several quarters to be realized.
Revenues from consulting services increased by $178,000, or 367%, in the
first quarter of 1996 when compared to the same quarter of 1995. The increase is
due to a higher level of Tandem-related services projects, most of which
commenced in mid to late 1995.
Cost of revenue. Cost of revenue decreased by $128,000, or 30%, in the
first quarter of 1996 compared to the same quarter in 1995. This decrease is
attributable to a decrease in third party royalties and a decrease in
amortization related to acquired software technology. The decrease in third
party royalties is approximately proportional to the decrease in product license
fees for the quarter. The decrease in amortization is a result of a write-down
of acquired technology in the fourth quarter of 1995. These decreases were
partially offset by an increase in the cost of revenue related to consulting
services. This increase is approximately proportional to the increase in
consulting services revenue.
Research and development. Research and development expenditures
increased by $82,000, or 26%, in the first quarter of 1996, compared with same
quarter in 1995. The increase in research and development is primarily
attributable to the development of the Company's open systems administration
product. Along with other anticipated releases, release 2.0 of ENlighten for
UNIX - Distributed Systems ManagerTM is scheduled for mid-1996. In conjunction
with this release, the Company is continuing to increase its research and
development headcount in order to deliver its planned open systems products. The
Company expects research and development expenditures to continue to increase
both in total dollars and as a percentage of revenue throughout 1996 as compared
to 1995.
Sales and marketing. Sales and marketing expenses decreased by $49,000,
or 8%, during the first quarter of 1996 compared to the same quarter of 1995.
This decrease was primarily due to decreased sales commissions as a result of
lower revenues during the quarter.
General and administrative. General and administrative expenses
decreased by $8,000, or 2%, for the first quarter of 1996 as compared to the
same quarter of 1995. The decrease in expenses during the quarter was due to
continuous efforts by management to control costs.
Other income (expense), net. Other income and expense includes interest
income, net of interest expense, gains and losses on assets disposals, and
foreign currency transactions. Net interest income totaled $33,000 during the
first quarter of 1996. In the same quarter of 1995, net interest income totaled
$39,000. The decrease in net interest is primarily due to a reduction in cash,
which was used to fund expanding operations.
Provision for income taxes. The Company recognized a tax benefit of
$35,000 in the first quarter of 1996 as a result of a net loss during the
quarter. The Company expects to recover this amount in future taxable periods.
Page 9
<PAGE> 10
Net income(loss). Pre-tax loss was $141,000 in the first quarter of
1996, compared to pre-tax income of $187,000 in the same quarter in 1995. Loss
per share was $.04 per share, based on 2,827,000 shares in the first quarter of
1996, compared to a gain of $.04 per share, based on 2,877,000 shares
outstanding in the same quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1996 the Company's operating activities
provided cash of $126,000, compared to cash provided from operating activities
of $14,000 in the same period of the prior year. The change is related to
reduced accounts receivable and an increase in trade accounts payable, both of
which more than offset the decrease in net income.
The Company's investing activities have consisted primarily of purchases
of short-term investments, expenditures for software product acquisitions,
capitalization of software development costs, and additions to capital
equipment. Investing activities provided cash of $92,000 in first quarter of
1996, compared with using cash of $1,913,000 in same period in 1995. The change
is due to the purchase of short-term investments in the first quarter of 1995
following the Company's initial public offering.
Financing activities used cash of $39,000 in the first quarter of 1996,
compared with using cash of $55,000 for the same period in the prior year. The
use of cash in both years is primarily a result of the payments related to debt
incurred on software acquisitions in prior years.
In September 1994, the Company acquired all rights to a suite of SQL
database management products from Sierra Software, Inc. Pursuant to the
agreement, the two principals of Sierra Software will each provide two years of
services exclusively for the Company. The purchase price and incentives are to
be paid over a two year period.
In December 1994, the Company acquired all of the outstanding shares of
Network Partners, Inc. Additionally, in December 1994, the Company acquired core
UNIX systems management technology from Overseers Corporation. Both purchases
were cash acquisitions requiring down payments for a portion of the guaranteed
purchase price at time of acquisition with payment of the balance within one
year. In connection with these two acquisitions, the Company immediately
expensed $983,000, representing acquired in-process research and development. An
additional $50,000 of the purchase price was related to the value of
non-competition agreements entered into with the principals of both
organizations. Under the terms of the agreements, the purchase price is
increased by incentive amounts based upon future sales levels of the technology
acquired. Should revenues directly resulting from these technologies fail to
exceed certain revenue thresholds, no additional amounts will be paid. Any
increases to the purchase price under these agreements are to be paid annually
through 1998, should revenue exceed stated thresholds in any twelve month
period.
As of March 31, 1996, the Company had cash, cash equivalents, and
short-term investments of $3,305,000, compared to $3,445,000 at March 31, 1995,
and working capital of $2,470,000, compared to working capital of $2,673,000 at
March 31, 1995. The Company believes that its existing sources of liquidity,
anticipated funds from operations, and increased borrowing capacity will satisfy
the Company's projected working capital and capital expenditure requirements
through at least the next twelve months.
The Company is currently leasing approximately 17,000 square feet of
office space in San Mateo, California, under a lease expiring in April 2001.
The Company believes that its existing sources of liquidity and
anticipated funds from operations will satisfy the Company's projected working
capital and capital expenditure requirements through at least the next twelve
months.
Page 10
<PAGE> 11
SOFTWARE PROFESSIONALS, INC.
FORM 10-QSB, March 31, 1996
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying Index of Exhibits on
Page 14 are filed or incorporated by reference as part of this
report. Exhibit numbers 10.1, 10.2, 10.3, 10.14, 10.15, 10.16,
10.21, 10.22, and 10.23 are management contracts or
compensatory plans or arrangements.
(b) Reports on Form 8-K
During the quarter ended March 31, 1996, the Company did not
file any reports on Form 8-K.
ITEMS 1, 2, 3, 4, AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
Page 11
<PAGE> 12
SOFTWARE PROFESSIONALS, INC.
FORM 10-QSB, MARCH 31, 1996
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOFTWARE PROFESSIONALS, INC.
DATE: SIGNATURE: /s/ Peter J. McDonald
--------------------------------- ----------------------------
Peter J. McDonald
Chief Executive Officer
DATE: SIGNATURE: /s/ Michael A. Morgan
--------------------------------- ----------------------------
Michael A. Morgan
Page 12
<PAGE> 13
SOFTWARE PROFESSIONALS, INC.
FORM 10-QSB, March 31, 1996
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
<S> <C> <C>
10.1(1)@ Form of Indemnity Agreement for officers and directors.
10.2(1)@ First Amended and Restated 1992 Stock Option Plan.
10.3(1)@ 1994 Employee Stock Purchase Plan.
10.4(1) Business Loan Agreement and related agreements, dated April 14, 1993, by
and between Software Professionals, Inc. and Commercial Center Bank.
10.5(1) Commercial Security Agreement and related agreements, dated April 14, 1993,
by and between Software Professionals, Inc. and Commercial Center Bank.
10.6(1) Loan Agreement and related agreements, dated April 14, 1993, by and between
Software Professionals, Inc. and Commercial Center Bank.
10.7(1) Demand Note, dated December 31, 1990, by and between Software
Professionals, Inc. and Peter J. McDonald.
10.8(1) Demand Note, dated September 21, 1991, by and between Software
Professionals, Inc. and Peter J. McDonald.
10.9(1) Demand Note, dated September 23, 1991, by and between Software
Professionals, Inc. and Peter J. McDonald.
10.10(1) Lease, dated January 19, 1989, by and between Software Professionals and
Mariner's Island Ltd. for 999 Baker Way, Suite 390, San Mateo, California
94404, and Amendments 1, 2, 3 and 4 thereto.
10.11(1) Lease, dated November 25, 1994, by and between Software Professionals, Ltd.
and Cannon Silver Quastel for 6 Eghams Court, Boston Drive, Bourne End,
Bucks, SL8 54S, U.K.
10.12(1) Enlighten Purchase Agreement, dated April 10, 1993, by and between and Software
Professionals, Inc. and Steve Killelea.
10.13(1) Partner Agreement, dated December 29, 1993, by and between Software
Professionals, Inc. and Gupta Corporation.
10.14(2)@ Nonqualified Stock Option Agreement, dated January 1, 1993, by and between Software
Professionals, Inc. and Kenneth S. Voss.
10.15(2)@ Nonqualified Stock Option Agreement, dated January 1, 1993, by and between
Software Professionals, Inc. and Michael A. Morgan.
10.16(2)@ Nonqualified Stock Option Agreement, dated January 1, 1993, by and between
Software Professionals, Inc. and Michael A. Morgan.
10.17(3) Software Purchase and Assignment Agreement dated September 9, 1994 by and between
Software Professionals and Sierra Software.
10.18(4) Stock Agreement dated December 30, 1994, by and between
Software Professionals, Inc. and Network Partners, Inc.
</TABLE>
Page 13
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------ ----------- --------
<S> <C> <C>
10.19(5) Software Purchase and Assignment Agreement dated December 30,
1994, by and between Software Professionals, Inc., Thomas Kraus,
and Overseers Corporation.
10.20(5) Lease, dated February 24, 1995, by and between Software Professionals
and Mariner's Island Ltd. for 999 Baker Way, Suite 500, San Mateo,
California 94404.
10.21@ Employment letter and Termination and Change in Control
Agreement, dated March 4, 1996, by and between Software
Professionals, Inc. and Byron E. Jacobs. 15
10.22@ Nonqualified Stock Option Agreement, dated March 4, 1996,
by and between Software Professionals, Inc. and Byron E. Jacobs. 20
10.23@ Incentive Stock Option Agreement, dated March 4, 1996, by
and between Software Professionals, Inc. and Byron E. Jacobs. 30
11.1 Calculation of Net Income (Loss) per Share. 40
21.1(5) Subsidiaries of the Company.
23.1(5) Consent of KPMG Peat Marwick. LLP
27 Financial Data Schedule
</TABLE>
- -------------------------------
1 Incorporated by reference from exhibits of the same number in the
Company's Registration Statement on Form S-1 (No. 33-75388), which was
declared effective on April 19, 1994.
2 Exhibits 10.14, 10.15, 10.16 are incorporated by reference from
exhibits 4.1, 4.2, and 4.3, respectively, in the Company's
Registration Statement on Form S-1 (No. 33-75388), which was declared
effective on April 19, 1994.
3 Incorporated by reference from an exhibit of the same number in the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
4 Incorporated by reference from exhibit 2.1 in the Company's Current
Report on Form 8-K dated December 30, 1994.
5 Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1995.
@ Compensatory or employment arrangement
Page 14
<PAGE> 1
February 20, 1996
Mr. Byron Jacobs
17 Calypso Lane
San Carlos, CA 94070
Dear Byron:
I am pleased to offer you a position with Software Professionals, Inc. as Vice
President Sales and Marketing commencing on March 4, 1996. Your compensation is
outlined in Attachment A to this letter, which will be paid in accordance with
the Company's normal payroll procedures. As a Software Professionals employee,
you are also eligible to receive, in accordance with each applicable plan
document, certain employee benefits including: incentive stock options (100,000
options initially, effective as of March 4, 1996, with a 3 1/2 year vesting
schedule; additional options may be granted annually at the Board's discretion),
participation in the employee stock purchase plan, medical insurance, dental
insurance, 401(k) plan, an accrued 20 days paid personal days during each year
of employment (to be used as vacation, sick leave, etc.), plus paid public
holidays recognized by the Company.
You should be aware that your employment with Software Professionals is for no
specified period. As a result, you are free to resign at any time, for any
reason or no reason. Similarly, the Company is free to conclude its relationship
with you at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide to
Software Professionals documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
As a condition of employment you will be required to work outside of the office
at client sites from time to time. Additionally, you may be required to pass
security clearance procedures, although this is not a condition of employment.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and Software Professionals agree that all such
disputes shall be fully and finally resolved by binding arbitration conducted by
the American Arbitration Association in San Mateo, California, HOWEVER, we agree
that this arbitration provision shall not apply to any disputes or claims
relating to or arising out of the misuse or misappropriation of Software
Professionals' trade secrets or proprietary information.
(a) You agree that, while you are a Software Professionals employee, you will
not, directly or indirectly, work for, advise, consult, render services to or
invest directly or indirectly in any individual or entity (in any capacity)
which directly or indirectly engages in any business in which Software
Professionals is engaged at the time of such work, advice,
<PAGE> 2
Software Professionals, Inc.
February 20, 1996
Page 2
consultation, rendering of services or investment. None of the forgoing shall
restrict any direct or indirect investments in any publicly traded company,
provided such investment does not exceed 5% of the company's total voting
shares.
(b) You further agree that for a period of two (2) years after termination of
your employment with Software Professionals, you will not, directly or
indirectly, hire, or in any other manner persuade an employee, dealer or
customer, of the Company to discontinue that person's relationship with or to
Software Professionals as an employee, dealer or customer, as the case may be.
(c) We both agree that: (i) the services to be rendered by you are special,
unique and of an extraordinary character; (ii) because of the nature of the
business of Software Professionals, and the types of information which you will
obtain with respect to the business of Software Professionals, it would be
impractical or extremely difficult to determine actual damages in the event of a
breach of your promises in this letter; and (iii) resulting damages would not
adequately compensate Software Professionals.
Accordingly, if you commit such a breach or threaten to commit such a breach the
Company shall have the right to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction without the
posting of bond or other security, since any such breach or threatened breach
would cause irreparable injury to Software Professionals.
(d) The above-mentioned right is in addition to, and not in lieu of, any other
rights and remedies available to Software Professionals under law or in equity.
(e) This covenant shall be construed as a series of separate covenants, one for
each of the fifty-eight (58) counties in California, for each state in the
United States, and for each nation outside the United States.
To indicate your acceptance of Software Professionals' offer, please sign and
date both letters in the space provided below and return them to me. This
letter, between you and Software Professionals, sets forth the terms of your
employment with Software Professionals and supersedes any prior representations
or agreements, whether written or oral. This letter may not be modified or
amended except by a written agreement, signed by Software Professionals and by
you.
We look forward to working with you at Software Professionals. Welcome aboard!
AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED
________________________________ __________________________________
Peter J. McDonald Byron Jacobs
Dated:________/________/_______ Dated:________/________/_______
<PAGE> 3
ATTACHMENT A
VICE PRESIDENT SALES AND MARKETING
COMPENSATION PROGRAM
This document defines the compensation program for the position of Vice
President Sales and Marketing at Software Professionals, Inc. (the "Company").
The total targeted compensation is made up of your base salary and deferred
compensation/bonus. The total targeted compensation is $200,000, excluding any
stock options.
COMPENSATION
1. Base Salary: Your base salary is $120,000 per year, this will be
paid through the regular semi-monthly company payroll at $5,000 per pay period.
2. Deferred Compensation/Bonus: For the year ending December 31,
1996, your deferred compensation/bonus program will be as follows:
(a) $30,000 upon achievement of $8.5 million in total world-wide
revenue for the year ending December 31, 1996
(b) $30,000 upon achievement of $1.5 million in total UNIX
related world-wide license fees and maintenance fees for the year ending
December 31, 1996
(c) $20,000 upon the Company achieving its net income targets for
the year ended December 31, 1996
All such incentives would not be earned until February 15, 1997. In
order for these amounts to be earned, you must be employed by the Company on
that date. Additional bonuses may be earned for extraordinary performance at the
discretion of the Compensation Committee of the Board of Directors.
TERMINATION PROVISIONS
3. Benefits Upon Voluntary Termination: In the event that you
voluntarily resign from your employment with the Company (unless such
resignation is for Good Reason), or in the event that your employment terminates
as a result of your death or disability, you shall be entitled to no
compensation or benefits from the Company other than those earned under
paragraphs 1 and 2 above through the date of your termination.
4. Benefits Upon Other Termination: You agree that your employment
may be terminated by the Company at any time, with or without cause. In the
event of the termination of your employment by the Company for the reasons set
forth below, you shall be entitled to the following:
(a) Termination for Cause: If your employment is terminated by the
Company for cause as defined below, you shall be entitled to no compensation or
benefits from the Company other than those earned under paragraphs 1 and 2
through the date of your termination.
For purposes of this Agreement, a termination "for cause"
occurs if you are terminated for any of the following reasons:
<PAGE> 4
(i) theft, dishonesty, or falsification of any employment or
Company records;
(ii) improper disclosure of the Company's confidential or
proprietary information;
(iii) any intentional act by you which causes loss, damage, or
injury to the Company's property, reputation, employees, or business;
(iv) your failure to perform to the minimum standards of a
written plan mutually agreed upon by you and the Company, provided such failure
is not cured within thirty (30) days following written notice of such failure
from the Company; or
(v) any material breach of this Agreement, which breach is
not cured within thirty (30) days following written notice of such breach from
the Company.
(b) Termination for Other Than Cause: If your employment is
terminated by the Company for any reason other than cause, you shall be entitled
to the following separation benefits:
(i) a termination severance package equal to twelve (12)
months of your then current base alary, or $120,000, whichever is greater. Such
severance package shall be payable in four (4) equal installments, each due
respectively within thirty (30), sixty (60), ninety (90), and one hundred twenty
(120) days of your termination of employment with the Company.
(c) Termination for Good Reason: If your employment is terminated
by you for good reason you shall be entitled to the separation benefits outlined
in paragraph 4(b).
For purposes of this Agreement, a termination "for good
reason" occurs if you terminate your employment as a result of the Company,
without your consent:
(i) reducing your salary or benefits, title, or authority;
(ii) relocating your place of performance of services outside
a sixty (60) mile radius of San Mateo; or
(iii) directing you to violate a reasonable and normal code of
business ethics so as to cause loss, damage, or injury to your property or
reputation, or the property or reputation of clients or customers of the
Company;
(d) Termination Following a Change in Control:
(i) In the event of a Change in Control and your employment is
terminated by the Company or its successor within twelve (12) months of a Change
in Control, other than for cause, or you terminate your employment because of a
change in duties, or any reason stated in paragraph 4(c), you shall be entitled
to the following:
A. a termination severance package equal to twelve (12)
months of your then current base salary, or $120,000, whichever is greater. Such
<PAGE> 5
severance package shall be payable within thirty (30) days of your termination
of employment with the Company;
B. full vesting in all of the Stock Options granted to
you through the date of the Change in Control; and
C. payment of the Deferred Compensation/Bonus. You shall
be entitled to receive the Deferred Compensation/Bonus for the fiscal year in
which the Change in Control occurs and your employment terminates.
Following the twelve (12) month period after a Change in Control,
the provisions of paragraph 4(b) shall remain in effect.
(ii) For purposes of this Agreement a "Change of Control"
shall mean an Ownership Change in which the shareholders of the Company before
such Ownership Change do not retain, directly or indirectly, at least a majority
of the beneficiary interest in the voting stock of the Company after such
transaction or in which the Company is not the surviving corporation. For
purposes of this Agreement an "Ownership Change" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
A. the direct or indirect sale or exchange by the
shareholders of the Company of more than fifty percent (50%) of the stock of the
Company;
B. a merger or consolidation in which the Company is a
party;
C. the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or
D. a liquidation or dissolution of the Company.
5. Exclusive Remedy: Subject to paragraph 4 above, you shall be
entitled to no further compensation for any damage or injury arising out of the
termination of your employment by the Company.
6. Successors and Assigns: This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns. In view of
the personal nature of the services to be performed by you under this Agreement,
you shall not have the right to assign or transfer any of your rights,
obligations, or benefits under this Agreement.
7. Minimum Plan: For purposes of the this Agreement, the Minimum
Plan referred to in paragraph 4(a)(iv) for calendar year ended December 31,
1996, is as follows:
(a) $6.5 million in total world-wide revenue for the year
ending December 31, 1996;
(b) $750,000 in total UNIX related net world-wide license fees
and maintenance fees for the year ending December 31, 1996; and
(c) not exceeding total expense budget for all areas under your
direction (Sales, Marketing, Support, UK operations) for the year ending
December 31, 1996.
<PAGE> 1
SOFTWARE PROFESSIONALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
Software Professionals, Inc. (the "Company") granted to the individual
named below an option to purchase certain shares of common stock of the Company,
in the manner and subject to the provisions of the Option Agreement.
1. Definitions:
(a) "Optionee" shall mean Byron E. Jacobs.
(b) "Date of Option Grant" shall mean March 4, 1996.
(c) "Number of Option Shares" shall mean 75,000 shares of
common stockof the Company as adjusted from time to time pursuant to paragraph 9
below.
(d) "Exercise Price" shall mean $2.13 per share as
adjusted from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Initial Vesting
Date.
(g) "Initial Vesting Date" shall be the date occuring six
(6) months after the Date of the Option Grant.
(h) Determination of "Vested Ratio":
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/7
provided the Optionee is
continuously employed by
a Participating Company from
the Date of the Option Grant until
the Initial Vesting Date
</TABLE>
Page 1
<PAGE> 2
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Plus
For each full month 1/42
of the Optionee's
continuous Employment by a
Participating Company from the
Initial Vesting Date
In no event shall the Vested
Ratio exceed 1/1
</TABLE>
(i) "Option Term Date" shall mean the date ten (10) years
after the Date of Option
Grant.
(j) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(k) "Company" shall mean Software Professionals, Inc., a
California corporation, and any successor corporation thereto.
(l) "Participating Company" shall mean (i) the Company and
(ii) any future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Code.
(m) "Participating Company Group" shall mean at any point
in time affiliated corporations collectively which are then a Participating
Company.
2. Status of the Option. This Option is intended to be a
nonqualified stock option and shall not be treated as an incentive stock option
as described in section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board, including, without
limitation, the power to terminate or amend this Option at any time, subject to
the terms of this Option and any applicable limitations imposed by law. All
determinations by the Board shall be final and binding upon all persons having
an interest in the Option. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
Page 2
<PAGE> 3
4. Exercise of the Option.
(a) Right to Exercise. The Option shall be exercisable in full
on the Vesting Date and for a period ending on the termination date set forth in
paragraph 6 below.
(b) Method of exercise. The Option may be exercised by written
notice to the Company which must state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in paragraph 6 below, accompanied by full payment of the
exercise price for the number of shares being purchased.
(c) Form of Payment of Option Exercise Price. Such payment shall
be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company
of shares of the Company's common stock owned by the Optionee having a value not
less than the option price, which either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company, or (iii) by any combination of the foregoing. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company of shares of
the Company's common stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's common stock.
(d) Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes payroll withholding and otherwise agrees to make adequate
provision for foreign, federal and state tax withholding obligations of the
Company, if any, which arise in connection with the Option, including, without
limitation, obligations arising upon (i) the exercise, in whole or in part, of
the Option, (ii) the transfer, in whole or in part, of any shares acquired on
exercise of the Option, (iii) the operation of any law or regulation providing
for the imputation of interest, or (iv) the lapsing of any restriction with
respect to any shares acquired on exercise of the Option. The Optionee is
cautioned that the Option is not exercisable unless the Company's withholding
obligations are satisfied. Accordingly, the Optionee may not be able to exercise
the Option when desired even though the Option is vested and the Company shall
have no obligation to issue a certificate for such shares.
Page 3
<PAGE> 4
(e) Certificate Registration. The certificate or certificates
for the shares as to which the Option shall be exercised shall be registered in
the name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the 0ption and Issuance of Shares.
The grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal or state law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Section 260.141.11
of the Rules of the Commissioner of Corporations of the State of California is
set forth in paragraph 14 herein. In addition, no Option may be exercised unless
(i) a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company. As
a condition to the exercise of the Option, the Company may require the Optionee
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised
during the lifetime of the Optionee only by the Optionee and may not be assigned
or transferred in any manner except by will or by the laws of descent and
distribution. Following the death of the Optionee, the Option, to the extent
unexercised and exercisable by the Optionee on the date of death, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
Page 4
<PAGE> 5
6. Termination of the Option. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
as described in paragraph 8 below.
7. Termination of Employment.
(a) Termination of the Option. If the Optionee ceases to be an
employee of the Participating Company Group for any reason, except death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within
thirty (30) days after the date on which the Optionee's employment terminated,
but in any event no later than the Option Term Date. If the Optionee's
employment with the Company is terminated because of the death or disability of
the Optionee within the meaning of section 422(c) of the Code, the Option, to
the extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee (or the
Optionee's legal representative) at any time prior to the expiration of six (6)
months from the date on which the Optionee's employment terminated, but in any
event no later than the Option Term Date. The Optionee's employment shall be
deemed to have terminated on account of death if the Optionee dies within thirty
(30) days after the Optionee's termination of employment. Except as provided in
this paragraph 7(a), the Option shall terminate and may not be exercised after
the Optionee ceases to be an employee of the Participating Company Group.
(b) Termination of Employment Defined. For purposes of this
paragraph 7, the Optionee's employment shall be deemed to have terminated either
upon an actual termination of employment or upon the Optionee's employer ceasing
to be a Participating Company.
(c) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date.
(d) Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if the exercise of the Option within the
applicable time periods set forth above would subject the Optionee to suit under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Option shall remain exercisable until the earliest to occur of (i)
the tenth (10th) day following the date on which the Optionee would no longer be
subject to such suit, (ii) the one hundred and ninetieth (119th) day after the
Optionee's termination of employment, or (iii) the Option Term Date.
Page 5
<PAGE> 6
(e) Leave of Absence. For purposes hereof, the Optionee's
employment with the Participating Company Group shall not be deemed to terminate
if the Optionee takes any military leave, sick leave, or other bona fide leave
of absence approved by the Company of ninety (90) days or less. In the event of
a leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. An "Ownership Change"
shall be deemed to have occurred in the event any of the following occurs with
respect to the Company:
(a) the direct or indirect sale or exchange by the shareholders
of the Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer to one
(1) or more subsidiary corporations as defined in paragraph 10) above of the
Company); or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean an Ownership Change in which the shareholders
of the Company before such Ownership Change do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company after such transaction or in which the Company is not the
surviving corporation.
In the event of a Transfer of Control, the Board, in its sole
discretion, shall either (i) provide that any unexercised portion of the Option
shall be fully exercisable as of a date prior to the Transfer of Control, as the
Board so determines or (ii) arrange with the surviving, continuing, successor,
or purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), for the Acquiring Corporation to either assume the
Company's rights and obligations under this Option Agreement or substitute an
option for the Acquiring Corporation's stock for the Option. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control.
Page 6
<PAGE> 7
9. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become shares of another
corporation (the 'New Shares"), the Company may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the number of shares and the exercise price shall be adjusted in a
fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no
rights as a shareholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Representations and Warranties. The Optionee represents and
warrants that the Optionee is over eighteen (18) years of age and that the
Optionee is acquiring the Option and any shares purchased upon exercise thereof
("Shares") solely for the Optionee's own account, and not on behalf of any other
person or as a nominee, for investment and not with a view to, or for sale in
connection with, any distribution of the Shares.
The Optionee further represents that the Optionee does not have any
present intention of selling, offering to sell, or otherwise disposing of or
distributing the Option or any portion thereof, and that the entire legal and
beneficial interest in the Option the Optionee is acquiring is being acquired
for, and will be held for the account of, the Optionee only and neither in whole
nor in part for any other person.
The Optionee acknowledges and understands that the Option and the Shares have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and that consequently the Option and the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act,
an exemption from such registration is available, or they are sold in accordance
with Rule 144 or Rule 701. The Optionee further acknowledges and understands
that the Company is under no obligation to register the Option and the Shares
and that, in the absence of registration, the Option and the Shares may not be
transferred. The Optionee understands that the certificate or certificates
evidencing the Shares will be imprinted with legends which prohibit the transfer
of the Shares unless they are registered or such registration is not required in
the opinion of legal counsel satisfactory to the Company. The Optionee does not
have any contract, undertaking, agreement, or arrangement with any person to
Page 7
<PAGE> 8
sell, transfer, or grant participations to such person or to any third person
with respect to any of the Shares.
The Optionee is aware that Rule 144, promulgated under the Securities
Act, which permits limited public resale of securities acquired in a nonpublic
offering, is not currently available with respect to the Shares and, in any
event, is available only if certain conditions are satisfied. The Optionee
understands that any sale of the Shares that might be made in reliance upon Rule
144 may only be made in limited amounts in accordance with the terms and
conditions of such rule and that a copy of Rule 144 will be delivered to the
Optionee upon request.
The Optionee is a sophisticated investor having such knowledge and
experience in financial and business matters that the Optionee is capable of
evaluating the merits and risks of the prospective investment in the Shares. The
Optionee represents and warrants that the Optionee is aware of the Company's
business affairs and financial condition and has acquired sufficient information
about the Company to reach an informed and knowledgeable decision to purchase
the Shares. The Optionee further represents and wan-ants that the Optionee has
discussed the Company and its plans, operations and financial condition with its
officers, has received all such information as the Optionee deems necessary and
appropriate to enable the Optionee to evaluate the financial risk inherent in
making an investment in the Shares and has received satisfactory and complete
information concerning the business and financial condition of the Company in
response to all inquiries in respect thereof. The Optionee warrants that the
nature and amount of the Shares are consistent with the Optionee's investment
objectives, abilities and resources.
The Optionee acknowledges and understands that the purchase of the
Shares is a highly speculative investment and the Optionee represents and
warrants that the Optionee is able, without impairing the Optionee's financial
condition, to hold the Shares for an indefinite period of time and to suffer a
complete loss of the investment.
The Optionee has a preexisting personal or business relationship with
the Company or any of its officers, directors, or controlling persons, or has
such knowledge and experience in financial and business matters, or has relied
on the review and analysis done in this regard by the Optionee's professional
adviser, as to make the Optionee capable of using the information made available
to the Optionee to evaluate the merits and risks of an investment in the Shares
and to make an informed investment decision.
The Optionee understands that the Shares have not been qualified under
the Corporate Securities Law of 1968, as amended, of the State of California by
reason of a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of the Optionee's representations as
expressed herein.
Page 8
<PAGE> 9
12. Legends. The Company may at any time place legends referencing
any applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph. Unless otherwise specified by the Company, legends placed on
such certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
13. Binding Effect. This Option Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
14. Termination or Amendment. The Board, including any duly
appointed committee of the Board, may terminate or amend the Option at any time;
provided, however, that no such termination or amendment may adversely affect
the Option or any unexercised portion hereof without the consent of the
Optionee.
15. Integrated Agreement. This Option Agreement constitutes the
entire understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
Page 9
<PAGE> 10
16. Applicable Law. This Option Agreement shall be governed by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
SOFTWARE PROFESSIONALS, INC.
By:
-------------------------------
Title:
-----------------------------
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
Date:
------------------------- ------------------------------------
Page 10
<PAGE> 1
Option No.
SOFTWARE PROFESSIONALS, INC.
INCENTIVE STOCK OPTION AGREEMENT
Software Professionals, Inc. (the "Company"), granted to the
individual named below an option to purchase certain shares of common stock of
the Company, in the manner and subject to the provisions of this Option
Agreement.
1. Definitions:
(a) "Optionee" shall mean Byron E. Jacobs.
(b) "Date of Option Grant" shall mean March 4, 1996.
(c) "Number of Option Shares" shall mean 25,000 shares of
common stock of the Company as adjusted from time to time pursuant to paragraph
9 below.
(d) "Exercise Price" shall mean $2.13 per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Initial Vesting
Date.
(f) "Initial Vesting Date" shall be the date occurring six
(6) months after the Date of the Option Grant.
(g) Determination of "Vested Ratio":
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/7
provided the Optionee is
continuously employed by
a Participating Company from
the Date of Option Grant until
the Initial Vesting Date
</TABLE>
1
<PAGE> 2
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Plus
For each full month 1/42
of the Optionee's
continuous Employment by a
Participating Company from the
Initial Vesting Date
In no event shall the Vested
Ratio exceed 1/1.
</TABLE>
(h) "Optionee Term Date" shall mean the date ten (10) years after
the Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(j) "Company" shall mean Software Professionals, Inc., a California
corporation, and any successor thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in section 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time
all corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the Software Professionals, Inc. 1992 Stock
Option Plan.
2. Status of the Option. This Option is intended to be an incentive
stock option as described in section 422 of the Code, but the Company does not
represent or warrant that this Option qualifies as such. The Optionee should
consult with the
2
<PAGE> 3
Optionee's own tax advisors regarding the tax effects of this Option and the
requirements necessary to obtain favorable income tax treatment under section
422 of the Code, including, but not limited to, holding period requirements.
(NOTE: If the aggregate Exercise Price of the Option (that is, the Exercise
Price multiplied by the Number of Option Shares) plus the aggregate exercise
price of any other incentive stock options held by the Optionee (whether granted
pursuant to the Plan or any other stock option plan of the Participating Company
Group) is greater than One Hundred Thousand Dollars ($100,000), the Optionee
should contact the Chief Financial Officer of the Company to ascertain whether
the entire Option qualifies as an incentive stock option.)
3. Administration. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All determinations by the Board shall be final and binding upon all persons
having an interest in the Option. Any officer of a Participating Company shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.
4. Exercise of the Option.
(a) Right to Exercise. The Option shall first become exercisable
on the Initial Exercise Date. The Option shall be exercisable on and after the
Initial Exercise Date and prior to the termination of the Option in the amount
equal to the Number of Option Shares multiplied by the Vested Ratio as set forth
in paragraph 1 above less the number of shares previously acquired upon exercise
of the Option. In no event shall the Option be exercisable for more shares than
the Number of Option Shares. In addition to the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's shareholders in order for the Plan to comply with the requirements
of Rule 16b-3, promulgated under the Exchange Act, the Option shall not be
exerciseable prior to such shareholder approval if the Optionee is subject to
Section 16(b) of the Exchange Act, unless the Board, in its sole discretion,
approves the exercise of the Option prior to such shareholder approval.
(b) Method of Exercise. The Option may be exercised by written
notice to the Company which must state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in paragraph 6 below, accompanied by (i) full payment of
the exercise price for the number of shares being purchased and (ii) an executed
copy, if required herein, of the then current forms of escrow and security
agreements referenced below.
3
<PAGE> 4
(c) Form of Payment of Option Exercise Price. Such payment shall
be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company
of shares of the Company's common stock owned by the Optionee having a value not
less than the option price, which either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company, or (iii) by any combination of the foregoing. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company of shares of
the Company's common stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's common stock.
(d) Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes payroll withholding and otherwise agrees to make adequate
provision for foreign, federal and state tax withholding obligations of the
Company, if any, which arise in connection with the Option, including, without
limitation, obligations arising upon (i) the exercise, in whole or in part, of
the Option, (ii) the transfer, in whole or in part, of any shares acquired on
exercise of the Option, (iii) the operation of any law or regulation providing
for the imputation of interest, or (iv) the lapsing of any restriction with
respect to any shares acquired on exercise of the Option. The Optionee is
cautioned that the Option is not exercisable unless the Company's withholding
obligations are satisfied. Accordingly, the Optionee may not be able to exercise
the Option when desired even though the Option is vested and the Company shall
have no obligation to issue a certificate for such shares.
(e) Certificate Registration. The certificate or certificates
for the shares as to which the Option shall be exercised shall be registered in
the name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the 0ption and Issuance of Shares.
The grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal or state law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Section 260.141.11
of the Rules of the Commissioner of Corporations of the State of California is
set forth in paragraph 14 herein. In addition, no Option may be exercised unless
(i) a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company. As
a condition to the exercise of the Option, the Company may require the Optionee
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
4
<PAGE> 5
(g) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Non-Transferability of the 0ption. The Option may be exercised
during the lifetime of the Optionee only by the Optionee and may not be assigned
or transferred in any I manner except by will or by the laws of descent and
distribution. Following the death of the Optionee, the Option, to the extent
unexercised and exercisable by the Optionee on the date of death, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. Termination of the Option. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
as described in paragraph 8 below.
7. Termination of Employment.
(a) Termination of the Option. If the Optionee ceases to be an
employee of the Participating Company Group for any reason, except death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within
thirty (30) days after the date on which the Optionee's employment terminated,
but in any event no later than the Option Term Date. If the Optionee's
employment with the Company is terminated because of the death or disability of
the Optionee within the meaning of section 422(c) of the Code, the Option, to
the extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee (or the
Optionee's legal representative) at any time prior to the expiration of six (6)
months from the date on which the Optionee's employment terminated, but in any
event no later than the Option Term Date. The Optionee's employment shall be
deemed to have terminated on account of death if the Optionee dies within thirty
(30) days after the Optionee's termination of employment. Except as provided in
this paragraph 7(a), the Option shall terminate and may not be exercised after
the Optionee ceases to be an employee of the Participating Company Group.
(b) Termination of Employment Defined. For purposes of this
paragraph 7, the term "employee" shall mean any person, including officers and
directors, employed by a Participating Company or performing services for a
Participating Company as a director, consultant, advisor or other independent
contractor. For purposes of this paragraph 7, the Optionee's employment shall be
deemed to have terminated either upon an actual termination of employment or
upon the Optionee's employer ceasing to be a Participating Company.
(c) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after. the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date. The Company makes no representation as to the
tax consequences of any such delayed exercise. The Optionee should consult with
the Optionee's own tax advisors as to the tax consequences to the Optionee of
any such delayed exercise.
5
<PAGE> 6
(d) Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if the exercise of the Option within the
applicable time periods set forth above would subject the Optionee to suit under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Option shall remain exercisable until the earliest to occur of (i)
the tenth (10th) day following the date on which the Optionee would no longer be
subject to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of employment, or (iii) the Option Term Date. The Company
makes no representation as to the tax consequences of any such delayed exercise.
The Optionee should consult with the Optionee's own tax advisors as to the tax
consequences to the Optionee of any such delayed exercise.
(e) Leave of Absence. For purposes hereof, the Optionee's
employment with the Participating Company Group shall not be deemed to terminate
if the Optionee takes any military leave, sick leave, or other bona fide leave
of absence approved by the Company of ninety (90) days or less. In the event of
a leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. An "Ownership Change"
shall be deemed to have occurred in the event any of the following occurs with
respect to the Company:
(a) the direct or indirect sale or exchange by the shareholders
of the Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer to one
(1) or more subsidiary corporations as defined in paragraph l(k) above of the
Company); or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean an Ownership Change in which
the shareholders of the Company before such Ownership Change do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company after such transaction or in which the Company is
not the surviving corporation.
In the event of a Transfer of Control, the Board, in its sole
discretion, may arrange with the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), for the Acquiring Corporation to assume the Company's rights and
obligations under this Option Agreement or substitute an option for the
Acquiring Corporation's stock in exchange for the Option. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control.
6
<PAGE> 7
9. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change) shares of another corporation (the "New Shares"), the
Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no
rights as a shareholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Notice of Sales Upon Disqualifying Disposition. The Optionee
shall dispose of the shares acquired pursuant to the Option only in accordance
with the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year from the date the Optionee exercises all or part of the Option or within
two (2) years of the date of grant of the Option. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions of
this Option Agreement, the Optionee shall hold all shares acquired pursuant to
the Option in the Optionee's name (and not in the name of any nominee) for the
one-year period immediately after exercise of the Option and the two-year period
immediately after grant of the Option. At any time during the one-year or
two-year periods set forth above, the Company may place a legend or legends on
any certificate or certificates representing shares acquired pursuant to the
Option requesting the transfer agent for the Company's stock to notify the
Company of any such transfers. The obligation of the Optionee to notify the
Company of any such transfer shall continue notwithstanding that a legend has
been placed on the certificate or certificates pursuant to the preceding
sentence.
12. Legends. The Company may at any time place legends referencing
any applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this paragraph. Unless otherwise specified by the Company, legends placed on
such certificates may include, but shall not be limited to, the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE
REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN
SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED ("ISO"). IN ORDER
TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT
BE TRANSFERRED PRIOR TO ___________ SHOULD THE REGISTERED HOLDER ELECT TO
TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE
7
<PAGE> 8
TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE
REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK
OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE)
PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
13. Initial Public Offering . The Optionee hereby agrees that in the
event of any underwritten public offering of stock, including an initial public
offering of stock, made by the Company pursuant to an effective registration
statement filed under the Securities Act, the Optionee shall not offer, sell,
contract to sell, pledge, hypothecate, grant any option to purchase or make any
short sale of, or otherwise dispose of any shares of stock of the Company or any
rights to acquire stock of the Company for such period of time from and after
the effective date of such registration statement as may be established by the
underwriter for such public offering; provided, however, that such period of
time shall not exceed one hundred eighty (180) days from the effective date of
the registration statement to be filed in connection with such public offering.
The foregoing limitation shall not apply to shares registered in the initial
public offering under the Securities Act and shall cease to apply once a
registration statement is effective covering shares issuable pursuant to options
granted pursuant to the Plan, whether or not such registration statement applies
to any of the shares issued or issuable pursuant to the Option.
14. Binding Effect. This Option Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
15. Termination or Amendment. The Board, including any duly
appointed committee of the Board, may terminate or amend the Plan and/or the
Option at any time; provided, however, that no such termination or amendment may
adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such amendment is required to enable the Option
to qualify as an Incentive Stock Option.
16. Integrated Agreement. This Option Agreement constitutes the
entire understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
8
<PAGE> 9
17. Applicable Law. This Option Agreement shall be governed by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
Software Professionals, Inc.
By: ___________________
Title: __________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in paragraph 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement.
The undersigned acknowledges receipt of a copy of Section 260.141.11 of the
Rules of the Commissioner of Corporations of the State of California regarding
restriction on transfer.
Date: _____________________ ________________________
9
<PAGE> 10
The undersigned, being the spouse of the above-named Optionee, does hereby
acknowledge that the undersigned has read and is familiar with the provisions of
the above Option Agreement, including, without limitation, the provisions of
paragraph 11 providing a right of first refusal in favor of the Company upon
certain changes in record ownership, and the undersigned hereby agrees thereto
and joins therein to the extent, if any, that the agreement and joinder of the
undersigned may be necessary.
Date: _____________________ ________________________
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,303,430
<SECURITIES> 1,002,000
<RECEIVABLES> 881,289
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,646,962
<PP&E> 1,233,587
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,132,342
<CURRENT-LIABILITIES> 2,176,724
<BONDS> 0
0
0
<COMMON> 4,650,062
<OTHER-SE> 305,556
<TOTAL-LIABILITY-AND-EQUITY> 7,132,342
<SALES> 327,618
<TOTAL-REVENUES> 1,468,596
<CGS> 0
<TOTAL-COSTS> 581,953
<OTHER-EXPENSES> 720,984
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,380
<INCOME-PRETAX> (140,501)
<INCOME-TAX> (34,828)
<INCOME-CONTINUING> (105,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (105,673)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
