<PAGE> 1
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON FEBRUARY 18, 1997 PURSUANT TO
A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
(mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
___
SECURITIES EXCHANGE ACT OF 1934
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission File Number 0-23852
PROJECT SOFTWARE & DEVELOPMENT, INC.
Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction (I.R.S employer
incorporation or organization identification number)
20 UNIVERSITY ROAD, CAMBRIDGE, MASSACHUSETTS 02138
Address of principal executive offices, including zip code)
(617) 661-1444
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of the Registrant's common stock as of the latest
practicable date: 9,728,896 shares of common stock, $.01 par value per share, as
of January 31, 1997.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
PAGE
- - ----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of December 31, 1997 3
(unaudited) and September 30, 1996.
Consolidated Statements of Operations (unaudited) for the three 4
months ended December 31, 1996 and 1995.
Consolidated Statements of Cash Flows (unaudited) for the three 5
months ended December 31, 1996 and 1995.
Notes to Consolidated Financial Statements. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 9
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE 18
2
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PROJECT SOFTWARE & DEVELOPMENT, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
----------- ------------
1996 1996
---- ----
(IN THOUSANDS,EXCEPT SHARE DATA) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,083 $ 9,097
Marketable securities 36,634 36,798
Accounts receivable, trade, less allowance
for doubtful accounts of $2,584 at December 31,
1996 and $1,954 at September 30, 1996 27,203 27,030
Prepaid expenses 1,289 1,410
Other assets 582 748
Deferred income taxes 1,157 892
------- -------
Total current assets 76,948 75,975
------- -------
Property and equipment, net 5,094 4,174
Computer software costs, net 639 787
Goodwill, net 1,743 1,832
Deferred income taxes 713 675
Other assets 46 33
------- -------
Total assets $85,183 $83,476
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,323 $ 8,384
Accrued compensation 2,709 5,007
Income taxes payable 2,577 248
Deferred income taxes 6 5
Deferred revenue 8,052 9,042
------- -------
Total current liabilities 20,667 22,686
------- -------
Deferred income taxes 110 168
Deferred rent 69 85
Deferred revenue 262 375
Commitments and contingencies
Preferred stock, $.01 par value;1,000,000 authorized,
none issued and outstanding ---- ----
Common stock, $.01 par value;15,350,000 authorized;
and outstanding 9,720,243 and 9,702,549 for December 31,
1996 and September 30, 1996, respectively 97 97
Additional paid-in capital 45,555 45,324
Retained earnings 18,175 14,538
Cumulative translation adjustment 67 49
Net unrealized gain on marketable securities 181 154
------- -------
Total stockholders' equity 64,075 60,162
------- -------
Total liabilities and stockholders' equity $85,183 $83,476
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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PROJECT SOFTWARE & DEVELOPMENT, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------------------
1996 1995
---- ----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C>
Revenues:
Software $ 13,673 $ 9,763
Support and services 9,706 6,424
----------- -----------
Total revenues 23,379 16,187
----------- -----------
Cost of revenues:
Software 633 1,148
Support and services 5,288 3,271
----------- -----------
Total cost of revenues 5,921 4,419
----------- -----------
Gross margin 17,458 11,768
Operating expenses:
Sales and marketing 7,339 4,935
Product development 2,492 1,871
General and administrative 2,521 1,749
----------- -----------
Total operating expenses 12,352 8,555
----------- -----------
Income from operations 5,106 3,213
Interest income 461 440
Interest (expense) (2) (15)
Other income (expense), net 58 (4)
----------- -----------
Income before income taxes 5,623 3,634
Provision for income taxes 2,094 1,507
----------- -----------
Net income $ 3,529 $ 2,127
=========== ===========
Net income per share $ 0.35 $ 0.21
----------- -----------
Weighted number of common
and common equivalent shares 10,127,886 10,048,901
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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PROJECT SOFTWARE & DEVELOPMENT, INC
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,529 $ 2,127
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 761 1,022
Loss on sale and disposal of property
and equipment 19 --
Amortization of discount on marketable securities 379 172
Deferred rent (17) (22)
Deferred taxes (357) (270)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable 675 (1,030)
Prepaid expenses 130 133
Other assets (337) (4)
Accounts payable (1,147) (320)
Accrued compensation (2,369) (1,814)
Income taxes payable 2,315 1,592
Deferred revenue (1,163) 648
-------- --------
Net cash provided by operating activities 2,418 2,234
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash -- (787)
Acquisitions of property and equipment (1,406) (355)
Additions to computer software costs (37) (312)
Purchase of marketable securities (18,739) (20,728)
Sale of marketable securities 18,551 20,966
-------- --------
Net cash used in investing activities (1,631) (1,216)
-------- --------
Cash flows from financing activities:
Payments on leased equipment 2 (11)
Borrrowings on line of credit -- 110
Payments of long-term debt -- (16)
Proceeds from exercise of stock options
including related tax benefit 231 27
-------- --------
Net cash provided by financing activities 233 110
-------- --------
Effect of exchange rate changes on cash (34) (34)
-------- --------
Net increase in cash and cash equivalents 986 1,094
Cash and cash equivalents, beginning of period 9,097 9,346
-------- --------
Cash and cash equivalents, end of period $ 10,083 $ 10,440
======== ========
Supplemental cash flow disclosures:
Interest $ 1 $ 15
Income taxes 64 2,018
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Project Software & Development, Inc. (PSDI) and its majority-owned
subsidiaries (collectively, the Company), as of December 31, 1996 and have been
prepared by the Company in accordance with generally accepted accounting
principles for interim reporting and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All intercompany accounts and transactions have
been eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. The results of operations for the periods
presented herein are not necessarily indicative of the results of operations to
be expected for the entire fiscal year, which ends on September 30, 1997, or for
any other future period.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
September 30, 1996 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 30, 1996.
The consolidated financial statements of the Company for all periods prior
to March 31, 1996 included in this report include the results and balances of an
acquisition accounted for as pooling-of-interests.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. INCOME PER SHARE
Income per share is computed for each period based upon the weighted
average number of common shares outstanding and dilutive common stock
equivalents (using the treasury stock method). For purposes of this calculation,
stock options are considered common stock equivalents in the periods in which
they have a dilutive
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effect. Fully diluted and primary income per share data are the same for each
period presented.
C. ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options,
restricted stock, and stock appreciation rights. SFAS No. 123 does not require
companies to change their existing accounting for employee stock options under
Accounting Priciples Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" (the intrinsic value method) but requires pro forma disclosures of
what net income and earnings per share would have been had the new fair value
method been used. The Company has elected to continue following present
accounting rules under APB Opinion No. 25 and will disclose all the required pro
forma information in its Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
D. COMPUTER SOFTWARE COSTS
Internally developed software costs capitalized were $0 and $254,000 for
the three months ended December 31, 1996 and 1995, respectively. Amortization
expense was $ 127,000 and $673,000 for the three months ended December 31, 1996
and 1995 respectively. For the three months ended December 31, 1995, the Company
changed the estimated useful life of its internally developed software related
to the client/server version of MAXIMO from three years to fifteen months. This
change in estimate resulted in additional amortization expense of $565,000 in
the three months ended December 31, 1995.
E. ACQUISITIONS
On December 27, 1995, the Company acquired the shares of its Swedish
distributor, Planneringssystem och Datorer i Norden AB for the sum of $517,000.
In addition, the Company is obligated to pay the seller an earnout based on
revenue target achievement for the fiscal year ended September 30, 1996. The
total earnout was $257,000. The transaction was accounted for using the purchase
method of accounting. The resulting goodwill is being amortized on a
straight-line basis over 5 years. This acquisition was deemed to be immaterial
for presentation of pro forma information purposes.
On March 1, 1996, the Company acquired certain assets and assumed specific
liabilities of the IHS department of debis Systemhaus Standard - Software -
Produkte GmbH for the sum of $646,000. In addition, the Company will pay an
earnout based on revenue target achievement for the twelve months ended December
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31, 1996. The earnout is estimated to be $260,000 at December 31, 1996. The
transaction was accounted for using the purchase method of accounting. The
resulting goodwill is being amortized on a straight-line basis over 5 years.
This acquisition was deemed to be immaterial for presentation of pro forma
information purposes.
On March 1, 1996, the Company acquired the outstanding common stock of
Maintenance Automation Corporation ("MAC"), a developer of PC-based maintenance
management software, in exchange for the issuance of 368,946 shares of common
stock. The transaction has been accounted for as a pooling-of-interests. Costs
of the acquisition were $965,000. The Company's consolidated financial
statements for all years prior to the acquisition have been restated to include
MAC. MAC's fiscal year for financial reporting purposes was changed from
December 31 to September 30 for the period ended September 30, 1995.
<TABLE>
The following information shows revenue and net income of the separate
companies during the periods preceding the combination that are included in this
report. Adjustments recorded to conform the accounting policies of the companies
were not material to the consolidated financial statements.
<CAPTION>
(in thousands)
REVENUE: Three months
- - -------- ended
-----
12/31/95
--------
<S> <C>
PSDI $14,215
MAC $ 1,972
-------
Combined $16,187
-------
NET INCOME:
- - -----------
PSDI $ 2,402
MAC $ (275)
-------
Combined $ 2,127
-------
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General.
The Company develops, markets and supports applications software used by
business, government and other organizations to improve the productivity of
facilities, plants and production equipment. The Company's revenues are derived
primarily from two sources: software licenses and fees for services, including
support contracts and training and consulting services. The Company has
experienced a significant shift in the sources of its revenues as a result of
its decision to concentrate its resources on the development and marketing of
enterprise-wide asset maintenance management systems operating in a
client/server environment. Prior to 1991, the Company's revenues were derived
primarily from licenses of its project management software (consisting of
character-based software designed to run on mainframe, minicomputers and
personal computers), and, to a lesser extent, from sales of computer hardware.
The Company acquired Maintenance Automation Corporation ("MAC") on March 1,
1996. MAC is a developer of maintenance management software for the single-user,
PC LAN segment.
The Company released MAXIMO, its first client/server product, in 1991, and
released P/X, its second client/server product, in 1992. In fiscal year ended
September 30, 1996, revenues from client/server software accounted for 89% of
software revenues, of which 93% was attributable to the client/server versions
of MAXIMO.
In fiscal 1996, the Company introduced a new suite of MAXIMO products:
MAXIMO Enterprise, MAXIMO Workgroup and MAXIMO ADvantage. MAXIMO Enterprise, a
new version of which was released in March 1996, is a client/server product,
which runs on Oracle7 and SYBASE platforms and is intended for the high
function, high usage segment of the maintenance management market. MAXIMO
Workgroup, released in July 1996, is also a client/server product and runs on
SQLBase and Oracle Workgroup and is intended for the mid-range segment of the
maintenance management market.
The product acquired as a result of the acquisition of MAC on March 1,
1996, MAXIMO ADvantage, is intended for the lower-end maintenance market. MAXIMO
ADvantage supports Microsoft Access for the single user, PC LAN segment. The
Company has incurred significant additional and unexpected costs in completing
development of MAXIMO ADvantage due to a delay in excess of six months in
completing the release of this product. The delay was necessary to meet the
quality expectations demanded by the Company. The Company has also restructured
the tele-sales operation employed by MAC to improve the fluidity of the sales
distribution channel. Further affecting MAXIMO ADvantage sales was the delay in
availability of a CD-Rom based multi-media
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evaluation kit. This evaluation kit generally became available in December 1996.
The sources of the Company's revenues from support and services have also
shifted since the introduction of the Company's new generation of client/server
products. Revenues from support and services relating to the Company's MAXIMO
products have increased, while those relating to the Company's P/X and mainframe
and other software have declined.
Revenues from licenses of P/X have declined sharply, dropping to 2% of
total license revenues in the fiscal year ended 1996. The Company no longer
actively markets its P/X product as a stand alone solution.
Revenues from licenses of mainframe and other software have also declined
sharply, dropping to 1% of total license revenues in the fiscal year ended 1996.
The Company no longer actively markets its mainframe and other software
products, although it provides technical support and other services to their
installed customer base.
The Company's revenues attributable to its operations outside the United
States are a significant portion of revenues. The Company expects that
international revenues will continue to be a significant percentage of total
revenues. As the percentage of the Company's total revenues which are derived
from international operations and are conducted in foreign currencies grows,
changes in the values of these foreign currencies relative to the United States
dollar will affect the Company's results of operations, and may contribute to
fluctuations in the Company's results of operations. The functional currencies
of the Company's international subsidiaries include the pound sterling, the
French franc, the German deutschemark, the Dutch guilder, the Swedish krona, and
the Australian and Canadian dollars, each of which has fluctuated significantly
in relation to the United States dollar. In addition, the Company is exposed to
potential losses as a result of transactions giving rise to accounts receivable
in currencies other than the United States dollar or the functional currencies
of its international subsidiaries. When the value of a foreign currency in which
the accounts receivable of the Company are denominated changes between the date
the account receivable is accrued and the date on which it is settled, the
resulting gain or loss is recorded as a foreign currency transaction adjustment.
The Company recorded a foreign currency transaction gain of $57,000 and a loss
of $18,000 for the three months ended December 31, 1996 and 1995, respectively.
The Company may in the future undertake currency hedging, although there can be
no assurance that hedging transactions, if entered into, would materially reduce
the effects of fluctuations in foreign currency exchange rates on the Company's
results of operations.
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To date, inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation may not adversely
affect the Company's financial results in the future.
Business Combinations.
On December 27, 1995, the Company acquired the shares of its Swedish
distributor, Planneringssystem och Datorer i Norden AB for the sum of $517,000.
In addition, the Company is obligated to pay the seller an earnout based on
revenue target achievement for the fiscal year ended September 30, 1996. The
total earnout at December 31, 1996 was $257,000.
On March 1, 1996, the Company acquired certain assets and assumed specific
liabilities of the IHS department of debis Systemhaus Standard - Software -
Produkte GmbH for the sum of $646,000. In addition, the Company will pay an
earnout based on revenue target achievement for the twelve months ended December
31, 1996. The earnout is estimated to be $260,000 at December 31, 1996.
On March 1, 1996, the Company acquired MAC in exchange for the issuance of
368,946 shares of the Company's common stock. MAC provides the Company an
existing, although immature, tele-sales channel which has been restructured and
can target entities and industries supplemental to those targeted by the
Company's existing direct sales channel, such as real estate management, hotels
and small education and medical facilities. MAC's product, CHIEF ADvantage has
been renamed MAXIMO ADvantage and has been enhanced since the acquisition.
RESULTS OF OPERATIONS
Revenues.
Total revenues increased 44% to $23,379,000 from $16,187,000 for the three
months ended December 31, 1996 and 1995, respectively. The growth in revenues is
attributable to the Company's MAXIMO client/server software and related support
and services. A significant portion of the Company's total revenues are derived
from operations outside the United States. Revenues generated outside the United
States increased 65% to $10,282,000 or 44% of total revenues for the three
months ended December 31, 1996 from $6,236,000 or 39% of total revenues for the
three months ended December 31, 1995.
The Company's software revenues increased 40% to $13,673,000 from
$9,763,000 for the three months ended December 31, 1996 and 1995, respectively.
The Company's MAXIMO software revenues increased 46% to $13,458,000 from
$9,248,000 for the three months ended December 31, 1996 and 1995, respectively.
The increase in total software revenues for the three months ended December 31,
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1996 can be attributed to increases in the number of MAXIMO client/server
licenses sold and increases in the number of users per license of MAXIMO
client/server software combined with the release of the client server versions
of MAXIMO on SYBASE and Oracle. Software revenues as a percentage of total
revenues decreased to 58% from 60% for the three months ended December 31, 1996
and 1995, respectively. The decrease as a percentage of revenues for the three
months ended December 31, 1996, is attributable to an increase in consulting
services performed in connection with the number of MAXIMO client/server
software licenses sold in the previous quarter. Revenues from licenses of MAXIMO
and from related support and services increased 41% to $22,276,000 from
$14,306,000 or 95% and 88% of total revenues for the three months ended December
31, 1996 and 1995, respectively. Revenues from the Company's P/X product and
related support and services decreased 42% to $811,000 from $1,405,000 for the
three months ended December 31, 1996 and 1995, respectively. The Company no
longer actively markets this software product as a stand alone solution.
Revenues from the Company's mainframe and other software and related
support and services decreased 39% to $292,000 from $476,000 for the three
months ended December 31, 1996 and 1995, respectively. The Company no longer
actively markets these software products.
Revenues from support and services increased 51% to $9,706,000 from
$6,424,000 for the three months ended December 31, 1996 and 1995, respectively.
The increases are due primarily to increased sales of support contracts and use
of the Company's training and consulting services in connection with licenses of
the Company's MAXIMO client/server software, partially offset by declines in
sales of support contracts and services relating to the Company's P/X, mainframe
and other software.
Cost of Revenues.
The total cost of revenues increased 34% to $5,921,000 from $4,419,000 for
the three months ended December 31, 1996 and 1995, respectively. The total cost
of revenues as a percentage of total revenues was 25% and 27% for the three
months ended December 31, 1996 and 1995, respectively.
Cost of software revenues decreased 45% to $633,000 from $1,148,000 for
the three months ended December 31, 1996 and 1995, respectively. Costs of
software revenues consist of the amortization of capitalized software, royalties
paid to vendors of third party software, the cost of software product packaging
and media, and certain employee costs related to software duplication, packaging
and shipping. The cost of software revenues decreased as a percentage of
software revenues to 5% from 12% for the three months ended December 31, 1996
and 1995, respectively. The decrease as a percentage of revenues is
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primarily attributable to a decrease in amortization expense of internally
developed software and an increase in the revenue base. In the three months
ended December 31, 1995, the Company changed the estimated useful life of its
MAXIMO Enterprise product from three years to fifteen months to accurately
reflect the lifecycles for new releases of this product. This change resulted in
additional amortization expense of $565,000 in the three months ended December
31, 1995.
Cost of support and services consists primarily of personnel costs for
employees and the related costs of benefits and facilities. Cost of support and
services revenues increased by 62% to $5,288,000 from $3,271,000 for the three
months ended December 31, 1996 and 1995, respectively. Cost of support and
services increased as a percentage of support and services revenues to 54% from
51% for the three months ended December 31, 1996 and 1995, respectively. The
increases as a percentage of revenues for the three months ended December 31,
1996, are attributable to additional employees hired, costs associated with
third-party consultants contracted with to support the growth in revenues and
the timing of hiring permanent employees.
Sales and Marketing Expenses.
Sales and marketing expenses increased 49% to $7,339,000 from $4,935,000
for the three months ended December 31, 1996 and 1995, respectively. The
increase is primarily due to increases in the number of sales personnel, sales
commissions, travel and lodging expenses, and advertising costs. Sales and
marketing expenses as a percentage of total revenues were 31% for both the three
months ended December 31, 1996 and 1995.
Product Development Expenses.
Product development expenses increased 33% to $2,492,000 from $1,871,000
for the three months ended December 31, 1996 and 1995, respectively. The
increase is primarily due to the engagement of additional employees and third
party consultants to work on enhancements to the MAXIMO products. There were no
software costs capitalized in the three months ended December 31, 1996. Product
development expenses as a percentage of revenues were 11% for both the three
months ended December 31, 1996 and 1995. The Company spends virtually all of its
development dollars on the MAXIMO product line.
General and Administrative Expenses.
General and administrative expenses include the cost of the Company's
finance, human resources, information services and administrative operations.
General and administrative expenses increased 44% to $2,521,000 from $1,749,000
for the three months ended December 31, 1996 and 1995, respectively. The
increase is primarily due to an increase in the provision for bad debt
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<PAGE> 14
expenses in proportion to the increase in receivables. General and
administrative expenses as a percentage of total revenues were 11% for both the
three months ended December 31, 1996 and 1995.
Other Income/Expense.
Interest income for the three months ended December 31, 1996 and 1995 was
$461,000 and $440,000, respectively. The increases are due to interest earned on
certain cash equivalents and marketable securities.
Provision for Income Taxes.
The Company's effective tax rate was 37% and 41% for the three months ended
December 31, 1996 and 1995, respectively. The decrease in the effective tax rate
for the three months ended December 31, 1996 can be attributed to utilization of
a Foreign Sales Corporation and utilization of certain foreign net operating
losses.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had cash and cash equivalents of
approximately $10,083,000 and working capital of $56,281,000. Cash provided by
operations for the three months ended December 31, 1996 was $2,418,000 generated
by income earned for the period and an increase in receivables, offset by the
payout of fiscal 1996 employee bonuses. Cash used in investing activities
totaled $1,631,000, and was primarily used for the purchase of computer
equipment. Cash provided by financing activities was $233,000 and is
attributable to exercises of employee stock options.
The Company's principal commitments as of December 31, 1996 consisted
primarily of an office lease for its headquarters. The Company leases its
facilities under non-cancelable operating lease agreements which expire at
various dates through March 1999. The Company's office lease for its
headquarters expires on December 31, 1997. The Company anticipates expenditures
for the purchase of office furniture and equipment, leasehold improvements and
moving expenses to relocate its headquarters to a new location, but has no
estimate of this expenditure at the current time.
In March 1996, the Company extended its $5,000,000 unsecured line of credit
with Chase Manhattan Bank, N.A. This line of credit will expire on March 31,
1997. The Company believes that its current liquidity, together with its
existing credit facility and the cash flows expected to be generated by
operations will be sufficient to meet its cash needs for working capital,
capital
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expenditures and marketing expansion through at least September 30, 1997.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;SEASONALITY
The Company generally ships its products upon receipt of orders and
maintains no significant backlog. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. A delay in or loss of orders can cause significant variations in
quarterly operating results. In addition, the Company's revenues and operating
results have fluctuated historically, due to the number and timing of product
introductions and enhancements, the budgeting and purchasing cycles of customers
and the timing of large orders, the timing of product shipments and the timing
of marketing and product development expenditures. Large software license
contracts, if any, may have a significant impact on revenues for any quarter and
could therefore result in significant fluctuations in quarterly revenues and
operating results. The Company's revenues and income from operations typically
grow at a lower rate or decline in the first quarter of each fiscal year. In
addition, revenues are typically higher in the fourth quarter than in other
quarters of the year reflecting the Company's fiscal year end and a sales
commission policy that bases rewards on achievement of annual quotas. As a
result of these factors, the Company has experienced, and may in the future
experience, significant period-to-period fluctuations in revenues and operating
results.
FACTORS AFFECTING FUTURE PERFORMANCE
Further information on factors that could affect the Company's business and
financial results are included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 30, 1996.
Forward-looking statements of the Company are subject to the risk that
assumptions made by management of the Company concerning future general economic
conditions such as recession, inflation, interest rates, tax rates, consumer
spending and credit and other future conditions having an impact on software
markets and the Company's business may prove to be incorrect. Adverse changes in
such future economic conditions could have an adverse effect on the Company's
business.
15
<PAGE> 16
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Instruments Defining the Rights of
Security-Holders
3.1 Amended and Restated Articles of Organization of the Company
(included as Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No. 33-76420, and
incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended (included as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the year ended September 30, 1996, File No. 0-23852, and
incorporated herein by reference)
10. Material Contracts
10.1 1997 Executive Bonus Plan
10.2 Project Software & Development, Inc. 1994 Incentive and
Nonqualified Stock Option Plan, as amended
10.3 Project Software & Development, Inc. 1994 Employee Stock
Purchase Plan, as approved by the stockholders of the
Company by written consent dated April 15, 1994 (included as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for
the year ended September 30, 1996, File No. 0-23852, and
incorporated herein by reference)
11.1 Statement re computation of per share earnings
27. Financial Data Schedule
16
<PAGE> 17
(b) The Company filed no reports on Form 8-K during the three months ended
December 31, 1996.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROJECT SOFTWARE & DEVELOPMENT, INC.
------------------------------------
Date: February 13, 1997 By: /s/ Paul D. Birch
------------------ -------------------------------
Authorized Officer
Executive Vice President
Finance & Administration, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
18
<PAGE> 19
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- - --- ----------- ----
<C> <S>
3.1 Amended and Restated Articles of Organization of the Company
(included as Exhibit 3.3 to the Company's Registration Statement
on Form S-1, Registration No. 33-76420, and incorporated herein
by reference)
3.2 Restated By-Laws of the Company, as amended (included as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, File No. 0-23852, and incorporated
herein by reference)
10.1 1997 Executive Bonus Plan
10.2 Project Software & Development, Inc. 1994 Incentive and
Nonqualified Stock Option Plan, as amended
10.3 Project Software & Development, Inc. 1994 Employee Stock Purchase
Plan (included as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1996, File No.
0-23852, and incorporated herein by reference)
11.1 Statement re computation of per share earnings
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.1
PROJECT SOFTWARE & DEVELOPMENT, INC. & SUBSIDIARIES
YEAR ENDED SEPTEMBER 30, 1997
EXECUTIVE BONUS PLAN
September 1996
<PAGE> 2
PROJECT SOFTWARE & DEVELOPMENT, INC. & SUBSIDIARIES
YEAR ENDED SEPTEMBER 30, 1997
EXECUTIVE BONUS PLAN
1. PURPOSE
-------
The purpose of the FY97 Executive Bonus Plan ("Plan") is to provide key
management employees of Project Software & Development, Inc. and its
subsidiaries ("Company"), with an incentive to make significant and
extraordinary contributions to the long-term performance and growth of
the Company, to join the common interest of the Company and key
executives, and to attract and retain executives of exceptional
ability.
2. ADMINISTRATION
--------------
2.1 The Plan shall be administered by the Compensation Committee
of the Board of Directors of the Company (the "Committee").
The Committee will base all decisions and awards on quarterly
and annual financial statements filed with the Securities and
Exchange Commission.
2.2 By adoption of this Plan the Board has deemed eligible those
individuals named in Appendix I. The Board shall have full and
complete authority and discretion to make binding decisions on
the administration of the Plan and shall adopt such rules and
regulations and make all other determinations deemed by it
necessary or desirable for the administration of the Plan.
2.3 The Compensation Committee and Board of Directors of the
Company shall have the authority to amend or terminate the
Plan, provided, however, that if the Plan is amended or
terminated, the Company shall be required to complete payment
to each Participant of the amount which that Participant
otherwise would have received based on the provisions set
forth in paragraph 7.2.
3. DEFINITIONS
-----------
3.1 PLAN YEAR means the fiscal year ended September 30, 1997.
3.2 PLAN QUARTER means each of the three-month periods ended
December 31, 1996, March 31, 1997, June 30, 1997, and
September 30, 1997.
3.3 PARTICIPANT means any executive of the Company who is
designated in Appendix I.
<PAGE> 3
3.4 PERMANENT DISABILITY, means a Participant's inability, as a
result of illness, incapacity, disease or calamity to perform
a substantial part of his primary job responsibilities as set
forth in his employment contract or job description for any
concurrent six month period.
3.5 PLAN means this FY97 Executive Bonus Plan.
3.6 Except as otherwise indicated by the context, any masculine
term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the
plural.
3.7 COMPANY means Project Software & Development, Inc. and its
subsidiaries included in the consolidated financial
statements.
3.8 PLAN NET INCOME means net income as disclosed in the
consolidated quarterly financial statements of the Company,
before deductions and additions of:
(i) Taxes calculated by net income.
(ii) Extraordinary items as defined under US generally
accepted accounting principles.
4. ELIGIBILITY AND PARTICIPATION
-----------------------------
Executives eligible for bonuses under the Plan shall be those
individuals specified in Appendix I.
5. CALCULATION OF BONUSES
----------------------
5.1 The on-target bonus will be determined as follows:
(a) Each Participant will be eligible to receive an
on-target earnings bonus if the Company achieves
quarterly and annual Plan Net Income as stated in
Appendix II.
(b) The percentage of the on-target earnings bonus
described in Appendix I earned by each Participant on
achievement of the amounts stated in Appendix II in
respect of cumulative quarterly and year end is:
(i) Q1 8%
(ii) Q2 9%
(iii) Q3 11%
(iv) Q4 12%
(v) Year end 60%
<PAGE> 4
(c) As a result, the full on-target bonus stated in
Appendix I for each Participant can only be achieved
if all four quarters and annual Plan Net Income equal
or exceed all of the target amounts stated in
Appendix II.
5.2 An incremental bonus is earned on corporate achievement above
the on-target earnings specified in Appendix II and will be
calculated as follows:
(a) The aggregate incremental bonus amount to be
distributed to all Plan Participants in each Plan
Quarter will be 6% of the difference between Plan Net
Income and the amounts stated in Appendix II for the
quarter.
(b) The aggregate incremental bonus amount to be
distributed to all Plan Participants in respect of
year end will be 9% of the difference between Plan
Net Income and the amount stated in Appendix II for
the year.
(c) The amount of bonus calculated in Section 5.2 (a)
and (b) shall be distributed as follows:
CEO 48%
Paul Birch 24%
William Sawyer 14%
Jack Young 14%
6. PAYMENT OF BONUSES
------------------
Bonus earned under the provisions of 5.1 and 5.2 will be payable sixty
days after the end of the period in which the bonus was earned provided
that the results for the period have been issued to the public.
7. TERMINATION OF EMPLOYEE
-----------------------
7.1 If a Participant's employment is terminated prior to the
conclusion of any Plan Quarter or, following the conclusion of
a Plan Year, but prior to distribution of all installments:
(a) By reason of (i) any deliberate material breach by the
Participant of his employment obligations with the
Company, which, if curable, is not cured within ten (10)
days after the Company shall have notified the Participant
in writing describing to Participant all material facts
concerning such breach,
<PAGE> 5
(ii) any deliberate material breach by the
Participant of his employment obligations with the
Company, which is not curable according to notice
from the Company, or (iii) the conviction of a
felony or the commission of a material, fraudulent
act by the Participant against the Company;
(b) Voluntarily by Participant other than for a "Reason
Constituting Good Cause." Reasons Constituting Good
Cause are limited to: (i) a significant change in the
nature and scope of Participant's duties combined
with a change in the Participant's title resulting in
a position of materially lesser authority, or (ii) a
reduction in the Participant's base compensation.
Then, Participant shall cease to have any rights to any
amounts unpaid on the date of termination of employment.
7.2 If a Participant's employment is terminated:
(a) By reason of Death, Permanent Disability; or
(b) By the Company for a reason other than one described
at subparagraph 7.1(a);
If such a termination occurs prior to the conclusion of any
Plan Quarter or Year, the Participant shall receive the amount
which the Participant otherwise would have been entitled to
receive had he remained in the employ of the Company through
the end of the Plan Year, but pro-rated based on the number of
complete months of employment with the Company during such
Plan Year. The amount earned shall be paid according to the
Plan rules.
8. BENEFICIARY DESIGNATIONS
------------------------
8.1 If a Participant's employment with the Company is terminated
by his death or if he dies after termination of his employment
but prior to the distribution to him of all amounts payable to
him under the Plan, any amounts otherwise payable to him
hereunder shall be distributed to his designated beneficiary
or beneficiaries. For the purposes of this plan a
Participant's beneficiary will be the beneficiary designated
under Company provided life insurance coverage. However, a
Participant may from time to time revoke or change any
beneficiary designation on file with the Company.
<PAGE> 6
If there is no effective beneficiary designation on file with
the Company at the time of a Participant's death, distribution
of amounts otherwise payable to the deceased Participant under
this Plan shall be made to the Participant's estate. If a
beneficiary designated by the Participant to receive his
benefits shall survive the Participant but die before
receiving all distributions hereunder, the balance thereof
shall be paid to such deceased beneficiary's estate, unless
the deceased beneficiary designation provides otherwise.
8.2 The Company shall deduct from the distributions to be made to
a Participant or his designated beneficiary or beneficiaries
under this Plan any federal, state or local withholding or
other taxes or charges which the Company is from time to time
required to deduct under applicable law and all amounts
distributable under this Plan are stated herein before any
such deductions. The Company may rely on a written opinion
from its legal counsel regarding any questions which may arise
in connection with any such deductions.
9. RIGHTS, PRIVILEGES AND DUTIES OF PARTICIPATION
----------------------------------------------
9.1 No participant or other person shall have any interest in any
fund or in any specific asset or assets of the Company and its
Subsidiaries by reason of being a Participant under this Plan
nor any right to receive any distributions under the Plan
except as and to the extent expressly provided in the Plan.
9.2 The Company shall have the right, but shall be under no
obligation, to segregate cash to fund bonuses payable under
the Plan. However, any such segregated amounts shall at all
times remain Company assets, subject to the claims of its
creditors.
9.3 Each Participant shall be entitled to receive a current copy
of the Plan upon his designation as a Participant if a written
request for a copy of the Plan is provided to the Chief
Financial Officer. Thereafter, as long as he remains a
Participant, he shall be entitled to receive copies of any
amendments to the Plan within sixty (60) days after their
adoption.
9.4 The designation of any employee as a Participant under this
Plan shall not be construed as conferring upon such employee
any right to remain in the employ of the Company and each such
Participant shall remain an employee at will. The right of the
Company to discipline or discharge an employee shall not be
affected in any manner by reason of such employee's
designation as a Participant under this Plan.
<PAGE> 7
9.5 To the extent permitted by law, the right of any Participant
or any beneficiary to receive any payment hereunder shall not
be subject to alienation, transfer, sale, assignment, pledge,
attachment, garnishment or encumbrance of any kind. Any
attempt to alienate, transfer, sell, assign, pledge or
otherwise encumber any such payment whether presently or
thereafter payable, shall be void. Any payment due hereunder
shall not in any manner be subject to any debts or liabilities
of any Participant or his beneficiary.
<PAGE> 8
APPENDIX I
PROJECT SOFTWARE & DEVELOPMENT, INC.
EXECUTIVE BONUS PLAN
<TABLE>
ELIGIBLE PARTICIPANTS
<CAPTION>
On-target Bonus
as a % of On-target
Base Salary Base Salary Bonus
----------- ----------- -----
<S> <C> <C> <C>
CEO (Estimate) $250,000 100% $250,000
Paul Birch 168,000 75% 126,000
William Sawyer 150,000 50% 75,000
Jack Young 140,000 50% 70,000
</TABLE>
<PAGE> 9
APPENDIX II
PROJECT SOFTWARE & DEVELOPMENT, INC.
EXECUTIVE BONUS PLAN
ON-TARGET CUMULATIVE EARNINGS
Q1 FY1997 Year to Date $ 5,400,000
Q2 FY1997 Year to Date $11,300,000
Q3 FY1997 Year to Date $17,850,000
Q4 FY1997 Year to Date $25,250,000
-----------
FY1997 Total Year to Date $25,250,000
===========
The on-target earnings established for each plan quarter and the year for
any year will not be less than 125% of the actual earnings in the
corresponding period of the prior year.
<PAGE> 1
Exhibit 10.2
PROJECT SOFTWARE & DEVELOPMENT, INC.
1994 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
-------------------------------------------------
SECTION 1. PURPOSE
This Amended and Restated 1994 Incentive and Nonqualified Stock Option Plan
(the "Plan") of Project Software & Development, Inc. (the "Company"), is
designed to provide additional incentive to executives and other key employees
of the Company, and any parent or subsidiary of the Company, and to certain
other individuals providing services to or acting as directors of the Company or
any such parent or subsidiary. The Company intends that this purpose will be
effected by the granting of incentive stock options ("Incentive Stock Options")
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and nonqualified stock options ("Nonqualified Options") under the Plan
which afford such executives, key employees or other individuals an opportunity
to acquire or increase their proprietary interest in the Company through the
acquisition of shares of its Common Stock. The Company intends that Incentive
Stock Options issued under the Plan will qualify as "incentive stock options" as
defined in Section 422 of the Code and the terms of the Plan shall be
interpreted in accordance with this intention. As used in the Plan the terms
"parent" and "subsidiary" shall have the respective meanings set forth in
Section 424 of the Code.
<PAGE> 2
SECTION 2. ADMINISTRATION
2.1 THE COMMITTEE. The Plan shall be administered by a Committee (the
"Committee") consisting of at least two "Outside Directors." As used herein, the
term "Outside Director" means any director of the Company who (i) is not an
employee of the Company or of an "affiliated group," as such term is defined in
Section 1504(a) of the Code, which includes the Company (an "Affiliate"), (ii)
is not a former employee of the Company or any Affiliate who is receiving
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the Company's or any Affiliate's taxable year, (iii) has
not been an officer of the Company or any Affiliate and (iv) does not receive
remuneration from the Company or any Affiliate, either directly or indirectly,
in any capacity other than as a director. None of the members of the Committee
shall be an officer or other employee of the Company. It is the intention of the
Company that the Plan shall be administered by "disinterested persons" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, but the
authority and validity of any act taken or not taken by the Committee shall not
be affected if any person administering the Plan is not a disinterested person.
Except as specifically reserved to the Board of Directors of the Company (the
"Board") under the terms of the Plan, the Committee shall have full and final
authority to operate, manage and administer the Plan on behalf of the Company.
Action by the Committee shall require the affirmative vote of a majority of all
members thereof.
2.2 POWERS OF THE COMMITTEE. Subject to the terms and conditions of the
Plan, the Committee shall have the power:
(a) To determine from time to time the persons eligible to receive
options and the
-2-
<PAGE> 3
options to be granted to such persons under the Plan and to prescribe the
terms, conditions, restrictions, if any, and provisions (which need not be
identical) of each option granted under the Plan to such persons;
(b) To construe and interpret the Plan and options granted thereunder
and to establish, amend, and revoke rules and regulations for
administration of the Plan. In this connection, the Committee may correct
any defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any option agreement, in the manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective. All decisions
and determinations by the Committee in the exercise of this power shall be
final and binding upon the Company and optionees;
(c) To make, in its sole discretion, changes to any outstanding option
granted under the Plan, including:
(i) to reduce the exercise price, (ii) to accelerate the vesting schedule
or (iii) to extend the expiration date; and
(d) Generally, to exercise such powers and to perform such acts as are
deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
-3-
<PAGE> 4
SECTION 3. STOCK
3.1 STOCK TO BE ISSUED. The stock subject to the options granted under the
Plan shall be shares of the Company's authorized but unissued common stock, $.01
par value (the "Common Stock"), or shares of the Company's Common Stock held in
treasury. The total number of shares that may be issued pursuant to options
granted under the Plan shall not exceed an aggregate of 1,800,000 shares of
Common Stock; provided, however, that the class and aggregate number of shares
which may be subject to options granted under the Plan shall be subject to
adjustment as provided in Section 8 hereof.
3.2 EXPIRATION, CANCELLATION OR TERMINATION OF OPTION. Whenever any
outstanding option under the Plan expires, is cancelled or is otherwise
terminated (other than by exercise), the shares of Common Stock allocable to the
unexercised portion of such option may again be the subject of options under the
Plan.
3.3 LIMITATION ON GRANTS. In no event may any Plan participant be granted
options with respect to more than 150,000 shares of Common Stock in any calendar
year. The number of shares of Common Stock issuable pursuant to an option
granted to a Plan participant in a calendar year that is subsequently forfeited,
cancelled or otherwise terminated shall continue to count toward the foregoing
limitation in such calendar year. In addition, if the exercise price of an
option is subsequently reduced, the transaction shall be deemed a cancellation
of the original option and the grant of a new one so that both transactions
shall count toward the maximum shares issuable in the calendar year of each
respective transaction.
SECTION 4. ELIGIBILITY
-4-
<PAGE> 5
4.1 PERSONS ELIGIBLE. Incentive Stock Options under the Plan may be
granted only to officers and other employees of the Company or any parent or
subsidiary of the Company. Nonqualified Options may be granted to officers or
other employees of the Company or any parent or subsidiary of the Company, and
to members of the Board and consultants or other persons who render services to
the Company or any such parent or subsidiary (regardless of whether they are
also employees), provided, however, that options may be granted to members of
the Board who are not employees of the Company or any such parent or subsidiary
("Outside Directors") only as provided in Section 4.4.
4.2 GREATER-THAN-TEN-PERCENT STOCKHOLDERS. Except as may otherwise be
permitted by the Code or other applicable law or regulation, no Incentive Stock
Option shall be granted to an individual who, at the time the option is granted,
owns (including ownership attributed pursuant to Section 425 of the Code) more
than ten percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary (a "greater-than-ten-percent
stockholder"), unless such Incentive Stock Option provides that (i) the purchase
price per share shall not be less than one hundred ten percent of the fair
market value of the Common Stock at the time such option is granted, and (ii)
that such option shall not be exercisable to any extent after the expiration of
five years from the date it is granted.
4.3 MAXIMUM AGGREGATE FAIR MARKET VALUE. The aggregate fair market value
(determined at the time the option is granted) of the Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by any
optionee during any calendar year (under the Plan and any other plans of the
Company or any parent or subsidiary for the issuance of incentive stock options)
shall not exceed $100,000 (or such greater amount as may
-5-
<PAGE> 6
from time to time be permitted with respect to incentive stock options by the
Code or any other applicable law or regulation).
4.4 OPTION GRANTS TO OUTSIDE DIRECTORS.
(a) GRANT OF OPTIONS UPON ELECTION TO BOARD. Each Outside Director
joining the Board at or subsequent to the meeting of the Company's stockholders
at which this Section 4.4(a) in this form is approved (the "Approval Meeting")
shall automatically be granted, upon such Outside Director so joining the Board,
an initial Nonqualified Option to purchase 12,000 shares of Common Stock. Such
Nonqualified Option shall vest and become exercisable in three equal annual
installments cumulatively beginning on the first anniversary of the date the
option was granted.
(b) GRANT OF OPTIONS UPON RE-ELECTION TO BOARD OR CONTINUATION ON THE
BOARD. Each Outside Director who is re-elected by the stockholders of the
Company to the Board at or subsequent to the Approval Meeting shall
automatically be granted, immediately following the meeting of stockholders at
which such Outside Director is re-elected, a Nonqualified Option to purchase
4,000 shares of Common Stock. In addition, each Outside Director whose term of
office does not expire at any annual meeting of stockholders or special meeting
in lieu thereof subsequent to the Approval Meeting and who shall remain an
Outside Director after such meeting shall automatically be granted, immediately
following such meeting, a Nonqualified Option to purchase 4,000 shares of Common
Stock. Each Nonqualified Option described in this Section 4.4(b) shall vest and
become exercisable in full on the last day of December in the year in which the
Nonqualified Option was granted.
-6-
<PAGE> 7
(c) PURCHASE PRICE. The purchase price per share of Common Stock under
each Nonqualified Option granted pursuant to this Section 4.4 shall be equal to
the fair market value of the Common Stock on the date the Nonqualified Option is
granted, such fair market value to be determined in accordance with the
provisions of Section 6.3(b).
(d) EXPIRATION. Each Nonqualified Option granted to an Outside
Director under this Section 4.4 shall expire on the fifth anniversary of the
date of grant.
SECTION 5. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE
5.1 TERMINATION OF EMPLOYMENT. Except as may be otherwise expressly
provided herein, options shall terminate on the earlier of:
(a) the date of expiration thereof;
(b) immediately upon the termination of the optionee's employment with
or performance of services for the Company (or any parent or subsidiary of
the Company) by the Company (or any such parent or subsidiary) for cause
(as determined by the Company or such parent or subsidiary); or
(c) thirty days after the date of termination of the optionee's
employment with or performance of services for the Company (or any parent
or subsidiary of the Company) by the Company (or any such parent or
subsidiary) without cause or voluntarily by the optionee; PROVIDED,
HOWEVER, that Nonqualified Options granted to persons who are not employees
of the Company (or any parent or subsidiary of the Company) need not,
unless the Committee determines otherwise, be subject to the provisions set
forth in clauses (b) and (c) above.
An employment relationship between the Company (or any parent or subsidiary
of the
-7-
<PAGE> 8
Company) and the optionee shall be deemed to exist during any period in which
the optionee is employed by the Company (or any such parent or subsidiary).
Whether authorized leave of absence, or absence on military or government
service, shall constitute termination of the employment relationship between the
Company (or any parent or subsidiary of the Company) and the optionee shall be
determined by the Committee at the time thereof.
As used herein, "cause" shall mean (x) any material breach by the optionee
of any agreement to which the optionee and the Company (or any parent or
subsidiary of the Company) are both parties, (y) any act or omission to act by
the optionee which may have a material and adverse effect on the business of the
Company (or any such parent or subsidiary) or on the optionee's ability to
perform services for the Company (or any such parent or subsidiary), including,
without limitation, the commission of any crime (other than ordinary traffic
violations), or (z) any material misconduct or material neglect of duties by the
optionee in connection with the business or affairs of the Company (or any such
parent or subsidiary) or any affiliate of the Company (or any such parent or
subsidiary).
5.2 DEATH OR RETIREMENT OF OPTIONEE. In the event of the death of the
holder of an option that is subject to clause (b) or (c) of Section 5.1 above
prior to termination of the optionee's employment with or performance of
services for the Company (or any parent or subsidiary of the Company) and before
the date of expiration of such option, such option shall terminate on the
earlier of such date of expiration or one year following the date of such death.
After the death of the optionee, his executors, administrators or any person or
persons to whom his option may be transferred by will or by the laws of descent
and distribution, shall have the right, at any time prior to such termination,
to exercise the option to the extent the optionee was
-8-
<PAGE> 9
entitled to exercise such option at the time of his death.
If, before the date of the expiration of an option that is subject to
clause (b) or (c) of Section 5.1 above, the optionee shall be retired in good
standing from the Company for reasons of age or disability under the then
established rules of the Company, the option shall terminate on the earlier of
such date of expiration or ninety (90) days after the date of such retirement.
In the event of such retirement, the optionee shall have the right prior to the
termination of such option to exercise the option to the extent to which he was
entitled to exercise such option immediately prior to such retirement.
SECTION 6. TERMS OF THE OPTION AGREEMENTS
Each option agreement shall be in writing and shall contain such terms,
conditions, restrictions, if any, and provisions as the Committee shall from
time to time deem appropriate. Such provisions or conditions may include,
without limitation, restrictions on transfer, repurchase rights, or such other
provisions as shall be determined by the Committee; PROVIDED, HOWEVER, THAT such
additional provisions shall not be inconsistent with any other term or condition
of the Plan and such additional provisions shall not cause any Incentive Stock
Option granted under the Plan to fail to qualify as an incentive option within
the meaning of Section 422 of the Code. The shares of stock issuable upon
exercise of an option by any executive officer, director or beneficial owner of
more than ten percent of the Common Stock of the Company may not be sold or
transferred (except that such shares may be issued upon exercise of such option)
by such officer, director or beneficial owner for a period of six months
following the grant of such option.
-9-
<PAGE> 10
Option agreements need not be identical, but each option agreement by
appropriate language shall include the substance of all of the following
provisions:
6.1 EXPIRATION OF OPTION. Notwithstanding any other provision of the Plan
or of any option agreement, each option shall expire on the date specified in
the option agreement, which date shall not, in the case of an Incentive Stock
Option, be later than the tenth anniversary (fifth anniversary in the case of a
greater-than-ten-percent stockholder) of the date on which the option was
granted or as specified in Section 5 of this Plan.
6.2 EXERCISE. Each option may be exercised, so long as it is valid and
outstanding, from time to time in part or as a whole, subject to any limitations
with respect to the number of shares for which the option may be exercised at a
particular time and to such other conditions as the Committee in its discretion
may specify upon granting the option.
6.3 PURCHASE PRICE. The purchase price per share under each option shall
be determined by the Committee at the time the option is granted; provided,
however, that the option price of any Incentive Stock Option shall not, unless
otherwise permitted by the Code or other applicable law or regulation, be less
than the fair market value of the Common Stock on the date the option is granted
(110% of the fair market value in the case of a greater-than-ten-percent
stockholder) and the option price of any Nonqualified Option shall not be less
than 85% of the fair market value of the Common Stock on the date the option is
granted. For the purpose of the Plan the fair market value of the Common Stock
shall be (i) in the case of the Nonqualified Options granted to Outside
Directors in connection with the Company's initial public offering, the initial
public offering price and (ii) in all other cases, the closing price per share
on the date of grant of the option as reported by a nationally recognized stock
exchange, or, if the Common
-10-
<PAGE> 11
Stock is not listed on such an exchange, as reported by the National Association
of Securities Dealers Automated Quotation System ("Nasdaq") National Market
System or, if the Common Stock is not listed on the Nasdaq National Market
System, the mean of the bid and asked prices per share on the date of grant of
the option or, if the Common Stock is not traded over-the-counter, the fair
market value as determined by the Committee.
6.4 TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the
optionee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during his lifetime, only by the optionee.
6.5 RIGHTS OF OPTIONEES. No optionee shall be deemed for any purpose to be
the owner of any shares of Common Stock subject to any option unless and until
the option shall have been exercised pursuant to the terms thereof, and the
Company shall have issued and delivered certificates representing such shares to
the optionee.
6.6 CERTAIN RIGHTS OF THE COMPANY. The Committee may in its discretion
provide upon the grant of any option hereunder that the Company shall have an
option to repurchase upon such terms and conditions as determined by the
Committee all or any number of shares purchased upon exercise of such option or
a right of first refusal in connection with subsequent transfer of any or all of
such shares. The repurchase price per share payable by the Company shall be such
amount or be determined by such formula as is fixed by the Committee at the time
the option for the shares subject to repurchase is granted. In the event the
Committee shall grant options subject to the Company's repurchase option or
right of first refusal, the certificates representing the shares purchased
pursuant to such option shall carry a legend satisfactory to counsel for the
Company referring to the Company's repurchase option or right of first refusal.
-11-
<PAGE> 12
6.7 "LOCKUP" AGREEMENT. The Committee may in its discretion specify upon
granting an option that upon request of the Company or the underwriters managing
any underwritten offering of the Company's securities, the optionee shall agree
in writing that for a period of time (not to exceed 180 days) from the effective
date of any registration of securities of the Company, the optionee will not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any shares issued pursuant to the exercise of such option,
without the prior written consent of the Company or such underwriters, as the
case may be.
SECTION 7. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
7.1 METHOD OF EXERCISE. Any option granted under the Plan may be exercised
by the optionee by delivering to the Company on any business day a written
notice specifying the number of shares of Common Stock the optionee then desires
to purchase and specifying the address to which the certificates for such shares
are to be mailed (the "Notice"), accompanied by payment for such shares.
7.2 PAYMENT OF PURCHASE PRICE. Payment for the shares of Common Stock
purchased pursuant to the exercise of an option shall be made either by (i) cash
or check equal to the option price for the number of shares specified in the
Notice, or (ii) with the consent of the Committee, other shares of Common Stock
which (a) either have been owned by the optionee for more than six (6) months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (b) have a fair market value on the date of surrender not greater
than the aggregate option price of the shares as to which such option shall be
exercised, (iii) with the consent of the Committee, delivery of such
documentation as the Committee and the broker, if applicable, shall
-12-
<PAGE> 13
require to effect an exercise of the option and delivery to the Company of the
sale or loan proceeds required to pay the option price, (iv) with the consent of
the Committee, such other consideration which is acceptable to the Committee and
which has a fair market value equal to the option price of such shares, or (v)
with the consent of the Committee, a combination of (i), (ii), (iii), (iv)
and/or (v). For the purpose of the preceding sentence, the fair market value per
share of Common Stock so delivered to the Company shall be determined in the
manner specified in Section 6.3. As promptly as practicable after receipt of the
Notice and accompanying payment, the Company shall deliver to the optionee
certificates for the number of shares with respect to which such option has been
so exercised, issued in the optionee's name; provided, however, that such
delivery shall be deemed effected for all purposes when the Company or a stock
transfer agent of the Company shall have deposited such certificates in the
United States mail, addressed to the optionee, at the address specified in the
Notice.
SECTION 8. CHANGES IN COMPANY'S CAPITAL STRUCTURE
8.1 RIGHTS OF COMPANY. The existence of outstanding options shall not
affect in any way the right or power of the Company or its stockholders to make
or authorize, without limitation, any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of Common
Stock, or any issue of bonds, debentures, preferred or prior preference stock or
other capital stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
-13-
<PAGE> 14
8.2 RECAPITALIZATIONS, STOCK SPLITS AND DIVIDENDS. If the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the Common Stock outstanding, in any such case without receiving
compensation therefor in money, services or property, then (i) the number,
class, and price per share of shares of stock subject to outstanding options
hereunder shall be appropriately adjusted in such a manner as to entitle an
optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment had he exercised his
option in full immediately prior to such event; (ii) the number and class of
shares with respect to which options may be granted under the Plan; and (iii)
the number and class of shares set forth in Sections 3.3 and 4.4 shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved for issuance under the Plan that number and class of shares of stock
that the owner of an equal number of outstanding shares of Common Stock
immediately prior to the event requiring adjustment would own as the result of
such event.
8.3 MERGER WITHOUT CHANGE OF CONTROL. After a merger of one or more
corporations with or into the Company or after a consolidation of the Company
and one or more corporations in which the stockholders of the Company
immediately prior to such merger or consolidation own after such merger or
consolidation shares representing at least fifty percent (50%) of the voting
power of the Company or the surviving or resulting corporation, as the case may
be, each holder of an outstanding option shall, at no additional cost, be
entitled upon exercise of such option to receive in lieu of the shares of Common
Stock as to which such option was exercisable
-14-
<PAGE> 15
immediately prior to such event, the number and class of shares of stock or
other securities, cash or property (including, without limitation, shares of
stock or other securities of another corporation or Common Stock) to which such
holder would have been entitled pursuant to the terms of the agreement of merger
or consolidation if, immediately prior to such merger or consolidation, such
holder had been the holder of record of a number of shares of Common Stock equal
to the number of shares for which such option shall be so exercised.
8.4 SALE OR MERGER WITH CHANGE OF CONTROL. If the Company is merged with
or into or consolidated with another corporation under circumstances where the
stockholders of the Company immediately prior to such merger or consolidation do
not own after such merger or consolidation shares representing at least fifty
percent of the voting power of the Company or the surviving or resulting
corporation, as the case may be, or if the Company is liquidated, or sells or
otherwise disposes of substantially all of its assets to another corporation
while unexercised options remain outstanding under the Plan, (i) subject to the
provisions of clause (iii) below, after the effective date of such merger,
consolidation, liquidation, sale or disposition, as the case may be, each holder
of an outstanding option shall be entitled, upon exercise of such option, to
receive, in lieu of the shares of Common Stock as to which such option was
exercisable immediately prior to such event, the number and class of shares of
stock or other securities, cash or property (including, without limitation,
shares of stock or other securities of another corporation or common stock) to
which such holder would have been entitled pursuant to the terms of the merger,
consolidation, liquidation, sale or disposition if, immediately prior to such
event, such holder had been the holder of a number of shares of Common Stock
equal to the number of shares as to which such option shall be so exercised;
(ii) the Committee may
-15-
<PAGE> 16
accelerate the time for exercise of some or all unexercised and unexpired
options so that from and after a date prior to the effective date of such
merger, consolidation, liquidation, sale or disposition, as the case may be,
specified by the Committee such accelerated options shall be exercisable in
full; or (iii) all outstanding options may be cancelled by the Committee as of
the effective date of any such merger, consolidation, liquidation, sale or
disposition provided that (x) notice of such cancellation shall be given to each
holder of an option and (y) each holder of an option shall have the right to
exercise such option to the extent that the same is then exercisable or, if the
Committee shall have accelerated the time for exercise of all unexercised and
unexpired options, in full during the 10-day period preceding the effective date
of such merger, consolidation, liquidation, sale or disposition.
8.5 ADJUSTMENTS TO COMMON STOCK SUBJECT TO OPTIONS. Except as hereinbefore
expressly provided, the issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to outstanding options.
8.6 MISCELLANEOUS. Adjustments under this Section 8 shall be determined by
the Committee, and such determinations shall be conclusive. No fractional shares
of Common Stock shall be issued under the Plan on account of any adjustment
specified above.
SECTION 9. GENERAL RESTRICTIONS
-16-
<PAGE> 17
9.1 INVESTMENT REPRESENTATIONS. The Company may require any person to whom
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option for his own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws.
9.2 COMPLIANCE WITH SECURITIES LAWS. The Company shall not be required to
sell or issue any shares under any option if the issuance of such shares shall
constitute a violation by the optionee or by the Company of any provision of any
law or regulation of any governmental authority. In addition, in connection with
the Securities Act of 1933, as now in effect or hereafter amended (the "Act"),
upon exercise of any option, the Company shall not be required to issue such
shares unless the Committee has received evidence satisfactory to it to the
effect that the holder of such option will not transfer such shares except
pursuant to a registration statement in effect under such Act or unless an
opinion of counsel satisfactory to the Company has been received by the Company
to the effect that such registration is not required. Any determination in this
connection by the Committee shall be final, binding and conclusive. In the event
the shares issuable on exercise of an option are not registered under the Act,
the Company may imprint upon any certificate representing shares so issued the
following legend or any other legend which counsel for the Company considers
necessary or advisable to comply with the Act and with applicable state
securities laws:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
-17-
<PAGE> 18
laws of any State and may not be pledged, hypothecated, sold or
otherwise transferred except upon such registration or upon receipt by
the Corporation of an opinion of counsel satisfactory to the
Corporation, in form and substance satisfactory to the Corporation,
that registration is not required for such sale or transfer.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act; and in the event any shares are
so registered the Company may remove any legend on certificates representing
such shares. The Company shall not be obligated to take any other affirmative
action in order to cause the exercise of an option or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority.
9.3 EMPLOYMENT OBLIGATION. The granting of any option shall not impose
upon the Company (or any parent or subsidiary of the Company) any obligation to
employ or continue to employ any optionee; and the right of the Company (or any
such parent or subsidiary) to terminate the employment of any officer or other
employee shall not be diminished or affected by reason of the fact that an
option has been granted to him/her.
9.4 WITHHOLDING TAX. Whenever under the Plan shares of Common Stock are to
be delivered upon exercise of an option, the Company shall be entitled to
require as a condition of delivery that the optionee remit an amount sufficient
to satisfy all federal, state and other governmental withholding tax
requirements related thereto.
SECTION 10. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may modify, revise or terminate this Plan at any
time and from time to time, except that (i) the class of persons eligible to
receive options and the aggregate number
-18-
<PAGE> 19
of shares issuable pursuant to this Plan shall not be changed or increased,
other than by operation of Section 8 hereof, without the consent of the
stockholders of the Company and (ii) the provisions of Section 4.4 shall not be
amended more than once every six (6) months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act of 1974, or the rules
thereunder.
SECTION 11. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases.
SECTION 12. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective upon its adoption by the Board of
Directors. No option may be granted under the Plan after the tenth anniversary
of the effective date. The Plan shall terminate (i) when the total amount of
Common Stock with respect to which options may be granted shall have been issued
upon the exercise of options or (ii) by action of the Board of Directors
pursuant to Section 10 hereof, whichever shall first occur.
* * * * * * * *
-19-
<PAGE> 1
EXHIBIT 11.1
PROJECT SOFTWARE & DEVELOPMENT, INC.
<TABLE>
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Type of Security
----------------
Primary Fully Diluted
------- -------------
<S> <C> <C>
COMPANY, FOR THE THREE MONTHS ENDED DECEMBER 31,
1996:
Weighted average common shares outstanding . . . . . . . . 9,708,322 9,708,322
Common stock equivalents . . . . . . . . . . . . . . . . . 419,564 455,669
----------- -----------
10,127,886 10,163,991
Historical net income . . . . . . . . . . . . . . . . . . . . . $ 3,528,827 $ 3,528,827
Historical net income per share . . . . . . . . . . . . . . . . 0.35 0.35
COMPANY, FOR THE THREE MONTHS ENDED DECEMBER 31, 1995:
Weighted average common shares outstanding . . . . . . . . . 9,567,757 9,567,757
Common stock equivalents. . . . . . . . . . . . . . . . . . . 481,144 518,850
----------- -----------
10,048,901 10,086,607
Historical net income . . . . . . . . . . . . . . . . . . . . . $ 2,127,452 $ 2,127,452
Historical net income per share . . . . . . . . . . . . . . . . $ 0.21 $ 0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000920354
<NAME> PSDI
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 10,083
<SECURITIES> 36,634
<RECEIVABLES> 29,787
<ALLOWANCES> 2,584
<INVENTORY> 0
<CURRENT-ASSETS> 76,948
<PP&E> 15,767
<DEPRECIATION> 10,673
<TOTAL-ASSETS> 85,183
<CURRENT-LIABILITIES> 20,667
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 63,978
<TOTAL-LIABILITY-AND-EQUITY> 85,183
<SALES> 13,673
<TOTAL-REVENUES> 23,379
<CGS> 633
<TOTAL-COSTS> 5,921
<OTHER-EXPENSES> 12,352
<LOSS-PROVISION> 595
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 5,623
<INCOME-TAX> 2,094
<INCOME-CONTINUING> 3,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,529
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
