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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-26000
DATALOGIX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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NEW YORK 13-3132256
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
100 SUMMIT LAKE DRIVE, VALHALLA, NY 10595
(Address of principal executive office) (Zip Code)
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Registrant's telephone number, including area code: (914) 747-2900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on September 19, 1996, was approximately
$55,830,000, based upon the closing price of such stock on that date. Shares of
Common Stock held by each officer, director, and holder of 5% or more of the
outstanding Common Stock on that date have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of September 19, 1996, there were 11,711,777 shares of Common Stock of the
registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part III of Form 10-K is incorporated by
reference from the registrant's proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after the close of the
registrant's fiscal year ended June 30, 1996.
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DATALOGIX INTERNATIONAL INC.
1996 FORM 10-K
TABLE OF CONTENTS
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PART I................................................................................. 2
Item 1. BUSINESS.............................................................. 2
Item 2. PROPERTIES............................................................ 17
Item 3. LEGAL PROCEEDINGS..................................................... 17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 17
PART II................................................................................ 18
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS............................................................... 18
Item 6. SELECTED FINANCIAL DATA............................................... 19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................. 20
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................... 29
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................. 29
PART III............................................................................... 30
Item 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT................... 30
Item 11. EXECUTIVE COMPENSATION............................................... 30
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....... 30
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................... 30
PART IV................................................................................ 31
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...... 31
SIGNATURE PAGE......................................................................... 35
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE...................... S-1
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS......................................... S-2
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FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE ANTICIPATED BY SUCH STATEMENTS. SUCH RISKS AND UNCERTAINTIES,
INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS ASSOCIATED WITH: THE COMPANY'S
RELIANCE UPON ORACLE AND OTHER STRATEGIC PARTNERS, THE EXTENT OF MARKET
ACCEPTANCE OF THE COMPANY'S PRODUCTS, THE IMPACT OF COMPETITIVE PRODUCTS AND
PRICING, COMPETITION FROM LARGER ENTITIES SUCH AS SAP AG ("SAP"), THE NEED TO
CONTINUOUSLY ENHANCE AND UPGRADE COMPANY PRODUCTS, THE LIKELIHOOD THAT THE
INCREASED COMPLEXITY OF THE COMPANY'S SYSTEMS WILL RESULT IN DIFFICULTIES IN
RESOLVING PRODUCT DEFECTS AND SOFTWARE BUGS, SALES IN INTERNATIONAL MARKETS AND
RELATED RISKS, AND WARRANTY OBLIGATIONS. ALSO, THERE CAN BE NO ASSURANCE THAT
THE ANNOUNCED MERGER WITH ORACLE WILL BE CONSUMMATED. THESE RISKS ARE ELABORATED
IN GREATER DETAIL IN THE "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" SECTIONS OF THIS ANNUAL REPORT.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE HEREOF. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING
STATEMENTS, TO REFLECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE
HEREOF.
PART I
ITEM 1. BUSINESS
Datalogix International Inc. ("Datalogix" or the "Company") is a leading
provider of open, client/ server software solutions for managing the
manufacturing, logistics and financial operations of process manufacturing
companies worldwide. The Company provides two comprehensive software solutions,
GEMMS and CIMPRO, which perform mission-critical functions for process
manufacturing companies. GEMMS (Global Enterprise Manufacturing Management
System) and CIMPRO (Computer Integrated Manufacturing for PROcess) each consists
of a series of integrated applications modules that can be combined to meet
customer-specific needs. These modules include, among others, Formula
Management, Production Management, Production Scheduling, Inventory Management,
Product Costing, Laboratory Management, Regulatory Management and financial
management applications. The Company also provides a broad range of client
services including implementation and consulting services, education, training
and customer support. The Company's products are used by over 350 customers
worldwide that manufacture consumer packaged goods (food, beverage, health and
beauty aids) and industrial products (chemical, pharmaceutical and petroleum),
including many of the world's most successful process manufacturing companies.
Customers include Aluminum Company of America, Allied Signal Inc., The B.F.
Goodrich Company, The Boots Company PLC, Bostik, Inc., Darigold, Inc., General
Electric Company, H.J. Heinz Company, Land O'Lakes, Inc., Revlon Consumer
Products Corporation, Platres Lafarge, PPG Industries, Inc. and Sara Lee
Corporation.
RECENT DEVELOPMENTS
MERGER AGREEMENT WITH ORACLE. On September 24, 1996, the Company executed
an Agreement and Plan of Merger (the "Merger Agreement") with Oracle
Corporation, a Delaware corporation ("Oracle"), pursuant to which a wholly owned
subsidiary of Oracle (the "Acquisition Subsidiary") will be merged with and into
the Company (the "Merger"). Pursuant to the Merger Agreement, Oracle, which
currently owns 13.4 percent of the outstanding shares of the Company's common
stock, will purchase all of the remaining issued and outstanding shares,
excluding treasury stock, for $8.00 per share, or an aggregate of approximately
$81 million. Each such share of common stock (and associated preferred stock
purchase rights) will be converted into the right to receive $8.00 per share
payable to the holder thereof, without interest. The parties have agreed that
the structure of the Merger may be modified, at the election of Oracle, such
that in lieu of the Acquisition Subsidiary merging with and into the Company,
the Company may merge with
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and into the Acquisition Subsidiary, or such other structure provided for in the
Merger Agreement as Oracle may elect. Consummation of the Merger is subject to
certain closing conditions, including shareholder consent and regulatory
approval. The description of the Merger Agreement contained herein is qualified
in its entirely by reference to the Merger Agreement, which is incorporated
herein by reference as Exhibit 2.1.
In August 1996, the Company adopted a shareholder rights plan pursuant to
which preferred stock purchase rights were distributed as a dividend at a rate
of one right for each share of the Company's common stock. The Company adopted
the plan to protect shareholders against unsolicited attempts to acquire control
of the Company on terms that the Company's Board of Directors believes are
unfavorable or contrary to the best interests of all shareholders. The rights
are intended to enable all of the Company's shareholders to realize the
long-term value of their investment in the Company. The rights do not preclude a
takeover, but put on notice anyone seeking to acquire the Company to negotiate
with the Board prior to attempting a takeover. In connection with the execution
of the Merger Agreement on September 24, 1996, the Company amended the plan to
exclude the Merger from triggering the exerciseability of such rights.
CHANGES IN SENIOR MANAGEMENT. In July 1996, the employment of Richard C.
Giordanella, the Company's then Chief Executive Officer, was terminated. Upon
his departure, Raymond V. Sozzi, who had joined the Company as President and
Chief Operating Officer earlier that month, was appointed Acting Chief Executive
Officer. In September 1996, Richard J. Willemin joined the Company as its Chief
Financial Officer.
1996 FINANCIAL RESULTS. The Company's financial results for the fourth
quarter of fiscal 1996 include adjustments of approximately $5.9 million,
primarily representing increases to allowance for doubtful accounts and sales
returns and allowances, warranty reserves and other customer obligations. These
reserves and allowances were recorded following a review of all major customer
accounts that was conducted by new management during August 1996. Management has
no basis on which to allocate these costs to prior periods; as such, they have
been accounted for as changes in estimates in the fourth quarter of fiscal 1996.
The Company has also restated its financial operating results for the first and
second fiscal quarters of 1996. These financial operating results were restated
due to accounting irregularities which necessitated the elimination of a
reseller transaction that was subsequently determined not to be in accordance
with Company policies, to reverse a credit against royalties to Oracle and to
record as compensation certain expenses related to a former employee. As a
result of these restatements, the Company's Board of Directors has retained
outside counsel to conduct a review of the facts and circumstances surrounding
these matters and in addition the Company's business practices and procedures.
See Note 12 of notes to consolidated financial statements.
ANTICIPATED LOSS IN FIRST QUARTER FISCAL 1997. Various factors that
negatively impacted the fiscal 1996 financial results, as described in the
Overview section of the "Management's Discussion and Analysis of Financial
Condition and Results of Operations", are expected to continue to impact the
Company through at least the first half of fiscal 1997. In this connection, the
Company anticipates recording a loss of approximately $2.0 million in the first
quarter of fiscal 1997. A related tax benefit will not be recognized.
BACKGROUND
Manufacturers can be classified as either process or discrete. Process
manufacturers produce bulk solids, liquids or gases by processing volumes or
masses of materials, while discrete manufacturers, such as appliance and
aerospace companies, produce products by assembling individual components.
According to Dun & Bradstreet, as of June 1995, there were over 17,000 process
manufacturing sites worldwide with annual revenues in excess of $50 million
each, including more than 4,000 such sites in the United States. Typical process
manufacturing methods include chemical reactions, blending, combustion,
separation, refining, heating and cooling. Process manufacturers include food
and beverage, consumer packaged goods, chemical, pharmaceutical, metal, paper,
petroleum and building materials companies.
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Process and discrete manufacturers face different operating challenges.
Process manufacturers must produce consistent quality batches of product from
variable raw materials. They also must be able to alter the manufacturing
process for a particular product depending on the availability, price,
composition and quality of raw materials. Formula and production accuracy are
often critical in process manufacturing, particularly in the food and beverage
and pharmaceutical industries, since errors in product formulation or production
management can result in large volumes of unmarketable product. Process
manufacturers also must contend with increasing government regulations, such as
lot tracking requirements in the pharmaceutical industry, required disclosure of
nutritional content in foods and beverages, and restrictions on the disposal of
many process by-products. Process manufacturing typically requires expensive,
dedicated facilities and large capital investments. By contrast, discrete
manufacturers typically work with components or materials of more consistent
quality, can rework incorrectly produced goods, and use relatively predictable
manufacturing procedures including a single defined method of production for
each product. Discrete manufacturers tend to invest more in labor and inventory
and invest less in plant and equipment than process manufacturers.
In recent years, several business trends have affected manufacturers
worldwide. Increasing globalization of markets has resulted in greater
geographic diversity of supply and production facilities and has heightened
competition as more vendors offering more products are competing in new markets.
Manufacturers are under pressure to provide greater product diversity, reduce
costs, enhance quality, and improve customer delivery and response times. At the
same time, major customers have been shifting the burden of inventory management
to the manufacturers. In response to these trends, manufacturers have begun to
reengineer their businesses to streamline the manufacturing process and speed
decision-making. Manufacturers seek greater control over the entire supply chain
to minimize raw material inventories, ensure the timing of deliveries from
suppliers, reduce manufacturing cycle times, minimize finished goods
inventories, maximize the efficiency of warehousing and transportation systems
and provide superior response times to customers. Manufacturers are increasingly
using management information systems and real-time information as a means of
reducing labor and capital requirements.
The reengineering of business practices imposes significant demands on
management information systems. Manufacturers must be able to manage information
within global organizations and with vendors, customers and partners across the
supply chain, and to distribute that information and decision-making to the
plant or warehouse level. Most information systems in place today are inadequate
to meet these needs since they were designed for back office accounting
functions and internal tracking and reporting and are unable to manage the
entire manufacturing process from acquisition of raw materials through the
delivery of finished product. Moreover, they often fail to support
enterprise-wide management and distributed decision-making. For these reasons,
many manufacturers are implementing new management information systems.
Client/server systems are a critical enabling technology for reengineering
business processes. Client/ server systems permit information to be processed
across two or more hardware platforms. The client platform is typically a
personal computer which processes the user interface. The server platform
typically processes information from a relational database. Client/server
systems distribute data throughout an organization and enable real-time end-user
access to corporate data, facilitating the distribution of decision-making
authority to managers who are closer to the customer or the manufacturing
process. Open client/server systems can share common databases, business rules
and user interfaces across multiple systems, departments and even companies
(i.e., suppliers, distributors and customers). Client/server systems are also
easier than host-based systems to expand and modify.
Most manufacturing management software has been designed primarily for
discrete manufacturers and is functionally inadequate for process manufacturers.
The development of software for process manufacturers has been limited because
process manufacturing information requirements are more complex, and most
software vendors lack industry-specific expertise. Process manufacturing
companies often require information systems designed to manage different grades
of raw materials, multiple units of
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measure, lots and sublots, shelf life, by-products and co-products,
formula-based production, integrated quality control and lab testing, and
regulatory compliance. Software systems designed for discrete manufacturers
typically lack these capabilities. Although process manufacturers have sought to
adapt such software to their needs, this approach is often ineffective since
many of the special process capabilities usually cannot be added to discrete
manufacturing software, but instead must be built into its architecture.
Most of the relatively few vendors providing management software
specifically designed for process manufacturers historically have offered
software only for host-based systems. Host-based systems typically centralize
information processing on a mainframe or mid-range computer. Information is
accessed from terminals without processing or memory capability. Unlike
client/server systems, host-based systems lack the flexibility needed for
distributed applications. Moreover, the proprietary design of host-based systems
typically makes interaction with other systems difficult, and host-based systems
cannot easily provide real-time end-user access to critical decision-making
data. Consequently, such third party software is often technologically
inadequate to support distributed decision-making for process manufacturers.
As a result of the historical deficiencies of most third party software
solutions, many process manufacturers either have not implemented integrated
manufacturing information systems or have resorted to developing proprietary,
in-house solutions. Since the manufacturer bears the entire cost of developing
and maintaining a proprietary system, such solutions are often more expensive
than third party software. In addition, these proprietary systems typically
require large support staffs and are inflexible and difficult to maintain.
THE DATALOGIX SOLUTION
Datalogix is a leading provider of open, client/server software solutions
for managing the manufacturing, logistics and financial operations of process
manufacturing companies worldwide. Open systems software consists of
applications which may be operated with hardware, operating systems and
databases supplied by a variety of vendors. In 1983, the Company introduced
CIMPRO, the first open systems software solution specifically designed for
process manufacturers. The functionality and technology in CIMPRO has been
enhanced multiple times since the product's introduction in 1983. In 1992, the
Company introduced GEMMS, an open, client/server software solution utilizing
UNIX-based servers, relational databases and Windows-based clients. GEMMS was
the first open, client/server manufacturing solution for process manufacturers.
The Company's 13 years of experience in developing information systems for the
process industry has given it unique insight into the needs of process
manufacturers which is reflected in both the design of its products and the
quality of the services it provides to customers. Additionally, the Company
provides a full range of services to support its products including educational
training, implementation and maintenance support.
The Company's products have the following attributes:
PROCESS SPECIFIC FUNCTIONALITY. The Company's software incorporates
functions designed to meet the specific manufacturing, logistics, financial
and regulatory needs of process manufacturers that make consumer packaged
goods (food, beverage, health and beauty aids) and industrial products
(chemical, pharmaceutical and petroleum). The architecture of the Company's
software products has been designed to accommodate process-specific
requirements.
TARGETED SOLUTIONS. The Company's products meet the needs of the
process manufacturing industry, ranging from medium to large manufacturers.
CIMPRO is designed for mid-range process manufacturers. GEMMS serves large
multinational, multisite process manufacturers requiring an enterprise-wide
standard for their manufacturing operations. Both CIMPRO and GEMMS customers
may select among an extensive array of applications modules to meet their
specific needs.
INTEGRATION WITH EXISTING TECHNOLOGY. The Company's products use an
open architecture enabling customers to use various UNIX operating systems,
operate on multiple hardware platforms and
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interoperate with many third party software applications and legacy systems.
This open systems capability enables customers to continue using their
existing computing resources and to choose among a wide variety of emerging
technologies. Moreover, the portability and scalability of Datalogix'
software allows users to extend their systems to accommodate facility
expansions or acquisitions. Datalogix' strategic direction is to support
Microsoft's new NT operating system, with initial shipments of a Windows NT
version of CIMPRO distributed in the first quarter of fiscal 1997 and of a
Windows NT version of GEMMS which is scheduled to begin shipping certified
products in calendar year 1997.
ABILITY TO DEPLOY IN DISTRIBUTED COMPUTING ENVIRONMENTS. GEMMS' and
CIMPRO client/server architecture provides users with the flexibility to
distribute their processing requirements and data across multiple hardware,
software and database platforms--a critical consideration for
multidivisional companies that need to integrate diverse plant management
and corporate systems. This flexibility and compatibility permits users to
allocate computing and network resources in a manner consistent with the
structure of their businesses. The client/server architecture gives users at
the plant level access to the information and software tools that they need
to be more productive. This architecture also permits the customer to
maintain a common database to support both local and corporate requirements.
RAPID RETURN ON INVESTMENT. The Company's software products are
designed to be deployed relatively quickly and to achieve measurable cost
savings for customers. The Company believes this results in a rapid return
on investment for its customer. The efficiency of implementing the Company's
solutions results from the open systems architecture of its products and the
Company's extensive experience in developing information systems for the
process industry. The Company believes that its customers recognize cost
savings throughout the manufacturing process as a result of the elimination
of redundant systems and information, inventory reduction, increased
processing efficiency, improved quality control, global purchasing
capabilities and reduced product cycle times.
STRATEGY
The Company's objective is to be the leading provider of software solutions
for managing the manufacturing, logistics and financial operations of process
manufacturing companies worldwide. In pursuit of this objective, the Company has
adopted the following key strategies:
MAINTAIN FOCUS ON PROCESS MANUFACTURING. Datalogix intends to continue
to focus its resources on the development and enhancement of process
manufacturing software solutions. The Company believes that its early
leadership position and its expertise in process manufacturing provide
important competitive advantages.
EXPAND WORLDWIDE DISTRIBUTION. Datalogix plans to continue to expand
its sales and marketing organization both domestically and internationally.
The Company has also established and intends to continue expanding alternate
channels of distribution through reselling and joint marketing agreements
with vendors of complementary hardware and software and with systems
integrators. In particular, the Company has established a strategic alliance
with Oracle under which Oracle markets GEMMS internationally and
domestically. In addition, Datalogix has entered into a reseller agreement
with IBM for CIMPRO for the U.S. market.
LEVERAGE STRATEGIC RELATIONSHIPS. The Company has entered into
strategic alliances with major software and hardware vendors and leading
consulting firms and systems integrators. Such organizations not only
generate sales leads for the Company but also service customers the Company
might not otherwise be able to support. The Company's strategic alliances
also assist the Company in keeping pace with the technological developments
of major software and hardware vendors and, in certain instances, provide
the Company with product development services.
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EXPAND PRODUCT BREADTH AND FUNCTIONALITY. CIMPRO and GEMMS each feature
a broad line of applications modules. The Company intends to continue adding
new applications and to enhance existing applications, as well as to
increase functionality for specific categories of process manufacturers. New
releases of both GEMMS and CIMPRO occurred during fiscal 1996.
MAINTAIN TECHNOLOGY LEADERSHIP. Datalogix was the first company to
provide open systems software for process manufacturers and the first to
provide client/server software applications for process manufacturers. The
Company's products are designed to exploit advanced technologies, such as
client/server architectures, distributed relational databases, graphical
user interfaces, and application development tools. In addition, the
Company's products operate on multiple platforms and incorporate application
programming interfaces which permit them to interoperate with both
customers' legacy applications and third party applications such as bar code
data collection, electronic data interchange, and transportation management
systems. Datalogix intends to incorporate new technologies and standards as
they are embraced by its customers.
LEVERAGE EXISTING CUSTOMER BASE. The Company's products are used by
more than 350 process manufacturers worldwide. Datalogix seeks to expand its
customer relationships by providing additional product modules and services,
by licensing new sites and additional users and, where customers decide to
migrate to enterprise-wide systems, by upgrading customers from CIMPRO to
GEMMS. The Company believes that its installed customer base represents an
important source of references, which are vital in marketing
mission-critical applications such as the Company's products.
PROVIDE COMPREHENSIVE SOLUTIONS. The Company provides its customers
with comprehensive solutions that consist of software, implementation and
consulting services, education, training, and support to assist customers in
deriving maximum benefit from the Company's software. Providing
comprehensive solutions also offers the Company an opportunity to work more
closely with customers, both before and after implementation of its
software, to strengthen customer relationships, license additional products
and provide additional services.
TARGET "SUPPLY CHAIN" SOLUTIONS. The consumer packaged goods ("CPG")
marketplace, along with other process manufacturers, is placing more
emphasis on the management of the "supply chain". Supply chain management
involves optimizing the delivery of goods, services and information
throughout the entire manufacturing and distribution process, from the
supplier to the customer. Datalogix has long been committed to supply chain
management to enable process manufacturers to produce high quality products
and manage manufacturing costs. Datalogix intends to provide a complete
suite of CPG solutions to the process manufactures, in partnership with
Oracle and other best in class partners.
The Company has recently entered into a Merger Agreement with Oracle. See "
Recent Developments" above. If the Merger is consummated, the Company would
expect to continue many of these strategic approaches to the process
manufacturing industry.
PRODUCTS
Datalogix provides two comprehensive software solutions, CIMPRO and GEMMS,
for managing the manufacturing, logistics, and financial operations of process
manufacturing companies. CIMPRO and GEMMS are used by consumer packaged goods
(food, beverage, and health and beauty aids) and industrial products (chemical,
pharmaceutical and petroleum) process manufacturers. The license fee for a
typical CIMPRO installation generally ranges from $100,000 to $300,000, and the
license fee for a typical GEMMS installation generally ranges from $300,000 to
more than $1,000,000. The license fees for the Company's products vary depending
upon the number of users and the number and type of modules licensed.
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GEMMS is designed for large multinational process manufacturers seeking an
enterprise-wide standard. The general release of GEMMS occurred in October 1992
and the latest release (GEMMS Release 3.2) occurred in October 1995. GEMMS has
been licensed to over 100 process manufacturers. Implementation of GEMMS
generally requires between six and twelve months for the initial site and may
require several years for an enterprise-wide, multisite implementation. Most
customers will utilize GEMMS at multiple sites. GEMMS uses an open,
client/server architecture that gives process manufacturers the flexibility to
utilize several different hardware platforms. GEMMS operates on UNIX hardware
and related operating systems provided by the Hewlett-Packard Company (HP),
International Business Machines Corporation (IBM), Digital Equipment
Corporation, Data General Corporation, Unisys Corporation (UNISYS), Sequent
Computer Systems, Inc. (SEQUENT) and Sun Microsystems, Inc. GEMMS supports both
character and graphical user interfaces. The graphical user interface utilizes
Microsoft Corporation's Windows 3.1 operating system and a Windows NT version is
scheduled for release for calendar year 1997. The GEMMS modules are integrated
with Oracle's General Ledger, Payables and Receivables financial software
applications products, enabling customers to automate their financial functions.
CIMPRO is designed for mid-range process manufacturers. CIMPRO was
originally introduced in 1983 and has been licensed to over 250 process
companies. CIMPRO is written in a tool set that provides both fourth generation
and object language capability. CIMPRO operates on all major client/server
operating systems including NT, UNIX systems provided by Hewlett-Packard,
International Business Machines Corporation, Digital Equipment Corporation, Data
General Corporation, Unisys Corporation, Sun Microsystems Inc., and DEC VMS and
Open VMS Systems from Digital Equipment Corporation. The latest CIMPRO
enhancement also includes new graphical user interfaces utilizing Microsoft's
Visual Basic for Windows 3.1, Windows 95, and Windows NT. In September 1996,
CIMPRO became the first software that enables process manufacturers to exchange
critical supply-chain information over the World Wide Web. The Company believes
CIMPRO's new Web capability will give manufacturers a competitive advantage by
improving communication, accelerating sales, inventory and order delivery, and
providing state-of-the-art customer service. CIMPRO supports a proprietary
database as well as the Oracle relational database. CIMPRO is usually
implemented within six months and does not require customers to have a large
management information staff.
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CIMPRO and GEMMS consist of an extensive series of applications modules
listed below:
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MODULE FEATURES
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Laboratory Management Streamlines new product delivery and integrates the research and
development operation through computer simulation of ingredient
changes to recipes and formulas.
Formula Management Provides formulation management and control by automating the
creation of and changes to recipes and formulas. Provides
rules-based formula effectivities, formula types for planning,
costing, production and regulatory compliance. Supports routings,
by-products, scaling, process text, theoretical yields and version
control.
Production Management Automates production activities from scheduling and releasing
manufacturing orders through certifying completion. Supports
scaling, allocations, process text, flexible units of measure,
substitution, variances, scrap, rework, waste, yields, and
by-products.
Product Costing Supplies detailed costing formation and supports multiple costing
methods, enabling work-in-process costing, variance reporting,
resource costing and cost simulation.
Inventory Management Automates the tracking of raw materials, packaging supplies,
intermediate products and finished goods. Supports multiple units
of measure, quality attributes (such as shelf life and potency)
and complete lot traceability for perishable or controlled
products.
Quality Management Automates the creation and maintenance of product specifications,
related quality tests, and the results of such quality tests.
Provides the capability to track the quality attributes of
materials from the time of receipt through the shipment of
finished product.
Master Production Scheduling Integrates information from sales, production, purchasing and
inventory to determine the optimal manufacturing site and to
schedule production to meet customer demands. Supports
user-defined views, time fences, shop calendars and simulation.
Material Requirements Planning Determines the detailed material requirements necessary to meet
the master production schedule. Supports rule-driven action
messages, user-defined schedules and action message pegging.
Systems Controls security, application parameter, menu management and text
management. In addition, the GEMMS Systems module provides
multi-language support.
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MODULE FEATURES
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Purchasing Supports efficient procurement by coordinating both corporate and
plant level logistics. Expedites the generation of purchase orders
by maintaining the information needed to create corporate and
plant level purchase orders, receiving and analysis.
Sales Management Automates the complete processing of a customer order, including
order creation, pricing, credit checking, packing and shipping.
Provides the ability to determine order delivery dates based on
the availability of inventory.
Capacity Requirements Planning(1) Automates planning around capacity constraints to synchronize
operations and improve production flow. Provides drill-down view,
exception reporting and variable time frame systems and simulating
capabilities.
Process Operations Control Provides detailed tracking of actual yields, scrap and rework
information at each process step. Facilitates the integration with
process control hardware and software.
Regulatory Management Automates the creation and updating of material safety data
sheets, right-to-know labeling, Department of Transportation
shipping regulations and hazardous materials reporting.
Product Labeling(2) Automates the creation and updating of labels with both text and
graphical features (including bar codes, regulatory warning labels
and user-defined requirements).
Forecasting(3) Analyzes historical data to determine the most appropriate
forecast by utilizing algorithms which include seasonality and
weighted averages. Supports simulation, analysis and performance
reporting.
Manufacturing Accounting Controller(4) Automates the collection, validation, storage and transfer of
various transactions that have a financial impact. Provides
timely, comprehensive information by supporting flexible journals
and financial reporting, multiple currencies, multiple budgets and
on-line inquires.
CIMPRO Financials(5) Provides integrated accounting functionality including Accounts
Payable, Accounts Receivable and General Ledger. Provides timely,
comprehensive information by supporting flexible journals and
financial reporting, multiple currencies, multiple budgets and
on-line inquiries.
</TABLE>
- ------------------------
(1) The GEMMS Capacity Requirements Planning Module is licensed from i2
Technologies, Inc.
(2) This module is only available for CIMPRO. GEMMS can be interfaced with
popular third party labeling products.
(3) This module is only available for CIMPRO. The Company markets an interface
for GEMMS which enables the customer to utilize the forecasting features
offered by the Demand Planning software module of Manugistics Group, Inc.
(4) This module is only available for GEMMS.
(5) This module is only available for CIMPRO.
10
<PAGE>
The following chart lists Oracle financial management application products
that are integrated with GEMMS:
<TABLE>
<CAPTION>
MODULE FEATURES
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
Oracle General Ledger Provides financial analysis, flexible management reporting and
general ledger accounting that enables the customer to collect and
report financial information based on its unique needs. Supports
unlimited charts of accounts, customer-defined ledgers, budgeting
and automated journal entry.
Oracle Payables Automates payable and cash management functions. Supports multiple
currencies, flexible payment policies and cash requirements
analysis.
Oracle Receivables Automates the vendor's invoicing of customers and improves the
ability to collect payments in a timely fashion.
</TABLE>
The Company derived approximately 78% and 72% of its revenues in fiscal 1996
and 1995, respectively, from license fees for GEMMS and related services.
Revenues from GEMMS and related services are expected to continue to represent a
substantial portion of the Company's revenues in the future. Accordingly, the
Company's future operating results will depend, in large part, on achieving
broader market acceptance of GEMMS and related services, as well as on the
Company's ability to continue to adapt and modify GEMMS to meet the evolving
needs of its customers. Some GEMMS customers, primarily on earlier versions of
the software, experienced product deficiencies in a few key areas. These product
issues adversely affected customer references in some cases, a critical factor
in securing new sales. A number of customers are still in the process of
implementing GEMMS and, accordingly, unforeseen problems with GEMMS may still
occur. Any reduction in demand, price or sales of GEMMS would have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company derives all of its revenues from license fees and related
services provided directly and indirectly to process manufacturers. As a result,
increased market penetration of the process manufacturing markets is critical to
the Company's future success. Failure of the Company to achieve such market
penetration, due to competitive or other factors, could have a material adverse
effect on the Company's business, results of operations and financial condition.
SERVICES
The Company seeks to provide comprehensive solutions by combining software
with services that will enable a customer to derive the maximum benefit from the
Company's products. Customer support and services includes customer education,
technical services programming, telephone support, product installation and
implementation consulting services. Services are generally not included in
software license fees and are contracted for separately. Implementation and
technical services are provided on a time and materials basis. Customer support
is also contracted for separately and is generally provided on an annual basis
for a payment of 10-15% of the original license fee.
IMPLEMENTATION SERVICES. The Company provides its customers with
consulting assistance during the implementation process. The Company assigns
an engagement manager to each customer for the duration of the
implementation effort. These managers assume responsibility for all aspects
of customer satisfaction while coordinating the availability of required
resources.
EDUCATION SERVICES. The Company's customers can receive training on
specific modules either at the Company's education and training facilities
or at the customer's business location. Training provided at the Company's
facilities is billed on a daily rate per student. Classes offered at the
customer's location are billed on a daily rate per class.
11
<PAGE>
TECHNICAL SERVICES. Datalogix offers assistance in customizing the
Company's software or developing an interface with third party software or
legacy systems. These services result in the development of additional
client specific functionality.
CUSTOMER SUPPORT. Customers can receive updates and enhancements to the
Company's products and telephone support, in exchange for an annual customer
support payment. Telephone support includes the ability to access customers'
systems for the purpose of facilitating support.
STRATEGIC ALLIANCES
Datalogix has established strategic alliances and relationships with a
number of organizations that it believes are important to the sales, marketing
and worldwide support of its products. The Company's relationships with
complementary software vendors, hardware vendors and professional service firms
provide marketing and sales leads to the Company's direct sales force, expand
the distribution of its products, and expand its product offerings and service
capabilities. The Company's strategic alliances and relationships also assist
the Company in keeping pace with the technological developments of major
software and hardware vendors, and in certain instances, provide the Company
with product development services.
ORACLE CORPORATION
The Company has recently entered into a Merger Agreement with Oracle. See
"Recent Developments".
In September 1994, the Company entered into a strategic alliance with
Oracle, a leading supplier of information management software. Under the
strategic alliance, Oracle is marketing GEMMS under the name Oracle GEMMS as
Oracle's preferred solution for process manufacturing software. Oracle has
agreed to market Oracle GEMMS in the same manner as it markets its own
application software products. For example, Oracle now grants quota credits and
sales commissions to the Oracle sales force for licensing Oracle GEMMS and
includes the product on its price and product lists. Oracle is also licensed to
distribute and support Oracle GEMMS outside the United States. In addition,
Oracle has agreed to train and maintain sales and support teams for
international markets and sales teams for domestic markets, to include Oracle
GEMMS in its periodic sales and marketing plans, and to conduct direct mail
campaigns and sales seminars and other coordinated marketing efforts for Oracle
GEMMS.
In exchange for Oracle's sales and marketing efforts, the Company pays
Oracle a royalty equal to 30% of revenues from license fees and first year
maintenance fees paid by new GEMMS customers since September 1994 in the United
States that utilize Oracle's database. This percent is reduced to 20% if Oracle
does not meet specific sales targets. In exchange for its international
distribution rights, Oracle pays the Company a royalty equal to 40% or more of
the license fees and maintenance fees received by Oracle from international
customers of GEMMS. Oracle also pays the Company license fees for certain sales
in the United States where Oracle sells directly to the customer.
The agreements that set forth the strategic alliance have an initial term
that expires in 1998 and do not prohibit the Company from porting its products
to relational databases, tools and applications software provided by vendors
other than Oracle. The agreements contain certain restrictions prohibiting the
Company from entering into distribution agreements with other database vendors.
The agreements may be terminated by the Company if Oracle develops a competitive
product for process manufacturers or if revenues received by the Company from
the licensing of GEMMS or an Oracle database do not exceed certain minimum
amounts. Although Oracle has not achieved these minimum amounts since inception,
the Company has not terminated such agreements.
As part of the strategic alliance, Oracle made an equity investment for a
minority interest in the Company and beneficially owns 13.4% of the Company's
outstanding common stock.
12
<PAGE>
The Company's strategic alliance with Oracle has increased the Company's
international and domestic revenues in fiscal 1996, although Oracle did not meet
specific sales targets set by the agreements. In the absence of the consummation
of the Merger, the Company is unable to predict that the Oracle relationship
will continue to generate substantial sales of GEMMS or significant revenues for
the Company or that it will meet sales targets in the future. Although the
Company believes that Oracle has an economic motivation to succeed in performing
its contractual obligations, the amount and timing of resources which Oracle
devotes to these activities are not within the control of the Company. In
particular, the Company will depend substantially on Oracle to provide support
to international purchasers of Oracle GEMMS and the Company cannot control
whether Oracle will provide the level of support demanded by customers.
Furthermore, the Company recognizes royalties from Oracle when it receives
notification from Oracle of the sale. Any delay by Oracle in reporting these
sales could delay the Company's recognition of revenues and affect the Company's
reported results of operations. Because of the Company's dependence on Oracle,
the failure by Oracle to achieve substantial sales of GEMMS or a disruption in
the Company's relationship with Oracle would have a material adverse effect on
the Company's business, results of operations and financial condition.
THIRD PARTY SOFTWARE VENDORS
The Company has established additional strategic alliances with third party
software vendors whose products complement the Company's products. These
strategic alliances include distribution agreements allowing the Company to
market tool sets for CIMPRO and GEMMS and capacity requirements planning and
advanced scheduling applications modules from i2 Technologies, Inc. for use with
GEMMS. The Company also cooperates with Manugistics Group, Inc. to market supply
chain management solutions involving products from both companies. CIMPRO has a
distribution agreement with Process Logistics to market capacity requirements
planning and demand forecasting applications. These relationships are non-
exclusive. If any of these relationships were terminated or if any of these
third parties were to cease doing business, Datalogix would be forced to expend
significant time and development resources to replace the licensed software.
Such an event would have a material adverse effect upon the Company's business,
results of operations and financial condition.
HARDWARE VENDORS
The Company has developed relationships with major hardware vendors such as
Hewlett-Packard Company, International Business Machines Corporation, Data
General Corporation, Digital Equipment Corporation, Sequent Computer Systems,
Inc., Unisys Corporation and Sun Microsystems, Inc. These hardware vendors
provide sales leads, fund marketing activities including direct mail,
telemarketing, seminars and advertising and, in several cases, have funded the
cost of porting the Company's products to their hardware.
SYSTEMS INTEGRATORS AND CONSULTANTS
The Company has established relationships with systems integrators and
consultants who are active in the selection and implementation of information
systems, including SHL Systemhouse, Andersen Consulting, IBM Consulting and
Electronic Data Systems. By providing technical consulting and integration
services for the Company's products, these companies expand the ability of the
Company to service and implement its products.
The failure of the Company to maintain its relationships with hardware
vendors, systems integrators and consultants, or to establish new relationships
in the future, because of a divergence of interests, acquisition of one or more
of these third parties or other reason, could have a material adverse effect on
the Company's business, results of operations and financial condition.
13
<PAGE>
SALES AND MARKETING
The Company currently markets its products and services primarily through a
direct sales force in North America and directly and indirectly in other parts
of the world. CIMPRO and GEMMS each has a separate dedicated direct sales force
in North America. The Company conducts comprehensive marketing programs in North
America which include telemarketing, public relations, direct mail, advertising,
seminars, trade shows and ongoing customer communications programs. Sales and
marketing personnel are located at the Company's headquarters in Valhalla, New
York and in the Atlanta, Chicago, Cleveland, Florida and San Francisco
metropolitan areas.
The Company's marketing efforts in North America are supported by various
third parties. For CIMPRO, the Company has established an indirect sales channel
of remarketers and regional distributors including IBM in the United States. For
GEMMS, the Company has established strategic alliances with Oracle, hardware
vendors and major systems integrators.
Outside of North America, the Company maintains sales and support offices in
Canada, the United Kingdom, France and Singapore. In addition, the Company has
licensed Oracle to distribute GEMMS outside of the United States. The Company
has also entered into distribution agreements with other third parties to
distribute CIMPRO in the Far East. The Company intends to depend primarily on
Oracle and other third parties for international sales and marketing.
International revenues have grown in fiscal 1996 from fiscal 1995 and
represent approximately 19% and 11% of the Company's total revenues in fiscal
1996 and 1995, respectively. The Company believes that its future results of
operations will depend, in part, on its ability to increase sales in the
international markets. The Company's alliance with Oracle has allowed the
Company to penetrate various new countries across Latin America, Asia Pacific
and Europe. In fiscal 1996 the Company had one customer that accounted for 16%
of its total revenues. In addition, approximately 10% of total revenues was
received from Oracle under the terms of the Oracle agreements. To the extent
that Oracle does not achieve or maintain substantial international sales of
GEMMS, the Company's international sales would be adversely affected, and the
Company's business, results of operations and financial condition could be
materially adversely affected. There can be no assurance that the Company will
be able to maintain or increase its current level of international revenues. For
a summary of the Company's financial information by geographic area for each of
the three preceding fiscal years, refer to Note 11 of Notes to Consolidated
Financial Statements in parts IV of this Form 10-K.
Risks inherent in the Company's international business activities generally
include unexpected changes in regulatory requirements, tariffs and other trade
barriers, costs of localizing products for foreign countries, lack of acceptance
of localized products in foreign countries, longer accounts receivable payment
cycles, difficulties in managing international operations, potentially adverse
tax consequences including restrictions on the repatriation of earnings, the
burdens of complying with a wide variety of foreign laws, and economic
instability. There can be no assurance that such factors would not have a
material adverse effect on the Company's future international revenues and,
consequently, on the Company's business, results of operations and financial
condition.
PRODUCT DEVELOPMENT
The Company has dedicated product development organizations for each of
CIMPRO and GEMMS. The Company has released five major enhancements of CIMPRO
since 1983 and four major enhancements of GEMMS since 1992. The Company devotes
substantial resources to research and development in order to provide customers
with functionality and technology required in today's manufacturing environment.
Product development efforts are directed at increasing product
functionality, improving product performance and expanding the capability of the
products to interoperate with third party software and
14
<PAGE>
hardware. In particular, the Company is devoting substantial development
resources to build application programming interfaces to allow CIMPRO and GEMMS
to connect with a wider range of third party application programs. The Company
supplements its internal product development by licensing third party software
and technology where appropriate.
The business applications software market is characterized by rapid
technological change, frequent new product introductions, evolving industry
standards and changes in customer demands. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. Accordingly, the life cycles
of the Company's products are difficult to estimate. The Company's future
success will depend in part upon its ability to enhance its current products and
to develop and introduce new products on a timely basis that address the
increasingly sophisticated needs of its customers and keep pace with
technological developments and emerging industry standards such as new operating
systems, hardware platforms and third party applications software. There can be
no assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products and enhancements, or that any new products and
product enhancements it may introduce will achieve market acceptance.
Software products as complex as those offered by the Company often encounter
development delays and may contain undetected defects when introduced or when
new versions are released. The Company has encountered delays and defects in the
introduction of new products and product enhancements. In particular, the
Company has experienced difficulties in meeting its development schedule for
GEMMS, resulting in litigation with customers, write-offs, delays and lost
revenues. The Company has made written and verbal commitments to selected
customers to provide at no cost, certain consulting services and support as
required to modify or to enhance the GEMMS product to meet specific customer
needs. The Company has provided reserves to cover the estimated costs of such
commitments. There can be no assurance that the Company will not encounter
product development delays in the future or that, despite testing by the Company
and by current and potential customers, errors will not be found in new products
or product enhancements after commencement of commercial shipments, resulting in
loss of market share, delay in market acceptance or warranty claims, which could
have a material adverse effect upon the Company's business, results of
operations and financial condition.
COMPETITION
The business applications software market for manufacturing companies is
intensely competitive and subject to rapid change. The principal competitive
factors in this market include product functionality and quality process
manufacturing expertise, customer service and satisfaction, ease and speed of
implementation and use, total cost of ownership, supported hardware and software
platforms, the underlying technology and architecture of the product, and vendor
reputation. The Company believes that it competes effectively with respect to
these factors, although it may be at a disadvantage against companies with
greater financial, marketing, and technical resources.
The primary competitor for GEMMS is SAP. Although SAP does not have a
complete product specifically designed for process manufacturers, SAP has
developed and offers an add-on module for process manufacturers called PP-PI
(Production Planning-Process Industry). Furthermore, SAP is substantially larger
than the Company, has significantly larger financial and marketing resources,
and has a substantial network of third party systems integrators that derive
significant revenues from SAP products. The primary competitors of CIMPRO are
Marcam and Ross Systems. The Company's products also compete with products
offered by many other vendors, including a large number of vendors offering
products originally developed for discrete manufacturers, and with proprietary
systems developed and maintained by the management information system
departments of large manufacturing companies.
15
<PAGE>
Competition among providers of software for process manufacturers is likely
to increase substantially for many reasons. A number of companies offering
products developed for discrete manufacturers have announced plans to introduce
products designed more specifically for process manufacturers. Some companies
offering host-based systems for process manufacturers have begun to offer or
have announced plans to introduce products for client/server computing and to
increase the number of hardware platforms on which their software operates. The
Company also expects that competition will increase as a result of software
industry consolidations. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
The Company believes its ability to compete depends on many factors within
and outside its control, including the timing and success of new products and
enhancements developed by the Company and its competitors, product performance,
price, distribution and customer support. Many of the Company's competitors and
potential competitors have significantly greater financial, technical and
marketing resources, and a larger installed customer base than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
or changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products than the Company can.
Increased competition could result in price reductions, reduced gross margins
and loss of market share, any of which could materially and adversely affect the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will compete successfully with new or existing
competitors or that competitive pressures faced by the Company will not
materially and adversely affect its business, results of operations and
financial condition.
Oracle's knowledge of the process manufacturing market may increase as a
result of its right to distribute GEMMS, which could enhance its ability to
develop competitive products. Oracle considered the development of process
manufacturing software prior to its strategic alliance with Datalogix, and
Oracle is not prohibited from developing products which are competitive with the
Company's products. The Company would be entitled to terminate Oracle's
marketing rights if Oracle formed a strategic alliance with a competitor of the
Company or developed its own process manufacturing software product. If this
occurred, the Company would be forced to form a strategic alliance with another
large database or application software vendor or significantly expand its sales
and marketing staff. No assurance can be given that the Company would be able to
enter into such a strategic alliance on acceptable terms, or at all, or that the
Company would be able to expand its sales and marketing staff on a timely basis.
The failure by the Company to enter into a new strategic alliance or
successfully expand its sales and marketing staff would have a material adverse
effect upon the Company's business, results of operations and financial
condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success is heavily dependent upon proprietary technology. The
Company presently has no patents or patent applications pending. The Company
relies primarily on a combination of copyright, trademark and trade secrets
laws, confidentiality procedures and contractual provisions to protect its
proprietary rights. Trade secret and copyright laws afford only limited
protection. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. CIMPRO
customers are provided access to the CIMPRO source code, and GEMMS customers may
obtain access to the GEMMS source code for a fee. Customer access to source code
may increase the possibility of misappropriation or other misuse of the
Company's software. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy may be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to as great an extent as do the laws of the United
16
<PAGE>
States. There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology.
The Company is not aware that any of its products infringes the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim infringement by the Company with respect to current or future
products. The Company expects that software product developers will increasingly
be subject to infringement claims as the number of products and competitors in
the Company's industry segment grows and the functionality of products in this
industry segment overlap. Any such claims, with or without merit, could be time
consuming, result in costly litigation, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect upon the
Company's business, results of operations and financial condition.
CIMPRO incorporates a third party computer language and database under a
license agreement and a distribution agreement, each of which continue
indefinitely. GEMMS incorporates a tool set and an applications module licensed
from third parties. Each of these third parties is a small, privately held
software company without the financial or technical resources of Datalogix. The
Company does not have access to the source code for the software supplied by
these third parties for the GEMMS applications module. If any of these
relationships were terminated, or if any of these third parties were to cease
doing business, Datalogix would be forced to expend significant time and
development resources to, replace the licensed software. Such events would have
a material adverse effect upon the Company's business, results of operations and
financial condition.
EMPLOYEES
As of June 30,1996, Datalogix had a total of 289 employees, including 130 in
client services, 68 in product development, 62 in sales and marketing, and 29 in
finance and administration. None of the Company's employees are represented by a
labor union. The Company believes that its employee relations are good.
Datalogix believes that its continued success will depend in large part upon its
ability to attract and retain highly-skilled technical, managerial and sales and
marketing personnel, and to retain its personnel with process manufacturing
expertise. Competition for such personnel is intense, and the services of
qualified personnel are difficult to obtain or replace. The Company has from
time to time experienced difficulty in locating candidates with appropriate
qualifications. In particular, the Company has encountered difficulties in
hiring sufficient numbers of technical services personnel. There can be no
assurance that the Company will be successful in attracting and retaining the
personnel required to develop, market, service and support its products and
conduct its operations successfully.
ITEM 2. PROPERTIES
The Company's headquarters and principal administrative, sales and marketing
and system development operations are located in Valhalla, New York, where the
Company leases approximately 50,000 square feet under a lease that expires in
December 1998. In addition, the Company also leases office space in the Atlanta,
Houston, San Francisco, Cleveland, Chicago, Philadelphia, and Toronto
metropolitan areas, and in the United Kingdom, France and Singapore.
Datalogix believes that its existing facilities will be adequate for its
current needs and that suitable additional space will be available as required
through fiscal 1997.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1996.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table sets forth the range of high and low closing sales
prices for the Company's common stock, on the Nasdaq National Market System,
during the fiscal 1996 quarters and the first quarter of fiscal 1997 through
September 19, 1996. The Company's common stock has traded under the Nasdaq
symbol DLGX since its initial public offering on June 15, 1995. Prior to the
initial public offering, there was no public market for the common stock of the
Company.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1995
Fourth Quarter.......................................................... $25 1/4 $23 5/8
Fiscal 1996
First Quarter........................................................... $26 $14 1/4
Second Quarter.......................................................... $16 $ 8 5/8
Third Quarter........................................................... $16 $10
Fourth Quarter.......................................................... $ 9 3/4 $ 6 7/8
Fiscal 1997
First Quarter through September 19, 1996................................ $ 8 $ 4 3/8
</TABLE>
As of September 19, 1996, the approximate number of shareholders of record
of the Company's common stock was 191. The Company has not paid any dividends
since its initial public offering and does not expect to do so in the
foreseeable future.
18
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees........................................... $ 23,515 $ 26,852 $ 14,189 $ 8,106 $ 6,035
Services............................................... 25,668 16,326 10,559 9,978 9,384
--------- --------- --------- ---------- ----------
Total revenues....................................... 49,183 43,178 24,748 18,084 15,419
--------- --------- --------- ---------- ----------
Operating expenses:
Cost of license fees................................... 7,862 5,618 2,077 1,975 950
Cost of services....................................... 18,109 10,334 6,024 6,543 6,251
Sales and marketing.................................... 16,418 13,670 8,589 8,551 9,563
Research and development............................... 9,386 6,271 4,554 7,308 4,342
General and administrative............................. 7,218 4,433 2,097 2,498 2,718
Nonrecurring item (1).................................. -- -- -- -- 5,291
--------- --------- --------- ---------- ----------
Total operating expenses............................. 58,993 40,326 23,341 26,875 29,115
--------- --------- --------- ---------- ----------
Income (loss) from operations............................ (9,810) 2,852 1,407 (8,791) (13,696)
Interest income (expense), net........................... 1,828 73 (92) (177) (54)
--------- --------- --------- ---------- ----------
Income (loss) before taxes............................... (7,982) 2,925 1,315 (8,968) (13,750)
Provision (benefit) for income taxes (2)................. 50 (2,405) -- -- --
--------- --------- --------- ---------- ----------
Net income (loss)........................................ $ (8,032) $ 5,330 $ 1,315 $ (8,968) $ (13,750)
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
Earnings (loss) per share................................ $ (0.70) $ 0.59 $ 0.16
--------- --------- ---------
--------- --------- ---------
Weighted average number of common and common equivalent
shares outstanding (3)................................. 11,426 9,048 8,313
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 34,019 $ 43,762 $ 4,050 $ 4,981 $ 609
Working capital (deficiency)................................ 32,336 44,795 312 42 (10,969)
Total assets................................................ 57,904 65,051 17,596 15,715 12,626
Long-term liabilities....................................... 269 551 1,865 2,815 1,289
Redeemable convertible preferred stock...................... -- -- 28,477 28,477 5,014
Shareholders' equity (deficit).............................. 41,275 49,291 (26,882) (28,145) (13,107)
</TABLE>
The above selected historical consolidated financial information of the
Company is qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein
and with Management's Discussion and Analysis of Financial Condition and Results
of Operations also included elsewhere in this Annual Report. In fiscal 1996, the
Company restated its first and second quarters and made certain adjustments of
approximately $5,900 in the fourth quarter. See Note 12 of notes to consolidated
financial statements.
- ------------------------
(1) In fiscal 1992, the Company recorded a charge which related to costs
associated with a reduction in the Company's workforce, costs related to
redundancies in certain management positions and certain
19
<PAGE>
nonrecurring costs attendant to the development and introduction of GEMMS.
The charge includes $1,224 of severance and related costs for workforce
reductions, $3,100 in estimated settlement costs with customers and $967 in
other product related costs. All costs but the settlement costs resulted in
cash outlays in fiscal 1993. The matters for which settlement costs were
estimated and provided for in fiscal 1992 were substantially settled in
fiscal 1993 and 1994. Payment terms associated with settlement costs varied,
extending as long as three years. As of June 30, 1996 there were no
obligations outstanding for settlement of these costs.
(2) See Note 10 of notes to consolidated financial statements.
(3) See Note 2 of notes to consolidated financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR SHARE AND PERCENTAGE
DATA)
OVERVIEW
Datalogix was founded in 1981 to develop open systems software for process
manufacturers. In 1983, the Company introduced CIMPRO, the first open systems
software specifically designed for process manufacturing companies, and in
fiscal 1991 (year ended June 30, 1991), the Company introduced GEMMS, the first
open, client/server software specifically designed for process manufacturers.
The Company has experienced a number of important recent developments
including the Merger Agreement with Oracle, changes in senior management and
adjustments to fiscal 1996 financial results. The Company also anticipates
recording a loss of approximately $2.0 million in the first quarter of fiscal
1997. See "Business--Recent Developments" in Part I above.
Sales of GEMMS fell well below the Company's expectations in fiscal 1996.
The GEMMS market is comprised of large multinational process companies and is
characterized by relatively few, complex and high price transactions. Fiscal
1996 brought a sharp acceleration in a trend in which large process
manufacturers shifted away from focused manufacturing-based "point" solutions to
broader, fully integrated "supply chain management" solutions with the ability
to manage information with vendors, customers and partners across the supply
chain, often on a global basis. Manufacturers seek greater control over the
entire supply chain to minimize raw material inventories, ensure the timing of
deliveries from suppliers, reduce manufacturing cycle times, minimize the
efficiency of warehousing and transportation systems and provide superior
response times to customers.
The increased complexity and breadth of this new generation of information
products has favored suppliers with fully integrated software solutions and
worldwide services and support, including Oracle, SAP and others. As a result,
during fiscal 1996, the Company suffered competitive losses on several
significant contract opportunities.
Responding to this competitive threat, Datalogix became increasingly
involved with various "best-of breed" partners to augment existing GEMMS
software modules. The Company's alliance with Oracle was another critical
component of this competitive response. As an established leader in the software
application market with worldwide sales and support operations and significant
resources, Oracle was able to offer customers a single source solution by
integrating GEMMS into its existing array of enterprise wide software solutions.
As the trend towards fully integrated solutions accelerated, Oracle assumed a
greater role in the sales process of GEMMS in both the international and
domestic markets.
As the solutions demanded by customers became more complex and the number of
third parties involved in the sales process increased, the average sales cycle
began to expand. This lengthened sales cycle had a detrimental effect on fiscal
1996 bookings for GEMMS.
20
<PAGE>
Functionality and performance gaps in earlier, less mature versions of GEMMS
and delay in product releases were other factors in the disappointing sales
performance in fiscal 1996. Some GEMMS customers, primarily on earlier versions
of the software, experienced product deficiencies in a few key areas.
Furthermore, a few customers with process transaction volumes significantly in
excess of the typical range were dissatisfied with GEMMS processing speeds.
These product issues adversely affected customer references in some cases, a
critical factor in securing new sales, and contributed to a few key competitive
losses to SAP. While the Company has worked aggressively to provide satisfactory
solutions to affected customers and product improvements in subsequent releases
of GEMMS address many of these issues, restoring customer confidence and
regaining positive references in these cases is a slow process.
Through its relationship with Oracle and other third party international
distributors, Datalogix penetrated ten new countries with first time GEMMS sales
in fiscal 1996. As first time users in these countries, customers received
relatively favorable pricing terms resulting in a lower average sales price
("ASP") on these transactions. New country initiatives also involved an up-front
cost of providing training and pre-sales support to Oracle and other GEMMS
distributors in those countries. The Company considers the lower ASP and higher
costs associated with these first time sales as critical investments in the
future success of GEMMS worldwide.
The Company believes that many of those factors accounting for the GEMMS
sales shortfall in fiscal 1996 will continue to adversely impact sales during at
least the first half of fiscal 1997.
Sales of CIMPRO have been essentially flat in fiscal 1996, also falling
short of expectations. Sales activity during the first half of fiscal 1996 was
hampered by lack of critical competitive features, such as not supporting the
Oracle database. A new version containing these features was available for
customer demonstrations in the second half of the year, and sales improved
accordingly. In addition, in July 1995, the Company signed an agreement with
IBM's General Business unit to sell and support CIMPRO in the U.S. The Company
invested considerable time and resources to train and certify IBM's sales
representatives on CIMPRO, and sales from this new indirect channel began to
occur in the third quarter.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain line items in the Company's consolidated
statement of operations:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Revenues:
License fees................................................... 47.8% 62.2% 57.3%
Services....................................................... 52.2 37.8 42.7
--------- --------- ---------
Total revenues............................................... 100.0 100.0 100.0
--------- --------- ---------
Operating expenses:
Cost of license fees........................................... 16.0 13.0 8.4
Cost of services............................................... 36.8 23.9 24.3
Sales and marketing............................................ 33.4 31.7 34.7
Research and development....................................... 19.1 14.5 18.4
General and administrative..................................... 14.6 10.3 8.5
--------- --------- ---------
Total operating expenses..................................... 119.9 93.4 94.3
--------- --------- ---------
Income (loss) from operations.................................... (19.9) 6.6 5.7
Interest income (expense), net................................... 3.7 0.2 (0.4)
--------- --------- ---------
Income (loss) before taxes....................................... (16.2) 6.8 5.3
Provision (benefit) for income taxes............................. 0.1 (5.5) --
--------- --------- ---------
Net income (loss)................................................ (16.3)% 12.3% 5.3%
--------- --------- ---------
--------- --------- ---------
</TABLE>
TOTAL REVENUES
The Company's revenues are derived from two sources: license fees and
services. Total revenues increased approximately 14% in fiscal 1996 to $49,183
up from fiscal 1995 revenues of $43,178. Fiscal 1995 revenues increased 74% over
fiscal 1994 levels. The increase in fiscal 1996 resulted primarily from strong
growth in services revenues partially offset by a decline in license fees. The
increase in fiscal 1995 was attributable to strong growth both in license fees
and in services revenue.
LICENSE FEES
License fees include: (i) revenues from software license agreements entered
into between the Company and its customers or resellers of its product with
respect to both the Company's products and third party products distributed by
the Company, and (ii) royalties due the Company from third parties that
distribute the Company's products. License fees for GEMMS represented 80%, 82%
and 69% of total license fees for fiscal 1996, 1995 and 1994, respectively, with
CIMPRO accounting for the balance. The percentage of license fees related to
international sales continued to increase, representing 22%, 14% and 13% of
total license fees for fiscal 1996, 1995 and 1994, respectively.
License fees decreased 12% in fiscal 1996 from fiscal 1995 levels and
increased 89% in fiscal 1995 over the levels achieved in fiscal 1994. The
decrease in fiscal 1996 resulted primarily from lower licensing revenues for the
GEMMS product resulting from several factors as discussed in the Overview
section, including increased competition from larger vendors offering fully
integrated "supply chain management" solutions; a longer selling cycle due to
the increased complexity of enterprise wide solutions involving multiple
partners and software products; product quality issues related particularly to
earlier versions of GEMMS which impacted customer references; delay of product
releases; and lower prices on first time sales in new countries.
22
<PAGE>
GEMMS Release 3.2 introduced in fiscal 1996 has corrected many of the
problems associated with earlier versions, including the integration to the
Oracle financial module. A more robust sales and order processing module is also
being developed to broaden GEMMS functionality in future releases. However, the
Company believes the above factors will continue to negatively impact sales of
new GEMMS licenses through at least the first two quarters of fiscal 1997.
The increase in fiscal 1995 over fiscal 1994 resulted primarily from
continuing increases in the licensing of GEMMS to new customers, an increase in
average sales prices, and growth in the number of CIMPRO licenses. The increase
in average sales prices associated with GEMMS licenses reflected the Company's
growing installed base of GEMMS customers available as references and, beginning
in fiscal 1995, the Company's strategic alliance with Oracle, both of which the
Company believes caused many customers to make larger up front commitments to
the Company's products rather than commencing with a pilot system or a limited
initial deployment.
SERVICES REVENUE
Services revenue includes fees from software maintenance agreements and
training, consulting and custom programming services. Maintenance fees,
including first year maintenance, are billed separately and are recognized
ratably over the period of the maintenance agreement. Training, consulting and
custom programming service revenues are recognized as the services are
performed. Services revenue increased 57% in fiscal 1996 from fiscal 1995 and
55% in fiscal 1995 over fiscal 1994 levels.
Services revenue for GEMMS represented 75%, 56% and 45% of total services
revenue for fiscal 1996, 1995 and 1994, respectively, with CIMPRO accounting for
the balance. The percentage of services revenue related to international
accounts increased to 15% in fiscal 1996 from 8% in fiscal 1995 and 1994.
Services revenue growth generally lags license revenue growth as the
incremental maintenance fees and the training, consulting and custom programming
services associated with new license fees commence after the license fee
revenues are recognized. Services revenue growth in fiscal 1996 reflected the
strong growth in licensing activity in both fiscal 1995 and 1994. Due to the
decline in GEMMS license fees in fiscal 1996, anticipated to continue into the
first half of the fiscal 1997, the Company expects only modest growth, if any,
in services revenue in fiscal 1997.
In fiscal 1995, strong growth in services revenue associated with GEMMS was
largely offset by a decline in services revenue associated with CIMPRO
reflecting the Company's decision to discontinue custom programming services for
CIMPRO in favor of meeting customer needs for such services through the use of
third party service providers.
COST OF LICENSE FEES
Cost of license fees consists primarily of royalties paid to Oracle for
sales and marketing support, royalties paid to other third parties for products
licensed by the Company, estimated warranty costs, amortization of capitalized
software development costs, and, to a lesser extent, the costs of product media,
duplication, manuals and shipping.
The Company pays Oracle a royalty equal to 30% of revenues from license fees
and first year maintenance fees paid by new GEMMS customers in the United States
that utilize Oracle's database. This royalty is retroactively reduced to 20% if
Oracle fails to meet at least 70% of certain sales goals for each contract year
ending September 6. Datalogix anticipates that Oracle will not achieve this
sales threshold for the period ending September 6, 1996. As a result, Datalogix
expects to receive a credit against future royalties payable to Oracle in fiscal
1997 equal to approximately $525.
The Company reports the royalties paid to Oracle for U.S. GEMMS customers on
Oracle databases as a cost of license fees. To the extent revenues from such
customers increase as a percentage of total revenues, cost of license fees as a
percentage of total revenues also increase and gross margins decline.
23
<PAGE>
In exchange for its international distribution rights, Oracle pays the
Company a royalty equal to 40% or more of the license fees and maintenance fees
received by Oracle from international customers of GEMMS. Oracle also pays the
Company license fees for certain sales in the United States where Oracle sells
directly to the customer. Royalties and license fees from Oracle included in
license revenues amounted to $4,342 in fiscal 1996, $411 in 1995 and $0 in 1994.
There is no offsetting entry to cost of license fees that is attributable to the
royalty and license fee revenues earned by the Company from Oracle. Accordingly,
to the extent such royalties and license fees from Oracle increase as a
percentage of revenues, the Company's gross margins increase.
Warranty costs represents actual or planned commitments to provide customers
with consulting, technical and support services, in excess of normal annual
maintenance coverage, to resolve individual functionality or performance
problems. The majority of these problems arose in connection with prior releases
of GEMMS as discussed previously. Although these installations are no longer
within the warranty period, the Company chose to provide these services at no
cost in the interest of maintaining customer goodwill. During August 1996, new
management conducted a review of all major customer installations for the
purpose of identifying actual or planned commitments made to customers to
provide such services. Commitments amounting to $3,780 were identified, of which
$1,845 pertained to cost of license fees and $1,935 pertained to cost of
services. As a result of this review, the Company increased its warranty
reserves in these two areas by a total of $3,400. Management has no basis on
which to allocate these costs to prior periods; as such, they have been
accounted for as changes in estimates in the fourth quarter of fiscal 1996.
The following table sets forth, for the periods indicated, the relationship
of cost of license fees and license fee revenues:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
License fee revenues......................................... $ 23,515 $ 26,852 $ 14,189
Cost of license fees......................................... 7,862 5,618 2,077
Cost of license fees as a percentage of license fee
revenues................................................... 33.4% 20.9% 14.6%
</TABLE>
Cost of license fees increased as a percentage of license fee revenues
during fiscal 1996 primarily due to the provision for warranty costs and
royalties paid on GEMMS license fees. Factoring out the warranty costs, cost of
license fees as a percentage of license fee revenues was 25.6% in fiscal 1996.
This increase over fiscal 1995 reflects the larger number of GEMMS sales in the
U.S. eligible for royalty payments to Oracle. As noted above, Datalogix expects
to receive a credit of approximately $525 in fiscal 1997 against royalties paid
in fiscal 1996 due to Oracle's failure to meet its minimum sales goals.
Cost of license fees increased as a percentage of license fee revenues in
fiscal 1995 reflecting the commencement of payments to Oracle for GEMMS sales
made by the Company to new U.S. customers on the Oracle database.
COST OF SERVICES
Cost of services consist primarily of personnel costs for training,
consulting and customer support. Also included are warranty costs for actual or
planned commitments to provide implementation and technical services to
customers to improve customer satisfaction in response to various implementation
24
<PAGE>
and post-implementation problems. The following table sets forth, for the
periods indicated, the relationship of cost of services and services revenues:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Services revenues............................................ $ 25,668 $ 16,326 $ 10,559
Cost of services............................................. 18,109 10,334 6,024
Cost of services as a percentage of services revenues........ 70.6% 63.3% 57.1%
</TABLE>
The increase in cost of services as a percentage of services revenue during
fiscal 1996 was due to the provision for warranty costs in the amount of $1,935
as described under "Cost of License Fees." Excluding this provision, cost of
services amounted to 63.0% of revenues in fiscal 1996, essentially flat relative
to 1995. Cost of services increased in fiscal 1995 over 1994 primarily as a
result of a substantial investment by the Company in the training of Oracle
sales, service and support personnel, and the recruiting and training of staff
dedicated to supporting the Oracle relationship.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses paid to sales and marketing personnel and travel and promotional
expenses. Sales and marketing expenses grew by $2,748 or 20% in fiscal 1996 when
compared with fiscal 1995, reflecting increased personnel and commission
expenses. As a percentage of total revenues, sales and marketing costs increased
slightly to 33% in fiscal 1996 from 32% in fiscal 1995. The increase in fiscal
1995 over fiscal 1994 was principally a result of the commencement of worldwide
sales training and support in connection with the Oracle alliance, increased
staffing levels, and increased commission expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of engineering personnel
costs and the costs of outside consultants involved in product development
efforts. The Company believes that a significant level of investment in research
and development is essential to achieve and maintain a market leadership
position. Research and development expenses are generally charged to operations
as incurred. Certain software development costs, however, are capitalized in
accordance with Statement of Financial Accounting Standards No. 86 ("FAS 86")
once technological feasibility is established upon completion of a detailed
program design. Such capitalized software development costs are amortized to
cost of license fees over a period of three to five years. The following table
sets forth for the periods indicated the relationship between the Company's
gross research and development expenditures and the research and development
expenses recorded on the Company's statement of operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Gross research and development cash expenditures.................................... $ 11,151 $ 7,393 $ 5,442
Amounts capitalized for software development costs.................................. (1,896) (1,122) (1,008)
Write-off of capitalized software development costs................................. 131 -- 120
--------- --------- ---------
Research and development expenses................................................... $ 9,386 $ 6,271 $ 4,554
--------- --------- ---------
Gross research and development expenditures as a percentage of total revenues....... 22.7% 17.1% 22.0%
Capitalized software as a percentage of gross research and development
expenditures...................................................................... 17.0% 15.2% 18.5%
</TABLE>
Gross research and development ("R&D") expenditures increased in absolute
dollars and as a percentage of revenues in fiscal 1996 over fiscal 1995 due to
increased staffing in the software engineering
25
<PAGE>
function and third party development costs associated with various R&D
activities, including the release of GEMMS Release 3.2 during the second quarter
of fiscal 1996 and the development of CIMPRO Release 5.2 due to be released in
fiscal 1997 and of GEMMS Release 4.1 due to be released in calendar year 1997.
The increase in fiscal 1995 over fiscal 1994 was due to hiring additional
software engineers. As a percentage of revenues, gross research and development
expenditures declined in fiscal 1995 as compared with 1994, principally as a
result of the significant increase in revenues.
In fiscal 1996, the Company capitalized approximately 17% of its gross R&D
expenditures in accordance with FAS 86. Capitalized costs are principally
related to current year product releases, and planned future releases, of both
CIMPRO and GEMMS. Since fiscal 1994, the amounts of software development costs
capitalized have ranged from 15.2% to 18.5% of gross research and development
expenditures. The Company expects that the rate of capitalization of software
development cost will continue to fluctuate depending on the state of
development of various projects.
GENERAL AND ADMINISTRATIVE
General and administrative ("G&A") expenses consist primarily of salaries of
administrative, executive, financial and legal personnel, outside professional
and recruiting fees, bad debt expense and settlements of customer claims. G&A
expenses represented approximately 15% of total revenues in fiscal 1996, 10% of
total revenues in fiscal 1995, and 9% of total revenues in fiscal 1994. The
increase in fiscal 1996 is primarily attributable to additional compensation
expense, recruiting expense, increased bad debt expense and customer settlements
related largely to previously mentioned product quality issues, and fixed asset
write-offs. The increase in fiscal 1995 resulted from higher staffing levels and
professional fees associated with recruiting activities.
PROVISION FOR INCOME TAXES
The provision for income taxes in fiscal 1996 primarily relates to state
taxes. See Note 10 of Notes to Consolidated Financial Statements.
In the third quarter of fiscal 1995, the Company, based upon its recent
operating results and the market acceptance of its GEMMS product, reduced its
valuation allowance to $698. The effect of this change in judgment regarding the
realizability of certain net operating losses was to offset the 1995 provision
for income taxes by $3,497, resulting in a net benefit for income taxes of
$2,405, for fiscal 1995. Excluding the benefit related to the impact of prior
years' net operating losses, the effective tax rate would have approximated 37%
in fiscal 1995. The Company did not record a provision for current or deferred
federal and state income taxes in fiscal 1994, due to taxable losses, the tax
benefits of which were not then reasonably assured of realization. Had the
Company recorded such provision, the effective tax rate would have approximated
38%.
QUARTERLY INFORMATION AND FACTORS AFFECTING OPERATING RESULTS
The following table sets forth unaudited consolidated statement of
operations data for each of the four quarters in fiscal 1996 and 1995 and the
percentage of the Company's total revenues represented by each item of the
respective quarter. This unaudited quarterly information has been prepared on
the same basis as the annual information presented elsewhere herein and, in the
Company's opinion, includes all adjustments (consisting only of normal recurring
entries except as disclosed below) necessary for a fair presentation of the
information for the quarters presented. The operating results for any quarter
are not necessarily indicative of results for any future period.
26
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31,
1996 1996 1995* 1995* 1995 1995 1994
--------- --------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees................... $ 6,840 $ 4,565 $ 8,761 $ 3,349 $ 8,915 $ 7,670 $ 6,435
Services....................... 7,242 6,500 6,109 5,817 5,156 4,334 3,553
--------- --------- ----------- ----------- ----------- ----------- -----------
Total revenues................. 14,082 11,065 14,870 9,166 14,071 12,004 9,988
--------- --------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of license fees........... 3,613 1,217 2,428 604 1,902 1,782 1,146
Cost of services............... 6,511 4,286 3,882 3,430 3,300 2,808 2,293
Sales and marketing............ 4,622 4,600 4,021 3,175 3,935 3,690 3,624
Research and development....... 2,508 2,352 2,258 2,268 1,794 1,783 1,485
General and administrative..... 3,569 1,257 1,109 1,283 1,440 1,195 1,054
--------- --------- ----------- ----------- ----------- ----------- -----------
Total operating expenses....... 20,823 13,712 13,698 10,760 12,371 11,258 9,602
--------- --------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations.... (6,741) (2,647) 1,172 (1,594) 1,700 746 386
Interest income, net............. 422 468 453 485 47 12 12
--------- --------- ----------- ----------- ----------- ----------- -----------
Income (loss) before taxes....... (6,319) (2,179) 1,625 (1,109) 1,747 758 398
Provision (benefit) for income
taxes.......................... 665 (806) 602 (411) 646 (3,051) --
--------- --------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................ $ (6,984) $ (1,373) $ 1,023 $ (698) $ 1,101 $ 3,809 $ 398
--------- --------- ----------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- ----------- -----------
PERCENTAGE OF TOTAL REVENUES:
Revenues:
License fees................... 48.6% 41.3% 58.9% 36.5% 63.4% 63.9% 64.4%
Services....................... 51.4 58.7 41.1 63.5 36.6 36.1 35.6
--------- --------- ----------- ----------- ----------- ----------- -----------
Total revenues................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of license fees........... 25.8 11.0 16.3 6.6 13.5 14.8 11.5
Cost of services............... 46.2 38.7 26.1 37.4 23.5 23.4 22.9
Sales and marketing............ 32.8 41.6 27.0 34.6 28.0 30.7 36.3
Research and development....... 17.8 21.2 15.2 24.8 12.7 14.9 14.9
General and administrative..... 25.3 11.4 7.5 14.0 10.2 10.0 10.5
--------- --------- ----------- ----------- ----------- ----------- -----------
Total operating expenses....... 147.9 123.9 92.1 117.4 87.9 93.8 96.1
--------- --------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations.... (47.9) (23.9) 7.9 (17.4) 12.1 6.2 3.9
Interest income, net............. 3.0 4.2 3.0 5.3 0.3 0.1 0.1
--------- --------- ----------- ----------- ----------- ----------- -----------
Income (loss) before taxes....... (44.9) (19.7) 10.9 (12.1) 12.4 6.3 4.0
Provision (benefit) for income
taxes.......................... 4.7 (7.3) 4.0 (4.5) 4.6 (25.4) --
--------- --------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................ (49.6)% (12.4)% 6.9% (7.6)% 7.8% 31.7% 4.0%
--------- --------- ----------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C>
SEPT. 30,
1994
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees................... $ 3,832
Services....................... 3,283
-----------
Total revenues................. 7,115
-----------
Operating expenses:
Cost of license fees........... 788
Cost of services............... 1,933
Sales and marketing............ 2,421
Research and development....... 1,209
General and administrative..... 744
-----------
Total operating expenses....... 7,095
-----------
Income (loss) from operations.... 20
Interest income, net............. 2
-----------
Income (loss) before taxes....... 22
Provision (benefit) for income
taxes.......................... --
-----------
Net income (loss)................ $ 22
-----------
-----------
PERCENTAGE OF TOTAL REVENUES:
Revenues:
License fees................... 53.9%
Services....................... 46.1
-----------
Total revenues................. 100.0
Operating expenses:
Cost of license fees........... 11.1
Cost of services............... 27.2
Sales and marketing............ 34.0
Research and development....... 17.0
General and administrative..... 10.4
-----------
Total operating expenses....... 99.7
-----------
Income (loss) from operations.... 0.3
Interest income, net............. 0.0
-----------
Income (loss) before taxes....... 0.3
Provision (benefit) for income
taxes.......................... --
-----------
Net income (loss)................ 0.3%
-----------
-----------
</TABLE>
- ------------------------
(*) The first and second quarters of fiscal 1996 have been restated from
originally reported amounts. See Note 12 to the consolidated financial
statements.
During August 1996, new management conducted a comprehensive review of major
customer accounts for the purpose of determining the adequacy of reserves and
allowances related to customer
27
<PAGE>
warranty costs, legal costs and accounts receivable. As a result of this review,
management increased its sales return and allowance for bad debt provision by
approximately $1,700, its customer warranty costs by approximately $3,400 and
made certain other adjustments of approximately $800. Management has no basis on
which to allocate these costs to prior periods; as such, these adjustments
totaling approximately $5,900 have been accounted for as changes in estimates in
the fourth quarter.
Various factors that negatively impacted the fiscal 1996 financial results,
as described in the Overview section, are expected to continue to impact the
Company through at least the first half of fiscal 1997. In this connection, the
Company anticipates recording a loss of approximately $2.0 million in the first
quarter of fiscal 1997. A related tax benefit will not be recognized.
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Such fluctuations have resulted in significant volatility
in the price of the Company's common stock. Quarterly revenues and operating
results will likely continue to fluctuate as a result of a variety of factors
including the Company's lengthy sales cycle, the proportion of revenues
attributable to license fees versus services revenues, the proportion of
international revenues to total revenues, changes in product mix, changes in the
level of operating expenses, demand for the Company's products, the size and
timing of individual license transactions, the level of GEMMS sales achieved by
Oracle, the introduction of new products and product enhancements by the Company
or its competitors, changes in customer budgets, competitive conditions in the
industry and general economic conditions. Further, the purchase of the Company's
products generally involves a significant commitment of capital, with the
attendant delays frequently associated with large capital expenditures and
authorization procedures within an organization. For these and other reasons,
the sales cycles for the Company's products are typically lengthy and subject to
a number of significant risks over which the Company has little or no control,
including customers' budgetary constraints and internal authorization reviews.
The Company historically has operated with little backlog because its software
products are generally shipped as orders are received. The Company has often
recognized a substantial portion of its revenues in the last month of the
quarter, with these revenues frequently concentrated in the last week of the
quarter. As a result, license fees in any quarter are substantially dependent on
orders booked and shipped in the last month and last week of that quarter. A
small variation in the timing of recognition of specific revenues is likely to
adversely and disproportionately affect the Company's operating results for a
quarter because the Company establishes its expenditure levels on the basis of
its expected future revenues and only a small portion of the Company's
marketing, research, development and general and administrative expenses vary
with its revenues in the short run. Accordingly, the Company believes that
period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicative of future performance.
There can be no assurance that the Company's revenues will grow in future
quarters or that the Company will be profitable on a quarterly basis.
The Company's business has experienced and is expected to continue to
experience significant seasonality, due in part to customer buying patterns. In
recent years, the Company generally has had greater demand for its products in
the fourth fiscal (June) quarter and has had weaker demand for its products
during the first fiscal (September) quarter. These fluctuations are caused
primarily by customer budgeting and purchasing patterns, by the Company's sales
commission policies which compensate sales personnel on the basis of annual
performance quotas, and by the Company's practice of devoting a significant
portion of sales resources to the functions of hiring and training in the first
quarter of the fiscal year. The Company believes this pattern will continue and,
accordingly, anticipates that total revenues for the quarter ending September
30, 1996 will be lower than the quarter ended June 30, 1996.
The Company's results of operations are also subject to a wide number of
other factors, some of which are beyond the Company's control. Although the
Company's strategic alliances are an important asset, particularly the Oracle
alliance, the Company's results of operations could be adversely affected if
Oracle or other strategic partners do not perform as expected or if the Company
fails to maintain these
28
<PAGE>
relationships. The software applications business for manufacturing companies is
intensely competitive and competition in the software applications market for
process manufacturers is expected to increase substantially. Moreover, the
market is characterized by rapid technological change, frequent new product
introductions, evolving industry standards and changes in customer demand. The
Company's future performance will depend in part on its ability to continue
strengthening its own product offerings. As with any complex software product,
there can be no assurance that future development will not encounter technical
problems that delay the introduction or affect the performance of new products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $9,743 during the
fiscal year ended June 30, 1996 to $34,019. This decrease was primarily
attributable to lower than expected license revenues and increased direct and
indirect costs associated with selling, marketing, and enhancing the Company's
CIMPRO and GEMMS products as well as capital expenditures. The available cash at
June 30, 1996 is primarily attributable to the net proceeds of $37,954 received
from the Company's initial public offering of 2,495,000 shares of common stock
in June 1995. Working capital at June 30, 1996 decreased by $12,459 to $32,336
from $44,795 at June 30, 1995.
In the fourth quarter of fiscal 1996, the Company's board of directors
authorized the repurchase of up to one million shares of the Company's stock.
Purchases can be made from time to time on the open market, based upon market
and business conditions. As of June 30, 1996, the Company had repurchased 85,000
shares for a total purchase price of $633.
The Company's capital expenditures totaled $2,676 during fiscal 1996. As of
June 30, 1996, the Company did not have any material commitments for capital
expenditures. The Company's aggregate minimum lease payments for fiscal 1997 are
expected to be at least $2,112.
The Company believes that the available cash and cash equivalents and cash
flows from operations will be sufficient to fund its operations for at least
through fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
29
<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The information required by this item will be included under the captions
ELECTION OF DIRECTORS, IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND
CERTAIN SIGNIFICANT EMPLOYEES and COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES ACT OF 1934 in the Company's Proxy Statement and is incorporated
herein by reference. Such Proxy Statement will be filed by the Company with the
Securities Exchange Commission within 120 days of the end of the Company's
fiscal year pursuant to General Instruction G(3) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included under the caption
Executive Compensation in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included under the caption
Share Ownership of Directors, Officers and Certain Beneficial Owners in the
Company's Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included under the caption
Employment Agreements and Certain Transactions in the Company's Proxy Statement
and is incorporated herein by reference.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are included herein as part of this Form 10-K.
(1) CONSOLIDATED FINANCIAL STATEMENTS. The consolidated financial statements
of Datalogix International Inc., together with the Report of Independent
Accountants thereon, is filed as a part of this Form 10-K as listed below.
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
Report of Independent Accountants on Consolidated Financial
Statements.................................................................... F-1
Consolidated Balance Sheet--At June 30, 1996 and 1995........................... F-2
Consolidated Statement of Operations--
Years ended June 30, 1996, 1995, 1994......................................... F-3
Consolidated Statement of Cash Flows--
Years ended June 30, 1996, 1995, 1994......................................... F-4
Consolidated Statement of Shareholders Equity--
Years ended June 30, 1996, 1995, 1994......................................... F-5
Notes to Consolidated Financial Statements...................................... F-6--F-16
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES. The financial statement schedule of
Datalogix International Inc. for the years ended June 30, 1996, 1995 and 1994,
together with Report of Independent Accountants thereon, is filed as a part of
this Form 10-K as listed below and should be read in conjunction with the
consolidated financial statements of Datalogix International Inc.
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
Report of Independent Accountants on Financial Statement Schedule................... S-1
Schedule II. Valuation and Qualifying Accounts...................................... S-2
</TABLE>
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the consolidated financial statements.
31
<PAGE>
(3) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<C> <S>
*****2.1 Agreement and Plan of Merger, dated as of September 24, 1996, between Oracle Corporation, a
Delaware corporation ("Oracle"), Delphi Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Oracle, and Datalogix International Inc., a New York corporation.
*3.1 Restated Certificate of Incorporation of Registrant as amended to date.
****3.2 Amended and Restated By-Laws dated as of August 27, 1996.
*4.1 Specimen Common Stock Certificate of Registrant.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the
Registrant defining rights of holders of Common Stock of the Company.
****4.3 Rights Agreement, dated as of August 27, 1996, between the Company and The First National Bank of
Boston, as Agent.
*****4.4 Amendment No. 1 to Rights Agreement, dated as of September 24, 1996, between the Company and The
First National Bank of Boston.
*10.1 Form of Indemnification Agreement for Directors and Officers of the Company.
**10.2 Amended and Restated 1992 Incentive Stock Plan.
**10.3 1995 Director Option Plan.
***10.4 1995 Employee Stock Purchase Plan.
**10.5 1986 Key Employees' Stock Option Plan adopted October 20, 1986, as amended.
*10.6 Employment Agreement between the Company and Richard Giordanella, President and CEO dated July 8,
1992.
10.6 (a) Employment Agreement between the Company and Raymond Sozzi, President, COO and Acting Chief
Executive Officer dated June 28, 1996.
10.6 (b) Addendum dated July 30, 1996 to Employment Agreement for Raymond Sozzi. See Exhibit 10.6(a)
Employment Agreement between the Company and Raymond Sozzi dated June 28, 1996.
*10.7 (b) Amendment to Lease dated June 16, 1988 between Capelli Associates II and the Company relating to
the premises described as 100 Summit Lake Drive, Valhalla, NY.
*10.7 (c) Amendment to Lease dated May 1, 1989 between Capelli Associates II and the Company relating to
the premises described as 100 Summit Lake Drive, Valhalla, NY.
*10.7 (d) Third Amendment to Lease dated July 1, 1990 between Capelli Associates II and the Company
relating to the premises.
*10.7 (e) Sublease Agreement entered into in July 1995, between Towers Perrin Forester & Crosbey, Inc. and
the Company relating to the subletting of additional space at the premises described as 100
Summit Lake Drive, Valhalla, NY.
*10.8 (a) Lease Agreement dated April 21, 1988 by and between Ravinia II Associates and the Company
relating to the premises described as Two Ravinia Drive, Suite 1440, Atlanta, Georgia 30346.
*10.8 (b) First Amendment to lease dated September 1, 1993 by and between Ravinia II Associates and the
Company relating to the premises described as Two Ravinia Drive, Suite 1440, Atlanta, Georgia
30346.
*10.9 Lease dated January 4,1993 by and between Airport Corporate Center and Christopher E. Fountain
doing business under the name of the Company relating to the premises described as 533 Airport
Blvd., Suite 390, Burlingame, California.
*10.10 Lease dated June 10, 1994 between Oakbrook Terrace Associates, Ltd. and the Company relating to
the premises described as One Lincoln Centre, Suite 1660, Oakbrook Terrace, Illinois 60181.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<C> <S>
*10.11 Purchase Agreement dated October 29,1992 between the Company and the purchasers of the Company's
Series E Preferred Stock.
*10.12 Purchase Agreement dated June 30,1993 between the Company and the purchasers of the Company's
Series E Preferred Stock.
*10.13 Purchase Agreement dated September 6,1994 between the Company and Oracle Corporation relating to
the purchase of the Company's Series F Preferred Stock.
*10.14 Master Lease Agreement dated January 3,1992 between Comdisco, Inc. and the Company.
*10.15 Registration Rights Agreement dated October 29, 1992, as amended and restated as of June 30,1993
and as of September 6,1994 between the Company and certain holders of the Series A, B, C, D, E
and F Preferred Stock and warrants of the Company.
*10.16(a) Credit Agreement dated as of January 15,1994 between the Company and Silicon Valley Bank.
*10.16(b) First Amendment dated as of December 5,1994 to Credit Agreement dated as of January 15, 1994
between the Company and Silicon Valley Bank.
*10.16(c) Amended and Restated Promissory Note dated December 5,1994 from the Company to Silicon Valley
Bank in the amount of $1.5 million.
*10.16(d) Promissory Note (Equipment Line of Credit Loans) dated as of December 5,1994 from the Company to
Silicon Valley Bank in the amount of $1,000,000.
*10.16(e) Security Agreement dated January 15,1994 between the Company and Silicon Valley Bank.
*10.16(f) First Amendment to Security Agreement dated as of December 5,1994 between the Company and Silicon
Valley Bank.
*10.16(g) Copyright Mortgage dated as of January 15,1994 between the Company and Silicon Valley Bank.
*10.16(h) Assignment of Trademarks dated January 15,1994 between the Company and Silicon Valley Bank.
*10.16(i) Guarantee dated January 15,1994 made by Datalogix Development Corp. in favor of Silicon Valley
Bank.
*10.16(j) Security Agreement dated as of January 15, 1994 between Datalogix Development Corp. and Silicon
Valley Bank.
+*10.17 International Distribution Agreement dated as of September 6,1994 by and between the Company and
Oracle Corporation.
+*10.18 Joint Marketing Agreement dated September 6,1994 between the Company and Oracle Corporation.
*10.19 Authorized Distributor Agreement dated January 3, 1991 between the Company and JYACC, Inc.
*10.20 Restricted Source Code License Agreement dated December 17,1991 by and between JYACC, Inc. and
the Company.
*10.21 Software Distribution License Agreement made as of May 29,1992 by and between IQ Software
Corporation and the Company.
*10.22 Development and Distribution Agreement dated February 2, 1993 by and between the Company and
Intellection, Inc.
*10.23 Software License and Technology Escrow Agreements dated as of March 30,1994 between UNISYS
Corporation and the Company.
*10.24 International Distribution Agreement dated December 2,1994 between S.E.A. Group, Inc. and the
Company.
*10.25 International Software Marketing Agreement dated as of December 5, 1994 between the Company and
IBM.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<C> <S>
*10.26 International Distribution Agreement dated January 9,1995 between Vertical Systems, Inc. and the
Company.
*10.27 Letter agreement with Rick L. Smith dated August 27,1992 containing severance provisions.
*10.28 Letter agreement with Peter B. Sobiloff dated July 21, 1992 containing severance provisions.
*10.29 Letter agreement with John Cingari dated May 7, 1993 containing severance provisions.
*10.30 Recapitalization Agreement dated June 30,1993 by and among the Company, J.P. Morgan Investment
Corporation and certain security holders of the Company.
*10.31 License Agreement dated September 25, 1990 by and among the Company and Concept Omega
Corporation.
^++10.32 Master Software Reseller Agreement dated effective as of July 18, 1995 by and among the Company
and International Business Machines Corporation.
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney. (included on signature page)
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Incorporated by reference to the Registration Statement on Form S-1 (File
No. 33-91746) as declared effective by the Securities and Exchange
Commission on June 15, 1995.
** Incorporated by reference to the Registration Statement on Form S-8 (File
No. 33-96868).
*** Incorporated by reference to the Registration Statement on Form S-8 (File
No. 33-96866).
**** Incorporated by reference to Form 8-K dated August 27, 1996.
*****Incorporated by reference to Form 8-K dated September 26, 1996.
^ Incorporated by reference to Form 10-K dated June 30, 1995.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
++ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company
during the fiscal quarter ended June 30, 1996. The Company subsequently filed
Form 8-K dated August 27, 1996. In addition, the Company filed two reports on
Form 8-K dated September 24, 1996, one disclosing the Agreement and Plan of
Merger with Oracle and the other announcing an anticipated loss for fiscal 1996
and certain restatements affecting first and second fiscal quarters of 1996.
Exhibits to the 8-K for the rights to announce adoption of a shareholder rights
plan and amendments to the Company's Bylaws were filed accordingly.
(c) EXHIBITS: See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES: See Item 14(a)(2) above.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.
DATALOGIX INTERNATIONAL INC.
By: _______/s/_RAYMOND V. SOZZI_______
Raymond V. Sozzi
PRESIDENT, CHIEF OPERATING OFFICER
AND ACTING CHIEF EXECUTIVE
OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
September 30, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Raymond V. Sozzi and Richard J. Willemin, and
each of them, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitutions, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes, or any of them, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Operating
/s/ RAYMOND V. SOZZI Officer and Acting Chief
- ------------------------------ Executive Officer September 30, 1996
Raymond V. Sozzi (Principal Executive
Officer)
/s/ RICHARD J. WILLEMIN Chief Financial Officer
- ------------------------------ (Principal Financial and September 30, 1996
Richard J. Willemin Accounting Officer)
/s/ PETER J. BARRIS
- ------------------------------ Director September 30, 1996
Peter J. Barris
/s/ GEORGE B. BEITZEL
- ------------------------------ Director September 30, 1996
George B. Beitzel
/s/ DAVID R. HATHAWAY
- ------------------------------ Director September 30, 1996
David R. Hathaway
/s/ ROBERT K. WEILER
- ------------------------------ Director September 30, 1996
Robert K. Weiler
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Datalogix International Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial position of Datalogix
International Inc. and its subsidiaries at June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 13, on September 24, 1996 the Company executed an
agreement and plan of merger with Oracle in which Oracle will acquire all of the
Company's outstanding common stock.
Price Waterhouse LLP
Stamford, Connecticut
September 24, 1996
F-1
<PAGE>
DATALOGIX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 34,019 $ 43,762
Short-term investments.................................................................... -- 165
Accounts receivable, less allowance for doubtful accounts of
$2,025, and $736, respectively.......................................................... 13,930 13,484
Deferred income taxes..................................................................... -- 2,017
Prepaid expenses and other current assets................................................. 747 576
--------- ---------
Total current assets................................................................ 48,696 60,004
Fixed assets, net........................................................................... 3,356 2,207
Computer software development costs, less accumulated amortization
of $1,890 and $3,080, respectively........................................................ 2,883 2,282
Deferred income taxes....................................................................... 2,732 499
Other assets................................................................................ 237 59
--------- ---------
Total assets........................................................................ $ 57,904 $ 65,051
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 2,632 $ 5,157
Accrued liabilities....................................................................... 5,162 3,516
Customer advances and unearned revenue.................................................... 3,900 5,712
Notes payable and other obligations....................................................... 4,666 824
--------- ---------
Total current liabilities........................................................... 16,360 15,209
Unearned revenue............................................................................ 269 404
Notes payable and other obligations......................................................... -- 147
Commitments and contingencies (Note 6 and 12)............................................... -- --
Shareholders' equity (deficit):
Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued................. -- --
Common stock, $.01 par value; authorized--40,000,000 shares; issued and
outstanding--11,158,231 shares in 1996 and 10,864,130 shares in 1995.................... 112 109
Additional paid-in capital................................................................ 72,160 71,631
Accumulated deficit....................................................................... (29,903) (21,871)
Treasury stock, at cost; 96,116 shares in 1996 and 11,116 shares in 1995.................. (704) (71)
Cumulative translation adjustment......................................................... (293) (267)
Deferred compensation..................................................................... (97) (240)
--------- ---------
Total shareholders' equity.......................................................... 41,275 49,291
--------- ---------
Total liabilities and shareholders' equity.......................................... $ 57,904 $ 65,051
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
DATALOGIX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Revenues:
License fees................................................................... $ 23,515 $ 26,852 $ 14,189
Services....................................................................... 25,668 16,326 10,559
--------- --------- ---------
Total revenues................................................................. 49,183 43,178 24,748
--------- --------- ---------
Operating expenses:
Cost of license fees........................................................... 7,862 5,618 2,077
Cost of services............................................................... 18,109 10,334 6,024
Sales and marketing............................................................ 16,418 13,670 8,589
Research and development....................................................... 9,386 6,271 4,554
General and administrative..................................................... 7,218 4,433 2,097
--------- --------- ---------
Total operating expenses....................................................... 58,993 40,326 23,341
--------- --------- ---------
Income (loss) from operations.................................................... (9,810) 2,852 1,407
Interest income................................................................ 1,950 186 57
Interest expense............................................................... (122) (113) (149)
--------- --------- ---------
Income (loss) before taxes....................................................... (7,982) 2,925 1,315
Provision (benefit) for income taxes............................................. 50 (2,405) --
--------- --------- ---------
Net income (loss)................................................................ $ (8,032) $ 5,330 $ 1,315
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per share........................................................ $ (0.70) $ 0.59 $ 0.16
--------- --------- ---------
--------- --------- ---------
Weighted average number of common and common equivalent shares outstanding....... 11,426 9,048 8,313
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DATALOGIX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Cash flows from operating activities:
Net income (loss).............................................................. $ (8,032) $ 5,330 $ 1,315
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................ 2,821 1,456 1,128
Provision for bad debt on accounts receivable................................ 2,812 307 590
Loss on disposal of fixed assets............................................. 118 -- 6
Write-off of capitalized software costs...................................... 131 -- 120
Deferred income taxes........................................................ (216) (2,516) --
Changes in operating assets and liabilities:
Accounts receivable........................................................ (3,258) (4,259) (3,483)
Prepaid expenses and other assets.......................................... (239) 347 (35)
Accounts payable and accrued liabilities................................... 4,576 2,160 410
Customer advances and unearned revenue..................................... (1,947) (352) 286
--------- --------- ---------
Net cash provided by (used in) operating activities.................... (3,234) 2,473 337
--------- --------- ---------
Cash flows from investing activities:
Short-term investments, net.................................................... 55 (55) 272
Capital expenditures........................................................... (2,676) (1,884) (401)
Capitalized software costs..................................................... (1,896) (1,122) (1,008)
--------- --------- ---------
Net cash (used in) investing activities................................ (4,517) (3,061) (1,137)
--------- --------- ---------
Cash flows from financing activities:
Net repayments on financing arrangements....................................... (971) (2,780) (78)
Purchase of treasury shares.................................................... (633) -- --
Proceeds from sale of redeemable convertible preferred stock, net.............. -- 4,147 (38)
Payment of stock issuance costs................................................ (789) -- --
Proceeds from sale of common stock, net........................................ -- 38,743 --
Proceeds from exercise of stock options and warrants and employee stock
purchase..................................................................... 427 216 --
--------- --------- ---------
Net cash provided by (used in) financing activities.................... (1,966) 40,326 (116)
--------- --------- ---------
Effect of exchange rate changes on cash.......................................... (26) (26) (15)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................... (9,743) 39,712 (931)
Cash and cash equivalents at beginning of year................................... 43,762 4,050 4,981
--------- --------- ---------
Cash and cash equivalents at end of year......................................... $ 34,019 $ 43,762 $ 4,050
--------- --------- ---------
Supplemental disclosures of cash flow information:
Interest paid.................................................................. $ 122 $ 113 $ 149
Interest received.............................................................. $ 1,856 -- --
Noncash investing and financing activities:
Accrual of deferred stock option compensation.................................. $ -- $ 257 $ --
Conversion of redeemable preferred stock to common stock....................... $ -- $ 32,977 $ --
Accrual of common stock issuance costs......................................... $ -- $ 731 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DATALOGIX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
---------------------- PAID-IN ACCUMULATED TREASURY TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) STOCK ADJUSTMENT
--------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993.................. 213 $ 2 $ 275 $ (28,125) $ (71) $ (226)
Exercise of stock options............... 2 1
Preferred stock issuance costs.......... (38)
Net income.............................. 1,315
Translation adjustments................. (15)
--------- ----- ----------- ------------ ----- -----
Balance, June 30, 1994.................. 215 2 276 (26,848) (71) (241)
Preferred stock issuance costs.......... (353)
Initial public offering of common stock,
net................................... 2,495 25 37,987
Conversion of redeemable preferred
stock................................. 7,259 73 32,904
Cashless exercise of Oracle Warrant
(Note 7):
Exercise............................ 890 9 4,995
Reacquisition....................... (890) (9) (15,128)
Sale................................ 596 6 10,127
Exercise of stock options and
warrants.............................. 299 3 213
Deferred compensation on stock
options............................... 257
Amortization of deferred compensation...
Net income.............................. 5,330
Translation adjustments................. (26)
--------- ----- ----------- ------------ ----- -----
Balance, June 30, 1995.................. 10,864 109 71,631 (21,871) (71) (267)
Exercise of stock options and
warrants.............................. 282 3 296
Issuance under Stock Plans.............. 12 -- 128
Purchase of treasury shares............. (633)
Amortization of deferred compensation... 105
Net loss................................ (8,032)
Translation adjustments................. (26)
--------- ----- ----------- ------------ ----- -----
Balance, June 30, 1996.................. 11,158 $ 112 $ 72,160 $ (29,903) $ (704) $ (293)
--------- ----- ----------- ------------ ----- -----
--------- ----- ----------- ------------ ----- -----
<CAPTION>
DEFERRED
COMPENSATION
---------------
<S> <C>
Balance, June 30, 1993.................. $ --
Exercise of stock options...............
Preferred stock issuance costs..........
Net income..............................
Translation adjustments.................
-----
Balance, June 30, 1994.................. --
Preferred stock issuance costs..........
Initial public offering of common stock,
net...................................
Conversion of redeemable preferred
stock.................................
Cashless exercise of Oracle Warrant
(Note 7):
Exercise............................
Reacquisition.......................
Sale................................
Exercise of stock options and
warrants..............................
Deferred compensation on stock
options............................... (257)
Amortization of deferred compensation... 17
Net income..............................
Translation adjustments.................
-----
Balance, June 30, 1995.................. (240)
Exercise of stock options and
warrants..............................
Issuance under Stock Plans..............
Purchase of treasury shares.............
Amortization of deferred compensation... 143
Net loss................................
Translation adjustments.................
-----
Balance, June 30, 1996.................. $ (97)
-----
-----
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1 -- THE COMPANY:
Datalogix International Inc. (the "Company") is a provider of open,
client/server software solutions for managing the manufacturing, logistics and
financial operations of process manufacturing companies worldwide.
The financial statements reflect the consolidated activities of the Company
and its subsidiaries. All intercompany balances and transactions have been
eliminated.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Company.
ACCOUNTING ESTIMATES:
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 reported
period. Actual results could differ from these estimates.
REVENUE RECOGNITION:
Revenues under the Company's noncancellable license agreements are
recognized upon delivery of the software and once all significant contractual
obligations have been satisfied. Royalty revenues are recognized as they are
reported to the Company by the third party licensing the Company's software.
Revenues from the Company's customer support services (i.e., telephone
support and product updates) are recognized on a PRO RATA basis over the life of
the service contract, generally one year. Revenues from consulting, programming,
training and software installation services are recognized as these services are
performed and delivered. Customer advances and unearned revenues include amounts
received or billed for customer support services to be rendered in the future.
Estimated warranty costs of the Company's noncancellable license agreements
are recognized upon the recognition of revenue related to these agreements. See
Note 12 for fourth quarter increase to the warranty reserve.
COMPUTER SOFTWARE DEVELOPMENT COSTS:
The Company's software development costs, which are primarily comprised of
salaries and related costs, are expensed until technological feasibility is
established and then capitalized until a marketable product is completed.
Capitalized software development costs are amortized over their estimated
economic life, principally three to five years. Amortization expense included in
cost of license fees for the years ended June 30 were $1,161 in 1996, $690 in
1995 and $596 in 1994. Included in research and development expenses were
previously capitalized software in the amounts of $131 and $120 in fiscal 1996
and 1994, respectively, which the Company determined would provide no future
benefit.
The Company periodically reviews its capitalized software development costs
to determine their net realizability based upon anticipated net future cash
flows of the applicable products.
F-6
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FIXED ASSETS:
Fixed assets are stated at cost less accumulated depreciation or
amortization. Depreciation of computer and office equipment is calculated using
the straight-line method over the estimated useful lives of the assets.
Amortization of leasehold improvements is calculated using the straight-line
method over the shorter of the life of the improvement or the related lease.
Depreciation and amortization expenses were $1,406, $749, and $532 in fiscal
1996, 1995 and 1994, respectively.
SHORT-TERM INVESTMENTS:
Short-term investments consist of bank deposits with maturities greater than
three months.
INCOME TAXES:
The Company accounts for income taxes using the asset and liability
approach. See Note 10 for further information.
STATEMENT OF CASH FLOWS:
For purposes of reporting cash flows, the Company considers all
interest-bearing securities having original maturities of three months or less
to be cash equivalents.
CONCENTRATIONS OF CREDIT RISKS:
The Company operates in one segment and its customers are concentrated
primarily in the consumer packaged goods (food, beverage, health and beauty
aids) and the industrial products (chemical, pharmaceutical and petroleum)
industries. The Company generally requires a cash deposit upon contract signing.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
In fiscal 1996, approximately 10% and 16% of total revenues were derived
from Oracle and another customer, respectively. The GEMMS license fees and
services comprised the principal component of the revenues from these customers.
No customer accounted for revenues in excess of 10% in fiscal 1995 or 1994.
The Company invests its excess cash principally in money market instruments,
short-term corporate obligations and certificates of deposit. Generally, the
investments mature within 90 days.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities denominated in foreign currencies are translated at
exchange rates on the balance sheet date, and revenues and expenses are
translated at average rates during the period. Translation adjustments are shown
separately as a component of shareholders' equity. The majority of international
revenues are denominated in U.S. dollars and pound sterling.
EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share is determined by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock
F-7
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
equivalents include stock options, warrants and redeemable convertible preferred
stock prior to its conversion into common stock in June 1995, upon the closing
of the initial public offering of the Company's common stock.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In October 1995, the Financial Accounting Standards Board issued SFAS 123, "
Accounting for Stock Based Compensation," which is effective in fiscal 1997 for
the Company. Under SFAS 123, companies can elect, but are not required, to
recognize compensation expense for all stock-based awards, using a fair value
methodology. The Company expects to implement in fiscal 1997 the disclosure only
provision, as permitted by SFAS 123.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior period amounts to conform
with the current year presentation.
NOTE 3 -- ORACLE (A RELATED PARTY) AGREEMENTS:
In September 1994, the Company entered into a Joint Marketing Agreement and
an International Distribution Agreement with Oracle Corporation (the "Oracle
Agreements") to market and distribute the GEMMS product (under the name "Oracle
GEMMS") on a worldwide basis. Datalogix pays royalties of 30% to Oracle for
certain GEMMS sales in the United States. The Company reports the royalties paid
to Oracle as a cost of license fees. In exchange for its international
distribution rights, Oracle pays the Company a royalty equal to 40% or more of
the license fees and maintenance fees received by Oracle for certain sales
outside the United States. Oracle also pays the Company license fees for certain
sales in the United States where Oracle sells directly to the customer. The
Company includes these royalties and license fees in revenues. There is no
offsetting entry to cost of license fees that is attributable to the royalty and
license fee revenues earned by the Company. The Oracle Agreements are for a
four-year term and renew annually unless terminated by either party.
Royalties and license fees paid by Oracle to Datalogix were approximately
$4,342 and $411 and royalties paid by Datalogix to Oracle were approximately
$3,923 and $2,670 for fiscal 1996 and 1995, respectively. Services revenue paid
by Oracle to Datalogix were approximately $740 and $130 in fiscal 1996 and 1995,
respectively. At June 30, 1996 and 1995, the Company had receivables due from
Oracle in the amount of $1,576 and $164, respectively, which are included in
accounts receivable in the consolidated balance sheet. Also, at June 30, 1996
and 1995, the Company had payables due Oracle in the amount of $1,905 and
$2,877, respectively, which are included in accounts payable in the consolidated
balance sheet. See Note 7, 11 and 13 for other transactions with Oracle.
F-8
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 4 -- BALANCE SHEET COMPONENTS:
Fixed assets consisted of the following at:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Computer equipment......................................................... $ 4,003 $ 3,608
Assets under capital lease................................................. -- 270
Office furniture, fixtures and other....................................... 2,169 1,297
--------- ---------
Total.................................................................... 6,172 5,175
LESS--Accumulated depreciation and amortization............................ 2,816 2,968
--------- ---------
$ 3,356 $ 2,207
--------- ---------
--------- ---------
</TABLE>
Accrued liabilities consisted of the following at:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Commissions................................................................ $ 1,076 $ 1,136
Payroll and other compensation............................................. 1,957 352
Other...................................................................... 2,129 2,028
--------- ---------
$ 5,162 $ 3,516
--------- ---------
--------- ---------
</TABLE>
NOTE 5 -- NOTES PAYABLE AND OTHER OBLIGATIONS:
In January 1994, the Company secured a commitment for a short term credit
facility of $1,500. The facility was amended in December 1994 to include an
equipment line of credit of $1,000. These facilities bear interest at a rate of
0.75% to 1.25% above the lender's prime rate and are secured by the Company's
assets. The short term credit facility expired in April 1996. The equipment line
of credit facility expired in June 1995. No amounts were outstanding under
either the short term credit facility or the equipment line credit at June 30,
1996 or 1995.
The Company has other obligations relating to product claims and warranty
costs. In the fourth quarter of fiscal 1996, the Company increased its reserve
for such costs and obligations to approximately $4,700 as discussed in Note 12.
The Company has noncancelable operating leases for furniture, equipment,
office space and automobiles. Annual rental expense under operating leases was
$1,957, $1,920 and $1,758 in fiscal 1996, 1995, 1994, respectively.
At June 30, 1996, scheduled minimum future lease payments due under
noncancelable operating leases having initial or remaining terms of one year or
more are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- --------------------------------------------------------------------
1997.............................................................. $ 2,112
<S> <C>
1998.............................................................. 2,296
1999.............................................................. 1,187
2000 and thereafter............................................... 102
---------
Total minimum lease payments........................................ $ 5,697
---------
---------
</TABLE>
F-9
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
The Company has made commitments to its customers for the annual support and
maintenance of its products as well as other customer obligations. See Note 5
for the accrued liability for product claims and warranty costs.
The Company is a party to claims arising during the normal course of
business, the outcome of which, in the opinion of management, will not have a
material adverse effect on the Company's financial position or results of
operations. See Note 12 for discussion of quarterly restatements.
NOTE 7 -- CAPITAL STOCK:
AUTHORIZATION
In April 1995, the Board of Directors and shareholders approved a 1-for-2
reverse stock split of the common stock, authorized the issuance of 5,000,000
shares of preferred stock at $.01 par value and approved an increase in the
number of authorized common shares from 30,000,000 to 40,000,000 shares. The
reverse stock split has been reflected in all prior periods presented.
Accordingly, all previously reported common stock share, per share and stock
option data have been restated.
COMMON STOCK
On June 15, 1995, the Company completed an underwritten initial public
offering ("IPO") of 3,795,000 shares of its common stock, at an initial price to
the public of $17.00 per share. The offering was comprised of 2,495,000 newly
issued shares by the Company and 1,300,000 shares offered by selling
shareholders. The Company retained net proceeds of $37,954 after deducting
underwriting commissions and discounts of $2,969 and other costs of $1,492.
In connection with the Oracle Agreements in September 1994 (see Note 3),
2,401,280 shares of preferred stock were issued to Oracle for $1.874 per share.
The total amount of preferred shares issued to Oracle was converted into common
stock upon the closing of the Company's IPO on June 15, 1995. In addition,
Oracle was granted a warrant (the "Oracle Warrant") to purchase 890,426 shares
of the Company's common stock at $5.62 per share. The Oracle Warrant was also
exercised for the Company's common stock upon the closing of the Company's IPO
as part of a cashless exercise. As a result of these and other market
transactions, Oracle owns approximately 14% of the Company's outstanding common
stock at June 30, 1996.
NOTE 8 -- STOCK OPTION PLANS:
The Company has reserved shares of common stock to be issued in connection
with its key employee stock option plan. The employees' options to purchase
shares vest over a fifty-month period. The options terminate six years from the
date granted.
All outstanding options under existing employee option plans and all
warrants outstanding both prior to and since the April 1995 1-for-2 reverse
stock split are now deemed to be exercisable into that number of common shares
determined using the stock split multiple.
In April 1995, the Board of Directors and shareholders established the 1995
Director Option Plan and the 1995 Employee Stock Purchase Plan which provides
for the issuance of 100,000 and 250,000 shares of common stock, respectively. As
of June 30, 1996, 24,000 options were granted and 76,000 shares remained
F-10
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 8 -- STOCK OPTION PLANS: (CONTINUED)
available for future granting of options under the 1995 Director Option Plan.
Under the Employee Stock Purchase Plan, eligible employees may purchase shares
of the Company's common stock through payroll deductions not to exceed 10% of
compensation per pay period. The purchase price under this plan is an amount
equal to 85% of the lower of the fair market value of the stock on enrollment
date or on the exercise date. The plan purchased approximately 11,960 shares of
the Company's common stock during fiscal 1996. At June 30, 1996, there were
238,040 shares available for future offerings. No options or shares had been
granted or issued under these plans at June 30, 1995.
In November 1992, the Board of Directors and shareholders established the
1992 Stock Option Plan which provides for the issuance of 2,071,439 shares of
common stock.
Transactions under the Company's stock option plans, as retroactively
adjusted for stock splits, are summarized below (price approximates market value
at date of grant):
<TABLE>
<CAPTION>
OPTIONS PRICE PER SHARE
---------- -----------------
<S> <C> <C>
Options outstanding at June 30, 1993.......................... 1,139,248
Options granted............................................... 418,295 $0.80
Options exercised............................................. (1,573) $0.80
Options canceled.............................................. (77,598) $0.80
---------- -----------------
Options outstanding at June 30, 1994.......................... 1,478,372
Options granted............................................... 644,163 $ 0.80 - $13.00
Options exercised............................................. (268,848) $0.80
Options canceled.............................................. (183,777) $ 0.80 - $6.98
---------- -----------------
Options outstanding at June 30, 1995.......................... 1,669,910
Options granted............................................... 171,500 $ 11.75 - $12.25
Options exercised............................................. (272,141) $ 0.80 - $3.50
Options canceled.............................................. (95,024) $ 0.80 - $13.00
---------- -----------------
Options outstanding at June 30, 1996.......................... 1,474,245
---------- -----------------
---------- -----------------
</TABLE>
Stock options exercisable at June 30, 1996 were 906,199 with an exercise
price per share of $0.80-- $13.00. At June 30, 1996, 212,987 shares remained
available for future granting of options under the 1992 Plan. In fiscal 1996 and
1995, the Company recognized as compensation the excess of the deemed value for
accounting purposes of the common stock issuable upon exercise of certain
options over the exercise price of such options. The compensation expense is
amortized ratably over the period from the date of the grant through the vesting
date.
NOTE 9 -- EMPLOYEE RETIREMENT PLAN:
The Company sponsors a defined contribution 401(k) plan which covers
substantially all of its employees. The Company matches an amount equal to 25%
of the first 5% contributed by the employee. Employees are fully vested in their
own contribution and vest in the Company's contributions over a four-year
period. Contribution expenses of $134, $139 and $72 were incurred during fiscal
1996, 1995 and 1994, respectively.
F-11
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 10 -- PROVISION FOR INCOME TAXES:
The deferred tax provision was determined under the asset and liability
approach. Deferred tax assets and liabilities were recognized on differences
between the book and tax bases of assets and liabilities using presently enacted
tax rates. The provision (benefit) for income taxes is the sum of the amount of
income tax paid or payable for the year as determined by applying the provisions
of enacted tax laws to the taxable income for that year and the net change
during the year in the Company's deferred tax assets and liabilities.
In the third quarter of fiscal 1995, the Company, based upon its recent
operating results and the market acceptance of its GEMMS product, reduced its
valuation allowance to $698. The effect of this change in judgment regarding the
realizability of certain net operating losses was to offset the 1995 provision
for income taxes by $3,497, resulting in a net benefit for income taxes of
$2,405 for fiscal 1995. The valuation allowance was increased to $3,412 at June
30, 1996 primarily reflecting an allowance against additional loss carryforwards
generated in the current fiscal year. The Company believes it is more likely
than not that the deferred income taxes of $2,732 at June 30, 1996 will be
realized. However, it is reasonably possible that such valuation allowance could
increase significantly in the near term, depending on the Company's ability to
generate sufficient taxable income.
The provision (benefit) for taxes for the fiscal years ended June 30, 1996,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Current provision
U.S. federal.................................................... $ -- $ 15 $ --
State........................................................... 50 66 --
Foreign......................................................... 216 30 --
--------- --------- ---------
Total current provision........................................... 266 111 --
Deferred benefit.................................................. (216) (2,516) --
Provision (benefit) for income taxes.............................. $ 50 $ (2,405) $ --
</TABLE>
F-12
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 10 -- PROVISION FOR INCOME TAXES: (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following at:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Software development cost amortization................................... $ 1,009 $ 799
Depreciation and other................................................... 165 223
--------- ---------
Gross deferred tax liabilities......................................... 1,174 1,022
--------- ---------
Loss carryforwards....................................................... (4,892) (3,548)
Contract refunds and other obligations................................... (1,633) (243)
Commissions.............................................................. (26) (65)
Bad debt expense......................................................... (709) (235)
Other.................................................................... (58) (145)
--------- ---------
Gross deferred tax assets.............................................. (7,318) (4,236)
--------- ---------
Deferred tax asset valuation allowance................................... 3,412 698
--------- ---------
Net deferred tax asset................................................. $ (2,732) $ (2,516)
--------- ---------
--------- ---------
</TABLE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the U.S. applicable income tax rate to (loss) income
before taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Tax (benefit) provision at statutory rate....................... $ (2,794) $ 1,024 $ 447
State income taxes, net of federal tax benefit.................. 33 43 --
Valuation allowance adjustment, net............................. 2,714 (3,497) (447)
Other........................................................... 97 25 --
--------- --------- ---------
Provision (benefit) for income taxes............................ $ 50 $ (2,405) $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company has significant operating loss carryforwards which expire in
2008, 2009 and 2011. For tax purposes, there is a limitation on the utilization
of net operating losses resulting from certain changes in ownership due to prior
common and preferred stock transactions. As a result, the amount of net
operating loss carryforwards available to offset future taxable income is
approximately $14,000 as of June 30, 1996. Accordingly, the Company has recorded
a gross deferred tax asset for the amount of net operating loss carryforwards
available to offset future taxable income.
F-13
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 11 -- GEOGRAPHIC INFORMATION:
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
CANADA AND
UNITED OTHER
STATES EUROPE INTERNATIONAL TOTAL
---------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1996:
Total revenues................................................... $ 40,042 $ 4,867 $ 4,274 $ 49,183
Income (loss) from operations.................................... $ (11,532) $ 55 $ 1,667 $ (9,810)
Identifiable assets.............................................. $ 55,783 $ 1,945 $ 176 $ 57,904
Year ended June 30, 1995:
Total revenues................................................... $ 38,289 $ 2,527 $ 2,362 $ 43,178
Income (loss) from operations.................................... $ 2,591 $ (723) $ 984 $ 2,852
Identifiable assets.............................................. $ 63,998 $ 1,035 $ 18 $ 65,051
Year ended June 30, 1994:
Total revenues................................................... $ 22,027 $ 1,481 $ 1,240 $ 24,748
Income (loss) from operations.................................... $ 1,222 $ (408) $ 593 $ 1,407
Identifiable assets.............................................. $ 16,438 $ 1,148 $ 10 $ 17,596
</TABLE>
Revenues received directly from Oracle approximates $5,082, $541 and $0 for
the year ended June 30, 1996, 1995, and 1994 respectively.
NOTE 12 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Summarized quarterly financial data for the year ending June 30, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
PER THE QUARTER ENDED
---------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
FISCAL YEAR 1996 1995* 1995* 1996 1996
- ------------------------------------------------------------- ------------- ------------ ----------- ---------
Total revenues............................................... $ 9,166 $ 14,870 $ 11,065 $ 14,082
Operating expenses........................................... 10,760 13,698 13,712 20,823
Income (loss) before taxes................................... (1,109) 1,625 (2,179) (6,319)
Net income (loss)............................................ (698) 1,023 (1,373) (6,984)
Earnings (loss) per share.................................... (.06) .08 (.12) (.60)
</TABLE>
- ------------------------
* The first and second quarters of fiscal 1996 have been restated from
originally reported amounts as disclosed below.
F-14
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 12 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED): (CONTINUED)
During August 1996, new management conducted a comprehensive review of major
customer accounts for the purpose of determining the adequacy of reserves and
allowances related to customer warranty costs, legal costs and accounts
receivable. As a result of this review, management increased its sales returns
and allowance and bad debt provision by approximately $1,700, its customer
warranty costs by approximately $3,400 and made certain other adjustments of
approximately $800. Management has no basis on which to allocate these costs to
prior periods; as such, these adjustments totaling approximately $5,900 have
been accounted for as changes in estimates in the fourth quarter.
The first and second quarters of fiscal 1996 were restated due to accounting
irregularities which necessitated the elimination of a reseller transaction that
was subsequently determined not to be in accordance with Company policies, the
reversal of a credit taken against royalties to Oracle and to record as
compensation certain expenses related to a former employee. As a result of these
restatements, the Company's Board of Directors has retained outside counsel to
conduct a review of the facts and circumstances surrounding these matters and in
addition the Company's business practices and procedures. The originally
reported amounts were as follows:
<TABLE>
<CAPTION>
PER THE QUARTER ENDED
---------------------------
<S> <C> <C>
SEPTEMBER 30, DECEMBER 31,
FISCAL YEAR 1996 -- AS PREVIOUSLY REPORTED 1995 1995
- ------------------------------------------------------------------------------------ ------------- ------------
Total revenues...................................................................... $ 10,126 $ 13,910
Operating expenses.................................................................. 10,072 3,410
Income before taxes................................................................. 539 953
Net income.......................................................................... 340 600
Earnings per share.................................................................. .03 .05
</TABLE>
The Company is unable to predict whether litigation resulting from the
publication of the restatements will be initiated against the Company, its
officers or its directors nor is it able to predict the outcome or the range of
potential loss, if any, which might result if such litigation is initiated.
Accordingly, no provision for any liability or other adjustments which may
result has been made in the financial statements at June 30, 1996.
<TABLE>
<CAPTION>
PER THE QUARTER ENDED
----------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
FISCAL YEAR 1995 1994 1994 1995 1995
- ------------------------------------------------------------- ------------- ------------- ----------- ---------
Total revenues............................................... $ 7,115 $ 9,988 $ 12,004 $ 14,071
Operating expenses........................................... 7,095 9,602 11,258 12,371
Income before taxes.......................................... 22 398 758 1,747
Net income................................................... 22 398 3,809 1,101
</TABLE>
NOTE 13 -- SUBSEQUENT EVENTS:
The Company filed an 8-K dated August 27, 1996 and announced that its Board
of Directors adopted a shareholder rights plan in which preferred stock purchase
rights will be distributed as a dividend at a rate of one right for each share
of the Company's common stock. The Company adopted the plan to protect
shareholders against unsolicited attempts to acquire control of the Company that
would not offer what the Company believes is intended to enable all of the
Company's shareholders to realize the long-term value of their investment in the
Company. The rights do not preclude a takeover, but put on notice anyone seeking
F-15
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 13 -- SUBSEQUENT EVENTS: (CONTINUED)
to acquire the Company to negotiate with the Board prior to attempting a
takeover. The rights will be issued to shareholders of record on September 9,
1996 and will expire on August 27, 2006.
The plan provides for the issuance of one right for each one one-thousandth
of a newly issued share of Series A preferred stock of the Company at an
exercise price of $30. The rights will be exerciseable and transferable apart
from the Company's common stock only if a person or group acquires beneficial
ownership of 20% or more of common stock or commences a tender or exchange offer
upon consummation of which such person or group would beneficially own 20% or
more of the common stock. If a person or group becomes the beneficial owner of
20% or more of the Company's common stock, then each right not owned by a 20% or
more shareholder or certain related parties will entitle its holder to purchase,
at the right's then-current exercise price, shares of common stock (or, in
certain circumstances as determined by the Board, cash , other property, or
other securities) having a value twice the right's exercise price. The Company
will generally be entitled to redeem the rights at $.01 per right at any time
until a person or group has become the beneficial owner of 20% or more of the
Company's common stock.
If, after any person has become a 20% or more shareholder, the Company is
involved in a merger or other business combination with another person in which
its common stock is changed or converted, or sells 50% or more of its assets or
earning power to another person, each right will entitle its holder to purchase,
at the right's then-current exercise price, shares of common stock of such other
person having value of twice the right's exercise price.
The Company also announced that the Board of Directors had adopted
amendments to the Company's Bylaw's implementing notice procedures for
shareholder proposals and for nominations for the election of directors,
increasing the percentage of outstanding shares of stock required to call
special meetings of shareholders, and eliminating the ability of shareholders to
remove directors without cause.
On September 24, 1996 the Company executed an Agreement and Plan of Merger
with Oracle in which Oracle will acquire all of the Company's outstanding common
stock, excluding treasury, for a price of $8.00 per share or an aggregate of
approximately $81 million. Each share of the Company's common stock (and
associated preferred stock purchase rights) will be converted into the right to
receive $8.00 per share payable to the holder thereof, without interest.
Consummation of the merger is subject to certain closing conditions, including
shareholder consent and regulatory approval. In connection with the execution of
the Merger Agreement on September 24, 1996, the Company amended the plan to
exclude the Merger from triggering the exerciseability of such rights.
F-16
<PAGE>
DATALOGIX INTERNATIONAL INC.
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Datalogix International Inc.
Our audits of the consolidated financial statements referred to in our
report dated September 24, 1996 appearing on page F-1 of the 1996 Annual Report
of Datalogix International Inc. also included an audit of the Financial
Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
Price Waterhouse LLP
Stamford, CT
September 24, 1996
S-1
<PAGE>
DATALOGIX INTERNATIONAL INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO
OF COSTS AND BALANCE AT
PERIOD EXPENSES DEDUCTIONS END OF PERIOD
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended June 30, 1996:
Allowance for doubtful accounts.......................... $ 736 $ 2,812 $ 1,523 $ 2,025
Deferred taxes........................................... $ 698 $ 2,714 $ -- $ 3,412
Year ended June 30, 1995:
Allowance for doubtful accounts.......................... $ 600 $ 307 $ 171 $ 736
Deferred taxes........................................... $ 4,942 $ -- $ 4,244 $ 698
Year ended June 30, 1994:
Allowance for doubtful accounts.......................... $ 535 $ 590 $ 525 $ 600
Deferred taxes........................................... $ 4,904 $ 38 $ -- $ 4,942
</TABLE>
S-2
<PAGE>
EXHIBIT 10.6(a)
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of June, 1996 (the "Agreement") by and between
Datalogix International Inc., a New York corporation, with offices at 100 Summit
Lake Drive, Valhalla, New York 10595 (the "Company"), and Raymond V. Sozzi, an
individual residing at 11 Courtmel Road, Mount Kisco, New York 10549 (the
"Executive").
W I T N E S S E T H:
WHEREAS, the parties desire to enter into this Agreement to set forth the
terms of Executive's employment by the Company.
NOW, THEREFORE, in consideration of the mutual premises and covenants set
forth herein and for other good and valuable consideration, the receipt,
adequacy and legal sufficiency of which are hereby acknowledged, the Company and
Executive mutually agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) EMPLOYMENT. The Company agrees to employ Executive, and Executive agrees
to accept employment with the Company, on the terms and conditions hereinafter
set forth.
(b) SCOPE OF DUTIES. Executive's title shall be President and Chief
Operating Officer ("COO") of the Company. Executive shall render services solely
for the benefit, and on behalf, of the Company and its subsidiaries as directed
by the Chairman and Chief Executive Officer ("CEO"). The Board of Directors of
the Company (the "Board") shall have the power to determine the general and
specific duties to be performed by Executive (commensurate with the position of
President and COO) and the power, means and the manner by which those duties
shall be performed.
(c) EXCLUSIVE SERVICE. Executive shall perform his duties in a diligent
manner; shall not engage in activities which are or could reasonably be
foreseeable to be detrimental to the existing or future business of the Company;
and shall observe and conform to all laws, customs and standards of business
ethics and honest business practices. Executive shall be required, and does
hereby agree, to devote his full working time and attention to the duties
imposed upon him under this Agreement. In no event, however, shall Executive's
pursuit of publications, charitable endeavors, or personal investment
opportunities (that are not related to the Company's business) be deemed a
breach of this Agreement, provided that such pursuits does not interfere with
the services required to be rendered to the Company hereunder, is consistent
with the Company's policies regarding conflicts of interest, and does not in any
way violate or infringe any of Executive's covenants set forth herein. It is
understood that Executive has a consulting firm and he will transition his work
to other executives at that firm within three months, but in any event, the
transition will not interfere with his work at the Company.
(d) PROFESSIONAL STANDARDS. Recognizing and acknowledging that it is
essential for the protection and enhancement of the name and business of the
Company and the good will pertaining thereto, Executive shall perform his duties
under this Agreement professionally and in accordance with the standards
established by the Company from time to time; and Executive shall not act, and
shall refrain from acting, in any manner that could reasonably be foreseen to
harm or tarnish the name, business or income of the Company or the good will
pertaining thereto.
2. COMPENSATION.
(a) BASE SALARY. For all services rendered by Executive during the term of
this Agreement, the Company shall pay Executive an annual base salary (the "Base
Salary") of $225,000, payable in accordance with the Company's customary payment
policies and periods and subject to customary withholdings and
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deductions. The Base Salary may be increased (but not decreased) at the end of
each year of employment at the discretion of the Compensation Committee of the
Board.
(b) SIGNING BONUS. On the date of this Agreement the Company is paying to
the Executive a one-time signing bonus of $25,000.
(c) BONUSES. In addition to the Base Salary described in Section 3(a) above,
Executive shall be eligible for a performance bonus ("Performance Bonus"). With
respect to the Performance Bonus for the fiscal year of the Company ended June
30, 1997 ("Fiscal '97") no later than August 15, 1996 the Company through the
Chairman and CEO, but subject to approval of the Compensation Committee of the
Board, will establish with the Executive performance criteria based upon the
achievement of sales and performance goals and objectives which will permit the
Executive to earn up to an additional $70,000. The Performance Bonus will be
based on achievement of the performance criteria and shall be paid to the
Executive within fifteen (15) days after the Company's independent accounting
firm has concluded its audit and issued its report. With respect to fiscal years
after Fiscal '97, as additional compensation for the performance of the services
rendered by Executive, the Company will pay a Performance Bonus based upon
performance goals and objectives which shall be agreed upon no later than August
15 of the subject fiscal year by the Chairman and CEO and the Executive, but
subject to approval of the Compensation Committee, which will permit Executive
to earn additional compensation levels that shall be established at the time the
parameters are established. The target Performance Bonus shall not be less than
$70,000.
(d) FRINGE BENEFITS. In addition to the Base Salary and bonuses described in
Sections 2(b) and 2(c) above and subject to the provisions of this Section 2(d)
and in the sole and absolute discretion of the Company, the Company may from
time to time provide to, or withdraw from, Executive certain other fringe
benefits (e.g., health insurance, if reasonably available, auto allowance in
accordance with the Company's policy, if any, as established from time to time).
Nothing herein shall require the Company to adopt, maintain or continue any such
fringe benefit. In no event shall the fringe benefits available to Executive be
less than those available to other executive officers of the Company. During the
Employment Period or for such time as otherwise provided in this Agreement,
Executive shall be entitled to participate in such pension, expense
reimbursement, auto allowance, benefit plans, fringe benefits, life insurance,
medical and dental plans, retirement plans and other programs as are offered
from time to time by the Company to its executive employees and are described in
the Company's benefit book, provided that as a minimum, Executive shall be
entitled to: (i) a car allowance of $650 per month, (ii) in lieu of including
the Executive under the Company's major medical and insurance programs, the
Company shall reimburse the Executive his cost for maintaining his existing
medical insurance (together with the coupled life insurance program and
disability program) at a reimbursement cost of approximately $650 per month.
(e) VACATION. Executive shall be entitled to an annual vacation of fifteen
(15) working days for each full calendar year of employment hereunder, which may
be taken all at once or from time to time; PROVIDED, HOWEVER, that (i) Executive
shall schedule such vacation time so as to mitigate the adverse effects to the
Company of Executive's absence; (ii) Executive shall give the Company at least
thirty (30) days notice of consecutive vacation days in excess of five (5) to be
taken by Executive at any one time; and (iii) any unused vacation time of one
calendar year is lost and shall not be available if not taken by Executive in
that calendar year.
(f) BUSINESS EXPENSES. The Company agrees to pay or to reimburse the
Executive for all reasonable, ordinary and necessary business or entertainment
expenses incurred in the performance of his services hereunder in accordance
with the policy of the Company as from time to time in effect. The Executive, as
a condition precedent to obtaining such payment or reimbursement, shall provide
to the Company any and all statements, bills or receipts evidencing the travel
or out-of-pocket expenses for which the Executive seeks payment or
reimbursement, and any other information or materials, as the Company may from
time to time reasonably require.
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(g) STOCK OPTIONS. The Company will grant to Executive, effective as of the
date of this Agreement but subject to the Executive commencing employment with
the Company, options under its 1992 Incentive Stock Plan (the "Plan") to
purchase 200,000 shares of the common stock of the Company at an exercise price
equal to the closing sales price of the common stock at the close of business on
June 24, 1996. During Fiscal '97 the Board (or the Compensation Committee
thereof) shall consider awarding the Executive an additional 40,000 options
under the Plan. The 200,000 options to the extent granted to Executive in excess
of the number available under the Plan ("Excess Options") shall be subject to
the shareholders of the Company approving the amendment previously adopted by
the Board increasing the number of shares available for issuance under the Plan
by 600,000 ("Plan Amendment"). To the extent outstanding options become
available under the Plan between the date hereof and shareholder approval of the
Plan Amendment, because they are unexercised or surrendered, such options shall
be used to decrease the Excess Options. The options shall be Nonstatutory Stock
Options (as defined in the Plan) to the extent required by the Plan under the
mandated $100,000 limitation. The options will provide that they vest at the
rate of twenty-five percent (25%) per annum on the date of the anniversary of
the commencement of employment, have a term of six (6) years and otherwise
utilize the general format for options granted by the Company under its 1992
Employee Incentive Stock Option Plan with the exception of the following:
(i) twenty percent (20%) of the options will conditionally vest upon the
Executive commencing employment with the Company PROVIDED, HOWEVER, that in
the event the employment of the Executive terminates under Section 7(b) or
7(d) on or before the first anniversary of the date of the Agreement, then
all such options will be deemed as having not vested and further in the
event the Executive shall have exercised the options then Executive agrees:
(A) the shares will be issued subject to a restricted grant which
shall terminate on the first anniversary of the date of this Agreement;
and
(B) he shall not have a right to sell, pledge, hypothecate or
otherwise transfer the shares until after the first anniversary of the
date of this Agreement; and
(ii) the Company shall have a right through the first anniversary of the
date of this Agreement in the event the Executive terminates his employment
with the Company for any reason whatsoever to repurchase the shares at the
option exercise price; and
(iii) in the event of a Change of Control of the Company (as defined in
Section 8(e) of this Agreement), then and in such event notwithstanding any
other vesting provisions of the options, fifty percent (50%) of the options
will vest on the occurrence of a Change of Control prior to the first
anniversary of the date of this Agreement, seventy-five percent (75%) of the
options shall vest in the event of an occurrence of a Change of Control on
the first and prior to the second anniversary of the date of this Agreement,
and the options shall become entirely vested on the occurrence of a Change
of Control on or after the third anniversary of the date of this Agreement.
In the event of the occurrence of Change of Control, the Executive shall
have a right at his option within thirty (30) days following the occurrence
of a Change of Control, to require the Company to purchase from him the
options (and if any of the options have been exercised the underlying
shares) at a purchase price of $100,000 plus the purchase price paid by him
for any underlying shares.
(h) The Company shall indemnify Executive to the fullest extent permitted by
the New York Business Corporation Law from claims against him in his capacity as
an officer and employee of the Company and to the extent he is serving as such a
Director of the Company. Such indemnification shall include, among other things,
the advancement as incurred of costs and legal fees of defending against any
such claims. Additionally, for so long as the Company maintains such insurance,
it will maintain the Executive as a named covered person under its directors and
officers liability insurance, provided, however, the provisions of this Section
2(h) shall not create an independent obligation on the part of the Company to
maintain such insurance.
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3. NON-COMPETITION.
(a) In view of the knowledge of the trade secrets and other proprietary
information relating to the business of the Company and its customers which
Executive is expected to obtain during the Employment Period (as defined in
Section 7), and in consideration of the compensation to be received hereunder,
Executive agrees: (i) that during the Employment Period he will not Participate
In (as such term hereinafter defined) any other business or organization if such
business or organization now is or shall then be competing with or be of a
nature similar to the business of the Company in which it was engaged at the
last date of the Employment Period and for the preceding twelve months; and (ii)
for a period of one year after the Termination Date due to a termination of this
Agreement for any reason, he will not compete with or be engaged in the same
business as, or Participate In any other business or organization which during
such one-year period competes with or is engaged in the same business as, the
Company or its subsidiaries with respect to any product sold or activity engaged
in up to the Termination Date in any geographical area in which at the
Termination Date such product is sold or activity engaged in, except that in
each case the provisions of this Section 4 will not be deemed breached merely
because Executive owns not more than 5% of the outstanding common stock of a
corporation, if, at the time of its acquisition by Executive, such stock is
listed on a national securities exchange, is reported on NASDAQ, or is regularly
traded in the over-the-counter market by a member of a national securities
exchange.
(b) The term "Participate In" shall mean: "directly or indirectly, for his
own benefit or for, or through any other person, firm, or corporation, own,
manage, operate, control, loan money to (provided, that an investment in debt
instruments issued pursuant to an effective registration statement under the
Securities Act of 1933, as amended shall not be deemed to be a loan), or
participate in the ownership, management, operation, or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor, or otherwise with, or acquiesce in the use of his name
in."
(c) During the Employment Period and for a period of one year after the
Termination Date, Executive will not directly or indirectly:
(i) solicit, interfere with, or endeavor to entice away from the Company
any of its customers, licensees, or vendors, or
(ii) regardless of the reason for his ceasing to be employed by the
Company, employ as an employee or retain as a consultant, or persuade or
attempt to persuade any person who is then or at any time during the
preceding year was an employee of or exclusive consultant to the Company to
leave the Company or to become employed as an employee or retained as a
consultant by anyone other than the Company.
(d) Executive agrees that the provisions of this Section 3 are necessary and
reasonable to protect the Company in the conduct of its business. If any
restriction contained in this Section 3 shall be deemed to be invalid, illegal,
or unenforceable by reason of the extent, duration, or geographical scope
thereof, or otherwise, then the court making such determination shall have the
right to reduce such extent, duration, geographical scope, or other provisions
hereof, and in its reduced form such restriction shall then be enforceable in
the manner contemplated hereby.
4. CONFIDENTIAL INFORMATION. All confidential information which Executive
may now possess, may obtain during or after the Employment Period, or may create
prior to the end of the Employment Period relating to the business of the
Company or of any of its respective customers, licensees or suppliers shall not,
without the prior written consent of the Company, be published, disclosed, or
made accessible by him to any other person, firm or corporation either during or
after the Employment Period or used by him except during the Employment Period
in the business and for the benefit of the Company. Executive shall return to
the Company all tangible evidence of such confidential information, whether in
written form, disk form, computer file or otherwise, and shall delete or destroy
all intangible evidence of such confidential information, in each case, prior to
or at the end of the Employment Period. For this purpose confidential
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information shall refer to and include all of the particulars hereinafter
described in this paragraph: (i) systems which the Company now or hereinafter
owns, plans or develops, whether for its own use or for use by its clients; (ii)
information and document which clients of the Company may furnish to the Company
concerning their business affairs, property, methods of operation or other data;
(iii) the list of the Company's customers, as it may exist from time to time;
(iv) all specific proprietary software, algorithms, computer processing systems,
computer programs, course codes and techniques, formulas and technologies, with
which Executive becomes familiar as an employee of the Company; and (v) all
records, files, memoranda, reports, price lists, customer lists, drawings,
plans, sketches, documents, equipment, and the like relating to the business of
the Company which Executive shall use or prepare or with which Executive may
come into contact either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment. For purposes of this Agreement,
"confidential information" shall not include any information: (a) that is or
becomes generally or publicly available other than through disclosure by
Executive; (b) that is approved for release by written authorization of the
Company; (c) that is received from a third party outside the Company following
the termination of employment of Executive if such disclosure was without breach
of any confidentiality obligation to the Company or (d) that may be required by
law, regulation or an order of any court, agency or governmental body to be
disclosed.
5. RIGHTS OF THE COMPANY.
(a) Any interest in copyrights, copyrightable works, developments,
discoveries, designs and processes, patents, patent applications, inventions and
technological innovations (collectively, "Inventions") which Executive (i) owns,
conceives of or develops, alone or with others, (A) relating to the business of
the Company or its subsidiaries or any business in which the Company (or its
subsidiaries) contemplates being engaged or (B) which anticipate research or
development of the Company or its subsidiaries, or (ii) conceives of or develops
utilizing the time, material, facilities or information of the Company or its
subsidiaries, in either case during the Employment Period and for six months
thereafter, shall belong to the Company.
(b) As soon as Executive owns, conceives of or develops any Invention,
Executive shall immediately communicate such fact in writing to the Board of the
Company. Upon the request of the Company, Executive shall, without further
compensation but at the Company's expense (subject to clause (i) below) execute
all such assignments and other documents (including applications for trademarks,
copyrights and patents and assignments thereof) and take all such other action
as the Company may reasonably request, including obtaining spousal consents or
waivers, (ii) to vest in the Company all right, title and interest of Executive
in and to such Inventions, free and clear of all liens, mortgages, security
interests, pledges, charges and encumbrances (Executive to take such action, at
his expense, as is necessary to remove all such liens) and (iii) if patentable
or copyrightable, to obtain patents or copyrights (including extensions and
renewals) therefor in any and all jurisdictions in and outside the United States
in the name of the Company or in such other name(s) as the Company shall
determine.
6. INSURANCE. Executive agrees to submit to such medical examinations as may
be reasonably required by the Company to enable the Company to obtain, at its
option, key man life insurance on the life of Executive in such amount and with
such insurer as the Company may determine in its sole discretion.
7. EMPLOYMENT PERIOD The term of the Executive's employment hereunder (the
"Employment Period") shall commence on July 8, 1996 and shall continue until the
occurrence of any of the following events (the "Termination Date"):
(a) the death of Executive;
(b) the voluntary resignation of Executive;
(c) the termination by the Board of the Executive's employment for
Disability (as hereinafter defined);
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(d) the termination by the Board of the Executive's employment for Cause (as
hereinafter defined); or
(e) the termination by the Board of the Executive's employment Without Cause
(as hereinafter defined).
8. DEFINITIONS RELATING TO TERMINATION
(a) DISABILITY
The term "Disability" shall mean any physical or mental condition of
Executive which, in the reasonable discretion of the Board, after consultation
with Executive's physician, materially impairs Executive's ability to render the
services to be performed by him hereunder for a period of 90 consecutive days or
for at least 120 days in any consecutive 180 day period.
(b) CAUSE
The term "Cause" shall mean the good faith finding by the Board of the
Company upon resolution adopted by it of the existence of any one of the
following:
(i) Executive's failure or refusal to perform specific written
directives of the Board consistent with his duties and responsibilities as
set forth in Section 1 hereof, which lack of performance is not cured within
15 days after written notice thereof or 30 days if at the 15th day and
thereafter Executive is diligently attempting to cure.
(ii) Excessive use of alcohol or illegal drugs, interfering with
performance of Executive's obligations under this Agreement, which
interference is not cured within 15 days after written notice thereof or 30
days if at the 15th day and thereafter Executive is diligently attempting to
cure;
(iii) Conviction of a felony or of any crime involving moral turpitude
or fraud;
(iv) The commission by Executive of any willful or intentional act which
Executive reasonably should have contemplated would have the effect of
injuring the reputation, financial condition, business or business
relationships of the Company and/or Executive; or
(v) Any material breach of the provisions of Sections 3,4, 5 or 6 this
Agreement, if such breach is not cured within 30 days after written notice
thereof to the Executive by the Board.
(c) WITHOUT CAUSE
The term "Without Cause" shall mean a determination of the Board to
terminate Executive for any reason other than death, Disability or Cause.
(d) GOOD REASON
The term "Good Reason" shall mean (i) any removal of Executive while he is
employed hereunder from the position of President or COO, except in connection
with termination or suspension of Executive's employment for death, Disability
or Cause, (ii) a material reduction or change in Executive's duties and
responsibilities inconsistent with the duties and responsibilities customarily
expected of the President and COO of a company of the type, size and
circumstances of the Company, (iii) if following a Change of Control the Company
requires the Executive to relocate his principal place of business to a location
more than fifty (50) miles from the Company's current headquarters in Valhalla,
New York, or (iv) in the absence of a Change of Control of the Company, if on or
before June 30, 1999 (x) the Company requires the Executive to relocate his
principal place of business to a location more than fifty (50) miles from the
Company's current headquarters in Valhalla, New York, (y) Executive shall have
provided the Company written notice of his intention not to relocate (then, in
such event, Good Reason being effective at the end of the six month period
commencing with the date on which the Executive would have been required to
relocate but for the notice) and (z) during such six month period Executive
shall continue to work and
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transition the move (which may include temporarily working at the new location
at Company expense), or (v) the Plan Amendment shall not have been approved
within the time required by the Plan.
(e) CHANGE OF CONTROL
A "Change of Control" shall be deemed to have occurred if:
(i) any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1994, as amended (the "Exchange Act"), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power of the Company's
then outstanding securities;
(ii) there shall cease to be a majority of the Board comprised as
follows: individuals who on the date of this Agreement constitute the Board
and any new director(s) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of a majority
of the directors then still in office who either were directors or whose
election or nomination for election was previously so approved;
(iii) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent at least fifty
percent (50%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger
or consolidation, or the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets;
or
(iv) the business of the Company for which Executive's services are
principally performed is disposed of by the Company pursuant to an partial
or complete liquidation of the Company, a sale of assets (including stock of
a subsidiary of the Company) or otherwise.
9. EFFECT OF TERMINATION ON COMPENSATION.
(a) If Executive's employment is terminated for Disability, or upon his
death, Executive or his estate shall be paid his Base Salary, Performance Bonus,
and other benefits hereunder through the Termination Date. If Executive's
employment is terminated for Cause or if he resigns without good reason,
Executive shall be paid his Base Salary and other benefits through the
Termination Date. When under this Agreement a Performance Bonus is payable
through the Termination Date, such amount is calculated as the amount of the
Performance Bonus as if the Executive were employed through the entire year
multiplied by the quotient obtained by dividing the number of elapsed days
through the Termination Date by 365.
(b) If Executive's employment is terminated Without Cause or if the
Executive resigns for Good Reason, then in consideration of Executive's
agreement, under Sections 3, 4 and 5 hereof and in lieu of the payment of any
other severance pay or benefits, the Company shall continue to pay to Executive
(i) (A) if occurring on or before the first anniversary of the date of this
Agreement his Base Salary as of the Termination Date for twelve months after the
Termination Date (irrespective of the re-employment of the Executive), or (B) if
occurring on or after the first anniversary of the date of this Agreement his
Base Salary for six (6) months after the Termination Date (irrespective of the
re-employment of the Executive) and Salary Continuance (as hereinafter defined)
for up to three (3) months, and (ii) his Performance Bonus through the
Termination Date. Salary Continuance shall mean payment of the Base Salary to
the Executive for the period commencing six (6) months after the Termination
Date and ending on the earlier of nine (9) months after the Termination Date or
the day that the Executive shall have obtained other suitable employment for
which he shall search in good faith; suitable employment being employment
whereby the Executive is utilizing substantially the same type of skills at a
level of authority similar to that obtained by the Executive under this
Agreement.
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(c) Irrespective of the basis for the termination of Executive's employment,
all benefits, if any, other than Base Salary and PRO RATA Performance Bonus, if
applicable, shall cease as of the Termination Date, other than COBRA rights
which shall continue to the extent provided thereunder.
10. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or any breach or termination thereof, shall be settled by arbitration
in the County of Suffolk in accordance with the laws of the State of New York
and rules then obtaining of the American Arbitration Association or any
successor thereto. Within ten days after a request for arbitration by one party
to the other, the Company and Executive shall each select one arbitrator. Within
ten days after the second of such arbitrators has been selected, the two
arbitrators thereby selected shall choose a third arbitrator who shall be the
Chairman of the panel. If the first two arbitrators selected cannot agree upon a
third arbitrator, the American Arbitration Association shall name the third
arbitrator. The arbitration shall be held in Westchester County, New York. The
arbitrators may grant injunctions or other relief in such dispute or
controversy. In the arbitration, the parties shall be entitled to pre-hearing
discovery. The decision of the arbitrators shall be final, conclusive and
binding on the parties to the arbitration. In connection with such arbitration
and the enforcement of any award rendered as a result thereof, the parties
hereto irrevocably consent to the personal jurisdiction of the Courts of the
State of New York in the county where the Company maintains its principal place
of business, and further consent that any process or notice of motion or other
application to the said Court or Judge thereof may be served inside or outside
the State of New York by registered mail or personal service, provided a time
period of at least twenty days for appearance is allowed. The Company shall not
be required to seek injunctive relief from the arbitrators but may seek such
injunctive relief in a court proceeding. This Section 10 shall survive the
termination (by expiration or otherwise) of this Agreement.
11. MODIFICATION. This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersedes all existing
agreements between them concerning such subject matter, and may be modified only
by a written instrument duly executed by each party.
12. NOTICES. Any notice or communication to be given hereunder by any party
to the other shall be in writing and shall be deemed to have been given when
personally delivered or transmitted by facsimile, or three (3) days after the
date sent by registered or certified mail, postage prepaid, as follows:
(a) if to the Company, addressed to it at:
Datalogix International Inc.
100 Summit Lake Drive
Valhalla, New York 10595
(b) if to Executive, addressed to him at:
Raymond V. Sozzi
11 Courtmel Road
Mount Kisco, New York 10549
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
13. WAIVER. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
14. ASSIGNMENT. Executive's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise. The Company may not assign
its rights and obligations hereunder except in connection with a corporate
reorganization or merger.
8
<PAGE>
15. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of Executive and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of the
Company and its successors and assigns.
16. HEADINGS. The headings in this Agreement are solely for the convenience
of reference and shall be given no effect in the construction or interpretation
of this Agreement.
17. INJUNCTIVE RELIEF. Since a breach of the provisions of Sections 3 and 4
may not adequately be compensated by money damages, the Company shall be
entitled, in addition to any other right and remedy available to it, to an
injunction restraining such breach or a threatened breach, and in either case no
bond or other security shall be required in connection therewith, and Executive
hereby consents to the issuance of such injunction.
18. JURISDICTION. The validity and interpretation of this Agreement shall be
construed in accordance with and be governed by the laws of the State of New
York.
19. ATTORNEY'S FEES. If a legal action or other proceeding is brought for
enforcement of this Agreement because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party shall be entitled to recover reasonable
attorney's fees and costs incurred, in addition to any other relief to which
they may be entitled.
20. SEVERABILITY. The provisions of this Agreement are severable and should
any provision hereof be void, voidable or unenforceable under any applicable
law, such void, voidable or unenforceable provision shall not affect or
invalidate any other provision of this Agreement, which shall continue to govern
the relative rights and duties of the parties as though the void, voidable or
unenforceable provision were not a part hereof.
21. SURVIVAL. All warranties, representations, indemnities, covenants and
other agreements of the parties hereto shall survive the execution, delivery and
termination of this Agreement and shall, notwithstanding the execution, delivery
and termination of this Agreement, continue in full force and effect.
22. ACKNOWLEDGEMENT. Executive specifically acknowledges that: Executive has
read and understands all of the terms of this Agreement; in executing this
Agreement, Executive does not rely on any inducements, agreements, promises or
representations of the Company or any agent of the Company, other than the terms
and conditions specifically set forth in this Agreement; Executive has had an
opportunity to consult with independent counsel with respect to the execution of
this Agreement; and that Executive has made such investigation of the facts
pertaining to this Agreement and of all the matters pertaining hereto as he
deems necessary.
IN WITNESS WHEREOF, the Company and Executive have executed this Agreement
on the day and year first above written.
DATALOGIX INTERNATIONAL INC.
By: /s/ RICHARD G. GIORDANELLA
------------------------------------------
Richard G. Giordanella, Chairman
/s/ RAYMOND V. SOZZI
------------------------------------------
Raymond V. Sozzi
9
<PAGE>
EXHIBIT 10.6(b)
DATALOGIX INTERNATIONAL INC.
100 SUMMIT LAKE DRIVE
VALHALLA, NY 10595
July 30, 1996
Mr. Raymond V. Sozzi
11 Courtmel Road
Mt. Kisco, NY 10549
Dear Ray:
On behalf of Datalogix International Inc. (the "Company"), I would like to
thank you for agreeing to add to your already considerable duties as President
and Chief Operating Officer ("COO") of the Company, the duties and
responsibilities of acting Chief Executive Officer ("CEO") of the company
effective July 30, 1996. As with your duties as President and COO, the Board of
Directors of the Company shall have the power to determine the general and
specific duties to be performed by you as acting CEO and as directed by the
Chairman of the Board.
Subject to the ratification of the Compensation Committee of the Board of
Directors, which shall be forthcoming within eight days from the date hereof, as
consideration for your agreeing to assume the duties and responsibilities of
acting CEO, the Company will pay you $250,000 as termination and severance
compensation, in lieu only of the amounts payable to you as termination and
severance compensation under you employment agreement with the Company, dated
June 28, 1996 (the "Employment Agreement"), it being expressly understood that
all other compensation, remuneration and benefits of the Employment Agreement
shall remain in full force and effect. Subject to the other provisions of this
addendum, the termination and severance compensation provided herein is payable
by the company if, at any time from and after the date hereof, you resign from
the position as acting CEO of the Company, or if you are terminated by the
Company from the position as acting CEO. You shall have the right to resign as
acting CEO of the Company for any reason whatsoever, such decision being at your
total discretion, and such resignation may take place at any time of the date
hereof. The termination and severance compensation provided herein shall be
payable by the Company provided (i) that you have notified the Company within
sixty (60) days in advance of the last day of your employment with the Company,
which date shall be specified in such notice and shall be referred to herein as
the Termination Date; (ii) you continue to perform your duties as President, COO
and acting CEO during the 60 day period prior to the Termination Date, and (iii)
the Company does not have "cause", as cause is defined only in paragraph 8(b)
(ii)-(v) of your Employment Agreement, to terminate your employment prior to the
Termination Date. Any amounts owed to you hereunder shall be paid as follows:
50% of the termination and severance compensation shall be paid at the time
notice of termination is given and the remaining 50% of such compensation shall
be paid on the Termination Date.
In addition to the foregoing, the Compensation Committee shall negotiate in
good faith a new employment agreement, which shall include an appropriate
increase in your compensation and in the number of stock options given to you,
in light of your additional duties as acting CEO.
1
<PAGE>
If the foregoing is acceptable to you, kindly sign a copy of this letter
agreement and return it to the Company, whereupon it shall be an addendum to the
Employment Agreement and shall be binding upon you and the Company.
Very truly yours,
Datalogix International, Inc.
By: /s/ DAVID HATHAWAY
------------------------------------------
David Hathaway
Director
AGREED TO AS OF THE DATE AND
YEAR FIRST ABOVE WRITTEN:
/s/ RAYMOND V. SOZZI
- ------------------------------
Raymond V. Sozzi
2
<PAGE>
EXHIBIT 11.1
DATALOGIX INTERNATIONAL INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
<S> <C> <C>
1996 1995
------------- ------------
PRIMARY
Net income (loss).................................................................... $ (8,032,000) $ 5,330,000
------------- ------------
------------- ------------
Weighted average number of common shares outstanding................................. 11,426,220 574,583
Weighted average stock options and warrants outstanding.............................. -- 640,812
Automatic conversion feature of Series A, B, C, D, E and F redeemable convertible
preferred stock.................................................................... -- 7,039,323
Stock Options granted one year prior to initial public offering...................... -- 234,141
Oracle Warrant....................................................................... -- 559,222
------------- ------------
Weighted average number of common shares outstanding, as adjusted.................... 11,426,220 9,048,081
------------- ------------
------------- ------------
Earnings (loss) per share............................................................ $ (0.70) $ 0.59
------------- ------------
------------- ------------
FULLY DILUTED
Net income (loss).................................................................... $ (8,032,000) $ 5,330,000
------------- ------------
------------- ------------
Weighted average number of common shares outstanding................................. 11,435,727 574,583
Weighted average stock options and warrants outstanding.............................. -- 698,216
Automatic conversion feature of Series A, B, C, D, E and F redeemable convertible
preferred stock.................................................................... -- 7,039,323
Stock Options granted one year prior to initial public offering...................... -- 250,306
Oracle Warrant....................................................................... -- 578,049
------------- ------------
Weighted average number of common shares outstanding, as adjusted.................... 11,435,727 9,140,477
------------- ------------
------------- ------------
Earnings (loss) per share............................................................ $ (0.70) $ 0.58
------------- ------------
------------- ------------
</TABLE>
<PAGE>
EXHIBIT 21.1
DATALOGIX INTERNATIONAL INC.
SUBSIDIARIES OF REGISTRANT
1. Datalogix Europe Inc., a New York corporation.
2. Datalogix Development Corp., a New York corporation.
3. DXL Datalogix (Canada) Inc., a Canada corporation.
4. Datalogix Asia-Pacific Pte. Ltd., a Singapore corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-96866 and 33-96868) of Datalogix International
Inc., of our report dated September 24, 1996 appearing on page F-1 of this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears on page S-1 of
this Form 10-K.
Price Waterhouse LLP
Stamford, CT
September 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 34019
<SECURITIES> 0
<RECEIVABLES> 15955
<ALLOWANCES> 2025
<INVENTORY> 0
<CURRENT-ASSETS> 48696
<PP&E> 6172
<DEPRECIATION> 2816
<TOTAL-ASSETS> 57904
<CURRENT-LIABILITIES> 16360
<BONDS> 0
0
0
<COMMON> 112
<OTHER-SE> 41163
<TOTAL-LIABILITY-AND-EQUITY> 57904
<SALES> 0<F1>
<TOTAL-REVENUES> 49183
<CGS> 0<F2>
<TOTAL-COSTS> 58993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F3>
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> (7982)
<INCOME-TAX> 50
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8032)
<EPS-PRIMARY> (0.70)
<EPS-DILUTED> (0.70)
<FN>
<F1>LICENSE FEES 23515, SERVICES 25668
<F2>COST OF LICENSE FEES 7862, COST OF SERVICES 18109
<F3>PROVISION FOR DOUBTFUL ACCOUNTS INCLUDED IN (TOTAL COSTS)
</FN>
</TABLE>
