<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER 0-26358
COMPUTRON SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2966911
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 ROUTE 17 NORTH
RUTHERFORD, NEW JERSEY 07070
(Address of principal (Zip Code)
executive offices)
(201) 935-3400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES x NO
Number of shares outstanding of the issuer's common stock as of October 15, 1997
Class Number of Shares Outstanding
Common Stock, par value $0.01 per share 20,839,780
<PAGE> 2
COMPUTRON SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION NUMBER
------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1996 and September 30, 1997...................... 3
Consolidated Statements of Operations
Three and nine months ended September 30, 1996 and 1997.... 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1997............... 6
Notes to Consolidated Interim Financial Statements............ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 26
Item 6. Exhibits and Reports on Form 8-K.............................. 27
SIGNATURES
Signatures ............................................................ 28
</TABLE>
2
<PAGE> 3
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $19,730 $12,253
Short-term investments 1,073 477
Restricted cash 3,081 1,142
Accounts receivable, less reserves of $5,084
and $3,642 in 1996 and 1997, respectively 20,340 10,668
Prepaid expenses and other current assets 1,988 2,312
------- -------
Total current assets 46,212 26,852
------- -------
Equipment and leasehold improvements, at cost:
Computer and office equipment 10,249 10,949
Furniture and fixtures 1,436 1,342
Leasehold improvements 300 585
------- -------
11,985 12,876
Less - accumulated depreciation and amortization 7,598 9,042
------- -------
4,387 3,834
------- -------
Capitalized software development costs, less
amortization of $3,095 and $3,588
in 1996 and 1997, respectively 2,068 1,614
Goodwill, less amortization of $535 and $938 in
1996 and 1997, respectively 2,580 1,885
Other assets 1,446 1,303
------- -------
$56,693 $35,488
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE> 4
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 506 $ 30
Accounts payable 3,975 3,378
Accrued expenses 17,420 13,019
Note payable 1,402 --
Deferred revenue 18,551 11,145
-------- --------
Total current liabilities 41,854 27,572
-------- --------
Long-term liabilities:
Long-term debt, less current portion 97 55
-------- --------
Contingencies (Notes 3 and 4)
Common stock subject to repurchase (Note 3) -- 5,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000 shares,
no shares issued and outstanding -- --
Common stock, $ .01 par value, authorized 50,000
shares; 20,801 shares issued and outstanding
at December 31, 1996, and 20,840 shares
at September 30, 1997 208 208
Additional paid-in capital 63,879 63,894
Accumulated deficit (49,371) (60,800)
Cumulative translation adjustment 26 (441)
-------- --------
Total stockholders' equity 14,742 2,861
-------- --------
$ 56,693 $ 35,488
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 3,377 $ 3,763 $ 9,911 $ 14,275
Services 10,405 12,336 24,766 35,421
-------- -------- -------- --------
Total revenues 13,782 16,099 34,677 49,696
-------- -------- -------- --------
Operating expenses:
Cost of license fees 468 534 1,725 1,421
Cost of services 7,900 7,085 18,763 20,518
Sales and marketing 6,416 3,085 18,843 11,466
Research and development 3,078 2,573 8,896 7,369
General and administrative 4,408 4,005 11,236 11,798
-------- -------- -------- --------
Total operating expenses 22,270 17,282 59,463 52,572
-------- -------- -------- --------
Operating loss (8,488) (1,183) (24,786) (2,876)
-------- -------- -------- --------
Other income (expense):
Costs related to proposed settlement of
class action litigation -- (6,912) -- (9,185)
Other income 490 166 1,730 714
Other expense (19) (18) (84) (82)
-------- -------- -------- --------
Other income (expense), net 471 (6,764) 1,646 (8,553)
-------- -------- -------- --------
Loss before income taxes (8,017) (7,947) (23,140) (11,429)
Income tax provision 41 -- 74 --
-------- -------- -------- --------
Net loss $ (8,058) $ (7,947) $(23,214) $(11,429)
======== ======== ======== ========
Net loss per common
and common stock equivalent $ (0.39) $ (0.38) $ (1.12) $ (0.55)
======== ======== ======== ========
Weighted average number of
common and common equivalent
shares 20,801 20,819 20,811 20,822
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1996 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net loss $(23,214) $(11,429)
Adjustments to reconcile net loss to net
cash flows used in operating activities -
Proposed non-cash class action litigation costs -- 5,000
Depreciation and amortization 2,908 2,422
Provision for doubtful accounts 1,105 300
Loss on sale of equipment and leasehold improvements -- 27
Changes in current assets and liabilities net
of effect of acquisitions:
Restricted cash (2,924) 1,939
Accounts receivable (301) 9,372
Prepaid expenses and other current assets (733) (324)
Accounts payable and accrued expenses 5,153 (3,694)
Deferred revenue 1,961 (7,406)
-------- --------
Net cash flows used in operating activities (16,045) (3,793)
-------- --------
Cash flows from investing activities:
Other assets 61 143
Capitalized software development costs (1,088) --
Purchase of equipment and leasehold improvements (1,864) (1,248)
Proceeds from sale of equipment and leasehold improvements -- 75
Net cash paid for acquisitions in France and Germany (1,373) --
Cash paid for acquisition costs (211) --
Short-term investments (3,344) 596
-------- --------
Net cash flows used in investing activities (7,819) (434)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 82 15
Repayment of notes payable (1,564) (1,402)
Payments of long term debt (563) (518)
Decrease in liabilities related to acquisitions (750) (1,304)
-------- --------
Net cash flows used in financing activities (2,795) (3,209)
-------- --------
Foreign currency exchange rate effects 46 (41)
-------- --------
Net decrease in cash and cash equivalents (26,613) (7,477)
Cash and cash equivalents, beginning of period 45,119 19,730
-------- --------
Cash and cash equivalents, end of period $ 18,506 $ 12,253
======== ========
Supplemental disclosures of cash flow information
and noncash financing activities:
Cash paid during the period for -
Interest $ 84 $ 27
======== ========
Income taxes $ 87 $ 37
======== ========
Capital lease obligations incurred $ 43 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company designs, develops, markets and supports client/server financial,
workflow, plant maintenance and archival data management software solutions to
manage mission-critical applications in large organizations operating across a
broad range of industries worldwide.
Basis of Presentation:
The accompanying unaudited consolidated financial statements include the
accounts of Computron Software, Inc. and its wholly owned foreign subsidiaries
located in Australia, Canada, France, Germany, Hong Kong, Poland, Singapore, and
the United Kingdom (collectively, the "Company"). These financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles and in the opinion of management, contain all adjustments,
consisting only of those of a normal recurring nature, necessary for a fair
presentation of these financial statements.
These consolidated financial statements should be read in conjunction with the
financial statements and related notes included in the Company's 1996 Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
The results of operations for the three and nine months ended September 30,
1997, are not necessarily indicative of results to be expected for any future
periods.
(a) REVENUE RECOGNITION
The Company recognizes revenue from non-cancelable software licenses upon
product shipment, provided collection is probable and no significant vendor and
post-contract customer obligations remain at the time of shipment. License fees
for contracts which contain uncertainties regarding collection or contain
significant vendor obligations are deferred and recognized when collection is
deemed probable and/or such obligations have been satisfied. The Company
accounts for insignificant vendor obligations by deferring a portion of the
revenue and recognizing it when the related services are performed. Post
contract support (maintenance) service fees are typically billed separately and
are recognized on a straight line basis over the life of the applicable
agreement. The Company recognizes service revenues from consulting and
implementation services, including training, provided by both its own personnel
and by third parties, upon performance of the services.
7
<PAGE> 8
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(b) CASH AND CASH EQUIVALENTS
Cash equivalents are stated at cost, which approximates market, and consist of
short-term, highly liquid investments with original maturities of less than
three months.
(2) RESTATED FINANCIAL RESULTS
The Company has restated its consolidated financial statements for each of the
four years ended December 31, 1995, and certain unaudited quarters therein, and
for each of the three unaudited quarters ended September 30, 1996. In the
opinion of management, all material adjustments necessary to correct the
financial statements have been recorded.
A summary of the impact of such restatements on the unaudited financial
statements for the three and nine month periods ended September 30, 1996, is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
Previously As Previously As
---------- -- ---------- --
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 13,594 $ 13,782 $ 36,846 $ 34,677
Loss from operations (8,626) (8,488) (22,905) (24,786)
Net Loss (8,196) (8,058) (21,333) (23,214)
Net Loss per share (0.39) (0.39) (1.03) (1.12)
</TABLE>
(3) SUBSEQUENT EVENT - PROPOSED LITIGATION SETTLEMENT
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in nine class action civil suits. The suits
were filed in the United States District Court for the District of New Jersey
and have been consolidated by court order into one suit captioned In re
Computron Software, Inc. Securities Litigation, Master File No. 96-1911 (AJL). A
Fourth Amended Consolidated Class Action Complaint was filed on May 28, 1997, on
behalf of all purchasers of Computron Common Stock during the period from August
24, 1995, to January 27, 1997. The complaint asserts claims under Sections 11
and 15 of the Securities Act of 1933, Sections 10 (b) and 20 (a) of the
Securities Exchange Act of 1934, as amended, Rule 10b-5 of the Securities and
Exchange Commission promulgated thereunder, and seeks unspecified compensatory
damages, attorneys' fees and costs. The Court entered a stipulated order
certifying the plaintiff class to include purchasers of Computron Common Stock
from August 24, 1995, to January 27, 1997, including certain subclasses therein.
On October 28, 1997 the Company announced that a settlement, which is still
subject to final documentation and court approval, was reached with lead counsel
representing the certified class in the class action. As its share of the
settlement, the Company will pay $1 million in cash, and an additional $5
million, which may be paid in the form of newly issued Computron common stock
or, at the option of the Company, in cash.
8
<PAGE> 9
The overall settlement includes consideration totaling $15 million for the
benefit of class members, which includes $6 million of consideration from the
Company, and a total of $9 million in cash from certain of its present and
former officers and directors, its former auditors, and the insurance companies
that provided the Company with directors and officers liability insurance. In
return for the payments by the insurance companies, the settlement also resolves
a separate lawsuit brought by the Company against the insurance companies.
To the extent that the settlement includes stock, class members will receive a
non-transferable right to resell the stock received in the settlement to a
payment agent during an exercise period in December 1998 at a price to be
negotiated. The number of shares to be issued and the price at which class
members can exercise their right to resell the shares remain subject to
negotiation. The resale right will expire at the end of the exercise period, or
earlier as to any shares issued in the settlement that are sold by class
members.
The resale right will also expire earlier than the exercise period if
Computron's common stock trades on NASDAQ or a national securities exchange for
20 consecutive trading days at a price exceeding the exercise price of the
resale right. The Company will arrange a $5 million guarantee from a financial
institution representing the maximum amount payable to class members upon
exercise of their rights to resell the stock. In addition to professional fees
related to the litigation, the Company has recorded a $6 million charge to other
income (expense) during the quarter ended September 30, 1997, reflecting the
Company's share of the estimated settlement amount.
(4) CONTINGENCIES
Historically, the Company has been involved in other disputes and/or litigation
encountered in its normal course of business. The Company believes that the
ultimate outcome of these proceedings will not have a material adverse effect on
the Company's business, financial condition and results of operations or cash
flows.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This Report contains statements of a forward-looking nature within the meaning
of the safe harbor provisions of section 21E of the Securities Exchange Act of
1934 relating to future events or the future financial performance of the
Company. Investors are cautioned that such statements are only predictions and
that actual events or results may differ materially. In evaluating such
statements, investors should specifically consider the various factors
identified in this Report and in the Company's 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission which could cause actual
results to differ materially from those indicated by such forward-looking
statements, including the matters set forth under the caption "Certain Factors
That May Affect Future Results and Financial Condition and the Market Price of
Securities" below.
The Company's revenues are derived from license fees and services. Revenues for
services and training are recognized upon performance of the services. The
Company's license agreements generally do not provide a right of return.
Historically, the Company's backlog has not been substantial, since products are
generally shipped as orders are received.
The Company has experienced, and may in the future experience, significant
fluctuations in its quarterly and annual revenues and results of operations. The
Company believes that domestic and international operating results will continue
to fluctuate significantly in the future as a result of a variety of factors,
including the timing of revenue recognition related to significant license
agreements, the lengthy sales cycle for the Company's products, the proportion
of revenues attributable to license fees versus services, the utilization of
third parties to perform services, the amount of revenue generated by resales of
third party software, changes in product mix, demand for the Company's products,
the size and timing of individual license transactions, the introduction of new
products and product enhancements by the Company or its competitors, changes in
customers' budgets, competitive conditions in the industry and general economic
conditions.
Following the December 31, 1994 audit, the Company received a management letter
from its independent public accountants that identified material weaknesses in
the Company's internal control environment. During 1995, the Company experienced
significant turnover of its senior financial and accounting personnel which
management believes delayed the implementation of certain improvements and
resulted in material weaknesses in these same areas. Upon completion of the
December 31, 1995 audit, the Company again received a management letter from its
independent public accountants that identified material weaknesses similar to
those included in the 1994 management letter. In addition, the independent
public accountants recommended that the Company implement an internal accounting
control plan, approved by the Audit Committee of the Board of Directors, which
addresses these weaknesses and reorganize and upgrade the contracts
administration processes, procedures, controls and personnel to ensure proper
revenue recognition and financial reporting.
Upon completion of the December 31, 1996 audit, the Company received a
management letter which communicated material weaknesses similar to certain of
those included in the 1994 and 1995 management letters along with certain other
recommendations. In response to the independent
10
<PAGE> 11
public accountant's concerns and as a result of turnover in its accounting and
finance departments, the Company has hired senior executives with software
industry experience, including a Chief Executive Officer, a Senior Vice
President of Operations, a Chief Financial Officer, a Vice President of Finance
and Administration, a Corporate Controller, several international Controllers
and Managing Directors and Corporate Counsel. The Company expects to further
strengthen the Company's financial management and internal controls during the
remainder of 1997.
The Company has restated its consolidated financial statements for each of the
four years in the period ended December 31, 1995, and certain unaudited quarters
therein and for each of the three unaudited quarters ended September 30, 1996.
The Company incurred net losses of $2.4 million for 1994, $8.6 million for 1995,
and $31.8 million for 1996, and reported a net loss of $11.4 million for the
nine months ended September 30, 1997. As of September 30, 1997, the Company had
an accumulated deficit of $60.8 million. There can be no assurance that the
Company will be profitable in the future.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
License fees .......................... 24.5% 23.4% 28.6% 28.7%
Services .............................. 75.5 76.6 71.4 71.3
------ ------ ------ ------
Total revenues ........................ 100.0 100.0 100.0 100.0
Operating expenses:
Cost of license fees .................. 3.4 3.3 5.0 2.9
Cost of services ...................... 57.3 44.0 54.1 41.3
Sales and marketing .................. 46.6 19.2 54.3 23.1
Research and development ............. 22.3 16.0 25.7 14.8
General and administrative ............ 32.0 24.9 32.4 23.7
------ ------ ------ ------
Total operating expenses ......... 161.6 107.4 171.5 105.8
Operating loss .......... (61.6) (7.4) (71.5) (5.8)
Other income (expenses):
Costs related to proposed settlement of
class action litigation -- (42.9) -- (18.5)
Other income .......................... 3.4 0.9 4.7 1.3
------ ------ ------ ------
Total other income (expense), net ..... 3.4 (42.0) 4.7 (17.2)
------ ------ ------ ------
Loss before income taxes (58.2) (49.4) (66.8) (23.0)
Provision for income taxes ............ 0.3 -- 0.2 --
------ ------ ------ ------
Net loss ................ (58.5%) (49.4%) (67.0%) (23.0%)
====== ====== ====== ======
</TABLE>
TOTAL REVENUES
Total revenues increased 16.8% and 43.3% for the three and nine months ended
September 30, 1997, compared to the corresponding prior year periods. The
increase was attributable to an
11
<PAGE> 12
increase in both license fees and services revenue including total revenues of
$5.1 million from one customer which represented 10.2% of total revenue during
the nine months ended September 30, 1997. In addition, a separate customer
accounted for $1.7 million or 10.4% of total revenues during the three months
ended September 30, 1997. Results of operations for the three and nine month
periods ended September 30, 1997 include amounts associated with operations in
France and Germany which were acquired during the second and third quarters of
1996, respectively.
The Company derived approximately $6.7 million and $21.9 million, or 41.4% and
44.1% of its total revenues, from customers outside of the United States for the
three and nine months ended September 30, 1997, respectively, compared to $5.8
million, and $12.9 million, or 42.0% and 37.2%, respectively, for the
corresponding prior year periods. The Company expects that revenues from
customers outside the United States will continue to represent a significant
percentage of its total revenues in the future. Most of the Company's
international license fees and services revenue are denominated in foreign
currencies. The Company does not currently hedge its foreign exchange exposure.
With respect to the Company's sales that are US dollar-denominated, decreases in
the value of foreign currencies relative to the US dollar could make the
Company's products less price competitive.
LICENSE FEES
License fees include revenues from software license agreements entered into
between the Company and its customers with respect to both the Company's
products and third party products resold by the Company. License fees increased
11.4% and 44.0% for the three and nine month periods ended September 30, 1997,
respectively, as compared to the prior year periods. The increase for the nine
months ended September 30, 1997 includes license revenues of $3.5 million from
one customer or 24.5% of total license revenues for the nine month period. In
addition, license revenue of $1.4 million from a different customer accounted
for 35.9% of total license revenue for the three months ended September 30,
1997.
SERVICES REVENUE
Services revenue includes fees from software maintenance agreements, training,
installation and consulting services. Maintenance fees are billed separately and
are recognized ratably over the period of the maintenance agreement. Training,
installation and consulting service revenues are recognized as the services are
performed. Services revenue increased 18.6% or $1.9 million and 43.0% and $10.7
million for the three and nine months ended September 30, 1997, as compared to
prior year periods. The increases were attributable to increased training,
consulting and maintenance services which resulted from a larger installed base
of the Company's products and acquired operations in France and Germany which
represented $2.7 million and $8.4 million of service revenues during the three
and nine months ended September 30, 1997, compared to $2.9 million and $5.0
million for the comparable 1996 periods.
COST OF LICENSE FEES
Cost of license fees consists primarily of amortization of capitalized software
development costs, amounts paid to third parties with respect to products resold
by the Company in conjunction with licensing of the Company's products and, to a
lesser extent, the costs of product media, duplication, manuals and shipping.
12
<PAGE> 13
The dollar cost of license fees increased during the three months ended
September 30, 1997, as compared to the corresponding prior year period due to
increased costs associated with sales of third party software. However, such
costs decreased during the nine month period ended September 30, 1997. Cost of
license fees for the nine months ended September 30, 1996, included amounts
associated with third party software resold to customers and for costs recorded
on contracts, while the associated license revenues were deferred due to
uncertainties with respect to collections
COST OF SERVICES
Cost of services consists primarily of personnel costs for training,
implementation, consulting and customer support. These costs include training
third party service and support organizations for the Company's products. The
following table sets forth, for the periods indicated, the relationship of cost
of services and services revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1997 1996 1997
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Services revenue ........................... $10,405 $12,336 $24,766 $35,421
Cost of services ........................... 7,900 7,085 18,763 20,518
Cost of services as a percentage of services
revenue .................................... 75.9% 57.4% 75.8% 57.9%
</TABLE>
For the three and nine months ended September 30, 1997, cost of services as a
percentage of services revenue decreased compared to the three and nine months
ended September 30, 1996, primarily as a result of efficiencies obtained through
the outsourcing of training services and a significant increase in maintenance
revenue for which there are lower associated customer support costs as compared
to implementation and consulting activities.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries and commissions as
well as travel and promotional expenses. The following table sets forth, for the
periods indicated, the relationship of sales and marketing expenses to total
license fee revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1997 1996 1997
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Sales and marketing expense ...................... $ 6,416 $ 3,085 $ 18,843 $ 11,466
Percentage increase (decrease) over the comparable
period in the prior year .................... 45.6 (51.9) 41.0 (39.1)
Sales and marketing expense as a percentage
of total license fee revenue ................ 190.0% 82.0% 190.1% 80.3%
</TABLE>
Sales and marketing expenses decreased as a percentage of total license fee
revenue for the three and nine months ended September 30, 1997, as compared to
the prior year periods, primarily due to a decrease in personnel of
approximately 39% as of September 30, 1997, as compared to September 30, 1996,
sales and marketing programs initiated during the 1996 periods which were not
repeated in 1997, and an increase in license fee revenues during the 1997
periods.
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RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of engineering personnel
costs, costs of third party equipment and software for development purposes and
costs of outside consultants hired by the Company to assist its product
development efforts. Research and development expenses are generally charged to
operations as incurred. However, certain software development costs are
capitalized in accordance with Statement of Financial Accounting Standards No.
86. Such capitalized software development costs are generally amortized over
periods not exceeding three years.
Research and development expenses (net of capitalized software development
costs) decreased 16.4% and 17.2%, respectively during the three and nine month
periods ended September 30, 1997, as compared to the prior year periods. The
Company capitalized software developments costs of $.2 million and $1.1 million
in the three and nine months ended September 30, 1996 and none in the 1997
periods. The rate of capitalization of software development costs may fluctuate
depending on the mix and stage of development of the Company's product
development and engineering projects.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of administrative,
executive and financial personnel costs, and outside professional fees. General
and administrative expenses represented 24.9% and 23.7% of total revenues for
the three and nine months ended September 30, 1997, compared to 32.0% and 32.4%
of total revenues for the three and nine months ended September 30, 1996.
General and administrative expenses increased 5.0% for the nine months ended
September 30, 1997, as compared to prior year period, primarily due to acquired
infrastructures in France and Germany. General and administrative expenses for
the three and nine months ended September 30, 1997, include $1.1 million and
$3.7 million associated with the acquired operations in France and Germany,
compared to $.3 million and $.7 million for the comparable 1996 periods. These
increases were offset in part by decreases in the Company's provision for
doubtful accounts and professional fees during the 1997 periods.
COSTS RELATED TO PROPOSED SETTLEMENT OF CLASS ACTION LITIGATION
Litigation and proposed settlement costs associated with the class action civil
suit resulted from the commencement of discovery during 1997 and the tentative
settlement agreement announced on October 28, 1997 (see Note 3).
OTHER INCOME (EXPENSE)
Other income (expense) net decreased to ($6.8) million and ($8.6) million for
the three and nine months ended September 30, 1997, respectively, compared to
$.5 million and $1.6 million for the comparable prior year periods due to lower
invested balances of cash, cash equivalents and short-term investments, and the
costs related to the proposed settlement of the class action litigation (see
note 3).
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash, cash equivalents, restricted cash
and short-term investments of $13.9 million and a working capital deficit of $.7
million. As of September 30, 1997, the Company maintains $7 million in lines of
credit with two banks which may be used for borrowings or letters of credit. As
the Company borrows or secures letters of credit, such amounts will be secured
by the pledge of an equal amount of certificates of deposit. The lines of credit
expire during 1998. At September 30, 1997, the Company had no borrowings under
the line of credit and there were $1.3 million of outstanding letters of credit
under these facilities.
The Company's operating activities used cash of $16.0 million and $3.8 million
for the nine months ended September 30, 1996 and 1997, respectively. Net cash
used in operations in the nine months ended September 30, 1996 was comprised
primarily of the net loss offset by depreciation and amortization and increases
in accounts payable and accrued expenses. Net cash used in operations during the
nine months ended September 30, 1997 was comprised of the net loss and decreases
in accounts payable and accrued expenses and deferred revenue offset by
depreciation and amortization expense, decreases in accounts receivable and the
proposed non-cash class action litigation costs.
The Company's investing activities used cash of $7.8 million and $.4 million for
the nine months ended September 30, 1996 and 1997, respectively. The principal
uses of cash during 1996 were increases in short-term investments, capitalized
software costs and equipment purchases. The principal uses of cash during 1997
were equipment purchases offset by decreases in short term investments.
Cash used by financing activities was $2.8 million and $3.2 million during the
nine months ended September 30, 1996 and 1997, respectively and related mainly
to the repayment of debt associated with acquisitions.
The Company has no significant capital commitments. The Company's aggregate
minimum operating lease payments for the remainder of 1997 and 1998 are expected
to be approximately $3.1 million.
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in nine civil suits filed as class actions on
behalf of individuals claiming to have purchased Computron Common Stock during
the time period from August 24, 1995 through January 27, 1997. The suits were
filed in the United States District Court for the District of New Jersey and
have been consolidated by court order into one suit captioned In re Computron
Software, Inc. Securities Litigation, Master File No-96-1911 (AJL). See "Item 1
of Part II. Legal Proceedings."
On October 28, 1997 the Company announced that a settlement, which is subject to
final documentation and Court approval, was reached with lead counsel
representing the certified class in the class action. In addition to
professional fees related to the litigation, the Company has recorded a $6
million charge to other income (expense) during the quarter ended September 30,
1997, reflecting the Company's share of the estimated settlement amount (see
note 3).
The Company expects that its operating cash flow will be sufficient to fund the
Company's working capital requirements (including the common stock subject to
repurchase) through 1998.
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However, the Company's ability to achieve this result is affected by the extent
of cash generated from operations and pace at which the Company utilizes its
available resources. In addition, the Company expects to arrange a $5 million
guarantee from a financial institution representing the maximum amount payable
to class members upon exercise of their rights to resell the stock. Accordingly,
the Company may in the future be required to seek additional sources of
financing, including borrowing and/or the sale of equity securities. No
assurance can be given that any such additional sources of financing or
guarantees will be available on acceptable terms or at all.
NEW ACCOUNTING STANDARD
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share, SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. This statement is effective for fiscal years ending after December 15,
1997 and early adoption is not permitted. When adopted, the statement will
require restatement of prior years' earnings per share. The Company will adopt
this statement for its fiscal year ended December 31, 1997. In addition, the
Company believes that the adoption of SFAS No. 128, including the effect on
prior periods will not have a material effect on its financial statements.
QUARTERLY RESULTS
The Company has experienced, and may in the future continue to experience,
significant quarter to quarter fluctuations in results of operations and
revenues. Such fluctuations may result in volatility in the price of the
Company's Common Stock. Quarterly revenues and results of operations may
fluctuate as a result of a variety of factors, including the lengthy sales cycle
for the Company's products, the proportion of revenue attributable to license
fees versus services, the amount of revenue generated by resales of third party
software, changes in product mix, demand for the Company's products, the size
and timing of individual license transactions, 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 license of the Company's products generally involves a significant
commitment of capital, and may be delayed due to time-consuming 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
has historically operated with relatively little backlog, since its products are
generally shipped as orders are received. The Company has historically
recognized a substantial portion of its revenues in the last month of a quarter,
with these revenues frequently concentrated in the last week of the quarter.
License fees in any quarter are substantially dependent on orders booked and
shipped in the last month and last week of that quarter. Delays in the timing of
recognition of specific revenues may adversely and disproportionately affect the
Company's results of operations because a high percentage of the Company's
operating expenses are relatively fixed, and planned expenditures are based
primarily on sales forecasts and only a small percentage of the Company's
operating expenses vary with its revenues. Accordingly, the Company believes
that period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as an indication of future results of
operations. There can be no assurance that the Company will be profitable in any
future quarter.
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The Company's business has experienced and is expected to continue to experience
significant seasonality, due in part to customer buying patterns. These
fluctuations are caused primarily by customer budgeting and purchasing patterns,
and by the Company's sales commission policies which compensate sale personnel
on the basis of quarterly and annual performance quotas. The Company believes
this pattern may continue in the future.
Due to the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. Such an event would have a material adverse effect on
the price of the Company's Common Stock.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION AND THE
MARKET PRICE OF SECURITIES
The Company's future business, results of operations and financial condition are
also dependent on the Company's ability to successfully develop, manufacture,
market and support its products in order to meet customer demands. Inherent in
this process are a number of factors that the Company must carefully manage in
order to be successful. A discussion of certain of these factors is set forth
below.
History of Operating and Net Losses
The Company generated a net loss of $8.6 million for 1995, $31.8 million for
1996 and reported a net loss for the nine months ended September 30, 1997 of
$11.4 million. The Company also incurred a net loss for each of the five years
in the period ended December 31, 1994. As of September 30, 1997, the Company had
an accumulated deficit of $60.8 million. There can be no assurance that the
Company will be profitable in the future.
Potential for Significant Fluctuations in Quarterly Operating Results;
Seasonality
The Company has experienced, and may in the future experience, significant
quarter to quarter fluctuations in revenues and results of operations. Such
fluctuations may result in volatility in the price of the Company's Common
Stock. Quarterly revenues and results of operations may fluctuate as a result of
a variety of factors, including the lengthy sales cycle for the Company's
products, the proportion of revenues attributable to license fees versus
services, the utilization of third parties to perform services, the amount of
revenue generated by resales of third party software, changes in product mix,
demand for the Company's products, the size and timing of individual license
transactions, 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 license of the
Company's products generally involves a significant commitment of capital and
may be delayed due to time-consuming 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 has historically
operated with little backlog, since its products are generally shipped as orders
are received. The Company has historically recognized a substantial portion of
its revenues in the last month of a quarter, with these revenues frequently
concentrated in the last week of the quarter. License fees in any quarter are
substantially dependent on orders booked and shipped in the last month and last
week of that quarter. Delays in the timing of recognition of specific revenues
may adversely and disproportionately affect the
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Company's results of operations because a high percentage of the Company's
operating expenses are relatively fixed, and planned expenditures, such as
continued expansion of the Company's sales force, are based primarily on sales
forecasts and only a small percentage of the Company's operating expenses vary
with its revenues. Accordingly, the Company believes that period to period
comparisons of results of operations are not necessarily meaningful and should
not be relied upon as an indication of future results of operations. There can
be no assurance that the Company will be profitable in any future quarter.
The Company's business has experienced and is expected to continue to experience
significant seasonality, due in part to customer buying patterns. These
fluctuations are caused primarily by customer budgeting and purchasing patterns
and by the Company's sales commission policies which compensate sales personnel
on the basis of quarterly and annual performance quotas. The Company believes
this pattern may continue in the future.
Due to the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. Such an event would have a material adverse effect on
the price of the Company's Common Stock.
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Litigation
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in nine class action civil suits. The suits
were filed in the United States District Court for the District of New Jersey
and have been consolidated by court order into one suit captioned In re
Computron Software, Inc. Securities Litigation, Master File No. 96-1911 (AJL).
See Note 3 and "Item I of Part II, Legal Proceedings" for further discussion.
On October 28, 1997 the Company announced that a settlement, which is subject to
final documentation and Court approval, was reached with lead counsel
representing the certified class in the class action. In addition to
professional fees related to the litigation, the Company has recorded a $6
million charge to other income (expenses) during the quarter ended September 30,
1997, reflecting the Company's share of the estimated settlement amount (see
note 3).
Historically, the Company has been involved in other disputes and/or litigation
encountered in its normal course of business. The Company believes that the
ultimate outcome of these proceedings will not have a material adverse effect on
the Company's business, financial condition and results of operations or cash
flows.
Management Changes
During the past three years, the Company has experienced significant growth.
This growth has placed a significant strain on the Company's management,
administrative and operational resources and financial control systems.
Simultaneously, the Company has experienced significant turnover of executive
management. The Company has recently added a number of key officers, including
its President and Chief Executive Officer, Executive Vice President and Chief
Financial Officer and Vice President, Finance and Administration, in February
1997 and a senior Vice President of Operations and several Managing Directors
through October 15, 1997. The Company's future results of operations will depend
in part on its ability to strengthen its senior management group, and on the
ability of its officers and key employees to improve its management,
administrative, operational and financial reporting systems and to expand,
train, manage and retain its employee base. The Company's inability to manage
these issues effectively could have a material adverse effect on the quality of
the Company's products, the Company's ability to retain key personnel and the
Company's business and financial condition and results of operations.
Reporting, Operating and Control Environment
Following the audits of the Company's consolidated financial statements for 1994
and 1995, the Company received management letters from its independent public
accountants, which enumerated material weaknesses in the Company's financial and
accounting processes, controls, reporting systems and procedures. The Company's
independent public accountants highlighted the Company's need for additional
financial and accounting personnel with software industry experience. In
addition, the Company's independent public accountants noted (i) the need for
uniformity in the language of its contracts and recommended that the Company
standardize the
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terms of its license agreements and expand its internal contract review and
approval procedures, (ii) deficiencies in the organization of customer and
contract files and recommended that the Company improve and standardize record
keeping, (iii) the need for expanded and formalized accounts receivable
collection procedures, (iv) the need for improved documentation and record
keeping relating to consulting service projects, and (v) the need to develop
policies and procedures to accurately identify the date when technological
feasibility of developed software has been attained and to improve the
documentation and record keeping for capitalized software development costs and
to do so on a timely basis. In addition, the 1995 letter, recommended that the
Company implement improved internal accounting control procedures approved by
the Audit Committee of the Board of Directors and reorganize and upgrade the
contracts administration processes, procedures and personnel to ensure proper
revenue recognition and financial reporting.
Upon completion of the December 31, 1996, audit, the Company received a
management letter which communicated material weaknesses similar to certain of
those included in the 1994 and 1995 management letters along with other
recommendations. In response to the independent public accountant's concerns and
as a result of turnover in its accounting and finance departments, the Company
has hired senior executives with software industry experience, including a Chief
Executive Officer, a Senior Vice President of Operations, a Chief Financial
Officer, a Vice President of Finance and Administration, a Corporate Controller,
several international Controllers and Managing Directors and Corporate Counsel.
The Company expects to further strengthen the Company's financial management and
internal controls during the remainder of 1997.
Intense Competition
The financial applications and business software market is intensely competitive
and rapidly changing. A number of companies offer products similar to the
Company's products and target the same customers as the Company. The Company
believes its ability to compete depends upon many factors within and outside its
control, including the timing and market acceptance of new products and
enhancements developed by the Company and its competitors, product
functionality, performance, price, reliability, customer service and support,
sales and marketing efforts and product distribution. The primary competition
for Computron Financials are the financial applications software offered by
Oracle Corporation, PeopleSoft, Inc. and SAP AG. The principal competitors for
the Company's Computron Workflow and Computron COOL software are products
offered by Eastman Software (formerly Wang Software) and FileNet Corporation.
The Company has entered into an agreement with Eastman pursuant to which Eastman
has the right to license Computron COOL software to third parties under its own
private label and modify such software. Most of the Company's competitors are
substantially larger than the Company and have significantly greater financial,
technical and marketing resources and established, extensive direct and indirect
channels of distribution. As a result, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products than the Company. The Company's products also compete with products
offered by other vendors, and with proprietary software developed by third-party
professional service organizations and management information systems
departments of potential customers. Due to the relatively low barriers to entry
in the software market, the Company expects additional competition from other
established and emerging companies as the client/server applications software
market continues to develop and expand. 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
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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. Increased competition
is likely to result in price reductions, reduced gross margins and loss of
market share, any of which would have a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
Dependence on Principal Products
Substantially all of the Company's revenues are derived from the licensing of
Computron Financials, Computron Workflow, Computron COOL, Maintenance and Work
Management and fees from related services. These products and services are
expected to continue to account for substantially all of the Company's revenues
for the foreseeable future. Accordingly, the Company's future results of
operations will depend, in part, on achieving broader market acceptance of these
products and services, as well as the Company's ability to continue to enhance
these products and services to meet the evolving needs of its customers. A
reduction in demand or increase in competition in the market for financial
applications or business software, or decline in sales of such products and
services, could have a material adverse effect on the Company business, results
of operations and financial condition.
New Products and Rapid Technological Change; Risk of Product Defects,
Development Delays and Lack of Market Acceptance
The financial applications and business software market is characterized by
rapid technological change, changes in customer requirements, frequent new
product introductions and enhancements and emerging industry standards. The
introduction of products embodying new technologies and 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 that
respond to evolving customer requirements and keep pace with technological
development and emerging industry standards, such as new operating systems,
hardware platforms, interfaces 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,
changes in customer requirements, or emerging industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of such products and
enhancements, or that any new products or enhancements that it may introduce
will achieve market acceptance. The inability of the Company, for technological
or other reasons, to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements, technological
change or emerging industry standards, would have a material adverse effect on
the Company's business, results of operations and financial condition.
Software products as complex as those offered by the Company often encounter
development delays and may contain undetected errors or failures when introduced
or when new versions are released. The Company has in the past experienced
delays in the development of software by third parties which software is being
licensed to and implemented by customers who are simultaneously licensing and
implementing the Company's products. Those delays have resulted in delays in the
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development and shipment of the Company's products. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new products or enhancements after commencement of
commercial shipments, or that the Company will not experience development
delays, resulting in loss of or delay in market acceptance of a new product or
enhancement, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
Dependence on Proprietary Rights; Risks of Infringement
The Company's success is heavily dependent upon its proprietary technology. The
Company regards its software as proprietary, and relies primarily on a
combination of contract, copyright and trademark law, trade secrets,
confidentiality agreements and contractual provisions to protect its proprietary
rights. The Company has no patents or patent applications pending, and existing
trade secrets 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. 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 can be expected to be a persistent problem. The Company makes source code
available to certain of its customers under limited circumstances which may
increase the likelihood of misappropriation or other misuse of the Company's
software. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technologies.
The Company has obtained a Federal registration for its trademark "COMPUTRON" in
the United States. In addition, the company has certain common law rights in
relation to its other trademarks, service marks and product names. Although the
Company believes that its trademarks and service marks are distinct, there can
be no assurances that the Company will be able to protect its trademarks and
service marks.
The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty and license agreements, if required, may not be
available on terms acceptable to the Company, or at all, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Risks Associated with International Operations
The Company derived approximately $9.1 million, $14.2 million, and $21.3 million
or 28.0%, 26.9%, and 39.2% of its total revenues, from customers outside of the
United States in 1994, 1995, and 1996, respectively. The Company derived
approximately $12.8 million and $21.9 million or 37.2 % and 44.1% of its total
revenues, from customers outside of the United States for the nine
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months ended September 30, 1996, and 1997, respectively. The Company expects
that such revenues will continue to represent a significant percentage of its
total revenues in the future. The Company believes that its continued growth and
profitability will require expansion of its sales in international markets. The
Company intends to continue to expand its operations outside of the United
States and enter additional international markets, which will require
significant management attention and financial resources. During 1996, the
Company acquired certain operations, customers and products of AT&T ISTEL, in
Essen, Germany, and the Financial Software Service Division of Generale de
Service Informatique, in Paris, France. There can be no assurance, however, that
the Company will be able to maintain or increase international market demand for
its products and services. Most of the Company's international license fees and
services revenue are denominated in foreign currencies. The Company does not
currently hedge its foreign exchange exposure. With respect to the Company's
sales that are U.S. dollar-denominated, decreases in the value of foreign
currencies relative to the U.S. dollar could make the Company's products less
price competitive. Additional 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 markets,
longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that such factors will 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.
Expansion of Indirect Channels
An integral part of the Company's strategy is to expand indirect marketing
channels using systems integrators and to increase the proportion of the
Company's customers licensed through such indirect channels. The Company is
currently investing, and intends to continue to invest, significant resources to
develop indirect marketing channels. There can be no assurance that the Company
will be able to attract and retain systems integrators that will be able to
market the Company's products effectively and will be qualified to provide
timely and cost-effective customer support and service. The Company's agreements
with such third parties are generally not exclusive and many of those third
parties also market competitive products. In many cases, these agreements may be
terminated by either party at any time without cause. The inability to attract
and retain systems integrators could have a material adverse effect on the
Company's business, results of operations and financial condition.
Reliance on Certain Relationships
The Company relies on relationships with a number of consultants, systems
integrators and software and hardware vendors to enhance its product development
and marketing and sales efforts, to implement the Company's software products
and to support its customers. These relationships, many of which are not the
subject of formal written agreements, provide marketing and sales leads to the
Company's direct sales force, assistance in the Company's product development
process and assistance in the service and implementation of the Company's
products. There can be no assurance that these companies, most of which have
significantly greater financial and marketing resources than the Company, will
not develop or market software products which compete with the Company's
products in the future or will not otherwise discontinue their relationships
with or support of the Company. The failure by the Company to maintain its
existing relationships, or to establish new relationships in the future, because
of a divergence of interests,
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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.
The Company also licenses software from third parties which is incorporated into
its products. These licenses expire from time to time. In addition, the Company
generally does not have access to source code for the software supplied by these
third parties. Certain of these third parties are small companies that do not
have extensive financial and technical resources. If any of these relationships
were terminated or if any of these third parties were to cease doing business,
the Company may 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.
Control by Existing Stockholders
At December 31, 1996, the Company's senior management, directors and affiliates
together beneficially owned approximately 65.6 % of the outstanding shares of
Common Stock. As a result, these stockholders are able to exercise control over
matters requiring stockholder approval, including the election of directors, and
mergers, consolidations and sales of all or substantially all of the assets of
the Company. This may prevent or discourage tender offers for the Company's
Common Stock unless the terms are approved by such stockholders.
Reliance on Key Personnel
The Company's future success will depend to a significant extent upon a number
of key management and technical personnel. The loss of the services of one or
more key employees could have a material adverse effect on the Company's
business. The Company is a party to employment agreements with certain key
personnel. In addition, the Company is the beneficiary of key-person life
insurance on the lives of certain key personnel. The Company believes that its
future success will also depend in large part upon its ability to attract and
retain highly skilled technical, management, sales and marketing personnel.
Competition for such personnel is intense, and the services of qualified
personnel are difficult to obtain and replace. There can be no assurance that
the Company will be successful in attracting and retaining the personnel
necessary to develop, market, service and support its products and conduct its
operations successfully. The inability of the Company to attract, hire,
assimilate and retain such personnel, or to increase revenues at a rate
sufficient to absorb the resulting increased expenses, would have a material
adverse effect on the Company's business, results of operations and financial
condition.
Possible Volatility of Stock Price
The trading price of the Company's Common Stock has been, and in the future
could be, subject to significant fluctuations in response to variations in
quarterly operating results, the gain or loss of significant contracts, changes
in earning estimates by analysts, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
software and computer industries and other events or factors. In addition, the
stock market in general has experienced extreme price and volume fluctuations
which have affected the market price of the securities of many companies in
industries similar or related to that of the Company and which have been
unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the market price of the Company's Common
Stock.
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Anti-Takeover Effect of Certain Charter and By-Law Provisions and Delaware Law
The Company's Fourth Amended and Restated Certificate of Incorporation
authorizes the Board of Directors to issue, without stockholder approval,
5,000,000 shares of Preferred Stock with voting, conversion and other rights and
preferences that could materially and adversely affect the voting power or other
rights of the holders of Common Stock. Although the Company has no current plans
to issue any shares of Preferred Stock, the issuance of Preferred Stock or of
rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. In addition, the possible issuance of Preferred Stock
could discourage a proxy contest, make more difficult the acquisition of a
substantial block of the Company's Common Stock or limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock. Certain provisions of the Company's by-laws and of Delaware law
applicable to the Company could delay or make more difficult a merger, tender
offer or proxy contest involving the Company.
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COMPUTRON SOFTWARE, INC.
Part II
Other Information
ITEM 1. LEGAL PROCEEDINGS
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in nine class action civil suits. The suits
were filed in the United States District Court for the District of New Jersey
and have been consolidated by court order into one suit captioned In re
Computron Software, Inc. Securities Litigation, Master File No. 96-1911 (AJL). A
Fourth Amended Consolidated Class Action Complaint was filed on May 28, 1997, on
behalf of all purchasers of Computron Common Stock during the period from August
24, 1995, to January 27, 1997. The complaint asserts claims under Sections 11
and 15 of the Securities Act of 1933, Sections 10 (b) and 20 (a) of the
Securities Exchange Act of 1934, as amended, Rule 10b-5 of the Securities and
Exchange Commission promulgated thereunder, and seeks unspecified compensatory
damages, attorneys' fees and costs. The Court entered a stipulated order
certifying the plaintiff class to include purchasers of Computron Common Stock
from August 24, 1995, to January 27, 1997, including certain subclasses therein.
On October 28, 1997 the Company announced that a settlement, which is still
subject to final documentation and court approval, was reached with lead counsel
representing the certified class in the class action. As its share of the
settlement, the Company will pay $1 million in cash, and an additional $5
million, which may be paid in the form of newly issued Computron common stock
or, at the option of the Company, in cash.
The overall settlement includes consideration totaling $15 million for the
benefit of class members, which includes $6 million of consideration from the
Company, and a total of $9 million in cash from certain of its present and
former officers and directors, its former auditors, and the insurance companies
that provided the Company with directors and officers liability insurance. In
return for the payments by the insurance companies, the settlement also resolves
a separate lawsuit brought by the Company against the insurance companies.
To the extent that the settlement includes stock, class members will receive a
non-transferable right to resell the stock received in the settlement to a
payment agent during an exercise period in December 1998 at a price to be
negotiated. The number of shares to be issued and the price at which class
members can exercise their right to resell the shares remain subject to
negotiation. The resale right will expire at the end of the exercise period, or
earlier as to any shares issued in the settlement that are sold by class
members.
The resale right will also expire earlier than the exercise period if
Computron's common stock trades on NASDAQ or a national securities exchange for
20 consecutive trading days at a price exceeding the exercise price of the
resale right. The Company will arrange a $5 million guarantee from a financial
institution representing the maximum amount payable to class members upon
exercise of their rights to resell the stock. In addition to professional fees
related to the litigation, the Company has recorded a $6 million charge to other
income (expense) during the quarter ended September 30, 1997, reflecting the
Company's share of the estimated settlement amount.
26
<PAGE> 27
Historically, the Company has been involved in other disputes and/or litigation
encountered in its normal course of business. The Company believes that the
ultimate outcome of these proceedings will not have a material adverse effect on
the Company's business, financial condition and results of operations or cash
flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.17 Termination Agreement between the Company and Andreas Typaldos
10.18 Consulting Agreement between the Company and Andreas Typaldos
b) Reports on Form 8-K - Changes in Registrant's Certifying Accountant
filed on July 28, 1997
27
<PAGE> 28
COMPUTRON SOFTWARE, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTRON SOFTWARE, INC.
Date: November 12, 1997 By: : /s/ Michael R. Jorgensen
-----------------------------------------------
Michael R. Jorgensen
Executive Vice President, Chief Financial
Officer, and Treasurer (Principal Financial and
Accounting Officer)
28
<PAGE> 1
AGREEMENT
This Agreement is made by Computron Software, Inc. ("Computron") and
Andreas Typaldos ("Typaldos"). Computron and Typaldos shall hereafter
collectively be referred to as the "Parties."
W I T N E S S E T H
WHEREAS, Typaldos has been an employee of Computron pursuant to an
employment agreement, dated November 18, 1991 (as amended, the "Employment
Agreement"); and
WHEREAS, the Parties wish to sever their relationship and settle any
outstanding severance obligations which may exist between them;
NOW, THEREFORE, for and in consideration of the representations
made, actions and agreements to be undertaken, and payments to be made as set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Parties, the Parties agree as
follows:
A. Typaldos agrees that his employment with Computron terminated
effective as of November 27, 1996 (the "Termination Date").
B. Typaldos agrees that his membership on Computron's board of
directors and his position as chairman of said board of directors terminated on
the Termination Date. Typaldos agrees that his membership in the board of
directors of each subsidiary of Computron is terminated as of the Termination
Date.
C. Typaldos agrees to cooperate fully with Computron's Chief
Executive Officer to assure a smooth transition of his duties and
responsibilities and to otherwise provide Computron with his full and complete
cooperation from the Termination Date through and including November 30, 1997.
Such cooperation and assistance shall be provided by Typaldos during such time
without any further payments by Computron.
D. Typaldos shall retain stock options to purchase an aggregate of
30,000 shares of Computron's Common Stock, par value $.01 ("Common Stock"), at
an exercise price of $1.90 per share. Additional stock options to purchase an
aggregate of 30,000 shares of Common Stock, at an exercise price of $1.90 per
share, shall be deemed to have vested immediately upon the Termination Date. All
such stock options shall be governed by the terms of the 1995 Stock Option Plan
and the underlying stock option agreements (the "Stock Option Agreements").
Pursuant to such Stock Option Agreements, such stock options shall be
exercisable at any time prior to December 31, 1997.
<PAGE> 2
E. Computron shall pay Typaldos his full salary for one full year
following the Termination Date at the rate being paid to Typaldos prior to May
1996, for a total of Four Hundred Fifty-Three Thousand Six Hundred Dollars and
No Cents ($453,600.00) (the "Severance Amount"). A portion of the Severance
Amount has been paid to Typaldos since the Termination Date in semi-monthly
installments (the "Payments") in accordance with Computron's existing payroll
policies. Computron shall continue to pay to Typaldos the balance of the
Severance Amount in accordance with Computron's existing payroll policies, with
the last such payment to be made on or about November 1, 1997. Any payments
shall be subject to standard and customary withholdings. Computron shall also
pay Typaldos upon execution of this Agreement by Typaldos and Computron (i) all
deferred compensation (the "Deferred Compensation") since May 1996 earned by
Typaldos in accordance with the Employment Agreement but not yet paid through
the date hereof, which amount is Seventy Thousand Dollars and No Cents
($70,000.00) and (ii) amounts in respect of any accrued and earned, but unused,
vacation time for the period commencing one year prior to the Termination Date
through the Termination Date. Typaldos understands that he will not earn any
additional vacation credit following the Termination Date. Computron shall
reimburse Typaldos for all appropriate travel and entertainment expenses
incurred by Typaldos prior to the Termination Date in accordance with its then
existing policy within ten (10) days of presentation of appropriate
documentation by Typaldos to Computron. Computron will transfer the life
insurance policies listed on Schedule A attached hereto to Typaldos and will
execute a policy loan with the proceeds payable to Computron for the maximum
amount available under such policies less the cumulative annual premium and
interest amounts through November 30, 2000. It is understood that Computron will
not repay the policy loan and will retain any cash value in excess of the
cumulative annual premiums and interest amounts through November 30, 2000.
Computron will also pay the premiums for the disability insurance policies
referenced on Schedule A for a period of one year from the Termination Date.
F. Typaldos shall retain possession of the automobile leased for his
use by Computron until the expiration or termination of said lease (provided
that no renewal options may be exercised) at which time Typaldos shall
relinquish all rights to said automobile and shall make it available to lessor
of said automobile. Computron agrees to make the monthly lease payments until
the expiration or termination of such lease. Computron shall have no other or
further obligations to make any payments under such lease (including, but not
limited to, charges for wear and tear or purchase options).
G. Typaldos shall retain possession and ownership of the personal
computer and laptop computer previously provided to Typaldos by Computron.
H. Computron shall pay to the provider of Typaldos' choice an amount
of up to One Thousand Dollars ($1,000) per month, for a period of twelve months,
to cover the costs of an office in Manhattan, New York and the necessary
secretarial services, supplies and related costs. Said amount shall be paid
monthly in arrears on or about the tenth (10th) day of each month upon
presentation of an invoice.
2
<PAGE> 3
I. Typaldos will remain eligible to participate in Computron's
health insurance program, at Computron's expense, for three years from the
Termination Date (the "Benefit Period") unless and until Typaldos commences
full-time employment with another employer that offers health insurance that is
substantially equivalent to Computron's health insurance. Said health insurance
program shall be equivalent to the health insurance programs that Computron
provides to its senior executives.
J. Typaldos acknowledges that the payments made hereunder are not
part of an exit incentive or other employment termination program offered to a
group or class of employees.
K. Typaldos and Computron agree that, in order to better protect the
goodwill of Computron and to better assure the prevention of disclosure of
confidential materials and information of Computron, and given the unique nature
of the services he has provided to Computron, Typaldos will not, directly or
indirectly, for his own benefit or for or with any other person, firm or
corporation, engage in any business or practice in direct competition with
Computron for a period of one year following the Termination Date. Typaldos also
agrees that he will not, directly or indirectly, for his own benefit or for or
with any other person, firm, or corporation, become employed (including without
limitation as an employee, consultant, or partner) by any person in any capacity
in "direct and major competition" with Computron for a period of one year
following the Termination Date. Those business entities listed as competitors in
any Form 10-K or Form 10-Q of Computron from 1991 to 1998, inclusive, are in
"direct and major competition" with Computron for purposes of this Section K.
L. Typaldos' prior employment with Computron creates a relationship
of confidence and trust between Computron and him with respect to certain
information applicable to the business of Computron or applicable to the
business of any client or customer of Computron, which may be made known to him
by Computron or by any client or customer of Computron, or learned by him during
his employment. Computron possesses and will continue to possess information
that has been or will be created, discovered, or developed by, or that otherwise
has or will become known to, Computron (including, but not limited to,
information created, discovered, or developed by Typaldos or made known to
Typaldos during the period of or arising out of his prior employment by
Computron), or in which property rights have been or may be assigned or
otherwise conveyed to Computron, which information has commercial value in the
business in which Computron is engaged and is treated by Computron as
confidential. All such information is hereinafter called "Proprietary
Information," which term, as used herein, shall also include, but shall not be
limited to, trade secrets, systems, processes, formulae, data, functional
specifications, blueprints, computer programs, know-how, improvements,
discoveries, developments, designs, inventions, techniques, marketing plans,
distribution channels, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, and
customer and supplier lists. Without limiting Typaldos' obligations under
Section K of this Agreement, Typaldos acknowledges that by reason of his prior
employment with Computron, he has been
3
<PAGE> 4
given, and in the future may be given access to Proprietary Information of
Computron, its subsidiaries, or its dedicated distributors (individually and
collectively the "Computron Entities"). Typaldos represents and warrants that he
has kept, will keep, and will continue to keep all such information confidential
and that he will not use such information for any purpose, except in connection
with any legal proceeding to which Typaldos is a party, without the prior
written consent of the Chief Executive Officer of Computron. All Proprietary
Information shall be the sole property of Computron and its assigns.
M. Except for the payments and benefits provided in this Agreement,
Typaldos acknowledges and agrees that he is entitled to no other salary,
compensation, vacation pay, pension, insurance coverage or any other payments or
benefits from Computron in connection with his employment with Computron,
including without limitation any payments or benefits under the Employment
Agreement. Typaldos hereby releases, discharges and covenants not to sue
Computron, its past and present partners, parent, subsidiaries, related
entities, predecessors, successors, directors, officers, employees,
employer-sponsored employee benefit and welfare benefit plans, trustees, and
administrators of such plans, contractors, and assigns from and with respect to
any and all claims, actions, suits, agreements, liabilities, and damages
whatsoever, known or unknown, arising out of the Employment Agreement or
Typaldos' separation from his employment with Computron, including without
limitation any claim at common law based on tort or contract, any claim for
payments or benefits under the Employment Agreement, or any claim for breach of
the Employment Agreement.
N. This Agreement is deemed to have been entered into in the State
of New Jersey and shall be construed and interpreted in accordance with the laws
of that state.
O. The Parties acknowledge and agree that no promises or
representations were made which do not appear written in this Agreement. This
Agreement represents the entire agreement between the parties hereto with
respect to the severance of Typaldos' employment with Computron. This Agreement
supersedes any and all prior agreements, whether written or oral, between the
parties hereto, except for any agreements listed on Schedule A. Any provision
set forth in the term sheet dated November 26, 1996 by and between the Parties
shall not be modified or superseded by this Agreement unless the subject matter
of the provision has been specifically addressed herein. This Agreement shall be
construed to be fully enforceable. If for any reason any part of this Agreement
is determined to be void or unenforceable, this Agreement and/or any remaining
part hereof shall be construed without reference to such void or inapplicable
provisions to be an enforceable Agreement between the parties.
P. All controversies, claims and disputes arising out of or relating
to this Agreement, including without limitation any violation of its terms,
shall be resolved by final and binding arbitration before a panel of three
arbitrators in New York, New York in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The costs of such arbitration,
including the arbitrators' fees, shall be divided equally between the parties.
Each party shall be responsible for its own attorney's fees. With respect to any
4
<PAGE> 5
breach or threatened breach of Sections K or L of this Agreement, Computron may
elect to commence an action in a federal or state court of appropriate
jurisdiction.
Q. The Parties acknowledge that they have read and understand the
foregoing Agreement and that they sign it voluntarily and without coercion. They
further acknowledge that they have been advised by and been given the
opportunity to consult with an attorney of their own choosing concerning the
provisions contained in this Agreement.
Dated: September 29, 1997 /s/ Andreas Typaldos
--------------------------------------
Andreas Typaldos
Dated: September 29, 1997 Computron Software, Inc.
By: /s/
-----------------------------------
5
<PAGE> 6
SCHEDULE A
Life Insurance
Policy Policy No. Annual Premium
------ ---------- --------------
New England Mutual Life NE06920195 $16,050
New England Mutual Life NE08728364 $20,445
Disability Insurance
Policy No. Annual Premium
---------- --------------
DO66760 $2,837
OD113929 $2,577
Surviving Agreement
Agreement of Undertaking, executed by Andreas Typaldos, to repay amounts
advanced by Computron in connection with the pending class action
litigation and related proceedings.
<PAGE> 1
CONSULTING AGREEMENT
This Consulting Agreement is made by Computron Software, Inc.
("Computron") and Andreas Typaldos ("Typaldos").
W I T N E S S E T H:
WHEREAS, in accordance with the Agreement relating to the
termination of employment of even date herewith (the "Agreement") between
Typaldos and Computron, Typaldos has ceased his employment with Computron
effective as of November 27, 1996;
WHEREAS, Computron desires to retain Typaldos to provide consulting
services, and Typaldos desires to provide such consulting services to Computron,
upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the representations
made, actions and agreements to be undertaken, and payments to be made as set
forth herein, and further good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Typaldos and Computron, the
parties agree as follows:
1. CONSULTATION:
(a) During the period (the "Consulting Period") commencing on
December 1, 1997 through the earlier of (a) November 30, 2000 or (b) the date
this Consulting Agreement is terminated pursuant to Section 6 below, Typaldos
shall make himself reasonably available to Computron, by telephone or in person,
when so requested by the Chief Executive Officer of Computron or his designee,
for consultation with the Chief Executive Officer or his designee on reasonable
notice and at reasonable times and places to be determined by Computron.
Typaldos shall cooperate fully with Computron in any special projects assigned
to him, suitable for him based on prior recent experience and position, and
shall use or provide any knowledge or information acquired by Typaldos during,
or as a result of, his employment with Computron in connection with any such
consultations or assignments.
(b) In return for the payments provided in Section 2 of this
Consulting Agreement, Typaldos will make himself available as a consultant to
the Chief Executive Officer of Computron, or his designee, for up to 60 hours
each month during the Consulting Period; provided that he will not be entitled
to additional compensation for hours in excess of 60 each month unless
Computron's Chief Executive Officer gives prior written approval for such
additional hours and such additional compensation. Within fifteen (15) days
following the last day of each calendar month of the Consulting Period, Typaldos
shall provide to Computron a written description of the consulting work he
performed during the prior month, including a reasonably detailed description of
each project and the time he spent on each project.
(c) Typaldos shall have no authority (actual, apparent, or
otherwise) to bind Computron, or any of its past, present and future partners,
parents, subsidiaries, related entities, predecessors, successors, directors,
officers, agents, employees, contractors and assigns
<PAGE> 2
(individually and collectively the "Computron Parties"), during and following
the Consulting Period. Typaldos represents and warrants that during and
following the Consulting Period, he will not make any commitments or otherwise
bind Computron or the Computron Parties, or enter into any contract on behalf of
Computron or the Computron Parties, and will not hold himself out as being
authorized, directly or indirectly, to act as a representative of or on behalf
of Computron or the Computron Parties.
2. PAYMENTS AND REIMBURSEMENT OF EXPENSES:
In exchange for his consulting services under this Consulting
Agreement and during the term of the Consulting Period, Typaldos will be paid by
Computron as follows:
(i) Three Hundred Thousand Dollars and No Cents
($300,000.00) for each of the first two years of the
Consulting Period (December 1, 1997 through November 30,
1999), and Two Hundred Fifty Thousand Dollars and No
Cents ($250,000.00) for the third year of the Consulting
Period (December 1, 1999 through November 30, 2000).
Except as provided in Section 1(b), the total payments
to Typaldos under this Consulting Agreement shall not
exceed Eight Hundred Fifty Thousand Dollars
($850,000.00). Computron will make such payments in
equal quarterly installments (except as otherwise
indicated) as follows:
(x) For the first year of the Consulting Period
(December 1, 1997, through November 30, 1998),
Computron will make a single payment of Three
Hundred Thousand Dollars and No Cents
($300,000.00) payable at or around December 1,
1997;
(y) For the second year of the Consulting Period
(December 1, 1998 through November 30, 1999),
Computron will make four equal quarterly payments
of Seventy Five Thousand Dollars and No Cents
($75,000.00), in advance, payable on or about
December 1, 1998, March 1, 1999, June 1, 1999 and
September 1, 1999, for a total payment of Three
Hundred Thousand Dollars and No Cents
($300,000.00);
(z) For the last year of the Consulting Period
(December 1, 1999 through November 30, 2000),
Computron will make four equal quarterly payments
of Sixty Two Thousand Five Hundred Dollars and No
Cents ($62,500.00) on or about December 1, 1999,
March 1, 2000, June 1, 2000, and September 1,
2000), for a total payment of Two Hundred Fifty
Thousand Dollars and No Cents ($250,000.00).
2
<PAGE> 3
If this Consulting Agreement is terminated earlier than
November 30, 2000 pursuant to the terms of Section 6 of
this Consulting Agreement, Computron's obligations to
make quarterly payments then unpaid shall be terminated
and Typaldos shall reimburse Computron for any advances
paid during the quarter but not yet earned (pro rated
for the applicable quarter based on the days Typaldos
was available to consult, whether or not he was actually
consulting for Computron).
(ii) Computron agrees to reimburse Typaldos, subject to the
submission of appropriate itemization and receipts for
any necessary and reasonable expenses that Typaldos
incurs providing services to Computron under this
Consulting Agreement, provided that no single expense
shall exceed Five Hundred Dollars ($500.00) unless
Typaldos first obtains approval from the Chief Executive
Officer of Computron or his designee to incur such
expense. Typaldos shall be reimbursed for any travel
expenses incurred in providing services to Computron
under the Consulting Agreement, provided that travel
outside the New York City Metropolitan area must be
approved in advance by the Chief Executive Officer of
Computron or his designee. Such travel expenses will be
paid to Typaldos, subject to the submission of
appropriate itemization and receipts.
(iii) All payments made by Computron under this Consulting
Agreement will be in the form of a check made payable to
"Andreas Typaldos" and will be sent by regular mail to
the following address:
130 West 79th Street
Apt. 19A
New York, New York 10024
3. NON-EMPLOYEE STATUS:
As a consultant to Computron, Typaldos will perform consulting
services at the request of the Chief Executive Officer or his designee as an
independent contractor. Typaldos understands and agrees that nothing in this
Consulting Agreement, explicitly or implicitly, shall be construed to make him
or any of his employees, representatives or agents an employee of Computron or
any of the Computron Parties. Typaldos understands and agrees that neither he,
nor anyone else he employs, will accrue any benefits under, or in any way be
covered by Computron's employee benefit plans. Typaldos further understands and
agrees that he will be exclusively liable for all federal, state, and local
income taxes that may be due as a result of any fees or compensation Typaldos
receives pursuant to this Consulting Agreement.
3
<PAGE> 4
4. NONCOMPETITION AND CONFIDENTIALITY:
Typaldos and Computron agree that, in order to better protect the
goodwill of Computron and to better assure the prevention of disclosure of
confidential materials and information of Computron, and given the unique nature
of the services he may provide to Computron, Typaldos will not, directly or
indirectly, for his own benefit or for or with any other person, firm or
corporation, engage in any business or practice in direct competition with
Computron at any time during the Consulting Period and for a period of six
months following the end of the Consulting Period. Typaldos also agrees that he
will not, directly or indirectly, for his own benefit or for or with any other
person, firm, or corporation, become employed (including without limitation as
an employee, consultant, or partner) by any person in any capacity in "direct
and major competition" with Computron at any time during the Consulting Period
and for a period of six months following the end of the Consulting Period. Those
business entities listed as competitors in any Form 10-K or Form 10-Q of
Computron from 1991 to 2000, inclusive, are in "direct and major competition"
with Computron for purposes of this Section 4. The parties understand and agree
that this Section 4 covers any such engagement by Typaldos, including any such
engagement that commences prior to the Consulting Period and which continues
into the Consulting Period.
5. NONSOLICITATION:
Typaldos agrees that during the Consulting Period and during the one
(1) year period immediately following the Consulting Period, he will not,
directly or indirectly, induce or attempt to induce any employee of Computron,
or of its subsidiaries or dedicated distributors (individually and collectively,
the "Computron Entities"), to terminate his or her employment.
6. TERMINATION:
(a) Computron shall have the right to terminate all of its
obligations hereunder, including without limitation its obligations to make the
payments set forth in Section 2 (but not those set forth in Sections 7 and 9),
by giving written notice to Typaldos at any time, if Typaldos shall commit any
act or omit to take any action in bad faith to the material detriment of
Computron or the Computron Entities, be convicted of a felony (other than motor
vehicle), or, after thirty (30) days notice and opportunity to cure, materially
breach any of the terms of the Agreement or the Consulting Agreement, such
termination to be effective at the time such notice is given by Computron. In
the case of termination under this Section 6(a), all of Typaldos' obligations
hereunder (other than those set forth in Sections 4, 5, 7, 8, and 9 of this
Consulting Agreement) shall terminate at the time the termination of Computron's
obligations becomes effective.
(b) Typaldos may terminate his obligations hereunder (other
than those set forth in Sections 4, 5, 7, 8, and 9) by giving Computron written
notice of such termination, provided such termination shall not take effect
until the expiration of thirty (30) days from the date such notice is given.
Typaldos agrees to complete any assignments then in progress and to
4
<PAGE> 5
cooperate fully with Computron in the termination of his obligations under this
Consulting Agreement. In the case of any termination under this Section 6(b),
Typaldos' obligations hereunder (other than those set forth in Sections 4, 5, 7,
8, and 9 of this Consulting Agreement) shall terminate and all of Computron's
obligations hereunder, including without limitation its obligations to make the
payments set forth in Section 2 (but not those set forth in Sections 7 and 9),
shall terminate at the time the termination of Typaldos' obligations (other than
those set forth in Sections 4, 5, 7, 8, and 9) become effective.
(c) This Consulting Agreement shall terminate (except for the
obligations of Typaldos under Sections 4, 5, 7, 8, and 9) upon the expiration of
the Consulting Period or in the event that Typaldos becomes employed by
Computron or any of the Computron Entities. In the case of any termination under
this Section 6(c), Typaldos' obligations hereunder (other than those set forth
in Sections 4, 5, 7, 8, and 9 of this Consulting Agreement) shall terminate and
all of Computron's obligations hereunder, including without limitation its
obligations to make the payments set forth in Section 2 (but not those set forth
in Sections 7 and 9), shall terminate at the time the termination of Typaldos'
obligations (other than those set forth in Sections 4, 5, 7, 8, and 9) becomes
effective.
(d) This Consulting Agreement shall terminate without further
action of any party if Typaldos shall die or become disabled. For purposes of
this Consulting Agreement, the term "disability" shall mean a physical or mental
incapacity of Typaldos which has prevented him from performing consulting
services for one hundred eighty (180) days, whether or not consecutive, out of
any twelve (12) consecutive months. In the case of any termination under this
Section 6(d), Typaldos' obligations hereunder (other than, in the case of
disability, those set forth in Sections 4, 5, 7, 8, and 9 of this Consulting
Agreement) shall terminate and all of Computron's obligations hereunder,
including without limitation its obligations to make the payments set forth in
Section 2 (but not those set forth in Sections 7 and 9), shall terminate at the
time the termination of Typaldos' obligations (other than, in the case of
disability, those set forth in Sections 4, 5, 7, 8, and 9) becomes effective.
7. INDEMNIFICATION:
Typaldos shall indemnify and hold harmless Computron and the
Computron Entities from and against any and all liabilities, losses, claims,
costs and expenses (including legal costs of any kind and nature) arising from
(i) any failure by Typaldos to fulfill any of his obligations hereunder, (ii)
any unlawful act committed by Typaldos during the Consulting Period, or (iii)
any act, omission, or misrepresentation by Typaldos during the Consulting
Period. Computron shall indemnify and hold harmless Typaldos from and against
any and all liabilities, losses, claims, costs and expenses (including legal
costs of any kind and nature) (collectively, "Losses") arising from any act or
omission of Typaldos in connection with and related to his function as a
consultant for Computron, provided that, with respect to the matters as to which
Losses arise, Typaldos is, in all material respects, acting within the proper
course and scope of Typaldos' duties as a consultant under the terms of this
Consulting Agreement.
5
<PAGE> 6
8. DUTY OF CONFIDENTIALITY AND COOPERATION:
(a) In further consideration of the covenants undertaken
herein by Computron, Typaldos agrees to refrain from taking any action that
harms the business interests, reputation, or goodwill of Computron, including
but not limited to making derogatory comments to Computron's customers,
suppliers, or employees, or to the general public regarding the character and
ability of Computron, the Computron Entities, and its and their current officers
and employees.
(b) Typaldos' prior employment with Computron and work as a
consultant to Computron creates a relationship of confidence and trust between
Computron and him with respect to certain information applicable to the business
of Computron or applicable to the business of any client or customer of
Computron, which may be made known to him by Computron or by any client or
customer of Computron, or learned by him during his employment or the Consulting
Period.
(c) Computron possesses and will continue to possess
information that has been or will be created, discovered, or developed by, or
that otherwise has or will become known to, Computron (including, but not
limited to, information created, discovered, or developed by Typaldos or made
known to Typaldos during the period of or arising out of his prior employment by
Computron and during this Consulting Period), or in which property rights have
been or may be assigned or otherwise conveyed to Computron, which information
has commercial value in the business in which Computron is engaged and is
treated by Computron as confidential. All such information is hereinafter called
"Proprietary Information," which term, as used herein, shall also include, but
shall not be limited to, trade secrets, systems, processes, formulae, data,
functional specifications, blueprints, computer programs, know-how,
improvements, discoveries, developments, designs, inventions, techniques,
marketing plans, distribution channels, strategies, forecasts, new products,
unpublished financial statements, budgets, projections, licenses, prices, costs,
and customer and supplier lists.
(d) Without limiting Typaldos' obligations under Section 4 of
this Agreement, Typaldos acknowledges that by reason of his prior employment
with the Company, and by reason of this Consulting Agreement, he has been given,
and in the future may be given access to Proprietary Information of Computron
and the Computron Entities. Typaldos represents and warrants that he has kept,
will keep, and will continue to keep all such information confidential and that
he will not use such information for any purpose, except in connection with this
Consulting Agreement or in connection with any legal proceeding to which
Typaldos is a party, without the prior written consent of the Chief Executive
Officer of Computron. All Proprietary Information shall be the sole property of
Computron and its assigns.
6
<PAGE> 7
9. ARBITRATION:
All controversies, claims and disputes arising out of or relating to
this Consulting Agreement, including without limitation any violation of its
terms, shall be resolved by final and binding arbitration before a panel of
three arbitrators in New York, New York in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The costs of such
arbitration, including the arbitrators' fees, shall be split equally between the
parties. Each party shall pay its own attorney's fees. With respect to any
breach or threatened breach of Sections 4, 5, or 8 of this Consulting Agreement,
Computron may elect to commence an action in a federal or state court of
appropriate jurisdiction.
10. OTHER PROVISIONS:
(a) This Consulting Agreement constitutes and contains the
complete understanding of the parties with respect to the subject matters
addressed herein, and supersedes and replaces any prior negotiations and all
agreements, proposed or otherwise (except for the agreement of even date
herewith), whether written or oral, concerning the subject matters hereof. This
Consulting Agreement is an integrated document. This Consulting Agreement may
not be modified or amended unless such modification or amendment is in writing
and signed by both Typaldos and the Chief Executive Officer of Computron.
(b) If any provision of this Consulting Agreement or the
application thereof is held invalid, such invalidity shall not affect other
provisions or applications of the Consulting Agreement that can be given effect
without the invalid provision or application and, to such end, the provisions of
this Consulting Agreement are declared to be severable.
(c) This Consulting Agreement may be executed in any number of
counterparts, each of which shall be deemed to constitute an original but all of
which shall constitute one and the same instrument.
(d) This Consulting Agreement is deemed to have been executed
and delivered within the State of New Jersey and the rights and obligations of
the parties hereunder shall be construed and enforced in accordance with the
laws of the State of New Jersey.
(e) No waiver or any breach of any term or provision of this
Consulting Agreement shall be construed to be, nor shall be, a waiver of any
other breach of this Consulting Agreement. No waiver shall be binding unless in
writing and signed by the party waiving the breach.
(f) Both parties to this Consulting Agreement agree to
cooperate fully and to execute any and all supplementary documents and to take
all additional actions as may be necessary and appropriate to give full force to
the basic terms of the intent of this Consulting Agreement and which are not
inconsistent with its terms.
7
<PAGE> 8
Executed this 29th day of September, 1997.
COMPUTRON SOFTWARE, INC.
By:_________________________________________
ANDREAS TYPALDOS
____________________________________________
8
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