-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UeqIsT4wryxGbq0A37H55E183e3xI6xAE31PDie7Rrjq10Enp7l+krsGr3WlgJKQ HJS3LNL9/+Q3A0YwvDG2sA== /in/edgar/work/20000814/0000950135-00-004024/0000950135-00-004024.txt : 20000921 0000950135-00-004024.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950135-00-004024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROJECT SOFTWARE & DEVELOPMENT INC CENTRAL INDEX KEY: 0000920354 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 042448516 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23852 FILM NUMBER: 699089 BUSINESS ADDRESS: STREET 1: 100 CROSBY DR * CITY: BEDFORD STATE: MA ZIP: 01730 BUSINESS PHONE: 7812802000 MAIL ADDRESS: STREET 1: 100 CROSBY DRIVE CITY: CAMBRBEDFORD STATE: MA ZIP: 01730 10-Q 1 e10-q.txt PROJECT SOFTWARE & DEVELOPMENT, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 (mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - --- SECURITIES EXCHANGE ACT OF 1934 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE - --- SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _______________ to __________________ Commission File Number 0-23852 PROJECT SOFTWARE & DEVELOPMENT, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2448516 (State or other jurisdiction (I.R.S employer incorporation or organization) identification number) 100 CROSBY DRIVE, BEDFORD MASSACHUSETTS 01730 (Address of principal executive offices, including zip code) (781) 280-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Number of shares outstanding of the Registrant's common stock as of the latest practicable date: 21,822,004 shares of common stock, $.01 par value per share, as of July 31, 2000. 1 2 PROJECT SOFTWARE & DEVELOPMENT, INC. 10-Q INDEX PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets (unaudited) as of June 30, 2000 and September 30, 3 1999. 3 Consolidated Statements of Operations (unaudited) for the three and nine months ended June 30, 2000 and 1999. 4 Consolidated Statements of Cash Flows (unaudited) for the nine months ended June 30, 2000 and 1999. 5 Notes to Consolidated Financial Statements (unaudited). 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 29 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29 SIGNATURE 32 2 3 PROJECT SOFTWARE & DEVELOPMENT, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS JUNE 30, SEPTEMBER 30, 2000 1999 -------- ------------- (IN THOUSANDS) Current assets: Cash and cash equivalents $ 31,187 $ 59,903 Marketable securities 9,925 30,920 Accounts receivable, trade, less allowance for doubtful accounts of $3,288 at June 30, 2000 and $2,867 at September 30, 1999, respectively 45,759 38,736 Prepaid expenses and other assets 8,549 5,090 Deferred income taxes 2,436 2,017 -------- -------- Total current assets 97,856 136,666 -------- -------- Marketable securities 1,562 7,413 Property and equipment, net 13,448 12,055 Intangible assets, net 54,023 1,509 Other assets 2,273 406 Deferred income taxes 2,237 984 -------- -------- Total assets $171,399 $159,033 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 10,966 $ 12,172 Accrued compensation 5,901 8,429 Income taxes payable 3,657 4,227 Deferred revenue 20,572 16,580 Deferred income taxes 903 187 -------- -------- Total current liabilities 41,999 41,595 -------- -------- Deferred rent 121 146 Deferred revenue 212 92 Commitments and contingencies Equity in minority interest -- 44 Stockholders' equity Preferred stock, $.01 par value; 1,000 authorized, none issued and outstanding Common stock, $.01 par value; 50,000 authorized; 21,822 and 21,302 issued at June 30, 2000 and September 30, 1999, respectively 218 213 Additional paid-in capital 73,448 67,418 Retained earnings 54,883 50,210 Accumulated other comprehensive income 518 (685) -------- -------- Total stockholders' equity 129,067 117,156 -------- -------- Total liabilities and stockholders' equity $171,399 $159,033 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. 3 4 PROJECT SOFTWARE & DEVELOPMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ----------------------- 2000 1999 2000 1999 --------- --------- --------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Software $ 21,238 $ 15,605 $ 55,619 $ 43,481 Support and services 24,055 20,820 69,281 59,771 --------- --------- --------- --------- Total revenues 45,293 36,425 124,900 103,252 --------- --------- --------- --------- Cost of revenues: Software 2,680 1,034 4,184 3,694 Support and services 13,142 10,661 37,842 29,944 --------- --------- --------- --------- Total cost of revenues 15,822 11,695 42,026 33,638 --------- --------- --------- --------- Gross margin 29,471 24,730 82,874 69,614 Operating expenses: Sales and marketing 17,261 11,725 46,949 31,924 Product development 5,630 3,700 15,647 10,804 General and administrative 4,060 2,866 10,629 8,248 Goodwill amortization and other intangibles 3,125 99 4,426 315 --------- --------- --------- --------- Total operating expenses 30,076 18,390 77,651 51,291 --------- --------- --------- --------- (Loss)income from operations (605) 6,340 5,223 18,323 Interest income 384 685 2,703 2,012 Interest expense (10) (1) (111) (25) Other income (expense), net (232) (277) (609) (528) --------- --------- --------- --------- (Loss)income before income taxes (463) 6,747 7,206 19,782 (Benefit)/provision for income taxes (177) 2,269 2,533 6,724 --------- --------- --------- --------- Net (loss)/ income $ (286) $ 4,478 $ $ 13,058 ========= ========= ========= ========= Net (loss)/ income per share, basic $ (0.01) $ 0.22 $ 0.22 $ 0.64 --------- --------- --------- --------- Net (loss)/ income per share, diluted $ (0.01) $ 0.21 $ 0.20 $ 0.63 --------- --------- --------- --------- Shares used to calculate net (loss)/income per share Basic 21,811 20,546 21,632 20,206 Diluted 21,811 21,033 22,898 20,697
The accompanying notes are an integral part of the consolidated financial statements. 4 5 PROJECT SOFTWARE & DEVELOPMENT, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 ----------------- ----------------- (IN THOUSANDS) Cash flows from operating activities: Net income $ 4,673 $ 13,058 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,874 3,308 Gain on sale and disposal of property and equipment 50 22 Amortization of discount on marketable securities 108 142 Deferred rent (25) 12 Deferred income taxes (1,898) 55 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable (7,486) (8,003) Prepaid expenses (3,221) (1,902) Other assets (1,119) (1,074) Accounts payable and accrued expenses 883 2,666 Accrued compensation (2,830) (821) Income taxes payable (453) 37 Deferred revenue 4,309 4,350 -------- -------- Net cash (used in)/ provided by operating activities (1,135) 11,850 -------- -------- Cash flows from investing activities: Acquisitions of businesses, net of cash acquired (55,558) 141 Acquisitions of property and equipment and other capital expenditures (6,798) (3,641) Purchase of marketable securities (51,929) (33,934) Sale of marketable securities 81,000 32,827 -------- -------- Net cash used in investing activities (33,285) (4,607) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock, net of issuance costs -- 13,554 Proceeds from exercise of stock options 6,035 1,195 -------- -------- Net cash provided by financing activities 6,035 14,749 -------- -------- Effect of exchange rate changes on cash (331) (376) -------- -------- Net (decrease)/ increase in cash and cash equivalents (28,716) 21,616 Cash and cash equivalents, beginning of period 59,903 28,454 -------- -------- Cash and cash equivalents, end of period $ 31,187 $ 50,070 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 PROJECT SOFTWARE & DEVELOPMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of Project Software & Development, Inc. ("PSDI") and its majority-owned subsidiaries (collectively, the "Company"), as of June 30, 2000 and have been prepared by the Company in accordance with generally accepted accounting principles for interim reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods indicated. The results of operations for the periods presented herein are not necessarily indicative of the results of operations to be expected for the entire fiscal year, which ends on September 30, 2000, or for any other future period. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended September 30, 1999 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 29, 1999. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. INCOME/(LOSS) PER SHARE Basic income/(loss) per share is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding. Diluted income/(loss) per share is computed by dividing income or loss available to common shareholders by the weighted average common shares outstanding plus dilutive potential common shares. For purposes of this calculation, stock options are considered dilutive potential common shares in periods in which they have a dilutive effect. 6 7 Basic and diluted income/(loss) per share are calculated as follows: (in thousands, except per share data) THREE MONTHS ENDED BASIC EPS 06/30/00 06/30/99 - ------------------------------------------------------------------------------- Net(loss)/income $ (286) $ 4,478 Weighted average common Shares outstanding 21,811 20,546 Basic (loss)/income per share $ (0.01) $ 0.22 DILUTED EPS - ------------------------------------------------------------------------------- Net(loss)/income $ (286) $ 4,478 Weighted average common Shares outstanding 21,811 20,546 Dilutive potential Common shares (1) -- 487 -------- -------- Total diluted shares 21,811 21,033 Diluted (loss)/income per share $ (0.01) $ 0.21 (1) Common stock equivalents are not included because they are anti-dilutive. NINE MONTHS ENDED BASIC EPS 06/30/00 06/30/99 - ------------------------------------------------------------------------------- Net income $ 4,673 $ 13,058 Weighted average common Shares outstanding 21,632 20,206 Basic income per share $ 0.22 $ 0.64 DILUTED EPS - -------------------------------------------------------------------------------- Net income $ 4,673 $ 13,058 Weighted average common Shares outstanding 21,632 20,206 Dilutive potential Common shares 1,266 491 -------- -------- Total diluted shares 22,898 20,697 Diluted income per share $ 0.20 $ 0.63 C. ACQUISITIONS On March 2, 2000, the Company completed the acquisition of INTERMAT, Inc., a leading provider of MRO ("Maintenance, Repair and Operations") content management tools and cataloging services. The acquisition, recorded under the purchase method of accounting, included the purchase of the outstanding shares of common stock of INTERMAT, Inc. for $55.1 million in cash plus acquisition costs of $1.3 million. A 7 8 portion of the purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of acquisition, while the remaining balance of $54.2 million was recorded as goodwill and other intangible assets. Goodwill of $47.7 million is being amortized over a period of 5 years on a straight-line basis. Other intangible assets of $6.5 million are being amortized over a period of 3 to 5 years on a straight-line basis. The following reflects unaudited proforma combined results of PSDI and Intermat, Inc. as if the acquisition had taken place at the beginning of fiscal year 2000 and fiscal year 1999: (in thousands) NINE NINE MONTHS MONTHS 06/30/00 06/30/99 (UNAUDITED) (UNAUDITED) ----------- ----------- REVENUE: PSDI $124,900 $103,252 INTERMAT $ 3,629 $ 7,409 -------- -------- Combined $128,529 $110,661 -------- -------- NET INCOME: PSDI $ 4,673 $ 13,058 INTERMAT $ (204) $ 661 Amortization of Goodwill and other intangible assets $ (8,139) $ (8,139) -------- -------- Combined $ (3,670) $ 5,580 -------- -------- Basic (loss)/ income per share $ (0.17) $ 0.28 Diluted (loss)/ income per share $ (0.16) $ 0.27 On June 29, 2000, the Company completed the acquisition of the MAXIMO(TM) reseller business unit of MIPS Information, Productivity and Systems, Limited in Brazil. The acquisition, recorded under the purchase method of accounting, included the purchase of certain assets and assumed liabilities for the purchase price of $1.3 million plus acquisition expenses of 8 9 $100 thousand. The goodwill of $1.4 million is being amortized on a straight-line basis over a period of five years. D. INTANGIBLE ASSETS Intangible assets consist of the following: JUNE 30, SEPT. 30, (in thousands) 2000 1999 -------- --------- Goodwill . . . . . . . . . . . . $51,645 $ 2,687 Other intangible assets . . . . . 8,304 511 ------- -------- $59,949 $ 3,198 Less accumulated amortization . . (5,926) (1,689) ------- -------- $54,023 $ 1,509 ======= ======== Amortization expense was $4.4 million and $315 thousand for the nine months ended June 30, 2000 and 1999, respectively. E. COMPREHENSIVE INCOME The following table reflects the components of comprehensive income: (in thousands) THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- Net(loss)/income $ (286) $4,478 ------ ------ Other comprehensive income, net of tax: Unrealized gain/(loss) on Securities arising during Period 1,516 (88) Foreign currency translation Adjustment 44 (28) ------ ------ Comprehensive income $1,274 $4,362 ------ ------ 9 10 NINE MONTHS ENDED NINE MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 Net income $4,673 $13,058 ------ ------- Other comprehensive income, net of tax: Unrealized gain/(loss) on Securities arising during Period 1,522 (105) Foreign currency translation Adjustment (319) (404) ------ ------- Comprehensive income $5,876 $12,549 ------ ------- F. SEGMENT INFORMATION, GEOGRAPHIC DATA AND MAJOR CUSTOMERS: The Company has identified two reportable industry segments: the development, marketing and support of asset maintenance management software (MAXIMO) and the development, marketing and support of e-commerce software products and the related network services (MRO.COM(TM)). Asset information by reportable segment is not reported, since the Company does not produce such information internally. The Company also manages these segments across geographic reportable segments: United States, Other Americas (Canada and Latin America), Europe/Middle East and Africa, and Asia Pacific. All segments are managed by the same board of directors and executive officers. A summary of the Company's operations by segment was as follows: THREE MONTHS ENDED JUNE 30, (in thousands) 2000 1999 ---- ---- Revenues: Asset maintenance software and services. . . . . . . . . . . . . . . . $ 35,728 $ 35,379 Internet e-commerce software and services. . . . . . . . . . . . . . . . 9,565 1,046 -------- -------- $ 45,293 $ 36,425 (Loss)/income from operations: Asset maintenance software and Services. . . . . . . . . . . . . . . . $ 9,803 $ 8,591 Internet e-commerce software and Services. . . . . . . . . . . . . . . . (10,408) (2,251) -------- -------- $ (605) $ 6,340 -------- -------- 10 11 NINE MONTHS ENDED JUNE 30, (in thousands) 2000 1999 ---- ---- Revenues: Asset maintenance software and Services. . . . . . . . . . . . . . . . $103,503 $ 98,980 Internet e-commerce software and Services. . . . . . . . . . . . . . . . 21,397 4,272 -------- -------- $124,900 $103,252 Income from operations: Asset maintenance software and Services. . . . . . . . . . . . . . . . $ 23,020 $ 21,545 Internet e-commerce software and Services. . . . . . . . . . . . . . . . (17,797) (3,222) -------- -------- $ 5,223 $ 18,323 --------- -------- A summary of the Company's operations by geographical area was as follows: THREE MONTHS ENDED JUNE 30, (in thousands) 2000 1999 ---- ---- Revenues: United States . . . . . . . . . . . . $ 28,134 $ 19,976 Other Americas . . . . . . . . . . . . 3,989 2,459 Intercompany revenues . . . . . . . . . 691 3,300 -------- -------- $ 32,814 $ 25,735 Europe/Middle East and Africa . . . . . $ 9,362 $ 11,078 Asia/Pacific . . . . . . . . . . . . . 3,808 2,912 Consolidating eliminations . . . . . . (691) (3,300) -------- -------- $ 45,293 $ 36,425 -------- -------- NINE MONTHS ENDED JUNE 30, (in thousands) 2000 1999 ---- ---- Revenues: United States . . . . . . . . . . . . $ 76,321 $ 53,850 Other Americas . . . . . . . . . . . . 9,350 7,070 Intercompany revenues . . . . . . . . . 2,792 11,859 -------- -------- $ 88,463 $ 72,779 Europe/Middle East and Africa . . . . . $ 31,038 $ 33,951 Asia/Pacific . . . . . . . . . . . . . 8,191 8,381 Consolidating eliminations . . . . . . (2,792) (11,859) -------- -------- $124,900 $103,252 -------- -------- 11 12 The Company has subsidiaries in foreign countries, which sell the Company's products and services in their respective geographic areas. Intercompany revenues primarily represent shipments of software to international subsidiaries and are eliminated from consolidated revenues. Income (loss) from operations excludes interest income, interest expense, provision for income taxes and transaction/translation gains and losses. G. ACCOUNTING STANDARDS On December 3, 1999, the staff of the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101, as amended, summarizes some of the staff's interpretations of the application of generally accepted accounting principles to revenue recognition. All registrants are expected to apply the accounting and disclosure requirements that are described in SAB 101 by the fourth quarter of their fiscal year beginning after December 15, 1999. The Company is in the process of evaluating the impact of this interpretation on its future financial statements. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 to certain issues including: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for the exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 are applicable retroactively to specific events occurring after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS In addition to historical information, this Quarterly Report contains forward-looking statements identified by footnotes in the text. The forward-looking statements are subject to substantial risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled "Factors Affecting Future Performance". Readers should carefully review the risk factors described in other documents that the Company files from time to time with the Securities and Exchange Commission, including those set forth under the heading "Factors Affecting Future Performance" in the Annual Report on Form 10-K filed by the Company on December 29, 1999. OVERVIEW The Company develops, markets and supports business-to-business Maintenance, Repair, and Operations ("MRO") e-commerce systems and enterprise asset maintenance software ("MAXIMO"). Businesses, government agencies, and other organizations use the Company's MAXIMO product across their enterprise to assist in the management of their high-value capital assets, such as plants, facilities, and production equipment, to cut inventories and supply chain costs, control maintenance expenses, reduce downtime, and more effectively deploy productive assets, personnel and other resources. The Company complements its MAXIMO enterprise asset maintenance software with its MRO.COM(TM) brand Internet-based business-to-business marketplace technology. MRO.COM(TM) offers a marketplace for MRO buyers and suppliers and a suite of online procurement software products that improve purchasing efficiency. The Company also offers Internet-based content management tools and cataloging services developed and marketed by it's Intermat, Inc. subsidiary. The Company's revenues are derived primarily from two sources: (i) software licenses and (ii) fees for services, including support contracts, training and consulting services and commerce fees for on-line charges to engage in electronic commerce for Maintenance, Repair and Operations. ACQUISITIONS On March 2, 2000, the Company completed the acquisition of INTERMAT, Inc., a leading provider of MRO content management tools and cataloging services. The acquisition, recorded under the purchase method of accounting, included the purchase of the outstanding shares of common stock of INTERMAT, Inc. for $55.1 million in cash plus acquisition costs of $1.3 million. A 13 14 portion of the purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of acquisition while the remaining balance of $54.2 million was recorded as goodwill and other intangible assets. Goodwill of $47.7 million is being amortized over a period of 5 years on a straight-line basis. Other intangible assets of $6.5 million are being amortized over a period of three to five years on a straight-line basis. On June 29, 2000, the Company completed the acquisition of the MAXIMO(TM) reseller business unit of MIPS Information, Productivity and Systems, Limited in Brazil. The acquisition, recorded under the purchase method of accounting, included the purchase of certain assets and assumed liabilities for the purchase price of $1.3 million plus acquisition expenses of $100 thousand. The goodwill of $1.4 million is being amortized on a straight-line basis over a period of five years. RESULTS OF OPERATIONS REVENUES
Three Three Nine Nine Months Months Months Months Ended Change Ended Ended Change Ended (in thousands) 6/30/00 % 6/30/99 6/30/00 % 6/30/99 - ----------------------------------------------------------------------------------------------------------------- Software licenses $21,238 36% $15,605 $55,619 28% $43,481 Percentage of total 47% 43% 45% 42% revenues Support and services $24,055 16% $20,820 $69,281 16% $59,771 Percentage of total of revenues 53% 57% 55% 58% Total revenues $45,293 24% $36,425 $124,900 21% $103,252
MAXIMO asset maintenance software and services revenues for the current quarter increased by 2% to $35.3 million compared to $34.7 million for the same period in the prior year. Year to date MAXIMO asset maintenance software and services revenues increased by 6% to $102.1 million compared to $96.6 million for the same period in the prior year. E-commerce software products and services revenues for the current quarter increased by 815% to $9.6 million compared to $1.0 million for the same period in the prior year. Year to date e-commerce software products and services revenues increased by 398% to $21.4 million compared to $4.3 million for the same period in the prior year. During the three months ended June 30, 2000, the Company had one significant license deal for MRO supplier content management tools for approximately $2.8 million. In addition, during the nine months ended June 30, 2000, the 14 15 Company also had a significant license agreement for MRO supplier content management tools for approximately $4.4 million. Revenues from sales outside the United States increased by 5% to $17.2 million or 38% of total revenues for the current quarter compared to $16.4 million or 45% of total revenues for the same period in the prior year. Year to date revenues from sales outside the United States decreased by 2% to $48.6 million or 39% of total revenues compared to $49.4 million or 48% of total revenues for the same period in the prior year. The year to date decrease in revenues occurred primarily in the European region due to stagnant market conditions. Total software licenses increased 36% for the current quarter compared to the same period in the prior year, and increased 28% year to date compared to the same period in the prior year. MAXIMO asset maintenance software license revenue for the current quarter increased by 4% to $15.3 million compared to $14.7 million for same period in the prior year. Year to date MAXIMO asset maintenance software license revenues increased slightly to $39.4 million compared to $39.3 million for the same period in the prior year. E-commerce software license revenue for the current quarter increased 668% to $5.9 million compared to $768 thousand for the same period in the prior year. Year to date E-commerce software license revenue increased 360% to $16.1 million compared to $3.5 million for the corresponding period in 1999. The increases are attributable to two significant license agreements for e-commerce software consisting of a $2.8 million license in the current quarter and one $4.4 million in the previous quarter, as well as, an increase in the number of MRO.COM(TM) licenses sold. Support and services revenues increased for the current quarter compared to the same period in the prior year, as well as, year to date compared to the same period in the prior year. Consulting services grew by 8% over the same period in the prior year's quarter and by 11% year to date. E-commerce services represented 23% of service revenues compared to 1% of service revenues for the prior year quarter. Year to date e-commerce services revenues represented 11% of services revenues compared to 17% of services revenues for the prior year quarter. The Company is making significant investments in its e-commerce services organization and has reallocated some of its MAXIMO resources to focus on the e-commerce side of its business. Support services grew to 28% over the same period in the prior year's quarter and 24% year to date. The increase is related to the sequential increases in software license revenues and the high renewal rate for MAXIMO maintenance contracts. 15 16 COST OF REVENUES
Three Three Nine Nine Months Months Months Months Ended Change Ended Ended Change Ended (in thousands) 6/30/00 % 6/30/99 6/30/00 % 6/30/99 - ------------------------------------------------------------------------------------------------------------------ Software licenses $ 2,680 159% $1,034 $4,184 13% $3,694 Percentage of software licenses 13% 7% 8% 8% Support and services $13,142 23% $10,661 $37,842 26% $29,944 Percentage of support and services 55% 51% 55% 50% Total cost of revenues $15,822 35% $11,695 $42,026 25% $33,638 Percentage of total revenues 35% 32% 34% 33%
Cost of software licenses revenues consists of software purchased for resale, royalties paid to vendors of third party software, the amortization of capitalized software, the cost of software product packaging and media, and certain employee costs related to software duplication, packaging and shipping. The increase in the cost of software licenses revenues was due primarily to an increase in royalties paid to third-party vendors and a one-time cost for software purchased for resale. Cost of support and services consists primarily of personnel costs for employees and the related costs of benefits and facilities. The increase in the cost of support and services for the three months ended June 30, 2000 over the prior year's period was attributable to the hiring of employees for the Company's support and services organization. The increase in the cost of support and services for the nine months ended June 30, 2000 over the prior year's period was attributable to the hiring of employees for the Company's support and services organization and the use of third-party consultants contracted to perform services for the Company. The Company utilizes the services of these higher cost third-party consultants in order to meet demand for its services and backlog. The increase as a percentage of revenues for the three months ended June 30, 2000 over the prior year's period is attributable to expenses incurred to hire and train new personnel. The increase as a percentage of revenues for the nine months ended June 30, 2000 over the prior year's period is attributable to low utilization of services personnel during the first quarter of the fiscal year related to year 2000 factors, a European services meeting held in the first quarter of fiscal 2000 and expenses related to the costs incurred to grow the MRO.com, Inc. consulting services organization. The Company 16 17 is making and will continue to make significant investments in its services organization to build up MRO expertise.(1) OPERATING EXPENSES
Three Three Nine Nine Months Months Months Months Ended Change Ended Ended Change Ended (in thousands) 6/30/00 % 6/30/99 6/30/00 % 6/30/99 - ----------------------------------------------------------------------------------------------------------------- Sales and marketing $17,261 47% $11,725 $46,949 47% $31,924 Percentage of total revenues 38% 32% 38% 31% Product development $5,630 52% $ 3,700 $15,647 45% $10,804 Percentage of total revenues 12% 10% 13% 10% General and administrative $4,060 42% $2,866 $10,629 29% $8,248 Percentage of total revenues 9% 8% 9% 8% Goodwill amortization $3,125 306% $99 $4,426 131% $315 Percentage of total revenues 7% --- 4% ----
The increase in sales and marketing expenses was due to increases in sales, sales support and marketing personnel primarily for the MRO.COM (TM) organization, sales commissions, marketing research and telemarketing expenses and higher travel costs. The Company has made and will continue to make significant investments in the MRO.COM(TM) sales and marketing organization.(1) The increase in product development expenses was primarily due to the hiring of additional employees to further enhance and develop MRO.COM(TM) products and cost of third-party research and development consultants. There were no internally developed software costs capitalized in fiscal year 1999 or fiscal 2000. The Company intends to continue to make investments in electronic commerce products for MRO supply chain management. (1) The Company will also continue to invest in Java applications for its MAXIMO enterprise asset maintenance product.(1) The increase in general and administrative expenses was primarily due to the hiring of additional personnel and related benefits, as well as, other expenses to support the global expansion of the Company. The current quarter also included a provision for bad debt to cover Asian receivables. The days sales outstanding were within the Company's targeted range of 90 to 95 days for the quarter ended June 30, 2000. - ----------------------------- (1) Forward looking statement 17 18 NON-OPERATING EXPENSES
Three Three Nine Nine Months Months Months Months Ended Change Ended Ended Change Ended (in thousands) 6/30/00 % 6/30/99 6/30/00 % 6/30/99 - ----------------------------------------------------------------------------------------------------------------- Interest income $384 (44)% $685 $2,703 34% $2,012 Interest (expense) $(10) 900% $(1) $ (111) 344% $ (25) Other income (expense) $(232) (16)% $(277) $ (609) 15% $ (528)
Interest income is attributable to interest earned on marketable securities and cash equivalents. The Company liquidated a portion of its marketable securities in order to complete the purchase of INTERMAT, Inc. and has thus earned less interest income due to the decrease in investments. The Company may decide to make further investments in marketable securities in the future. (1) The decrease in other expense for the current quarter compared to the same period in the prior year was primarily attributable to foreign currency translation gains offset by translation losses. The increase in other expense year to date compared to the same period in the prior year is due to foreign currency translation losses. To date, the Company has not engaged in currency hedging transactions. PROVISION FOR INCOME TAXES The Company's effective tax rates were 38% and 34% for the three months ended June 30, 2000 and 1999, respectively, and 35% and 34% for the nine months ended June 30, 2000 and 1999, respectively. The increase in the effective tax rate benefit is attributable to current realization of net operating loss carry forwards and the deferred tax benefit provided on research credits and net operating loss carry forwards. The Company anticipates that its fiscal 2000 effective tax rate will not exceed 36%.(1) - ----------------------------- (1) Forward looking statement 18 19 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2000, the Company had cash and cash equivalents and marketable securities of $42.7 million and working capital of $55.9 million. Cash used in operations for the nine months ended June 30, 2000 was $1.1 million, primarily attributable to an increase in receivables and prepaid expenses, and a decrease in accounts payable, offset by income generated for the year, increases in deferred revenues and a decrease in accrued compensation. Cash used in investing activities for the nine months ended June 30, 2000 totaled $33.3 million, primarily due to the liquidation of a portion of its marketable securities in order to complete the purchase of INTERMAT, Inc. in the quarter ended March 31, 2000. Cash provided by financing activities for the nine months ending June 30, 2000 was $6.0 million, resulting from proceeds received from exercises of employee stock options. As of June 30, 2000, the Company's principal commitments consist primarily of office leases for its U.S. and European headquarters. Under the terms of the U.S. lease agreement, upon termination of the lease, the Company has the right to extend the lease for an additional six year term for an agreed upon fixed cost. The Company leases its facilities and certain equipment under non-cancelable operating lease agreements that expire at various dates through September 2006. The Company may use a portion of its cash to acquire additional businesses, products and technologies complementary to its business. (1) The Company also plans to make investments over the next year in its new MRO.COM(TM) e-commerce products and to develop content and add suppliers to WWW.MRO.COM, its e-commerce hub. The Company believes that its current cash balances and marketable securities combined with cash flow from operations will be sufficient to meet its working capital and capital expenditure requirements through at least June 30, 2001.(1) - ----------------------------- (1) Forward looking statement 19 20 FACTORS AFFECTING FUTURE PERFORMANCE The nature of forward-looking information is that such information involves significant assumptions, risks and uncertainties. Certain public documents of the Company and oral statements made by authorized officers, directors, employees, agents and representatives of the Company, acting on its behalf, may include forward-looking information which will be influenced by the following and other assumptions, risks and uncertainties. Forward-looking information requires management of the Company to make assumptions, estimates, forecasts and projections regarding the Company's future results as well as the future effectiveness of the Company's strategic plans and future operational decisions. Forward-looking statements made by or on behalf of the Company are subject to the risk that the forecasts, projections, and expectations of management, or assumptions underlying such forecasts, projections and expectations, may become inaccurate. Accordingly, actual results and the Company's implementation of its plans and operations may differ materially from forward-looking statements made by or on behalf of the Company. The following discussion identifies certain important factors that could affect the Company's actual results and actions and could cause such results and actions to differ materially from any forward-looking statements made by or on behalf of the Company that related to such results and actions. Other factors, which are not identified herein, including those described in the Company's most recent annual report on Form 10-K under the heading "Factors Affecting Future Performance" could also have such an effect. RAPID TECHNOLOGICAL CHANGE The computer software industry is characterized by rapid technological advances, changes in customer requirements and frequent product introductions and enhancements. The Company's success depends upon its ability to continue to enhance its current products and to develop and introduce new products that keep pace with technological developments, respond to evolving customer requirements and achieve market acceptance. In particular, the Company believes that it must continue to respond quickly to users' needs for broad functionality and to advances in hardware and operating systems. Any failure by the Company to anticipate or respond adequately to technological developments and customer requirements, or any significant delays in product development or introduction, could result in a loss of competitiveness and revenues. There can be no assurance that the Company will be successful in developing and marketing new products or product enhancements, or that the Company will not experience significant delays in developing such new products or product enhancements. Such delays could have a material adverse effect on the Company's results of operations. In addition, there can be no assurance that new products and product 20 21 enhancements developed by the Company will achieve market acceptance. DEPENDENCE ON MAXIMO The Company's revenues are primarily attributable to the licensing of its MAXIMO client/server product, introduced in 1991, and to related services and support. Revenues from licenses of MAXIMO and related services and support accounted for approximately 94% of the Company's total revenues in 1999. The Company's financial performance in 2000 depends largely on continued market acceptance of MAXIMO. The Company believes that continued market acceptance of MAXIMO will largely depend on its ability to enhance and broaden the capabilities of MAXIMO by among other things, developing additional application modules for MAXIMO and by developing and incorporating into the MAXIMO product technologies that are emerging in connection with the Internet. Any factor adversely affecting sales of MAXIMO, such as delays in development, significant software flaws, incompatibility with significant hardware platforms, operating systems or databases, increased competition or negative evaluations of MAXIMO, would have a material adverse effect on the Company's business and financial results. NEW PRODUCTS; NEW MARKETS In the second quarter of fiscal 1999, the Company formed a new wholly-owned subsidiary, MRO.com, Inc. The Company's MRO.COM(TM) brand Internet-based business-to-business marketplace technology and business-to-business marketplace offers buyers and suppliers a suite of online procurement software products that improve purchasing efficiency. In the second quarter of fiscal 2000, the Company purchased Intermat, Inc., which offers customers Internet-based content management tools and cataloging services. There can be no assurance that the Company's MRO.COM(TM) products will be sold successfully in the business-to-business electronic commerce market or that the Company's MRO.COM(TM) products will achieve market acceptance. There is also no assurance that the Company can create a large enough community of sellers and buyers. The Company's future success in the electronic commerce market may depend on its ability to accurately determine the functionality and features required by its customers, as well as the ability to enhance its MRO.COM(TM) products and deliver them in a timely manner. The Internet procurement market is a nascent market that may undergo rapid technological change. The Company cannot predict the present and future size of the potential market for its MRO.COM(TM) products and services. The Company may incur substantial costs to enhance and modify its MRO.COM(TM) products 21 22 and services in order to meet the demands of this growing and changing market. The Company's MRO.COM(TM) product segment is not yet profitable and may not be profitable for sometime, if ever. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company has experienced, and may in the future experience, significant period-to-period fluctuations in revenues and operating results. The Company's revenues and income from operations typically grow at a lower rate or decline in the first quarter of each fiscal year, compared to the fourth quarter of the preceding fiscal year. In addition, revenues are typically higher in the fourth quarter than in other quarters of the year. The Company believes that these quarterly patterns are partly attributable to the Company's sales commission policies, which compensate members of the Company's direct sales force for meeting or exceeding annual quotas. In addition, the Company's quarterly revenues and operating results have fluctuated historically due to the number and timing of product introductions and enhancements, the budgeting and purchasing cycles of customers, the timing of product shipments and the timing of marketing and product development expenditures. The Company typically realizes a significant portion of its revenue from sales of software licenses in the last two weeks of a quarter, frequently even in the last days of a quarter. Large software license contracts may have a significant impact on revenues for any quarter and could, therefore, result in significant fluctuations in quarterly revenues and operating results. Accordingly, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as an indication of future performance. The Company generally ships its products upon receipt of orders and maintains no significant product backlog. As a result, revenues from license fees in any quarter are substantially dependent on orders booked and shipped in that quarter. A delay in or loss of orders can cause significant variations in operating results. A significant portion of the Company's operating expenses are fixed in the short term, and planned expenditures are based primarily on sales forecasts. Accordingly, if revenues do not meet the Company's expectations in any given quarter, operating results may be materially adversely affected. COMPETITION The market for applications software is intensely competitive and rapidly changing. While the Company believes that it has competed effectively to date, competition in its industry is likely to intensify as current competitors expand their product lines and new companies enter the market. To remain successful in the future, the Company must respond promptly and effectively 22 23 to the challenges of technological change, evolving standards and its competitors' innovations by continually enhancing its own products, services and support offerings, as well as its marketing programs. There can be no assurance that the Company will continue to be able to compete successfully in the future. The market for asset maintenance software is fragmented by geography, by hardware platform and by industry orientation, and is characterized by a large number of competitors including both independent software vendors and certain enterprise resource planning vendors. Independent software vendors include Datastream, Inc. and Indus Group. MAXIMO also competes with integrated enterprise resource planning systems which are provided by several large vendors, such as SAP and JD Edwards and others, and which include maintenance modules. Currently, the Company's client/server versions of MAXIMO compete with products of a number of large vendors some of which have traditionally provided maintenance software running on mainframes and minicomputers and are now offering systems for use in the client/server environment. MAXIMO also encounters competition from vendors of low cost maintenance management systems designed initially for use by a single user or limited number of users as vendors of these products upgrade their functionality to enter the client/server market. The Company's MRO supply chain management business using the Internet has many diverse competitors offering a wide range of differing products, services and technologies. The Company expects competition to intensify as current competitors expand their product offerings and new competitors enter the market. In addition, the market for electronic procurement solutions is relatively new and underdeveloped. While the Company believes that electronic commerce products and technologies complement the Company's existing products, there can be no assurance that the Company will be able to compete successfully in this market. Many of the Company's enterprise asset management competitors are also entering the MRO e-commerce market. The current potential competitors in the MRO e-commerce market include Clarus, Commerce One, Concur, Connect, Peregrine, IBM, Intellisys, Microsoft, Netscape, Oracle, PeopleSoft, SAP and others. Certain of the Company's competitors have greater financial, marketing, service and support and technological resources than the Company. To the extent that such competitors increase their focus on the asset maintenance or planning and cost systems markets, or on the supply chain management business, the Company could be at a competitive disadvantage. INTERNATIONAL OPERATIONS A significant portion of the Company's total revenues are derived from operations outside the United States. The Company derived 46.4%, 45.7%, and 43.8% of its total revenue from sales outside the United States in fiscal years 1999, 1998, and 1997, 23 24 respectively. The Company continues to invest in international infrastructure, global product functionality and translated versions of financial and other software products. In the event international expansion and/or product globalization efforts are not successful, the Company's business operating results and financial condition may be adversely affected. This international business is subject to various risks common to international activities, including exposure to currency fluctuations, greater difficulty in collecting accounts receivable, political and economic instability, the greater difficulty of administering business abroad and the need to comply with a wide variety of foreign import and United States export laws and regulatory requirements. A significant portion of the Company's total revenue is derived from international operations that are conducted in foreign currencies. Changes in the values of these foreign currencies relative to the United States dollar have in the past adversely affected, and may in the future affect, the Company's results of operations and financial position. Gains and losses on translation to United States dollars and settlement of receivables from international subsidiaries may contribute to fluctuations in the Company's results of operations. To date, the Company has not engaged in currency hedging transactions. The Company may in the future undertake currency hedging, although there can be no assurance that hedging transactions, if entered into, would materially reduce the effects of fluctuations in foreign currency exchange rates on the Company's results of operations. DEPENDENCE ON THIRD PARTIES The client/server versions of MAXIMO operate with the Oracle, SQLServer, and SQLBase database management systems. Introduction and increased market acceptance of database management systems with which the Company's products do not operate could adversely affect the market for the Company's products. The Company has entered into nonexclusive license agreements with, among others, Brio Technologies, Inc., Broadvision Incorporated, Centura Software Corporation, Cognos Corporation, Netronic Software GmbH, Intelligent Labeling Technologies, Incorporated, Verity Software, and webMethods, Inc. pursuant to which the Company incorporates into its products software providing certain application development, user interface, business intelligence, content and graphics capabilities developed by these companies. If the Company were unable to renew these licenses, or if any of such vendors were to become unable to support and enhance its products, the Company could be required to devote additional resources to the enhancement and support of these products or to acquire or develop software providing equivalent capabilities, which could cause delays in the development and introduction of products incorporating such capabilities. 24 25 The MRO.com, Inc.'s business operations are dependent on third party data centers, which could be destroyed or damaged. MRO.com, Inc.'s operations are dependent upon the ability to protect computer equipment and the information stored in these third party data centers against damage that may be caused by natural disasters, fire, power loss, telecommunication or Internet failures, unauthorized intrusions, computer viruses and other similar damaging events. The Company cannot assure that any of these damaging events would not result in a prolonged outage of the Company's network services or that the Company would not experience a reduction of revenues, which could have a material adverse effect on our business and financial results. PRODUCT DEVELOPMENT: INTERNET The Company has developed a Java-based component architect software application to incorporate into the MAXIMO product technologies emerging in conjunction with the Internet. Internet technologies and applications generally are developing and gaining acceptance rapidly in the market. MRO supply chain management using electronic commerce is a nascent market with many standards and technologies remaining to be developed. Accordingly, developing technologies pose risks to the Company. The Company believes that electronic commerce products and technologies complement the Company's enterprise asset management products. There can be no assurance that the Company will successfully anticipate trends in this market, that the Company will be successful in Internet technology development or acquisition efforts or that the Company's Internet applications, if developed, will achieve market acceptance. INTERNET RELATED RISKS If Internet usage continues to grow rapidly, its infrastructure may not be able to support customer and user demands and its performance and reliability may decline. If outages, delays, or viruses on the Internet occur frequently or increase in frequency, overall Internet usage including usage of the Company's products and services could grow more slowly or decline. The Company is dependent upon improvements being made to the entire Internet as well as to particular customers' networking infrastructures to alleviate overloading and congestion. If these improvements are not made, the ability of the Company's customers to utilize the Company's solution will be hindered, and the Company's business, operating results and financial condition may suffer. LIMITED INTELLECTUAL PROPERTY PROTECTION The Company's success is dependent upon proprietary technology. The Company currently has no patents and protects its technology primarily through copyrights, trademarks, trade secrets and employee and third party nondisclosure agreements. The Company's software products are sometimes licensed to customers under 25 26 "shrink wrap" licenses included as part of the product packaging. Although, in larger sales, the Company's shrink-wrap licenses may be accompanied by specifically negotiated agreements signed by the licensee, in many cases its shrink-wrap licenses are not negotiated with or signed by individual licensees. Certain provisions of the Company's shrink-wrap licenses, including provisions protecting against unauthorized use, copying, transfer and disclosure of the licensed program, may be unenforceable under the laws of certain jurisdictions. 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 to prevent misappropriation of its technology or development by others of similar technology. Although the Company believes that its products and technology do not infringe on any valid claim of any patent or any other proprietary rights of others, there can be no assurance that third parties will not assert infringement claims in the future. Litigation may be necessary to enforce the Company's intellectual property rights, to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could potentially have a material adverse result on our operating results and financial condition. DEPENDENCE ON KEY PERSONNEL The Company is highly dependent on certain key executive officers and technical employees, the loss of one or more of whom could have an adverse impact on the future operations of the Company. The Company does not have employment contracts with, and does not maintain key person life insurance policies on, any personnel. The Company continues to hire a significant number of additional sales, services and technical personnel. Competition for hiring of such personnel in the software industry is intense, and the Company from time to time experiences difficulty in locating candidates with the appropriate qualifications within the desired geographic locations, or with certain industry specific domain expertise. It is widely believed that the technology industry is at or beyond a condition of full employment. There can be no assurance that the Company will be able to retain its existing personnel or attract additional qualified employees. CERTAIN RISKS ASSOCIATED WITH ACQUISITIONS As part of its overall strategy, the Company plans to continue to acquire or invest in complementary companies, products, or technologies and to enter into joint ventures and strategic alliances with other companies. There can be no assurance that the Company will be successful in overcoming the risks associated or problems encountered in connection with such business 26 27 combinations, investments, or joint ventures, or that such transactions will not materially adversely affect the Company's business, financial condition, or operating results. POSSIBLE CONTINUED VOLATILITY OF STOCK PRICE Fiscal 1999 and 2000 was marked by significant fluctuations in the market price of the common stock, par value $.01 per share, of the Company (the "Common Stock"). Factors such as announcements of technological innovations or new products by the Company, its competitors and other third parties, as well as quarterly variations in the Company's results of operations and market conditions in the industry, may cause the market price of the Common Stock to continue to fluctuate significantly. In addition, the stock market in general has recently experienced substantial price and volume fluctuations, which have particularly affected the market prices of many software and e-commerce companies and which have often been unrelated to the operating performance of such companies. These broad market fluctuations also may adversely affect the market price of the common stock. LITIGATION RISKS The Company is subject to the normal risks of litigation with respect to its business operation. NO REVISIONS OR UPDATES TO FORWARD-LOOKING STATEMENTS The Company has no obligation to release publicly any revision or update to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 27 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary exposures to market risk are the effect of fluctuations in interest rates earned on its cash equivalents and marketable securities. At June 30, 2000, the Company held $42.7 million in cash equivalents and marketable securities consisting of taxable and tax exempt municipal securities. Cash equivalents are classified as available for sale and valued at amortized cost, which approximates fair market value. A hypothetical 10 percent increase in interest rates would not have a material impact on the fair market value of these instruments due to their short maturity. 28 29 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. The Company held a Special Meeting in Lieu of the Annual Meeting of stockholders on April 25, 2000. At the Special Meeting the stockholders of the Company voted to approve the following actions: 1. To elect Robert L. Daniels and John A. McMullen as Class I Directors of the Company for a term of three years. NUMBER OF SHARES/VOTED ------------------------------ FOR AUTHORITY WITHHELD --- ------------------ Robert L. Daniels 18,120,537 146,542 John A. McMullen 18,157,307 109,772 2. To approve the Company's Amended and Restated 1999 Equity Incentive Plan. NUMBER OF SHARES/VOTED ---------------------- For 17,006,265 Against 1,233,946 Abstain 26,868 3. To approve the proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company's independent accountants. NUMBER OF SHARES/VOTED ---------------------- For 18,246,947 Against 15,527 Abstain 7,605 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Amended and Restated Articles of Organization of the Company (included as Exhibit 3.3 to the Company's Registration Statement on Form S-1, File No. 0.23852, and incorporated herein by reference) 3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996, File No. 0-23852 and incorporated herein by reference) 29 30 3.3 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (which is attached as Exhibit A to the Rights Agreement included as Exhibit 4(b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 3.4 Amendment to Articles of Organization adopted on December 15, 1999 (included as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, File No. 0-23852, and incorporated herein by reference) 4. Instruments defining the Rights of Security Holders, Including Indentures 4.1 Specimen certificate for the Common Stock of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.2 Article 4B of the Amended and Restated Articles of Organization of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.3 Rights Agreement dated as of January 27, 1998, between Project Software & Development, Inc. and BankBoston, N.A. as Rights Agent (included as Exhibit 4 (a) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.4 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (included as Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 10. Material Contracts 10.1 Fiscal Year 2000 Executive Bonus Plan 10.2 Amended and Restated 1999 Equity Incentive Plan 30 31 27. Financial Data Schedule 27.1 Financial Data Schedule (b) Reports on Form 8-K The Company filed a report on Form 8-K/A on May 15, 2000 to amend a Form 8-K filed on March 16, 2000, related to its acquisition of all of the outstanding capital stock of INTERMAT, Inc. from Strategic Distribution, Inc. 31 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROJECT SOFTWARE & DEVELOPMENT, INC. Date: AUGUST 14, 2000 By: /s/ Carole A. Tyner -------------------------------------- Carole A. Tyner Authorized Officer Vice President Finance (Principal Accounting Officer) 32 33 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAGE - ------- ----------- ---- 3.1 Amended and Restated Articles of Organization of the Company (included as Exhibit 3.3 to the Company's Registration Statement on Form S-1, File No. 0-23852 and incorporated herein by reference) 3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996 File No. 0-23852 and incorporated herein by reference) 3.3 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (which is attached As Exhibit A to the Rights Agreement included as Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 3.4 Amendment to Articles of Organization adopted on December 15, 1999 (included as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, File No. 0-23852, and incorporated herein by reference) 4.1 Specimen certificate for the Common Stock of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.2 Article 4B of the Amended and Restated Articles of Organization of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.3 Rights Agreement dated as of January 27, 1998, between Project Software & Development, Inc. and BankBoston, N.A. as Rights Agent (included as Exhibit 4 (a) to the Company's Current Report on Form 8-K dated February 2, 1998, File No.0-23852, and incorporated herein by reference) 4.4 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (included as Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 10.1 Fiscal Year 2000 Executive Bonus Plan 10.2 Amended and Restated 1999 Equity Incentive Plan 27.1 Financial Data Schedule EX-10.1 2 ex10-1.txt EXECUTIVE BONUS PLAN 1 Exhibit 10.1 PROJECT SOFTWARE & DEVELOPMENT, INC. & SUBSIDIARIES YEAR ENDED SEPTEMBER 30, 2000 EXECUTIVE BONUS PLAN April 13, 2000 2 PROJECT SOFTWARE & DEVELOPMENT, INC. YEAR ENDED SEPTEMBER 30, 2000 EXECUTIVE BONUS PLAN 1. PURPOSE ------- The purpose of the FY2000 Executive Bonus Plan ("Plan") is to provide key management employees of Project Software & Development, Inc. with an incentive to make significant and extraordinary contributions to the long-term performance and growth of the Company, to join the common interest of the Company and key executives, and to attract and retain executives of exceptional ability. 2. ADMINISTRATION -------------- 2.1 The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee will base all decisions and awards on quarterly and annual financial statements filed with the Securities and Exchange Commission. 2.2 By adoption of this Plan the Board has deemed eligible those individuals named in Appendix I. The Board shall have full and complete authority and discretion to make binding decisions on the administration of the Plan and shall adopt such rules and regulations and make all other determinations deemed by it necessary or desirable for the administration of the Plan. 2.3 The Compensation Committee and Board of Directors of the Company shall have the authority to amend or terminate the Plan, provided, however, that if the Plan is amended or terminated, the Company shall be required to complete payment to each Participant of the amount which that Participant otherwise would have received based on the provisions set forth in paragraph 7.2. 3. DEFINITIONS ----------- 3.1 PLAN YEAR means the fiscal year ended September 30, 2000. 3.2 PLAN QUARTER means each of the three-month periods ended December 31, 1999, March 31, 2000, June 30, 2000, and September 30, 2000. 3.3 PARTICIPANT means any executive of the Company who is designated in Appendix I. 3.4 PERMANENT DISABILITY, means a Participant's inability, as a result of illness, incapacity, disease or calamity to perform a substantial part of his primary job responsibilities as set forth in his employment contract or job description for any concurrent six month period. 3 3.5 PLAN means this FY2000 Executive Bonus Plan. 3.6 Except as otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 3.7 COMPANY means Project Software & Development, Inc. and its subsidiaries included in the consolidated financial statements. 3.8 PLAN NET INCOME means net income as disclosed in the consolidated quarterly financial statements of the Company, before deductions and additions of: (i) Taxes calculated by net income. (ii) Extraordinary items as defined under US generally accepted accounting principles. (iii) One time expense adjustments arising out of any acquisition accounted for as either a pooling or purchase. (iv) Goodwill/purchased intangible assets arising out of acquisitions. 3.9 PLAN REVENUE means total revenues as disclosed in the consolidated quarterly financial statements of the Company. 4. ELIGIBILITY AND PARTICIPATION ----------------------------- Executives eligible for bonuses under the Plan shall be those individuals specified in Appendix I. 5. BONUS FUNDING MECHANISM ----------------------- 5.1 The on-target bonus Fund will be determined as follows: (a) Each Participant will be eligible to receive up to 60% of on-target funded bonus if the Company achieves quarterly and annual Plan Revenues and Net Income as stated in Appendix II. (b) The percentage of the on-target bonus described in Appendix I earned by each Participant on achievement of the amounts stated in Appendix II in respect of each quarter and year end is: (i) Q1 5% based on revenue, 5% based on earnings (ii) Q2 5% based on revenue, 5% based on earnings (iii) Q3 5% based on revenue, 5% based on earnings (iv) Q4 5% based on revenue, 5% based on earnings (v) Year end 10% based on revenue, 10% based on earnings 4 (c) In the event that the achievement in any quarter or for the year is less than the amounts stated in Appendix II, but is equal to or greater than 90% of the amount in question, then a partial bonus shall be paid to each participant. The partial bonus shall be equal to the actual achievement divided by the amount stated in Appendix II times the on-target bonus the participant would otherwise have earned. (d) In the event that the achievement in any quarter or for the year is greater than the amounts stated in Appendix II, than an incremental bonus shall be paid to each participant. The incremental bonus shall be equal to the actual achievement divided by the amount stated in Appendix II times the on-target bonus the participant would otherwise have earned, except that the incremental bonus in each instance shall not be greater than 110% of the on-target bonus the participant would have received in respect of the individual quarterly or annual earnings or revenue based component. (e) 20% of the on-target bonus described in Appendix I earned by each participant shall be based on share price appreciation. The calculation for this portion of the year end bonus shall be as follows: an amount equal to .20% of the on-target year end bonus shall be earned by each participant for each 1% increase in the share price over the term of fiscal 2000, adjusted for any future stock splits, over $26.75 (the share price as of the close on the last day of the previous fiscal year adjusted for the stock split in December, 1999). By way of example, if the share price closes at $53.50 on September 30, 2000, (a 100% increase) each participant would earn 100 times .20 or 20% of the specified on-target bonus as set forth in Appendix I on account of share price appreciation. In no event shall the amount earned by each participant on account of share price appreciation be greater than 20% of on-target bonus. In the event an individual is not employed at the beginning of a fiscal year, their first day of employment shall be used as the starting share price for the purpose of calculating share price appreciation during the balance of the fiscal year and the maximum 20% of on-target award shall be prorated to an amount proportional to the number of days remaining in the fiscal year. (f) 20% of the on-target year end bonus shall be at the discretion of the Compensation Committee in the case of the Chairman and the CEO and in the case of the participants in Appendix I, Section II, based upon an evaluation of the individual goals agreed to between the CEO and the participant as evaluated by the CEO and the Chairman. 6. PAYMENT OF BONUSES ------------------ Funded bonus will be payable not later than sixty days after the end of the period in which the bonus was earned provided that the results for the period have been issued to the public. 5 7. TERMINATION OF EMPLOYEE ----------------------- 7.1 If a Participant's employment is terminated prior to the conclusion of any Plan Quarter or, following the conclusion of a Plan Year, or prior to any payment being made: (a) By reason of (i) any deliberate material breach by the Participant of his employment obligations with the Company, which, if curable, is not cured within ten (10) days after the Company shall have notified the Participant in writing describing to Participant all material facts concerning such breach, (ii) any deliberate material breach by the Participant of his employment obligations with the Company, which is not curable according to notice from the Company, or (iii) the conviction of a felony or the commission of a material, fraudulent act by the Participant against the Company; (b) Voluntarily by Participant other than for a "Reason Constituting Good Cause." Reasons Constituting Good Cause are limited to: (i) a significant change in the nature and scope of Participant's duties combined with a change in the Participant's title resulting in a position of materially lesser authority, or (ii) a reduction in the Participant's base compensation. Then, Participant shall cease to have any rights to any amounts unpaid on the date of termination of employment. 7.2 If a Participant's employment is terminated: (a) By reason of Death, Permanent Disability; or (b) By the Company for a reason other than one described at subparagraph 7.1(a); If such a termination occurs prior to the conclusion of any Plan Quarter or Year, the Participant shall receive the amount which the Participant otherwise would have been entitled to receive had he remained in the employ of the Company through the end of the Plan Year, but pro-rated based on the number of complete months of employment with the Company during such Plan Year. The amount earned shall be paid according to the Plan rules. 8. BENEFICIARY DESIGNATIONS ------------------------ 6 8.1 If a Participant's employment with the Company is terminated by his death or if he dies after termination of his employment but prior to the distribution to him of all amounts payable to him under the Plan, any amounts otherwise payable to him hereunder shall be distributed to his designated beneficiary or beneficiaries. For the purposes of this plan a Participant's beneficiary will be the beneficiary designated under Company provided life insurance coverage. However, a Participant may from time to time revoke or change any beneficiary designation on file with the Company. If there is no effective beneficiary designation on file with the Company at the time of a Participant's death, distribution of amounts otherwise payable to the deceased Participant under this Plan shall be made to the Participant's estate. If a beneficiary designated by the Participant to receive his benefits shall survive the Participant but die before receiving all distributions hereunder, the balance thereof shall be paid to such deceased beneficiary's estate, unless the deceased beneficiary designation provides otherwise. 8.2 The Company shall deduct from the distributions to be made to a Participant or his designated beneficiary or beneficiaries under this Plan any federal, state or local withholding or other taxes or charges which the Company is from time to time required to deduct under applicable law and all amounts distributable under this Plan are stated herein before any such deductions. The Company may rely on a written opinion from its legal counsel regarding any questions which may arise in connection with any such deductions. 9. RIGHTS, PRIVILEGES AND DUTIES OF PARTICIPATION ---------------------------------------------- 9.1 No participant or other person shall have any interest in any fund or in any specific asset or assets of the Company and its Subsidiaries by reason of being a Participant under this Plan nor any right to receive any distributions under the Plan except as and to the extent expressly provided in the Plan. 9.2 The Company shall have the right, but shall be under no obligation, to segregate cash to fund bonuses payable under the Plan. However, any such segregated amounts shall at all times remain Company assets, subject to the claims of its creditors. 9.3 Each Participant shall be entitled to receive a current copy of the Plan upon his designation as a Participant if a written request for a copy of the Plan is provided to the Chief Executive Officer or the Chairman of the Board. Thereafter, as long as he remains a Participant, he shall be entitled to receive copies of any amendments to the Plan within sixty (60) days after their adoption. 9.4 The designation of any employee as a Participant under this Plan shall not be construed as conferring upon such employee any right to remain in the employ of the Company and each such Participant shall remain an employee at will. The right of 7 the Company to discipline or discharge an employee shall not be affected in any manner by reason of such employee's designation as a Participant under this Plan. 9.5 To the extent permitted by law, the right of any Participant or any beneficiary to receive any payment hereunder shall not be subject to alienation, transfer, sale, assignment, pledge, attachment, garnishment or encumbrance of any kind. Any attempt to alienate, transfer, sell, assign, pledge or otherwise encumber any such payment whether presently or thereafter payable, shall be void. Any payment due hereunder shall not in any manner be subject to any debts or liabilities of any Participant or his beneficiary. 8 APPENDIX I PROJECT SOFTWARE & DEVELOPMENT, INC. EXECUTIVE BONUS PLAN ELIGIBLE PARTICIPANTS
ON-TARGET BONUS AS A % OF ON-TARGET BASE SALARY BASE SALARY BONUS ----------- --------------- --------- SECTION I: CHIP DRAPEAU 325,000 125% 406,250 ROBERT DANIELS 325,000 125% 406,250 SECTION II: CFO(ESTIMATE) 200,000 100% 200,000 BILL SAWYER 200,000 100% 200,000 JACK YOUNG 200,000 100% 200,000 TED WILLIAMS 200,000 100% 200,000
Footnotes: - Salaries to be effective January 1, 2000. - Mr. Williams bonus will be offset by any prior payments made under his personal compensation plan, as he is being transitioned into this Plan in Q2. Mr. Williams will be entitled to an incremental year end bonus equal to .2% of the amount by which worldwide software revenues exceed $85,000,000. - The CFO's on-target bonus will be calculated on a prorated basis commencing on the start date of the CFO. 9 APPENDIX II PROJECT SOFTWARE & DEVELOPMENT, INC. EXECUTIVE BONUS PLAN ON-TARGET REVENUE & EARNINGS
TARGET FY1999 FY2000 FY2000 YR OVER YR ACTUAL ON-TARGET ON-TARGET REV % GROWTH REVENUE REVENUE EARNINGS Q1 FY2000 14.5% $ 33,900,000 38,800,000 $ 3,900,000 Q2 FY2000 28% 32,900,000 42,100,000 4,700,000 Q3 FY2000 32.4% 36,400,000 48,200,000 5,400,000 Q4 FY2000 26% 42,400,000 53,500,000 6,500,000 ------------------------------ ----------- FY2000 25.4% $145,600,000 $182,600,000 $20,500,000
EX-10.2 3 ex10-2.txt AMENDED AND RESTATED 1999 EQUITY INCENTIVE PLAN 1 Exhibit 10.2 PROJECT SOFTWARE & DEVELOPMENT, INC. AMENDED AND RESTATED 1999 EQUITY INCENTIVE PLAN 1. INTRODUCTION: PURPOSES (a) This Amended and Restated 1999 Equity Incentive Plan (the "1999 Plan" or "the Plan") amends and restates the 1999 Equity Incentive Plan of Project Software & Development, Inc. (the "Company") adopted on March 24, 1999. Options granted under the 1994 Incentive and Nonqualified Stock Option Plan shall continue to be governed by the terms of the 1994 Incentive and Nonqualified Stock Option Plan, as amended to date. (b) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Bonuses, (iv) rights to purchase Restricted Stock, (v) Stock Appreciation Rights, and (vi) other awards based upon the Company's Common Stock on such terms and conditions as the Board of Directors of the Company (the "Board") may determine. (c) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company and its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c) hereof, be either (i) Options granted pursuant to Sections 6 and 7 hereof, including Incentive Stock Options and Nonstatutory Stock Options, (ii) Stock Bonuses or rights to purchase restricted stock granted pursuant to Section 8 hereof, (iii) Stock Appreciation Rights granted pursuant to Section 9 hereof or (iv) other stock based awards granted pursuant to Section 10 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and shall be in such form as required pursuant to Sections 6 and 7 hereof, and a separate certificate will be issued for shares purchased upon exercise of each type of Option. 2. DEFINITIONS AND RULES OF INTERPRETATION (a) Definitions. For the purposes of the Plan, in addition to the definitions set forth above, the following terms shall have the respective meanings set forth below: (i) "Affiliate" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (ii) "Board" means the Board of Directors of the Company. (iii) "Change in Control" means the occurrence of any one of the following events: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or 1 2 (b) persons who constitute the Company's Board immediately prior to any tender offer, proxy contest, consent solicitation, business combination, merger or similar transaction cease to constitute at least a majority of the Board as a result of such tender offer, proxy contest, merger or similar transaction; or (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation or other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (iv) "Change in Stock" means any change in the Company Common Stock subject to the Plan, or subject to any Stock Award, without receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, stock split, spin-off, split-up, spin-out, dividend in property other than cash, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company); provided however, that the conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company." (v) "Code" means the Internal Revenue Code of 1986, as amended. (vi) "Committee" means the Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (vii) "Company" means Project Software & Development, Inc. a corporation organized under the laws of Massachusetts. (viii) "Company Common Stock" means the common stock of the Company, par value $.01 per share (ix) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a right granted pursuant to subsection 9(b)(ii) hereof. (x) "Consultant" means any person, including an advisor, engaged by the Company, or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include a Director acting solely in his capacity as such. (xi) "Continuous Status as an Employee or Consultant" means the employment or relationship as Consultant is not interrupted or terminated by the Company or any Affiliate. The Committee, in its sole discretion, may determine whether Continuous Status as an Employee, or Consultant shall be considered interrupted in the case of any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of Incentive Stock Options and Stock Appreciation Rights appurtenant thereto, any such leave may not exceed ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute. (xii) "Director" means a member of the Board. (xiii) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (xiv) "Employee" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (xv) "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2 3 (xvi) "Fair Market Value" means, the closing sales price as of the date of grant for Company Common Stock (or the closing bid, if no sales were reported) as quoted on the Nasdaq National Market or any similar organization or if Company Common Stock is listed on any national securities exchange, as quoted on such national securities exchange, as applicable, as reported in the Wall Street Journal or other source as the Board deems reliable, and if Company Common Stock is not traded on the Nasdaq National Market or any similar organization or on any national securities exchange, the value as determined in good faith by the Committee, based on the information available to it. (xvii) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (xviii) "Independent Stock Appreciation Right" or "Independent Right" means a right granted under subsection 9(b)(iii) hereof. (xix) "Non-Employee Director" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a Consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K (or any successor regulation of similar import) promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K (or any successor regulation of similar import), and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K (or any successor regulation of similar import); or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3 of the Exchange Act. (xx) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (xxi) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (xxii) "Option" means a stock option granted pursuant to the Plan. (xxiii) "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (xxiv) "Optionee" means an Employee, Director or Consultant who holds an outstanding Option. (xxv) "Outside Director" means for any given date of grant a Director who either (i) is not then a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation from the Company or such affiliated corporation for prior services (other than benefits under a tax qualified pension plan) during the then current taxable year, was not an officer of the Company or an "affiliated corporation" at any time (other than as its Clerk or Assistant Clerk), and is not then currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, and (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (xxvi) "Plan" or "1999 Plan" mean this 1999 Equity Incentive Plan. (xxvii) "Plan Year" means the calendar year. (xxiii) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3. (xxix) "Securities Act" means the Securities Act of 1933, as amended. (xxx) "Stock Appreciation Right" means any of the various types of rights which may be granted under Section 9 hereof. 3 4 (xxxi) "Stock Award" means any right granted under the Plan, including any Option, any stock bonus, any right to purchase restricted stock, and any Stock Appreciation Right. (xxxii)"Stock Award Agreement" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (xxxiii) "Stock Bonus" means any stock bonus of the type which may be granted under Section 8 hereof. (xxxiv) "Tandem Stock Appreciation Right" or "Tandem Right" means a right granted under subsection 9(b)(i) hereof. The foregoing terms are not the exclusive definitions as used in the Plan and reference is made to other capitalized terms defined in the context of their first use herein. (b) Rules of Interpretation. (i) The headings and subheadings used herein or in any Option or other instrument evidencing a Stock Award are solely for convenience of reference and shall not constitute a part of the Plan or such document or affect the meaning, construction or effect of any provision thereof. (ii) All definitions set forth herein shall apply to the singular as well as the plural form of such defined term, and all references to the masculine gender shall include reference to the feminine or neuter gender and visa versa, as the context may require. (iii) References to "including" means including without limiting the generality of any description preceding such term. (iv) Unless otherwise expressly stipulated, any reference in the Plan to any statute, act, regulation or specific provision thereof shall also extend to any amendment, restatement or other modification to such statute, act, regulation or specific provision thereof or any successor statute, act, regulation or provision of similar import. (v) Unless otherwise expressly provided, any reference in the Plan to any specific provision of any statute or act shall include any regulations promulgated thereunder from time to time and interpretations thereof as may be applicable to the Plan. 3. ADMINISTRATION (a) Administration of the Plan shall be delegated to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee shall be Non-Employee Directors and Outside Directors. The Committee shall have, in connection with the administration of the Plan, the powers set forth in the Plan, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revisit in the Board the administration of the Plan. The Board shall have the authority to correct any defect, omission or inconsistency in the Plan and to amend the Plan as provided in Section 16. The Board shall have the authority to appoint the Committee and to fill any vacancy created on the Committee by reason of the death, resignation or removal of any member thereof by appointing an eligible successor. Notwithstanding anything in this Section 3 to the contrary, at any time the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act and to eligible persons with respect to whom the Company does not wish to comply with Section 162(m) of the Code. (b) The Committee shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how Stock Awards shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a Stock Bonus, a right to purchase restricted stock, a Stock Appreciation Right, another stock-based award or a combination of the foregoing; the provisions 4 5 of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; whether a person shall be permitted to receive stock upon exercise of an Independent Stock Appreciation Right; and the number of shares with respect to which Stock Awards shall be granted to each such person. (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Stock Award Agreement fully effective. (iii) To amend any Stock Award. (iv) Generally, to exercise such powers and to perform such acts as the Committee deems necessary or expedient to promote the best interests of the Company and which are not in conflict with the provisions of the Plan. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 15 hereof relating to adjustments upon Changes in Stock, the number of shares of stock that may be issued pursuant to Stock Awards under the Plan shall be equal to 1,850,000 shares of Company Common Stock (which reflects the stock split effected by means of a stock dividend on December 15, 1999). If any Stock Award shall for any reason expire or otherwise terminate without having been exercised in full, the Company Common Stock not purchased shall again become available for issuance under the Plan. Notwithstanding the foregoing, shares of Company Common Stock subject to Stock Appreciation Rights exercised in accordance with Section 8 hereof shall not be available for subsequent issuance under the Plan. (b) The Company Common Stock subject to the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. Subject to Section 4(a) hereof, no more than two hundred thousand (200,000) shares of Company Common Stock may be subject to Stock Bonus or restricted stock purchase. 5. ELIGIBILITY. (a) Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees. Other Stock Awards may be granted to Employees, Directors or Consultants, provided, however, that Stock Awards may be granted to Non-Employee Directors only as provided in Section 7(a). (b) No person shall be eligible for the grant of an Incentive Stock Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) Company Common Stock possessing more than ten percent (10%) of the total combined voting power of all classes of capital stock of the Company or of any of its Affiliates unless the exercise price of such Incentive Stock Option is at least one hundred ten percent (110%) of the Fair Market Value of such Company Common Stock at the date of grant and the Incentive Stock Option is not exercisable after the expiration of five (5) years from the date of grant. (c) No person shall be eligible to be granted Stock Awards covering more than two hundred thousand (200,000) shares of Company Common Stock in any Plan Year. 6. OPTION PROVISIONS. Each Option Agreement shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The provisions of separate Option Agreements need not be identical, but each Option Agreement shall include (through incorporation of provisions hereof by reference in the Option Agreement or otherwise) the substance of each of the following provisions except as otherwise specifically provided elsewhere in the Plan: (a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. 5 6 (b) Price. Subject to subsection 5(b) hereof, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Company Common Stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option shall be set by the Committee at the time each Option is granted. (c) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either: (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Committee, either at the time of the grant or exercise of the Option, (A) by delivery to the Company of other Common Stock of the Company owned by the Optionee for a period of at least six months, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d) hereof, or (C) in any other form of legal consideration that may be acceptable to the Committee on terms determined by the Committee. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) Transferability. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option may be transferable to the extent specified in the Option Agreement, in which case the Option may be transferred upon such terms and conditions as are set forth in the Option Agreement, as the Committee shall determine in its sole discretion, including (without limitation) pursuant to a "domestic relations order" within the meaning of such rules, regulations or interpretation of the Securities and Exchange Commission as are applicable for purposes of Section 16 of the Exchange Act, or to family members, or to trusts or other entities maintained for the benefit of family members. Notwithstanding the foregoing, the person to whom an Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) Vesting. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Committee may deem appropriate. During the remainder of the term of the Option (if its term extends beyond the end of the installment periods), the Option may be exercised from time to time with respect to any shares then remaining subject to the Option. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) Termination of Employment or Relationship as A Consultant. In the event an Optionee's Continuous Status as an Employee or Consultant terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within such period of time ending on the earlier of (i) the date three (3) months after termination of the Optionee's Continuous Status as an Employee or Consultant (or such longer (but only in the case of a Nonstatutory Stock Option) or shorter period of time specified in the Option Agreement), or (ii) the expiration of the Option's term, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the 6 7 Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (g) Disability of Optionee. In the event an Optionee's Continuous Status as an Employee or Consultant terminates as a result of the Optionee's Disability, the Optionee may exercise his or her Option, but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period of time as specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement). If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) Death of Optionee. In the event of the death of an Optionee during, or within a period specified in the Option Agreement after the termination of, the Optionee's Continuous Status as an Employee or Consultant, the Option may be exercised by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance, or by a person designated to exercise the Option upon the Optionee's death pursuant to subsection 6(d) hereof, but only within the period ending on the earlier of (i) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement) or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) Early Exercise. The Option Agreement may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. If such a provision is included in an Option Agreement, the Option Agreement shall also contain provisions establishing a vesting schedule for the purchased shares and a right of the Company to repurchase any unvested shares or, as a condition to the exercise of the relevant Option, requiring the Optionee to enter into an agreement with the Company establishing such vesting and such rights. (j) Withholding. To the extent provided by the terms of an Option Agreement, the Optionee may satisfy any required minimum federal, state or local tax withholding obligation relating to the exercise of such Option by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the participant as a result of the exercise of the Option; or (3) delivering to the Company owned and unencumbered shares of the Common Stock of the Company. (k) Re-Load Options. Without in any way limiting the authority of the Committee to make or not to make grants of Options hereunder, the Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other shares of Company Common Stock in accordance with the Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option, (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Company Common Stock subject to the Re-Load Option on the date of exercise of the original Option or, in the case of a Re-Load Option which is an Incentive Stock Option and which is granted to a 10% stockholder (as described in subsection 5(c) hereof), shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair 7 8 Market Value of the Company Common Stock subject to the Re-Load Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years. Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Committee may designate at the time of the grant of the original Option, provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 13(d) hereof and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) hereof and shall be subject to such other terms and conditions as the Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of the Options. 7. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. (a) Each Non-Employee Director elected or appointed to the Board at the time of an annual meeting of stockholders or special meeting in lieu thereof, including Non-Employee Directors elected to the Board at the meeting of the Company's stockholders at which this amended and restated Plan is approved (the "Approval Meeting"), upon first being so elected or appointed, shall automatically be granted a Nonstatutory Stock Option to purchase 27,000 shares of Company Common Stock. (b) Notwithstanding the preceding section 7(a), in the event that a Non-Employee Director is first elected or appointed to the Board at any time other than at an annual meeting of stockholders or special meeting in lieu thereof, such Non-Employee Director upon first being so elected or appointed shall automatically be granted a Nonstatutory Stock Option for a number of shares of Company Common Stock equal to the sum of (i) 18,000 plus (ii) 9,000 multiplied by N/365 where "N" is the number of days remaining between the date of such election or appointment of such Non-Employee Director and the first anniversary of the date of the Company's most recent annual meeting of stockholders or special meeting in lieu thereof. The shares purchasable pursuant to Section 7(b)(ii) above are referred to as the "Prorated Shares". Each option granted under Section 7(a) or Section 7(b) is referred to herein as an "Initial Option". (c) Each Non-Employee Director shall be eligible to receive an additional Nonstatutory Stock Option to purchase 27,000 shares of Company Common Stock (each an "Additional Option") as follows: (i) each Class II and Class III Non-Employee Director in office on the date of the Approval Meeting shall automatically be granted an Additional Option and (ii) upon the Final Vesting Date, as defined below, of any Initial Option or Additional Option held by a Non-Employee Director whose term in office will continue after such Final Vesting Date, or who has been nominated by the Board of Directors for election to a term that will continue after such date, such Non-Employee Director shall automatically be granted an Additional Option. (d) Each Initial Option and each Additional Option shall have an exercise price equal to the Fair Market Value of the Common Stock on the date of grant. All Options granted under this Section 7 shall vest in three equal installments immediately before each of the first three annual meetings of stockholders or special meetings in lieu thereof following the date of grant of such Initial Option or Additional Option, as the case may be, provided in each case that at such time the Non-Employee Director is then in office as a director. Notwithstanding the preceding sentence, with respect to an Initial Option granted under Section 7(b) the option shall vest as to the Prorated Shares immediately before the first annual meeting of stockholders or special meeting in lieu thereof following the date of grant of such Initial Option and as to the remaining 18,000 shares in two equal installments immediately before each of the second and third annual meetings of stockholders or special meetings in lieu thereof following the date of grant of such Initial Option, provided that in each case at such time the Non-Employee Director is then in office as a director. The date on which the last such installment of any option granted under this Section 7 vests is herein referred to as its "Final Vesting Date." All options granted under this Section 7 shall expire on the date which is five years from the date of grant. (e) The Committee shall adopt such provisions, in its sole discretion, as to the time, any limitations or restrictions and the manner of the exercise or vesting of Nonstatutory Stock Options granted under this Section 7 in respect of the matters set forth under the provisions of Subsections 6(d), (j) and (k) hereof. 8 9 8. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK. Each Stock Bonus or restricted stock purchase agreement related to a Stock Award shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The terms and conditions of Stock Bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each Stock Bonus or restricted stock purchase agreement shall include (through incorporation of provisions herein by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (a) Purchase Price. The purchase price under each restricted stock purchase agreement shall be such amount as the Committee shall determine and designate in such agreement. Notwithstanding the foregoing, the Committee may determine that eligible participants in the Plan may be granted a Stock Award pursuant to a Stock Bonus agreement in consideration for past services actually rendered to the Company for its benefit. (b) Transferability. Except as otherwise provided elsewhere in the Plan, no rights under a Stock Bonus or restricted stock purchase agreement shall be assignable by any participant under the Plan, either voluntarily or by operation of law, except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the rights are granted only by such person. The person to whom the Stock Award is granted, may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of such person, shall thereafter be entitled to exercise the rights held by such person under the Stock Bonus or restricted stock purchase agreement. (c) Consideration. The purchase price of stock acquired pursuant to a Stock Award in the form of a stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Committee, according to a deferred payment or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Committee in its discretion; including delivery of a promissory note of the Optionee to the Company on terms determined by the Committee. Notwithstanding the foregoing, the Committee may grant a Stock Award pursuant to a Stock Bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (d) Vesting. Shares of Company Common Stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Committee. (e) Termination of Employment or Relationship as a Consultant. In the event a Participant's Continuous Status as an Employee or Consultant terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Company Common Stock held by that person which have not vested as of the date of termination under the terms of the Stock Bonus or restricted stock purchase agreement between the Company and such person. 9. STOCK APPRECIATION RIGHTS. (a) The Committee shall have full power and authority, exercisable in its sole discretion, to grant Stock Appreciation Rights to Employees or Consultants to the Company or its Affiliates under the Plan. Each such right shall entitle the holder to a distribution based on the appreciation in the Fair Market Value per share of a designated amount of Company Common Stock. (b) Three types of Stock Appreciation Rights shall be authorized for issuance under the Plan: (i) Tandem Stock Appreciation Rights. Tandem Rights will be granted appurtenant to an Option and will require the holder to elect between the exercise of the underlying Option for shares of Company Common Stock and the surrender, in whole or in part, of such Option for an appreciation distribution equal to the excess of (A) the Fair Market Value (on the date of Option surrender) of vested shares of Company Common Stock purchasable under the surrendered Option over (B) the aggregate exercise price payable for such shares. 9 10 (ii) Concurrent Stock Appreciation Rights. Concurrent Rights will be granted appurtenant to an Option and may apply to all or any portion of the shares of Company Common Stock subject to the underlying Option and will be exercised automatically at the same time the Option is exercised for those shares. The appreciation distribution to which the holder of such concurrent right shall be entitled upon exercise of the underlying Option shall be in an amount equal to such portion as shall be determined by the Board or the Committee at the time of grant of the excess of (A) the aggregate Fair Market Value (at date of exercise) of the vested shares purchased under the underlying Option with such concurrent rights over (B) the aggregate exercise price paid for those shares. (iii) Independent Stock Appreciation Rights. Independent Rights may be granted independently of any Option and will entitle the holder upon exercise to an appreciation distribution equal in amount to the excess of (A) the aggregate Fair Market Value (at date of exercise) of a number of shares of Company Common Stock equal to the number of vested share equivalents exercised at such time (as described in subsection 8(c)(iii)) hereof over (B) the aggregate Fair Market Value of such number of shares of Company Common Stock at the date of grant. (c) The terms and conditions applicable to each Tandem Right, Concurrent Right and Independent Right shall be as follows: (i) TANDEM RIGHTS: A. Tandem Rights may be tied to either Incentive Stock Options or Nonstatutory Stock Options. Each such right shall, except as specifically set forth below, be subject to the same terms and conditions applicable to the particular Option to which it pertains. If Tandem Rights are granted appurtenant to an Incentive Stock Option, they shall satisfy any applicable Treasury Regulations so as not to disqualify such Option as an Incentive Stock Option under the Code. B. The appreciation distribution payable on the exercised Tandem Right shall be in cash in an amount equal to the excess of (i) the Fair Market Value (on the date of the Option surrender) of the number of shares of Company Common Stock covered by that portion of the surrendered Option in which the Optionee is vested over (ii) the aggregate exercise price payable for such vested shares. (ii) CONCURRENT RIGHTS: A. Concurrent Rights may be tied to any or all of the shares of Company Common Stock subject to any Incentive Stock Option or Nonstatutory Stock Option grant made under the Plan. A Concurrent Right shall, except as specifically set forth below, be subject to the same terms and conditions applicable to the particular option grant to which it pertains. B. A Concurrent Right shall be automatically exercised at the same time as the underlying Option is exercised with respect to the particular shares of Company Common Stock to which the Concurrent Right pertains. C. The appreciation distribution payable on an exercised Concurrent Right shall be in cash in an amount equal to such portion as shall be determined by the Board or the Committee at the time of grant of the excess of (i) the aggregate Fair Market Value (on the date the Option is exercised) of the vested shares of Company Common Stock purchased under the underlying Option which have Concurrent Rights appurtenant to them over (ii) the aggregate exercise price paid for such shares. (iii) INDEPENDENT RIGHTS: A. Independent Rights shall, except as specifically set forth below, be subject to the same terms and conditions applicable to Nonstatutory Stock Options as set forth in Section 6 hereof. They shall be denominated in share equivalents. B. The appreciation distribution payable on the exercised Independent Right shall be in cash in an amount equal to the excess of (I) the aggregate Fair Market Value (on the date of the exercise of the Independent Right) of a number of shares of Company Common Stock equal to the number of share equivalents in which the holder is vested under such Independent Right, and with respect to which the holder is exercising the Independent Right on such date, over (II) the aggregate Fair 10 11 Market Value (on the date of the grant of the Independent Right) of such number of shares of Company Common Stock. (iv) TERMS APPLICABLE TO TANDEM RIGHTS, CONCURRENT RIGHTS AND INDEPENDENT RIGHTS: A. To exercise any outstanding Tandem, Concurrent or Independent Right, the holder must provide written notice of exercise to the Company in compliance with the provisions of the instrument evidencing such right. B. If a Tandem, Concurrent, or Independent Right is granted to an individual who is at the time subject to Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), then the instrument of grant shall incorporate all the terms and conditions at the time necessary to assure that the subsequent exercise of such right shall qualify for the safe-harbor exemption from short-swing profit liability provided by Rule 16b-3. C. Except as otherwise provided in this Section 9, no limitation shall exist on the aggregate amount of cash payments the Company may make under the Plan in connection with the exercise of Tandem, Concurrent or Independent Rights. 10. OTHER STOCK-BASED AWARDS. The Committee shall have the right to grant other Awards based upon Company Common Stock having such terms and conditions as the Committee may determine, including the grant of shares based upon certain conditions and grant of securities convertible into Company Common Stock. 11. CANCELLATION AND RE-GRANT OF OPTIONS. (a) The Board or the Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected holders of Options and/or Stock Appreciation Rights, (i) the repricing of any outstanding Options and/or any Stock Appreciation Rights under the Plan and the grant in substitution therefor of new Options and/or Stock Appreciation Rights under the Plan covering the same or different numbers of shares of Company Common Stock, but having an exercise price per share not less than eighty five percent (85%) of the Fair Market Value (one hundred percent (100%)) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of an Incentive Stock Option granted to a 10% stockholder (as described in subsection 5(c) hereof, not less than one hundred ten percent (110%) of the Fair Market Value) per share of Company Common Stock on the new grant date. (b) Shares of Company Common Stock subject to an Option or Stock Appreciation Right canceled under this Section 11 shall continue to be counted against the maximum award of Options and Stock Appreciation Rights permitted to be granted to a person pursuant to subsection 5(c) hereof. The repricing of an Option and/or Stock Appreciation Right under this Section 11, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and/or Stock Appreciation Right and the grant of a substitute Option and/or Stock Appreciation Right; in the event of such repricing, both the original and the substituted Options and Stock Appreciation Rights shall be counted against the maximum awards of Options and Stock Appreciation Rights permitted to be granted to a person pursuant to subsection 5(c) hereof. The provisions of this subsection 11(b) shall be applicable only to the extent required by Section 162(m) of the Code. 12. COVENANTS OF THE COMPANY. (a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Company Common Stock required to satisfy such Stock Awards up to the number of shares of Company Common Stock authorized under the Plan. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of Company Common Stock under the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the 11 12 Securities Act or any securities law of any state either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. The Company shall not be required to sell or issue any shares under any Stock Award if the issuance of such shares shall constitute a violation by the holder of the Stock Award or by the Company of any provision of any law or regulation of any governmental authority. In the event the shares of Company Common Stock issuable on exercise of Stock Award are not registered under the Securities Act, the Company may imprint upon any certificate representing shares so issued any legend which counsel for the Company considers necessary or advisable to comply with the Securities Act and with applicable state securities laws. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act; and in the event any shares are so registered the Company may remove any legend on certificates representing such shares. 13. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of Company Common Stock pursuant to Stock Awards shall constitute general funds of the Company. 14. MISCELLANEOUS. (a) The Committee shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Neither an Optionee nor any person to whom an Option is transferred under subsection 6(d) hereof shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Company Common Stock subject to such Option unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Director, Consultant, Optionee, or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment or relationship as a Director or Consultant of any Employee, Director, Consultant or Optionee, with or without cause. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of Company Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. 15. ADJUSTMENTS UPON CHANGE IN STOCK. In the event of any Change in Stock, the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan pursuant to subsection 4(a) hereof and the maximum number of shares subject to Options and Stock Awards pursuant to subsection 5(c) hereof, and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Committee, the determination of which shall be final, binding and conclusive. 16. VESTING AND PAYMENT UPON CHANGE IN CONTROL. (a) After a merger of one or more corporations with or into the Company or after a consolidation of the Company and one or more corporations in which the stockholders of the Company immediately prior to such merger or consolidation own after such merger or consolidation shares representing at least fifty percent (50%) of the voting power of the Company or the surviving or resulting corporation, as the case may be, each holder of an outstanding Option shall, at no additional cost, be entitled upon exercise of such Option to receive in lieu of the shares of Company Common Stock as to which such Option was exercisable immediately prior to such event, the number and class of shares of stock or other securities, cash or property (including, without 12 13 limitation, shares of stock or other securities of another corporation or Company Common Stock) to which such holder would have been entitled pursuant to the terms of the agreement of merger or consolidation if, immediately prior to such merger or consolidation, such holder had been the holder of record of a number of shares of Company Common Stock equal to the number of shares for which such Option shall be so exercised. (b) Upon and following the occurrence of a Change of Control, the time for exercise of each unvested installment of any then outstanding Option or Stock Appreciation Right shall be accelerated, so that: (i) immediately upon such Change of Control, if the holder or optionee is then an employee or consultant of the Company, twenty-five percent (25%) of any such unvested installment shall be exercisable; (ii) on the date that is nine months after such Change in Control, if the holder or optionee is then an employee or consultant of the Company, one third (33 1/3%) of any installment of such Option or Stock Appreciation Right that has not yet vested in accordance with its original terms or by virtue of this Section 16 shall become exercisable; (iii) on the date that is eighteen months after such Change in Control, if the holder or optionee is then an employee or consultant of the Company, fifty percent (50%) of any installment of such Option or Stock Appreciation Right that has not yet vested in accordance with its original terms or by virtue of this Section 16 shall become exercisable; and (iv) on the second anniversary of such Change in Control, if the holder or optionee is then an employee or consultant of the Company, any remaining installment of such Option or Stock Appreciation Right that has not yet vested in accordance with its original terms or by virtue of this Section 16 shall become exercisable. The foregoing clauses (i) through (iv) are intended to provide for vesting that is in addition to, and not in lieu of, the vesting schedule originally provided in any Option or Stock Appreciation Right outstanding at the time of a Change in Control, and, except to the extent accelerated by such clauses, each such Option or Stock Appreciation Right shall continue to vest in accordance with its original terms. (c) Upon the occurrence of a Change of Control, the restrictions and conditions contained in any Stock Bonus granted to a then current Employee or Consultant or restricted stock purchase agreement related to a Stock Award to which a then current Employee or Consultant is a party shall automatically be appropriately modified so that under the terms thereof additional shares of Company Common Stock vest in a manner essentially equivalent to the additional vesting provided for in Section 16(b) for Options and Stock Appreciation Rights. The determination of the Committee as to such modifications shall be final, binding and conclusive. The foregoing subparagraph (c) is intended to provide for vesting that is in addition to, and not in lieu of, the vesting schedule originally provided in any Stock Bonus or restricted stock purchase agreement related to a Stock Award outstanding at the time of a Change in Control, and, except to the extent accelerated by such clauses, each such Stock Bonus or restricted stock purchase agreement related to a Stock Award shall continue to vest in accordance with its original terms. (d) If the Company is merged with or into or consolidated with another corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or if the Company is liquidated, or sells or otherwise disposes of substantially all of its assets to another corporation while unexercised Options remain outstanding under the Plan, then either in such event: (i) subject to the provisions of clause (iii) below, after the effective date of such merger, consolidation, liquidation, sale or disposition, as the case may be, each holder of an outstanding Option shall be entitled, upon exercise of such Option, to receive, in lieu of the shares of Company Common Stock as to which such Option was exercisable immediately prior to such event, the number and class of shares of stock or other securities, cash or property (including, without limitation, shares of stock or other 13 14 securities of another corporation or common stock) to which such holder would have been entitled pursuant to the terms of the merger, consolidation, liquidation, sale or disposition if, immediately prior to such event, such holder had been the holder of a number of shares of Company Common Stock equal to the number of shares as to which such Option shall be so exercised; or (ii) the Committee may accelerate the time for exercise of some or all unexercised and unexpired Options or Stock Appreciation Rights so that from and after a date prior to the effective date of such merger, consolidation, liquidation, sale or disposition, as the case may be, specified by the Committee such accelerated Options or Stock Appreciation Rights shall be exercisable in full. (e) If, within two years following a Change in Control, the employment of any Optionee who immediately prior to such Change in Control was employed by the Company as an Officer (each such Optionee being hereafter referred to as a "Designated Executive") shall be terminated by the Company other than for cause, or shall be terminated by the Designated Executive for Good Reason, then in such event all unvested Options, Stock Appreciation Rights, Stock Bonuses and other Stock Awards held by such Designated Executive at the date of such termination shall thereupon immediately become exercisable in full. For purposes of this paragraph, "Good Reason" for termination by a Designated Executive of his employment shall be deemed to have existed only if (i) within two years after a Change in Control, the Company, or any successor entity then employing the Designated Executive, shall materially diminish the responsibilities and authority of the Designated Executive or, shall materially reduce the rate of compensation of the Designated Executive (including by way of a change in the method of determining the eligibility of such Designated Executive to earn bonus or incentive compensation), in either case as compared with his responsibilities and authority or rate of compensation, as the case may be, in effect immediately prior to such Change in Control, and (ii) within thirty (30) days following such diminution or reduction the Designated Executive shall resign from his employment by the Company or such successor entity. (f) If, within two years following a Change in Control, a Non-Employee Director is terminated or resigns from the Board of Directors for Good Reason, then in such event all unvested Options held by such Non-Employee Director at the date of such termination or resignation shall thereupon immediately become exercisable in full. For purposes of this paragraph, "Good Reason" for resignation by a Non-Employee Director shall be deemed to have existed only if (i) within two years after a Change in Control, the Company, or any successor entity, shall materially diminish the responsibilities and authority of the Non-Employee Director or shall materially reduce the rate of compensation of the Non-Employee Director, in either case as compared with his responsibilities and authority or rate of compensation, as the case may be, in effect immediately prior to such Change in Control, and (ii) within thirty (30) days following such diminution or reduction the Non-Employee Director shall resign from his position as a Director. 17. AMENDMENT OF THE PLAN AND STOCK AWARDS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 14 hereof relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3, or the listing or eligibility for quotation requirements of the Nasdaq National Market or any similar organization or of any national securities exchange upon which shares of Company Common Stock are listed or eligible for trading. (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. 14 15 (d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. (e) The Committee at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights and obligations under any Stock Award shall not be altered or impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 18. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on March 4, 2009. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with consent of the person to whom the Stock Award was granted. 19. LOCK-UP AGREEMENT. The Committee may in its discretion specify upon granting an Option that upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, the Optionee shall agree in writing that for a period of time (not to exceed 180 days) from the effective date of any registration of securities of the Company, the Optionee will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares issued pursuant to the exercise of such Option, without the prior written consent of the Company or such underwriters, as the case may be. 20. GOVERNING LAW. The provisions of the Plan and all Stock Awards made hereunder shall be governed by and interpreted in accordance with the internal laws of the Commonwealth of Massachusetts without regard to any applicable conflicts of law principles thereof. 15 EX-27 4 ex27.txt FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS SEP-30-2000 APR-01-2000 JUN-30-2000 1 31,187 9,925 49,047 3,288 0 97,856 29,220 15,772 171,399 41,999 0 0 0 218 128,849 129,067 21,238 45,293 2,680 15,822 30,076 196 10 (463) (177) (605) 0 0 0 (286) (0.01) (0.01)
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