-----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, WtcymRKYDj7vSdXN5roj8KhFQR/omekGAJoaUOjuZqMVxMDqYTtNitPsHnOanOI0 tV32Y2FZUIpFWcFpHk8FIQ== 0000950135-97-003493.txt : 19970815 0000950135-97-003493.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950135-97-003493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROJECT SOFTWARE & DEVELOPMENT INC CENTRAL INDEX KEY: 0000920354 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 042448516 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23852 FILM NUMBER: 97660767 BUSINESS ADDRESS: STREET 1: 20 UNIVERSITY RD CITY: CAMBRIDGE STATE: MA ZIP: 02138 BUSINESS PHONE: 6176611444 MAIL ADDRESS: STREET 1: 20 UNIVERSITY RD CITY: CAMBRIDGE STATE: MA ZIP: 02138 10-Q 1 PROJECT SOFTWARE & DEVOLPMENT, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 (mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _______________ to __________________ Commission File Number 0-23852 PROJECT SOFTWARE & DEVELOPMENT, INC. Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2448516 (State or other jurisdiction (I.R.S employer incorporation or organization) identification number) 20 UNIVERSITY ROAD, CAMBRIDGE, MASSACHUSETTS 02138 Address of principal executive offices, including zip code) (617) 661-1444 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares outstanding of the Registrant's common stock as of the latest practicable date: 9,842,383 shares of common stock, $.01 par value per share, as of July 31, 1997. 1 2 PROJECT SOFTWARE & DEVELOPMENT, INC. 10-Q INDEX
PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PAGE Consolidated Balance Sheets as of June 30, 3 1997 (unaudited) and September 30, 1996. Consolidated Statements of Operations 4 (unaudited) for the three and nine months ended June 30, 1997 and 1996. Consolidated Statements of Cash Flows 5 (unaudited) for the nine months ended June 30, 1997 and 1996. Notes to Consolidated Financial Statements. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9 CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURE 19
2 3 PROJECT SOFTWARE & DEVELOPMENT, INC. CONSOLIDATED BALANCE SHEETS
ASSETS June 30, September 30, 1997 1996 ---- ---- (IN THOUSANDS,EXCEPT SHARE DATA) (Unaudited) Current assets: Cash and cash equivalents $20,786 $ 9,097 Marketable securities 37,175 36,798 Accounts receivable, trade, less allowance for doubtful accounts of $2,277 in 1997 and $1,954 in 1996 22,784 27,030 Prepaid expenses 1,457 1,410 Other assets 724 748 Deferred income taxes 1,054 892 ------- ------- Total current assets 83,980 75,975 ------- ------- Property and equipment, net 5,491 4,174 Computer software costs, net 345 787 Goodwill, net 1,555 1,832 Deferred income taxes 655 675 Other assets 48 33 ------- ------- Total assets $92,074 $83,476 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,350 $ 8,389 Accrued compensation 3,149 5,007 Income taxes payable 1,050 248 Deferred revenue 10,196 9,042 ------- ------- Total current liabilities 21,745 22,686 ------- ------- Deferred income taxes 379 168 Deferred rent 34 85 Deferred revenue 127 375 Commitments and contingencies Preferred stock, $.01 par value;1,000,000 authorized, none issued and outstanding -- -- Common stock, $.01 par value;15,350,000 authorized; issued and outstanding 9,841,693 and 9,702,579 for 1997 and 1996, respectively 98 97 Additional paid-in capital 47,901 45,324 Retained earnings 22,093 14,538 Cumulative translation adjustment (497) 49 Net unrealized gain on marketable securities 194 154 ------- ------- Total stockholders' equity 69,789 60,162 ------- ------- Total liabilities and stockholders' equity $92,074 $83,476 ======= =======
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, ------------------------------- ------------------------------- 1997 1996 1997 1996 ---------- ----------- ----------- ----------- (in thousands, except share and per share data) Revenues: Software $ 11,277 $ 10,679 $ 36,165 $ 29,489 Support and services 12,375 7,472 33,052 21,226 ---------- ----------- ----------- ----------- Total revenues 23,652 18,151 69,217 50,715 ---------- ----------- ----------- ----------- Cost of revenues: Software 747 667 1,998 2,267 Support and services 6,293 3,837 17,475 10,546 ---------- ----------- ----------- ----------- Total cost of revenues 7,040 4,504 19,473 12,813 ww ---------- ----------- ----------- ----------- Gross margin 16,612 13,647 49,744 37,902 Operating expenses: Sales and marketing 8,337 5,999 23,908 16,549 Product development 2,873 1,942 8,247 5,402 General and administrative 2,129 1,986 7,088 5,376 Merger expenses -- -- -- 965 ---------- ----------- ----------- ----------- Total operating expenses 13,339 9,927 39,243 28,292 ---------- ----------- ----------- ----------- Income from operations 3,273 3,720 10,501 9,610 Interest income 754 424 1,702 1,280 Interest expense (2) (6) (4) (36) Other income (expense), net (122) 69 (263) (20) ---------- ----------- ----------- ----------- Income before income taxes 3,903 4,207 11,936 10,834 Provision for income taxes 1,413 1,457 4,381 4,509 ---------- ----------- ----------- ----------- Net income $ 2,490 $ 2,750 $ 7,555 $ 6,325 ========== =========== =========== =========== Net income per share $ 0.25 $ 0.27 $ 0.75 $ 0.63 ---------- ----------- ----------- ----------- Weighted number of common and common equivalent shares 9,971,731 10,055,455 10,077,804 10,041,184 ---------- ----------- ----------- -----------
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, 1997 1996 ----------------- ----------------- (in thousands) Cash flows from operating activities: Net income $ 7,555 $ 6,325 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,521 1,992 Loss on sale and disposal of property and equipment 37 29 Amortization of discount on marketable securities 315 234 Deferred rent (51) (56) Deferred taxes 54 (303) Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable 4,306 (7,414) Prepaid expenses (55) (293) Other assets (548) (1,690) Accounts payable (640) 660 Accrued expenses (76) (589) Accrued compensation (1,901) (970) Income taxes payable 813 218 Deferred revenue 1,018 1,312 -------- ------- Net cash provided by/(used in) operating activities 13,348 (545) -------- ------- Cash flows from investing activities: Acquisitions of businesses, net of cash -- 108 Acquisitions of property and equipment (3,049) (1,703) Proceeds from sale of property and equipment -- 6 Additions to computer software costs (88) (1,002) Purchase of marketable securities (102,525) (36,056) Sale of marketable securities 101,874 36,049 -------- ------- Net cash used in investing activities (3,788) (2,598) -------- ------- Cash flows from financing activities: Payments on leased equipment -- (25) Payments on bank loan -- (450) Proceeds from exercise of stock options 2,580 744 including related tax benefit -------- ------- Net cash provided by financing activities 2,580 269 -------- ------- Effect of exchange rate changes on cash (451) (92) -------- ------- Net increase (decrease) in cash and cash equivalents 11,689 (2,966) Cash and cash equivalents, beginning of period 9,097 9,346 -------- ------- Cash and cash equivalents, end of period $ 20,786 $ 6,380 ======== =======
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, 1997 and have been prepared by the Company in accordance with generally accepted accounting principles for interim reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods indicated. The results of operations for the periods presented herein are not necessarily indicative of the results of operations to be expected for the entire fiscal year, which ends on September 30, 1997, or for any other future period. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended September 30, 1996 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 30, 1996. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. INCOME PER SHARE Income per share is computed for each period based upon the weighted average number of common shares outstanding and dilutive common stock equivalents (using the treasury stock method). For purposes of this calculation, stock options are considered common stock equivalents in the periods in which they have a dilutive effect. Fully diluted and primary income per share data are the same for each period presented. 6 7 C. ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, and stock appreciation rights. SFAS No. 123 does not require companies to change their existing accounting for employee stock options under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" (the intrinsic value method) but requires pro forma disclosures of what net income and earnings per share would have been had the new fair value method been used. The Company has elected to continue following present accounting rules under APB Opinion No. 25 and will disclose all the required pro forma information in its Annual Report on Form 10-K for the fiscal year ended September 30, 1997. Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 replaces APB Opinion No. 15, Earnings Per Share. SFAS No. 128 simplifies the computation of EPS by replacing the presentation of primary EPS with a presentation of basic EPS. It requires dual presentation of basic and diluted EPS by entities with complex capital structures. The Company will adopt SFAS No. 128 per the effective date for the periods ended after December 15, 1997. Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" is effective for financial statements beginning after December 15, 1997. SFAS No. 130 requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. The Company will adopt SFAS No. 130 beginning in the first quarter of the fiscal year ended September 30, 1998. Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information" is effective for fiscal years beginning after December 15, 1997. This statement will change the way companies report annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. The Company will adopt SFAS No. 130 in the fiscal year ended September 30, 1998. 7 8 D. COMPUTER SOFTWARE COSTS There were no internally developed software costs capitalized for the three and nine months ended June 30, 1997. Internally developed software costs capitalized for the three and nine months ended June 30, 1996 were $0 and $634,000, respectively. Amortization expense was $106,000 and $127,000 for the three months ended June 30, 1997 and 1996, respectively, and $360,000 and $822,000 for the nine months ended June 30, 1997 and 1996. For the three months ended December 31, 1995, the Company changed the estimated useful life of its internally developed software related to the client/server version of MAXIMO from three years to fifteen months. This change in estimate resulted in additional amortization expense of $565,000 in the three months ended December 31, 1995. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General. The Company develops, markets and supports applications software used by businesses, government and other organizations to improve the productivity of facilities, plants and production equipment. The Company's revenues are derived primarily from two sources: software licenses and fees for services, including support contracts and training and consulting services. The Company has experienced a significant shift in the sources of its revenues as a result of its decision to concentrate its resources on the development and marketing of enterprise-wide asset maintenance management systems operating in a client/server environment. Prior to 1991, the Company's revenues were derived primarily from licenses of its project management software (consisting of character-based software designed to run on mainframe, minicomputers and personal computers), and, to a lesser extent, from sales of computer hardware. The Company acquired Maintenance Automation Corporation ("MAC") on March 1, 1996. MAC is a developer of maintenance management software for the single-user, PC LAN segment. The Company released MAXIMO, its first client/server product, in 1991, and released P/X, its second client/server product, in 1992. In fiscal year ended September 30, 1996, revenues from client/server software accounted for 89% of software revenues, of which 93% was attributable to the client/server versions of MAXIMO. In fiscal 1996, the Company introduced a new suite of MAXIMO products: MAXIMO Enterprise, MAXIMO Workgroup and MAXIMO ADvantage. MAXIMO Enterprise, a new version of which was released in March 1996, is a client/server product, which runs on Oracle7 and SYBASE platforms and is intended for the high function, high usage segment of the maintenance management market. MAXIMO Workgroup, released in July 1996, is also a client/server product and runs on SQLBase and Oracle Workgroup and is intended for the mid-range segment of the maintenance management market. In March 1997, the Company released a new SQL Server version of MAXIMO Enterprise and MAXIMO Workgroup for the Microsoft SQL Server database. The new SQL Server version is available for Windows NT servers, including NT 3.5.1 and NT 4.0, supporting Windows95, Windows 95B, all Windows 3.x systems, and NT 3.5.1 and NT 4.0 clients. The product acquired as a result of the acquisition of MAC on March 1, 1996, MAXIMO ADvantage, is intended for the lower-end maintenance market. MAXIMO ADvantage supports Microsoft Access for the single user, PC LAN segment. The Company incurred 9 10 significant additional and unexpected costs in developing a new release of MAXIMO ADvantage due to a delay in excess of six months in completing the new release of this product. The delay was necessary to meet both the quality expectations and functionality demanded by the Company. Further effecting MAXIMO ADvantage sales was the delay in availability of a CD-Rom based multi-media evaluation kit. This evaluation kit generally became available in December 1996. The first significant version of MAXIMO ADvantage released since the acquisition of MAC, version 3.4, was released in March 1997. The Company has not realized any significant revenues from this new release despite opening a new tele-sales operation in Atlanta in March 1997. Accordingly, expenses related to this product are being reduced to a level commensurate with the lower revenue expectations. The sources of the Company's revenues from support and services have also shifted since the introduction of the Company's new generation of client/server products. Revenues from support and services relating to the Company's MAXIMO products have increased, while those relating to the Company's P/X and mainframe and other project management software have declined. Revenues from licenses of P/X have declined sharply, dropping to 2% of total license revenues in the fiscal year ended 1996. The Company no longer actively markets its P/X product as a stand alone solution. Revenues from licenses of mainframe and other project management software have also declined sharply, dropping to 1% of total license revenues in the fiscal year ended 1996. The Company no longer actively markets its mainframe and other project management software products, although it provides technical support and other services to their installed customer base. The Company's revenues attributable to its operations outside the United States are a significant portion of revenues. The Company expects that international revenues will continue to be a significant percentage of total revenues. As the percentage of the Company's total revenues which are derived from international operations and are conducted in foreign currencies grows, changes in the values of these foreign currencies relative to the United States dollar will affect the Company's results of operations, and may contribute to fluctuations in the Company's results of operations. The functional currencies of the Company's international subsidiaries include the pound sterling, the French franc, the German deutschemark, the Dutch guilder, the Swedish krona, the Japanese yen, and the Australian and Canadian dollars, each of which has fluctuated significantly in relation to the United States dollar. In addition, the Company is exposed to potential losses as a result of transactions giving rise to accounts receivable in currencies other than the United States dollar or the functional currencies of its international subsidiaries. When the value of a foreign currency in which the 10 11 accounts receivable of the Company are denominated changes between the date the account receivable is accrued and the date on which it is settled, the resulting gain or loss is recorded as a foreign currency transaction adjustment. The Company recorded foreign currency transaction losses of $307,000 and $125,000 for the nine months ended June 30, 1997 and 1996, respectively. The Company may in the future undertake currency hedging, although there can be no assurance that hedging transactions, if entered into, would materially reduce the effects of fluctuations in foreign currency exchange rates on the Company's results of operations. To date, inflation has not had a material impact on the Company's financial results. There can be no assurance, however, that inflation may not adversely affect the Company's financial results in the future. RESULTS OF OPERATIONS Revenues. Total revenues increased 30% to $23,652,000 from $18,151,000 for the three months ended June 30, 1997 and 1996, respectively, and 36% to $69,217,000 from $50,715,000 for the nine months ended June 30, 1997 and 1996, respectively. The growth in revenues is generated from the Company's client/server versions of MAXIMO software and related support and services. A significant portion of the Company's total revenues are derived from operations outside the United States. Revenues generated outside the United States increased 51% to $10,024,000 or 42% of total revenues in the three months ended June 30, 1997 from $6,653,000 or 37% of total revenues in the three months ended June 30, 1996 and increased 46% to $29,509,000 or 43% of total revenues in the nine months ended June 30, 1997 from $20,281,000 or 40% of total revenues in the nine months ended June 30, 1996. The Company's software revenues increased 6% to $11,277,000 from $10,679,000 for the three months ended June 30, 1997 and 1996, respectively, and increased 23% to $36,165,000 from $29,489,000 for the nine months ended June 30, 1997 and 1996, respectively. The Company's MAXIMO client/server software revenues increased 15% to $10,448,000 from $9,109,000 for the three months ended June 30, 1997 and 1996, respectively, and increased 35% to $34,067,000 from $25,323,000 for the nine months ended June 30, 1997 and 1996, respectively. The Company's MAXIMO ADvantage software revenues decreased 41% to $763,000 from $1,291,000 for the three months ended June 30, 1997 and 1996, respectively, and decreased 47% to $1,723,000 from $3,238,000 for the nine months ended June 30, 1997 and 1996, respectively. The Company's P/X software revenues decreased 96% to $12,000 from $280,000 for the three months ended June 30, 1997 and 1996, respectively, and decreased 54% to $290,000 from $628,000 for the 11 12 nine months ended June 30, 1997 and 1996, respectively. The increases in MAXIMO client/server software revenues for the three and nine months ended June 30, 1997 can be attributed to increases in the average selling price, as well as, increases in the number of licenses. In the three months ended June 30, 1996, the Company recognized one large software license agreement of approximately $1.8 million dollars. There were no software licenses above one million dollars in the three months ended June 30, 1997. Software revenues as a percentage of total revenues decreased to 48% from 59% for the three months ended June 30, 1997 and 1996, respectively, and decreased to 52% from 58% for the nine months ended June 30, 1997 and 1996, respectively. The decreases for the three and nine months ended June 30, 1997 are largely attributable to a decline in MAXIMO client/server software license revenue in Europe and a shortfall in MAXIMO ADvantage revenues. Partially offsetting the software decline in Europe is an increase in European services revenue. European MAXIMO services revenues have increased 89% and 108% for the three and nine months ended June 30, 1997, respectively. European services revenues as a percentage of European revenues were 51% and 46% for the three and nine months ended June 30, 1997, respectively, in comparison to 41% and 32% for the three and nine months ended June 30, 1996, respectively. Revenues from MAXIMO client/server licenses and from related support and services increased 47% to $21,405,000 from $14,519,000 or 90% and 80% of total revenues for the three months ended June 30, 1997 and 1996, respectively, and increased 57% to $62,693,000 from $39,964,000 or 91% and 79% of total revenues for the nine months ended June 30, 1997 and 1996, respectively. Revenues from MAXIMO ADvantage licenses and from related support and services decreased 22% to $1,477,000 from $1,902,000 or 6% and 4% of total revenues for the three months ended June 30, 1997 and 1996, respectively, and decreased 29% to $3,921,000 from $5,540,000 or 6% and 11% of total revenues for the nine months ended June 30, 1997 and 1996, respectively. Revenues from licenses and related support and services of P/X decreased 59% to $551,000 from $1,356,000 or 2% and 7% of total revenues for the three months ended June 30, 1997 and 1996, respectively, and decreased 50% to $1,871,000 from $3,775,000 or 3% and 7% of total revenues for the nine months ended June 30, 1997 and 1996, respectively. The Company no longer actively markets its P/X product as a stand alone solution. Revenues from the Company's mainframe and other project management software and related support and services decreased 41% to $219,000 from $374,000 for the three months ended June 30, 1997 and 1996, respectively, and decreased 49% to $732,000 from $1,435,000 for the nine months ended June 30, 1997 and 1996, respectively. The Company no longer actively markets its mainframe and other project management software products. 12 13 Revenues from support and services increased 66% to $12,375,000 from $7,472,000 for the three months ended June 30, 1997 and 1996, respectively, and increased 56% to $33,052,000 from $21,226,000 for the nine months ended June 30, 1997 and 1996, respectively. Support and services revenues as a percentage of total revenues increased to 52% from 41% for the three months ended June 30, 1997 and 1996, respectively, and 48% from 42% for the nine months ended June 30, 1997 and 1996, respectively. The increases are due primarily to consulting and training services generated by the Company's MAXIMO Enterprise software. The Company anticipates that services revenues will continue to be a larger portion of total revenues than has been experienced in the past due to customers requiring high end domain implementation expertise including customization and integration to Enterprise Resource Planning projects. Also contributing to the increases are sales of support contracts in connection with licenses of the Company's MAXIMO client/server software, partially offset by declines in sales of support contracts relating to the Company's mainframe and other project management software. Cost of Revenues. The total cost of revenues increased 56% to $7,040,000 from $4,504,000 for the three months ended June 30, 1997 and 1996, respectively, and increased 52% to $19,473,000 from $12,813,000 for the nine months ended June 30, 1997 and 1996, respectively. The total cost of revenues as a percentage of total revenues was 30% and 25% for the three months ended June 30, 1997 and 1996, respectively, and 28% and 25% for the nine months ended June 30, 1997 and 1996, respectively and can be attributed primarily to the third party consulting costs and additional in house consultants hired in relation to increases in MAXIMO services revenue. Cost of software revenues increased 12% to $747,000 from $667,000 for the three months ended June 30, 1997 and 1996, respectively, and decreased 12% to $1,998,000 from $2,267,000 for the nine months ended June 30, 1997 and 1996, respectively. The cost of software revenues increased as a percentage of software revenues to 7% from 6% for the three months ended June 30, 1997 and 1996, respectively, and decreased to 6% from 8% for the nine months ended June 30, 1997 and 1996. The increase as a percentage of revenues for the three months ended June 30, 1997 is attributable to royalties paid to third party vendors and software purchased for resale. The decrease as a percentage of software revenues for the nine months ended June 30, 1997 is primarily attributable to a decrease in amortization expense of internally developed software as compared to the prior period and an increase in the revenue base for the nine months ended June 30, 1997. In the three months ended December 31, 1995, the Company changed the estimated useful life of its MAXIMO Enterprise product from three years to fifteen months to accurately reflect the lifecycles for major new 13 14 releases of this product. This change resulted in a one-time charge of an additional amortization expense of $565,000 for this three month period. Cost of support and services revenues consists primarily of personnel costs for employees and the related costs of benefits and facilities and costs for third party consultants. Cost of support and services revenues increased by 64% to $6,293,000 from $3,837,000 for the three months ended June 30, 1997 and 1996, respectively, and increased by 66% to $17,475,000 from $10,546,000 for the nine months ended June 30, 1997 and 1996, respectively. The increase for the three months ended June 30, 1997 is attributable to costs for third party consultants and the hire of employees to perform services. Cost of support and services as a percentage of support and services revenues was 51% for both the three months ended June 30, 1997 and 1996, respectively, and increased to 53% from 50% for the nine months ended June 30, 1997 and 1996, respectively. The increase for the nine months ended June 30, 1997 is attributable to costs for third party consultants whose effective hourly rate is higher than that of employees performing similar services. Third party consultants are utilized to perform services when the Company does not have adequate internal resources to complete services within acceptable time frames. Sales and Marketing Expenses. Sales and marketing expenses increased 39% to $8,337,000 from $5,999,000 for the three months ended June 30, 1997 and 1996, respectively, and increased 44% to $23,908,000 from $16,549,000 for the nine months ended June 30, 1997 and 1996, respectively. The increases are primarily due to increases in the number of sales personnel, sales commissions, travel and lodging expenses attributable to growth and expansion, and an increase in advertising costs. Sales and marketing expenses as a percentage of total revenues were 35% and 33% for the three months ended June 30, 1997 and 1996, and 35% and 33% for the nine months ended June 30, 1997 and 1996, respectively. The increases as a percentage of revenues are due primarily to increased sales and marketing staffs and an increase in advertising costs to promote the Company's MAXIMO products, and expense levels that were established to achieve a higher level of revenues. Product Development Expenses. Product development expenses increased 48% to $2,873,000 from $1,942,000 for the three months ended June 30, 1997 and 1996, respectively, and increased 53% to $8,247,000 from $5,402,000 for the nine months ended June 30, 1997 and 1996, respectively. The increases are attributable to costs for third party consultants and additional employees to work on upgrades of the MAXIMO product and investments in future technology. 14 15 Product development expenses increased to 12% from 11% of total revenues for the three months ended June 30, 1997 and 1996, respectively, and increased to 12% from 11% of total revenues for the nine months ended June 30, 1997 and 1996, respectively. Over the past two years, the Company has spent the majority of its development dollars on the MAXIMO product line and anticipates to continue to do so in the near future. The increases as a percentage of revenues are attributable to the capitalization of internal software developments costs in the prior period versus no capitalization of expenses in the current period. The increases are also attributable to increases in the number of developers hired and third party contractors. General and Administrative Expenses. General and administrative expenses include the cost of the Company's finance, human resources, information services and administrative operations. General and administrative expenses increased 7% to $2,129,000 from $1,986,000 for the three months ended June 30, 1997 and 1996, respectively, and increased 32% to $7,088,000 from $5,376,000 for the nine months ended June 30, 1997 and 1996, respectively. The increase for the three months ended June 30, 1997 is attributable to increases in personnel to support the increase in the revenue base offset by a decrease in the provision for bad debts. The increase for the nine months ended June 30, 1997 is attributable to increases in the provision for bad debt expenses, professional fees related to growth and expansion and goodwill amortization. Also contributing to the increases for both the three and nine months ended June 30, 1997 are increases in personnel to support the increase in the revenue base. General and administrative expenses as a percentage of total revenues decreased to 9% from 11% in the three months ended June 30, 1997 and 1996, respectively, and to 10% from 11% in the nine months ended June 30, 1997 and 1996, respectively. The decreases as a percentage of revenues for both periods demonstrates an ability to manage a larger revenue base without a commensurate increase in general and administrative expenses. Other Income/Expense. Interest income for the three months ended June 30, 1997 and 1996 was $754,000 and $424,000, respectively, and $1,702,000 and $1,280,000 for the nine months ended June 30, 1997 and 1996. The increases are due to interest earned on certain cash equivalents and marketable securities. Provision for Income Taxes. The Company's effective tax rate was 36% and 35% for the three months ended June 30, 1997 and 1996, respectively and 37% and 42% for the nine months ended June 30, 1997 and 1996, 15 16 respectively. The decrease for the nine months ended June 30, 1997 is attributable to tax-exempt income, research and development credits and utilization of a Foreign Sales Corporation. Also, in during the nine months ended June 30, 1996, the effective rate was high due to merger expenses of $965,000, which are not deductible for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, the Company had cash and cash equivalents of approximately $20,786,000 and working capital of $62,235,000. The Company's favorable cash position is attributable to an increased effort in accounts receivable collections and a significant improvement in the days sales outstanding. The days sales outstanding is likely to increase due to economic climate, exchange rate fluctuations, components of revenues and geographic sources of revenues. Cash provided by operations for the nine months ended June 30, 1997 was $13,348,000 generated by income earned for the period, depreciation and amortization, and receivables collected for the period, offset by the payout of fiscal 1996 employee bonuses. Cash used in investing activities totaled $3,788,000 and was primarily used for the purchase of computer equipment, office furniture and leasehold improvements. Cash provided by financing activities was $2,580,000 and is attributable to exercises of employee stock options. The Company's principal commitments as of June 30, 1997 consisted primarily of an office lease for its headquarters. The Company leases its facilities under non-cancelable operating lease agreements which expire at various dates through February 2007. The Company will be relocating its corporate headquarters in November 1997. The Company expects to spend $2.5 million dollars for construction and buildout in connection with the relocation. It also plans to spend approximately $1 million on furniture, fixtures and equipment. The Company elected not to renew its $5,000,000 unsecured line of credit with Chase Manhattan Bank, N.A., which expired on March 31, 1997. The Company believes that its current liquidity and cash flows expected to be generated by operations will be sufficient to meet its cash needs for working capital, capital expenditures and market expansion through at least June 30, 1998. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;SEASONALITY The Company generally ships its products upon receipt of orders and maintains no significant backlog. As a result, revenues from license fees in any quarter are substantially dependent on orders booked and shipped in that quarter. A delay in or loss of orders can cause significant variations in quarterly operating results. In addition, the Company's revenues and operating results have fluctuated historically, due to the 16 17 number and timing of product introductions and enhancements, the budgeting and purchasing cycles of customers and the timing of large orders, the timing of product shipments and the timing of marketing and product development expenditures. Large software license contracts, if any, may have a significant impact on revenues for any quarter and could therefore result in significant fluctuations in quarterly revenues and operating results. The Company's revenues and income from operations typically grow at a lower rate or decline in the first quarter of each fiscal year. In addition, revenues are typically higher in the fourth quarter than in other quarters of the year reflecting the Company's fiscal year end and a sales commission policy that bases rewards on achievement of annual quotas. As a result of these factors, the Company has experienced, and may in the future experience, significant period-to-period fluctuations in revenues and operating results. FACTORS AFFECTING FUTURE PERFORMANCE Further information on factors that could affect the Company's business and financial results are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 30, 1996. Forward-looking statements of the Company are subject to the risk that assumptions made by management of the Company concerning future general economic conditions such as recession, inflation, interest rates, tax rates, consumer spending and credit and other future conditions having an impact on software markets and the Company's business may prove to be incorrect. Adverse changes in such future economic conditions could have an adverse effect on the Company's business. 17 18 Part II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3. Instruments Defining the Rights of Security-Holders 3.1 Amended and Restated Articles of Organization of the Company (included as Exhibit 3.3 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996,) and incorporated herein by reference) 10.1 Amended and Restated 1994 Incentive and NonQualified Stock Option Plan, as amended, as approved by the stockholders of the Company by written consent dated April 15, 1994. 11.1 Statement re computation of per share earnings 27. Financial Data Schedule (b) Reports filed on Form 8-K The Company filed no current reports on Form 8-K during the three months ended June 30, 1997. 18 19 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 13, 1997 By: /s/ Paul D. Birch --------------- ------------------------------ Paul D. Birch Authorized Officer Executive Vice President Finance & Administration,Chief Financial Officer and Treasurer (Principal Financial Officer) 19 20 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, Registration No. 33-76420, and incorporated herein by reference) 3.2 Restated By-Laws of the Company, as amended included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996,) and incorporated herein by reference) 10.1 Amended and Restated 1994 Incentive and NonQualified Stock Option Plan, as amended, as approved by the stockholders of the Company by written consent dated April 15, 1994. 11.1 Statement re computation of per share earnings 27 Financial Data Schedule
EX-10.1 2 1994 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN 1 Exhibit 10.1 PROJECT SOFTWARE & DEVELOPMENT, INC. 1994 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN ------------------------------------------------- SECTION 1. PURPOSE This Amended and Restated 1994 Incentive and Nonqualified Stock Option Plan (the "Plan") of Project Software & Development, Inc. (the "Company"), is designed to provide additional incentive to executives and other key employees of the Company, and any parent or subsidiary of the Company, and to certain other individuals providing services to or acting as directors of the Company or any such parent or subsidiary. The Company intends that this purpose will be effected by the granting of incentive stock options ("Incentive Stock Options") as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options ("Nonqualified Options") under the Plan which afford such executives, key employees or other individuals an opportunity to acquire or increase their proprietary interest in the Company through the acquisition of shares of its Common Stock. The Company intends that Incentive Stock Options issued under the Plan will qualify as "incentive stock options" as defined in Section 422 of the Code and the terms of the Plan shall be interpreted in accordance with this intention. As used in the Plan the terms "parent" and "subsidiary" shall have the respective meanings set forth in Section 424 of the Code. 2 SECTION 2. ADMINISTRATION 2.1 THE COMMITTEE. The Plan shall be administered by a Committee (the "Committee") consisting of at least two "Outside Directors." As used herein, the term "Outside Director" means any director of the Company who (i) is not an employee of the Company or of an "affiliated group," as such term is defined in Section 1504(a) of the Code, which includes the Company (an "Affiliate"), (ii) is not a former employee of the Company or any Affiliate who is receiving compensation for prior services (other than benefits under a tax-qualified retirement plan) during the Company's or any Affiliate's taxable year, (iii) has not been an officer of the Company or any Affiliate and (iv) does not receive remuneration from the Company or any Affiliate, either directly or indirectly, in any capacity other than as a director. None of the members of the Committee shall be an officer or other employee of the Company. It is the intention of the Company that the Plan shall be administered by "Non-Employee Directors" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 as amended (the "1934 Act"), but the authority and validity of any act taken or not taken by the Committee shall not be affected if any person administering the Plan is not a disinterested person. Except as specifically reserved to the Board of Directors of the Company (the "Board") under the terms of the Plan, the Committee shall have full and final authority to operate, manage and administer the Plan on behalf of the Company. Action by the Committee shall require the affirmative vote of a majority of all members thereof. -2- 3 2.2 POWERS OF THE COMMITTEE. Subject to the terms and conditions of the Plan, the Committee shall have the power: (a) To determine from time to time the persons eligible to receive options and the options to be granted to such persons under the Plan and to prescribe the terms, conditions, restrictions, if any, and provisions (which need not be identical) of each option granted under the Plan to such persons; (b) To construe and interpret the Plan and options granted thereunder and to establish, amend, and revoke rules and regulations for administration of the Plan. In this connection, the Committee may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, or in any option agreement, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company and optionees; (c) To make, in its sole discretion, changes to any outstanding option granted under the Plan, including: (i) to reduce the exercise price, (ii) to accelerate the vesting schedule or (iii) to extend the expiration date; and (d) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan. -3- 4 SECTION 3. STOCK 3.1 STOCK TO BE ISSUED. The stock subject to the options granted under the Plan shall be shares of the Company's authorized but unissued common stock, $.01 par value (the "Common Stock"), or shares of the Company's Common Stock held in treasury. The total number of shares that may be issued pursuant to options granted under the Plan shall not exceed an aggregate of 1,800,000 shares of Common Stock; provided, however, that the class and aggregate number of shares which may be subject to options granted under the Plan shall be subject to adjustment as provided in Section 8 hereof. 3.2 EXPIRATION, CANCELLATION OR TERMINATION OF OPTION. Whenever any outstanding option under the Plan expires, is cancelled or is otherwise terminated (other than by exercise), the shares of Common Stock allocable to the unexercised portion of such option may again be the subject of options under the Plan, and shares of Common Stock issuable under options that expire, are cancelled or are otherwise terminated shall not count against the limitation on grants set forth in Section 3.3 hereof. 3.3 LIMITATION ON GRANTS. In no event may any Plan participant be granted options with respect to more than 150,000 shares of Common Stock in any calendar year. SECTION 4. ELIGIBILITY 4.1 PERSONS ELIGIBLE. Incentive Stock Options under the Plan may be granted only to officers and other employees of the Company or any parent or subsidiary of the Company. Nonqualified -4- 5 Options may be granted to officers or other employees of the Company or any parent or subsidiary of the Company, and to members of the Board and consultants or other persons who render services to the Company or any such parent or subsidiary (regardless of whether they are also employees), provided, however, that options may be granted to members of the Board who are not employees of the Company or any such parent or subsidiary ("Outside Directors") only as provided in Section 4.4. 4.2 GREATER-THAN-TEN-PERCENT STOCKHOLDERS. Except as may otherwise be permitted by the Code or other applicable law or regulation, no Incentive Stock Option shall be granted to an individual who, at the time the option is granted, owns (including ownership attributed pursuant to Section 425 of the Code) more than ten percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary (a "greater-than-ten-percent stockholder"), unless such Incentive Stock Option provides that (i) the purchase price per share shall not be less than one hundred ten percent of the fair market value of the Common Stock at the time such option is granted, and (ii) that such option shall not be exercisable to any extent after the expiration of five years from the date it is granted. 4.3 MAXIMUM AGGREGATE FAIR MARKET VALUE. The aggregate fair market value (determined at the time the option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any optionee during any calendar year (under the Plan and any other plans of the Company or any parent or subsidiary for the issuance of incentive stock -5- 6 options) shall not exceed $100,000 (or such greater amount as may from time to time be permitted with respect to incentive stock options by the Code or any other applicable law or regulation). 4.4 OPTION GRANTS TO OUTSIDE DIRECTORS. (a) GRANT OF OPTIONS UPON ELECTION TO BOARD. Each Outside Director joining the Board at or subsequent to the meeting of the Company's stockholders at which this Section 4.4(a) in this form is approved (the "Approval Meeting") shall automatically be granted, upon such Outside Director so joining the Board, an initial Nonqualified Option to purchase 12,000 shares of Common Stock. Such Nonqualified Option shall vest and become exercisable in three equal annual installments cumulatively beginning on the first anniversary of the date the option was granted. (b) GRANT OF OPTIONS UPON RE-ELECTION TO BOARD OR CONTINUATION ON THE BOARD. Each Outside Director who is re-elected by the stockholders of the Company to the Board at or subsequent to the Approval Meeting shall automatically be granted, immediately following the meeting of stockholders at which such Outside Director is re-elected, a Nonqualified Option to purchase 4,000 shares of Common Stock. In addition, each Outside Director whose term of office does not expire at any annual meeting of stockholders or special meeting in lieu thereof subsequent to the Approval Meeting and who shall remain an Outside Director after such meeting shall automatically be granted, immediately following such meeting, a Nonqualified Option to purchase 4,000 shares of -6- 7 Common Stock. Each Nonqualified Option described in this Section 4.4(b) shall vest and become exercisable in full on the last day of December in the year in which the Nonqualified Option was granted. (c) PURCHASE PRICE. The purchase price per share of Common Stock under each Nonqualified Option granted pursuant to this Section 4.4 shall be equal to the fair market value of the Common Stock on the date the Nonqualified Option is granted, such fair market value to be determined in accordance with the provisions of Section 6.3(b). (d) EXPIRATION. Each Nonqualified Option granted to an Outside Director under this Section 4.4 shall expire on the fifth anniversary of the date of grant. SECTION 5. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE 5.1 TERMINATION OF EMPLOYMENT. Except as may be otherwise expressly provided herein, options shall terminate on the earlier of: (a) the date of expiration thereof; (b) immediately upon the termination of the optionee's employment with or performance of services for the Company (or any parent or subsidiary of the Company) by the Company (or any such parent or subsidiary) for cause (as determined by the Company or such parent or subsidiary); or (c) thirty days after the date of termination of the optionee's employment with or performance of services for the Company (or any parent or subsidiary of the Company) -7- 8 by the Company (or any such parent or subsidiary) without cause or voluntarily by the optionee; PROVIDED, HOWEVER, that Nonqualified Options granted to persons who are not employees of the Company (or any parent or subsidiary of the Company) need not, unless the Committee determines otherwise, be subject to the provisions set forth in clauses (b) and (c) above. An employment relationship between the Company (or any parent or subsidiary of the Company) and the optionee shall be deemed to exist during any period in which the optionee is employed by the Company (or any such parent or subsidiary). Whether authorized leave of absence, or absence on military or government service, shall constitute termination of the employment relationship between the Company (or any parent or subsidiary of the Company) and the optionee shall be determined by the Committee at the time thereof. As used herein, "cause" shall mean (x) any material breach by the optionee of any agreement to which the optionee and the Company (or any parent or subsidiary of the Company) are both parties, (y) any act or omission to act by the optionee which may have a material and adverse effect on the business of the Company (or any such parent or subsidiary) or on the optionee's ability to perform services for the Company (or any such parent or subsidiary), including, without limitation, the commission of any crime (other than ordinary traffic violations), or (z) any material misconduct or material neglect of duties by the optionee in connection with the business or affairs of the Company (or any -8- 9 such parent or subsidiary) or any affiliate of the Company (or any such parent or subsidiary). 5.2 DEATH OR RETIREMENT OF OPTIONEE. In the event of the death of the holder of an option that is subject to clause (b) or (c) of Section 5.1 above prior to termination of the optionee's employment with or performance of services for the Company (or any parent or subsidiary of the Company) and before the date of expiration of such option, such option shall terminate on the earlier of such date of expiration or one year following the date of such death. After the death of the optionee, his executors, administrators or any person or persons to whom his option may be transferred by will or by the laws of descent and distribution, shall have the right, at any time prior to such termination, to exercise the option to the extent the optionee was entitled to exercise such option at the time of his death. If, before the date of the expiration of an option that is subject to clause (b) or (c) of Section 5.1 above, the optionee shall be retired in good standing from the Company for reasons of age or disability under the then established rules of the Company, the option shall terminate on the earlier of such date of expiration or ninety (90) days after the date of such retirement. In the event of such retirement, the optionee shall have the right prior to the termination of such option to exercise the option to the extent to which he was entitled to exercise such option immediately prior to such retirement. SECTION 6. TERMS OF THE OPTION AGREEMENTS -9- 10 Each option agreement shall be in writing and shall contain such terms, conditions, restrictions, if any, and provisions as the Committee shall from time to time deem appropriate. Such provisions or conditions may include, without limitation, restrictions on transfer, repurchase rights, or such other provisions as shall be determined by the Committee; PROVIDED, HOWEVER, THAT such additional provisions shall not be inconsistent with any other term or condition of the Plan and such additional provisions shall not cause any Incentive Stock Option granted under the Plan to fail to qualify as an incentive option within the meaning of Section 422 of the Code. The shares of stock issuable upon exercise of an option by any executive officer, director or beneficial owner of more than ten percent of the Common Stock of the Company may not be sold or transferred (except that such shares may be issued upon exercise of such option) by such officer, director or beneficial owner for a period of six months following the grant of such option. Option agreements need not be identical, but each option agreement by appropriate language shall include the substance of all of the following provisions: 6.1 EXPIRATION OF OPTION. Notwithstanding any other provision of the Plan or of any option agreement, each option shall expire on the date specified in the option agreement, which date shall not, in the case of an Incentive Stock Option, be later than the tenth anniversary (fifth anniversary in the case of a greater-than-ten-percent stockholder) of the date on which the option was granted or as specified in Section 5 of this Plan. -10- 11 6.2 EXERCISE. Each option may be exercised, so long as it is valid and outstanding, from time to time in part or as a whole, subject to any limitations with respect to the number of shares for which the option may be exercised at a particular time and to such other conditions as the Committee in its discretion may specify upon granting the option. 6.3 PURCHASE PRICE. The purchase price per share under each option shall be determined by the Committee at the time the option is granted; provided, however, that the option price of any Incentive Stock Option shall not, unless otherwise permitted by the Code or other applicable law or regulation, be less than the fair market value of the Common Stock on the date the option is granted (110% of the fair market value in the case of a greater-than-ten-percent stockholder) and the option price of any Nonqualified Option shall not be less than 85% of the fair market value of the Common Stock on the date the option is granted. For the purpose of the Plan the fair market value of the Common Stock shall be (i) in the case of the Nonqualified Options granted to Outside Directors in connection with the Company's initial public offering, the initial public offering price and (ii) in all other cases, the closing price per share on the date of grant of the option as reported by a nationally recognized stock exchange, or, if the Common Stock is not listed on such an exchange, as reported by the National Association of Securities Dealers Automated Quotation System ("Nasdaq") National Market System or, if the Common Stock is not listed on the Nasdaq National Market System, the mean of the bid and asked prices per share on the -11- 12 date of grant of the option or, if the Common Stock is not traded over-the-counter, the fair market value as determined by the Committee. 6.4 TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the optionee otherwise than by will or under the laws of descent and distribution, and shall be exercisable, during his lifetime, only by the optionee. 6.5 RIGHTS OF OPTIONEES. No optionee shall be deemed for any purpose to be the owner of any shares of Common Stock subject to any option unless and until the option shall have been exercised pursuant to the terms thereof, and the Company shall have issued and delivered certificates representing such shares to the optionee. 6.6 CERTAIN RIGHTS OF THE COMPANY. The Committee may in its discretion provide upon the grant of any option hereunder that the Company shall have an option to repurchase upon such terms and conditions as determined by the Committee all or any number of shares purchased upon exercise of such option or a right of first refusal in connection with subsequent transfer of any or all of such shares. The repurchase price per share payable by the Company shall be such amount or be determined by such formula as is fixed by the Committee at the time the option for the shares subject to repurchase is granted. In the event the Committee shall grant options subject to the Company's repurchase option or right of first refusal, the certificates representing the shares purchased pursuant to such option shall -12- 13 carry a legend satisfactory to counsel for the Company referring to the Company's repurchase option or right of first refusal. 6.7 "LOCKUP" AGREEMENT. The Committee may in its discretion specify upon granting an option that upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, the optionee shall agree in writing that for a period of time (not to exceed 180 days) from the effective date of any registration of securities of the Company, the optionee will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares issued pursuant to the exercise of such option, without the prior written consent of the Company or such underwriters, as the case may be. SECTION 7. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE 7.1 METHOD OF EXERCISE. Any option granted under the Plan may be exercised by the optionee by delivering to the Company on any business day a written notice specifying the number of shares of Common Stock the optionee then desires to purchase and specifying the address to which the certificates for such shares are to be mailed (the "Notice"), accompanied by payment for such shares. 7.2 PAYMENT OF PURCHASE PRICE. Payment for the shares of Common Stock purchased pursuant to the exercise of an option shall be made either by (i) cash or check equal to the option price for the number of shares specified in the Notice, or (ii) with the consent of the Committee, other shares of Common -13- 14 Stock which (a) either have been owned by the optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (b) have a fair market value on the date of surrender not greater than the aggregate option price of the shares as to which such option shall be exercised, (iii) with the consent of the Committee, delivery of such documentation as the Committee and the broker, if applicable, shall require to effect an exercise of the option and delivery to the Company of the sale or loan proceeds required to pay the option price, (iv) with the consent of the Committee, such other consideration which is acceptable to the Committee and which has a fair market value equal to the option price of such shares, or (v) with the consent of the Committee, a combination of (i), (ii), (iii), (iv) and/or (v). For the purpose of the preceding sentence, the fair market value per share of Common Stock so delivered to the Company shall be determined in the manner specified in Section 6.3. As promptly as practicable after receipt of the Notice and accompanying payment, the Company shall deliver to the optionee certificates for the number of shares with respect to which such option has been so exercised, issued in the optionee's name; provided, however, that such delivery shall be deemed effected for all purposes when the Company or a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to the optionee, at the address specified in the Notice. -14- 15 SECTION 8. CHANGES IN COMPANY'S CAPITAL STRUCTURE 8.1 RIGHTS OF COMPANY. The existence of outstanding options shall not affect in any way the right or power of the Company or its stockholders to make or authorize, without limitation, any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of Common Stock, or any issue of bonds, debentures, preferred or prior preference stock or other capital stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 8.2 RECAPITALIZATIONS, STOCK SPLITS AND DIVIDENDS. If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the Common Stock outstanding, in any such case without receiving compensation therefor in money, services or property, then (i) the number, class, and price per share of shares of stock subject to outstanding options hereunder shall be appropriately adjusted in such a manner as to entitle an optionee to receive upon exercise of an option, for the same aggregate cash consideration, the same total number and class of shares as he would have received as a result of the event requiring the adjustment had he exercised his option in full immediately prior -15- 16 to such event; (ii) the number and class of shares with respect to which options may be granted under the Plan; and (iii) the number and class of shares set forth in Sections 3.3 and 4.4 shall be adjusted by substituting for the total number of shares of Common Stock then reserved for issuance under the Plan that number and class of shares of stock that the owner of an equal number of outstanding shares of Common Stock immediately prior to the event requiring adjustment would own as the result of such event. 8.3 MERGER WITHOUT CHANGE OF CONTROL. After a merger of one or more corporations with or into the Company or after a consolidation of the Company and one or more corporations in which the stockholders of the Company immediately prior to such merger or consolidation own after such merger or consolidation shares representing at least fifty percent (50%) of the voting power of the Company or the surviving or resulting corporation, as the case may be, each holder of an outstanding option shall, at no additional cost, be entitled upon exercise of such option to receive in lieu of the shares of Common Stock as to which such option was exercisable immediately prior to such event, the number and class of shares of stock or other securities, cash or property (including, without limitation, shares of stock or other securities of another corporation or Common Stock) to which such holder would have been entitled pursuant to the terms of the agreement of merger or consolidation if, immediately prior to such merger or consolidation, such holder had been the holder of -16- 17 record of a number of shares of Common Stock equal to the number of shares for which such option shall be so exercised. 8.4 CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control (as defined below) the time for exercise of each unvested installment of any then outstanding option shall be accelerated, such that: (i) immediately upon such Change of Control, 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, one third (33 1/3%) of any installment of such option that has not yet vested in accordance with its original terms or by virtue of this Section 8.4 shall become exercisable; (iii) on the date that is eighteen months after such Change in Control, fifty percent (50%) of any installment of such option that has not yet vested in accordance with its original terms or by virtue of this Section 8.4 shall become exercisable; and (iv) on the second anniversary of such Change in Control, any remaining installment of such option that has not yet vested in accordance with its original terms or by virtue of this Section 8.4 shall become exercisable. The foregoing clauses (i) through (iv) are intended to provide for vesting that is additive to, and not in lieu of, the vesting schedule originally provided in any option outstanding at the time of a Change in Control, and, except to -17- 18 the extent accelerated by such clauses, each such option shall continue to vest in accordance with its original terms. (b) 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 Common Stock as to which such option was exercisable immediately prior to such event, the number and class of shares of stock or other securities, cash or property (including, without limitation, shares of stock or other securities of another corporation or common stock) to which such holder would have been entitled pursuant to the terms of the merger, consolidation, liquidation, sale or disposition if, immediately prior to such event, such -18- 19 holder had been the holder of a number of shares of Common Stock equal to the number of shares as to which such option shall be so exercised; (ii) the Committee may accelerate the time for exercise of some or all unexercised and unexpired options so that from and after a date prior to the effective date of such merger, consolidation, liquidation, sale or disposition, as the case may be, specified by the Committee such accelerated options shall be exercisable in full; or (iii) all outstanding options may be cancelled by the Committee as of the effective date of any such merger, consolidation, liquidation, sale or disposition provided that (x) notice of such cancellation shall be given to each holder of an option and (y) each holder of an option shall have the right to exercise such option to the extent that the same is then exercisable or, if the Committee shall have accelerated the time for exercise of all unexercised and unexpired options, in full during the 10-day period preceding the effective date of such merger, consolidation, liquidation, sale or disposition. (c) 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 in a capacity designated by the Board of Directors of the Company as that of an "executive officer" within the meaning of Rule 16a-1(f) promulgated under the 1934 Act (each such optionee being hereafter referred to as a "Designated Executive") shall be terminated by the Company other than for cause, or shall be -19- 20 terminated by the Designated Executive for good reason, then in such event all unvested, unexercised and unexpired options 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. (d) "Change of Control" shall mean the occurrence of any one of the following events: (i) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the 1934 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 -20- 21 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 (ii) persons who, as of March 1, 1997, constituted the Company's Board (the "Incumbent Board") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to March 1, 1997 whose election was approved by, or who was nominated with the approval of, at least a majority of the directors then comprising the Incumbent Board shall, for purposes of this Plan, be considered a member of the Incumbent Board; or (iii) 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 (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for -21- 22 the sale or disposition by the Company of all or substantially all of the Company's assets. 8.5 ADJUSTMENTS TO COMMON STOCK SUBJECT TO OPTIONS. Except as hereinbefore expressly provided, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to outstanding options. 8.6 MISCELLANEOUS. Adjustments under this Section 8 shall be determined by the Committee, and such determinations shall be conclusive. No fractional shares of Common Stock shall be issued under the Plan on account of any adjustment specified above. SECTION 9. GENERAL RESTRICTIONS 9.1 INVESTMENT REPRESENTATIONS. The Company may require any person to whom an option is granted, as a condition of exercising such option, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. -22- 23 9.2 COMPLIANCE WITH SECURITIES LAWS. The Company shall not be required to sell or issue any shares under any option if the issuance of such shares shall constitute a violation by the optionee or by the Company of any provision of any law or regulation of any governmental authority. In addition, in connection with the Securities Act of 1933, as now in effect or hereafter amended (the "Act"), upon exercise of any option, the Company shall not be required to issue such shares unless the Committee has received evidence satisfactory to it to the effect that the holder of such option will not transfer such shares except pursuant to a registration statement in effect under such Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that such registration is not required. Any determination in this connection by the Committee shall be final, binding and conclusive. In the event the shares issuable on exercise of an option are not registered under the Act, the Company may imprint upon any certificate representing shares so issued the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Act and with applicable state securities laws: The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any State and may not be pledged, hypothecated, sold or otherwise transferred except upon such registration or upon receipt by the Corporation of an opinion of counsel satisfactory to the Corporation, in form and substance satisfactory to the Corporation, that registration is not required for such sale or transfer. -23- 24 The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Act; and in the event any shares are so registered the Company may remove any legend on certificates representing such shares. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. 9.3 EMPLOYMENT OBLIGATION. The granting of any option shall not impose upon the Company (or any parent or subsidiary of the Company) any obligation to employ or continue to employ any optionee; and the right of the Company (or any such parent or subsidiary) to terminate the employment of any officer or other employee shall not be diminished or affected by reason of the fact that an option has been granted to him/her. 9.4 WITHHOLDING TAX. Whenever under the Plan shares of Common Stock are to be delivered upon exercise of an option, the Company shall be entitled to require as a condition of delivery that the optionee remit an amount sufficient to satisfy all federal, state and other governmental withholding tax requirements related thereto. SECTION 10. AMENDMENT OR TERMINATION OF THE PLAN The Board of Directors may modify, revise or terminate this Plan at any time and from time to time, except that (i) the class of persons eligible to receive options and the aggregate number -24- 25 of shares issuable pursuant to this Plan shall not be changed or increased, other than by operation of Section 8 hereof, without the consent of the stockholders of the Company and (ii) the provisions of Section 4.4 shall not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, or the rules thereunder. SECTION 11. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. SECTION 12. EFFECTIVE DATE AND DURATION OF PLAN The Plan shall become effective upon its adoption by the Board of Directors. No option may be granted under the Plan after the tenth anniversary of the effective date. The Plan shall terminate (i) when the total amount of Common Stock with respect to which options may be granted shall have been issued upon the exercise of options or (ii) by action of the Board of Directors pursuant to Section 10 hereof, whichever shall first occur. * * * * * * * * -25- EX-11.1 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 PROJECT SOFTWARE & DEVELOPMENT, INC. STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
Three months Three months Nine months Nine months ended ended ended ended PRIMARY: 06/30/97 06/30/96 06/30/97 06/30/96 ------------ ------------ ----------- ----------- Weighted average common shares 9,826,396 9,608,676 9,767,357 9,583,645 outstanding .................. Common stock equivalents ..... 145,335 446,779 310,447 457,539 ---------- ----------- ----------- ----------- 9,971,731 10,055,455 10,077,804 10,041,184 ---------- ----------- ----------- ----------- Net income ................... $2,490,478 $ 2,749,896 $ 7,555,034 $ 6,324,634 Net income per share ......... $ 0.25 $ 0.27 $ 0.75 $ 0.63 FULLY DILUTED: Weighted average common shares 9,826,396 9,608,676 9,767,357 9,583,645 outstanding .................. Common stock equivalents ..... 145,886 476,853 322,716 488,986 ---------- ----------- ----------- ----------- 9,972,282 10,085,529 10,090,073 10,072,631 ---------- ----------- ----------- ----------- Net income ................... $2,490,478 $ 2,749,896 $ 7,555,034 $ 6,324,634 Net income per share ......... $ 0.25 $ 0.27 $ 0.75 $ 0.63
EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS SEP-30-1997 OCT-01-1996 JUN-30-1997 1 20,786 37,175 25,061 2,277 0 83,980 16,890 11,399 92,074 21,745 0 0 0 98 69,691 92,074 36,165 69,217 1,998 19,473 39,243 809 4 11,936 4,381 7,555 0 0 0 7,555 .75 .75
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