-----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, PYsftr9eYxt9fHr6GSZ2LuMCVgBO9Zjsp9QXspG1Ip4WErF8QoQsfRUpX3qRQBs+ pm0L8mdDS/Ok/RcF9dO/AQ== 0000950144-99-010371.txt : 19990817 0000950144-99-010371.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950144-99-010371 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARBINGER CORP CENTRAL INDEX KEY: 0000947116 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 581817306 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26298 FILM NUMBER: 99692380 BUSINESS ADDRESS: STREET 1: 1277 LENOX PK BLVD CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4048414334 10-Q 1 HARBINGER CORPORATION 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [MARK ONE] [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER 0-26298 HARBINGER CORPORATION (Exact name of registrant as specified in its charter) GEORGIA 58-1817306 (State or other Jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 1277 LENOX PARK BOULEVARD 30319 ATLANTA, GEORGIA (Zip Code) (Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 467-3000 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 [ ] The number of shares of the issuer's class of capital stock outstanding as of August 12, 1999, the latest practicable date, is as follows: 38,539,253 shares of Common Stock, $.0001 par value. - -------------------------------------------------------------------------------- 2 HARBINGER CORPORATION FORM 10-Q QUARTER ENDED JUNE 30, 1999 TABLE OF CONTENTS
Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) June 30, 1999 and December 31, 1998..................................................... Consolidated Statements of Operations (Unaudited) - Three Months and Six Months Ended June 30, 1999 and 1998......................... Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three Months and Six Months Ended June 30, 1999 and 1998................... Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 1999 and 1998.................................... Notes to Consolidated Financial Statements (Unaudited)......................... Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders.............................. Item 6. Exhibits......................................................................... SIGNATURES................................................................................
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HARBINGER CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31, 1999 1998 --------- --------- ASSETS Current assets: Cash and cash equivalents ..................................... $ 30,203 $ 33,059 Short-term investments ........................................ 38,085 59,248 Accounts receivable, less allowances for returns and doubtful accounts of $4,943 at June 30, 1999 and $5,464 at December 31, 1998 ............................. 42,218 35,891 Royalties receivable, less allowance for doubtful accounts of $502 at June 30, 1999 and $3,614 at December 31, 1998 .... 316 1,730 Deferred income taxes ......................................... 2,103 2,103 Other current assets .......................................... 4,724 5,622 --------- --------- Total current assets ...................................... 117,649 137,653 --------- --------- Property and equipment, less accumulated depreciation and amortization ............................................ 26,485 23,150 Intangible assets, less accumulated amortization .............. 14,521 16,803 Deferred income taxes ......................................... 698 698 Other assets .................................................. 1,459 65 --------- --------- 160,812 $ 178,369 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable .............................................. $ 4,833 $ 5,566 Accrued expenses .............................................. 23,304 31,571 Deferred revenues ............................................. 21,641 21,213 --------- --------- Total current liabilities ................................. 49,778 58,350 --------- --------- Commitments and contingencies Redeemable preferred stock: Zero coupon redeemable preferred stock, no par value; 0 and 2,000,000 shares authorized, issued and outstanding at June 30, 1999 and December 31, 1998 ......................... -- -- Shareholders' equity: Preferred stock, no par value; 20,000,000 and 18,000,000 shares authorized at June 30, 1999 and December 31, 1998; none issued or outstanding .................................. -- -- Common stock, $0.0001 par value; 100,000,000 shares authorized, 42,709,577 shares and 42,313,031 shares issued as of June 30, 1999 and December 31, 1998 ................... 4 4 Additional paid-in capital .................................... 203,178 201,615 Accumulated deficit ........................................... (65,911) (73,528) Accumulated other comprehensive loss .......................... (1,364) (622) Treasury stock, 4,323,050 shares as of June 30, 1999 and 1,562,100 shares as of December 31, 1998 ................ (24,873) (7,450) --------- --------- Total shareholders' equity ......................... 111,034 120,019 --------- --------- $ 160,812 $ 178,369 ========= =========
See accompanying notes to consolidated financial statements. 4 HARBINGER CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1999 1998 1999 1998 ------- ------- ------- ------- Revenues: Services ................................................ $26,435 $21,892 $51,806 $41,741 Software ................................................ 12,291 11,286 20,423 21,489 ------- ------- ------- ------- Total revenues ........................................ 38,726 33,178 72,229 63,230 ------- ------- ------- ------- Direct costs: Services ................................................ 11,621 8,081 22,247 15,113 Software ................................................ 1,356 897 2,487 1,669 ------- ------- ------- ------- Total direct costs .................................... 12,977 8,978 24,734 16,782 ------- ------- ------- ------- Gross margin ....................................... 25,749 24,200 47,495 46,448 ------- ------- ------- ------- Operating costs: Selling and marketing ................................... 9,311 7,552 17,494 14,164 General and administrative .............................. 6,707 6,054 13,267 11,553 Depreciation and amortization ........................... 2,182 1,920 4,415 3,795 Product development ..................................... 2,778 2,325 5,993 4,843 Charge for purchased in-process product development, write-off of software development costs, restructuring, acquisition related and other charges ................. -- 5,010 -- 13,049 ------- ------- ------- ------- Total operating costs .............................. 20,978 22,861 41,169 47,404 ------- ------- ------- ------- Operating income (loss) ........................ 4,771 1,339 6,326 (956) Interest income, net ........................................ 760 1,266 1,658 2,577 Income from continuing operations before income taxes........ 5,531 2,605 7,984 1,621 Income tax expense .......................................... 254 9 367 145 ------- ------- ------- ------- Income from continuing operations ..................... 5,277 2,596 7,617 1,476 Loss from discontinued operations ........................... -- 637 -- 854 ------- ------- ------- ------- Net income applicable to common shareholders .......... $ 5,277 $ 1,959 $ 7,617 $ 622 ======= ======= ======= ======= Basic earnings per common share: Income from continuing operations ....................... $ 0.14 $ 0.06 $ 0.19 $ 0.03 Loss from discontinued operations ....................... -- (0.01) -- (0.02) ------- ------- ------- ------- Net income per common share ........................... $ 0.14 $ 0.05 $ 0.19 $ 0.01 ======= ======= ======= ======= Weighted average number of common shares outstanding ........ 38,294 41,853 39,082 41,451 ======= ======= ======= ======= Earnings per common share assuming dilution: Income from continuing operations ....................... $ 0.13 $ 0.05 $ 0.19 $ 0.03 Loss from discontinued operations ....................... -- (0.01) -- (0.02) ------- ------- ------- ------- Net income per common share ........................... $ 0.13 $ 0.04 $ 0.19 $ 0.01 ======= ======= ======= ======= Weighted average number of common shares outstanding assuming dilution ................................................ 39,681 44,480 41,046 44,103 ======= ======= ======= =======
See accompanying notes to consolidated financial statements. 5 HARBINGER CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (IN THOUSANDS)
Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------- 1999 1998 1999 1998 ------- ------- ------- ----- Net income applicable to common shareholders $ 5,277 $ 1,959 $ 7,617 $ 622 Other comprehensive loss, net of tax: Foreign currency translation adjustments (107) (286) (742) (491) ------- ------- ------- ----- Comprehensive income (loss) .......... $ 5,170 $ 1,673 $ 6,875 $(131) ======= ======= ======= =====
See accompanying notes to consolidated financial statements. 6 HARBINGER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Six Months Ended June 30, ----------------------- 1999 1998 -------- -------- Cash flows provided by operating activities ........................... $ 219 $ 2,665 -------- -------- Cash flows from investing activities: Net (purchases) redemptions of short-term investments ............. 21,163 (5,220) Purchases of property and equipment ............................... (6,786) (6,725) Additions to software development costs ........................... (1,793) (2,042) Proceeds from sale of discontinued operations ..................... 500 -- -------- -------- Net cash provided by (used in) investing activities ............. 13,084 (13,987) -------- -------- Cash flows from financing activities: Exercise of stock options and warrants and issuance of stock under employee stock purchase plan .................................... 1,563 9,373 Principal payments under notes payable and long-term debt ......... -- (418) Purchases of common stock ......................................... (17,422) -- -------- -------- Net cash provided by (used in) financing activities ............. (15,859) 8,955 -------- -------- Net decrease in cash and cash equivalents ............................. (2,556) (2,367) Cash and cash equivalents at beginning of period ...................... 33,059 69,811 Effect of exchange rates on cash held in foreign currencies ........... (300) (19) Cash received from acquisitions ....................................... -- 52 -------- -------- Cash and cash equivalents at end of period ............................ $ 30,203 $ 67,477 ======== ======== Supplemental disclosures: Cash paid for interest ................................................ $ -- $ 50 ======== ======== Cash paid for income taxes ............................................ $ 125 $ 463 ======== ======== Supplemental disclosures of noncash investing and financing activities: Note receivable received in sale of discontinued operations ........... $ 800 $ -- ======== ========
See accompanying notes to consolidated financial statements. 7 HARBINGER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included herein is unaudited. However, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary to a fair presentation of the financial position, results of operations, comprehensive income (loss) and cash flows for the interim periods. Operating results for the three months and six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the financial statements and footnotes thereto included in Harbinger Corporation's ("Harbinger" or the "Company") Form 10-K for the year ended December 31, 1998 and the Company's current report on Form 8-K dated April 2, 1999. RECLASSIFICATIONS Certain reclassifications have been made to the 1998 consolidated financial statements to conform with the 1999 presentation. 2. DISTRIBUTION AGREEMENT During the second quarter of 1999 the Company executed an agreement ("Agreement") with a former distributor. The Agreement requires the distributor to pay the Company a total of approximately $2.0 million in defined installments through August 30, 1999 in settlement of certain royalty receivables, maintenance services provided to the distributor's customers from 1995 through 1999 and an additional license of source code to the distributor. The Company is recognizing the value of the settlement on a cash basis due to the historical uncertainty associated with the collection of receivables from this distributor. The settlement proceeds are being allocated pro-rata to the three components of the Agreement based on their relative fair values. The following credits were recorded to the Company's unaudited consolidated statement of operations for the $1.0 million received under the Agreement in the second quarter of 1999: $502,000 to general and administrative costs for collection of bad debts, $314,000 to direct costs of services for reimbursement of maintenance costs and $210,000 to software revenue for license of source code. The Company had fully reserved all royalty receivables associated with this distributor on September 30, 1998. At June 30, 1999 the Company wrote off $1.9 million in royalty receivables from this distributor to the allowance for doubtful accounts as a result of the Agreement. Balances of $502,000 in royalty receivables and $502,000 in the allowance for doubtful accounts remain on the Company's unaudited consolidated balance sheet at June 30, 1999. In 1995 the Company issued to the distributor 4,000,000 shares of zero coupon redeemable preferred stock, of which 2,000,000 shares were outstanding at December 31, 1998. These shares have been cancelled in conjunction with the termination of the original distributor agreement. 8 3. SHAREHOLDERS' EQUITY On March 22, 1999 the Board of Directors approved the purchase of an additional 10% of the Company's outstanding shares of common stock under its existing stock repurchase program. This is in addition to the 10% repurchase authorized on October 2, 1998 and completed on March 19, 1999. 4. CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT, WRITE-OFF OF SOFTWARE DEVELOPMENT COSTS, RESTRUCTURING, ACQUISITION RELATED AND OTHER CHARGES For the six months ended June 30, 1999, the Company did not incur charges for purchased in-process product development, write-off of software development costs, restructuring, acquisition related and other charges ("Charges"). A summary of the Charges incurred in 1998 is as follows (in thousands):
Three Months Ended Six Months Ended June 30, 1998 June 30, 1998 ------------------ ---------------- Integration costs $ 4,645 $11,025 Transaction charges 250 638 Asset write downs 115 266 Severance costs -- 1,120 ------- ------- $ 5,010 $13,049 ======= =======
Approximately $1.7 million and $3.7 million of the Charges incurred in the three months and six months ended June 30, 1998, respectively, resulted from the redirection of internal resources and their associated costs ("Integration Activity Costs") to manage integration activities. In 1999 the management of these activities has been completed and these internal resources and their associated costs are therefore recorded to their original operating cost categories. At June 30, 1999 the accrued liabilities related to the Charges were approximately $4.5 million, compared to approximately $7.5 million at December 31, 1998, consisting primarily of reserves for lease terminations, severance costs, professional fees and payments in connection with phased-out products and for continued service obligations on them. Certain Charges involve management estimates, including lease termination costs and liabilities and obligations associated with phasing out products. Actual results could vary from these estimates. 5. INCOME TAXES The Company reduced its valuation allowance in the quarter-ended March 31, 1999 by $844,000. This relates to the reduction in the gross deferred income tax assets that are realized through reversals of existing deductible temporary differences. The Company continually reviews the adequacy of the valuation allowance and recognizes these benefits as reassessment indicates it is more likely than not that the benefits will be realized. 6. DISCONTINUED OPERATIONS The Company discontinued its TrustLink Procurement business ("TLP") on September 30, 1998 and established a $6.4 million reserve for the estimated loss on disposal of TLP, including anticipated losses during the phase-out period. In the second quarter of 1999 the Company sold the intangible assets and certain property and equipment of TLP for $1.3 million, comprised of cash of $500,000 and a note receivable of $800,000. The resulting loss on disposal of TLP was $2.0 million. The operating loss incurred for TLP for the quarter ended June 30, 1999 was 9 $140,000, bringing the total operating losses from the measurement date to June 30, 1999 to $1.2 million. Repayment on the note will occur at the earlier of the buyer achieving certain sales targets or December 31, 2000. At June 30, 1999 the remaining balance in the loss reserve was $3.2 million, available for certain contingencies associated with the disposal of TLP. Such contingencies primarily relate to lease termination costs, customer transition issues and collection risks associated with notes and accounts receivable. The assets and liabilities of TLP are included in the Company's consolidated balance sheets as follows (in thousands):
June 30, December 31, 1999 1998 -------- ------------ Accounts receivable $ 272 $ 454 Other current assets 62 106 Property and equipment, net -- 766 Intangible assets, net -- 2,454 Deferred revenues -- (45) Current liabilities (110) (281) ----- ------- Net assets $ 224 $ 3,454 ===== =======
The Company discontinued its TrustedLink Banker division ("Banker") on December 31, 1997 and established a $4.0 million reserve for the estimated loss on disposal of Banker, including anticipated losses during the phase-out period. The disposal and operations of Banker were substantially completed by December 31, 1998. As of June 30, 1999 the reserve had a balance of $1.4 million for certain remaining contingencies associated with the disposal of Banker. 7. RELATED PARTY TRANSACTIONS The Company received notes receivable during the first quarter of 1999 of $605,000 from five employees who are the former shareholders of EDI Works! LLC., a company which was acquired in 1998 and accounted for as an immaterial pooling of interests. The terms of the notes are 18 months with an annual interest rate of 8.75%. Interest accrues on a monthly basis with principal and interest due at the end of the term of the notes. 8. SEGMENT INFORMATION The Company operates in a single industry segment: the development, marketing and support of software products and the provision of network and consulting services to enable businesses to engage in E-Commerce. The Company manages its business along geographical lines, thus resulting in three reportable segments: North America, Europe, and Asia Pacific and Latin America. The accounting policies of each segment are the same as those described in the summary of significant accounting policies. Revenues are attributed to a reportable segment based on the location of the customer. Management evaluates the performance of each segment on the basis of operating income, excluding integration and restructuring charges and certain general and administrative credits. Intersegment royalties are calculated based upon revenues, as defined, derived from the sales of certain software products and services at agreed upon percentages between the segments. A summary of the Company's reportable segments for the six months ended June 30, 1999 and June 30, 1998 is presented below (in thousands): 10
Asia Pacific North America Europe and Latin America Total ------------- ------ ----------------- ----- Revenues: 1999 $61,979 $10,881 $1,533 $74,393 1998 $53,748 $10,265 $1,150 $65,163 Intersegment Royalties: 1999 $ 2,164 $ -- $ -- $ 2,164 1998 $ 1,933 $ -- $ -- $ 1,933 Operating Income (as defined): 1999 $ 3,642 $ 1,120 $ 312 $ 5,074 1998 $11,510 $ 361 $ 222 $12,093
1999 1998 -------- -------- Revenues: Total gross revenues for reportable segments $ 74,393 $ 65,163 Elimination of intersegment royalties (2,164) (1,933) -------- -------- Total consolidated revenues $ 72,229 $ 63,230 ======== ======== 1999 1998 -------- -------- Operating Income (as defined): Total operating income for reportable segments $ 5,074 $ 12,093 Charges for integration and restructuring -- (13,049) Certain general and administrative credits 1,252 -- -------- -------- Total consolidated operating income (loss) $ 6,326 $ (956) ======== ========
A summary of the Company's reportable segments for the quarters ended June 30, 1999 and June 30, 1998 is presented below (in thousands):
Asia Pacific North America Europe and Latin America Total ------------- ------ ----------------- ----- Revenues: 1999 $33,566 $5,152 $1,022 $39,740 1998 $28,437 $5,169 $ 752 $34,358 Intersegment Royalties: 1999 $ 1,014 $ -- $ -- $ 1,014 1998 $ 1,180 $ -- $ -- $ 1,180 Operating Income (as defined): 1999 $ 3,589 $ 287 $ 393 $ 4,269 1998 $ 6,129 $ 130 $ 90 $ 6,349
11
1999 1998 -------- -------- Revenues: Total gross revenues for reportable segments $ 39,740 $ 34,358 Elimination of intersegment royalties (1,014) (1,180) -------- -------- Total consolidated revenues $ 38,726 $ 33,178 ======== ======== 1999 1998 -------- -------- Operating Income (as defined): Total operating income for reportable segments $ 4,269 $ 6,349 Charges for integration and restructuring -- (5,010) Certain general and administrative credits 502 -- -------- -------- Total consolidated operating income $ 4,771 $ 1,339 ======== ========
9. CONTINGENCIES The Company is involved in certain legal actions and other claims arising out of the ordinary course of business, including discontinued operations and the phase-out of certain non-strategic software products. While the ultimate results and outcomes cannot be determined, management does not expect that they will have a material adverse effect on the Company's results of operations or financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein and the Company's Form 10-K for the year ended December 31, 1998 and the Company's current report on Form 8-K dated April 2, 1999. OVERVIEW Harbinger Corporation (the "Company") generates revenues from various sources, including revenues for services, license fees and royalties for software. Revenues for services principally include subscription fees for transactions on HARBINGER.NET, the Company's electronic commerce portal; software maintenance, and professional service fees for implementation, outsourcing, and training services. Subscription fees are based on a combination of monthly access charges and transaction-based usage charges and are recognized based on actual charges incurred each month. Software maintenance and implementation revenues represent recurring charges to customers and are deferred and recognized ratably over the service period. Revenues for professional services are based on actual services rendered and are recognized as services are performed. License fees for software are generally recognized upon shipment, net of estimated returns. Software revenues also include royalty revenues under distribution agreements with third parties which are recognized either on shipment of software to a distributor or upon sales to end users by a distributor, depending on the terms of the distribution agreement. RESULTS OF OPERATIONS REVENUES Total revenues increased 14% to $72.2 million in the six months ended June 30, 1999 from $63.2 million in the same period in 1998. Revenues for services increased 24% to $51.8 million in the six months ended June 30, 1999 from $41.7 million in the same period in 1998. This increase is primarily attributable to growth in the 12 Company's outsourcing and implementation services, as well as growth in subscription fees for HARBINGER.NET. Revenue from software sales decreased 5% to $20.4 million in the six months ended June 30, 1999 from $21.5 million in the same period in 1998 due to the phase-out of certain non-strategic software products ("Sunset Products") and the discontinued relationships with certain third party resellers of the Company's software products. Total revenues increased 17% to $38.7 million in the three months ended June 30, 1999 from $33.2 million in the same period in 1998. Revenues for services increased 21% to $26.4 million in the three months ended June 30, 1999 from $21.9 million in the same period in 1998. This increase is primarily attributable to growth in the Company's outsourcing and implementation services as well as subscription fees for HARBINGER.NET. Revenues from software license fees increased 9% to $12.3 million in the three months ended June 30, 1999 from $11.3 million in the same period in 1998 primarily as a result of growth in core, non-discontinued software products and migration of existing DOS-based customers to IP-based desktop products. DIRECT COSTS Direct costs for services increased to $22.2 million, or 42.9% of services revenues, in the six months ended June 30, 1999, from $15.1 million, or 36.2% of services revenues, in the six months ended June 30, 1998. The increase in direct costs for services as a percentage of total services revenues primarily reflects the effects of a higher mix of professional services revenues in 1999 and the effect of reallocating costs to Integration Activity Costs in 1998. Direct costs for software increased to $2.5 million, or 12.2% of software revenues, in the six months ended June 30, 1999, from $1.7 million, or 7.8% of software revenues, in the six months ended June 30, 1998. The increase in direct software costs as a percentage of software revenues is primarily due to increased amortization of capitalized software costs and the decline in software revenues from Sunset Products. Direct costs for services increased to $11.6 million, or 44% of services revenue, in the three months ended June 30, 1999, from $8.1 million, or 36.9% of services revenue, in the three months ended June 30, 1998. The increase in direct costs for services as a percentage of services revenues reflects the effects of a higher mix of professional services revenues in 1999, principally through increased outsourcing and implementation activities, as well as the effect of reallocating costs to Integration Activity Costs during the three months ended June 30, 1998. Direct costs for software increased to $1.4 million, or 11% of software revenues, in the three months ended June 30, 1999, from $897,000, or 8.0% of software revenues, in the three months ended June 30, 1998. The increase in direct software costs as a percentage of software revenues is primarily attributable to increased amortization of capitalized software. SELLING AND MARKETING Selling and marketing expenses increased 24% to $17.5 million, or 24.2% of revenues, in the six months ended June 30, 1999 from $14.2 million, or 22.4% of revenues, in the six months ended June 30, 1998. For the second quarters, selling and marketing expenses increased 23% to $9.3 million, or 24% of revenues, in the three months ended June 30, 1999, from $7.6 million, or 22.8% of revenues, in the three months ended June 30, 1998. For both the six-month and three-month period comparisons, the increase in expenses is primarily due to development and positioning of the Company's E-Commerce portal HARBINGER.NEt and the effect of reallocating costs to Integration Activity Costs in 1998. GENERAL AND ADMINISTRATIVE General and administrative expenses increased 15% to $13.3 million in the six months ended June 30, 1999, from $11.6 million in the six months ended June 30, 1998. As a percentage of revenues, these expenses remained relatively level at about 18.4% of revenues in the six months ended June 30, 1999 from 18.3% of revenues in the six months ended June 30, 1998. The 1999 period includes a credit of $1.2 million due to the 13 receipt of an outstanding royalty receivable from a specific customer that had been written off in 1998. If this receipt had not occurred, general and administrative expense would have been $14.5 million or 20.1% of revenues. Excluding the aforementioned bad debt recovery, the increase in general and administrative expense as a percentage of revenue is primarily attributable to the effect of reallocating costs to Integration Activity Costs in 1998, an increase in office space to accommodate expansion, and infrastructure investment activities, principally in the information technology area, in 1999. For the second quarters, general and administrative expenses increased 11% to $6.7 million in the three months ended June 30, 1999 from $6.1 million in the three months ended June 30, 1998. As a percentage of revenues, these expenses decreased to 17.3% of revenues in the three months ended June 30, 1999 from 18.2% of revenues in the three months ended June 30, 1998. The quarter ended June 30, 1999 includes a credit of $502,000 due to the receipt of an outstanding royalty receivable from a specific customer that had been written off in 1998. If this receipt had not occurred, general and administrative expense would have been $7.2 million or 18.6% of revenues. This increase as a percentage of revenues is attributed to the effect of reallocating costs to Integration Activity Costs in 1998 as well as an increase in infrastructure investments in 1999. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased 16% to $4.4 million in the six months ended June 30, 1999 from $3.8 million in the six months ended June 30, 1998. As a percentage of revenues, these expenses increased to 6.1% of revenues in the six months ended June 30, 1999 from 6.0% revenues in the six months ended June 30, 1998. For the second quarters, depreciation and amortization increased 14% to $2.2 million in the three months ended June 30, 1999 from $1.9 million in the three months ended June 30, 1998. As a percentage of revenues, these expenses were 5.6% and 5.8% for the three months ended June 30, 1999 and June 30, 1998, respectively. The increase in depreciation and amortization for the six-month and three-month periods of 1999 compared to 1998, respectively, is due to the purchase of computer hardware and software associated with the Company's continuing investment in its information technology infrastructure. PRODUCT DEVELOPMENT Total expenditures for product development, including capitalized software development costs, increased to $7.8 million in the six months ended June 30, 1999 from $6.9 million in the same period in 1998. The Company capitalized product development costs of $1.8 million and $2.0 million in the six months ended June 30, 1999 and 1998, respectively, which represented 23.0% and 29.4% of total expenditures for product development in these respective periods. As a percentage of total revenues, product development expenses increased to $6.0 million, or 8.3% of revenues, in the six months ended June 30, 1999, from $4.8 million, or 7.7% of revenues, in the six months ended June 30, 1998, reflecting increased development of internet-based products and the effect of reallocating costs to Integration Activity Costs in 1998. Total expenditures for product development, including capitalized software development costs, increased to $3.7 million in the three months ended June 30, 1999 from $3.5 million in the same period in 1998. The Company capitalized software development costs of $0.9 million and $1.2 million in the three months ended June 30, 1999 and 1998, respectively, which represented 24.6% and 33.1% of total expenditures for product development in these respective periods. As a percentage of total revenues, product development expenses were $2.8 million, or 7.2% of revenues, in the three months ended June 30, 1999, and $2.3 million, or 7.0% of revenues, in the three months ended June 30, 1998, reflecting increased development of internet-based products and the effect of reallocating cost to Integration Activity Costs in 1998. CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT, WRITE-OFF OF SOFTWARE DEVELOPMENT COSTS, RESTRUCTURING, ACQUISITION RELATED AND OTHER CHARGES ("CHARGES") The Company incurred Charges of $27.0 million during the year ended December 31, 1998 relating to the costs of integrating its acquisitions in 1998 and 1997 and its restructuring in 1998. Approximately $4.1 million of 14 the Charges consisted of an allocation of resources to integration-related activities associated with these acquisitions ("Integration Activity Costs"). The integration activities were completed by the end of 1998 and the internal resources and their associated costs are recorded in their original operating cost categories in 1999. For the six months ended June 30, 1998, the Company incurred $13.0 million in Charges of which $3.7 million related to internal resources allocated to Integration Activity Costs. For the quarter ended June 30, 1998, the company incurred $5.0 million in Charges, of which $1.7 million related to internal resources allocated to Integration Activity Costs. (See Note 4 to the accompanying unaudited consolidated financial statements.) INTEREST INCOME, NET Interest income, net, decreased 36% to $1.7 million for the six months ended June 30, 1999 from $2.6 million for the six months ended June 30, 1998. On a quarter-to-quarter comparison, interest income, net, decreased 40% to $760,000 in the second quarter of 1999 from $1.3 million in the second quarter of 1998. These decreases are primarily due to cash used to acquire common stock of the Company under its on-going stock repurchase program, and investments in Information Technology infrastructure. INCOME TAXES Income tax expense increased due to increased income from continuing operations to $367,000 for the six months ended June 30, 1999 from $145,000 for the six months ended June 30, 1998. For the quarters ended June 30, 1999 and 1998 income tax expense increased to $254,000 from $9,000, respectively. The effective income tax rate for the six months ended June 30, 1999 differs from the expected rate of 39% due to a reduction in the valuation allowance as a result of the utilization of federal and state net operating loss carryforwards. DISCONTINUED OPERATIONS The Company discontinued its TrustedLink Procurement business ("TLP") on September 30, 1998. The results of TLP for 1998 are reported in the accompanying consolidated statements of operations under "Loss from discontinued operations." (See Note 6 to the financial statements.) NET INCOME AND EARNINGS PER SHARE Net income applicable to common shareholders increased to $7.6 million or $.19 per diluted share, for the six months ended June 30, 1999 from net income of $622,000 or $.01 per diluted share, for the six months ended June 30, 1998. Net income, adjusted to exclude a specific $1.2 million general and administrative credit in the six months ended June 30, 1999 and the Charges and discontinued operations in 1998, net of income taxes at 39%, would have been $4.1 million or $0.10 per diluted share for the six months ended June 30, 1999, compared to $9.1 million or $0.21 per diluted share in the same period in 1998, representing a 55% decrease from 1998 to 1999. Net income applicable to common shareholders increased to $5.3 million or $0.13 per diluted share for the quarter ended June 30, 1999 from $2.0 million or $0.04 per diluted share for the quarter ended June 30, 1998. Net income, adjusted to exclude a specific $502,000 general and administrative credit in the second quarter of 1999 and the Charges and discontinued operations 1998, net of the effect of income taxes at 39% would have been $3.1 million or $0.08 per diluted share for the second quarter of 1999, compared to $4.7 million or $0.11 per diluted share in the same period in 1998, representing a 35% decrease from 1998 to 1999. 15 LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased $11.4 million to $67.9 million as of June 30, 1999 from $79.3 million as of December 31, 1998, primarily due to cash used to acquire common stock of the Company under its on-going stock repurchase program, and investments in Information Technology infrastructure. Management expects the Company will continue to fund its operations, investment needs and capital expenditures through cash flows generated from operations, cash on hand, and additional equity and debt capital. Several factors could have an impact on the Company's cash flows in the future, including the effects of the Company's ongoing common stock repurchase program, liquidation of liabilities incurred due to Charges and discontinued operations and anticipated outlays for the Company's ongoing effort to enhance and consolidate its information technology infrastructure. The Company does not believe that inflation has had a material impact on its business, however, there can be no assurance that Harbinger's business will not be affected by inflation in the future. YEAR 2000 COMPLIANCE Many currently installed computer systems and software products will not properly process date information in the time period leading up to, including and following the year 2000. These systems and products often store and process the year field of date information as two digit numbers, and misinterpret dates in the year 2000 and beyond as being dates in the year 1900 or subsequent years. This "Year 2000" issue impacts Harbinger both with respect to its customers as a developer and vendor of computer software products and services and internally for its information technology ("IT") and non-IT systems. The Company formed a Year 2000 Steering Committee in July 1998 to formally address the Company's Year 2000 issues, which formalized the Company's Year 2000 assessment program begun in March 1997. The Year 2000 Steering Committee has overseen the Company's Year 2000 Readiness Assessment Program, which includes establishing the Company's standard for Year 2000 Readiness, designing test parameters for its products, IT and non-IT systems, overseeing the Company's remediation program, including establishing priorities for remediation and allocating available resources, overseeing the communication of the status of the Company's efforts to its customers, and establishing contingency plans in the event the Company experiences Year 2000 disruptions. The Company describes its products and services as "Year 2000 Ready" when they have been successfully tested using the procedure proscribed in its Readiness Assessment Program. This procedure defines the criteria used to design tests that seek to determine the Year 2000 readiness of a product. Under the Company's criteria, a software product is Year 2000 Ready if it: 1. Correctly handles date information before, during, and after January 1, 2000, accepting date input, providing date output and performing calculation on dates or portions of dates. 2. Functions accurately and without interruption before, during and after January 1, 2000 without changes in operation associated with the advent of the new century assuming correct configuration. 3. Where appropriate, responds to two-digit date input in a way that resolves the ambiguity as to century in a disclosed, defined and pre-determined manner. 4. Stores and provides output of date information in ways that are unambiguous as to century. 5. Manages the leap year occurring in the year 2000, following the quad-centennial rule. As of June 30, 1999 Company management estimates that substantially all of its product readiness testing has been completed. Certain of the Company's customers, including resellers, are currently using legacy versions of the Company's products for which a Year 2000 Ready version will not be developed. The Company is 16 implementing migration plans to move many of these customers to functionally similar Year 2000 Ready products although some legacy products will not be replaced. The Company has implemented a website on the Internet that includes a general overview of the Company's Readiness Assessment Program, including a list of products and the applicable Year 2000 Ready version numbers of such products. The Company is presently engaged in a significant upgrade of substantially all of its core IT systems, including those related to sales, customer service, human resources, finance, accounting and other enterprise resource planning functions, as a result of its growth in recent years. The Company believes that the upgraded systems, which it expects to have substantially implemented by year-end 1999, are all Year 2000 Ready. The Company is reviewing its remaining IT systems for Year 2000 Readiness, and expects to modify, replace or discontinue the use of non-compliant systems before the end of 1999. In addition, the Company is in the process of evaluating its Year 2000 readiness with respect to non-IT systems, including systems embedded in the Company's communications and office facilities. In many cases these facilities have been recently upgraded or are scheduled to be upgraded before year-end 1999 as a result of the Company's growth in recent years. The Company is in the process of distributing surveys to its principal IT and non-IT systems and services vendors soliciting information on their Year 2000 Readiness as part of this review. The Company is also surveying its vendors' websites for additional related information. The majority of the work performed for the Company's Year 2000 Readiness Assessment Program has been completed by the Company's staff. Additionally, the Company engaged outside advisors to evaluate the Readiness Assessment Program and to participate in certain elements of product testing. The total costs for completing the Year 2000 Readiness Assessment Program, including modifications to the Company's software products, is estimated to be between $1 million and $2 million, funded through the Company's internal operating cash flows. This cost does not include the cost for new software, or for modifications to existing software, for the Company's core IT and non-IT systems, as these projects were not accelerated due to the Year 2000 issue. Approximately $60,000 in cost remains to be incurred to complete the Company's Readiness Assessment Program. The Company believes that the purchasing patterns of customers and potential customers may be affected by Year 2000 issues in a variety of ways. Many companies are expending significant resources to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products such as those offered by the Company. Potential customers may also choose to defer purchasing Year 2000 compliant products until they believe it is absolutely necessary, thus resulting in potentially stalled market sales within the industry. Conversely, Year 2000 issues may cause other companies to accelerate purchases, thereby causing an increase in short-term demand and a consequent decrease in long-term demand for software products. In addition, Year 2000 issues could cause a significant number of companies, including current Company customers, to reevaluate their current software needs, and as a result switch to other systems or suppliers. Any of the foregoing could result in a material adverse effect on the Company's business, operating results and financial condition. The Company has made considerable progress in developing contingency plans and expects to complete its contingency plans prior to year-end 1999. In the case of certain of the Company's value-added network operations, it will be difficult for the Company to seamlessly implement alternative service arrangements due to the nature and complexity of the customer interface. While the Company believes that its Readiness Assessment Program is addressing the risks specific to the Company for the Year 2000 issue, including its operations in markets outside of the United States, we cannot be assured that events will not occur that could have a material adverse impact on our business, operating results and financial condition. Such events include the risk of our failure to successfully test our software and services that we have certified as Year 2000 Ready, lawsuits from customers and our customers' customers and the inability to process data internally on our IT systems. Further, the Company is aware of the risk that domestic and international third parties, including vendors and customers of the Company, will not adequately address the Year 2000 problem and the resultant potential adverse impact on them and us. Regardless of whether the Company's products are Year 2000 compliant, there can be no assurance that customers will not assert Year 2000 related claims against the Company. 17 FORWARD LOOKING STATEMENTS Other than historical information contained herein, certain statements included in this report may constitute "forward looking" statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 related to the Company that involve risks and uncertainties including, but not limited to, quarterly fluctuations in results, the management of growth, market acceptance of certain products, impact of Year 2000 compliance and other risks. For further information about these and other factors that could affect the Company's future results, please see the Company's most recent Form 10-K filed with the Securities and Exchange Commission. Investors are cautioned that any forward looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those contemplated by such forward looking statements. The Company undertakes no obligation to update or revise forward looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. 18 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of Harbinger Corporation was held on April 30, 1999. The results of such meeting were included in Item 4 of Company's Form 10-Q for the quarterly period ended March 31, 1999 and are incorporated by reference herein. ITEM 6. EXHIBITS (a) Exhibits Exhibit 10.1 Addendum to the Employment Agreement of Daniel L. Manack Exhibit 10.2 Addendum to the Employment Agreement of Douglas L Roberts Exhibit 10.3 Fifth Amendment to the Amended and Restated 1993 Stock Option Plan for Non-Employee Directors Exhibit 10.4 Fourth Amendment to the 1996 Stock Option Plan Exhibit 11.1 Computation of Earnings Per Share Exhibit 27.1 Financial Data Schedule (for SEC use only) Exhibit 27.2 Restated Financial Data Schedule (for SEC use only)
19 S I G N A T U R E S 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. HARBINGER CORPORATION Date: August 13, 1999 /s/ C. Tycho Howle ----------------------------- ------------------------------------- C. Tycho Howle Chief Executive Officer (Principal Executive Officer) Date: August 13, 1999 /s/ James K. McCormick ----------------------------- ------------------------------------- James K. McCormick Chief Financial Officer (Principal Financial Officer; Principal Accounting Officer) EX-10.1 2 ADDENDUM TO THE EMPLOYMENT AGMT/DANIEL L MANACK 1 EXHIBIT 10.1 ADDENDUM TO THE EMPLOYMENT AGREEMENT OF DANIEL L. MANACK THIS AMENDMENT is made this 1st day of May, 1999, by and between HARBINGER CORPORATION, a Georgia corporation (the "Company"), and Daniel L. Manack (the "Executive"). A. Purpose. The Executive is now employed by the Company pursuant to an Employment Agreement dated December 4, 1996 (the "Agreement") and the Company desires to provide an incentive to the Executive to continue to devote his full attention and undistracted dedication to the performance of his duties in the potentially disturbing circumstances of a Change of Control of the Company. B. Severance Benefits and Limitations on Payment. If the Executive's employment with the Company is terminated by the Company other than for Cause or by the Executive for Good Reason within the period beginning ninety (90) days before and ending one hundred and eighty (180) days after a Change of Control, (i) any stock options awarded the Executive which remain outstanding and not vested as of the Date of Termination shall be deemed vested and exercisable; provided that acceleration in vesting does not adversely impact the availability of pooling of interests accounting treatment, as such determination is made by the Board in its reasonable discretion, and (ii) the Executive will receive severance pay equal to his annual base salary for six (6) months. However, should the Executive's employment be terminated due to a Change in Control within one year of the effective date of this agreement, the severance pay will equal nine (9) months of his annual base salary. C. Definitions. For purposes of this Amendment, the following definitions shall apply: 1. Change of Control. A "Change of Control" shall be conclusively deemed to have occurred if (and only if) any of the following shall have taken place: (i) a Change of Control is reported by the Company in response to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"), or Item 1 of Form 8-K promulgated under the Exchange Act; (ii) any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly 2 or indirectly, of securities of the Company representing forty percent (40%) or more of the combined voting power of the Company's then outstanding securities; or (iii) following the election or removal of directors, a majority of the Board consists of individuals who were not members of the Board two years before such election or removal, unless the election of each director who was not a director at the beginning of such two-year period has been approved in advance by directors representing at least a majority of the directors then in office who were directors at the beginning of the two-year period. 2. Date of Termination. "Date of Termination" means the date on which a notice of termination is given either by the Company or by the Executive. 3. Good Reason. "Good Reason" means the Executive's termination of employment for any of the following events, unless such event occurs with the Executive's express prior written consent: (a) The assignment to the Executive of any duties materially inconsistent with, or a diminution of, his position, duties, titles, offices, responsibilities and status with the Company as in effect immediately prior to the Change of Control of the Company, except in connection with the termination of the Executive's employment for disability, retirement, or Cause or as a result of the Executive's death or termination of employment other than for Good Reason; (b) A reduction in the Executive's base salary as in effect on the date of this Amendment or as the same may be increased from time to time; (c) A change in the location of the Executive's principal place of employment by more than seventy-five (75) miles from the location where he was principally employed immediately prior to the Change of Control; (d) Any material breach by the Company of any provision of this Amendment or the Agreement; or (e) Any failure by the Company to obtain the assumption of the Agreement by any successor or assign of the Company. 4. Cause. "Cause" means termination of the Executive's employment under any one or more of the following events: (a) Executive's knowing and willful misconduct with respect to the business and affairs of the Company; (b) Any material violation by Executive of any policy of the Company relating to ethical conduct or practices or fiduciary duties of a similarly situated executive; (c) Knowing and willful material breach of any provision of this Agreement which is not remedied within thirty (30) days after Executive's receipt of notice thereof; 3 (d) Executive's commission of a felony or any illegal act involving moral turpitude or fraud or Executive's dishonesty which may reasonably be expected to have a material adverse effect on the Company; and/or (e) Failure to comply with reasonable directives of the Board which are consistent with the Executive's duties, if not remedied within thirty (30) days after the Executive's receipt of notice thereof. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 1st day of May, 1999. HARBINGER CORPORATION: EMPLOYEE: James M. Travers Daniel L. Manack - ----------------------------------- ----------------------------------- Name Name President & Chief Operating Officer /s/ Daniel L. Manack - ----------------------------------- ----------------------------------- Title Signature /s/ James M. Travers - ----------------------------------- Signature EX-10.2 3 ADDENDUM TO THE EMPLOYMENT AGMT/DOUGLAS L ROBERTS 1 EXHIBIT 10.2 ADDENDUM TO THE EMPLOYMENT AGREEMENT OF DOUGLAS L. ROBERTS THIS AMENDMENT is made this ______ day of April, 1999, by and between HARBINGER CORPORATION, a Georgia corporation (the "Company"), and Douglas L. Roberts (the "Executive"). A. Purpose. The Executive will be employed by the Company pursuant to an Employment Agreement dated April ______, 1999 (the "Agreement") and the Company desires to provide an incentive to the Executive to continue to devote his full attention and undistracted dedication to the performance of his duties in the potentially disturbing circumstances of a Change of Control of the Company. B. Severance Benefits and Limitations on Payment. If the Executive's employment with the Company is terminated by the Company other than for Cause or by the Executive for Good Reason within the period beginning ninety (90) days before and ending one hundred and eighty (180) days after a Change of Control, (i) any stock options awarded the Executive which remain outstanding and not vested as of the Date of Termination shall be deemed vested and exercisable; provided that acceleration in vesting does not adversely impact the availability of pooling of interests accounting treatment, as such determination is made by the Board in its reasonable discretion, and (ii) the Executive will receive severance pay equal to his annual base salary for six (6) months. C. Definitions. For purposes of this Amendment, the following definitions shall apply: 5. Change of Control. A "Change of Control" shall be conclusively deemed to have occurred if (and only if) any of the following shall have taken place: (i) a Change of Control is reported by the Company in response to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"), or Item 1 of Form 8-K promulgated under the Exchange Act; (ii) any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) is or 2 becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of the Company representing forty percent (40%) or more of the combined voting power of the Company's then outstanding securities; or (iii) following the election or removal of directors, a majority of the Board consists of individuals who were not members of the Board two years before such election or removal, unless the election of each director who was not a director at the beginning of such two-year period has been approved in advance by directors representing at least a majority of the directors then in office who were directors at the beginning of the two-year period. 6. Date of Termination. "Date of Termination" means the date on which a notice of termination is given either by the Company or by the Executive. 7. Good Reason. "Good Reason" means the Executive's termination of employment for any of the following events, unless such event occurs with the Executive's express prior written consent: (a) The assignment to the Executive of any duties materially inconsistent with, or a diminution of, his position, duties, titles, offices, responsibilities and status with the Company as in effect immediately prior to the Change of Control of the Company, except in connection with the termination of the Executive's employment for disability, retirement, or Cause or as a result of the Executive's death or termination of employment other than for Good Reason; (b) A reduction in the Executive's base salary as in effect on the date of this Amendment or as the same may be increased from time to time; (c) A change in the location of the Executive's principal place of employment by more than seventy-five (75) miles from the location where he was principally employed immediately prior to the Change of Control; (d) Any material breach by the Company of any provision of this Amendment or the Agreement; or (e) Any failure by the Company to obtain the assumption of the Agreement by any successor or assign of the Company. 8. Cause. "Cause" means termination of the Executive's employment under any one or more of the following events: (a) Executive's knowing and willful misconduct with respect to the business and affairs of the Company; (b) Any material violation by Executive of any policy of the Company relating to ethical conduct or practices or fiduciary duties of a similarly situated executive; (c) Knowing and willful material breach of any provision of this Agreement which is not remedied within thirty (30) days after Executive's receipt of notice thereof; 3 (d) Executive's commission of a felony or any illegal act involving moral turpitude or fraud or Executive's dishonesty which may reasonably be expected to have a material adverse effect on the Company; and/or (e) Failure to comply with reasonable directives of the Board which are consistent with the Executive's duties, if not remedied within thirty (30) days after the Executive's receipt of notice thereof. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the ______ day of April, 1999. HARBINGER CORPORATION: EMPLOYEE: James M. Travers Douglas L. Roberts - ----------------------------------- ------------------------------------ Name Name President & Chief Operating Officer /s/ Douglas L. Roberts Title Signature /s/ James M Travers - ----------------------------------- Signature EX-10.3 4 FIFTH AMD TO THE AMENDED 1993 STOCK OPTION PLAN 1 EXHIBIT 10.3 FIFTH AMENDMENT TO THE HARBINGER CORPORATION AMENDED AND RESTATED 1993 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS THIS FIFTH AMENDMENT TO THE HARBINGER CORPORATION AMENDED AND RESTATED 1993 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (the "Amendment") is made effective as of the 30th day of April, 1999 (the "Effective Date"), by HARBINGER CORPORATION, a corporation organized and doing business under the laws of the State of Georgia (the "Company"). All capitalized terms in this Amendment have the meaning ascribed to such term as in the Harbinger Corporation Amended and Restated 1993 Stock Option Plan for Non-Employee Directors (the "Plan"), unless otherwise stated herein. W I T N E S S E T H: WHEREAS, the Second Amendment to the Plan was approved by the Shareholders of the Company at the May 8, 1996 Annual Meeting of Shareholders; WHEREAS, the Third Amendment to the Plan was approved by the Board of Directors of the Company at the March 24, 1997 Board Meeting; WHEREAS, the Fourth Amendment to the Plan was approved by the Shareholders of the Company at the April 24, 1998 Annual Meeting of Shareholders; and WHEREAS, the Board of Directors of the Company desires to alter the vesting of options granted under the Plan. NOW THEREFORE, in consideration of the premises and mutual promises contained herein, the Plan is hereby amended as follows: SECTION 1. Section 5.2 of the Plan is hereby amended by deleting Section 5.2 of the Plan in its entirety and substituting in lieu thereof the following: 5.2 OPTION GRANT SIZE AND GRANT DATES. 5.2.1 ANNUAL GRANTS. An option to purchase 15,000 Shares of Common Stock (as adjusted pursuant to Section 6) shall automatically be granted to each Eligible Director on the date of, and at a time which shall be immediately following, the Annual Meeting at which this Plan is approved by the stockholders of the Company (an "Annual Grant"). Subsequent Options, each for 15,000 Shares of Common Stock (as adjusted pursuant to Section 6), shall be granted to each Eligible Director on the date of, and at a time which shall be immediately following, every succeeding Annual Meeting of the stockholders (also an "Annual Grant"). For purposes of this Plan, "Annual Meeting" means the annual meeting of the Company's stockholders as described in the Company's Bylaws and as determined by the Chief Executive Officer of the Company. Subsequent options shall automatically be granted hereunder at each Annual Meeting until the Shares available for grant hereunder shall no longer be sufficient to grant each Eligible Director an option for the number of Shares determined according to this Section 5.2.1, at which time the Shares remaining available for grant shall be allocated proportionately among the Eligible Directors entitled to the next following Annual Grant. Eligible Directors shall not be entitled to any payment of cash hereunder in lieu of receiving options. 5.2.2 INTERIM GRANTS. Each Eligible Director who is first appointed or elected to the Board and attends a regular quarterly meeting of the Board which occurs at a time other than at an Annual Meeting shall be granted an option ("Interim Grant") to purchase a number of Shares of Common Stock equal to the product of (a) 15,000 (as adjusted pursuant to Section 6) and (b) a fraction, the numerator of which shall be the number of regular quarterly directors' meetings expected by the Chief Executive Officer of the Company to occur between the date that such Eligible Director is appointed or elected to the Board and the first Annual Meeting following such appointment or election, and the denominator of which is four. Annual Meetings and regular quarterly Directors' 2 meetings shall be scheduled according to the Company's Bylaws, applicable law, and Company policy and shall be designated by the Chief Executive Officer of the Company. SECTION 2. Section 5.4 of the Plan is hereby amended by deleting Section 5.4 of the Plan in its entirety and substituting in lieu thereof the following: 5.4 VESTING; EXERCISABILITY. Each option shall be fully vested and exercisable on its grant date. Such vesting shall be uniform for all Eligible Directors under the Plan and is more fully set out in Section 2 of the Option Agreement. SECTION 3. The form of agreement currently used to evidence options granted under the Plan shall be replaced with the form of agreement attached hereto as Exhibit A for Non-employee Directors from The Netherlands and as Exhibit B for all other Non-employee Directors. SECTION 4. Except as specifically amended by this Fifth Amendment, the Plan shall remain in full force and effect as prior to this Fifth Amendment. IN WITNESS WHEREOF, the Company has caused this Fifth Amendment to the Harbinger Corporation Amended and Restated 1993 Stock Option Plan for Non-Employee Directors to be executed on the Effective Date. HARBINGER CORPORATION By: /s/ C. Tycho Howle ------------------------------ C. Tycho Howle Title: Chairman and CEO ATTEST: By: /s/ Loren Wimpfheimer ----------------------------- Loren B. Wimpfheimer Title: Secretary 3 EXHIBIT A STOCK OPTION AGREEMENT AND OPTION GRANT HARBINGER CORPORATION AMENDED AND RESTATED 1993 STOCK OPTION PLAN FOR (DUTCH) NONEMPLOYEE DIRECTORS THIS STOCK OPTION AGREEMENT (the "Option Agreement") is made and entered into as of the date set forth below, by and between HARBINGER CORPORATION (hereinafter called the "Company"), a corporation organized and existing under the laws of the State of Georgia, and the undersigned, an individual resident of the state designated below (hereinafter called "Optionee"). The Company has adopted the Harbinger Corporation Amended and Restated 1993 Stock Option Plan for Nonemployee Directors (the "Plan"). The Plan was amended on April 30, 1999 to provide for immediate vesting of options. This Option Agreement is being made pursuant to the Plan and capitalized terms used herein shall have the same meanings as those terms have in the Plan unless the context in which these terms are used herein requires otherwise or the terms are otherwise defined herein. The date of the grant of the option under this Option Agreement is as of the date specified below (the "Option Date"). 1. GRANT OF OPTION. The Company hereby grants to Optionee an option to purchase the number of shares of $.0001 par value Common Stock of the Company (the "Shares") designated below ("Option Shares"). Any portion of the option not exercised by Optionee as provided herein will expire on the day prior to the fifth anniversary of the Option Date unless sooner terminated as provided herein. The stock issued on the exercise of this option, when paid for as herein provided, will be fully paid and nonassessable. 2. EXERCISE OF OPTION. This option is fully vested and may be exercised only during the period beginning on the Option Date and ending on the day prior to the fifth anniversary date hereof (the "Term") described below. The terms contained in the Plan are incorporated into and made a part of this Option Agreement, and this Option Agreement shall be governed by and construed in accordance with the Plan. A "regular quarterly meeting" shall refer to a regular meeting (including an Annual Meeting or a special meeting held in lieu of a regular meeting) of the Board held on a quarterly basis, as determined by the Chief Executive Officer of the Company. Each exercise of the option shall be by written notice in the form of an exercise agreement provided by the Board to the President or principal financial officer of the Company at its principal place of business, accompanied by payment in cash, by bank-certified, cashier's or personal check in the amount of the purchase price for the number of the Shares purchased. The date of each exercise of this option shall be the date upon which the notice is received by the appropriate officer. The Company shall not be obligated to sell or issue any Shares pursuant to the option unless the issuance of such Shares is at that time effectively registered or exempt from 4 registration under the Securities Act of 1933, as amended, and any other applicable securities laws. In connection therewith, the Company may require from Optionee at the time of exercise reasonable representations and warranties with respect to the investment intent of Optionee and Optionee's status as an investor in the Shares in order to qualify for exemptions from registration under state or federal securities laws. Within a reasonable time after receipt of the notice of exercise, the Company will take steps to ascertain compliance with this Option Agreement. The Company shall then cause certificates representing the Shares for the option exercised to be delivered as soon as reasonably possible, provided, however, that if any law, regulation, or agreement requires the Company to take action with respect to the Shares purchased prior to issuance, the date of issuance of the Shares shall be extended for the period necessary to take such action and comply with such law, regulation or agreement. 3. ADMINISTRATION. This Agreement shall be administered, construed and interpreted by the Board with reference to the terms, conditions, and interpretive provisions of the Plan. 4. PURCHASE PRICE. The purchase price per Option Share shall be as designated below ("Exercise Price"), which is equal to or greater than 100% of the fair market value of a share of Common Stock as of the Option Date. 5. TERMINATION OF SERVICE OR DEATH. In the event Optionee, during his or her life, ceases to be an Eligible Director for any reason, any unexercised portion of the option shall terminate one (1) year after termination of Optionee's status as an Eligible Director due to disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) and thirty (30) days after the termination of Optionee's status as an Eligible Director for any other reason, but in no event after the expiration of the term of the option. In the event of the death of Optionee while Optionee is an Eligible Director, but before the expiration of this option, the personal representatives, heirs or legatees of Optionee may exercise the option held by Optionee. The personal representatives, heirs or legatees must exercise any such option within thirty (30) days after the date of the death of Optionee and in any event prior to the date of expiration of the option, and such exercise otherwise shall be subject to the terms and conditions of this Option Agreement and the Plan. 6. NO RIGHTS IN OPTION SHARES. Optionee shall have no rights as a shareholder in respect of Shares covered by this Option Agreement until the date of issuance of the Shares to him or her and only after the Shares are fully paid. Optionee shall have no rights with respect to such Shares not expressly conferred by this Option Agreement. 7. NONASSIGNABILITY. This option shall not be encumbered or transferred in whole or in part except by will or the laws of descent and distribution, and is exercisable during the lifetime of Optionee only by him or her, except as expressly permitted by the Board. In consideration for the grant of this option, Optionee promises to use his or her best efforts in furtherance of the Company's business and prospects and in the exercise of his or her duties as a member of the Board of Directors of the Company. 5 IN WITNESS WHEREOF, the parties hereunto have set their hands and seals as of the Option Date set forth below. Option Date: HARBINGER CORPORATION -------------------- Option Shares: -------------------- By: Exercise Price: ------------------------------------ -------------------- Title: Check One: Annual Grant -------------------------------- --------- Interim Grant --------- OPTIONEE ---------------------------------------- Address: ------------------------------- ------------------------------- ------------------------------- State of Residence: -------------------- 6 EXHIBIT B STOCK OPTION AGREEMENT AND OPTION GRANT HARBINGER CORPORATION AMENDED AND RESTATED 1993 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS THIS STOCK OPTION AGREEMENT (the "Option Agreement") is made and entered into as of the date set forth below, by and between HARBINGER CORPORATION (hereinafter called the "Company"), a corporation organized and existing under the laws of the State of Georgia, and the undersigned, an individual resident of the state designated below (hereinafter called "Optionee"). The Company has adopted the "Harbinger Corporation Amended and Restated 1993 Stock Option Plan for Nonemployee Directors" (the "Plan"). The Plan was amended on April 30, 1999 to provide for immediate vesting of option. This Option Agreement is being made pursuant to the Plan and capitalized terms used herein shall have the same meanings as those terms have in the Plan unless the context in which these terms are used herein requires otherwise or the terms are otherwise defined herein. The date of the grant of the option under this Option Agreement is as of the date specified below (the "Option Date"). 1. GRANT OF OPTION. The Company hereby grants to Optionee an option to purchase the number of shares of $.0001 par value Common Stock of the Company (the "Shares") designated below ("Option Shares"). Any portion of the option not exercised by Optionee as provided herein will expire on the seventh anniversary of the Option Date unless sooner terminated as provided herein. The stock issued on the exercise of this option, when paid for as herein provided, will be fully paid and nonassessable. 2. EXERCISE OF OPTION. This option is fully vested and may be exercised only during the period beginning on the Option Date and ending on the seventh anniversary date hereof (the "Term") described below. The terms contained in the Plan are incorporated into and made a part of this Option Agreement, and this Option Agreement shall be governed by and construed in accordance with the Plan. A "regular quarterly meeting" shall refer to a regular meeting (including an Annual Meeting or a special meeting held in lieu of a regular meeting) of the Board held on a quarterly basis, as determined by the Chief Executive Officer of the Company. Each exercise of the option shall be by written notice in the form of an exercise agreement provided by the Board to the President or principal financial officer of the Company at its principal place of business, accompanied by payment in cash, by bank-certified, cashier's or personal check in the amount of the purchase price for the number of the Shares purchased. The date of each exercise of this option shall be the date upon which the notice is received by the appropriate officer. 7 The Company shall not be obligated to sell or issue any Shares pursuant to the option unless the issuance of such Shares is at that time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and any other applicable securities laws. In connection therewith, the Company may require from Optionee at the time of exercise reasonable representations and warranties with respect to the investment intent of Optionee and Optionee's status as an investor in the Shares in order to qualify for exemptions from registration under state or federal securities laws. Within a reasonable time after receipt of the notice of exercise, the Company will take steps to ascertain compliance with this Option Agreement. The Company shall then cause certificates representing the Shares for the option exercised to be delivered as soon as reasonably possible, provided, however, that if any law, regulation, or agreement requires the Company to take action with respect to the Shares purchased prior to issuance, the date of issuance of the Shares shall be extended for the period necessary to take such action and comply with such law, regulation or agreement. 3. ADMINISTRATION. This Agreement shall be administered, construed and interpreted by the Board with reference to the terms, conditions, and interpretive provisions of the Plan. 4. PURCHASE PRICE. The purchase price per Option Share shall be as designated below ("Exercise Price"), which is equal to or greater than 100% of the fair market value of a share of Common Stock as of the Option Date. 5. TERMINATION OF SERVICE OR DEATH. In the event Optionee, during his or her life, ceases to be an Eligible Director for any reason, any unexercised portion of the option shall terminate one (1) year after termination of Optionee's status as an Eligible Director due to disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) and thirty (30) days after the termination of Optionee's status as an Eligible Director for any other reason, but in no event after the expiration of the term of the option. In the event of the death of Optionee while Optionee is an Eligible Director, but before the expiration of this option, the personal representatives, heirs or legatees of Optionee may exercise the option held by Optionee on the date of Optionee's death. The personal representatives, heirs or legatees must exercise any such option within thirty (30) days after the date of the death of Optionee and in any event prior to the date of expiration of the option, and such exercise otherwise shall be subject to the terms and conditions of this Option Agreement and the Plan. 6. NO RIGHTS IN OPTION SHARES. Optionee shall have no rights as a shareholder in respect of Shares covered by this Option Agreement until the date of issuance of the Shares to him or her and only after the Shares are fully paid. Optionee shall have no rights with respect to such Shares not expressly conferred by this Option Agreement. 7. NONASSIGNABILITY. This option shall not be encumbered or transferred in whole or in part except by will or the laws of descent and distribution, and is exercisable during the lifetime of Optionee only by him or her, except as expressly permitted by the Board. In consideration for the grant of this option, Optionee promises to use his or her best efforts in furtherance of the Company's business and prospects and in the exercise of his or her duties as a member of the Board of Directors of the Company. 8 IN WITNESS WHEREOF, the parties hereunto have set their hands and seals as of the Option Date set forth below. Option Date: HARBINGER CORPORATION -------------------- Option Shares: -------------------- By: Exercise Price: ------------------------------------ -------------------- Title: Check One: Annual Grant -------------------------------- --------- Interim Grant --------- OPTIONEE ---------------------------------------- Address: ------------------------------- ------------------------------- ------------------------------- State of Residence: -------------------- EX-10.4 5 FOURTH AMENDMENT TO THE 1996 STOCK OPTION PLAN 1 EXHIBIT 10.4 FOURTH AMENDMENT TO THE HARBINGER CORPORATION 1996 STOCK OPTION PLAN THIS FOURTH AMENDMENT TO THE HARBINGER CORPORATION 1996 STOCK OPTION PLAN (the "Amendment") is made effective as of the 1st day of May, 1999 (the "Effective Date"), by HARBINGER CORPORATION, a corporation organized and doing business under the laws of the State of Georgia (the "Company"). All capitalized terms in this Amendment have the meaning ascribed to such term as in the Harbinger Corporation 1996 Stock Option Plan (the "Plan"), unless otherwise stated herein. W I T N E S S E T H: WHEREAS, the First Amendment to the Plan was approved by the shareholders of the Company at the 1997 Annual Meeting of Shareholders; WHEREAS, the Second Amendment to the Plan was approved by the shareholders of the Company at the Special Meeting of Shareholders held on December 18, 1997; WHEREAS, the Third Amendment to the Plan was approved by the shareholders of the Company at the 1998 Annual Meeting of Shareholders; and WHEREAS, the Board of Directors of the Company desires to amend the Plan to add certain provisions to insure compliance with the safe harbor provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder; NOW, THEREFORE, in consideration of the premises and mutual promises contained herein, the Plan is hereby amended as follows: SECTION 1. Section 3.1 of the Plan is hereby amended by deleting the first sentence of Section 3.1 of the Plan in its entirety and substituting in lieu thereof the following: "3.1 Shares Reserved for Issuance. Subject to any antidilution adjustment pursuant to Section 3.2, the maximum number of Shares that may be subject to Options granted hereunder shall not exceed 8,737,500, plus the number of Prior Plan Shares; provided, however, the maximum number of Shares with respect to which Options may be granted to any individual grantee in any calendar year shall be 1,000,000." SECTION 2. Section 5 of the Plan is hereby amended by deleting the first sentence of Section 2 in its entirety and substituting in lieu thereof the following: "This Plan shall be administered by the Committee, which shall consist of three (3) or more directors appointed by the Board, each of whom is an "outside director" within the meaning of Section 162(m) of the Code and is not while a member of the Committee, or was not during the one (1) year prior to serving as a member of the Committee, eligible to receive equity securities of the Company, or any affiliate of the Company, pursuant to this Plan, the Prior Plan, or any other plan of the Company or any affiliate of the Company, except as may be permitted under Section 16(b)(3) of the Exchange Act." SECTION 3. Except as specifically amended by this Fourth Amendment, the Plan shall remain in full force and effect as prior to this Fourth Amendment. 2 IN WITNESS WHEREOF, the Company has caused this FOURTH AMENDMENT TO THE HARBINGER CORPORATION 1996 STOCK OPTION PLAN to be executed on the Effective Date. HARBINGER CORPORATION By: /s/ C. Tycho Howle --------------------------------- C. Tycho Howle Title: Chairman and CEO ATTEST: By: /s/ Loren Wimpfheimer ------------------------------ Loren B. Wimpfheimer Title: Secretary EX-11.1 6 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 HARBINGER CORPORATION COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 1999 1998 1999 1998 ------- ------- ------- ------- Basic: Net income available to common shareholders............................... $ 5,277 $ 1,959 $ 7,617 $ 622 ======= ======= ======= ======= Weighted average number of common shares outstanding......................... 38,294 41,853 39,082 41,451 ======= ======= ======= ======= Basic earnings per share..................... $ 0.14 $ 0.05 $ 0.19 $ 0.01 ======= ======= ======= ======= Diluted : Net income available to common shareholders............................... $ 5,277 $ 1,959 $ 7,617 $ 622 ======= ======= ======= ======= Weighted average number of common shares outstanding......................... 38,294 41,853 39,082 41,451 Effect of potentially dilutive stock options and warrants................................... 1,387 2,627 1,964 2,652 ------- ------- ------- ------- Weighted average number of common shares outstanding assuming dilution....... 39,681 44,480 41,046 44,103 ======= ======= ======= ======= Diluted earnings per share................. . $ 0.13 $ 0.04 $ 0.19 $ 0.01 ======= ======= ======= =======
EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF HARBINGER CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 30,203 38,085 47,161 5,445 0 117,649 51,747 25,262 160,812 49,778 0 0 0 4 111,030 160,812 20,423 72,229 2,487 24,734 41,169 0 0 7,984 367 7,617 0 0 0 7,617 .19 .19
EX-27.2 8 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED CONSOLIDATED FINANCIAL STATEMENTS OF HARBINGER CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 67,477 37,647 31,660 2,587 0 148,420 39,309 18,229 187,649 47,998 0 0 0 4 139,647 187,649 21,489 63,230 1,669 16,782 47,404 0 41 1,621 145 1,476 (854) 0 0 622 .01 .01
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