-----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, HvvJydBH4iVkQBNEFW8d7zDCLQ2nAJ8e4zFliMNoYEn0uRULK6PKAY5HMkXkzpzr CuJdo0R18Z8O9Vc9tc4Fsw== 0000950135-97-003968.txt : 19970930 0000950135-97-003968.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950135-97-003968 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HYPERION SOFTWARE CORP CENTRAL INDEX KEY: 0000878594 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133360138 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19538 FILM NUMBER: 97686840 BUSINESS ADDRESS: STREET 1: 777 LONG RIDGE RD CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033213500 MAIL ADDRESS: STREET 1: 777 LONG RIDGE ROAD CITY: STAMFORD STATE: CT ZIP: 06902 10-K405 1 HYPERION SOFTWARE CORPORATION FORM 10-K 1 - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ____________ to _____________. --------------- COMMISSION FILE NUMBER 0-19538 HYPERION SOFTWARE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-1326879 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 900 LONG RIDGE ROAD, STAMFORD, CONNECTICUT 06902 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (203) 703-3000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of September 15, 1997, there were 18,586,401 shares of the registrant's Common Stock, $.01 par value, outstanding. The aggregate market value of the registrant's voting stock held by nonaffiliates as of September 15, 1997 was approximately $510 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders, scheduled to be held on November 12, 1997, are incorporated by reference in Part III hereof. - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL Founded in 1981, Hyperion Software Corporation (the "company") develops, markets and supports comprehensive analytic solutions that enable large, multinational companies to improve financial performance by maximizing the value of information. The company's internet/intranet-enabled applications support and enhance enterprise-wide financial processes, including planning, budgeting, forecasting, accounting, consolidation and performance analysis. INDUSTRY BACKGROUND Large corporations generate significant amounts of accounting, manufacturing, human resources, sales and marketing data. To be useful to senior executives, managers and analysts, such transactional data must be retrieved from a variety of financial and operational systems, then summarized and organized into meaningful business information that is consistent and easily accessible. The process of integrating the data is complicated because most large corporations use multiple accounting systems and transactional databases, conduct business in numerous locations and have diverse information requirements across functions and throughout the management hierarchy. Historically, corporations have attempted to collect, summarize, organize and present information from fragmented computer systems and transactional data sources in a number of ways. In many instances, business information reports are assembled manually with the aid of spreadsheets and by using data from accounting ledgers and other operational systems. Additionally, many corporations have sought to automate business information systems through the use of mainframe, minicomputer or PC software developed by their internal information technology ("IT") departments. Hyperion believes that these internally developed systems are becoming increasingly obsolete because they are usually rigid in structure, complex to create, expensive to maintain, and difficult to update when information requirements change. In addition, growing corporate competition has increased the demand for more comprehensive and timely business information that is accessible throughout the corporation. Continuing advances in computer and networking technology increasingly enable business information processing at large corporations to be moved to client/server architectures running on networks of personal computers. Client/server computing takes advantage of the power of personal computers by appropriately segregating user interface and application processing tasks between separate client and server machines. Networked PCs have significantly increased the ability to share information among users throughout an organization. The growth of internet/intranet technology has further enabled broader and more powerful information access within, outside and among corporations. While IT departments were initially slow to adopt network and internet/intranet technology, they now view networked PCs as a strategic element of information management. Network-based and internet/intranet-enabled solutions are now being implemented as a means of decreasing computing costs while improving the flow, accessibility and usefulness of corporate information. -2- 3 Most financial analysts, accountants and many executives rely on personal computer spreadsheets for performance analysis, reporting and forecasting. While spreadsheets and other PC software tools have been used to perform some corporate business information tasks, they have limited capability for information sharing and lack the necessary controls to ensure corporate consistency. Existing custom or packaged software for mainframes or minicomputers is impractical to modify for network computing because it is based on operating systems and architectures which are incompatible with PCs and client/server technology and lack the ease of use of PC software. Enterprise Resource Planning (ERP) systems are one means of addressing part of this market need. ERP systems are integrated software solutions that combine multiple business applications such as finance, human resources, marketing and distribution across the enterprise into a single system. This alternative to the narrower, more distinct applications of past years delivers benefits to corporations by coordinating an increasing number of functional processes into a single system solution. As business process automation becomes a higher and increasingly cost-effective priority for companies, ERP systems will become transactional "backbones" within the corporate infrastructure. A second critical dimension to meeting this market need is the software applications which help organizations to make use of this transactional data. Recently termed "analytic applications" by leading industry analysts, these software solutions work on a stand-alone basis, or in conjunction with ERP systems to translate data into business intelligence and thus to maximize the value of financial information. The need for better business information has created a significant market opportunity for analytic application software. Since 1981, the company's experience in developing and marketing financial management and analytical software applications for PCs and networks has positioned it well for this market. STRATEGY The company's objective is to be the leading provider of client/server and internet/intranet-enabled financial management and analytical solutions to large, multidivision or multilocation companies worldwide. Hyperion focuses on designing financially intelligent software applications that manage complex business processes, access and distribute information, and measure and analyze the performance of a business. Integrated across these applications, Hyperion provides complete reporting and business analysis capabilities designed to support the way people access, deliver and analyze results. The applications are designed to be flexible, easy to maintain, cost-efficient, fast and functionally complete, using an architecture based on connectivity and openness to ERP and other best-of-class applications. The company intends to continue to extend and enhance its suite of integrated client/server and internet/intranet-enabled products through internal development and acquisition. The company believes the use of evolving technology standards, when coupled with software that reflects financial intelligence and business applications expertise, produces clear and immediate benefits to an organization. -3- 4 The company's strategy to achieve its objective includes the following elements: Increase Penetration of Multisource Consolidation and Budgeting Markets. The company believes that a minority of potential customers has purchased network-based, Windows multisource consolidation (the management of financial information across multiple accounting and planning systems, operational data sources and geographies) and budgeting software. The company intends to further its penetration in these markets worldwide, and continue its leadership position by enhancing its current products and dedicating significant resources to sales, marketing, support and product development. In addition, the company intends to continue to expand upon its sales channel strategy through reseller relationships with other software providers that will provide access to markets that Hyperion has not traditionally exploited. Leverage Existing Market Leadership Position. The company believes that the complementary set of planning, budgeting, forecasting, accounting, consolidation and performance analysis applications provides the complete, consistent results executives need to run their businesses. The quick, secure access of this interrelated information, in a common set of user tools, supports ad hoc analysis and reporting requirements. The company believes that its established strength in providing solutions places it in a strong position to market its applications to both new and existing customers, including the latest offerings, Hyperion OLAP for business analysis; and Hyperion's Spider-Man, a web-based business information access solution for an organization's global user community. Focus on Leading Network, Internet/Intranet and Software Technologies. Hyperion Software is committed to the development of network-based software for business information applications. The company's solutions are designed to run in the Microsoft Windows environment, and all are compatible with widely-used PC networks and leading internet/intranet technology. The company intends to enhance its existing products and develop or acquire new products linked to client/server software standards, including Windows 95, Windows NT, and Oracle, Sybase and Microsoft SQL Server databases, as well as the emerging internet/intranet technologies. Design Applications for Specific Corporate Information Needs. The company's product line is designed specifically for the collection, accounting, planning, reporting and interactive analysis of business data. Hyperion's applications fit business processes, with financial intelligence and preprogrammed functionality. This orientation to specific tasks serves to reduce implementation time and results in superior processing speed for fast data compilation and data access. The company is also committed to a combination of integrated, industry standard SQL and application specific databases. Design for Ease of Implementation and Ease of Use. The company's products are designed for an end-user role in maintenance, with minimal training. Application expertise is built into products and is also provided by the company through consulting services. Following implementation, customers are able to operate self-sufficiently with trained administrators at headquarters locations and independent end-users at headquarters and at remote sites. Maintain Sales and Support Relationships. Unlike many other PC software companies, the company licenses its products throughout the world primarily through a direct sales force. Products also are licensed through independent distributors and sales agents, including major accounting firms. Hyperion often provides installation and post-sale consulting support to build long-term customer relationships. -4- 5 Generate Follow-on Revenues. The company generates revenues from existing customers through licensing for additional users, the introduction of new products and license renewal fees. In addition, sales of training and consulting services to existing customers represents a significant portion of the company's total service revenues. Follow-on revenues leverage sales and marketing resources and strengthen the company's relationships with its customers. PRODUCTS AND SERVICES The company's product line provides executives, managers, analysts and accountants with the capability to collect, process, report and analyze business information. The company's Hyperion Enterprise products consolidate and report financial and other business data; Hyperion Pillar is used for corporate budgeting and financial planning; Hyperion OLAP provides multidimensional analysis and reporting capabilities regarding complex, high-volume business data; the accounting products are used for corporate accounting; and Hyperion's Spider-Man application is a web-based business information access solution for the global user community of an organization. The company also offers installation, training, consulting and support services. PRODUCTS Hyperion Enterprise. Hyperion Enterprise, released in July 1991 and now in its fifth major release, is an advanced business information consolidation and reporting application which is designed to provide a unified view of accounting information across diverse general ledgers for management reporting, tax and statutory reporting requirements. The product allows for changes in corporate structure or reporting lines. The company began development of Hyperion Enterprise in mid-1988 as a new product that combines powerful consolidation and reporting capabilities with an open architecture, and administrative ease of use made possible through the graphical user interface of Windows. Hyperion Enterprise reflects the company's fifteen years of experience in financial and business information software. In each of the past three years, the company derived approximately 60% of its worldwide total revenues from Hyperion Enterprise licenses and related services. Hyperion Pillar. Pillar is a complete solution for corporate planning and budgeting needs. It facilitates the collaborative, iterative process of enterprise-wide budgeting and forecasting. Hyperion Pillar helps give the corporate plan greater credibility by allowing line managers to assume full accountability for their budgets. The software enables users to build up their budgets from a series of line items the way they think--in units, rates and/or amounts. Security features ensure that planning managers have control over each user's access to specific data. Pillar is a Windows-based solution with flexible import/export capabilities for interaction with virtually all financial software systems. The product easily allows for changes in corporate structure or reporting lines, making it easy to change the plan as the corporation evolves. Hyperion OLAP. Hyperion OLAP, released in April 1996, provides powerful multidimensional analysis and reporting capabilities to support complex, high-volume business analysis of issues such as customer or product line profitability. Hyperion OLAP combines built-in financial intelligence with a high performance, on-line analytical processing (OLAP) engine and superior information access capabilities. Continuing to leverage the company's experience in financial and business information software, Hyperion OLAP complements the overall integrated Hyperion solution as well as a wide range of ERP systems and other information sources. Hyperion OLAP allows analysis in up to 16 dimensions and is suitable for multi-user applications, "what-if" analysis and nomadic usage. -5- 6 Hyperion's accounting products, initially released in March 1995, allow an enterprise to control the detailed collection and reporting of day-to-day business transactions. The accounting products are designed for fast installation and easy maintenance. Superior integration among modules allows users to drill-down from ledger information to supporting subsystem transactions. Hyperion Ledger. Hyperion Ledger is a Windows-based, general ledger accounting system for large, corporate client/server environments. Hyperion Ledger controls the management of a full range of advanced accounting functions, including flexible account structures, intercompany transaction control and complex consolidation processing. In addition to the general ledger, the company's full suite of accounting products includes Hyperion Reporting, Hyperion Tools, Hyperion Admin, Hyperion Payables, Hyperion Receivables and Hyperion Assets. The company offers several complementary modules integrated across the product line: Hyperion's Spider-Man Web Delivery. Hyperion's Spider-Man application, released in August 1996, is a gateway into the Hyperion solution for the global user community of a corporation. A web-based server application, it provides all users, around the world, with an intelligent view of the reports within each application--accounting, budgeting, multisource consolidation, business analysis. It allows users to navigate through a consistent set of current corporate data, as well as information from any other internet source. Hyperion Analyst. Hyperion Analyst, released in April 1996, provides multidimensional, on-line analysis capabilities tailored specifically to working with financial and accounting data. Hyperion Analyst allows users to "slice and dice" information seamlessly from our financial applications directly within a Microsoft Excel or Lotus 1-2-3 spreadsheet. Hyperion Schedules. Hyperion Schedules, released in November 1995, provides schedule-based data entry within our financial processes to capture corporate financial information. Hyperion Schedules provides complete control and customization of data entry screens. SERVICES The company provides design consulting and implementation support for its products and their operation on local or wide area networks and offers a range of administrator and end-user courses at its training facilities or at the customer's site. Implementation, consulting and training services are not included in software license fees, but are provided on a time and materials basis. This allows the customer to determine the level of support appropriate to its needs and permits the company to provide high quality services on a profitable basis. Under the terms of the company's standard license agreement, customers, at their option, pay a license renewal (maintenance) fee annually. The annual fee charged to a customer is generally a fixed percentage of the then-current list prices for the licensed software used by the customer. This fee entitles customers to support, including a user hotline and electronic bulletin board, and to any updates and enhancements provided for their software. The company's product support function provides a hotline, collects and evaluates requests for enhancement of products and, together with the product management and planning group, coordinates the design, development and release of new products and product enhancements. An active user group, including a steering committee, works closely with the company in helping to define product enhancement priorities and direction. A user conference is held annually. This year's conference, in Orlando, was attended by over 2,300 people from more than 850 companies. Regional user meetings and product-specific focus groups are also scheduled periodically, including an annual European user conference. -6- 7 CUSTOMERS Hyperion Software markets its products worldwide to multidivision and/or multilocation organizations with diverse information management requirements. The company has licensed its software to more than 3,200 corporate headquarters customers. In the past three fiscal years, no one customer accounted for more than 10% of total revenues. The company's customers include the following: ABN Amro Holding ING America Life Aetna Life & Casualty ITT Industries Inc. Ahold Johnson & Johnson Aluminum Company of America Kimberly-Clark Corporation American Brands Kmart Corporation American Express Lotus Development Corporation Amoco Corporation LVMH AT&T GIS MCI Telecomm. Corp., Network Services Automatic Data Processing McKesson Corporation B.A.T. Industries Microsoft Corporation Baxter Healthcare Motorola, Inc. Bayer Corp. National Australia Bank Limited Bell Atlantic Corporation Netscape Communications BellSouth Corporation Nokia Mobile Phones Berjaya Group Berhad Norsk Hydro Black & Decker Corporation NYNEX Corporation Bristol-Myers Squibb Company PepsiCo Inc. Broken Hill Properties Price Costco Wholesale Corp. BTR plc The Prudential Insurance Company of America Campbell Soup Company PT Astra Chase Manhattan Bank Qantas Airways Chevron Corporation Roche Holding Ciba-Geigy Corporation Rockwell International Corp. Compaq Computer Sainsbury J Creative Technology Ltd. San Miguel Corporation Dean Witter Discover & Co. Sara Lee Corporation Digital Equipment SBC Communications DST Systems Inc. Sprint Eastman Kodak Company Standard Chartered Ford Motor Credit Company Swiss Bank Corporation Fortis - AG Swiss Reinsurance Group General Electric Company Telecom Italia Glaxo Texaco Inc. Granada Group The Travelers Hanson plc Union Bank of Switzerland Heineken United Parcel Service Household Finance Corporation Wang Laboratories HSBC Holdings The Washington Post ICI plc Young & Rubicam -7- 8 SALES AND MARKETING The company has a direct sales force comprised of 226 sales personnel as of June 30, 1997. The company supports its sales force with lead generation and marketing programs which include telemarketing, public relations, direct mail, advertising, seminars, trade shows and ongoing customer communication programs and third-party alliances. The company has sales offices at its headquarters in Stamford, Connecticut and in: Alexandria, Amsterdam, Atlanta, Baltimore, Boston, Brussels, Calgary, Chicago, Cleveland, Copenhagen, Dallas, Denver, Detroit, Foster City, Frankfurt, Hong Kong, Houston, Linz, London, Los Angeles, Madrid, Manchester, Milan, Milwaukee, Minneapolis, Montreal, Munich, Newark, Ottawa, Paris, Philadelphia, Rome, San Francisco, Sao Paulo, Seattle, Singapore, St. Louis, Stockholm, Syracuse, Tokyo, Toronto and Washington, DC. Product support and training are available as well through many of these locations. The company also markets its products through independent distributors and sales agents. The company has license and distribution agreements with independent distributors and sales agents in: Australia, Brazil, Finland, Israel, Japan, Korea, Mexico, New Zealand, Poland, Singapore, South Africa and Switzerland, as well as other territories of Europe and North America. The company's distributors and agents include The Baan Company, affiliates of Arthur Andersen & Co. (in Japan and Switzerland), and affiliates of KPMG Peat Marwick (in Australia and New Zealand). The distributors generally maintain sales and service personnel dedicated solely to the company's products. The distribution agreements generally provide for the right to offer the company's products within a territory, in return for royalties typically equal to 50% of license and license renewal fees. In each of its 1997, 1996 and 1995 fiscal years, approximately 36.4%, 33.2% and 28.1%, respectively, of the company's total revenues were derived from sources outside of the United States. Because the company generally ships its products shortly after license agreements are signed, the company's software licensing backlog typically is small. PRODUCT DEVELOPMENT To date, all of the company's principal products have been developed by its internal staff except for Hyperion Pillar, which was acquired in connection with the company's acquisition of Pillar Corporation (November 1994), and portions of Hyperion OLAP. When developing a new product or enhancement, the company works closely with current and prospective customers to determine their requirements. A user product enhancement committee, comprised of representatives of certain of the company's customers, meets quarterly and advises the company of its priorities for product development and enhancement, as well as product support service. On July 1, 1997, the company joined forces with The Baan Company, a leading provider of enterprise-wide business management software to companies requiring best-of-class manufacturing capabilities, engaging Baan to remarket Hyperion products and establishing a joint venture development effort for accounting products. The two-year definitive alliance is intended to leverage Baan's expertise in complex transactional Enterprise Resource Planning solutions and Hyperion's command of corporate financial planning, reporting and performance analysis. Hyperion and Baan have agreed to share equally in the cost of developing next generation accounting products which may be licensed to end users by either company. The company's development efforts are focused on new products, as well as on maintaining the competitiveness of its current product line, including development of the next releases of Hyperion Enterprise, Hyperion Pillar, Hyperion OLAP and Hyperion's Spider-Man. As of June 30, 1997, the company's product development was performed by 247 employees primarily located at its Foster City, California and Stamford, Connecticut facilities. -8- 9 During fiscal 1997, 1996 and 1995, the company's product development expense, which is net of capitalized development costs, was $33 million, $26.8 million and $21 million, or 14.8%, 15.5% and 15.3% of total revenues, respectively. In accordance with Statement of Financial Accounting Standards No. 86, the company capitalizes certain development costs. During fiscal 1997, 1996 and 1995, the company capitalized $4.8 million, $5.8 million and $5.2 million, respectively, or 12.7%, 17.8% and 19.9% of total product development expenditures (excluding purchased research and development). COMPETITION The company operates in an intensely competitive market which demands product quality, functionality, performance, reliability, ease of use, customer satisfaction, service, price, vendor reputation and financial stability. The company believes that its products currently compete favorably with respect to such factors, although it may be at a competitive disadvantage against companies with greater financial, technological, marketing, service and support resources. The company faces competition from a variety of business application software vendors and software tool vendors, as well as from software developed by IT departments of potential customers. Many of the company's existing and potential customers utilize legacy software developed internally for mainframes or minicomputers. The market for client/server and internet/intranet-enabled corporate financial software is still an emerging one. As markets develop for the company's products, additional competitors may enter or expand into those markets and competition may intensify. PROPRIETARY RIGHTS AND LICENSES The company depends upon a combination of trade secret, copyright and trademark laws, license agreements, nondisclosure and other contractual provisions and technical measures to protect its proprietary rights in its products. In addition, the company attempts to protect its trade secrets and other proprietary information through agreements with employees and consultants. Despite these precautions, it may be possible for unauthorized third parties to copy aspects of the company's products or to obtain information that the company regards as proprietary. The company also seeks to protect the source code of its products as a trade secret. The company distributes its products under software license agreements which grant customers a nonexclusive, nontransferable license to the company's products and contain terms and conditions prohibiting the unauthorized reproductions or transfer of the company's products. The company does not provide licensees with the source code for its products. Customers are billed an initial license fee for the software upon delivery and, subsequently, are billed an annual maintenance fee entitling them to routine support and product updates. This fee is typically calculated at a fixed percentage of the then-current price of all licensed software used by the customer. The annual maintenance fee is optional; however, without payment, the licensee is entitled only to use the software in its then current form, without receiving future updates or product support. See "Services." -9- 10 (C) 1997 Hyperion Software Operations Inc. All rights reserved. Hyperion, Hyperion Software, the Hyperion Software Logo, Hyperion Admin, Hyperion Analyst, Hyperion Assets, Hyperion Financials, Hyperion Forms, Hyperion Ledger, Hyperion OLAP, Hyperion OnTrack, Hyperion Payables, Hyperion Pillar, Hyperion Receivables, Hyperion Reporting, Hyperion Retrieve, Hyperion Tools, Business Intelligence, Financial Intelligence, IMRS, LedgerLink, Micro Control and Pillar are registered trademarks and Hyperion Analytical Ledger, Hyperion Enterprise, Hyperion Purchasing and Build&Link are trademarks of Hyperion Software Operations Inc., a wholly-owned subsidiary of Hyperion Software Corporation. MARVEL COMICS, SPIDER-MAN: TM & (C) 1997 Marvel Characters, Inc. All rights reserved. All other trademarks and company names mentioned are the property of their respective owners. EMPLOYEES As of July 31, 1997, the company employed a total of 1,226 employees, including 309 in marketing and sales, 784 in product development, support and technical services, and 133 in management, administration and finance. None of the company's employees is represented by a labor union. The company has experienced no work stoppages and believes that its employee relations are good. The executive officers of the company are as follows: Name Age Position ---- --- -------- James A. Perakis.........53 President, Chief Executive Officer and Chairman Mark J. Bilger..........38 Senior Vice President, Product Development Lucy Rae Ricciardi.......55 Senior Vice President and Chief Financial Officer Craig M. Schiff..........42 Senior Vice President and Corporate Secretary Mr. Perakis is Chairman of the Board of Directors, Chief Executive Officer and President of the company. Mr. Perakis has served as Chief Executive Officer and as a director of the company since September 1985. From 1983 to September 1985, Mr. Perakis served as Senior Vice President and General Manager of Chase Decision Systems, a division of Interactive Data Corporation, a developer and marketer of mainframe software for planning and financial applications. From 1979 to 1983, Mr. Perakis was Chief Financial Officer of Interactive Data Corporation, a supplier of data and software to financial and corporate markets. Mr. Bilger was appointed Senior Vice President, Product Development in July 1997. Prior to joining Hyperion, Mr. Bilger was Director of Software Development, Emerging Markets for the IBM Software Group, a division of the IBM Corporation. Mr. Bilger managed IBM's product development efforts for the insurance industry worldwide, as well as for the finance and banking industry of Asia-Pacific. Ms. Ricciardi has served as Senior Vice President and Chief Financial Officer of the company since July 1995. From February 1990 to July 1995, Ms. Ricciardi served as Vice President - Finance and Chief Financial Officer of the company. From February 1988 to February 1990, Ms. Ricciardi served as Director of Finance of the company. Prior to 1988, Ms. Ricciardi was associated with Dun & Bradstreet, most recently in its Acquisitions Analysis Group. Mr. Schiff was appointed Senior Vice President and Corporate Secretary in May 1996. From July 1985 to May 1996, Mr. Schiff served as Vice President - Products and Services and Corporate Secretary of the company. Mr. Schiff originally joined the company in July 1983. Prior to July 1983, Mr. Schiff served in a variety of customer service and support positions with General Electric Information Services. -10- 11 ITEM 2. PROPERTIES The company's principal administrative, marketing and product development and support functions are located in Stamford, Connecticut, where the company owns and occupies approximately 230,000 square feet of office space. The Stamford facilities permit future expansion of up to 300,000 square feet of additional space. The company also leases regional office space for its local sales and service needs. ITEM 3. LEGAL PROCEEDINGS From time to time, in the normal course of business, various claims are made against the company. At this time, in the opinion of management, there are no pending claims the outcome of which is expected to result in a material adverse effect on the financial position of the company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. -11- 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The company's common stock trades on The Nasdaq Stock Market under the symbol HYSW. The following table sets forth, for the periods indicated, the high and low sales prices of the common stock as reported on The Nasdaq Stock Market.
----------------------------------------------------------------------------- FISCAL 1996: HIGH LOW ----------------------------------------------------------------------------- First quarter $28 3/8 $22 Second quarter 28 1/4 18 1/4 Third quarter 23 14 Fourth quarter 22 9 3/4 ----------------------------------------------------------------------------- FISCAL 1997: HIGH LOW ----------------------------------------------------------------------------- First quarter $16 5/8 $10 1/2 Second quarter 25 14 3/8 Third quarter 26 3/8 16 Fourth quarter 22 3/4 13 ----------------------------------------------------------------------------- FISCAL 1998: HIGH LOW ----------------------------------------------------------------------------- First quarter (through September 15th) 32 1/2 21 1/4
As of September 15, 1997, the company had 146 stockholders of record and approximately 5,400 beneficial holders of its common stock. The company has never declared or paid any cash dividends on its capital stock. The company currently intends to retain all earnings to finance future growth and, therefore, does not anticipate paying any cash dividends in the foreseeable future. The company's credit agreement with its lender contains covenants that restrict the company regarding the payment of dividends. -12- 13 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data)
FOR THE YEAR ENDED JUNE 30 -------------------------------------------------------------- 1997 1996 1995 1994 1993 -------------------------------------------------------------- STATEMENT OF INCOME DATA (a) REVENUES Software licenses $112,115 $ 90,304 $ 77,985 $51,687 $35,801 License renewals and services 110,715 82,520 59,156 42,575 30,844 -------------------------------------------------------------- Total revenues 222,830 172,824 137,141 94,262 66,645 COSTS AND EXPENSES Cost of revenues: Software licenses 7,135 4,780 4,454 2,820 1,841 License renewals and services 69,076 53,258 36,443 24,921 18,541 Sales and marketing 72,277 55,484 44,324 30,036 21,325 Product development 33,046 26,839 20,980 12,767 9,196 Purchased research and development 2,000 2,600 General and administrative 19,216 16,443 11,302 9,703 8,407 Asset valuation and restructuring 4,400 Merger and integration 1,000 -------------------------------------------------------------- 205,150 158,804 118,503 80,247 61,910 -------------------------------------------------------------- OPERATING INCOME 17,680 14,020 18,638 14,015 4,735 Interest income 1,747 1,480 1,620 851 605 Interest expense (349) (243) (119) (117) (137) -------------------------------------------------------------- INCOME BEFORE INCOME TAXES 19,078 15,257 20,139 14,749 5,203 Provision for income taxes 7,200 5,800 8,000 6,140 2,860 -------------------------------------------------------------- NET INCOME $ 11,878 $ 9,457 $ 12,139 $ 8,609 $ 2,343 ============================================================== EARNINGS PER SHARE (b) Primary $ .64 $ .53 $ .70 $ .52 $ .15 Fully diluted $ .64 $ .53 $ .69 $ .52 $ .15 AVERAGE NUMBER OF SHARES OUTSTANDING (b) Primary 18,455 17,875 17,316 16,584 15,500 Fully diluted 18,698 17,933 17,480 16,600 15,904 CASH GENERATED BY OPERATING ACTIVITIES $ 47,118 $ 34,070 $ 28,936 $19,707 $ 6,626 JUNE 30 -------------------------------------------------------------- 1997 1996 1995 1994 1993 -------------------------------------------------------------- BALANCE SHEET DATA (a) Working capital $ 42,236 $ 27,449 $ 37,306 $34,829 $25,839 Total assets 218,639 179,448 146,158 94,715 67,358 Deferred revenue 44,619 36,832 30,599 21,055 12,026 Total long-term debt 7,823 8,336 8,910 Stockholders' equity 113,037 90,003 71,706 53,661 40,683
(a) Includes Pillar Corporation (see Note B to the accompanying financial statements). (b) All share and per share data have been retroactively adjusted to reflect a two-for-one stock split effected in the form of a 100% stock dividend paid in December 1995. -13- 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Hyperion Software Corporation derives revenues from licensing its software products and providing related product installation, support and training services. Customers are billed an initial fee for the software upon delivery. A license renewal fee entitling customers to routine support and product updates is billed annually. Hyperion licenses its products throughout the world primarily through a direct sales force. Products also are licensed through independent distributors and sales agents, including major accounting firms. The company includes in revenues its net share of revenues generated by distributors. When an agent has facilitated the sale and Hyperion is the licensor, the license revenue is reported gross and a commission charge is reflected. FISCAL 1997 COMPARED TO FISCAL 1996 REVENUES
1997 CHANGE 1996 - -------------------------------------------------------------------------------- (dollars in thousands) Software licenses $112,115 24.2% $90,304 Percentage of total revenues 50.3% 52.3% - -------------------------------------------------------------------------------- License renewals and services $110,715 34.2% $82,520 Percentage of total revenues 49.7% 47.7% - --------------------------------------------------------------------------------
Software license revenues rose primarily as a result of an increase in the number of licenses sold (unit volume) versus, for example, price increases. Sales of budgeting and analysis solutions were particularly strong, as were sales of consolidation and reporting applications in Europe. The increase in license renewal and service revenue is mainly attributable to the year-to-year growth of the company's installed customer base. Revenues generated from markets outside the United States for fiscal 1997 and 1996 were $81 million and $57.4 million, or 36.4% and 33.2% of total revenues, respectively. Revenue growth was particularly strong in Europe, most notably in Germany, the Netherlands and the United Kingdom. COST OF REVENUES
1997 CHANGE 1996 - -------------------------------------------------------------------------------- (dollars in thousands) Software licenses $ 7,135 49.3% $ 4,780 Gross profit percentage 93.6% 94.7% - -------------------------------------------------------------------------------- License renewals and services $69,076 29.7% $53,258 Gross profit percentage 37.6% 35.5% - --------------------------------------------------------------------------------
Cost of software license revenues consists primarily of the cost of product packaging and documentation materials, amortization of capitalized software costs, amortization of certain intangible assets related to business acquisitions, and royalty expenses. The increase in the cost of software license revenues principally reflects the associated increase in the amortization of capitalized costs related to new products, product enhancements and the recent acquisition of distribution rights to the company's corporate budgeting product in Belgium, France and the United Kingdom. The amortization of capitalized software costs begins upon the general release of the software to customers. The increase in the cost of license renewal and service revenues was due primarily to additional staffing expense for both installation and ongoing support services. -14- 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OPERATING EXPENSES
1997 CHANGE 1996 - -------------------------------------------------------------------------------- (dollars in thousands) Sales and marketing $72,277 30.3% $55,484 Percentage of total revenues 32.4% 32.1% - -------------------------------------------------------------------------------- Product development $33,046 23.1% $26,839 Percentage of total revenues 14.8% 15.5% - -------------------------------------------------------------------------------- General and administrative $19,216 16.9% $16,443 Percentage of total revenues 8.6% 9.5% - --------------------------------------------------------------------------------
The increase in sales and marketing expenses is primarily due to a net increase in sales-marketing personnel, an increase in commission costs directly associated with the increase in software license revenues and, to a lesser extent, greater overall marketing initiatives. The increase in product development expenses reflects additional personnel and third-party development costs associated with expanded research and development activities. In fiscal 1997 and 1996, the company capitalized $4.8 million and $5.8 million of software development costs, respectively, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." The amounts capitalized primarily relate to the company's development of enterprise-wide financial management and accounting solutions for client/server environments and represented 12.7% and 17.8% of total product development expenditures (excluding purchased research and development). Capitalized software costs are amortized over the estimated economic life of the product, but generally not more than four years. In the second quarter of fiscal 1996, the company concluded two strategic acquisitions involving application technologies and an important European client base. The acquisitions, which amounted to $3.6 million, were accounted for as purchase transactions and, accordingly, $2 million was allocated to purchased research and development and $1.6 million was allocated to identifiable intangible assets based on their estimated fair values. The purchased research and development was reflected as a one-time charge in the company's 1996 operating results. The increase in general and administrative expenses resulted, for the most part, from increases in personnel and professional services costs incurred to support the growth of the company's overall operations. On July 1, 1997, the company joined forces with The Baan Company, a leading provider of enterprise-wide business management software to companies requiring best-of-class manufacturing capabilities, engaging Baan to remarket Hyperion products and establishing a joint venture development effort for accounting products. The two-year definitive alliance is intended to leverage Baan's expertise in complex transactional Enterprise Resource Planning solutions and Hyperion's command of corporate financial planning, reporting and performance analysis. Baan has agreed to pay Hyperion royalties of at least $8 million for fiscal 1998 and each has agreed to share equally in the cost of developing next generation accounting products which may be licensed to end users by either company. Hyperion incurred nonrecurring charges in its June 1997 quarter of $4.4 million for asset valuation and restructuring costs related to the joint development agreement. -15- 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NONOPERATING INCOME AND EXPENSE
1997 CHANGE 1996 - -------------------------------------------------------------------------------- (dollars in thousands) Interest income $1,747 18.0% $1,480 - -------------------------------------------------------------------------------- Interest expense $ (349) 43.6% $ (243) - --------------------------------------------------------------------------------
Interest income increased due to the increase in cash available for investment which resulted from operations. PROVISION FOR INCOME TAXES The company's effective income tax rate remained substantially unchanged at approximately 38%. For the full year ending June 30, 1998, the company expects its tax rate to decline to approximately 36%. The anticipated rate reduction is mainly attributable to the recent tax law change that will yield the company additional benefits with respect to export sales. NET INCOME As a result of the above factors (including the nonrecurring charges), net income for 1997 increased to $11.9 million, or by 25.6%, from $9.5 million for 1996. To date, the overall impact of inflation on the company has not been material. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which changes the methodology of calculating earnings per share. The company will adopt SFAS No. 128 in December 1997. The company does not expect the adoption of SFAS No. 128 to have a material effect on the earnings per share information presented. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In fiscal 1999, the company will adopt the provisions of these statements, which will not impact the company's financial position, results of operations or cash flows. -16- 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FISCAL 1996 COMPARED TO FISCAL 1995 REVENUES
1996 CHANGE 1995 - -------------------------------------------------------------------------------- (dollars in thousands) Software licenses $90,304 15.8% $77,985 Percentage of total revenues 52.3% 56.9% - -------------------------------------------------------------------------------- License renewals and services $82,520 39.5% $59,156 Percentage of total revenues 47.7% 43.1% - --------------------------------------------------------------------------------
Software license revenues rose primarily as a result of an increase in the number of licenses sold (unit volume) versus, for example, price increases. While the growth was led by demand for the company's enterprise financial reporting and budgeting products, management believes that a slower than planned orientation of its sales force to a multiproduct, complete financial solution approach, together with delays in the commercial release of certain products, were the reasons for the decline in sales growth as compared to prior years. The increase in license renewal and service revenue is mainly attributable to the year-to-year growth of the company's installed customer base. Revenues generated from markets outside the United States for fiscal 1996 and 1995 were $57.4 million and $38.5 million, or 33.2% and 28.1% of total revenues, respectively. Revenue growth was particularly strong in Canada, certain territories of Asia, and in Europe, most notably in the Netherlands. COST OF REVENUES
1996 CHANGE 1995 - -------------------------------------------------------------------------------- (dollars in thousands) Software licenses $ 4,780 7.3% $ 4,454 Gross profit percentage 94.7% 94.3% - -------------------------------------------------------------------------------- License renewals and services $53,258 46.1% $36,443 Gross profit percentage 35.5% 38.4% - --------------------------------------------------------------------------------
Cost of software license revenues consists primarily of the cost of product packaging and documentation materials, amortization of capitalized software costs, amortization of certain intangible assets related to business acquisitions, and royalty expenses. The increase in the cost of software license revenues principally reflects the associated increase in the amortization of capitalized costs related to new products and product enhancements. The amortization of capitalized software costs begins upon the general release of the software to customers. The increase in the cost of license renewal and service revenues was due primarily to additional staffing expense for both installation and ongoing support services. The professional services staff includes new members dedicated to the company's recently released (March 1995) set of accounting products. -17- 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OPERATING EXPENSES
1996 CHANGE 1995 - -------------------------------------------------------------------------------- (dollars in thousands) Sales and marketing $55,484 25.2% $44,324 Percentage of total revenues 32.1% 32.3% - -------------------------------------------------------------------------------- Product development $26,839 27.9% $20,980 Percentage of total revenues 15.5% 15.3% - -------------------------------------------------------------------------------- General and administrative $16,443 45.5% $11,302 Percentage of total revenues 9.5% 8.2% - -------------------------------------------------------------------------------
The increase in sales and marketing expenses is primarily due to a net increase in sales-marketing personnel. The increase in product development expenses reflects additional personnel and third-party development costs associated with expanded research and development activities. In fiscal 1996 and 1995, the company capitalized $5.8 million and $5.2 million of software development costs, respectively, in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." The amounts capitalized primarily relate to the company's development of enterprise-wide financial management and accounting solutions for client/server environments and represented 17.8% and 19.9% of total product development expenditures (excluding purchased research and development). Capitalized software costs are amortized over the estimated economic life of the product, but generally not more than four years. In the second quarter of fiscal 1996, the company concluded two strategic acquisitions involving application technologies and an important European client base. Specifically, in December 1995, the company acquired certain assets and application technologies, and assumed certain obligations of Trust Consult s.a., a Brussels-based financial solutions provider. Along with over 130 customers, Hyperion gained significant European statutory consolidation and reporting expertise and technology. In November 1995, the company acquired certain rights from Sinper Corporation to its powerful database engine, TM/1, technology. The new technology was used in the development of Hyperion OLAP (On-Line Analytical Processing), a solution for customers' most complex and high volume multidimensional analysis needs, such as product profitability and sales analysis. Hyperion OLAP became commercially available in April 1996. The acquisitions, which amounted to $3.6 million, were accounted for as purchase transactions and, accordingly, $2 million was allocated to purchased research and development and $1.6 million was allocated to identifiable intangible assets based on their estimated fair values. The purchased research and development is reflected as a one-time charge in the company's operating results. The increase in general and administrative expenses resulted from increases in personnel and professional services costs incurred to support the growth of the company's overall operations and, to a lesser extent, the effect of currency exchange rate changes and an increase in the provision for doubtful accounts. In November 1994, the company completed a merger with Pillar Corporation, which develops, markets and supports client/server corporate budgeting and planning solutions. In connection with the acquisition, which was accounted for as a pooling of interests, the company charged $1 million to operations in fiscal 1995 for nonrecurring merger and integration costs incurred. -18- 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NONOPERATING INCOME AND EXPENSE
1996 CHANGE 1995 - -------------------------------------------------------------------------------- (dollars in thousands) Interest income $1,480 8.6% $1,620 - -------------------------------------------------------------------------------- Interest expense $ (243) 104.2% $ (119) - --------------------------------------------------------------------------------
The slight decline in interest income, for the most part, was due to the decrease in cash available for investment which resulted from a higher level of funds reinvested in the business. PROVISION FOR INCOME TAXES The company's effective income tax rate decreased from 39.7% to 38%. The change in the effective rate primarily relates to the nondeductible merger costs incurred in fiscal 1995. NET INCOME As a result of the above factors (including the nonrecurring charges), net income for 1996 decreased to $9.5 million, or by 22.1%, from $12.1 million for 1995. RISK FACTORS AND QUARTERLY FINANCIAL INFORMATION The company operates with a minimal software licensing backlog. Therefore, quarterly revenues and operating results are quite dependent on the volume and timing of the signing of licensing agreements and product deliveries during the quarter, which are difficult to forecast. The company's future operating results may fluctuate due to these and other factors, such as customer buying patterns, the deferral and/or realization of deferred software license revenues according to contract terms, the timing of new product introductions and product upgrade releases, the company's hiring plans, the scheduling of sales and marketing programs, new product development by the company or its competitors and currency exchange rate movements. A significant portion of the company's quarterly software licensing agreements is concluded in the last month of the fiscal quarter, generally with a concentration of such revenues earned in the final ten business days of that month. The company generally has realized lower revenues in its first (September) and third (March) fiscal quarters than in the immediately preceding quarters. The company believes that these revenue fluctuations are caused by customer buying patterns, including traditionally slow purchase activity in the summer months and low purchase activity in the corporate financial applications market during the March quarter, as many potential customers are busy with their year-end closing and financial reporting. In any case, due to the relatively fixed nature of certain costs, including personnel and facilities expenses, a decline or shortfall in quarterly and/or annual revenues typically results in lower profitability or may result in losses. -19- 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Except for the historical information contained in this report on Form 10-K, the matters discussed herein are forward-looking statements that involve risks and uncertainties. Actual events and the company's future results may vary significantly based on a number of factors, including those discussed in the preceding paragraph; whether the accounting products contemplated to be jointly developed by Baan and Hyperion are developed in a timely fashion and are accepted by the market; whether the proposed coordination of sales prospects between the companies works in practice and results in increased revenues for the company; whether the strategic advantages and synergies contemplated to be gained by the parties are actually able to be realized; and the impact of competitive products and pricing. Any forward-looking statements should be considered in light of these factors as well as other risks as detailed elsewhere in this Annual Report. Further, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The following table sets forth certain unaudited operating results for each of the company's eight most recent fiscal quarters. This information has been prepared by the company on the same basis as its audited financial statements appearing elsewhere in this Annual Report and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly this information when read in conjunction with the company's audited financial statements and notes thereto. The company's operating results for any one quarter or series of quarters are not necessarily indicative of results for any future period.
Quarter Ended ------------------------------------------------------------------------------------------ June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 1997 1997 1996 1996 1996 1996 1995 1995 ------------------------------------------------------------------------------------------ (in thousands, except per share data) (unaudited) Total revenues $73,624 $50,523 $52,696 $45,987 $58,610 $36,856 $40,725 $36,633 Operating income 8,963 1,746 3,971 3,000 8,423 383 2,032 3,182 Net income 5,886 1,315 2,636 2,041 5,351 369 1,521 2,216 Earnings per share .31 .07 .14 .11 .30 .02 .08 .12
-20- 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS - -------------------------------------------------------------------------------- To date, the company has financed its business principally through positive cash flow from operations and sales of its common stock. For fiscal years 1997, 1996, and 1995, the company generated positive cash flow from operations of $47.1 million, $34.1 million and $28.9 million, respectively. Cash used by investing activities amounted to $30.2 million for fiscal 1997, including $16.1 million primarily for purchases of computer equipment and software, $4.8 million for product development costs, $1.6 million for deposits and intangible assets, and $7.1 million to acquire the exclusive distribution and service rights to the company's corporate budgeting product in Belgium, France and the United Kingdom. Financing activities in fiscal 1997, including stock options exercised by employees and payments of indebtedness, generated cash of $8.6 million. In connection with the stock options exercised by certain of its employees (for a total of 1,214,811 common shares), the company recognized (as a credit to additional paid-in capital) an income tax benefit of $2.8 million for the year ended June 30, 1997. As of June 30, 1997, the company had cash and cash equivalents of $67.1 million and working capital of $42.2 million, no long-term debt other than the mortgage loan (currently at an interest rate of 3.9%) for the Stamford, Connecticut office and research facility, and its ratio of current assets to current liabilities was 1.4 to 1. Cash equivalents are comprised primarily of investment-grade U.S. state and political subdivision obligations with varying terms of three months or less. The company has long-term credit availability of $25 million under a revolving credit facility. For further details of the credit facility, see Note E of the company's financial statements. The company anticipates capital expenditures of approximately $35 million for its 1998 fiscal year. The company intends to continue to review potential acquisitions and business alliances that it believes would enhance its growth and profitability. From time to time, in the normal course of business, various claims are made against the company. At this time, in the opinion of management, there are no pending claims the outcome of which is expected to result in a material adverse effect on the financial position of the company. The company believes that funds generated from operations, existing cash balances and its available credit facility will be sufficient to finance the company's operations for at least the next two years. In 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of." The company adopted SFAS No. 121 in fiscal 1997 and its impact on the company's financial statements was not significant. The company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The company generally prices its stock options at fair market value on the date of grant and, therefore, no compensation expense is recognized for the stock options granted. In fiscal 1997, the company adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" (see Note G of the company's financial statements). -21- 22 ITEM 8. REPORT OF INDEPENDENT AUDITORS FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -22- 23 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Hyperion Software Corporation We have audited the accompanying consolidated balance sheet of Hyperion Software Corporation and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1997. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hyperion Software Corporation and subsidiaries at June 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Stamford, Connecticut July 17, 1997 -23- 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Hyperion Software Corporation Consolidated Balance Sheet (in thousands, except for share data)
JUNE 30, 1997 1996 ----------------------- ASSETS Current assets: Cash and cash equivalents $ 67,059 $ 42,361 Accounts receivable--net of allowances of $5,300 and $4,900 64,831 55,674 Prepaid expenses and other current assets 3,243 3,925 Deferred income taxes 3,811 3,349 ----------------------- TOTAL CURRENT ASSETS 138,944 105,309 Property and equipment--at cost, less accumulated depreciation and amortization of $31,029 and $21,063 57,853 54,606 Product development costs--at cost, less accumulated amortization of $6,796 and $7,818 8,526 11,985 Product distribution rights, goodwill and other intangible assets--at cost, less accumulated amortization of $7,631 and $5,784 11,103 6,087 Deposits and other assets 2,213 1,461 ----------------------- Total assets $218,639 $179,448 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 22,746 $ 20,728 Accrued employee compensation and benefits 19,882 15,380 Income taxes payable 8,898 4,215 Deferred revenue 44,619 36,832 Notes payable 563 705 ----------------------- TOTAL CURRENT LIABILITIES 96,708 77,860 Mortgage payable 7,823 8,336 Deferred income taxes 1,071 3,249 COMMITMENTS AND CONTINGENCIES - Note H Stockholders' equity: Preferred stock--$.01 par value; authorized--1,000,000 shares; none issued Common stock--$.01 par value; authorized--50,000,000 shares; issued--22,577,437 and 21,362,626 shares 226 214 Additional paid-in capital 85,706 73,440 Retained earnings 41,994 30,116 Currency translation adjustments (1,376) (534) Treasury stock, at cost--4,344,599 and 4,329,464 shares (13,513) (13,233) ----------------------- TOTAL STOCKHOLDERS' EQUITY 113,037 90,003 ----------------------- Total liabilities and stockholders' equity $218,639 $179,448 =======================
See accompanying notes. -24- 25 Hyperion Software Corporation Consolidated Statement of Income (in thousands, except per share data)
YEAR ENDED JUNE 30, 1997 1996 1995 ----------------------------------- REVENUES Software licenses $112,115 $ 90,304 $ 77,985 License renewals and services 110,715 82,520 59,156 ----------------------------------- Total revenues 222,830 172,824 137,141 COSTS AND EXPENSES Cost of revenues: Software licenses 7,135 4,780 4,454 License renewals and services 69,076 53,258 36,443 Sales and marketing 72,277 55,484 44,324 Product development 33,046 26,839 20,980 Purchased research and development 2,000 General and administrative 19,216 16,443 11,302 Asset valuation and restructuring 4,400 Merger and integration 1,000 ----------------------------------- 205,150 158,804 118,503 ----------------------------------- OPERATING INCOME 17,680 14,020 18,638 Interest income 1,747 1,480 1,620 Interest expense (349) (243) (119) ----------------------------------- INCOME BEFORE INCOME TAXES 19,078 15,257 20,139 Provision for income taxes 7,200 5,800 8,000 ----------------------------------- NET INCOME $ 11,878 $ 9,457 $ 12,139 =================================== EARNINGS PER SHARE Primary $ .64 $ .53 $ .70 Fully diluted $ .64 $ .53 $ .69 AVERAGE NUMBER OF SHARES OUTSTANDING Primary 18,455 17,875 17,316 Fully diluted 18,698 17,933 17,480
See accompanying notes. -25- 26 Hyperion Software Corporation Consolidated Statement of Stockholders' Equity (in thousands, except for share data)
Common Stock -------------------- Additional Currency Par Paid-in Retained Translation Treasury Shares Value Capital Earnings Adjustments Stock --------------------------------------------------------------------------- Balance at June 30, 1994 19,582,310 $196 $57,398 $ 9,536 $ (436) $(13,033) Charge reflecting change in Pillar Corporation's fiscal year (1,016) Exercise of stock options 795,756 8 3,669 Income tax benefit from exercise of stock options 3,195 Currency translation effect 50 Net income 12,139 --------------------------------------------------------------------------- Balance at June 30, 1995 20,378,066 204 64,262 20,659 (386) (13,033) Exercise of stock options 984,560 10 5,790 (200) Income tax benefit from exercise of stock options 3,388 Currency translation effect (148) Net income 9,457 --------------------------------------------------------------------------- Balance at June 30, 1996 21,362,626 214 73,440 30,116 (534) (13,233) Exercise of stock options 1,214,811 12 9,506 (280) Income tax benefit from exercise of stock options 2,760 Currency translation effect (842) Net income 11,878 --------------------------------------------------------------------------- BALANCE AT JUNE 30, 1997 22,577,437 $226 $85,706 $41,994 $(1,376) $(13,513) ===========================================================================
See accompanying notes. -26- 27 Hyperion Software Corporation Consolidated Statement of Cash Flows (in thousands)
YEAR ENDED JUNE 30, 1997 1996 1995 ---------------------------------------- OPERATING ACTIVITIES Net income $ 11,878 $ 9,457 $ 12,139 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,983 14,032 8,338 Asset valuation and restructuring charges, net of payments of $258 4,142 Accounts receivable allowance provisions 2,487 4,229 1,667 Deferred income taxes (2,640) (1,206) 210 Charge reflecting change in Pillar Corporation's fiscal year (1,016) Changes in operating assets and liabilities: Accounts receivable (11,644) (11,897) (15,843) Prepaid expenses and other assets 803 235 (2,463) Accounts payable and accrued expenses 5,879 8,492 11,286 Income taxes payable 7,444 4,495 5,074 Deferred revenue 7,786 6,233 9,544 ---------------------------------------- Cash provided by operating activities 47,118 34,070 28,936 INVESTING ACTIVITIES Office and research facilities (578) (15,492) (14,308) Leasehold improvements and purchases of furniture, equipment and software (16,123) (16,726) (12,880) Product development costs (4,792) (5,798) (5,207) Deposits and intangible assets (1,564) (636) (1,921) Business acquisitions (7,104) (3,183) ---------------------------------------- Cash used by investing activities (30,161) (41,835) (34,316) FINANCING ACTIVITIES Principal payments on notes payable (655) (610) (309) Mortgage payable--proceeds 9,500 Exercise of stock options by employees 9,238 5,390 3,720 ---------------------------------------- Cash provided by financing activities 8,583 4,780 12,911 Effect of exchange rate changes (842) (148) 50 ---------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24,698 (3,133) 7,581 Cash and cash equivalents at beginning of year 42,361 45,494 37,913 ---------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 67,059 $ 42,361 $ 45,494 ======================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 2,398 $ 2,511 $ 2,716 Interest ($266 and $243 capitalized in 1996 and 1995) 326 497 311
See accompanying notes. -27- 28 Hyperion Software Corporation Notes to Consolidated Financial Statements BUSINESS Hyperion Software Corporation (the "company") develops, markets and supports comprehensive analytic solutions that enable large, multinational companies to improve financial performance by maximizing the value of information. The company's internet/intranet-enabled applications support and enhance enterprise-wide financial processes, including planning, budgeting, forecasting, accounting, consolidation and performance analysis. A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the company and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. Assets and liabilities denominated in foreign currencies are translated at the exchange rate on the balance sheet date. The related revenues, costs and expenses are translated at average rates of exchange prevailing during the reporting period. The resulting adjustments are charged or credited to stockholders' equity. Translation adjustments relating to operations abroad that are generally dependent on funding from the company's U.S. operations are included in the statement of income. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition Software license revenues are recognized upon execution of the license agreement and delivery of the software. In all cases, however, collection of any related receivable must be probable and no significant post-contract obligations of the company shall be remaining. License renewal (maintenance) fees for routine support and product updates are recognized ratably over the term of the license agreement. Current Assets and Liabilities The company considers highly liquid investment instruments with remaining terms of three months or less at the time of acquisition to be cash equivalents. Cash equivalents are comprised primarily of investment-grade U.S. state and political subdivision obligations. All current assets and current liabilities, because of their short-term nature, are stated at cost, which approximates market value. The carrying amount of the company's borrowings approximates market value, as the obligations provide for interest at floating rates. -28- 29 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Long-Lived Assets In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of." The company adopted SFAS No. 121 in fiscal 1997; the impact was not material. Product Development Costs The company begins capitalizing product development costs, principally wages and contractor fees, only after establishing commercial and technical viability. Product development costs are stated at the lower of cost or net realizable value. Annual amortization of these costs represents the greater of the amount computed using (i) the ratio that current gross revenues for the product(s) bear to the total current and anticipated future gross revenues for the product(s), or (ii) the straight-line method over the remaining estimated economic life of the product(s); generally such deferred costs are amortized over four years. Amortization commences when the product is available for general release to customers. Amortization expense totaled $4.8 million for 1997, $3.2 million for 1996 and $2.2 million for 1995. Depreciation/Amortization Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the applicable assets. Income Taxes The company provides for taxes based on current taxable income and the future tax consequences of temporary differences between the financial reporting and income tax carrying values of its assets and liabilities. Earnings Per Share Earnings per share ("EPS") are calculated by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period after giving effect to the two-for-one stock split and merger with Pillar Corporation (see Note B). For primary EPS, common equivalent shares are shares which would be issuable upon the exercise of outstanding stock options, reduced by the number of shares assumed to be purchased by the company with the proceeds obtained therefrom at the average market price during the period. For the fully diluted EPS calculation, shares are assumed to be purchased by the company at the higher of the average or period-end market price and, therefore, this calculation may include additional equivalent shares. All share and per share data have been retroactively adjusted to reflect a two-for-one stock split effected in the form of a 100% stock dividend paid in December 1995. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which changes the methodology of calculating earnings per share. The company will adopt SFAS No. 128 in December 1997. The company does not expect the adoption of SFAS No. 128 to have a material effect on the earnings per share information presented. -29- 30 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Comprehensive Income In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components as part of a complete set of financial statements. Comprehensive income is a measure of all changes in equity of any enterprise that results from recognized transactions and other economic events of a period other than transactions with owners in their capacity as owners. The company will adopt SFAS No. 130 in fiscal 1999. Equity Based Compensation The company accounts for stock option grants in accordance with Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to Employees." The company generally prices its stock options at fair market value on the date of grant and, therefore, no compensation expense is recognized for the stock options granted. B. STRATEGIC ALLIANCE AND ACQUISITIONS On July 1, 1997, the company joined forces with The Baan Company, a leading provider of enterprise-wide business management software to companies requiring best-of-class manufacturing capabilities, engaging Baan to remarket Hyperion products and establishing a joint venture development effort for accounting products. The two-year definitive alliance is intended to leverage Baan's expertise in complex transactional Enterprise Resource Planning solutions and Hyperion's command of corporate financial planning, reporting and performance analysis. Baan has agreed to pay Hyperion royalties of at least $8 million for fiscal 1998 and each has agreed to share equally in the cost of developing next generation accounting products which may be licensed to end users by either company. Hyperion incurred nonrecurring charges in its June 1997 quarter of $4.4 million ($2.8 million net of tax benefits or $.15 per share) for asset valuation (write-off of certain capitalized software costs, $3.5 million) and restructuring (employee and officer severance, and customer and professional services) costs related to the joint development agreement. In July 1996, the company acquired the exclusive distribution and service rights to its corporate budgeting product in Belgium, France and the United Kingdom for $7.6 million. The acquisition was accounted for as a purchase transaction and, accordingly, the purchase price was allocated to identifiable intangible assets based on their estimated fair values. The net operating results of the acquired business from the date of purchase are included in the accompanying statement of income. Pro forma statement of income data as if the acquisition had occurred on July 1, 1994 is not shown, as it would not differ significantly from reported results. During the quarter ended December 1995, the company concluded two strategic acquisitions, described below, involving application technologies and an important European client base. The acquisitions, which amounted to $3.6 million, were accounted for as purchase transactions and, accordingly, $2 million was allocated to purchased research and development and $1.6 million was allocated to identifiable intangible assets based on their estimated fair values. The purchased research and development is reflected as a one-time charge in the company's operating results. The charge had the effect of reducing net income for fiscal 1996 by approximately $1.3 million or $.07 per share. -30- 31 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) B. STRATEGIC ALLIANCE AND ACQUISITIONS (CONTINUED) In December 1995, the company acquired certain assets and application technologies, and assumed certain obligations of Trust Consult s.a., a Brussels-based financial solutions provider. Along with over 130 customers, Hyperion gained significant European statutory consolidation and reporting expertise and technology. The net operating results of the acquired business from the date of purchase are included in the accompanying statement of income. Pro forma statement of income data as if the acquisition had occurred on July 1, 1994 is not shown, as it would not differ significantly from reported results. In November 1995, the company acquired certain rights from Sinper Corporation to its powerful database engine, TM/1, technology. The new technology was used in the development of Hyperion OLAP (On-Line Analytical Processing), a solution for customers' most complex and high volume multidimensional analysis needs, such as product profitability and sales analysis. Hyperion OLAP became commercially available in April 1996. On November 29, 1994, the company issued 1,141,592 shares of its common stock (including 146,970 shares underlying options and warrants assumed by Hyperion Software) in connection with the merger with Pillar Corporation ("Pillar"). Pillar, based in California, develops, markets and supports client/server corporate budgeting and planning solutions. The acquisition was accounted for as a pooling of interests. Accordingly, the financial statements were restated for all prior periods to include Pillar. Further, all common share and per share data were restated for prior periods. For the three-month, pre-merger period ended September 30, 1994, revenues and net income of the company and Pillar were as follows, in thousands (unaudited):
REVENUES Hyperion Software $22,470 Pillar 3,858 ------------------------------------------------------------- $26,328 ============================================================= NET INCOME Hyperion Software $ 1,225 Pillar 1,016 adjustment (a) (370) ------------------------------------------------------------- $ 1,871 =============================================================
(a) To adjust the provision for income taxes to reflect, on a combined company basis, the annual effective tax rate. Pillar previously used the fiscal year ended September 30 for its financial reporting. Pillar's operating results for the year ended September 30, 1994 were included in Hyperion's consolidated statement of income for the year ended June 30, 1994. The accompanying statement of income reflects the operations of Hyperion Software and Pillar for the years ended June 30, 1997, 1996 and 1995. Accordingly, the duplication of Pillar's net income, for the three months ended September 30, 1994, in retained earnings has been adjusted by a $1 million charge to retained earnings in fiscal 1995. In connection with the acquisition, the company charged $1 million to operations for nonrecurring merger and integration costs (principally professional fees) incurred. -31- 32 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) C. PROPERTY, EQUIPMENT AND RELATED MORTGAGE LOAN Property and equipment consists of the following at June 30:
Depreciation/ Amortization 1997 1996 Period - ----------------------------------------------------------------------------------------------- (in thousands) (years) Land $ 3,800 $ 3,800 Office and research facilities 26,578 26,000 39 Furniture, equipment and software 56,223 43,866 3 to 7 Leasehold improvements 2,281 2,003 lease term* - ----------------------------------------------------------------------------- 88,882 75,669 Less accumulated depreciation and amortization 31,029 21,063 - ----------------------------------------------------------------------------- $57,853 $54,606 =============================================================================
* Leasehold improvements are amortized over the lesser of the remaining life of the lease or the useful life of the improvements. Depreciation and amortization of these assets totaled $13.5 million, $9.4 million and $5.4 million for 1997, 1996 and 1995, respectively. On January 20, 1995, the company completed the purchase of an office and research facility in Stamford, Connecticut for $11.4 million. The purchase price was financed by the Connecticut Development Authority ("CDA," an agency of the State of Connecticut) through a $9.5 million mortgage loan, with company funds used for the balance. In the interest of Connecticut-based jobs, the CDA agreed to such financing over a 15-year period at LIBOR minus 2%, subject to, among other things: (i) the creation of a specified number of new Connecticut-based jobs, (ii) a 10-year residency in the state, and (iii) the payment of the remaining unpaid principal at the end of year ten. Violations of certain such requirements, if any, would result in additional interest charges and/or a penalty payment. D. PRODUCT DISTRIBUTION RIGHTS, GOODWILL AND OTHER INTANGIBLE ASSETS Components of intangible assets, which relate primarily to business acquisitions, are as follows at June 30:
Amortization 1997 1996 Period - ---------------------------------------------------------------------------------------------- (in thousands) (years) Product distribution and service rights $ 9,123 $ 1,570 3 to 7 Goodwill 3,685 3,648 4 to 20 Software/technology 2,039 2,489 2 to 6 Customer base 2,219 2,219 3 to 5 Copyrights, trademarks and other 1,618 1,416 4 to 6 Noncompete agreements 50 529 3 - ---------------------------------------------------------------------------- 18,734 11,871 Less accumulated amortization 7,631 5,784 - ---------------------------------------------------------------------------- $11,103 $ 6,087 ============================================================================
-32- 33 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) D. PRODUCT DISTRIBUTION RIGHTS, GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) The carrying value of intangible assets will be reviewed by management if the facts and circumstances suggest that the value(s) may be impaired. If this review indicates that the carrying amount(s) will not be recoverable, as determined based on the undiscounted cash flows attributable to such asset(s) over the remaining amortization period, management will reduce the carrying amount by the estimated shortfall of cash flows. E. AVAILABLE CREDIT FACILITY The company may borrow up to $25 million under an amended and restated credit facility (the "Facility") with The Bank of New York. Key provisions of the Facility are as follows: (i) the maturity date is June 30, 2000, (ii) the interest rate is the bank's base rate plus .25% or, at the company's option, LIBOR plus 1.5%, (iii) a commitment fee is charged based on any unused credit, at the rate of .25% per annum, and (iv) borrowings under the Facility are limited to the sum of (a) 85% of eligible accounts receivable, as defined, from debtors located in the United States, plus (b) 75% of eligible accounts receivable, as defined, from debtors located outside of the United States. Other significant terms of the Facility restrict the company regarding the payment of dividends, capital expenditures and acquisitions, and additional indebtedness, including other fiscal commitments, and require the company to maintain minimum net worth and working capital ratios and to meet certain profitability criteria, as defined. Except for its office and research facilities (see Note C), substantially all of the company's assets have been pledged as security under terms of the Facility. -33- 34 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) F. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Significant components of deferred tax assets and liabilities at June 30 are as follows:
1997 1996 - ------------------------------------------------------------------------------- (in thousands) Deferred income tax assets: Net operating loss carryforwards $1,588 $ 4,054 Deferred revenue 1,048 1,510 Accounts receivable 2,240 1,893 Other intangible assets 1,213 1,418 Tax credit carryforwards 1,157 876 Property and equipment 684 Accrued expenses 523 310 Other 53 167 - ------------------------------------------------------------------------------- 8,506 10,228 Less valuation allowance 2,356 4,944 - ------------------------------------------------------------------------------- 6,150 5,284 - ------------------------------------------------------------------------------- Deferred income tax liabilities: Product development costs 3,410 4,914 Property and equipment 270 - ------------------------------------------------------------------------------- 3,410 5,184 - ------------------------------------------------------------------------------- Net deferred income tax asset $2,740 $ 100 =============================================================================== The provision for income taxes consists of the following charges (credits): 1997 1996 1995 - ------------------------------------------------------------------------------- (in thousands) Current: U.S. $ 6,282 $ 4,214 $5,211 State 1,376 1,419 1,709 Other countries 2,182 1,373 870 - ------------------------------------------------------------------------------- 9,840 7,006 7,790 - ------------------------------------------------------------------------------- Deferred: U.S. (1,880) (800) 252 State (760) (379) Other countries (27) (42) - ------------------------------------------------------------------------------- (2,640) (1,206) 210 - ------------------------------------------------------------------------------- $ 7,200 $ 5,800 $8,000 ===============================================================================
-34- 35 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) F. INCOME TAXES (CONTINUED) The effective income tax rate varied from the statutory U.S. federal tax rate as follows:
1997 1996 1995 - ------------------------------------------------------------------------------------ Statutory U.S. tax rate 35.0% 35.0% 35.0% State income taxes, net of U.S. tax benefit 2.1 4.5 5.6 Tax exempt interest (2.1) (1.9) (1.9) Non-U.S. operations, including export sales 5.4 (0.6) (2.0) Change in valuation allowance (3.9) (0.9) 1.6 Other--net 1.2 1.9 1.4 - ------------------------------------------------------------------------------------ Effective income tax rate 37.7% 38.0% 39.7% ====================================================================================
The company has U.S. and non-U.S. net operating loss (NOL) carryforwards of $4.1 million and U.S. federal and state tax credit carryforwards of $1.5 million, which expire as follows:
NOL Tax Credit Year Carryforwards Carryforwards - ------------------------------------------------------------------------------ (in thousands) 2001 $ 232 2003 55 2004 $1,662 138 2005 and thereafter 326 No expiration date 2,402 750 - ------------------------------------------------------------------------------ $4,064 $1,501 ==============================================================================
The company's utilization of NOL and tax credit carryforwards, acquired through the merger with Pillar Corporation (see Note B), is subject to annual limitations as prescribed by Sections 382 and 383 of the Internal Revenue Code and similar state authority. G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS The company has elected to follow APBO No. 25 and related interpretations in accounting for its stock option and employee stock purchase plans because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APBO No. 25, because generally the exercise price of the company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The company grants options to employees pursuant to its 1991 Stock Plan ("1991 Plan"). Under the 1991 Plan, the company may grant options to purchase in the aggregate up to 4 million shares of common stock. At June 30, 1997, there were, in the aggregate, outstanding options to purchase 2.4 million shares of common stock pursuant to the 1991 Plan. Options granted under the 1991 Plan have ten-year terms and are generally exercisable at 25% per year commencing one year from the date of grant. -35- 36 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED) The company grants options to its non-employee directors pursuant to its 1991 Non-Employee Director Stock Option Plan ("Director Plan"). The Director Plan provides that options to acquire an aggregate of up to .2 million shares of common stock may be granted to non-employee directors of the company. At June 30, 1997, there were, in the aggregate, outstanding options to purchase .1 million shares of common stock pursuant to the Director Plan. Options under the Director Plan generally are exercisable in full on the date of grant, except under certain circumstances under which they vest at 33% per year. Options granted under the Director Plan have ten-year terms. The company has granted options under certain other stock option plans and certain employee compensation arrangements pursuant to which it no longer makes any new option grants, but pursuant to which there continues to exist outstanding options to purchase shares of common stock. These options generally expire ten years after their grant date. Under these plans and employee compensation arrangements, there are options outstanding to purchase .2 million shares of common stock as of June 30, 1997. These stock option plans include plans assumed by the company in connection with its acquisition of Pillar Corporation (see Note B). Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the company had accounted for its employee stock options granted subsequent to June 30, 1995 under the fair value method of that statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for both fiscal 1997 and 1996: risk-free interest rate of 6.4%; volatility factors of the expected market price of the company's common stock of .25; and a weighted-average average life for the options of 5.5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The company's pro forma net income would have been approximately $9.4 million and $7.9 million and pro forma primary and fully diluted earnings per share would have been $.50 and $.44 for the fiscal years ended June 30, 1997 and 1996, respectively. In accordance with provisions of SFAS No. 123, the pro forma disclosures include only the effect of stock options granted in fiscal 1996 and fiscal 1997. These pro forma effects may not be representative of the effects of SFAS No. 123 on future years because of the fact that options vest over several years and new grants are generally made each year. -36- 37 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED) The following table presents a summary of the company's stock option activity and related information for the years ended June 30:
1997 1996 1995 ---------------------- ---------------------- ----------------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price --------- -------- --------- -------- --------- -------- Outstanding at beginning of year 3,059,751 $ 9.53 3,053,688 $ 6.36 3,269,132 $ 4.77 Granted: Plans 984,999 13.63 1,566,279 18.55 456,332 12.66 Exercised: Plans (807,446) 6.97 (497,258) 4.53 (283,034) 3.50 Compensation arrangements (191,500) 2.75 (297,500) 2.50 (359,800) 2.04 Forfeited/exchanged: Plans (391,845) 14.04 (765,458) 21.33 (28,942) 6.81 --------- ------ --------- ------ --------- ------ Outstanding at year-end 2,653,959 $11.66 3,059,751 $ 9.53 3,053,688 $ 6.36 ========= ====== ========= ====== ========= ====== Options exercisable at year-end 1,237,921 $ 9.24 1,663,658 $ 6.21 1,983,440 $ 4.21 ========= ====== ========= ====== ========= ====== Weighted average fair value of options granted during the year $ 5.06 $ 6.53 ====== ======
The following table summarizes information about stock options outstanding at June 30, 1997:
Options Outstanding Options Exercisable -------------------------------------------------- ----------------------------- Weighted Average Weighted Weighted Range of Number Remaining Years of Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ---------------- -------------------------------------------------- ----------------------------- $ .38 - 5.00 284,804 3.6 $ 2.99 284,214 $ 2.99 5.01 - 10.00 587,459 5.6 8.56 545,459 8.52 10.01 - 15.00 1,458,080 8.6 12.69 293,370 12.34 15.01 - 20.00 196,716 9.0 18.48 62,216 18.23 20.01 - 24.88 126,900 8.7 23.03 52,662 22.48 - --------------------------------------------------------------------------------------------------------- $ .38 - 24.88 2,653,959 7.1 $11.66 1,237,921 $ 9.24 =========================================================================================================
Under the 1991 Employee Stock Purchase Plan ("Purchase Plan"), shares of the company's common stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first or the last business day of each six-month period. Employees may purchase shares having a value not exceeding 10% of their gross compensation, up to 1,000 shares, during an offering period. Two million shares were originally reserved for under the Purchase Plan, which term lasts for ten years. -37- 38 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED) The following summarizes shares of common stock reserved for issuance as of June 30, 1997: Stock options granted and outstanding 2,653,959 Stock options not yet granted 749,871 --------- 3,403,830 (3.1 million at ========= September 15, 1997)
In addition, 1,158,916 shares are reserved for sale under the Purchase Plan. The company maintains an employee savings plan that qualifies as a cash or deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the plan, participating U.S. employees may defer up to 15% of their pre-tax compensation, but not more than $9,500 per calendar year. The company contributes to the plan, annually, up to a maximum of $1,000 per participant. Similar savings plans are maintained with respect to certain non-U.S. employees. In fiscal 1997, 1996 and 1995, the company contributed $1.1 million, $1 million and $.7 million, respectively, to the savings plans. H. COMMITMENTS AND CONTINGENCIES The company leases office facilities and certain equipment under various operating lease agreements. The leases expire at various times through the year 2003. Future minimum lease payments under all operating leases with noncancellable terms in excess of one year amount to $15.8 million as follows (in millions): $5.4 in 1998, $4.2 in 1999, $3.1 in 2000, $1.9 in 2001, $1.1 in 2002 and $.1 thereafter. Certain of the office leases provide as well for contingent payments based on building operating expenses. Rental expense for the years ended June 30, 1997, 1996 and 1995 under all lease agreements was $5.6 million, $5.9 million and $5 million, respectively. From time to time, in the normal course of business, various claims are made against the company. At this time, in the opinion of management, there are no pending claims the outcome of which is expected to result in a material adverse effect on the financial position of the company. I. STOCKHOLDER RIGHTS PLAN In November 1995, the company adopted a stockholder rights plan (the "Rights Plan") in which preferred stock rights were distributed as a rights dividend at the rate of one right for each share of common stock held as of the close of business on December 1, 1995. The Rights Plan is designed to deter coercive or unfair takeover tactics and to prevent an acquirer from gaining control of the company without offering a fair price to all of the company's stockholders. The plan is intended to protect the interests of stockholders in the event the company is confronted in the future with coercive or unfair takeover tactics. -38- 39 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) I. STOCKHOLDER RIGHTS PLAN (CONTINUED) Each right will entitle holders of company common stock to buy one share of Series A Junior Participating Preferred Stock of the company at an exercise price of $150. The rights will be exercisable only if a person or group acquires more than 15% of the common stock, or announces a tender or exchange offer which would result in its ownership of 15% or more of the common stock, or a person owning 10% or more of the common stock is determined by the board to be an Adverse Person, as defined in the Rights Plan. If any person or group becomes the beneficial owner of 20% or more of the common stock except pursuant to a tender offer for all shares at a price that a majority of the independent directors determines to be fair; a more-than-15% stockholder engages in a merger with the company in which the company survives and its common stock remains outstanding and unchanged; certain other self-dealing events involving the company and a more-than-15% stockholder occur; or, under certain circumstances, the board determines a 10% or more stockholder to be an Adverse Person (collectively "Flip-In Events"), each right not owned by such person or related parties will entitle its holder to purchase, at the then current exercise price of the right, common stock of the company having a value of twice the right's exercise price (or, in certain circumstances, a combination of cash, property, common stock or other securities or a reduction in the exercise price having an aggregate value equal to the value of the common stock otherwise purchasable). After the occurrence of a Flip-In Event and before any person or affiliated group becomes the owner of 50% or more of the then outstanding common stock, the company may also exchange one share of common stock for each right outstanding. In addition, if the company is involved in a merger or other business combination transaction with another person in which its common stock is changed or converted, or sells or transfers more than 50% of its assets or earning power to another person, each right that has not previously been exercised will entitle its holder to purchase, at the then current exercise price of the right, shares of common stock of such other person having a value of twice the right's exercise price. The company can, in certain circumstances, redeem the rights at $.01 per right. The rights will expire on November 17, 2005, unless earlier redeemed or exchanged. -39- 40 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) J. FINANCIAL DATA BY GEOGRAPHIC AREA
Other U.S. U.K. International Operations Operations Operations Eliminations Consolidated - ---------------------------------------------------------------------------------------------------------- (in thousands) 1997 Revenues: Customers $182,703 $21,233 $18,894 $222,830 Intercompany 11,504 23,958 $(35,462) - ---------------------------------------------------------------------------------------------------------- Total 194,207 21,233 42,852 $(35,462) 222,830 ========================================================================================================== Operating income 13,499 2,931 1,250 17,680 ========================================================================================================== Identifiable assets $180,455 $14,713 $23,471 $218,639 ========================================================================================================== 1996 Revenues: Customers $140,888 $13,623 $18,313 $172,824 Intercompany 6,092 7,428 $(13,520) - ---------------------------------------------------------------------------------------------------------- Total 146,980 13,623 25,741 $(13,520) 172,824 ========================================================================================================== Operating income 12,579 921 520 14,020 ========================================================================================================== Identifiable assets $150,977 $10,093 $18,378 $179,448 ========================================================================================================== 1995 Revenues: Customers $115,284 $13,290 $ 8,567 $137,141 Intercompany 6,212 3,935 $(10,147) - ---------------------------------------------------------------------------------------------------------- Total 121,496 13,290 12,502 $(10,147) 137,141 ========================================================================================================== Operating income (loss) 23,120 928 (5,410) 18,638 ========================================================================================================== Identifiable assets $128,033 $ 9,781 $ 8,344 $146,158 ==========================================================================================================
"Other International Operations" relate primarily to subsidiaries in Austria, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Singapore and Spain. Operating income (loss) from operations outside the United States approximates income (loss) before income taxes of such operations. Intercompany revenues between geographic areas are accounted for at prices representative of unaffiliated party transactions of a similar nature. Revenues from markets outside the United States were as follows (dollars in thousands):
1997 1996 1995 - -------------------------------------------------------------------------------- U.K. operations $21,233 $13,623 $13,290 Other international operations 18,894 18,313 8,567 Export 40,888 25,439 16,614 - -------------------------------------------------------------------------------- $81,015 $57,375 $38,471 ================================================================================ Percentage of total revenues 36% 33% 28% ================================================================================
The majority of "Export" revenues, some of which are generated through independent distributors and agents, results from product licenses and services sold to customers throughout Europe. The above disclosures are made pursuant to SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." In fiscal 1999, the company will adopt the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which supersede the provisions of SFAS No. 14. -40- 41 Hyperion Software Corporation Notes to Consolidated Financial Statements (continued) K. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended June 30, 1997 (in thousands, except per share data):
- --------------------------------------------------------------------------- FISCAL 1997 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 - --------------------------------------------------------------------------- Total revenues $45,987 $52,696 $50,523 $73,624 Gross profit 29,772 34,709 31,306 50,832 Net income 2,041 2,636 1,315 5,886 Earnings per share .11 .14 .07 .31 - --------------------------------------------------------------------------- Fiscal 1996 Sept. 30 Dec. 31 March 31 June 30 - --------------------------------------------------------------------------- Total revenues $36,633 $40,725 $36,856 $58,610 Gross profit 24,199 26,845 22,473 41,269 Net income 2,216 1,521 369 5,351 Earnings per share .12 .08 .02 .30
-41- 42 PART II (CONTINUED) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," which are incorporated herein by reference to the company's Proxy Statement for its 1997 Annual Meeting of Stockholders. See also the section entitled "Employees" appearing in Part I hereof. ITEM 11. EXECUTIVE COMPENSATION See the section entitled "Compensation Information Concerning Directors and Officers," which is incorporated herein by reference to the company's Proxy Statement for its 1997 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the section entitled "Principal Holders of Voting Securities," which is incorporated herein by reference to the company's Proxy Statement for its 1997 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the section entitled "Certain Transactions," which is incorporated herein by reference to the company's Proxy Statement for its 1997 Annual Meeting of Stockholders. -42- 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) The consolidated financial statements of Hyperion Software Corporation are included in Item 8: Consolidated Balance Sheet as of June 30, 1997 and 1996 Consolidated Statement of Income for the years ended June 30, 1997, 1996 and 1995 Consolidated Statement of Stockholders' Equity for the years ended June 30, 1997, 1996 and 1995 Consolidated Statement of Cash Flows for the years ended June 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (2) Financial statement schedule, which is included at the end of this report: Schedule VIII - Valuation and Qualifying Accounts All other schedules have been omitted since they are not required, not applicable or the information has been included in the consolidated financial statements or the notes thereto. (3) Exhibits: Exhibit No. Description ----------- ----------- 3.1(b) - Restated Certificate of Incorporation of the company 3.2(b) - By-laws of the company, as amended and restated 10.1(b) - 1985 Incentive Stock Option Plan 10.2(b) - 1989 Stock Option Plan 10.3(b) - 1991 Stock Plan 10.4(b) - 1991 Employee Stock Purchase Plan 10.5(b) - 1991 Non-Employee Director Stock Option Plan 10.6(b) - Sub-Lease Agreement with Amstar Corporation for the lease of premises located at 777 Long Ridge Road, Stamford, CT 10.7(b) - Sub-Lease Agreement with Citicorp North America, Inc. for the lease of premises located at 777 Long Ridge Road, Stamford, CT 10.8(b) - Sub-Lease Agreement with National Reinsurance Corporation for the lease of premises located at 777 Long Ridge Road, Stamford, CT 10.9(c) - Amended and Restated Credit Agreement with The Bank of New York and the signatory banks thereto, dated as of May 1, 1992 (including forms of guaranty and security agreement, and pledge agreement) 10.10(b) - Registration Rights Agreement among the company and certain holders of Common Stock of the company, dated as of August 9, 1991 -43- 44 Exhibit No. Description ----------- ----------- 10.11(f) - Employment Agreement with James A. Perakis, dated as of August 1, 1993 10.12(f) - Employment Agreement with David M. Sample, dated as of July 1, 1994 10.13(f) - Employment Agreement with Lucy Rae Ricciardi, dated as of July 1, 1994 10.14(f) - Employment Agreement with Craig M. Schiff, dated as of July 1, 1994 10.15(f) - Employment Agreement with John N. Adinolfi, dated as of July 1, 1994 10.16(f) - Employment Agreement with Gordon O. Rapkin, dated as of July 1, 1994 10.17(b) - Agreement with Marco Arese Lucini, dated as of October 1, 1990 10.18(b) - Stock Option Agreement with Harry S. Gruner, dated as of December 22, 1989 10.19(b) - Employment Agreement with Thomas Bell, dated as of July 1, 1994 10.20(b) - Form of Software License Agreement 10.21(b) - Consulting Agreement with Natcom Consulting Services Ltd., dated as of January 1, 1988 10.22(b) - Consulting Agreement with Natcom Consulting Services Ltd., dated as of January 1, 1991, and amendments thereto 10.23(b) - Software Development License Agreement with Teknedata S.R.L. 10.24(b) - Lease with 1033 Washington Blvd. Associates, dated as of December 23, 1985 and amended thereto 10.25(h) - Purchase and Sale Agreement with Combustion Engineering, Inc., dated January 20, 1995, regarding the purchase of an office facility 10.26(h) - Loan Agreement with the Connecticut Development Authority, dated January 20, 1995, regarding the financing of an office facility (including related Promissory Note and Mortgage Deed) 10.27(b) - License Agreement with KPMG Peat Marwick Hungerfords Management Consultants dated as of June 8, 1989 10.28(b) - Trademark and Tradename License Agreement with KPMG of Hong Kong 10.29(b) - License Agreement with IMRS Nordic dated as of January 1, 1989 10.30(b) - License Agreement with Prologic Decision Support (PTY) Ltd. dated as of March 28, 1991 10.31(b) - License Agreement with Arthur Andersen Japan dated as of December 17, 1990 10.32(a) - Software Development and License Agreement with Channel Computing, Inc., dated February 27, 1992 10.33(b) - License Agreement with Arthur Andersen AG dated as of November 2, 1989 10.34 [Reserved] 10.35 [Reserved] 10.36(a) - Distributor Agreement with Arthur Andersen Auditors, S.A. dated March 1, 1992 10.37(a) - Distributor Agreement with Austrian Industries Informatics Ges.m.b.H dated July 1, 1992 10.38(c) - Amendment to the Termination of the License Agreement with Sema Group Systems Limited, Government and Commerce Division, dated March 31, 1992 10.39(c) - Exclusive Sales Agency Agreement with Sema Group Systems Limited, Government and Commerce Division, dated April 1, 1992 10.40(c) - Business Purchase and Sale Agreement with Sema Group Systems Limited, Government and Commerce Division, dated March 31, 1992, effective July 1, 1992 -44- 45 Exhibit No. Description ----------- ----------- 10.41(d) - Asset Purchase and Sale Agreement between Columbia Software, Inc. and IMRS Inc., dated January 21, 1993 10.42(d) - Asset Purchase and Sale Agreement between MAI Systems Corporation and IMRS Inc., dated February 12, 1993 10.43(e) - Letter Agreement with Arthur Andersen AG, dated as of May 19, 1993, regarding distribution of company products in Switzerland and Liechtenstein 10.44(i) - Waiver and Amendment No. 2 to Amended and Restated Credit Agreement with The Bank of New York and signatory banks thereto, dated as of June 30, 1995 10.45(e) - Employment Agreement with Terence W. Rogers, dated as of July 16, 1993 10.46(f) - Distributor Agreement with Consultores de Integracion de Sistemas S.A. de C.V. 10.47(f) - Distributor Agreement with Delteq Systems Pte Ltd. 10.48(g) - Agreement and Plan of Reorganization dated as of November 7, 1994 by and among IMRS Inc., IP Merger, Inc., Pillar Corporation and American Stock Transfer & Trust Company, as escrow Agent 10.49(g) - Agreement and Plan of Merger dated as of November 29, 1994 among IMRS Inc., IP Merger, Inc. and Pillar Corporation 10.50(j) - Employment Agreement with Peter F. DiGiammarino, dated as of May 29, 1996 10.51(k) - Amendment No. 1 to Employment Agreement and Senior Advisory Arrangement between the company and Lucy R. Ricciardi, dated as of December 3, 1996 10.52 - Employment Agreement with Anthony A. Colangelo, dated as of July 1, 1996 (filed herewith) 10.53 - Employment Agreement with William I. Kerr, dated as of July 1, 1996 (filed herewith) 10.54 - Employment Agreement with Mark J. Bilger, dated as of May 27, 1997 (filed herewith) 11.1 - Statement Re: Computation of Earnings Per Share (filed herewith) 22.1 - Subsidiaries of the company (filed herewith) 23.1 - Consent of Ernst & Young LLP, independent auditors (filed herewith) 27 - Financial Data Schedule - ----------------- (a) Incorporated by reference to the exhibits to the registrant's Registration Statement on Form S-1 File No. 33-50694 (b) Incorporated by reference to the exhibits to the registrant's Registration Statement on Form S-1 File No. 33-42855 (c) Incorporated by reference to the exhibits to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 (d) Incorporated by reference to the exhibits to the registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992 (e) Incorporated by reference to the exhibits to the registrant's Annual Report on Form 10-K for the year ended June 30, 1993 (f) Incorporated by reference to the exhibits to the registrant's Annual Report on Form 10-K for the year ended June 30, 1994 (g) Incorporated by reference to the exhibits to the registrant's Current Report on Form 8-K, dated November 29, 1994, which was filed on December 14, 1994 -45- 46 (h) Incorporated by reference to the exhibits to the registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994 (i) Incorporated by reference to the exhibits to the registrant's Annual Report on Form 10-K for the year ended June 30, 1995 (j) Incorporated by reference to the exhibits to the registrant's Annual Report on Form 10-K for the year ended June 30, 1996 (k) Incorporated by reference to the exhibits to the registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 (b) Reports on Form 8-K: No reports on Form 8-K were filed or were required to be filed by the registrant during the fourth quarter of the fiscal year ended June 30, 1997. -46- 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: September 22, 1997 Hyperion Software Corporation (Registrant) By: /s/ James A. Perakis --------------------------------- James A. Perakis Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ James A. Perakis Chief Executive Officer September 22, 1997 - -------------------------- and Chairman James A. Perakis /s/ Gary G. Greenfield Director September 24, 1997 - -------------------------- Gary G. Greenfield /s/ Harry S. Gruner Director September 22, 1997 - -------------------------- Harry S. Gruner /s/ Marco Arese Lucini Director September 23, 1997 - -------------------------- Marco Arese Lucini /s/ Aldo Papone Director September 23, 1997 - -------------------------- Aldo Papone /s/ Robert W. Thomson Director September 23, 1997 - -------------------------- Robert W. Thomson /s/ Lucy Rae Ricciardi Senior Vice President September 22, 1997 - -------------------------- and Chief Financial Officer Lucy Rae Ricciardi /s/ Michael A. Manto Vice President September 22, 1997 - -------------------------- and Corporate Controller Michael A. Manto -47- 48 ITEM 14(a)(2) AND ITEM 14(d). FINANCIAL STATEMENT SCHEDULE HYPERION SOFTWARE CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
===================================================================================================================== Additions -------------------------- Charged Balance at Charged to to Other Balance Beginning Costs and Accounts Deductions- at End Description of Period Expenses - Describe(a) Describe of Period ----------- -------------------------------------------------------------------- For the year ended June 30, 1995 Allowance for doubtful accounts, returns and discounts $1,640 320 1,347 807(b) $2,500 Valuation allowance for deferred tax assets 5,782 567 364(c) 5,985 For the year ended June 30, 1996 Allowance for doubtful accounts, returns and discounts $2,500 1,159 3,070 1,829(b) $4,900 Valuation allowance for deferred tax assets 5,985 486 1,527(c) 4,944 For the year ended June 30, 1997 Allowance for doubtful accounts, returns and discounts $4,900 368 2,119 2,087(b) $5,300 Valuation allowance for deferred tax assets 4,944 39 2,627(c) 2,356
(a) Charged to revenues (b) Write-offs, returns and discounts, net of recoveries (c) Recognition and adjustments EX-10.52 2 EMPLOYMENT AGREEMENT WITH ANTHONY A. COLANGELO 1 [HYPERION SOFTWARE LETTER HEAD] EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (hereinafter referred to as "Agreement") made as of the 1st day of July, 1996, between ANTHONY A. COLANGELO, of Pelham, New York, (hereinafter referred to as the "Employee") and Hyperion Software Operations, Inc., a Delaware corporation with offices at 900 Long Ridge Road, Stamford, Connecticut 06902 (hereinafter referred to as the "Corporation"). WHEREAS, the Corporation desires to employ the Employee, and the Employee desires to serve as an employee of the Corporation on the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants and promises of the parties hereto, the Corporation and the Employee agree as follows: 1. EMPLOYMENT: The Corporation hereby agrees to employ the Employee as Vice President, Sales to perform certain managerial and executive functions of the Corporation, and the Employee hereby agrees to perform such services for the Corporation on the terms and conditions hereinafter stated, subject to the directives of the Board of Directors of the Corporation. 2. TERM OF EMPLOYMENT: The term of this Agreement shall begin on July 1, 1996 and shall continue in full force and effect until June 30, 1999, provided, however, that this Agreement shall be automatically renewed on a year-to-year basis thereafter unless terminated by either party on at least six (6) months' prior written notice during any given year, unless sooner terminated as provided herein. Notwithstanding the foregoing, the Corporation may terminate this Agreement at any time without cause upon thirty (30) days' written notice to Employee in 2 which event the Corporation shall pay severance to Employee pursuant to Section 8(g) hereof. 3. COMPENSATION: During the term of this Agreement, for all services rendered by Employee under this Agreement, the Corporation shall pay the Employee an annual base salary of $150,000 per annum, payable in arrears at a rate of $6250 on the fifteenth and the last day of each month. It is understood that the foregoing base salary is the base salary in effect for the Corporation's 1996 fiscal year and that such base salary will be increased, on a pro rata basis on July 1, 1997. The Employee's base salary may be increased by the Board of Directors from time to time in its sole and absolute discretion. In addition to the annual base salary described in this Section, Employee may receive cash performance bonuses according to bonus plans that have been agreed with the Senior Vice President, David Sample. 4. STOCK OPTION: All options to purchase shares of the Common Stock of the Corporation's parent, Hyperion Software Corporation ("Parent") previously granted to the Employee by agreement between the Parent and the Employee, under the 1991 Stock Plan of the Parent or otherwise, shall continue in full force and effect in accordance with their respective terms and conditions notwithstanding any provision of this Agreement. 5. FRINGE BENEFITS: (a) During the term hereof, commencing on the day and year first above written, the Corporation shall: (i) provide the Employee and his immediate family with medical and hospitalization insurance substantially similar to that provided for the other executive personnel of the Corporation in similar management positions, (ii) reimburse the Employee and his immediate family for dental expenses incurred each year in excess of $200, including but not 2 3 limited to orthodontics for the Employee's children under the age of twenty-one (21) years only, provided that the aggregate amount of such reimbursement in any year shall not exceed $4,000 (such reimbursement shall be in addition to any dental insurance provided to the Employee and his immediate family under any dental plan from time to time maintained by the Corporation), (iii) reimburse the Employee for expenses incurred in connection with the purchase by Employee of fitness or exercise equipment or membership in a fitness or exercise program reasonably acceptable to the Corporation in an aggregate amount equal to the lesser of (x) seventy-five (75%) percent of all such expenses each and (y) $500 each year, (iv) reimburse the Employee for the reasonable and customary cost of an annual physical examination, (v) provide to the Employee dependent group medical coverage upon terms and conditions satisfactory to the Corporation without charge to the Employee, (vi) if the Employee is not covered by group long-term disability insurance in an amount equal to at least 100% of Employee's base salary, provide to Employee additional long-term disability insurance in an amount reasonably determined by the insurer based on the Employee's total earned income and personal financial circumstances, the cost of such coverage to be reported by the Corporation as compensation for income tax purposes on the Employee's Form W-2 each year, and (vii) provide life insurance in an amount equal to three times (3X) Employee's base salary. 3 4 (b) The Employee is authorized to incur on behalf of the Corporation only such reasonable expenses (including travel and entertainment) in connection with the business of the Corporation as are in conformity with the Corporation's published guidelines. The Corporation shall reimburse Employee for all such reasonable expenses incurred in connection with the business of the Corporation upon the presentation by the Employee, from time to time, of an itemized account of such expenditures, which account shall be in form and substance in conformity with the rules and regulations of the Internal Revenue Service. Any single expenditure in excess of $5,000 shall require the prior approval of the Chief Operating Officer or the Chief Financial Officer of the Corporation. (c) During the term hereof, the Corporation shall provide the Employee with an automobile expense allowance equal to $600.00 per month. 6. DUTIES AND EXTENT OF SERVICES: Upon the execution of this Agreement and throughout its term, the Employee shall assume the position Vice President, Sales for the Corporation and shall undertake all of the duties incident to such office in addition to rendering all such other management duties as may reasonably be requested. The parties hereto shall take whatever action is necessary to cause the elections or appointment of the Employee to such position. The Employee shall exert his best efforts and shall devote his full time and attention to the affairs of the Corporation. During the term of this Agreement, the Employee shall not, directly or indirectly, alone or as a member of a partnership (in the capacity of a general partner) or limited liability company (in the capacity of a manager), or as an officer, director, significant shareholder (i.e., owning or holding beneficially or of record 5% or more of the voting shares of an entity), or employee of any other corporation or entity, be engaged in or concerned with any other duties or pursuits whatsoever for pecuniary gain requiring his personal services without the prior written consent of the Corporation; which consent will not be unreasonably withheld. 4 5 7. VACATION: During each year of the term of this Agreement, the Employee shall be entitled to four (4) weeks vacation, the time of which shall be subject to the prior approval of the Chief Operating Officer of the Corporation. 8. TERMINATION: Unless renewed as provided herein, the Employee's employment hereunder shall terminate June 30, 1999 or sooner upon the occurrence of any of the following events: (a) The Employee's death; (b) The Corporation's decision, at its option, to be exercised by written notice from the Corporation to the Employee, upon the Employee's incapacity or inability to perform his services as contemplated herein for a period of at least sixty (60) consecutive days or an aggregate of ninety (90) consecutive or non-consecutive days during any twelve (12) month period during the term hereof due to the fact that his physical or mental health shall have become impaired so as to make it impossible or impractical for him to perform the duties and responsibilities contemplated for him hereunder; or (c) The Corporation's decision, at its option, to be exercised by written notice from the Corporation to the Employee in the event the Employee is derelict in his duties or commits any misconduct with respect to the Corporation's affairs and such dereliction or misconduct shall continue for a period of fifteen (15) days after the Corporation shall have given the Employee written notice specifying such dereliction or misconduct, and advising him that the Corporation shall have the right to terminate his employment hereunder in the event such misconduct continues through such fifteen (15) day period. (d) In the event that the Employee commits an act constituting common law fraud or any crime, which could reasonably be expected to have an adverse impact on the Corporation, its business or assets. (e) In the event that the Employee should fail (otherwise than on account of illness or other incapacity) or refuse to carry out the reasonable directives of the Board of 5 6 Directors of the Corporation, and such failure or refusal shall continue for a period of fifteen (15) days after the Corporation shall have given the Employee written notice specifying such directives and wherein the Employee has failed or refused to carry out the same, and advising him that the Corporation shall have the right to terminate his employment hereunder in the event such failure or refusal continues through such fifteen (15) day period. (f) Cessation of the Corporation's business. (g) On thirty (30) days' written notice from the Corporation pursuant to Section 2 hereof. If (i) the Corporation terminates this Agreement pursuant to Section 2 hereof on thirty (30) days' notice without cause of (ii) there is a Change in Control (as hereinafter defined) that occurs prior to the expiration or termination of the Agreement and, within twelve (12) months after the Change in Control, (A) Employee's employment is terminated by the Corporation otherwise than for the reasons set forth in Sections (8)(a), (b), (c), (d), (e), and/or (f) hereof, or (B) Employee terminates his employment for Good Reason (as hereinafter defined), then Corporation shall pay to Employee as severance pay a total amount equal to (i) his annual base salary, payable in twelve (12) equal consecutive monthly installments (without interest) beginning one (1) month after such termination, plus (ii) the fringe benefits described in Section 5(a), other than Non-Extendible Benefits as defined below for the twelve (12) month period commencing on the effective date of such termination, plus (iii) with respect to any Non-Extendible Benefit, as defined below, the Corporation shall pay the Employee cash compensation equal to the Corporation's annual premium or other annual cost basis as determined by the Corporation, of such Non-Extendible Benefit, payable in twelve (12) equal consecutive monthly installments (without interest) beginning one (1) month after such termination. For purposes of this paragraph (g), "Non-Extendible Benefit" shall mean a fringe benefit described in Section 5(a) for which 6 7 the Corporation's insurance or other provider contracts do not permit an extension beyond termination of employment. Employee expressly understands that payment of such severance pay and benefits (or portion thereof if such payments terminate pursuant to the last sentence of this paragraph) represents liquidated damages in full and final settlement of any and all amounts owed by Corporation to Employee under this Agreement or otherwise except for the accrued portion, if any, of any bonus, stock option, commission, vacation or other benefit to which Employee is expressly entitled pursuant to any formal, written plan or agreement maintained by the Corporation. Notwithstanding the foregoing, if Employee obtains full-time employment from any person or entity or accepts an engagement as a self-employed consultant or similar position during such twelve (12) month period, then upon commencement of any such employment or engagement, the severance pay and benefits payable under this Section 8(g) shall immediately be and be deemed reduced by an amount equal to the compensation and/or benefits payable by such other employment or engagement and the Corporation shall have no further obligation to Employee under this Agreement or otherwise. (h) As used in this Agreement, the following terms have the meanings set forth below: (i) "Affiliate" of a person means any person directly or indirectly controlling, controlled by or under common control with the first person. (ii) "Associate" has the meaning ascribed thereto in Rule 12b-2 under the Exchange Act as in effect on the date hereof. (iii) "Change in Control" means the occurrence of any of the following events: (A) A consolidation, merger, combination or other transaction between Parent or Corporation, and any other corporation or other 7 8 legal entity (other than an Affiliate of Parent or Corporation) in which shares of common stock of Parent or Corporation are exchanged for or changed into other stock or securities, cash and/or other property, if, as a result of such transaction, less than 20% of the combined voting power of the common stock (or other securities entitles to vote generally in the election of directors) of the surviving or resulting entity is beneficially owned (as hereinafter defined) by the beneficial owners of the Parent's or Corporation's common stock as the case may be as of the date hereof ("Current Shareholders") and the number of persons serving on the Board of Directors of the surviving or resulting entity who are Affiliates, Associates, designees or nominees of any single "person" (as defined in Section 13(d)(3) of the Exchange Act) other than the Current Shareholders is greater than the number of persons serving on such Board of Directors who are Affiliates, Associates, designees or nominees of the Current Shareholders; (B) A sale of all or at least 80% (measured by book value as of the most recent annual or quarterly balance sheet) of the assets of Parent or Corporation to another corporation or other legal entity (other than one of the Current Shareholders or any Affiliate of Parent or Corporation); and (C) A sale or other disposition of shares of common stock of Parent or Corporation by the Current Shareholders to any corporation or other legal entity (other than one of the Current Shareholders or any Affiliate of Parent or Corporation) as a result of which less than 20% of the then outstanding common stock of Parent or Corporation is beneficially owned (as hereinafter 8 9 defined) by the Current Shareholders and the number of persons serving on Parent's or Corporation's Board of Directors who are Affiliates, Associates, designees or nominees of any single "person" (as defined in Section 13(d)(3) of the Exchange Act) other than the Current Shareholders is greater than the number of persons serving on Parent's or Corporation's Board of Directors who are Affiliates, Associates, designees or nominees of the Current Shareholders. Beneficial ownership will be determined by applying the definition set forth in Rule 13d-3 under the Exchange Act as in effect on the date hereof. Also, for purposes of this Agreement, any person who, on the date on which a Change in Control occurs, is serving on Parent's or Corporation's Board of Directors will be deemed to be an Affiliate, Associate, designee or nominee of the Current Shareholders after the Change in Control for as long as such person serves as a director of Parent or Corporation or of any entity that survives or results from a transaction described in Section 8(h)(iii). (iv) "Corporation" includes any successor to all or substantially all of the business or assets of the Corporation. (v) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (vi) "Good Reason" means that, following a Change in Control and without Employee's written consent, (A) there has been a material and significant adverse change in the nature or scope of Employee's authority, duties or responsibilities in effect immediately prior to the Change in Control; (B) there has been a reduction in Employee's annual base salary in effect immediately prior to the Change in Control or an adverse 9 10 change in Employee's total compensation such that Employee's compensation and benefits in the aggregate are not materially comparable to his aggregate compensation and benefits in effect immediately prior to the Change in Control; or (C) the principal place of Employee's employment is relocated to a place that is more than 25 miles from the principal place of Employee's employment immediately prior to the Change in Control or Employee is required to be away from his office in the course of discharging his duties and responsibilities materially and significantly more than was required prior to the Change in Control. In the event of any termination (other than by the Corporation without cause on thirty (30) days' notice pursuant to Section 2), the Corporation shall pay to the Employee such portion of his annual base salary payable to the date such termination becomes effective (reduced by an amount payable pursuant to any disability insurance policies), and thereafter the Employee shall have no claim for any further compensation hereunder, provided, however, that in the event of the Employee's death, his death shall be deemed to have occurred on the last day of the month in which he dies. Upon any termination, Employee shall also receive all benefits to which he is entitled under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), provided that if the Employee is entitled to receive severance and fringe benefits described in Section 8(g), COBRA benefits shall commence at the expiration of the twelve (12) months (or such shorter period) as is provided in such Section. 9. RESTRICTIONS ON THE EMPLOYEE: During the period commencing on the date hereof and ending two (2) years after the termination of the Employee's employment by the Corporation for any reason, the Employee shall not directly or indirectly induce or attempt to induce any of the employees of the Corporation to 10 11 leave the employ of the Corporation. If this Agreement is terminated by the Corporation pursuant to Section 2 hereof, the foregoing two (2) year period shall be reduced to one (1) year. 10. COVENANT NOT TO COMPETE: During the period commencing on the date hereof, and ending two (2) years after the termination of the Employee's employment for any reason, the Employee shall not, except as a passive investor in publicly held companies, engage in, or own or control any interest in, or act as principal, director, officer or employee of, or consultant to, any firm or corporation which is in competition with the Corporation or its Parent. If this Agreement is terminated by the Corporation pursuant to Section 2 hereof, the foregoing two (2) year period shall be reduced to one (1) year. 11. PROPRIETARY INFORMATION (a) For purposes of this Agreement, "proprietary information" shall mean any proprietary information relating to the business of the Corporation or its parent or any entity in which the Corporation or its Parent has a controlling interest that has not previously been publicly released by duly authorized representatives of the Corporation and shall include (but shall not be limited to) information encompassed in all proposals, marketing and sales plan, financial information, costs, pricing information, computer programs (including without limitation source code, object code, algorithms and models), customer information, customer lists, and all methods, concepts, know-how or ideas in or reasonably related to the business of Corporation or any entity in which the Corporation has a controlling interest. The Employee agrees to regard and preserve as confidential all proprietary information, whether he has such information in his memory or in writing or other tangible or intangible form. The Employee will not, without written authority from the Corporation to do so, directly or indirectly, use for his benefit or purposes, or disclose to others, either during the term of this employment hereunder or thereafter, any proprietary 11 12 information except as required by the conditions of his employment hereunder or pursuant to court order (in which case Employee shall give the Corporation prompt written notice [not less than 24 hours] so that the Corporation may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. The Employee agrees not to remove from the premises of the Corporation or any subsidiary or affiliate of the Corporation, except as an employee of the Corporation in pursuit of the business of the Corporation or any of its subsidiaries, affiliates or any entity in which the Corporation has a controlling interest, or except as specifically permitted in writing by the Corporation, any document or object containing or reflecting any proprietary information. The Employee recognizes that all such documents and objects, whether developed by him or by someone else, are the exclusive property of the corporation. Proprietary information shall not include information which is presently in the public domain or which comes into the public domain through no fault of the Employee or which is disclosed to the Employee by a third party lawfully in possession of such information with a right to disclose same. (b) All proprietary information and all of the Employee's interest in trade secrets, trademarks, computer programs, customer information, customer lists, employee lists, products, procedures, copyrights, patents and developments hereafter to the end of the period of employment hereunder developed by the Employee as a result of, or in connection with, his employment hereunder, shall belong to the Corporation; and without further compensation, but at the Corporation's expense, forthwith upon request of the corporation, Employee shall execute any and all such assignments and other documents and take any and all such other action as Corporation may reasonably request in order to vest in Corporation all the Employee's rights, title and interests to and in all of the aforesaid items, free and clear of liens, charges and encumbrances. 12 13 (c) The Employee expressly agrees that the covenants set forth in Sections 9, 10, and 11 of this Agreement are being given to Corporation in connection with the employment of the Employee by Corporation and that such covenants are intended to protect Corporation against the competition by the Employee, within the terms stated, to the fullest extent deemed reasonable and permitted in law and equity. In the event that the foregoing limitations upon the conduct of the Employee are beyond those permitted by law, such limitations, both as to time and geographical area, shall be, and be deemed to be, reduced in scope and effect to the maximum extent permitted by law. 12. INJUNCTIVE RELIEF: The Employee acknowledges that the injury to the Corporation resulting from any violation by him of any of the covenants contained in this Agreement will be of such a character that it cannot be adequately compensated by money damages, and, accordingly, the Corporation may, in addition to pursuing its other remedies, obtain an injunction from any court having jurisdiction of the matter restraining any such violation. 13. REPRESENTATION OF EMPLOYEE: The Employee represents and warrants that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates the provisions of any other agreement to which he is a party or by which he is bound. 14. PARTIES; NONASSIGNABILITY: As used herein, the term "Corporation" shall mean and include the Corporation, its Parent and any subsidiary thereof and any successor thereto unless the context indicates otherwise. Any assignment of this Agreement shall be subject to the provisions of Section 8(g). This Agreement and all rights hereunder are personal to the Employee and shall not be assignable by him and any purported assignment shall be null and void and shall not be binding by the Corporation. 15. ENTIRE AGREEMENT: This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein 13 14 and supersedes all previous representations, negotiations, commitments, and writing with respect hereto. 16. AMENDMENT OR ALTERATION: No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by all of the parties hereto. 17 CHOICE OF LAW: This Agreement shall be governed by the laws of the State of Connecticut. 18. ARBITRATION: Any controversy, claim or breach arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in Stamford, Connecticut in accordance with the rules of the American Arbitration Association and the judgment upon the award rendered shall be entered by consent in any court having jurisdiction thereof. 19. NOTICES: Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered mail to the residence of the Employee, or to the principal office of the Corporation, respectively. 20. WAIVER OF BREACH: The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any of the parties hereto. 21. BINDING EFFECT: The terms of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective personal representatives, heirs, administrators, successors, and permitted assigns. 22. GENDER: Pronouns in any gender shall be construed as masculine, feminine, or neuter as the context requires in this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. 14 15 CORPORATION: Hyperion Software By: -------------------------------------- Peter DiGiammarino President and Chief Executive Officer EMPLOYEE: /s/ Anthony A. Colangelo ------------------------------------------ Anthony A. Colangelo 15 EX-10.53 3 EMPLOYMENT AGREEMENT WITH WILLIAM I. KERR 1 [HYPERION SOFTWARE LETTER HEAD] EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (hereinafter referred to as "Agreement") made as of the 1 st day of July, 1996, between WILLIAM I. KERR, of Wheaton, Illinois, (hereinafter referred to as the "Employee") and Hyperion Software Operations, Inc., a Delaware corporation with offices at 900 Long Ridge Road, Stamford, Connecticut 06902 (hereinafter referred to as the "Corporation"). WHEREAS, the Corporation desires to employ the Employee, and the Employee desires to serve as an employee of the Corporation on the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants and promises of the parties hereto, the Corporation and the Employee agree as follows: 1. EMPLOYMENT: The Corporation hereby agrees to employ the Employee as Vice President, Sales to perform certain managerial and executive functions of the Corporation, and the Employee hereby agrees to perform such services for the Corporation on the terms and conditions hereinafter stated, subject to the directives of the Board of Directors of the Corporation. 2. TERM OF EMPLOYMENT: The term of this Agreement shall begin on July 1, 1996 and shall continue in full force and effect until June 30, 1999, provided, however, that this Agreement shall be automatically renewed on a year-to-year basis thereafter unless terminated by either party on at least six (6) months' prior written notice during any given year, unless sooner terminated as provided herein. Notwithstanding the foregoing, the Corporation may terminate this Agreement at any time without cause upon thirty (30) days' written notice to Employee in which event the Corporation shall pay severance to Employee pursuant to Section 8(g) hereof. 2 3. COMPENSATION: During the term of this Agreement, for all services rendered by Employee under this Agreement, the Corporation shall pay the Employee an annual base salary of $150,000 per annum, payable in arrears at a rate of $6250 on the fifteenth and the last day of each month. It is understood that the foregoing base salary is the base salary in effect for the Corporation's 1996 fiscal year and that such base salary will be increased, on a pro rata basis on July 1, 1997. The Employee's base salary may be increased by the Board of Directors from time to time in its sole and absolute discretion. In addition to the annual base salary described in this Section, Employee may receive cash performance bonuses according to bonus plans that have been agreed with the Senior Vice President, David Sample. 4. STOCK OPTION: All options to purchase shares of the Common Stock of the Corporation's parent, Hyperion Software Corporation ("Parent") previously granted to the Employee by agreement between the Parent and the Employee, under the 1991 Stock Plan of the Parent or otherwise, shall continue in full force and effect in accordance with their respective terms and conditions notwithstanding any provision of this Agreement. 5. FRINGE BENEFITS: (a) During the term hereof, commencing on the day and year first above written, the Corporation shall: (i) provide the Employee and his immediate family with medical and hospitalization insurance substantially similar to that provided for the other executive personnel of the Corporation in similar management positions, (ii) reimburse the Employee and his immediate family for dental expenses incurred each year in excess of $200, including but not limited to orthodontics for the Employee's children under the age of twenty-one (21) years only, provided that the aggregate amount 2 3 of such reimbursement in any year shall not exceed $4,000 (such reimbursement shall be in addition to any dental insurance provided to the Employee and his immediate family under any dental plan from time to time maintained by the Corporation), (iii) reimburse the Employee for expenses incurred in connection with the purchase by Employee of fitness or exercise equipment or membership in a fitness or exercise program reasonably acceptable to the Corporation in an aggregate amount equal to the lesser of (x) seventy-five (75%) percent of all such expenses each and (y) $500 each year, (iv) reimburse the Employee for the reasonable and customary cost of an annual physical examination, (v) provide to the Employee dependent group medical coverage upon terms and conditions satisfactory to the Corporation without charge to the Employee, (vi) if the Employee is not covered by group long-term disability insurance in an amount equal to at least 100% of Employee's base salary, provide to Employee additional long-term disability insurance in an amount reasonably determined by the insurer based on the Employee's total earned income and personal financial circumstances, the cost of such coverage to be reported by the Corporation as compensation for income tax purposes on the Employee's Form W-2 each year, and (vii) provide life insurance in an amount equal to three times (3x) Employee's base salary. (b) The Employee is authorized to incur on behalf of the Corporation only such reasonable expenses (including travel and entertainment) in connection with the business of the Corporation as are in conformity with the Corporation's 3 4 published guidelines. The Corporation shall reimburse Employee for all such reasonable expenses incurred in connection with the business of the Corporation upon the presentation by the Employee, from time to time, of an itemized account of such expenditures, which account shall be in form and substance in conformity with the rules and regulations of the Internal Revenue Service. Any single expenditure in excess of $5,000 shall require the prior approval of the Chief Operating Officer or the Chief Financial Officer of the Corporation. (c) During the term hereof, the Corporation shall provide the Employee with an automobile expense allowance equal to $600.00 per month. 6. DUTIES AND EXTENT OF SERVICES: Upon the execution of this Agreement and throughout its term, the Employee shall assume the position Vice President, Sales for the Corporation and shall undertake all of the duties incident to such office in addition to rendering all such other management duties as may reasonably be requested. The parties hereto shall take whatever action is necessary to cause the elections or appointment of the Employee to such position. The Employee shall exert his best efforts and shall devote his full time and attention to the affairs of the Corporation. During the term of this Agreement, the Employee shall not, directly or indirectly, alone or as a member of a partnership (in the capacity of a general partner) or limited liability company (in the capacity of a manager), or as an officer, director, significant shareholder (i.e., owning or holding beneficially or of record 5% or more of the voting shares of an entity), or employee of any other corporation or entity, be engaged in or concerned with any other duties or pursuits whatsoever for pecuniary gain requiring his personal services without the prior written consent of the Corporation, which consent will not be unreasonably withheld. 7. VACATION: During each year of the term of this Agreement, the Employee shall be entitled to four (4) weeks vacation, the time of which shall be subject to the prior approval of the Chief Operating Officer of the Corporation. 4 5 8. TERMINATION: Unless renewed as provided herein, the Employee's employment hereunder shall terminate June 30, 1999 or sooner upon the occurrence of any of the following events: (a) The Employee's death; (b) The Corporation's decision, at its option, to be exercised by written notice from the Corporation to the Employee, upon the Employee's incapacity or inability to perform his services as contemplated herein for a period of at least sixty (60) consecutive days or an aggregate of ninety (90) consecutive or non-consecutive days during any twelve (12) month period during the term hereof due to the fact that his physical or mental health shall have become impaired so as to make it impossible or impractical for him to perform the duties and responsibilities contemplated for him hereunder; or (c) The Corporation's decision, at its option, to be exercised by written notice from the Corporation to the Employee in the event the Employee is derelict in his duties or commits any misconduct with respect to the Corporation's affairs and such dereliction or misconduct shall continue for a period of fifteen (15) days after the Corporation shall have given the Employee written notice specifying such dereliction or misconduct, and advising him that the Corporation shall have the right to terminate his employment hereunder in the event such misconduct continues through such fifteen (15) day period. (d) In the event that the Employee commits an act constituting common law fraud or any crime, which could reasonably be expected to have an adverse impact on the Corporation, its business or assets. (e) In the event that the Employee should fail (otherwise than on account of illness or other incapacity) or refuse to carry out the reasonable directives of the Board of Directors of the Corporation, and such failure or refusal shall continue for a period of fifteen (15) days after the Corporation shall have given the Employee written notice specifying such directives and wherein the Employee has failed or 5 6 refused to carry out the same, and advising him that the Corporation shall have the right to terminate his employment hereunder in the event such failure or refusal continues through such fifteen (15) day period. (f) Cessation of the Corporation's business. (g) On thirty (30) days' written notice from the Corporation pursuant to Section 2 hereof. If (i) the Corporation terminates this Agreement pursuant to Section 2 hereof on thirty (30) days' notice without cause of (ii) there is a Change in Control (as hereinafter defined) that occurs prior to the expiration or termination of the Agreement and, within twelve (12) months after the Change in Control, (A) Employee's employment is terminated by the Corporation otherwise than for the reasons set forth in Sections (8)(a), (b), (c), (d), (e), and/or (f) hereof, or (B) Employee terminates his employment for Good Reason (as hereinafter defined), then Corporation shall pay to Employee as severance pay a total amount equal to (i) his annual base salary, payable in twelve (12) equal consecutive monthly installments (without interest) beginning one (1) month after such termination, plus (ii) the fringe benefits described in Section 5(a), other than Non-Extendible Benefits as defined below for the twelve (12) month period commencing on the effective date of such termination, plus (iii) with respect to any Non-Extendible Benefit, as defined below, the Corporation shall pay the Employee cash compensation equal to the Corporation's annual premium or other annual cost basis as determined by the Corporation, of such Non-Extendible Benefit, payable in twelve (12) equal consecutive monthly installments (without interest) beginning one (1) month after such termination. For purposes of this paragraph (g), "Non- Extendible Benefit" shall mean a fringe benefit described in Section 5(a) for which the Corporation's insurance or other provider contracts do not permit an extension beyond termination of employment. Employee expressly understands that payment of such severance pay and benefits (or portion thereof if such payments terminate pursuant to the last 6 7 sentence of this paragraph) represents liquidated damages in full and final settlement of any and all amounts owed by Corporation to Employee under this Agreement or otherwise except for the accrued portion, if any, of any bonus, stock option, commission, vacation or other benefit to which Employee is expressly entitled pursuant to any formal, written plan or agreement maintained by the Corporation. Notwithstanding the foregoing, if Employee obtains full-time employment from any person or entity or accepts an engagement as a self-employed consultant or similar position during such twelve (12) month period, then upon commencement of any such employment or engagement, the severance pay and benefits payable under this Section 8(g) shall immediately be and be deemed reduced by an amount equal to the compensation and/or benefits payable by such other employment or engagement and the Corporation shall have no further obligation to Employee under this Agreement or otherwise. (h) As used in this Agreement, the following terms have the meanings set forth below: (i) "Affiliate" of a person means any person directly or indirectly controlling, controlled by or under common control with the first person. (ii) "Associate" has the meaning ascribed thereto in Rule 12b-2 under the Exchange Act as in effect on the date hereof. (iii) "Change in Control" means the occurrence of any of the following events: (A) A consolidation, merger, combination or other transaction between Parent or Corporation, and any other corporation or other legal entity (other than an Affiliate of Parent or Corporation) in which shares of common stock of Parent or Corporation are exchanged for or changed into other stock or securities, cash and/or other property, if, as a result of such transaction, less than 7 8 20% of the combined voting power of the common stock (or other securities entitles to vote generally in the election of directors) of the surviving or resulting entity is beneficially owned (as hereinafter defined) by the beneficial owners of the Parent's or Corporation's common stock as the case may be as of the date hereof ("Current Shareholders") and the number of persons serving on the Board of Directors of the surviving or resulting entity who are Affiliates, Associates, designees or nominees of any single "person" (as defined in Section 13(d)(3) of the Exchange Act) other than the Current Shareholders is greater than the number of persons serving on such Board of Directors who are Affiliates, Associates, designees or nominees of the Current Shareholders; (B) A sale of all or at least 80% (measured by book value as of the most recent annual or quarterly balance sheet) of the assets of Parent or Corporation to another corporation or other legal entity (other than one of the Current Shareholders or any Affiliate of Parent or Corporation); and (c) A sale or other disposition of shares of common stock of Parent or Corporation by the Current Shareholders to any corporation or other legal entity (other than one of the Current Shareholders or any Affiliate of Parent or Corporation) as a result of which less than 20% of the then outstanding common stock of Parent or Corporation is beneficially owned (as hereinafter defined) by the Current Shareholders and the number of persons serving on Parent's or Corporation's Board of Directors who are Affiliates, Associates, designees or nominees of any single "person" (as defined in Section 13(d)(3) of the Exchange Act) 8 9 other than the Current Shareholders is greater than the number of persons serving on Parent's or Corporation's Board of Directors who are Affiliates, Associates, designees or nominees of the Current Shareholders. Beneficial ownership will be determined by applying the definition set forth in Rule 13d-3 under the Exchange Act as in effect on the date hereof. Also, for purposes of this Agreement, any person who, on the date on which a Change in Control occurs, is serving on Parent's or Corporation's Board of Directors will be deemed to be an Affiliate, Associate, designee or nominee of the Current Shareholders after the Change in Control for as long as such person serves as a director of Parent or Corporation or of any entity that survives or results from a transaction described in Section 8(h)(iii). (iv) "Corporation" includes any successor to all or substantially all of the business or assets of the Corporation. (v) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (vi) "Good Reason" means that, following a Change in Control and without Employee's written consent, (A) there has been a material and significant adverse change in the nature or scope of Employee's authority, duties or responsibilities in effect immediately prior to the Change in Control; (B) there has been a reduction in Employee's annual base salary in effect immediately prior to the Change in Control or an adverse change in Employee's total compensation such that Employee's compensation and benefits in the aggregate are not materially comparable to his aggregate compensation and benefits in effect immediately prior to the Change in Control; or 9 10 (C) the principal place of Employee's employment is relocated to a place that is more than 25 miles from the principal place of Employee's employment immediately prior to the Change in Control or Employee is required to be away from his office in the course of discharging his duties and responsibilities materially and significantly more than was required prior to the Change in Control. In the event of any termination (other than by the Corporation without cause on thirty (30) days' notice pursuant to Section 2), the Corporation shall pay to the Employee such portion of his annual base salary payable to the date such termination becomes effective (reduced by an amount payable pursuant to any disability insurance policies), and thereafter the Employee shall have no claim for any further compensation hereunder, provided, however, that in the event of the Employee's death, his death shall be deemed to have occurred on the last day of the month in which he dies. Upon any termination, Employee shall also receive all benefits to which he is entitled under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), provided that if the Employee is entitled to receive severance and fringe benefits described in Section 8(g), COBRA benefits shall commence at the expiration of the twelve (12) months (or such shorter period) as is provided in such Section. 9. RESTRICTIONS ON THE EMPLOYEE: During the period commencing on the date hereof and ending two (2) years after the termination of the Employee's employment by the Corporation for any reason, the Employee shall not directly or indirectly induce or attempt to induce any of the employees of the Corporation to leave the employ of the Corporation. If this Agreement is terminated by the Corporation pursuant to Section 2 hereof, the foregoing two (2) year period shall be reduced to one (1) year. 10 11 10. COVENANT NOT TO COMPETE: During the period commencing on the date hereof, and ending two (2) years after the termination of the Employee's employment for any reason, the Employee shall not, except as a passive investor in publicly held companies, engage in, or own or control any interest in, or act as principal, director, officer or employee of, or consultant to, any firm or corporation which is in competition with the Corporation or its Parent. If this Agreement is terminated by the Corporation pursuant to Section 2 hereof the foregoing two (2) year period shall be reduced to one (1) year. 11. PROPRIETARY INFORMATION (a) For purposes of this Agreement, "proprietary information" shall mean any proprietary information relating to the business of the Corporation or its parent or any entity in which the Corporation or its Parent has a controlling interest that has not previously been publicly released by duly authorized representatives of the Corporation and shall include (but shall not be limited to) information encompassed in all proposals, marketing and sales plan, financial information, costs, pricing information, computer programs (including without limitation source code, object code, algorithms and models), customer information, customer lists, and all methods, concepts, know-how or ideas in or reasonably related to the business of Corporation or any entity in which the Corporation has a controlling interest. The Employee agrees to regard and preserve as confidential all proprietary information, whether he has such information in his memory or in writing or other tangible or intangible form. The Employee will not, without written authority from the Corporation to do so, directly or indirectly, use for his benefit or purposes, or disclose to others, either during the term of this employment hereunder or thereafter, any proprietary information except as required by the conditions of his employment hereunder or pursuant to court order (in which case Employee shall give the Corporation prompt written notice [not less than 24 hours] so that the Corporation may seek a 11 12 protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. The Employee agrees not to remove from the premises of the Corporation or any subsidiary or affiliate of the Corporation, except as an employee of the Corporation in pursuit of the business of the Corporation or any of its subsidiaries, affiliates or any entity in which the Corporation has a controlling interest, or except as specifically permitted in writing by the Corporation, any document or object containing or reflecting any proprietary information. The Employee recognizes that all such documents and objects, whether developed by him or by someone else, are the exclusive property of the corporation. Proprietary information shall not include information which is presently in the public domain or which comes into the public domain through no fault of the Employee or which is disclosed to the Employee by a third party lawfully in possession of such information with a right to disclose same. (b) All proprietary information and all of the Employee's interest in trade secrets, trademarks, computer programs, customer information, customer lists, employee lists, products, procedures, copyrights, patents and developments hereafter to the end of the period of employment hereunder developed by the Employee as a result of, or in connection with, his employment hereunder, shall belong to the Corporation; and without further compensation, but at the Corporation's expense, forthwith upon request of the corporation, Employee shall execute any and all such assignments and other documents and take any and all such other action as Corporation may reasonably request in order to vest in Corporation all the Employee's rights, title and interests to and in all of the aforesaid items, free and clear of liens, charges and encumbrances. (c) The Employee expressly agrees that the covenants set forth in Sections 9, 10, and 11 of this Agreement are being given to Corporation in connection with the employment of the Employee by Corporation and that such covenants are intended to protect Corporation against the competition by the 12 13 Employee, within the terms stated, to the fullest extent deemed reasonable and permitted in law and equity. In the event that the foregoing limitations upon the conduct of the Employee are beyond those permitted by law, such limitations, both as to time and geographical area, shall be, and be deemed to be, reduced in scope and effect to the maximum extent permitted by law. 12. INJUNCTIVE RELIEF: The Employee acknowledges that the injury to the Corporation resulting from any violation by him of any of the covenants contained in this Agreement will be of such a character that it cannot be adequately compensated by money damages, and, accordingly, the Corporation may, in addition to pursuing its other remedies, obtain an injunction from any court having jurisdiction of the matter restraining any such violation. 13. REPRESENTATION OF EMPLOYEE: The Employee represents and warrants that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates the provisions of any other agreement to which he is a party or by which he is bound. 14. PARTIES; NONASSIGNABILITY: As used herein, the term "Corporation" shall mean and include the Corporation, its Parent and any subsidiary thereof and any successor thereto unless the context indicates otherwise. Any assignment of this Agreement shall be subject to the provisions of Section 8(g). This Agreement and all rights hereunder are personal to the Employee and shall not be assignable by him and any purported assignment shall be null and void and shall not be binding by the Corporation. 15. ENTIRE AGREEMENT: This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all previous representations, negotiations, commitments, and writing with respect hereto. 13 14 16. AMENDMENT OR ALTERATION: No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by all of the parties hereto. 17. CHOICE OF LAW: This Agreement shall be governed by the laws of the State of Connecticut. 18. ARBITRATION: Any controversy, claim or breach arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in Stamford, Connecticut in accordance with the rules of the American Arbitration Association and the judgment upon the award rendered shall be entered by consent in any court having jurisdiction thereof. 19. NOTICES: Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered mail to the residence of the Employee, or to the principal office of the Corporation, respectively. 20. WAIVER OF BREACH: The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any of the parties hereto. 21. BINDING EFFECT: The terms of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective personal representatives, heirs, administrators, successors, and permitted assigns. 22. GENDER: Pronouns in any gender shall be construed as masculine, feminine, or neuter as the context requires in this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. 14 15 CORPORATION: Hyperion Software By: ------------------------------------- Peter DiGiammarino President and Chief Executive Officer EMPLOYEE: /s/ William I. Kerr 1/15/97 ---------------------------------------- William I. Kerr 15 EX-10.54 4 EMPLOYMENT AGREEMENT WITH MARK J. BILGER 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (hereinafter referred to as "Agreement") made as of the May 27, 1997 between Mark J. Bilger of Danbury, Connecticut, (hereinafter referred to as the "Employee") and Hyperion Software Operations Inc., a Delaware corporation with offices at 900 Long Ridge Road, Stamford, Connecticut 06902 (hereinafter referred to as the "Corporation" or "Company"). WHEREAS, the Corporation desires to employ the Employee, and the Employee desires to serve as an employee of the Corporation on the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants and promises of the parties hereto, the Corporation and the Employee agree as follows: 1. EMPLOYMENT: The Corporation hereby agrees to employ the Employee as Senior Vice President, Product Development to perform certain managerial and executive functions of the Corporation, and the Employee hereby agrees to perform such services for the Corporation on the terms and conditions hereinafter stated, subject to the directives of the Chief Executive Officer ("CEO") and other members of the Board of Directors. 2. TERM OF EMPLOYMENT: The Employee's employment shall begin as of the date of execution of this Agreement, which shall be the Employee's date of hire (the "Hire Date") for purposes of this Agreement. The initial term of the Employee's employment shall begin on the date the Employee begins working at the Stamford office (the "Start Date"), which shall be on July 1, 1997 and shall continue until the third anniversary of the Start Date, provided, however, the Employee's employment shall be automatically renewed from year to year thereafter for successive one (1) year terms unless terminated by either party on written notice sent not later than six (6) months prior to the expiration of the initial three (3) year term or any renewal year, unless sooner terminated as provided herein. Notwithstanding the foregoing, the Corporation may terminate this 1 2 Agreement at any time without cause upon thirty (30) days written notice to Employee in which event the Corporation shall pay severance to Employee pursuant to Section 9(g) hereof. 3. COMPENSATION: During the term of this Agreement, for all services rendered by Employee under this Agreement, the Corporation shall pay the Employee an annual base salary of $150,000 per annum, payable in arrears at a rate of $6,250 on the fifteenth and the last day of each month, commencing with the month of the Start Date. It is understood that the foregoing base salary is the base salary in effect for the Corporation's fiscal year ending June 30, 1998 and that such base salary will be increased, on a pro rata basis on July 1, 1998. The Employee's base salary may be increased by the Board of Directors from time to time in its sole and absolute discretion. 4. BONUS. You will be eligible for a bonus targeted at 40% of base salary (20% of base salary will be guaranteed for fiscal year 1998), assuming achievement of the Company's objectives and your personal objectives the latter to be determined by the CEO, working closely with other members of the Board of Directors. You will also be eligible for an additional bonus for overachievement of objectives. The specifics of overachievement will be determined at the time your objectives are set. 5. OPTIONS. Upon joining the Company ("the Hire Date"), the Employee will receive an option right to purchase up to 25,000 shares of Hyperion Software Corporation ("Parent") common stock priced at then current market value per share (under the Parent's 1991 Stock Plan). These shares will vest and become exercisable as follows: 12,500 shares on June 30, 1997 and 6,250 shares each on June 30, 1998 and 1999, so long as the Employee remains continuously employed by the Company. 6. SIGN ON BONUS AND RELOCATION PACKAGE. Within two (2) weeks of the Start Date, the Employee will receive a sign-on advance of $75,000, one eighteenth (1/18) of which will be forgiven with each full month of employment. However, if the Employee's employment is terminated by the Corporation (other than pursuant to Section 9(c), (d) or (e) hereof) the entire remaining amount will be forgiven. 2 3 If the Employee relocates to his primary residence within eighteen (18) months from the Start Date to be closer to our Stamford offices, the Corporation will reimburse the Employee for up to $20,000 of direct relocation costs (excluding related income tax and other payroll tax withholdings, if any) actually incurred by the Employee. This $20,000 allowance will be reduced by relocation costs incurred by the Corporation on behalf of the Employee, if any. 7. FRINGE BENEFITS: (a) During the term hereof, commencing on the Start Date, the Corporation shall: (i) provide the Employee and his immediate family with medical and hospitalization insurance substantially similar to that provided for the other executive personnel of the Corporation in similar management positions, (ii) reimburse the Employee and his immediate family for dental expenses incurred each year in excess of $200, including but not limited to orthodontics for the Employee's children under the age of twenty-one (21) years only, provided that the aggregate amount of such reimbursement in any year shall not exceed $4,000 (such reimbursement shall be in addition to any dental insurance provided to the Employee and his immediate family under any dental plan from time to time maintained by the Corporation), (iii) reimburse the Employee for expenses incurred in connection with the purchase by Employee of fitness or exercise equipment or membership in a fitness or exercise program reasonably acceptable to the Corporation in an aggregate amount in each year equal to the lesser of (x) seventy-five (75%) percent of all such expenses or(y) $500, (iv) reimburse the Employee for the reasonable and customary cost of an annual physical examination, 3 4 (v) provide to the Employee dependent group medical coverage upon terms and conditions satisfactory to the Corporation without charge to the Employee, (vi) if the Employee is not covered by group long-term disability insurance in an amount equal to at least 100% of Employee's base salary, provide to Employee additional long-term disability insurance in an amount reasonably determined by the insurer based on the Employee's total earned income and personal financial circumstances (provided such insurance is available at reasonable cost), the cost of such coverage to be reported by the Corporation as compensation for income tax purposes on the Employee's Form W-2 each year, (vii) provide life insurance in an amount equal to three times (3X) Employee's base salary provided such insurance is available at reasonable cost, (viii) provide the Employee with an automobile expense allowance equal to $600 per month, and (ix) provide the Employee four (4) weeks vacation each year, subject to Company policy, the time of which shall be subject to the prior approval of the CEO of the Corporation. 8. DUTIES AND EXTENT OF SERVICES: Upon the execution of this Agreement and throughout its term, the Employee shall assume the position Senior Vice President, Product Development for the Corporation and shall undertake all of the duties incident to such office in addition to rendering all such other management duties as may reasonably be requested. The parties hereto shall take whatever action is necessary to cause the elections or appointment of the Employee to such position. The Employee shall exert his best efforts and shall devote his full time and attention to the affairs of the Corporation. During the term of this Agreement, the Employee shall not, directly or indirectly, alone or as a member of a partnership (in the capacity of a general partner) or limited liability company (in the capacity of a manager), or as an officer, director, significant shareholder (i.e., owning or holding beneficially or of record 5% or more of the voting shares of an 4 5 entity), or employee of any other corporation or entity, be engaged in or concerned with any other duties or pursuits whatsoever for pecuniary gain requiring his personal services without the prior written consent of the Corporation, which consent will not be unreasonably withheld. The Employee is authorized to incur on behalf of the Corporation only such reasonable expenses (including travel and entertainment) in connection with the business of the Corporation as are in conformity with the Corporation's published guidelines. The Corporation shall reimburse Employee for all such reasonable expenses incurred in connection with the business of the Corporation upon the presentation by the Employee, from time to time, of an itemized account of such expenditures, which account shall be in form and substance in conformity with the rules and regulations of the Internal Revenue Service. Any single expenditure in excess of $5,000 shall require the prior approval of the Chief Executive Officer or the Chief Financial Officer of the Corporation. 9. TERMINATION: Unless renewed as provided herein, the Employee's employment hereunder shall terminate June 30, 2000 or sooner upon the occurrence of any of the following events: (a) The Employee's death; (b) The Corporation's decision, at its option, to be exercised by written notice from the Corporation to the Employee, upon the Employee's incapacity or inability to perform his services as contemplated herein for a period of at least sixty (60) consecutive days or an aggregate of ninety (90) consecutive or non-consecutive days during any twelve (12) month period during the term hereof due to the fact that his physical or mental health shall have become impaired so as to make it impossible or impractical for him to perform the duties and responsibilities contemplated for him hereunder; (c) The Corporation's decision, at its option, to be exercised by written notice from the Corporation to the Employee in the event the Employee is derelict in his duties or commits any misconduct with respect to the Corporation's affairs and such dereliction or misconduct shall continue for a period of fifteen (15) days after the Corporation shall have given the Employee written notice specifying 5 6 such dereliction or misconduct, and advising him that the Corporation shall have the right to terminate his employment hereunder in the event such misconduct continues through such fifteen (15) day period, except that if such dereliction or misconduct should occur more than one time, then the Corporation may, at its option, terminate this Agreement immediately without any additional notice or cure period; (d) In the event that the Employee commits an act constituting common law fraud or any crime, which could reasonably be expected to have an adverse impact on the Corporation, its business or assets; (e) In the event that the Employee should fail (otherwise than on account of illness or other incapacity) or refuse to carry out the reasonable directives of the Board of Directors of the Corporation, and such failure or refusal shall continue for a period of fifteen (15) days after the Corporation shall have given the Employee written notice specifying such directives and wherein the Employee has failed or refused to carry out the same, and advising him that the Corporation shall have the right to terminate his employment hereunder in the event such failure or refusal continues through such fifteen (15) day period, except that if such failure or refusal should occur more than one time, then the Corporation may, at its option, terminate this Agreement immediately without any additional notice or cure period; (f) Cessation of the Corporation's business; (g) On thirty (30) days' written notice from the Corporation pursuant to Section 2 hereof. If (i) the Corporation terminates this Agreement pursuant to Section 2 hereof on thirty (30) days' notice without cause or (ii) there is a Change in Control (as hereinafter defined) that occurs prior to the expiration or termination of the Agreement and, within twelve (12) months after the Change in Control, (A) Employee's employment is terminated by the Corporation otherwise than for the reasons set forth in Sections (9)(a), (b), (c), (d), (e), and/or (f) hereof, or (B) Employee terminates his employment for Good Reason (as hereinafter defined), or (iii) for the first six (6) months of employment only, if there is a 6 7 material diminution in responsibilities and/or salary, then the Corporation shall pay to Employee as severance pay a total amount equal to (i) his annual base salary, payable in twelve (12) equal consecutive monthly installments (without interest) beginning one (1) month after such termination, plus (ii) the fringe benefits described in Section 7(a), acknowledging that this must be a "reasonable amount" for insurance items other than Non-Extendible Benefits as defined below for the twelve (12) month period commencing on the effective date of such termination, plus (iii) with respect to any Non-Extendible Benefit, as defined below, the Corporation shall pay the Employee cash compensation equal to the Corporation's annual premium or other annual cost basis as determined by the Corporation, of such Non-Extendible Benefit, for a twelve month period only, payable in twelve (12) equal consecutive monthly installments (without interest) beginning one (1) month after such termination plus (iv) the guaranteed portion of bonus payments referenced in Section 4. For purposes of this paragraph (g), "Non-Extendible Benefit" shall mean a fringe benefit described in Section 7(a) acknowledging that this must be a "reasonable amount" for insurance items for which the Corporation's insurance or other provider contracts do not permit an extension beyond termination of employment. Employee expressly understands that payment of such severance pay and benefits (or portion thereof if such payments terminate pursuant to the last sentence of this paragraph) represents liquidated damages in full and final settlement of any and all amounts owed by Corporation to Employee under this Agreement or otherwise except for the accrued portion, if any, of any bonus, stock option, commission, vacation or other benefit to which Employee is expressly entitled pursuant to any formal, written plan or agreement maintained by the Corporation. Notwithstanding the foregoing, if Employee obtains full-time employment from any person or entity or accepts an engagement as a self-employed consultant or similar position during such twelve (12) month period, then upon commencement of any such employment or engagement, the severance pay and benefits payable under this Section 9(g) shall immediately be and be 7 8 deemed reduced by an amount equal to the compensation and/or benefits payable by such other employment or engagement and the Corporation shall have no further obligation to Employee under this Agreement or otherwise. (h) As used in this Agreement, the following terms have the meanings set forth below: (i) "Affiliate" of a person means any person directly or indirectly controlling, controlled by or under common control with the first person. (ii) "Associate" has the meaning ascribed thereto in Rule 12b-2 under the Exchange Act as in effect on the date hereof. (iii) "Change in Control" means the occurrence of any of the following events: (A) A consolidation, merger, combination or other transaction between Parent or Corporation, and any other corporation or other legal entity (other than an Affiliate of Parent or Corporation) in which shares of common stock of Parent or Corporation are exchanged for or changed into other stock or securities, cash and/or other property, if, as a result of such transaction, less than 20% of the combined voting power of the common stock (or other securities entitles to vote generally in the election of directors) of the surviving or resulting entity is beneficially owned (as hereinafter defined) by the beneficial owners of the Parent's or Corporation's common stock as the case may be as of the date hereof ("Current Shareholders") and the number of persons serving on the Board of Directors of the surviving or resulting entity who are Affiliates, Associates, designees or nominees of any single "person" (as defined in Section 13(d)(3) of the Exchange Act) other than the Current Shareholders is greater than the number of persons serving on such Board of Directors who are Affiliates, Associates, designees or nominees of the Current Shareholders; (B) A sale of all or at least 80% (measured by book value as of the most recent annual or quarterly balance sheet) of the assets of 8 9 Parent or Corporation to another corporation or other legal entity (other than one of the Current Shareholders or any Affiliate of Parent or Corporation); and (C) A sale or other disposition of shares of common stock of Parent or Corporation by the Current Shareholders to any corporation or other legal entity (other than one of the Current Shareholders or any Affiliate of Parent or Corporation) as a result of which less than 20% of the then outstanding common stock of Parent or Corporation is beneficially owned (as hereinafter defined) by the Current Shareholders and the number of persons serving on Parent's or Corporation's Board of Directors who are Affiliates, Associates, designees or nominees of any single "person" (as defined in Section 13(d)(3) of the Exchange Act) other than the Current Shareholders is greater than the number of persons serving on Parent's or Corporation's Board of Directors who are Affiliates, Associates, designees or nominees of the Current Shareholders. Beneficial ownership will be determined by applying the definition set forth in Rule 13d-3 under the Exchange Act as in effect on the date hereof. Also, for purposes of this Agreement, any person who, on the date on which a Change in Control occurs, is serving on Parent's or Corporation's Board of Directors will be deemed to be an Affiliate, Associate, designee or nominee of the Current Shareholders after the Change in Control for as long as such person serves as a director of Parent or Corporation or of any entity that survives or results from a transaction described in Section 9(h)(iii). (iv) "Corporation" includes any successor to all or substantially all of the business or assets of the Corporation. (v) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. 9 10 (vi) "Good Reason" means that, following a Change in Control and without Employee's written consent, (A) there has been a material and significant adverse change in the nature or scope of Employee's authority, duties or responsibilities in effect immediately prior to the Change in Control; (B) there has been a reduction in Employee's annual base salary in effect immediately prior to the Change in Control or an adverse change in Employee's total compensation such that Employee's compensation and benefits in the aggregate are not materially comparable to his aggregate compensation and benefits in effect immediately prior to the Change in Control; or (C) the principal place of Employee's employment is relocated to a place that is more than 25 miles from the principal place of Employee's employment immediately prior to the Change in Control or Employee is required to be away from his office in the course of discharging his duties and responsibilities materially and significantly more than was required prior to the Change in Control. In the event of any termination (other than by the Corporation without cause on thirty (30) days' notice pursuant to Section 2), the Corporation shall pay to the Employee such portion of his annual base salary payable to the date such termination becomes effective (reduced by an amount payable pursuant to any disability insurance policies), and thereafter the Employee shall have no claim for any further compensation hereunder, provided, however, that in the event of the Employee's death, his death shall be deemed to have occurred on the last day of the month in which he dies. Upon any termination, Employee shall also receive all benefits to which he is entitled under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), provided that if the Employee is entitled to receive severance and fringe benefits described in Section 9(g), COBRA benefits 10 11 shall commence at the expiration of the twelve (12) months (or such shorter period) as is provided in such Section. 10. RESTRICTIONS ON THE EMPLOYEE: During the period commencing on the date hereof and ending two (2) years after the termination of the Employee's employment with the Corporation for any reason, the Employee shall not directly or indirectly induce or attempt to induce any of the employees of the Corporation to leave the employ of the Corporation. If this Agreement is terminated by the Corporation pursuant to Section 2 hereof, the foregoing two (2) year period shall be reduced to one (1) year. 11. COVENANT NOT TO COMPETE: During the period commencing on the date hereof, and ending two (2) years after the termination of the Employee's employment for any reason, the Employee shall not, except as a passive investor in publicly held companies, engage in, or own or control any interest in, or act as principal, director, officer or employee of, or consultant to, any firm or corporation which is in competition with the Corporation or its Parent. If this Agreement is terminated by the Corporation pursuant to Section 2 hereof, the foregoing two (2) year period shall be reduced to one (1) year. 12. PROPRIETARY INFORMATION (a) For purposes of this Agreement, "proprietary information" shall mean any proprietary information relating to the business of the Corporation or its parent or any entity in which the Corporation or its Parent has a controlling interest that has not previously been publicly released by duly authorized representatives of the Corporation and shall include (but shall not be limited to) information encompassed in all proposals, marketing and sales plan, financial information, costs, pricing information, computer programs (including without limitation source code, object code, algorithms and models), customer information, customer lists, and all methods, concepts, know-how or ideas in or reasonably related to the business of Corporation or any entity in which the Corporation has a controlling interest. The Employee agrees to regard and preserve as confidential all proprietary information, whether he has such information in his memory or in writing or other tangible or intangible form. The Employee will not, without written authority from the Corporation to do so, directly or indirectly, use for his 11 12 benefit or purposes, or disclose to others, either during the term of this employment hereunder or thereafter, any proprietary information except as required by the conditions of his employment hereunder or pursuant to court order (in which case Employee shall give the Corporation prompt written notice [not less than 24 hours] so that the Corporation may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. The Employee agrees not to remove from the premises of the Corporation or any subsidiary or affiliate of the Corporation, except as an employee of the Corporation in pursuit of the business of the Corporation or any of its subsidiaries, affiliates or any entity in which the Corporation has a controlling interest, or except as specifically permitted in writing by the Corporation, any document or object containing or reflecting any proprietary information. The Employee recognizes that all such documents and objects, whether developed by him or by someone else, are the exclusive property of the Corporation. Proprietary information shall not include information which is presently in the public domain or which comes into the public domain through no fault of the Employee or which is disclosed to the Employee by a third party lawfully in possession of such information with a right to disclose same. (b) All proprietary information and all of the Employee's interest in trade secrets, trademarks, computer programs, customer information, customer lists, employee lists, products, procedures, copyrights, patents and developments hereafter to the end of the period of employment hereunder developed by the Employee as a result of, or in connection with, his employment hereunder, shall belong to the Corporation; and without further compensation, but at the Corporation's expense, forthwith upon request of the Corporation, Employee shall execute any and all such assignments and other documents and take any and all such other action as Corporation may reasonably request in order to vest in Corporation all the Employee's rights, title and interests to and in all of the aforesaid items, free and clear of liens, charges and encumbrances. 12 13 (c) The Employee expressly agrees that the covenants set forth in Sections 10, 11 and 12 of this Agreement are being given to Corporation in connection with the employment of the Employee by Corporation and that such covenants are intended to protect Corporation against the competition by the Employee, within the terms stated, to the fullest extent deemed reasonable and permitted in law and equity. In the event that the foregoing limitations upon the conduct of the Employee are beyond those permitted by law, such limitations, both as to time and geographical area, shall be, and be deemed to be, reduced in scope and effect to the maximum extent permitted by law. 13. INJUNCTIVE RELIEF: The Employee acknowledges that the injury to the Corporation resulting from any violation by him of any of the covenants contained in this Agreement will be of such a character that it cannot be adequately compensated by money damages, and, accordingly, the Corporation may, in addition to pursuing its other remedies, obtain an injunction from any court having jurisdiction of the matter restraining any such violation. 14. REPRESENTATION OF EMPLOYEE: The Employee represents and warrants that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates the provisions of any other agreement to which he is a party or by which he is bound. 15. PARTIES; NONASSIGNABILITY: As used herein, the term "Corporation" shall mean and include the Corporation, its Parent and any subsidiary thereof and any successor thereto unless the context indicates otherwise. Any assignment of this Agreement shall be subject to the provisions of Section 9(g). This Agreement and all rights hereunder are personal to the Employee and shall not be assignable by him and any purported assignment shall be null and void and shall not be binding by the Corporation. 16. ENTIRE AGREEMENT: This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all previous representations, negotiations, commitments, and writing with respect hereto. 13 14 17. AMENDMENT OR ALTERATION: No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by all the parties hereto. 18. CHOICE OF LAW: This Agreement shall be governed by the laws of the State of Connecticut. 19. ARBITRATION: Any controversy, claim or breach arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in Stamford, Connecticut in accordance with the rules of the American Arbitration Association and the judgment upon the award rendered shall be entered by consent in any court having jurisdiction thereof. 20. NOTICES: Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered mail to the residence of the Employee, or to the principal office of the Corporation, respectively. 21. WAIVER OF BREACH: The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any of the parties hereto. 22. BINDING EFFECT: The terms of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective personal representatives, heirs, administrators, successors, and permitted assigns. 23. GENDER: Pronouns in any gender shall be construed as masculine, feminine, or neuter as the context requires in this Agreement. 14 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. CORPORATION: Hyperion Software Operations Inc. /s/ James A. Perakis ---------------------------------------- By: James A. Perakis Chairman and Chief Executive Officer EMPLOYEE: /s/ Mark J. Bilger -------------------------------------------- Mark J. Bilger 15 EX-11.1 5 COMPUTATION OF EARNINGS PER SHARE 1 Hyperion Software Corporation Exhibit (11.1) - Statement Re: Computation of Earnings Per Share (in thousands, except per share amounts)
YEAR ENDED JUNE 30, 1997 1996 1995 ----------------------------------- PRIMARY Weighted average number of common shares outstanding 17,412 16,622 15,644 Weighted average number of common equivalent shares outstanding 1,043 1,253 1,672 ----------------------------------- 18,455 17,875 17,316 =================================== Net income $11,878 $9,457 $12,139 =================================== Per share amount $ .64 $ .53 $ .70 =================================== FULLY DILUTED Weighted average number of common shares outstanding 17,412 16,622 15,644 Weighted average number of common equivalent shares outstanding 1,286 1,311 1,836 ----------------------------------- 18,698 17,933 17,480 =================================== Net income $11,878 $9,457 $12,139 =================================== Per share amount $ .64 $ .53 $ .69 ===================================
EX-22.1 6 SUBSIDIARIES OF THE COMPANY 1 Hyperion Software Corporation Exhibit (22.1) - Subsidiaries of the Company Name Jurisdiction of Incorporation - ---- ----------------------------- Hyperion Software Operations Inc.......................... Delaware Hyperion Software Corporation of Canada, Ltd. ............ Ontario Hyperion Software Europe S.r.l. .......................... Italy Hyperion Software Italia S.r.l. .......................... Italy Hyperion Software Foreign Sales Corp. .................... Barbados Hyperion Software (UK) plc. .............................. United Kingdom Hyperion Software Deutschland GmbH ....................... Germany Hyperion Softwarevertribs-Gesellschaft MbH................ Austria Hyperion Software France S.A. ............................ France Hyperion Software BeLux S.A............................... Belgium Hyperion Software Nederland, B.V. ........................ The Netherlands Hyperion Software Asia Pte. Ltd. ......................... Singapore IMRS Hyperion Software Iberica, S.A....................... Spain Hyperion Software Nordic AB............................... Sweden Hyperion KK............................................... Japan EX-23.1 7 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference, in the Registration Statement (Form S-8 No. 33-44127) pertaining to the 1985 Incentive Stock Option Plan of Hyperion Software Corporation, 1989 Stock Option Plan of Hyperion Software Corporation, the Hyperion Software Corporation 1991 Employee Stock Purchase Plan, the Hyperion Software Corporation 1991 Non-Employee Director Stock Option Plan, the Hyperion Software Corporation 1991 Stock Plan and to Stock Options Granted Pursuant to Employment, Consulting and Option Agreements, in the Registration Statement (Form S-8 No. 33-57143) pertaining to the Pillar Corporation 1988 Stock Option Plan and to the Pillar Corporation 1992 Long Term Equity Incentive Plan, in the Registration Statements (Form S-8 Nos. 33-57145 and 33-65475) pertaining to the Hyperion Software Corporation 1991 Stock Plan and in the Registration Statement (Form S-3 No. 33-56989) pertaining to the registration of 514,585 shares of Hyperion Software Corporation common stock, of our report dated July 17, 1997, with respect to the consolidated financial statements and schedule of Hyperion Software Corporation included in the Annual Report (Form 10-K) for the year ended June 30, 1997. /s/ Ernst & Young LLP Stamford, Connecticut September 24, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF HYPERION SOFTWARE CORPORATION FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 U.S. DOLLARS YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 1 67,059 0 70,131 5,300 0 138,944 88,882 31,029 218,639 96,708 0 0 0 226 112,811 218,639 222,830 222,830 76,211 205,150 128,939 0 349 19,078 7,200 0 0 0 0 11,878 .64 .64
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