-----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, N9SVtLLmbU2mp9CbDqnmLADbKoVggItFNwDa8V+J6/XashhYtjRlOugNT4fkJakf XWWacvyfZauzSn14f5/p4g== 0000892569-97-002683.txt : 19970930 0000892569-97-002683.hdr.sgml : 19970930 ACCESSION NUMBER: 0000892569-97-002683 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLATINUM SOFTWARE CORP CENTRAL INDEX KEY: 0000891178 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 330277592 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20740 FILM NUMBER: 97687431 BUSINESS ADDRESS: STREET 1: 195 TECHNOLOGY DR CITY: IRVINE STATE: CA ZIP: 92718-2402 BUSINESS PHONE: 7144534000 MAIL ADDRESS: STREET 1: 195 TECHNOLOGY DR CITY: IRVINE STATE: CA ZIP: 92718-2402 10-K 1 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 For the fiscal year ended June 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________to _________________ Commission file number 0-20740 ------------------------------------ PLATINUM SOFTWARE CORPORATION (Exact name of registrant as specified in its charter) Delaware 33-0277592 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 195 TECHNOLOGY DRIVE IRVINE, CALIFORNIA 92618-2402 (Address of principal executive offices, zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 453-4000 ------------------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF CLASS COMMON STOCK, PAR VALUE $.001 PER SHARE ------------------------------------ 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. [ ] The aggregate market value of the registrant's voting Common Stock held by non-affiliates of the registrant was approximately $138,621,721 (computed using the closing sales price of $11.0625 per share of Common Stock on September 2, 1997 as reported by the Nasdaq National Market). Shares of Common Stock held by each officer and director and each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes. There were 20,249,739 shares of the registrant's Common Stock, par value $.001 per share, outstanding on September 2, 1997. ------------------------------------ Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on October 29, 1997, which Proxy Statement will be filed no later than 120 days after the close of the registrant's fiscal year ended June 30, 1997, are incorporated by reference in Part III of this Annual Report on Form 10-K. 2 PART I ITEM 1. BUSINESS Platinum Software Corporation ("Platinum" or the "Company") designs, develops, markets and supports a broad range of integrated financial applications software products targeted for use by businesses of all sizes worldwide. The Company's software products have been designed and developed primarily for use on client/server networked systems with a focus toward financial applications software solutions. The Company has two primary software product lines: Platinum(R) for Windows, a Windows-based powerful local area network ("LAN")-based integrated financial and management information software application and Platinum(R) SQL, a client/server financial accounting software application optimized for use with Microsoft Windows NT and the Microsoft SQL Server and Sybase SQL Server relational database management systems which are targeted at medium-sized organizations. The Company also continues to market the predecessor to the Platinum for Windows product line, the Platinum-DOS software products. The Company's products not only perform sophisticated accounting and financial functions, but can be fully integrated with an organization's information system to provide comprehensive, on-line management information system solutions. The Company's software products incorporate a significant number of internationalized features to address global market opportunities for financial and management information, including support for national languages, multiple currencies and accounting for value-added taxation. The Company also offers consulting, training and support services to supplement the use of its software products by its customers. On June 30, 1997 the Company acquired Clientele Software, Inc., a privately held provider of help-desk automation software. As a result, effective June 30, 1997, the Company began marketing and supporting the Clientele(R) line of help desk software products. The Company was incorporated in Delaware in November 1984 under the name "Platinum Holdings Corporation." In September 1992, the Company changed its name to Platinum Software Corporation. The Company has seven operating subsidiaries: Platinum Software Canada, Ltd., Platinum Software (Aust.) Pty. Limited, Platinum Software (N.Z.) Limited, Platinum Software (U.K.) Limited, Platinum Software (Ireland) Limited, Platinum Software (North Asia) Limited and Platinum Software Asia, Pte. Unless the context otherwise requires, references to the "Company" herein includes Platinum Software Corporation and its operating subsidiaries. The Company's headquarters and principal place of business are located at 195 Technology Drive, Irvine, California 92618-2402, and its telephone number is (714) 453-4000. BACKGROUND In recent years, organizations have increasingly focused on collecting, analyzing and distributing mission-critical information as rapidly and efficiently as possible to improve productivity and to secure a competitive advantage. Historically, computing environments for large organizations were dominated by mainframes and minicomputers, which were expensive to purchase, install and maintain. Due to the centralized nature of these generally proprietary systems, access to critical data was typically limited to an organization's MIS department and was not readily available to other managers and key employees. In the 1980s, the advent of more powerful and less expensive personal computers ("PCs"), coupled with improvements in networking technology, led to the adoption of LANs in increasing numbers by businesses of all sizes. LANs enabled organizations to have on-line access to real-time, mission-critical data. Financial and management information software products were introduced based on open database architectures. These systems were easier to implement and modify and critical information could be accessed readily from a variety of "off-the-shelf" general business productivity applications such as spreadsheet and database programs. The continuing advances in both microprocessor and network technology resulted in corresponding increases in network performance, which caused LAN systems to be adopted increasingly by many medium and small organizations and departments of large organizations. For medium and small organizations, LAN-based systems continue to be effective solutions. However, in heavy processing environments with large numbers of users and tremendous amounts of data being sent across the network, bottlenecks can result that significantly reduce the performance of the LAN-based system. Consequently, the limited client/server functionality of these LAN systems can create difficulties for large organizations that combine heavy data flow requirements on an enterprise-wide basis with a large number of users. Further, LAN-based systems offer less control than centralized, host-based systems 2 3 over the security and integrity of information, despite increasing access to that information and, therefore, many MIS departments have been somewhat reluctant to store sensitive, mission-critical data on LAN systems. Many of the limitations of LAN technology have been overcome by the development of client/server technology for storing, accessing and distributing data. The client/server model consists of PC and workstation "clients" connected on enterprise-wide networks to "servers," generally more powerful systems, such as high-performance PCs or workstations, minicomputers, reduced instruction set computer ("RISC")-based servers or mainframes. The client/server architecture is designed to partition the processing of application software between the client and the server to allow the clients to handle the user interface and local data manipulation and to allow the server to perform computing-intensive functions. This design minimizes network traffic and exploits the server's powerful processing capability. Because of this partitioning, system throughput is scaleable and can be increased by replacing the server computer with a more powerful machine. Client/server systems also offer the degree of data integrity and security that large MIS departments require, since all data access can be controlled by server-based relational database management systems ("RDBMSs") that couple the benefits of open database architectures with the benefits of centralized control offered by host-based systems. TECHNOLOGY STRATEGY The Company's technology strategy is to develop leading line of business software applications using industry standard tools where possible, and to take advantage of leading third-party, industry-standard technologies for database management systems, operating systems, user interfaces and networks. The Company developed its own proprietary application development tools to create its first generation of client/server products, but is increasingly exploiting standard tools as they become available. The Company's core product architecture incorporates many of the foundation technologies of client/server computing. These elements include: Open Relational Database Technology The Company utilizes open relational database technology to provide extremely flexible integrated financial and management information software. This open database orientation is based on widely accepted database managers. The Platinum for Windows product line, as well as the Platinum-DOS core set of accounting and financial applications and Platinum Premier Financial Applications, are optimized for the Pervasive, Inc. database (formerly named Btrieve). The Company's Platinum SQL product line uses both the Microsoft and Sybase SQL Server relational database management systems. The Company has developed its Platinum SQL product line using industry standard SQL language as the fundamental database access methodology. Advanced Networking/Communications The Company's products are designed to operate on both LANs and wide area networks ("WANs"). The Company supports popular industry standard networking protocols such as TCP/IP, Novell IPX/SPX and Microsoft NETBEUI/Named Pipes. The Company's networking support offers advanced features such as: (i) concurrent access to data and to critical functions for all network users; (ii) a high degree of fault tolerance; (iii) high levels of security; (iv) a wide range of options for configuring different users on the network; and (v) remote access and processing. Industry Standard User Interfaces The Company has incorporated numerous features into its user interfaces to simplify access to and operation of its products. The Company's products generally conform to the Common User Access standard and include the ability to mirror the form of printed output on the screen. The Company's Platinum SQL and Platinum for Windows product lines incorporate the popular Microsoft Windows graphical user interfaces ("GUIs"). The Company's GUI tools include industry standard field controls, pull-down menus, tool bars and tab menus that facilitate the use of the software. In addition, the Company's Platinum SQL and Platinum for Windows products incorporate the latest and most advanced GUI features such as process wizards, cue cards, advanced on-line help and on-line documentation. These tools and the Windows multiple document interface ("MDI") give the user interface a popular look and feel. The Company's Platinum for Windows product was designed using the Windows 95 user interface standards, incorporating document centric views, the use of the single document interface, tab oriented forms and wizards for application set up and configuration. 3 4 Powerful Application Development Tools The Company provides comprehensive application development and customization tools for its Platinum for Windows and Platinum SQL product lines. Platinum for Windows was developed using industry standard development tools such as Visual Basic and utilizes the industry standard Btrieve database engine. As a result, a series of reusable objects have been created. By exposing certain aspects of the objects, users have the ability to modify and extend the system without losing a consistent user interface. Platinum for Windows also includes template definition for easier document entry and wizards which make it easier for a user to set up the software or define users or groups. The Company also has developed an extensive tool kit for its Platinum SQL product line. The core tools for the Platinum SQL product line deliver a complete client/server development environment, enabling a user to make changes ranging from a simple field name change to building an integrated custom application. The intuitive visual interface of the forms designer provides a powerful tool to modify and extend the functionality of standard applications. In addition, industry-standard visual basic macro language and Object Linking and Embedding ("OLE") version 2.0 with full ActiveX support enable all Platinum SQL applications to exchange data and integrate with external OLE-enabled Microsoft Windows applications. The Platinum SQL Customization Workbench is a software developers kit for Platinum SQL which enables customers and authorized resellers to build comprehensive software solutions that augment the standard product. The Customization Workbench includes technical reference guides and diagrams, an OLE integration kit and certain report script source code. Client/Server Technology In order to fully exploit the capabilities of the client/server model of computing, the Company has optimized its Platinum SQL product line for both the Microsoft SQL Server database and the Sybase SQL Server database. All major data manipulation functions are implemented in the native language of both of the database servers, Transact SQL, and thereby are executed as "stored procedures" that are processed solely on the server. This implementation results in a substantial reduction in network traffic as compared to other client/server approaches, provides scaleable high performance, and provides inherent portability of the RDBMS to a large number of server, hardware and operating system platforms without code change or conversion. PRODUCTS The Company designs, develops, markets and supports a broad range of integrated financial applications software products that provide organizations with technically advanced business solutions. The Company's two primary software product lines are Platinum for Windows and Platinum SQL. In addition, the Company sells and supports its Platinum-DOS software products. The Company also continues to provide support for the installed base of Platinum SQL Enterprise (formerly SeQueL to Platinum(R)), a product which the Company discontinued marketing in 1996. On June 30, 1997, the Company acquired Clientele Software, Inc., a privately held provider of help desk automation software, and as of this date began marketing the Clientele(R) line of help desk software products. The Company also develops and markets a variety of related applications software products that enable users to customize the Company's software products and to integrate these software products with general productivity applications software. Platinum for Windows and Platinum-DOS Platinum for Windows is a Windows-based client/server financial accounting software package for smaller businesses whose corporate computing environment consists of LANs comprised of personal computers. Platinum for Windows is the next generation of the Company's Platinum-DOS-based and Platinum Premier Financial Applications accounting applications. First introduced in June 1995, Platinum for Windows includes a Windows-based client which was designed around the interface standards of Microsoft Windows 95 to handle all user interaction and data maintenance. The Windows-based client interacts with an application server which runs postings, reports and utilities. Both the client and the server communicate with the LAN-based Btrieve database. Since no database conversions are required to upgrade from the Platinum-DOS-based product to Platinum for Windows, this ensures a smooth upgrade path for DOS users. 4 5 The following modules of Platinum for Windows are presently generally available: Premier Ledger with FRx, Premier Consolidations, Premier Currency Translation, Premier Inter-Company Processing, Premier Budgeting, Foreign Currency Manager, System Manager, General Ledger, Bank Book, Accounts Receivable, Accounts Payable, Purchase Order, Order Entry, Inventory, Advanced Allocations, and Budget Manager. In addition, the Company continues to sell and support its Platinum-DOS-based integrated financial software applications. First introduced in June 1985, the core Platinum-DOS-based accounting modules include General Ledger, Accounts Receivable, Accounts Payable, Inventory, Order Entry and Consolidations. In addition, the Company offers Platinum Premier Financial Applications, which are extensions of the core Platinum-DOS-based modules and are designed to meet the sophisticated financial reporting requirements of a larger customer. The Platinum Premier Financial Applications modules operate in conjunction with other Platinum-DOS and Windows-based modules and provide downsizing and rightsizing opportunities to larger organizations whose previous barriers were not the performance or capacity of LAN-based systems but lack of advanced feature sets available from a LAN-based program. Revenues attributable to licenses of the DOS-based Platinum applications, including the Platinum Premier Financial Applications, were $8,940,000, $3,780,000 and $2,243,000, exclusive of revenues attributable to the Platinum Advanced Manufacturing System software application (which was sold effective October 31, 1994) and license fee revenues that were deferred as part of the fiscal 1994 restatement, or 15%, 9% and 4% of the Company's total revenues in fiscal years 1995, 1996 and 1997, respectively. Revenue attributable to licenses of Platinum for Windows (which first began shipping in June 1995) were $203,000, $2,295,000 and $5,193,000, or 0%, 5% and 9% of the Company's total revenues in fiscal years 1995, 1996 and 1997, respectively. Platinum SQL Platinum SQL, a client/server financial accounting software application is targeted at medium-sized companies and subsidiaries or divisions of large enterprises. These organizations require the power and sophistication of high-end client/server applications but desire a rapid and unobtrusive product implementation cycle for managing their critical business information. The product is optimized for use with both the Microsoft SQL Server and the Sybase SQL Server database. Platinum SQL minimizes the complexities of client/server installation by providing the user with installation wizards which help configure the Microsoft SQL Server database based upon information provided by the installer. As previously indicated, Platinum SQL was designed for the Microsoft Windows NT server platform and runs on Windows 3.x, Windows for Workgroups, Windows NT and Windows 95 client platforms. Platinum SQL is integrated with the Microsoft Office Professional suite of software products and supports Microsoft OLE, version 2.0, which enables customers to integrate not only other Microsoft products but any OLE 2.0-compliant application. In addition, Platinum SQL is a 32-bit server application that takes full advantage of the Microsoft SQL server for Windows NT. The following modules of Platinum SQL are currently generally available: General Ledger with FRx and System Manager, Multi-Currency Manager, Accounts Receivable, Accounts Payable, Inventory Control, Cash Management, Order Entry, Purchase Order, Asset Management, Advanced Allocations, Budget Manager, FRx remote drill down viewer and Customization Workbench. Version 4.2 of Platinum SQL is scheduled for general release in December 1997. See "Certain Considerations - Forward Looking Statements." Version 4.2 will include enhanced consolidation capabilities and new on-line planning wizards and troubleshooting utilities as well as maintenance fixes. See "Certain Considerations - Forward Looking Statements." License fees for Platinum SQL vary depending upon the number of concurrent users and platform. Revenues attributable to licenses of Platinum SQL, which first began shipping in December 1994 were $3,202,000, $7,902,000, and $17,931,000, or 5%, 18% and 31% of the Company's total revenues in fiscal years 1995, 1996 and 1997, respectively. Platinum SQL Enterprise Platinum SQL Enterprise, formerly named SeQueL to Platinum, an integrated financial and management information software application based on the Microsoft and Sybase SQL Server databases for use on client/server systems, was discontinued during fiscal 1996, although the Company continues to provide maintenance and support for the installed base for this product. 5 6 Clientele On June 30, 1997, the Company acquired Clientele Software, Inc., a privately held provider of help-desk automation software for the mid-market. See "Recent Acquisition." The Clientele line of products includes applications used for managing customer service and support ("CS&S") operations. The CS&S market divides into two general arenas: internal help desk, used by internal departments (in general the management information systems department) supporting the organization's internal workforce; and external help desk for supporting the customers, vendors, and suppliers that the Company conducts business with. Clientele markets products for both applications, and has different configuration options that allow the products to appeal to departments of varying sizes. The base products are designed for small departments of less than 25 support representatives, and a module that enables connectivity to a SQL Server database allows the products to scale to organizations with hundreds of support personnel. Another Clientele module provides for replication and information synchronization among distributed CS&S organizations. Revenues attributable to licenses from the Clientele products were $1,940,000, $3,139,000 and $3,906,000, or 3%, 7% and 7% of the Company's total revenues in the fiscal years 1995, 1996 and 1997, respectively. Other Products The Company also offers a line of integration kits and database products that support its Platinum for Windows and Platinum-DOS-based line of software products and licenses these products to its Value Added Resellers ("VARs"), distributors, Authorized Consultants and end-users. The Company also serves as an OEM vendor for certain third-party software applications and pays royalties to various organizations in connection with the distribution of third-party software and the sale of products that incorporate third-party technologies. PROFESSIONAL SERVICES The Company's professional services division, formed in July 1992, provides consulting services to customers in the design and implementation of the Company's software products, as well as education, training and other services. Prior to fiscal 1995, the division also provided custom modifications and created applications which interfaced with the Company's software products. In August 1994, the Company sold the assets related to its custom software development operations. See "Restructurings." The professional services division functions in domestic and international markets and primarily focuses on larger corporate accounts. Professional services are generally provided on a time and materials basis. Revenues from professional services were approximately $11,265,000, $9,940,000, and $10,716,000, or 20%, 23% and 19% of total revenues, in fiscal years 1995, 1996 and 1997, respectively. During the first nine months of fiscal 1996, the professional services division was very involved in the training of the Company's VARs and distributors in selling and supporting the Platinum SQL product. Professional services staff provided formal training to distributors and VARs and worked with them on the job to transfer expertise gained in Platinum SQL Enterprise and Platinum SQL NT implementations. During fiscal 1997, the professional services division focused more of its efforts in providing consulting and implementation services to customers. The Company believes that its provision of professional services, in conjunction with its current and planned product offerings, facilitates the licensing of technology to customers and stimulates demand for the Company's products. MARKETING, SALES AND DISTRIBUTION The Company sells and markets its products and services directly and through a network of VARs, distributors and software consultants who generally market the Company's products on a nonexclusive basis. The Company's products are sold to and used by a broad customer base, including businesses, government bodies, educational institutions and other users. The Company sells its Platinum for Windows, Platinum DOS, and Platinum SQL products through VARs or distributors. In October 1995, the Company discontinued its direct sales force for its Platinum SQL Enterprise product. Later in fiscal 1996, the Company hired three new senior executives, and following an assessment of the Company's business operations, the Company decided to start selling the Platinum SQL product through a direct sales force as well as through a network of VARs. The Company, in the fourth quarter of fiscal 1996, commenced development of this direct sales force to supplement the efforts of the VARs and distributors. The Company's field sales organization is divided into geographic regions: United States, divided into Northeast, Southeast, Midwest, Southwest, and West, Canada, United Kingdom/Europe/Middle East/Africa, Australia/New Zealand, Asia and other international countries. The Company sells the Clientele products through an 6 7 internal telesales organization and intends to begin selling the products through its direct sales force beginning in late calendar 1997 or early calendar 1998. See "Certain Considerations - Forward Looking Statements." The Company's network of VARs and Authorized Consultants are required to undergo training and certification procedures provided by the Company on the use, installation and implementation of the Company's products as a condition of being authorized by the Company to sell its products. The Company's VARs include consulting groups and resellers, the majority of whom provide computer installations, systems integration and consulting services to organizations. The Company's Authorized Consultants generally are not resellers of the Company's products but professional firms who offer implementation services and product support to end-users. The Company believes that its Authorized Consultants are product influencers and are a valuable part of the Company's marketing, sales and distribution efforts. The Company permits VARs and distributors to return Platinum-DOS and Platinum for Windows products that were returned by the end-user customers, within 30 days of purchase, upon payment of a restocking fee, provided such products remain in their original packages, excluding product upgrades and demonstration software. To support the Company's network of VARs and Authorized Consultants, the Company provides experienced personnel who are specifically tasked with their growth and support. These individuals are responsible for educating and training the distribution channel, disseminating information, implementing marketing programs and developing regional markets. In recognition of international opportunities for its software products, the Company has committed resources to an international sales and marketing effort. The Company has established subsidiaries in the United Kingdom, Australia, New Zealand, Canada, Hong Kong and Singapore to further such sales and marketing efforts. The Company sells its products in Europe, including Russia, Latin and South America, Africa, Asia and the Middle East principally through third-party distributors and dealers. The Company's international revenues were approximately $17,857,000, $14,079,000 and $17,368,000, or 31%, 32% and 30% of total revenues, in fiscal years 1995, 1996 and 1997, respectively. See "Note 9 of Notes to Consolidated Financial Statements." The Company currently has sales offices located in the metropolitan areas of Atlanta, Boston, Chicago, Dallas, Orange County, California, New York, San Francisco, Washington, D.C., Toronto, Canada, Auckland, New Zealand, London, England, Sydney and Melbourne, Australia, Hong Kong and Singapore. Products are generally shipped as orders are received or within 30 days thereof and, accordingly, the Company has historically operated with little or no backlog. Because of the generally short cycle between order and shipment, the Company does not believe that its backlog as of any particular date is meaningful. PRODUCT DEVELOPMENT AND QUALITY ASSURANCE Since inception, the Company has made substantial investments in product development, which is evidenced by the following product releases: the 1985 release of a LAN-based client/server accounting package that offered a high degree of multi-user concurrency; the 1988 release of an accounting package written for OS/2; the 1990 release of a LAN-based software package that provided comprehensive support for international accounting requirements; the 1991 release of a Windows graphical accounting system that offered Windows MDI support; the 1992 release of a graphical, SQL server-based integrated financial and management information software product line; the 1994 release of a client/server accounting application designed to run on Windows NT and the Microsoft SQL server RDBMS; and the 1995 release of a Windows and LAN-based accounting software package. During fiscal years 1995, 1996 and 1997, software development expenses before capitalization were approximately $17,916,000, $13,774,000, and $11,468,000, respectively. The Company plans to continue to address the needs of users of integrated financial and management information software by continuing to develop high quality software products that feature advanced technologies. The Company's technology strategy is to develop leading business application software using its own technologies combined with leading third-party, industry-standard technologies in database management systems, application development tools, operating systems, user interfaces and networks. In particular, the Company believes that it has been an industry leader in designing and developing products for operation on LANs and has been a pioneer in the use of GUIs with integrated financial and management information software. Currently, the Company pursues object-oriented methodologies that simplify the development, maintenance and third-party customization of its products. Accordingly, the Company's tools offer a high degree of customization for its products. 7 8 The Company intends to continue to invest in product development. In particular, the Company plans to continue to (i) develop enhancements, including additional functions and features, for its Platinum for Windows and Platinum SQL product lines, and (ii) develop and/or acquire new applications or modules that build upon the company's business application strategy. The Company intends to integrate the Clientele products with its financial applications to address a growing market need for improved customer information delivery and analysis. See "Certain Considerations, Forward Looking Statements." The Clientele brand will be used to identify the range of modules and applications that form the Company's customer information systems ("CIS") strategy. The Company intends to extend the Clientele brand and product line over the next year to include sales force automation ("SFA") modules for inside sales organizations and outbound field sales organizations. See "Certain Considerations - Forward Looking Statements." The range of integration options then will include a customer management system ("CMS") module for the Platinum SQL product that will unify all information interchange, and assure consistency between all modules. A customer "life-cycle" view will be constructed, where prospecting and selling activities represented in the SFA modules will be unified with post-sale case details from the CS&S modules and transaction details from the financial and accounting modules. This high value information, with searching, advanced navigation features such as "drill-down" and "drill-around," and analytical reporting capabilities will expand the capabilities of Platinum's business applications solutions. See "Certain Considerations - Forward Looking Statements." The computer software industry is characterized by rapid technological advances and changes in customer requirements. The Company's future success will depend upon its ability to enhance its current products and develop and introduce new products that keep pace with technological developments, respond to evolving customer requirements and continue to achieve market acceptance. In particular, the Company believes it must continue to respond quickly to users' needs for broad functionality and multi-platform support and to advances in hardware and operating systems. In the past, the Company has occasionally experienced delays in the introduction of new products and product enhancements. There can be no assurance that the Company will not experience significant delays in the introduction of new products or product enhancements in the future, which could have a material adverse effect on the Company's results of operations. The Company's future business is dependent on the execution of the strategy that is in place to target the financial and general business applications needs of mid-sized businesses. Any significant delay in shipping new modules or enhancements could have a material adverse effect on the Company's results of operations. In addition, there can be no assurance that new modules or product enhancements developed by the Company will adequately achieve market acceptance. TECHNICAL SUPPORT AND SOFTWARE MAINTENANCE The Company is committed to providing timely, high-quality technical support, which the Company believes is critical to maintaining customer satisfaction. The Company provides technical support by offering telephone support, e-mail support, facsimile support and communications through its World Wide Web site, http://www.platsoft.com. Telephone support is available five days a week during normal business hours on a nearly worldwide basis, collectively from the Company's three support centers in Dublin, Ireland, Sydney, Australia and Irvine, California. The Company also believes that customer satisfaction should be maintained by ensuring that its VARs, Distributors and Authorized Consultants are able to effectively provide front-line technical support and assistance to end-users. The Company offers comprehensive training, telephone consultation and product support for its VARs, Distributors and Authorized Consultants. Training courses are held in major cities worldwide. The Company offers its Platinum for Windows and Platinum-DOS customers several software maintenance options, for varying annual fees. The Company's software maintenance programs are the sole avenue for product updates and technical support. The annual maintenance fee for the Platinum SQL product is 18% of the then current list price. Customers who subscribe for maintenance receive telephone and technical support, timely information on product enhancements and features and product updates and upgrades. Revenue from these software maintenance agreements is recognized ratably over the maintenance period. The Company provides a three month performance warranty for its Platinum SQL product. In addition, the Company provides a three month warranty for the media on which its Platinum for Windows and Platinum-DOS are licensed. Revenues from support services were approximately $8,985,000, $11,550,000, and $15,861,000 or 15%, 26% and 27% of total revenues in fiscal years 1995, 1996 and 1997, respectively. 8 9 COMPETITION The financial accounting computer software industry is intensely competitive and rapidly changing. A number of companies offer products similar to the Company's products that target the same markets. Some of the Company's existing competitors, as well as a number of new potential competitors, have larger technical staffs, more established and larger marketing and sales organizations and significantly greater financial resources than the Company. There can be no assurance that competitors will not develop products that are superior to the Company's products or that achieve greater market acceptance. The Company's future success will depend significantly upon its ability to increase its share of its target markets and to license additional products and product enhancements to existing customers. There can be no assurance that the Company will be able to compete successfully or that competition will not have a material adverse effect on the Company's results of operations. The Company believes that it competes in two different market segments in the client/server financial accounting software market. These two segments are the middle market segment and the LAN-based segment. Although the Company does not target customers in the enterprise market segment, which it defines as large organizations desiring enterprise wide solutions, and is characterized by high transaction volumes and software flexibility to customize applications, it encounters competitors from this market segment. In the middle market, which the Company defines as being comprised of customers ranging in revenue size from $50 million to $750 million, customers desire proven client/server software solutions that are easy to install, manage and use, yet are flexible enough to address the challenges of a specific organization. In addition, customers in this market segment require strong price-performance metrics. This market segment is relatively new, and as a result, the competitive landscape is still forming. The Company believes its principal competitors include Lawson Corporation, JD Edwards, Great Plains Software, Oracle Corporation, Solomon Software, SQL Financials, Peoplesoft, Inc., Geac, Baan, SAP and Flexi International. Some of these companies are major participants in the enterprise market segment who are presently selling an existing enterprise segment product in the middle market segment, while others are in the process of developing a client/server product to address the middle market requirements. The Company has addressed the requirements of customers in this market with its Platinum SQL product, a version of which has been optimized for use for both the Microsoft SQL Server and Sybase SQL Server RDBMS. The Company believes that this product competes favorably against its competitors with respect to the foregoing competitive factors. In the LAN-based market, the Company competes with State of the Art, Inc., Macola, Inc., Great Plains Software, and Solomon Software in North America, and Scala and Systems Union, Ltd. outside of North America. Products in this market are principally sold through VARs and solution-oriented computer retail stores with the purchasing decision often influenced by accounting professionals providing consulting services. The Company believes that purchases in this market are primarily influenced by functionality, performance, availability of a Windows-based version, price and quality. The Company believes it competes favorably with respect to all of these factors. PRODUCTION The principal materials and components used in the Company's software products include computer media, including disks and CD-ROMs, and user manuals. For each product, the Company prepares a master software disk or CD-ROM, user manuals, which may be in printed form or distributed on a CD-ROM, and packaging. Substantially all of the Company's disk and CD-ROM duplication is performed by third-party vendors, using disks and blank CD-ROMs acquired from various sources. Outside sources print the Company's packaging and related materials to the Company's specifications. A portion of the completed packages are assembled by third-party vendors. To date, the Company has not experienced any material difficulties or delays in the manufacture and assembly of its products, or material returns due to product defects. INTELLECTUAL PROPERTY The Company regards its software as proprietary, in that title to and ownership of the software generally exclusively resides with the Company, and the Company attempts to protect it with a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other methods of protection. Despite these precautions, it may be possible for unauthorized third-parties to copy certain portions of the Company's products or reverse engineer or obtain and use information the Company regards as proprietary. Like many software firms, the Company presently has no patents. While the Company's competitive position may be 9 10 affected by its ability to protect its proprietary information, the Company believes that trademark and copyright protections are less significant to the Company's success than other factors such as the knowledge, ability and experience of the Company's personnel, name recognition and ongoing product development and support. The Company's software products are generally licensed to end-users on a "right to use" basis pursuant to a perpetual, non-exclusive license that generally restricts use of a software for the organization's internal business purposes. The Company licenses its Platinum for Windows, Platinum-DOS, Clientele and Platinum SQL (those sold through VARs and distributors) product lines pursuant to "shrink wrap" licenses that are not signed by licensees and therefore may be unenforceable under the laws of certain jurisdictions. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. Certain components of the Company's products are licensed from third-parties. As the number of software products in the industry increases and the functionality of these products further overlap, the Company believes that software programs will increasingly become subject to infringement claims. There can be no assurance that third-parties will not assert infringement claims against the Company in the future with respect to current or future products or that any such assertion may not require the Company to enter into royalty arrangements or will result in costly litigation. The Company is not aware of any material infringement actions or claims. EMPLOYEES As of June 30, 1997, the Company had 440 full-time employees, including 97 in product development, 67 in support services, 82 in professional services, 97 in sales, 33 in marketing and 64 in finance and administration. The Company added 55 employees as a result of the acquisition of Clientele Software, Inc. The Company's employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage. The Company believes that its relations with its employees are good. RECENT ACQUISITION On June 30, 1997 the Company acquired Clientele Software, Inc. a privately held provider of help desk automation software based in Portland, Oregon. The acquisition was structured as a triangular merger whereby Clientele Software, Inc. became a wholly-owned subsidiary of the Company. As consideration for the acquisition, the Company issued 887,636 shares of common stock in exchange for all of the outstanding shares of common stock of Clientele. The exchange ratio used with respect to the conversion of the Clientele shares was .19761 (i.e., each share of Clientele common stock converted into .19761 shares of the Company's common stock). In addition, the Company assumed all of the outstanding employee stock options of Clientele which translated into stock options to acquire 212,356 shares of common stock of the Company. Ten percent of the shares issued in the merger, or 88,764 shares, were placed into an escrow for a period of one year to cover potential indemnification claims in connection with the transaction. The transaction was accounted for as a pooling of interests. As part of its business strategy, the Company intends to expand its product offerings primarily through acquisitions to include application software products that are complementary to financial accounting applications, such as sales force automation, enterprise resource planning or human resources. See "Certain Considerations - Horizontal Product Strategy and Forward Looking Statements." RESTRUCTURINGS In May 1994, the Company announced a restructuring of its business operations and a new organizational structure. Also in May 1994, the Company announced a new strategy for distributing its products outside of North America and the United Kingdom. Between May 1994 and April 1996, the Company divested certain areas of its non-core financial software business. Effective June 30, 1994, the Company sold the assets relating to its Latin American operations to a newly formed company in which Platinum retained a minority ownership interest. As part of this transaction, Platinum entered into an exclusive distribution agreement regarding the sale of its software products in Latin America by the new company. In March 1997, the distribution agreement was terminated and the Company commenced marketing and selling directly into Latin America. Also, effective June 30, 1994, the Company sold its EDI product line and its SeQueL Cost Management product, and the assets related to such products, to third-parties. The Company retained the right to distribute such products to its customers. In addition, the Company sold the assets related to its business forms division, operated through the Company's subsidiary, Altec Products, Inc., to a third-party. The Company entered into a marketing agreement with the purchaser of Altec 10 11 Products, Inc. under which the purchaser was granted exclusive rights to distribute business forms for use with the Company's software products. In July 1994, the Company transferred an interest in its FRx financial report writer software product to a newly formed company, in which Platinum retained a minority interest. The Company retained the right to market the FRx product as part of its product line. Effective August 31, 1994, Platinum sold the assets related to its custom software development business to Perot Systems Corporation ("Perot"). In this transaction, Platinum entered into a joint marketing and distribution agreement with Perot in which Perot became the preferred provider of custom development services for the Company's Platinum SQL Enterprise product line in the United States, Canada and the United Kingdom. This arrangement with Perot subsequently has been terminated. In November 1994, Platinum sold its Platinum Advanced Manufacturing System software and related manufacturing software applications to a third-party. Platinum retained limited distribution rights to the Platinum Advanced Manufacturing System software. In March 1995, Platinum sold its Access to Platinum product line to a third-party. Effective September 30, 1995, the Company sold its treasury management software product to a third party. In addition, effective February 29, 1996, the Company sold its SeQueL distribution product to a third party. In October 1994, the Company closed its operations related to its client/server sales force and contact management software product. For additional information see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Fiscal 1994 Restructuring Charge." During the second quarter of fiscal 1996, the Company restructured its business operations with the intent to reduce operating expenses and minimize the usage of cash. As part of the restructuring, the Company discontinued the marketing of the version of its Platinum SQL Enterprise product line that runs on the Sybase/UNIX server platform. Also, the Company discontinued its direct sales force for its Platinum SQL Enterprise product line, which resulted in the termination of approximately 50 employees. As a result of this action, the Company shifted the focus of its product distribution to VARs and distributors. In the fourth quarter of fiscal 1996, the Company commenced development of a direct sales force for its Platinum SQL product and also commenced selling a version of its Platinum SQL product that runs on the Sybase/UNIX platform. See "Marketing, Sales and Distribution." The Company also expanded its field sales and corporate marketing groups in an effort to support the distribution of its products through its dealer channel. The Company terminated a total of approximately 100 employees as part of the second quarter restructuring, including approximately 50 employees in its international, administrative and development operations. During the second quarter of fiscal 1996, the Company recorded a $3.3 million charge for the restructuring. The restructuring charge included expenses related to work force reductions, severance payments, asset write downs, lease termination costs and other costs. In February 1996, the Company underwent another reduction in force of approximately 40 persons with the intent again to reduce operating expenses and minimize the usage of cash. This reduction in force resulted in an additional restructuring charge of $2.3 million, which was recorded in the third quarter of fiscal 1996. The third quarter restructuring charge included expenses related to work force reductions, severance payments, lease termination costs, property and equipment write-downs and other costs. In June 1997, the Company underwent another restructuring as a result of the Clientele acquisition. The Company anticipates that Clientele will continue to operate as an autonomous unit with integration activities focused on the restructuring and consolidation of Clientele's administrative and support functions with those of the Company. The Company expects to incur certain expenses estimated at $1.6 million in connection with the restructuring and consolidation, primarily the cost of reducing personnel, as well as excess facility costs at Clientele. The Company estimates that expense savings from the 1997 restructuring to be nominal. See "Certain Considerations - Forward Looking Statements." CERTAIN CONSIDERATIONS Forward Looking Statements. This annual report contains certain forward looking statements within the meaning of Section 27A of the Securities and Exchange Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, that involve risks and uncertainties. In addition, the Company may from time to time make oral forward looking statements. Actual results are uncertain and may be impacted by the following factors, among others, which may cause the actual results to differ materially from those projected in the forward looking statement. Because of these and other factors that may affect the Company's operating results, past performance should not be considered an indicator of future performance and investors should not use historical results to anticipate results or trends in future periods. 11 12 Liquidity. The Company's cash and cash equivalents increased from $5.4 million at June 30, 1996 to $6.3 million at June 30, 1997, principally due to the exercise of stock options offset in part by capital expenditures and cash used in operations. Although, the Company's fiscal 1994 restructuring is substantially complete, there will be additional cash outlays in connection with discontinued products and lease terminations, estimated to be approximately $88,000. In addition, there will be further cash outlays estimated at approximately $759,000 in connection with the second quarter fiscal 1996 restructuring, $162,000 in connection with the third quarter fiscal 1996 restructuring and $1.6 million in connection with the fiscal 1997 restructuring. If the Company is not successful in achieving targeted revenues or positive cash flow, the Company may be required to take actions to align its operating expenses with its reduced revenues, such as reductions in work force or other expense cutting measures. Fluctuations in Quarterly Operating Results. The Company's operating results can vary substantially from period-to-period. The Company's quarterly operating results fluctuate in part due to the number and timing of new product introductions and enhancements, discontinuance of product lines, the timing of product orders and shipments, recognition of deferred revenue upon the Company's completion of its contractual obligations, marketing and product development expenditures and promotional programs. A significant portion of the Company's quarterly revenues are recorded in the final month of the quarter, with a concentration of such revenues in the final 10 business days of that month. Also, the timing of the closing of direct sales in the latter part of each quarter increases the risk of quarter-to-quarter fluctuations. Accordingly, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as an indication of future performance. If revenues do not meet the Company's expectations in any given quarter, operating results may be adversely affected. There can be no assurance that the Company will be profitable in any quarter or at all. Horizontal Product Strategy. As part of its business strategy, the Company intends to expand its product offerings to include application software products that are complementary to financial accounting applications, such as sales force automation, enterprise resource planning or human resources. This strategy may involve acquisitions, investments in other businesses that offer complementary products, joint development agreements or licensing of technology agreements. Any future acquisitions or investments would be accompanied by the risks commonly encountered in the acquisitions of businesses. Some of these risks include, among other things, the integration of previously distinct businesses into one business unit, the substantial management time devoted to such activities, the potential disruption of the Company's ongoing business, undisclosed liabilities, the failure to realize anticipated benefits (such as synergies and cost savings), and issues related to product transition (such as development, distribution and customer support). The Company expects that the consideration paid in future acquisitions, if any, would be in the form of stock, rights to purchase stock, cash or a combination thereof. Dilution to existing stockholders and earnings per share may result to the extent that shares of stock or other rights to purchase stock are issued in connection with any such future acquisitions. Some of the risks associated with joint development agreements or technology licenses include development delays, product bugs or errors, issues related to the integration or transition of the new products, such as providing adequate customer support, effectively selling and marketing the new product and coordinating development efforts. Dependence on Distribution Channels. The Company distributes its Platinum for DOS and Platinum for Windows products exclusively through third-party distributors and VARs, and distributes its Platinum SQL software product through a direct sales force as well as through VARs and distributors. The Company's distribution channel includes distributors, VARs and Authorized Consultants, which consist primarily of professional firms. Although no one of these distribution channel members is responsible for any material amount of the Company's license fees, the Company's results of operations could be adversely affected if significant numbers of its VARs or Authorized Consultants were to cease distributing or recommending the Company's products or were to choose to emphasize competing products. Generally, the Company's agreements with its VARs and Authorized Consultants do not require them to exclusively offer or recommend the Company's products and may be terminated by either party with or without cause. In the fourth quarter of fiscal 1996, the Company reestablished a direct sales force for its middle market client server financial software product, Platinum SQL. There can be no assurance that the direct sales force will be successful in generating revenues or that it will not lead to conflicts with the Company's VAR channel. The Company's Platinum SQL product (formerly named Platinum SQL NT) was first introduced on a limited basis to the network of VARs during the quarter ended December 31, 1994. Platinum SQL, a client/server financial software application designed to run on Microsoft Windows NT, Microsoft SQL server and Sybase SQL server, is a more technically complex product than Platinum for Windows and Platinum-DOS and requires additional 12 13 skill and training to successfully implement. The Company presently has over 70 authorized VARs who have completed training from which approximately 30 VARs generate greater than 90% of the indirect sales of Platinum SQL and is actively seeking additional skilled VARs to sell Platinum SQL. Delays in training VARs or recruiting additional skilled VARs could adversely impact the Company's ability to generate license revenues from its Platinum SQL product line. Dependence on Platinum SQL Product Line. Platinum SQL, which is a successor product to Platinum SQL Enterprise, which was first introduced in June 1992, and to Platinum SQL NT, which was first introduced in December 1994, is an integrated financial and management information software product for use on client/server computing systems. It is common for complex programs such as Platinum SQL to contain undetected errors when first released, which are discovered only after the product has been used with many different computer systems and in varying applications. The Company has been informed by customers of certain errors with respect to its Platinum SQL product which the Company is addressing. The inability of the Company to correct the errors, or any significant delay in correcting the errors in Platinum SQL, will have a material adverse effect on the Company's results of operations. In addition, there can be no assurance that significant technical problems will not be discovered, or if discovered, corrected in a timely manner. Technical problems with the current release of the database platforms on which Platinum SQL operate could impact sales of these Company products, and any significant technical problems could have a material adverse effect on the Company's results of operations. New Product Introductions. The Company's future success will depend upon its ability to develop and successfully introduce new products, enhance its current products on a timely basis and increase customer acceptance of its existing products. See "Product Development and Quality Assurance." The Company has two principal product lines, Platinum for Windows (including Platinum-DOS) and Platinum SQL. The Company continues to provide maintenance and support services for its Platinum SQL Enterprise product for existing customers. Platinum SQL was released in the quarter ended December 31, 1994 and some of the core accounting modules of Platinum for Windows were released during the quarters ended June 30, 1996 and December 31, 1995. Version 4.2 of Platinum SQL, which will include enhanced consolidation capabilities and new on-line planning wizards and troubleshooting utilities as well as maintenance fixes, is scheduled for release in December 1997. See "Forward Looking Statements." In the past, the Company has occasionally experienced delays in the introduction of new products and product enhancements. There can be no assurance that the Company will be successful in developing and marketing these new products or product enhancements on a timely basis or that the Company will not experience significant delays in introducing new products in the future, which could have a material adverse effect on the Company's results of operations. In addition, there can be no assurance that new products or product enhancements developed by the Company will achieve market acceptance. Dependence on Client/Server Environment. The Company's development tools, application products and consulting and education services are intended to help organizations build, customize or deploy solutions that operate in a client/server computing environment. The client/server market is relatively new, and there can be no assurance that organizations will continue to adopt client/server environments or that customers of the Company that have begun the migration to a client/server environment will broadly implement this model of computing. The Company's future financial performance will depend in large part on continued growth in the market for client/server software applications and related services, which in turn will depend in part on the growth in the number of organizations implementing client/server computing environments and the number of applications developed for use in those environments. There can be no assurance that these markets will continue to grow or that the Company will be able to respond effectively to the evolving requirements of these markets. If the market for client/server application products and services does not grow in the future, or grows more slowly than the Company anticipates, or if the Company fails to respond effectively to evolving requirements of this market, the Company's business, financial condition and results of operations would be materially adversely affected. Competition. The financial computer software industry is intensely competitive and rapidly changing. A number of companies offer products similar to the Company's products that target the same markets. Some of the Company's existing competitors, as well as a number of new potential competitors, have larger technical staffs, more established and larger marketing and sales organizations and significantly greater financial resources than the Company. There can be no assurance that competitors will not develop products that are superior to the Company's products or that achieve greater market acceptance. The Company's future success will depend significantly upon its ability to increase its share of its target markets and to license additional products and product enhancements to existing customers. There can be no assurance that the Company will be able to compete successfully or that competition will not have a material adverse effect on the Company's financial condition and results of operations. 13 14 Exposure to Rapid Technological Change. The market for the Company's financial accounting and other line of business software products is characterized by rapid technological advances, changes in end-user requirements, frequent new product introductions and enhancements and evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render the Company's existing products and products under development obsolete and unmarketable. The Company's future success will depend upon its ability to address the increasingly sophisticated needs of its customers by enhancing its current products and by developing and introducing on a timely basis new products that keep pace with technological developments and emerging industry standards, respond to evolving end user requirements and achieve market acceptance. Any failure by the Company to anticipate or adequately respond to technological developments or end-user requirements, or any significant delays in product development or introduction, could result in a loss of competitiveness or reduced revenues. If the Company is unable, for technological or any other reason, to develop, introduce and sell its products in a timely manner, the Company's business, operating results and financial condition would be materially adversely affected. From time to time, the Company or its present or future competitors may announce new products, capabilities or technologies that have the potential to replace or shorten the life cycles of the Company's existing products. There can be no assurance that announcements of currently planned or other new products will not cause customers to delay or alter their purchasing decisions in anticipation of such products, which could have a material adverse effect on the Company's business, operating results and financial condition. Dependence on Key Personnel. The Company's success depends on the continued service of key management personnel, including L. George Klaus, Chief Executive Officer, William Pieser, Senior Vice President, Marketing and Business Development, and Ken Lally, Senior Vice President, Worldwide Field Operations. None of the Company's personnel is subject to an employment agreement for a specified time duration with the Company. In addition, the competition to attract, retain and motivate qualified technical, sales and operations personnel is intense. The Company has at times experienced, and continues to experience, difficulty in recruiting qualified personnel, particularly in software development and customer support. There can be no assurance that the Company can retain its key personnel or attract other qualified personnel in the future. The failure to attract or retain such persons could have a material adverse effect on the Company's business, operating results, cash flows and financial condition. Risks Associated with International Sales. In fiscal 1995, 1996 and 1997, international sales represented approximately 31%, 32% and 30%, respectively, of the Company's revenues, and the Company believes that its future growth is dependent in part upon its ability to increase revenues in international markets. The Company intends to attempt to continue to expand its operations outside of the United States and enter additional international markets, which will require significant management attention and financial resources. There can be no assurance, however, that the Company will be able to successfully maintain or expand its international sales. International sales are subject to inherent risks, including changes in regulatory requirements, tariffs and other barriers, fluctuating exchange rates, difficulties in staffing and managing foreign sales and support operations and the possibility of greater difficulty in accounts receivable collection. There can be no assurance that any of these factors will not have a material adverse effect on the Company's future international sales and, consequently, on the Company's business, operating results, cash flows and financial condition. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations." Shares Eligible for Future Sale. As of September 2, 1997, the Company had 20,249,739 shares of common stock outstanding. There are presently 2,435,000 shares of Series B Preferred Stock and 213,803 shares of Series C Preferred Stock outstanding. Each share of Series B Preferred Stock is convertible into one share of common stock, as adjusted for stock dividends, combinations or splits at the option of the holder. Each share of Series C Preferred Stock is convertible into ten shares of common stock, as adjusted for stock dividends, combinations or splits at the option of the holder. As a result, the Series B and Series C Preferred Stock are convertible into 2,435,000 and 2,138,030 shares of common stock, respectively. The holders of the Series B and Series C Preferred Stock have the right to cause the Company to register the sale of the shares of common stock issuable upon conversion of the Series B and Series C Preferred Stock. Also, the Company has a substantial number of options or shares issuable to employees under employee option or stock grant plans. As a result, a substantial number of shares of common stock will be eligible for sale in the public market at various times in the future. Sales of substantial amounts of such shares could adversely affect the market price of the Company's common stock. Possible Volatility of Stock Prices. The market prices for securities of technology companies, including the Company, have been volatile. Quarter to quarter variations in operating results, changes in earnings estimates by analysts, announcements of technological innovations or new products by the Company or its competitors, announcements of major contract awards and other events or factors may have a significant impact on the market price of the Company's Common Stock. In addition, the securities of many technology companies have experienced extreme 14 15 price and volume fluctuations, which have often been unrelated to the companies' operating performance. These conditions may adversely affect the market price of the Company's Common Stock. Because of these and other factors affecting the Company's operating results, past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. ITEM 2. PROPERTIES The Company leases approximately 95,000 square feet of office space in Irvine, California. The leases for the space expire in April 1999. The Company leases additional facilities and offices, including locations in Bellevue, Washington; San Bruno, California; Oakbrook, Illinois; Newton, Massachusetts; Portland, Oregon; Teaneck, New Jersey; Dallas, Texas; Atlanta, Georgia; Melbourne and Sydney, Australia; Mississauga, Canada; Reading, England; Dublin, Ireland; Auckland, New Zealand; Hong Kong and Singapore. The Company believes that its present facilities are sufficient to accommodate its near-term facilities requirements. The Company continues to evaluate new sales opportunities on an ongoing basis which may result in the leasing of additional facilities. ITEM 3. LEGAL PROCEEDINGS The Company is subject to miscellaneous legal proceedings in the normal course of business and other legal proceedings related to or arising out of the fiscal 1994 restructuring, reductions in force and the discontinuance of certain client/server applications. The Company is currently defending these proceedings and claims, and anticipates that it will be able to resolve these matters in a manner that will not have a material adverse effect on the Company's financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the year ended June 30, 1997. PART II ITEM 5. MARKET VALUE OF THE REGISTRANT'S COMMON STOCK The Company's Common Stock is traded on the over-the-counter market (The Nasdaq National Market System) under the symbol PSQL. The following table sets forth, for the periods indicated, the range of high and low closing sale prices for the Company's Common Stock.
Fiscal 1996: High Low ------------ ---- --- 1st Quarter $16.250 $11.125 2nd Quarter 11.250 4.813 3rd Quarter 7.125 3.500 4th Quarter 12.250 6.250 Fiscal 1997: High Low ------------ ---- --- 1st Quarter $11.125 $6.250 2nd Quarter 13.000 10.625 3rd Quarter 13.375 8.688 4th Quarter 11.000 7.000
There were approximately 1,736 security holders of record as of September 2, 1997. The Company has not paid dividends to date and intends to retain any earnings for use in the business for the foreseeable future. 15 16 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere herein. The statement of operations data set forth below with respect to the fiscal years ended June 30, 1995, 1996 and 1997 and the balance sheet data at June 30, 1996 and 1997 are derived from, and should be read in conjunction with, the audited Consolidated Financial Statements included elsewhere herein. The statement of operations data set forth below with respect to the fiscal years ended June 30, 1993 and 1994, and the balance sheet data at June 30, 1993, 1994 and 1995 are derived from audited financial statements not included in this Form 10-K. In fiscal 1994, the Company restated previously issued financial results, including the quarterly results throughout fiscal 1993, and the first two quarters of fiscal 1994. The restated financial results primarily reflected revisions in revenue recognition regarding software licenses, changes in the accounting treatment for several acquisitions made during the fourth quarter of fiscal 1993 and during the second quarter of fiscal 1994, and other adjustments and accounting corrections.
Fiscal Years Ended June 30, -------------------------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- (in thousands, except per share amounts) STATEMENT OF OPERATIONS DATA: Revenues: License fees $ 18,054 $ 30,768 $ 37,664 $ 22,157 $ 30,320 Consulting and professional services 2,436 11,034 11,265 9,940 10,716 Support services 2,634 5,820 8,985 11,550 15,861 Business forms sales 5,705 6,720 - - - Royalty income - - 526 619 1,207 -------- -------- -------- -------- -------- Total revenues 28,829 54,342 58,440 44,266 58,104 Cost of revenues 9,621 25,506 20,169 20,848 21,389 -------- -------- -------- -------- -------- Gross profit 19,208 28,836 38,271 23,418 36,715 -------- -------- -------- -------- -------- Operating expenses: Sales and marketing 14,715 25,869 20,890 21,114 25,443 General and administrative 2,586 10,258 5,396 15,996 5,415 Software development 7,389 22,017 17,826 14,293 10,011 Charge for restructuring - 6,741 - 5,568 1,600 Charge for purchased research and development 11,987 3,570 - - - -------- -------- -------- -------- -------- Total operating expenses 36,677 68,455 44,112 56,971 42,469 -------- -------- -------- -------- -------- Loss from operations (17,469) (39,619) (5,841) (33,553) (5,754) Charge for settlement of class action litigation and related expenses - (20,000) - - - Other income (expense), net 458(1) 341(1) 103(2) (132)(3) 873(1) -------- -------- -------- -------- -------- Loss before provision (benefit) for income taxes (17,011) (59,278) (5,738) (33,685) (4,881) Provision (benefit) for income taxes (9) 308 20 - - -------- -------- -------- -------- -------- Net loss $(17,002) $(59,586) $ (5,758) $(33,685) $ (4,881) ======== ======== ======== ======== ======== Net loss per share $ (1.53) $ (4.48) $ (.42) $ (2.15) $ (0.25) ======== ======== ======== ======== ======== Weighted average shares 11,082 13,296 13,722 15,654 19,454 ======== ======== ======== ======== ========
(1) Amount represents principally interest income. (2) Amount represents principally interest income net of interest expense associated with the Company's $15,000,000 debenture. (3) Amount represents principally interest expense associated with the Company's $15,000,000 debenture net of interest income. 16 17
June 30, --------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- BALANCE SHEET DATA: Working capital (deficit) $ 42,412 $(10,096) $ 24,334 $ 2,763 $ 2,752 Total assets 80,871 48,339 66,534 40,912 41,778 Current portion of long-term obligations - 6,000 - - - Long-term obligations, less current portion 116 10,158 16,035 288 277 Stockholders' equity 58,549 1,290 29,965 15,474 14,448
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Fiscal 1994 Restructuring Charge In May 1994, the Company announced a restructuring of its business operations, including plans to sell certain operations and non-core software products, with the intent to significantly reduce operating expenses and minimize the usage of cash. Between May 1994 and March 1996, the Company reduced its work force through a reduction in force, attrition, as well as the sale and closure of certain of its operations and products. See "Part I, Item 1 -- Business - Restructurings." As part of the divestitures and asset sales in the restructuring, the Company is entitled to receive royalties on future sales of product from certain of the purchasers, which are computed as a percentage of revenues. The Company received $526,000 in royalty income from divested operations in fiscal 1995, $619,000 in royalty income from divested operations in fiscal 1996, and $1,207,000 in royalty income from divested operations in fiscal 1997. In the fourth quarter of fiscal 1994, the Company recorded a restructuring charge of $6.7 million. Such amount included approximately $2.4 million for severance and other extended benefit costs related to the reduction in force, $2.3 million in lease termination and buyout costs related to the closure of facilities, $2.1 million in asset write-downs and other costs. The charge reflected the net effect of estimated proceeds of operations and products to be divested. During fiscal 1995, the Company paid approximately $2.3 million for severance, lease termination and other costs related to the restructuring. Also during 1995, the Company wrote-down accounts receivable, property and equipment, and other assets related to the restructuring aggregating $2.4 million. In addition, $1.8 million of excess proceeds from divestitures over the net book value of assets sold were credited to the restructuring reserve. At June 30, 1997, payments related to the fiscal 1994 restructuring were substantially complete. At June 30, 1997, the Company had a $88,000 cash obligation related to lease termination costs which will be funded from existing cash resources and working capital. Fiscal 1996 Restructuring Charges During the second quarter of fiscal 1996, the Company restructured its business operations. As part of the restructuring, the Company discontinued the marketing of the version of its Platinum SQL Enterprise product line that runs on the Sybase/UNIX server platform. Also, the Company discontinued its direct sales force for its Platinum SQL Enterprise product line, which resulted in the termination of approximately 50 employees. As a result of this action, the Company at the time shifted the focus of its product distribution to VARs and distributors. The Company also expanded its channel sales and corporate marketing groups in an effort to support the distribution of its products through its dealer channel. The Company terminated a total of approximately 100 employees as part of the second quarter restructuring, including approximately 50 employees in its international, administrative and development operations. During the second quarter of fiscal 1996, the Company recorded a $3.3 million charge for the restructuring. The restructuring charge included approximately $1.2 million for severance and other extended benefit costs related to the reduction in force, $1.2 million for lease termination and buyout costs related to the closure of facilities and $872,000 in asset write-downs and other costs. In February 1996, the Company had another reduction in force of approximately 40 persons. This reduction in force resulted in an additional restructuring charge of $2.3 million which was recorded in the third quarter of fiscal 1996. The third quarter restructuring charge included approximately $300,000 for severance and other extended 17 18 benefits costs related to the reduction in force, $625,000 in lease termination and buyout costs related to the closure of facilities and $1.4 million in asset write-downs and other costs. During fiscal 1997, the Company paid approximately $912,000 for severance, lease termination and other costs relating to the fiscal 1994 and fiscal 1996 restructurings. At June 30, 1997, the Company had a $921,000 cash obligation related to lease termination and other costs of the fiscal 1996 restructurings which will be funded from existing cash resources and working capital. Fiscal 1997 Restructuring Charge and Clientele Acquisition On June 30, 1997, the Company acquired Clientele Software, Inc., a privately held provider of help desk automation software based in Portland, Oregon. See "Part I, Business, Recent Acquisition." The acquisition was accounted for as a pooling of interests and all financial results of the Company for the fiscal years ended June 30, 1993, 1994, 1995, 1996 and 1997 include the operations of Clientele. The Company anticipates that Clientele will continue to operate as an autonomous unit with integration activities focused on the restructuring and consolidation of Clientele's administrative and support functions with those of the Company. The Company expects to incur certain expenses estimated at $1,600,000 in connection with the restructuring and consolidation, primarily the cost of reducing personnel, as well as excess facility costs at Clientele. The Company estimates that expense savings from the 1997 restructuring to be nominal. Fiscal 1994 Restatement In fiscal 1994, the Company restated previously issued financial results, including the quarter and fiscal year ended June 30, 1992, the quarterly results throughout fiscal 1993, and the first two quarters of fiscal 1994. The restated financial results primarily reflected revisions in revenue recognition regarding software licenses, changes in the accounting treatment for several acquisitions made during the fourth quarter of fiscal 1993 and during the second quarter of fiscal 1994, and other adjustments and accounting corrections. RESULTS OF OPERATIONS The following table sets forth certain statement of operations data as a percentage of total revenues for the periods indicated:
Fiscal Year Ended June 30, ---------------------------------------- 1993 1994 1995 1996 1997 ----- ---- ---- ---- ---- Revenues: License fees 63% 57% 64% 50% 52% Consulting and professional services 8 20 20 23 19 Support services 9 11 15 26 27 Business forms sales 20 12 - - - Royalty income - - 1 1 2 ---- ---- ---- ---- ---- Total revenues 100 100 100 100 100 Cost of revenues 33 47 35 47 37 ---- ---- ---- ---- ---- Gross profit 67 53 65 53 63 ---- ---- ---- ---- ---- Operating expenses: Sales and marketing 51 48 35 48 44 General and administrative 9 19 9 36 9 Software development 26 41 31 32 17 Charge for restructuring - 12 - 13 3 Charge for purchased research and development 42 6 - - - ---- ---- ---- ---- ---- Total operating expenses 128 126 75 129 73 ---- ---- ---- ---- ---- Income (loss) from operations (61) (73) (10) (76) (10) Charge for settlement of class action litigation and related expenses - (37) - - - Other income, net 2 - - - 2 ---- ---- ---- ---- ---- Income (loss) before provision (benefit) for income taxes (59) (110) (10) (76) (8) Provision (benefit) for income taxes - - - - - ---- ---- ---- ---- ---- Net income (loss) (59)% (110)% (10)% (76)% (8)% ==== ==== ==== ==== ====
18 19 COMPARISON OF FISCAL YEAR 1996 TO FISCAL YEAR 1997 Revenues Revenues were approximately $44,266,000 and $58,104,000 in fiscal years 1996 and 1997, respectively, representing an increase of approximately 31% in fiscal 1997. License fee revenues were $22,157,000 and $30,320,000 for the years ended June 30, 1996 and 1997, respectively. License fee revenues for the Company's Platinum SQL Enterprise product line approximated $2,903,000 for the year ended June 30, 1996 as compared to $0 for the year ended June 30, 1997. In October 1995, the Company discontinued the marketing of the version of its Platinum SQL Enterprise product line that runs on the Sybase/UNIX server platform because of lack of recent license revenue. The Company generated license fee revenues of $7,902,000 for the year ended June 30, 1996 as compared to $17,931,000 for the year ended June 30, 1997 from its Platinum SQL (formerly named Platinum SQL NT) product line which was first released in the quarter ended December 31, 1994. The increase in revenues is principally due to the reinstatement of the direct sales force. Revenues for fiscal 1996 and 1997 included license fee revenues from the Platinum-DOS and Platinum for Windows (first released in the quarter ended June 30, 1996) products of $6,075,000 and $7,436,000, respectively. The increase in revenues was the result of the availability of a complete Windows-based product suite for the entire fiscal 1997 period. International license fee revenues increased from $7,100,000 in fiscal year 1996 to $8,969,000 in fiscal year 1997. The increase was due to increases in international license fee revenues for the Company's Platinum SQL and Platinum for DOS and Platinum for Windows products. Consulting and professional services revenues increased 8% from $9,940,000 in fiscal year 1996 to $10,716,000 in fiscal year 1997. The increase was primarily attributable to the involvement of the consulting and professional services division in providing consulting and implementation services to customers. Support services revenue increased 37% from revenues of $11,550,000 in fiscal year 1996 to $15,861,000 in fiscal year 1997. The increase was primarily attributable to an overall rise in the installed base of end-users of Platinum SQL and the increased effort to renew customers on maintenance contracts. The number of days sales outstanding was 64 days at June 30, 1997 as compared to 76 at June 30, 1996. The improvement in days sales outstanding was primarily attributable to increased efforts in collecting accounts receivable as well as payment terms on direct Platinum SQL licenses of 50% of net license fees and maintenance due upon license execution and the remaining 50% of license fees due in 30 days. Gross Profit Gross profit increased 57% from $23,418,000 in fiscal year 1996 to $36,715,000 in fiscal year 1997 and increased as a percentage of revenues from 53% to 63%, respectively. The increases in gross profit and the gross profit percentage were due to higher license revenues as a percentage of total revenues, which have higher margins than consulting and professional services and support services revenues. Operating Expenses Total operating expenses decreased from $51,403,000 for fiscal year 1996 to 40,869,000 for fiscal year 1997, excluding the one time charges for the restructurings. The decrease was due to the provision of additional reserves for the following items: accounts receivable arising from Platinum SQL sales to VARs; relocation costs associated with the hiring of new senior management executives; write-down of property and equipment; and notes receivable from divestitures in fiscal 1996. Such decrease was also achieved by cost savings from the termination of approximately 100 employees during the second quarter of fiscal 1996 and 40 employees during the third quarter of fiscal 1996. Such decrease was offset in part by the investment made in the Platinum SQL direct sales force. Total operating expenses as a percentage of revenues were 116% and 70% for the years ended June 30, 1996 and 1997, respectively (excluding the one time charges for the restructurings). Sales and marketing expenses were approximately $21,114,000 and $25,443,000 in fiscal years 1996 and 1997, respectively, or approximately 48% and 44% of total revenues. The increase in the dollar amount of sales and marketing expenses was primarily due to the re-establishment of a direct sales force for the Platinum SQL product. 19 20 General and administrative expenses were approximately $15,996,000 and $5,415,000 in fiscal years 1996 and 1997, respectively, or approximately 36% and 9% of total revenues. The decrease was primarily the result of the provision of the following additional reserves: approximately $1,636,000 for accounts receivable arising from Platinum SQL sales to VARs; approximately $1,292,000 relating to accounts receivable from Platinum SQL Enterprise customers; relocation costs of approximately $1,590,000 associated with the hiring of new senior management executives; write-down of approximately $500,000 of property and equipment and approximately $2,941,000 provided for notes receivable from divestitures in fiscal 1996. Software development expenses were approximately $14,664,000 and $11,468,000 in fiscal years 1996 and 1997, respectively, before capitalization of software costs of approximately $371,000 and $1,457,000. The decrease in the amount of software development expenses was due to personnel reductions as a result of the restructurings. Upon the release for general availability of the Company's software products, the Company amortizes capitalized software development costs over a five year period. Such amortization is included in cost of revenues. The percentage of capitalized software development costs to total software development costs increased from 3% in fiscal year 1996 to 13% in fiscal year 1997 due principally to the capitalization of Platinum SQL multi-currency development costs as well as certain Platinum for Windows development costs. Other Income (Expense) Other income (expense) was approximately ($132,000) and $873,000 in fiscal years 1996 and 1997, respectively. Other income (expense) primarily represented interest earned on the Company's cash and cash equivalents and short-term investments net of interest expense of $1,236,000 in fiscal 1996 and $0 in fiscal 1997 on the Company's $15,000,000 debenture, which debenture was repaid in June 1996, when it was converted into common stock by the Company. Provision for Income Taxes The provision for income taxes was approximately $0 and $0 in fiscal years 1996 and 1997, respectively. The effective tax rate during these periods was 0% for both years. The effective tax rates were lower than the statutory federal income tax rate of 34%, primarily due to the inability to record benefits from current net operating losses. As of June 30, 1997, the Company had provided a valuation allowance of approximately $41,580,000 because realization of the Company's net deferred tax asset is not assured due to the historical losses incurred by the Company, and the uncertainty as to profits in the future. Any realization of the Company's net deferred tax asset will reduce the Company's effective tax rate in future periods. COMPARISON OF FISCAL YEAR 1995 TO FISCAL YEAR 1996 Revenues Revenues were approximately $58,440,000 and $44,266,000 in fiscal years 1995 and 1996, respectively, representing a decrease of approximately 24% in fiscal 1996. License fee revenues were $37,664,000 and $22,157,000 for the years ended June 30, 1995 and 1996, respectively. Included in revenues for the years ended June 30, 1995 and June 30, 1996, were $8,529,000 and $253,000, respectively of license fee revenues that were previously deferred as part of the fiscal 1994 restatement. See "Fiscal 1994 Restatement." Excluding license fee revenues that were deferred as part of the restatement, license fee revenues for the Company's Platinum SQL Enterprise product line approximated $11,116,000 for the year ended June 30, 1995 as compared to $2,650,000 for the year ended June 30, 1996. In October 1995, the Company discontinued the marketing of the version of its Platinum SQL Enterprise product line that runs on the Sybase/UNIX server platform because of lack of recent license revenue. The Company generated license fee revenues of $3,202,000 for the year ended June 30, 1995 as compared to $7,902,000 for the year ended June 30, 1996 from its Platinum SQL (formerly named Platinum SQL NT) product line which was first released in the quarter ended December 31, 1994. Excluding license fee revenues that were deferred as part of the restatement, revenues for fiscal 1995 and 1996 included license fee revenues from the Platinum-DOS and Platinum for Windows (first released in the quarter ended June 30, 1996) products of $9,143,000 and $6,075,000, respectively. The decrease in revenues was the result of the unavailability of a complete Windows-based product suite for the entire fiscal 1996 period. 20 21 International license fee revenues decreased from $10,984,000 in fiscal year 1995 to $7,100,000 in fiscal year 1996. The decrease resulted principally from the discontinuance of the marketing of the version of the Company's Platinum SQL Enterprise product line, that runs on the Sybase/UNIX platform in international markets and the elimination of the direct sales force for this product, both of which occurred in October 1995. Excluding the revenues from the custom software development division which was divested in August 1994, consulting and professional services revenues decreased 12% from $11,265,000 in fiscal year 1995 to $9,940,000 in fiscal year 1996. The decrease was primarily attributable to the involvement of the consulting and professional services division in providing formal training to distributors and dealers, and assisting them in transferring expertise gained in the Platinum SQL Enterprise and Platinum SQL NT implementations over the last three years. Support services revenue increased 29% from revenues of $8,985,000 in fiscal year 1995 to $11,550,000 in fiscal year 1996. The increase was primarily attributable to an overall rise in the installed base of end-users of Platinum SQL and the increased effort to renew customers on maintenance contracts. The number of days sales outstanding was 76 days at June 30, 1996 as compared to 84 at June 30, 1995. The improvement in days sales outstanding was primarily attributable to the termination of 90 day credit terms given to VARs and to additional receivable reserves provided. Gross Profit Gross profit decreased 39% from $38,271,000 in fiscal year 1995 to $23,418,000 in fiscal year 1996 and decreased as a percentage of revenues from 65% to 53%, respectively. The decreases in gross profit and the gross profit percentage were due to lower license revenues as a percentage of total revenues, which have higher margins than consulting and professional services and support services revenues. Operating Expenses Total operating expenses increased from $44,112,000 for fiscal year 1995 to $51,403,000 for fiscal year 1996, excluding the one time charges for the restructurings. The increase was due to the provision of additional reserves for accounts receivable arising from Platinum SQL sales to VARs, relocation costs associated with the hiring of new senior management executives, write-down of property and equipment and reserves provided for notes receivable from divestitures. Such increases were offset in part by cost savings achieved from the termination of approximately 100 employees during the second quarter of fiscal 1996 and 40 employees during the third quarter of fiscal 1996. Total operating expenses as a percentage of revenues were 75% and 116% for the years ended June 30, 1995 and 1996, respectively (excluding the one time charges for the restructurings). Sales and marketing expenses were approximately $20,890,000 and $21,114,000 in fiscal years 1995 and 1996, respectively, or approximately 36% and 48% of total revenues. The increase in the dollar amount of sales and marketing expenses increased as a result of increased Clientele marketing and advertising expenses offset in part by cost savings achieved from the termination of the direct sales force in October 1995. In the fourth quarter of fiscal 1996, the Company re-established a smaller direct sales force for its Platinum SQL product. General and administrative expenses were approximately $5,396,000 and $15,996,000 in fiscal years 1995 and 1996, respectively, or approximately 9% and 36% of total revenues. The increase was primarily the result of the provision of additional reserves of approximately $1,636,000 for accounts receivable arising from Platinum SQL sales to third party dealers, the provision of additional reserves of approximately $1,292,000 relating to accounts receivable from Platinum SQL Enterprise customers, relocation costs of approximately $1,590,000 associated with the hiring of new senior management executives, write-down of approximately $500,000 of property and equipment and reserves of approximately $2,941,000 provided for notes receivable from divestitures. Software development expenses were approximately $18,434,000 and $14,664,000 in fiscal years 1995 and 1996, respectively, before capitalization of software costs of approximately $608,000 and $371,000. The decrease in the amount of software development expenses was due to personnel reductions. Upon the release for general availability of the Company's software products, the Company amortizes capitalized software development costs over a five year period. Such amortization is included in cost of revenues. The percentage of capitalized software development costs to total software development costs remained constant at 3% in fiscal years 1995 and 1996 21 22 because of a lower development level related to products that have reached technological feasibility but have not been released for general availability. Other Income (Expense) Other income (expense) was approximately $103,000 and $(132,000) in fiscal years 1995 and 1996, respectively. Other income (expense) primarily represented interest earned on the Company's cash and cash equivalents and short-term investments net of interest expense of $812,000 in fiscal 1995 and $1,236,000 in fiscal 1996 on the Company's $15,000,000 debenture. Provision for Income Taxes The provision for income taxes was approximately $20,000 and $0 in fiscal years 1995 and 1996, respectively. The effective tax rates during these periods were 0% for each year. The effective tax rates were lower than the statutory federal income tax rate of 34%, primarily due to the inability to record benefits from current net operating losses. As of June 30, 1996, the Company had provided a valuation allowance of approximately $38,895,000 because realization of the Company's net deferred tax asset is not assured due to the historical losses incurred by the Company, and the uncertainty as to profits in the future. Any realization of the Company's net deferred tax asset will reduce the Company's effective tax rate in future periods. INFLATION AND FOREIGN CURRENCY EXCHANGE Inflation has not had a significant impact on the Company's operating results to date. The Company's foreign revenues are substantially all denominated in the country's respective local currency. The Company's results of operations of its international subsidiaries are impacted by foreign currency fluctuations. Significant fluctuation in currency values could have an adverse effect on the Company's consolidated net revenues, gross margin and profitability. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, the Company's principal sources of liquidity included cash and cash equivalents of approximately $6,290,000. Cash and cash equivalents increased by approximately $850,000 over the June 30, 1996 balance primarily due to exercise of stock options offset in part by capital expenditures and cash used in operations. The Company had working capital of $2,763,000 at June 30, 1996 versus working capital of $2,752,000 at June 30, 1997. The Company's operations used approximately $657,000 of cash and cash equivalents in the year ended June 30, 1997. Included in the use of cash and cash equivalents from operations was the investment of approximately $11,468,000 in software development. As part of the sale of certain Company product lines and divisions in the fiscal 1994 restructuring, the Company received payments on notes receivable from divestitures of approximately $1,207,000 during the year ended June 30, 1997. The Company also paid approximately $912,000 in severance, lease and other costs related to the fiscal 1994 and fiscal 1996 restructurings during the year ended June 30, 1997. If the Company is not successful in achieving targeted revenues, the Company may be required to take further actions to align its operating expenses with its reduced revenues, such as reductions in work force or other cost cutting measures. The Company is dependent upon its ability to generate cash flow from license fees and other operating revenues, as well as the collection of its outstanding accounts receivable to maintain current liquidity levels. However, the Company believes that its current cash reserves, together with existing sources of liquidity, will satisfy the Company's projected short-term liquidity and other cash requirements for the next 12 months. 22 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data of the Company required by this Item are set forth at the pages indicated at Item 14(a)(1). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes or disagreements with respect to the Company's independent accountants during fiscal 1997. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required hereunder is incorporated by reference from the sections of the Company's Proxy Statement filed in connection with its October 29, 1997 Annual Meeting of Stockholders entitled "Nominees", "Series B Preferred Directors" and "Other Executive Officers." ITEM 11. EXECUTIVE COMPENSATION The information required hereunder is incorporated by reference from the sections of the Company's Proxy Statement filed in connection with its October 29, 1997 Annual Meeting of Stockholders entitled "Executive Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required hereunder is incorporated by reference from the sections of the Company's Proxy Statement filed in connection with its October 29, 1997, Annual Meeting of Stockholders entitled "Principal Stockholders." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required hereunder is incorporated by reference from the sections of the Company's Proxy Statement filed in connection with its October 29, 1997 Annual Meeting of Stockholders entitled "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation." 23 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements Index to Financial Statements
Page ---- Report of Independent Auditors...........................................30 Consolidated Balance Sheets as of June 30, 1996 and 1997.................31 Consolidated Statements of Operations for the years ended June 30, 1995, 1996 and 1997................ ............................32 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1995, 1996 and 1997...... ......................................33 Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1996 and 1997................ .....................................34 Notes to Consolidated Financial Statements...............................35 (2) Financial Statement Schedules Index to Financial Statement Schedules Report of Independent Auditors...........................................47 Schedule II - Valuation and Qualifying Accounts..........................48
All other schedules are omitted because they are not required or the required information is included in the consolidated financial statements or notes thereto. 24 25 (3) Exhibits Index to Exhibits
Exhibit No. Description Location ----------- ----------- -------- 2.1 Agreement and Plan of Reorganization and Merger dated as of June 27, 1997 among the Company, CSI Acquisition Corp., Clientele Software, Inc., Dale E. Yocum, Pamela Yocum, William L. Mulert (Schedules not included pursuant to Rule 601(b)(2) of Reg. S-K) (9) 3.1 Second Restated Certificate of Incorporation of the Company. (1) 3.2 Certificate of Amendment to Second Restated Certificate of Incorporation of the Company (10) 3.3 Amended and Restated Bylaws of the Company, as currently in effect. (8) 3.6 Specimen Certificate of Common Stock. (2) 4.1 Certificate of Designation of Rights, Preferences and Privileges of Series A Junior Participating Preferred Stock (4) 4.2 Certificate of Designation of Preferences of Series B Preferred Stock (5) 4.3 Certificate of Designation of Preferences of Series C Preferred Stock (6) 4.4 Amended and Restated 8% Convertible, Exchangeable Subordinated Security in the Principal Amount of $15,000,000 dated May 8, 1996 (8) 10.1 Platinum Software Corporation Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan - 1990 (the "1990 Plan"). (2) 10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2) 10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2) 10.4 Form of Restricted Share Agreement pertaining to the Plan. (2) 10.5 Form of Indemnification Agreement for Officers and Directors of the Company. (2) 10.6 Platinum Software Corporation Employee Stock Purchase Plan, as amended. (2) 10.7 Employment Agreement, dated September 30, 1988, between the Company and Timothy J. McMullen, together with an amendment dated August 26, 1992 thereto. (2) 10.8 Employment Agreement, dated September 30, 1988, between the Company and Kevin P. Riegelsberger, together with an amendment dated August 26, 1992 thereto. (2) 10.10 1993 Nonqualified Stock Option Plan (3) 10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993 Nonqualified Stock Option Plan. (3) 10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted Stock Purchase Plan. (5) 10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5) 10.15 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the Company and Altec Forms, Inc. (excluding disclosure schedules) (5) 10.16 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the Company and MLDV Acquisition Co. (excluding disclosure schedules) (5) 10.17 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the Company and FRC Consulting, Inc. (excluding disclosure schedules) (5) 10.18 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the Company and Platinum Latin America-Caribbean, Inc. (excluding disclosure schedules) (5) 10.24 Agreement of Purchase and Sale of Assets dated October 31, 1994 between the Company and Westwood & Best Software Corporation (excluding disclosure schedules) (6) 10.25 Agreement of Purchase and Sale of Assets dated August 31, 1994 between the Company and Perot Systems Corporation (excluding disclosure schedules) (6) 10.26 Agreement of Purchase and Sale of Assets dated March 22, 1995 between the Company and Baker Software Products Corporation (excluding disclosure schedules) (6) 10.27 Agreement for Transfer of Software and Mutual Release dated July 22, 1994 between the Company, Michael Rohan and Financial Reporting Technology, Inc. (6) 10.28 Stock Purchase Agreement dated September 22, 1994 between the Company and the Series B Preferred Stock Investors (6) 10.29 Registration Rights Agreement dated September 22, 1994 between the Company and the Series B Preferred Stock Investors (6) 10.30 Amendment to Stock Purchase Agreement dated May 26, 1995 between the Company and the Series C Preferred Stock Investors (6) 10.31 Amendment to Registration Rights Agreement dated May 26, 1995 between the Company and the Series C Preferred Stock Investors (6)
25 26 10.32 Stipulation for Partial Settlement of In Re Platinum Securities Litigation, dated July 14, 1994 (6) 10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7) 10.34 Restricted Stock Purchase Agreement between the Company and L. George Klaus dated as of February 7, 1996. (7) 10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7) 10.36 Restricted Stock Purchase Agreement between the Company and William L. Pieser dated as of February 7, 1996. (7) 10.37 Agreement between the Company and Michael J. Simmons dated February 8, 1996. (7) 10.38 Agreement between the Company and Carmelo J. Santoro dated February 8, 1996. (7) 10.39 Agreement between the Company and Bruce C. Edwards dated February 8, 1996. (7) 10.40 Agreement of Purchase and Sale of Assets dated as of February 29, 1996 between Strategic Advantage Software Corporation, the Company, Cypher Business Systems, Ltd., and Slatershelfco 173, Ltd. (excluding disclosure schedules). (7) 10.41 Agreement of Purchase and Sale of Assets dated as of September 30, 1995 between Platinum Treasury Systems, plc and the Company (excluding disclosure schedules). (7) 10.42 Employment Offer letter with Ken Lally dated as of April 1, 1996. (7) 10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally dated as of April 10, 1996. (7) 10.44 1996 Nonqualified Stock Plan and Form of Nonqualified Option Agreement. 10.45 Platinum Software Corporation Clientele Incentive Stock Plan. 10.46 Consulting Agreement with Carmelo J. Santoro. 22.1 Subsidiaries of the Company. 23.1 Consent of Ernst & Young LLP. 24.1 Power of Attorney (included on the signature page of this Annual Report on Form 10-K).
Executive Compensation Plans and Arrangements
Exhibit No. Description Location ----------- ----------- -------- 10.1 1990 Plan (2) 10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2) 10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2) 10.4 Form of Restricted Share Agreement pertaining to the 1990 Plan. (2) 10.7 Employment Agreement dated September 30, 1988 between the Company and Timothy J. McMullen, together with an amendment dated August 26, 1992 thereto. (2) 10.8 Employment Agreement dated September 30, 1988 between the Company and Kevin P. Riegelsberger, together with an amendment dated August 26, 1992 thereto. (2) 10.10 1993 Nonqualified Stock Option Plan (3) 10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993 Nonqualified Stock Option Plan. (3) 10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted Stock Purchase Plan. (5) 10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5) 10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7) 10.34 Restricted Stock Purchase Agreement between the Company and L. George Klaus dated as of February 7, 1996. (7) 10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7) 10.36 Restricted Stock Purchase Agreement between the Company and William L. Pieser dated as of February 7, 1996. (7) 10.37 Agreement between the Company and Michael J. Simmons dated February 8, 1996. (7) 10.38 Agreement between the Company and Carmelo J. Santoro dated February 8, 1996. (7) 10.39 Agreement between the Company and Bruce C. Edwards dated February 8, 1996. (7) 10.42 Employment offer letter with Ken Lally dated as of April 1, 1996 (7) 10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally dated as of April 10, 1996 (7) 10.44 1996 Nonqualified Stock Plan and Form of Nonqualified Option Agreement. 10.45 Platinum Software Corporation Clientele Incentive Stock Plan.
26 27 10.46 Consulting Agreement with Carmelo J. Santoro.
- -------- (1) Incorporated by reference to the referenced exhibit number to the Company's Registration Statement on Form S-1, Reg. No. 33-57294. (2) Incorporated by reference to the referenced exhibit number to the Company's Registration Statement on Form S-1, Reg. No. 33-51566. (3) Incorporated by reference to the referenced exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993. (4) Incorporated by reference to the referenced exhibit to the Company's Registration Statement on Form 8-A, dated April 14, 1994. (5) Incorporated by reference to the referenced exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994. (6) Incorporated by reference to the referenced exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995. (7) Incorporated by reference to the referenced exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (8) Incorporated by reference to the referenced exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996. (9) Incorporated by reference to the referenced exhibit to the Company's Current Report on Form 8-K dated June 30, 1997. (10) Incorporated by reference to the referenced exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ending December 31, 1996. (b) Reports on Form 8-K. The Company filed a current report on Form 8-K dated April 22, 1997 to report under Item 5, Other Events, the Company's results for the quarter ended March 31, 1997. In addition, the Company filed a current report on Form 8-K, dated June 30, 1997, to report under Item 2, Acquisition or Disposition of Assets, the acquisition of Clientele Software, Inc. The following trademarks may be mentioned in the foregoing Annual Report on Form 10-K: Platinum, and SeQueL to Platinum. Platinum and SeQueL to Platinum are registered trademarks of the Company. Clientele is a registered trademark of Clientele Software, Inc. All other product names are trademarks or registered trademarks of their respective companies. 27 28 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, in the City of Irvine, State of California, on September 26, 1997. PLATINUM SOFTWARE CORPORATION By: /s/ L. George Klaus -------------------------------------- L. George Klaus President, Chief Executive Officer and Chairman of the Board POWER OF ATTORNEY We, the undersigned directors and officers of Platinum Software Corporation, do hereby constitute and appoint L. George Klaus our true and lawful attorney and agent, with full power of substitution to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto; and we do hereby ratify and confirm all that said attorney and agent, shall do or cause to be done by virtue hereof. 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 --------- ----- ---- Chairman of the Board, Chief Executive Officer /s/ L. George Klaus and President - ------------------------ (Principal Executive Officer) September 26, 1997 L. George Klaus /s/ Michael J. Simmons - ------------------------ Chief Financial Officer Michael J. Simmons (Principal Financial Officer) September 26, 1997 /s/ Paul G. Mazzarella - ------------------------ Vice President, Corporate Controller Paul G. Mazzarella (Principal Accounting Officer) September 26, 1997 - ------------------------ Director ____________, 1997 Carmelo J. Santoro /s/ W. Douglas Hajjar - ------------------------ Director September 26, 1997 W. Douglas Hajjar /s/ Richard J. Goeglein - ------------------------ Director September 26, 1997 Richard J. Goeglein
28 29
SIGNATURE TITLE DATE --------- ----- ---- /s/ L. John Doerr Director September 26, 1997 - -------------------------- L. John Doerr /s/ Arthur J. Marks Director September 26, 1997 - -------------------------- Arthur J. Marks /s/ Robert Finzi Director September 26, 1997 - -------------------------- Robert Finzi /s/ Donald R. Dixon Director September 26, 1997 - -------------------------- Donald R. Dixon
29 30 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Platinum Software Corporation We have audited the accompanying consolidated balance sheets of Platinum Software Corporation as of June 30, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 Platinum Software Corporation as of June 30, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Orange County, California July 29, 1997 30 31 PLATINUM SOFTWARE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
June 30, ---------------------- 1996 1997 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 5,440 $ 6,290 Short-term investments 10,098 9,542 Restricted cash 1,006 - Accounts receivable, net of allowance for doubtful accounts of $9,123 and $6,263 at June 30, 1996 and 1997, respectively 8,436 12,025 Notes receivable from divestitures, net 825 - Inventories 460 481 Prepaid expenses and other 1,648 1,467 --------- --------- Total current assets 27,913 29,805 Property and equipment, net 9,196 8,508 Software development costs, net of accumulated amortization of $2,448 and $3,495 at June 30, 1996 and 1997, respectively 2,250 2,660 Acquired source code, net of accumulated amortization of $3,116 and $4,200 at June 30, 1996 and 1997, respectively 1,088 278 Other assets 465 527 --------- --------- $ 40,912 $ 41,778 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,057 $ 4,725 Other accrued expenses 5,664 6,387 Accrued restructuring costs 1,921 2,609 Accrued relocation costs 1,503 - Accrued commissions 726 1,694 Deferred revenue 11,279 11,638 --------- --------- Total current liabilities 25,150 27,053 --------- --------- Long-term liabilities 288 277 --------- --------- Commitments and Contingencies (Note 4) Stockholders' equity: Preferred stock, $.001 par value, 5,000,000 shares authorized: Series A preferred stock, none issued and outstanding at June 30, 1996 and 1997 - - Series B preferred stock, 2,490,000 and 2,435,000 shares issued and outstanding at June 30, 1996 and 1997, respectively 13,770 13,466 Series C preferred stock, 231,598 and 213,803 shares issued and outstanding at June 30, 1996 and 1997, respectively 18,226 16,826 Common stock, $.001 par value: 60,000,000 shares authorized, 18,997,078 and 20,109,816 shares issued and outstanding at June 30, 1996 and 1997, respectively 19 20 Additional paid-in capital 111,233 116,747 Less: Notes receivable from officers for issuance of restricted stock (11,563) (11,563) Accumulated foreign currency translation adjustments 249 293 Accumulated deficit (116,460) (121,341) --------- --------- Total stockholders' equity 15,474 14,448 --------- --------- $ 40,912 $ 41,778 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. 31 32 PLATINUM SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended June 30, -------------------------------- 1995 1996 1997 -------- -------- -------- Revenues: License fees $ 37,664 $ 22,157 $ 30,320 Consulting and professional services 11,265 9,940 10,716 Support services 8,985 11,550 15,861 Royalty income 526 619 1,207 -------- -------- -------- 58,440 44,266 58,104 -------- -------- -------- Cost of revenues: Cost of license fees 4,318 4,065 5,131 Cost of consulting and professional services 11,608 10,555 10,078 Cost of support services 4,243 6,228 6,180 -------- -------- -------- 20,169 20,848 21,389 -------- -------- -------- Gross profit 38,271 23,418 36,715 -------- -------- -------- Operating expenses: Sales and marketing 20,890 21,114 25,443 General and administrative 5,396 15,996 5,415 Software development 17,826 14,293 10,011 Charge for restructuring - 5,568 1,600 -------- -------- -------- 44,112 56,971 42,469 -------- -------- -------- Loss from operations (5,841) (33,553) (5,754) -------- -------- -------- Other income (expense): Interest income 1,027 949 835 Interest expense (730) (1,344) (71) Other income (expense), net (194) 263 109 -------- -------- -------- 103 (132) 873 -------- -------- -------- Loss before provision for income taxes (5,738) (33,685) (4,881) Provision for income taxes 20 - - -------- -------- -------- Net loss $ (5,758) $(33,685) $ (4,881) ======== ======== ======== Net loss per share $ (0.42) $ (2.15) $ (0.25) ======== ======== ======== Shares used in computing net loss per share 13,722 15,654 19,454 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. 32 33 PLATINUM SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Series A Series B Series C Preferred Stock Preferred Stock Preferred Stock Common Stock ------------------ -------------------- ------------------- ------------------ Shares Amount Shares Amount Shares Amount Shares Amount ------- ------ ------ ------ ------ ------- ---------- ------ Balance, June 30, 1994 - - - $ - - $ - 13,371,887 $ 13 Net loss - - - - - - - - Foreign currency translation adjustments - - - - - - - - Issuance of preferred stock - - 2,490,000 13,770 231,598 18,226 - - Exercise of warrants - - - - - - 173,000 - Employee stock purchases - - - - - - 62,774 - Exercise of stock options - - - - - - 456,230 1 -- ----- --------- ------- ------- ------- ---------- ---- Balance, June 30, 1995 - - 2,490,000 13,770 231,598 18,226 14,063,891 14 Net loss - - - - - - - - Foreign currency translation adjustments - - - - - - - - Issuance of restricted stock - - - - - - 2,950,000 3 Conversion of debenture - - - - - - 1,528,988 2 Exercise of warrants - - - - - - 60,750 - Employee stock purchases - - - - - - 47,711 - Exercise of stock options - - - - - - 345,738 - -- ----- --------- ------- ------- ------- ---------- ---- Balance, June 30, 1996 - - 2,490,000 13,770 231,598 18,226 18,997,078 19 Net loss - - - - - - - - Foreign currency translation adjustments - - - - - - - - Conversion of Series B Preferred Stock - - (55,000) (304) - - 55,000 - Conversion of Series C Preferred Stock - - - - (17,795) (1,400) 177,950 - Issuance of Common Stock - - - - - - 6,600 - Exercise of warrants - - - - - - 55,000 - Employee stock purchases - - - - - - 41,540 - Exercise of stock options - - - - - - 776,648 1 -- ----- --------- ------- ------- ------- ---------- ---- Balance, June 30, 1997 - $ - 2,435,000 $13,466 213,803 $16,826 20,109,816 $ 20 == ===== ========= ======= ======= ======= ========== ==== Accumulated Notes Foreign Additional Receivable Currency Total Paid-in from Translation Accumulated Stockholders' Capital Officers Adjustments Deficit Equity (Deficit) ------------- ---------- ------------ ----------- --------------- Balance, June 30, 1994 $ 77,941 $ - $353 $ (77,017) $ 1,290 Net loss - - - (5,758) (5,758) Foreign currency translation adjustments - - (49) - (49) Issuance of preferred stock - - - - 31,996 Exercise of warrants 721 - - - 721 Employee stock purchases 316 - - - 316 Exercise of stock options 1,448 - - - 1,449 -------- -------- ---- --------- -------- Balance, June 30, 1995 80,426 - 304 (82,775) 29,965 Net loss - - - (33,685) (33,685) Foreign currency translation adjustments - - (55) - (55) Issuance of restricted stock 11,560 (11,563) - - - Conversion of debenture 17,046 - - - 17,048 Exercise of warrants 244 - - - 244 Employee stock purchases 269 - - - 269 Exercise of stock options 1,688 - - - 1,688 -------- -------- ---- --------- -------- Balance, June 30, 1996 111,233 (11,563) 249 (116,460) 15,474 Net loss - - - (4,881) (4,881) Foreign currency translation adjustments - - 44 - 44 Conversion of Series B Preferred Stock 304 - - - - Conversion of Series C Preferred Stock 1,400 - - - - Issuance of Common Stock - - - - - Exercise of warrants 399 - - - 399 Employee stock purchases 237 - - - 237 Exercise of stock options 3,174 - - - 3,175 -------- -------- ---- --------- -------- Balance, June 30, 1997 $116,747 $(11,563) $293 $(121,341) $ 14,448 ======== ======== ==== ========= ========
The accompanying notes are an integral part of these consolidated statements. 33 34 PLATINUM SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years Ended June 30, -------------------------------- 1995 1996 1997 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (5,758) $(33,685) $ (4,881) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 5,510 6,338 5,812 Provision for doubtful accounts receivable 2,635 6,623 2,095 Provision for doubtful notes receivable from divestitures - 2,940 - Interest income on notes receivable from divestitures (508) - - Interest expense on debenture issued in connection with class action settlement 812 1,236 - Charge for restructuring - 5,568 1,600 Change in operating assets and liabilities: (Increase) decrease in accounts receivable (6,988) (1,010) (5,684) (Increase) decrease in inventories 314 212 (21) (Increase) decrease in prepaid expenses and other (103) 111 181 (Increase) decrease in other assets (228) 91 (62) Increase (decrease) in accounts payable 121 (73) 668 Increase (decrease) in other accrued expenses and accrued commissions (3,369) 508 1,691 Increase (decrease) in accrued restructuring costs (2,330) (2,683) (912) Increase (decrease) in accrued relocation costs - 1,503 (1,503) Increase (decrease) in deferred revenue (4,382) 2,587 359 -------- -------- -------- Cash used in operating activities (14,274) (9,734) (657) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,445) (2,760) (2,993) Capitalized software development costs (608) (371) (1,457) Purchase of source code - - (274) Purchase of short-term investments (5,004) (13,192) (10,500) Sale of short-term investments - 8,099 11,056 Payments received on notes receivable from divestitures 2,763 1,016 825 Increase (decrease) in long-term liabilities 106 66 (11) Increase in notes receivable from divestitures - (209) - -------- -------- -------- Cash used in investing activities (6,188) (7,351) (3,354) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuances of preferred stock 31,996 - - Exercise of stock options 1,392 1,382 3,175 Exercise of warrants 721 186 399 Employee stock purchases 316 269 237 Payment on class action litigation (1,000) - - (Increase) decrease in restricted cash (21) (530) 1,006 -------- -------- -------- Cash provided by financing activities 33,404 1,307 4,817 -------- -------- -------- EFFECT OF EXCHANGE RATES ON CASH (56) (55) 44 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,886 (15,833) 850 CASH AND CASH EQUIVALENTS, beginning of the year 8,387 21,273 5,440 -------- -------- -------- CASH AND CASH EQUIVALENTS, end of the year $ 21,273 $ 5,440 $ 6,290 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. 34 35 PLATINUM SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995, 1996 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Company Operations and Basis of Presentation Platinum Software Corporation, a Delaware corporation, and its subsidiaries design, develop, market and support a broad range of integrated financial applications software products for use by businesses of all sizes worldwide. The consolidated financial statements include the accounts of Platinum Software Corporation and all of its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The term "Company" used herein means Platinum Software Corporation and its subsidiaries, unless otherwise indicated by the context. b. Use of Estimates The preparation of financial statements in conformity 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 amounts could differ from these estimates. c. Short-term Investments The Company accounted for its investment securities under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt Securities, ("SFAS No. 115"). Under SFAS No. 115, management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities that the Company has both the positive intent and ability to hold to maturity are carried at amortized cost. Debt securities that the Company does not have the positive intent and ability to hold to maturity are classified as available-for-sale and carried at fair value. Realized and unrealized holding gains and losses on securities classified as available-for-sale are not material. The Company classifies its short-term investments as available-for-sale securities and carries them at their fair market value. In 1997, short-term investments consisted of debt securities with interest rates ranging from 5.85% to 7.87%. At June 30, 1996 and 1997, short-term investments are as follows:
Cost Gross Unrealized Losses Estimated Fair Value ---- ----------------------- -------------------- (in thousands) June 30, 1996: Corporate debt securities $10,175 $ 77 $10,098 ======= ======= ======= June 30, 1997: Corporate debt securities $ 9,664 $ 122 $ 9,542 ======= ======= =======
d. Revenue Recognition Revenue is recognized from licenses of software upon contract execution, shipment of products and when the Company has performed all of its significant contractual obligations. When a software license agreement obligates the Company to provide more than one software module, all license revenue under the agreement is deferred until all modules achieve general availability and are delivered, except when the license agreement contains a specific financial remedy in the event the unavailable module is not delivered. In such instance, revenue is deferred in the amount attributable to the specific financial remedy. The Company generally does not provide any post-contract customer service or support as part of the software license fee, 35 36 however, when such services are provided for in the license agreement, an appropriate portion of the license fee is deferred and recognized over the service or support period. The Company's customers may enter into maintenance agreements with the Company and such revenue is recognized ratably over the term of the agreement. Revenue from consulting services is recognized as services are provided. e. Product Returns The Company permits VARs and other software distributors to return certain products which were returned by the end-user customers and allows a 30-day return period for Clientele customers. The Company establishes reserves for such estimated product returns. Such product return reserve is included within the allowance for doubtful accounts and was $665,000 at June 30, 1996 and $660,000 at June 30, 1997. f. Inventories The Company's inventories consist of software modules in diskette and CD-ROM form ready for shipment, and manuals, and are stated at the lower of cost (first-in, first-out) or market. g. Property and Equipment The following summarizes the components of property and equipment, at cost, as of June 30, 1996 and 1997:
1996 1997 -------- -------- (in thousands) Computer equipment $ 17,125 $ 18,950 Furniture and fixtures 3,279 3,605 Leasehold improvements 1,009 1,851 -------- -------- 21,413 24,406 Accumulated depreciation and amortization (12,217) (15,898) ======== ======== $ 9,196 $ 8,508 ======== ========
Depreciation is computed under the straight-line method over the estimated useful lives of the assets ranging from three to five years. Maintenance and repairs are charged to expense as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized. Effective July 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairments of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The adoption of this standard had no material impact on the Company's consolidated financial statements. h. Software Development Costs Software development costs incurred subsequent to the determination of technological feasibility and marketability of a software product are capitalized. Amortization of capitalized software development costs commences when the products are available for general release to customers over the expected useful life of the respective products, which is generally five years. Amortization of software development costs is included in cost of license fees and totaled $820,000, $942,000 and $1,047,000 for the years ended June 30, 1995, 1996 and 1997, respectively. i. Acquired Source Code Acquired source code is amortized over the shorter of the estimated economic life of the asset or five years. Amortization of acquired source code is included in cost of license fees and totaled $855,000, $891,000 and $1,084,000 for the years ended June 30, 1995, 1996 and 1997, respectively. 36 37 j. Advertising Costs The Company expenses production costs of advertising upon the first showing. Other advertising costs are expensed as incurred. Advertising expense totaled $635,000, $857,000 and $1,463,000 for the years ended June 30, 1995, 1996 and 1997, respectively. k. Income Taxes The Company uses the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. l. Statements of Cash Flows The Company considers investments with an initial maturity of three months or less when purchased to be cash equivalents. The following summarizes the supplemental disclosures related to the statements of cash flows:
1995 1996 1997 ---- ---- ---- (in thousands) CASH PAID DURING THE YEAR FOR: Interest $20 $64 $56 === === === Income taxes $23 $ - $ - === === ===
m. Foreign Currency Translation The functional currency of the Company's foreign operations is the respective local country's currency. Assets and liabilities of the foreign operations are translated into U.S. dollars at the exchange rate at the balance sheet date, whereas revenues and expenses are translated into U.S. dollars at average exchange rates. Translation adjustments are shown as a separate component of stockholders' equity. n. Concentration of Credit Risks and Major Customer Data The Company sells its products to VARs and other software distributors generally under credit terms ranging from 30 to 90 days. Also, the Company presently sells its products directly to end-users generally under credit terms of 30 days. The Company believes no significant concentrations of credit risk existed at June 30, 1997. The Company maintains adequate reserves for potential credit losses and such losses have been within management's estimates. Receivables from customers are generally unsecured. o. Net Loss Per Share Net loss per share is computed by dividing net loss by the weighted average number of shares of common stock. The shares of common stock issuable in connection with the July 26, 1995 election to redeem the debenture have been treated as if they were outstanding from July 26, 1995 to September 30, 1995. Due to the agreement to rescind the Company's July 26, 1995 election to repay the debenture and the subsequent reinstatement of the debenture, the treatment for net loss per share purposes of the shares of common stock issuable in connection with the repayment of the debenture have been changed from being outstanding to common stock equivalents from October 1, 1995 to June 30, 1996. However, common stock equivalents were antidilutive for the years ended June 30, 1995 and 1996 and therefore are excluded from the calculation of net loss per share for such periods. 37 38 The following supplementary net loss per share for fiscal 1996 is computed by dividing net loss, excluding interest expense related to the redeemable convertible subordinated debenture (See Note 3) by the weighted average number of shares of common stock outstanding during fiscal year 1996, assuming the June 10, 1996 conversion of the debenture into common stock had occurred on July 1, 1995. Net loss excluding interest expense related to the redeemable convertible subordinated debenture ($32,449,000) ============ Supplementary net loss per share ($1.90) ============ Shares used in computing supplementary net loss per share 17,098,841 ============
In March 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 applies to entities with publicly held common stock or potential common stock and is effective for financial statements issued for periods ending after December 15, 1997. Under SFAS No. 128, the presentation of primary earnings (loss) per share is replaced with a presentation of basic earnings (loss) per share. SFAS No. 128 requires dual presentation of basic and diluted earnings (loss) per share for entities with complex capital structures. Basic earnings (loss) per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings (loss) per share. Given the Company's fiscal 1995, 1996 and 1997 net loss position, management believes the adoption of SFAS No. 128 will not have a material effect on its primary earnings (loss) per share as presented in the accompanying consolidated financial statement. p. Reclassifications Certain reclassifications have been made to fiscal 1995 and 1996 amounts to conform with the current year presentation. 2. ACQUISITION AND RESTRUCTURINGS a. Acquisition On June 30, 1997 the Company acquired Clientele Software, Inc. a privately held provider of help desk automation software based in Portland, Oregon. The acquisition was structured as a triangular merger whereby Clientele Software, Inc. became a wholly-owned subsidiary of the Company. As consideration for the acquisition, the Company issued 887,636 shares of common stock in exchange for all of the outstanding shares of common stock of Clientele. The exchange ratio used with respect to the conversion of the Clientele shares was .19761 (i.e., each share of Clientele common stock converted into .19761 shares of the Company's common stock). In addition, the Company assumed all of the outstanding employee stock options of Clientele which translated into stock options to acquire 212,356 shares of common stock of the Company. Ten percent of the shares issued in the merger, or 88,764 shares, were placed into an escrow for a period of one year to cover indemnification claims in connection with the transaction. The transaction was accounted for as a pooling of interests, and accordingly, the accompanying consolidated financial statements have been restated to incorporate the financial position and results of operations of Clientele for all periods presented. b. Restructurings In May 1994, the Company announced a restructuring of its business operations, including plans to sell certain operations and non-core software products, with the intent to significantly reduce operating expenses. Between May 1994 and April 1996, the Company reduced its workforce through a reduction in force, attrition, as well as the sale and closure of certain of its operations and products. 38 39 In the fourth quarter of fiscal 1994, the Company recorded a restructuring charge of $6,741,000. Such amount included approximately $2,365,000 for severance and other extended benefit costs related to the reduction in force, $2,312,000 in lease termination and buyout costs related to the closure of facilities, $2,064,000 in asset write-downs and other costs. The charge reflected the net effect of estimated proceeds of operations and products to be divested. During fiscal 1995, the Company paid approximately $2,330,000 for severance, lease termination and other costs related to the restructuring. Also during fiscal 1995, the Company wrote-down accounts receivable, property and equipment, and other assets related to the restructuring aggregating $2,384,000. In addition, $1,791,000 of excess proceeds from divestitures over the net book value of assets sold were credited to the restructuring reserve. At June 30, 1996, the restructuring was substantially complete. At June 30, 1997, the Company had a $88,000 cash obligation, related to lease termination costs, which will be funded from existing cash resources and working capital. The Company is entitled to receive royalties on future sales of product from certain of the purchasers, which are computed as a percentage of certain revenues. The Company received $526,000 in royalty income from divested operations in fiscal 1995, $619,000 in royalty income from divested operations in fiscal 1996 and $1,207,000 in royalty income from divested operations in fiscal 1997. During the second quarter of fiscal 1996, the Company restructured its business operations. The restructuring included the cessation of the marketing of the version of the Company's Platinum SQL Enterprise product that runs on the Sybase/UNIX server platform as well as the elimination of the Company's direct sales force for its Platinum SQL Enterprise product line. The restructuring resulted in a charge of $3,271,000 which was recorded in the second quarter of fiscal 1996. Such amount included approximately $1,160,000 for severance and other extended benefit costs related to the reduction in force, $1,239,000 for lease termination and buyout costs related to the closure of facilities and $872,000 in asset write-downs and other costs. In February 1996, the Company had another reduction in force of approximately 40 positions. This reduction in force resulted in an additional restructuring charge of $2,297,000 which was recorded in the third quarter of fiscal 1996. Such amount included approximately $300,000 for severance and other extended benefit costs related to the reduction in force, $625,000 in lease termination and buyout costs related to the closure of facilities and $1,372,000 in asset write-downs and other costs. During fiscal 1996, the Company paid approximately $2,683,000 for severance, lease termination and other costs relating to the restructurings. At June 30, 1997, the Company had a $921,000 cash obligation related to lease termination and other costs of the fiscal 1996 restructurings which will be funded from existing cash reserves and working capital. In June 1997, the Company underwent another restructuring as a result of the Clientele acquisition. The Company anticipates that Clientele will continue to operate as an autonomous unit with integration activities focused on the restructuring and consolidation of Clientele's administrative and support functions with those of the Company. The Company expects to incur certain expenses estimated at $1,600,000 in connection with the restructuring and consolidation, primarily the cost of reducing personnel, as well as excess facility costs at Clientele. The Company estimates that expense savings from the 1997 restructuring to be nominal. 3. SETTLEMENT OF CLASS ACTION LITIGATION On January 19, 1994, a complaint was filed against the Company and certain of its officers and directors requesting certification of a class action, alleging various violations of the Federal Securities Laws and claiming unspecified compensatory damages and related fees and costs. A first amended class action complaint was filed on April 18, 1994. On April 18, 1994, a derivative complaint was filed against the Company and certain of its officers and directors for violations of the Federal Securities Laws and breach of fiduciary duties requesting unspecified compensatory and punitive damages from the individual defendants on behalf of the Company. The Company was named as a nominal defendant in the derivative action. A second class action suit was filed on April 21, 1994, against the Company and certain of its officers. On May 23, 1994, the District Court consolidated the class action complaints and the derivative complaint into one action under the case name In Re Platinum Software Corporation Securities Litigation, Case No. SACV-94-70-AHS, in the U.S. District Court for the Central District of California. This consolidated action includes three separate actions, Tauber v. Platinum Software Corporation, Wolf v. Platinum Software Corporation, and Neomonitus v. Blackie, et al. In June 1994, the Company settled the litigation for $17.0 million, $2.0 million in cash, of which $1.0 million was paid immediately, $1.0 million was paid in December 1994, and $15.0 million was paid by issuing a 39 40 redeemable, convertible subordinated debenture in the principal amount of $15.0 million. The debenture bore interest at eight percent and was subject to mandatory redemption over a period of twenty-seven months following final court approval of the settlement as follows: $5.0 million after nine months, $5.0 million after eighteen months and $5.0 million after twenty-seven months. In lieu of redeeming the debenture at a scheduled redemption date by making a cash payment, the Company, at its option, could elect to repay the principal amount of the debenture, plus interest accrued to date, by issuing common stock, or a combination of stock and cash with the value of common stock determined at the date of conversion. On September 26, 1994, the U.S. District Court approved the settlement which became final thirty days thereafter. On July 26, 1995, the Company elected to repay the first $5.0 million principal installment, plus accrued interest thereon by issuing shares of common stock and also elected to voluntarily repay the remaining $10.0 million principal amount of the debenture and accrued interest thereon, by issuing shares of common stock. The date fixed for the redemption was July 26, 1995. Subsequent to July 26, 1995, the Company became engaged in discussions with the attorneys for the plaintiff class regarding rescinding the July 26, 1995 election to repay the debenture and reinstating the debenture. Effective February 28, 1996, the Company and Milberg, Weiss, Bershad, Hynes & Lerach, as escrow agent ("the Escrow Agent") entered into an agreement in which the election to repay the debenture by issuing shares of common stock was rescinded and the debenture was reinstated. The terms of the debenture remained the same except that the repayment terms were changed as follows: (i) the principal amount of $7.5 million plus accrued interest is due on or before September 20, 1996 and (ii) the remaining principal amount of $7.5 million plus all accrued interest is due on or before February 28, 1997. On June 10, 1996, the Company elected to repay the first $7.5 million principal installment, plus accrued interest thereon by issuing shares of common stock and also elected to voluntarily repay the remaining $7.5 million principal amount of the debenture and accrued interest thereon, by issuing shares of common stock. The date fixed for the redemption was June 10, 1996. In satisfaction of the above, the Company issued a total of 1,528,988 common shares in repayment of the debenture. In determining the number of shares to be issued, the Company's common stock was valued at its average closing price as quoted on the Nasdaq National Market for ten of the twenty days preceding one day prior to conversion, excluding the closing price on the five highest and five lowest days. 4. COMMITMENTS AND CONTINGENCIES The Company leases certain of its operating facilities and equipment under operating leases with terms ranging up to five years. The following is a schedule by years of future minimum lease payments under operating leases: Year ending June 30 (in thousands): 1998 $ 2,588 1999 2,082 2000 1,098 2001 1,011 2002 334 Thereafter - ======== Total $ 7,113 ========
Rental expense under operating leases, net of sublease income, for the years ended June 30, 1995, 1996 and 1997, was $2,453,000, $2,137,000 and $2,020,000, respectively. The total future minimum lease payments above includes approximately $524,000 in sublease payments to be received. The Company is party to an employment agreement with the President, Chief Executive Officer and Chairman of the Board, which provides that the Company shall be required to pay severance compensation to him equal to the aggregate annual salary and bonus in the event his employment is terminated without cause or in the event that he is constructively terminated. In the event of termination without cause or constructive termination, the Company's repurchase right lapses with respect to the restricted shares that would have vested during the twelve month period following terminations. (See Note 7.) Finally, the Company agreed to provide a relocation package to assist him in relocating his principal residence from northern to southern California. Such costs were paid in fiscal 1997. 40 41 The Company is party to employment agreements with two of the Company's senior vice presidents, which provides that the Company shall be required to pay severance compensation equal to the aggregate six months salary and bonus in the event their employment is terminated without cause or in the event that they are constructively terminated. In the event of termination without cause or constructive termination, the Company's repurchase right lapses with respect to the shares that would have vested during the six month period following termination. (See Note 7.) Finally, the Company agreed to provide a relocation package to assist them in relocating their principal residences from northern to southern California. Such costs were paid in fiscal 1997. The Company is party to an agreement with another executive officer which provides that in the event his employment is involuntarily terminated or constructively terminated, all stock options held by this executive officer shall vest and become immediately exercisable and the Company shall be required to pay severance benefits equal to his total compensation for the prior twelve months. The Company is party to a consulting agreement with the former Chairman of the Board of Directors, and current Board member, which provides that if he is involuntarily removed from the Board of Directors, or not included in Management's slate of directors at any annual meeting, then all options to purchase common stock held by him shall accelerate and become exercisable. The Company is subject to miscellaneous legal proceedings in the normal course of business and other legal proceedings related to or arising out of the fiscal 1994 restructuring, reductions in force and the discontinuance of certain client/server applications. The Company is currently defending these proceedings and claims, and anticipates that it will be able to resolve these matters in a manner that will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 5. INCOME TAXES The provision for income taxes for the years ended June 30, 1995, 1996 and 1997 is comprised of the following:
1995 1996 1997 ---- ---- ---- Federal: (in thousands) Current $ - $- $- Deferred - - - --- -- -- --- -- -- --- -- -- State: Current 20 - - Deferred - - - --- -- -- 20 - - --- -- -- Foreign: Current - - - === == == $20 $- $- === == ==
The reported provision (benefit) for income taxes for the years ended June 30, 1995, 1996 and 1997 differ from the amount computed by applying the statutory federal income tax rate of 34 percent to the consolidated income before income taxes as follows:
1995 1996 1997 -------- -------- -------- (in thousands) Benefit computed at statutory rates $ (1,934) $(11,201) $ (1,659) Increase (reduction) resulting from: (414) State taxes, net of federal benefit (180) (1,354) Valuation allowance 2,051 12,795 2,685 Other 83 (240) (612) -------- -------- -------- $ 20 $ - $ - ======== ======== ========
41 42 The components of the Company's net deferred income tax asset (liability) as of June 30, 1996 and 1997 are as follows:
1996 1997 -------- -------- (in thousands) Net operating loss carryforwards $ 29,018 $ 33,250 Allowance for doubtful accounts 3,045 1,940 Acquisition costs, net 2,980 3,015 Research and development credits 2,543 2,010 Other 1,393 1,550 Accrued restructuring costs 770 1,210 Accrued relocation costs 600 - Depreciation (554) (405) Software capitalization, net (900) (990) Valuation allowance (38,895) (41,580) -------- -------- $ - $ - ======== ========
As of June 30, 1997, the Company had provided a valuation allowance of approximately $41,580,000 because realization of the Company's net deferred tax asset is not assured due to the historical losses incurred by the Company and the uncertainty as to profits in the future. Any realization of the Company's net deferred tax asset would reduce the Company's effective tax rate in future periods. The Company has federal, state and foreign net operating loss carryforwards as of June 30, 1997 of approximately $84,000,000, $76,000,000 and $24,000,000, respectively. The federal and state losses expire in the years 1998 through 2012. The foreign losses have no expiration date. In addition, the Company has approximately $2,010,000 of federal research and development credit carryforwards which expire in the years 2000 through 2011. Utilization of the federal and state net operating loss and research and development credit carryforwards could be limited in future years if the Company were to experience a greater than 50% change in ownership within a 3 year period as defined in section 382 of the United States Internal Revenue Code of 1986. 6. STOCK OPTION PLAN AND OTHER EMPLOYEE BENEFITS The Company adopted a stock option plan effective May 31, 1990, whereby incentive and nonqualified options and purchase rights may be granted to officers and other key employees. The total number of shares which may be granted under this plan is 1,650,000. The Company adopted an additional nonqualified stock option plan effective July 21, 1993, whereby nonqualified options may be granted to officers and other key employees. The total number of shares which may be granted under this plan is 1,275,000. The Company adopted an additional stock option plan effective April 20, 1994, whereby incentive and nonqualified stock options, as well as purchase rights, may be granted to officers, directors and other key employees. The total number of shares which may be granted under this plan is 2,200,000. The Company adopted a fourth stock option plan effective January 4, 1996, whereby nonqualified stock options may be granted to non-executive officers and other key employees. The total number of shares which may be granted under this plan is 500,000. The Company adopted a fifth stock option plan effective July 29, 1997, whereby non-qualified stock options may be granted to employees, consultants and others with important business relationships with the Company. The total number of shares which may be granted under this plan is 500,000. On June 30, 1997, the Company acquired Clientele Software, Inc. (See Note 2.) The Company assumed all of the outstanding employee stock options of Clientele which translated into options to acquire 212,356 shares of common stock of the Company. 42 43 Effective July 1990, the Company adopted a profit sharing plan pursuant to Section 401 of the Internal Revenue Code. The Company has not made any contributions to the profit sharing plan as of June 30, 1997. In addition, the Company adopted an Employee Stock Purchase Plan in August 1992 authorizing the issuance of up to an aggregate of 450,000 shares of common stock to participating employees which permits employees to purchase common stock at a price equal to 85% of the fair market value at the beginning or end of a six month plan period. As of June 30, 1997, 214,350 shares have been sold under this plan. The following is a summary of common stock option transactions as of and for the years ended June 30, 1995, 1996 and 1997:
1995 1996 1997 ------------------------- -------------------------- ------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------------ ----------- ------------ ---------- ----------- --------- Outstanding, Beginning of year 3,288,257 $ 5.7191 3,593,798 $ 6.0563 3,657,243 $ 5.9200 Granted 1,597,042 8.3677 1,796,960 6.9006 3,653,087 5.5472 Exercised (456,230) 3.0486 (345,738) 3.9864 (776,648) 3.8445 Expired or Canceled (835,271) 10.6986 (1,387,777) 7.8937 (2,993,050) 6.4843 ========= ======== ========= ======== ========= ======== Outstanding End of Year 3,593,798 $ 6.0563 3,657,243 $ 5.9200 3,540,632 $ 5.5058 ========= ======== ========= ======== ========= ======== Options Exercisable 1,530,874 $ 4.6312 1,876,238 $ 4.8565 1,968,696 $ 4.1971 ========= ======== ========= ======== ========= ========
The following table summarizes information about stock options outstanding at June 30, 1997.
Options Outstanding Options Exercisable ------------------------------------------------- ------------------------------- Weighted Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Price Range of Exercise Prices Outstanding Life Price Exercisable - --------------------------- --------------- ---------------- -------------- --------------- --------------- $0.4200 - $1.4170 341,325 3.82 $ 0.7795 316,128 $ 0.7675 $3.5000 - $3.5000 1,494,787 7.64 $3.5000 902,167 $ 3.5000 $3.8750 - $7.0000 476,681 7.55 $ 5.0905 367,839 $ 4.5371 $7.0625 - $7.5000 517,954 8.34 $ 7.4287 234,000 $ 7.3670 $7.5910 - $8.7500 241,635 7.37 $ 8.0479 92,287 $ 8.0458 $9.2500 - $9.2500 200 7.57 $ 9.2500 200 $ 9.2500 $11.1250 - $11.1250 300 8.16 $ 11.1250 75 $11.1250 $12.1250 - $12.1250 343,750 9.32 $ 12.1250 4,000 $12.1250 $12.8750 - $12. 8750 64,000 9,54 $ 12.8750 0 $ 0.0000 $13.0000 - $13.0000 60,000 7.30 $ 13.0000 52,000 $13.0000 ========= ===== ========= ========= ======== $0.4200 - $13.0000 3,540,632 7.53 $ 5.5058 1,968,696 $ 4.1971 ========= ===== ========= ========= ========
43 44 Effective July 1, 1996, the Company adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." As permitted in SFAS No. 123, the Company did not adopt the recognition provisions and has provided the pro forma net loss and loss per share disclosures required by SFAS No. 123. The Company will continue to follow Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock option plans and its stock purchase plan. Had compensation costs for the Company's stock option plans and stock purchase plan been determined based upon fair value at the grant date under these plans consistent with the SFAS No. 123 methodology, the Company's net loss and loss per share would have been increased to the pro forma amounts shown below:
1996 1997 ------------ -------------- Net loss as reported ($33,685,000) ($4,881,000) ============ ============== Net loss - pro forma ($35,060,000) ($11,899,000) ============ ============== Loss per share as reported ($2.15) ($0.25) ============ ============== Loss per share - pro forma ($2.24) ($0.61) ============ ==============
Because SFAS No. 123 is only applicable to options granted subsequent to July 1, 1995, its pro forma effect will not be fully reflected until fiscal 1998. The fair value of shares had been estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
Stock Option Plans Purchase Plan ------------------ -------------- Expected life (years) 4 .5 Risk-free interest rate 5.95% 5.95% Volatility .7637 .7637
For options granted during fiscal years 1996 and 1997, the weighted average fair value at date of grant was $4.3625 and $4.0667 per option, respectively. The weighted average fair value at date of grant for stock purchase shares during fiscal years 1996 and 1997 was $2.430 and $3.007 per share, respectively. The discounted value of the stock purchase shares granted in fiscal years 1996 and 1997 using the Black-Scholes Option pricing model was $58,000 and $42,000 , respectively. As of June 30, 1997, the total number of shares of common stock received for future issuance under existing stock option plans, warrants and Series B and Series C Preferred Stock (See Note 8) is approximately 8,410,000. On March 9, 1994, the Board of Directors adopted a Shareholder Rights Plan (the Plan) which is intended to protect stockholders from unfair takeover practices. Under the Plan, each share of common stock carries a right to obtain additional stock according to terms provided in the Plan. The rights will not be exercisable or separable from the common stock until a third-party acquires at least 20% of the Company's then outstanding common stock or commences a tender offer for at least 20% of the Company's then outstanding common stock. In the event the Company is acquired in a merger or other business combination transaction which the Company is not the surviving corporation or 50% or more of its consolidated assets or earning power are sold or transferred, each right will entitle its holder to receive, at the then current exercise price, common stock of the acquiring company, having a market value equal to two times the exercise price of the right. If a person or entity were to acquire 20% or more of the outstanding shares of the Company's common stock, or if the Company is the surviving corporation in a merger and its common stock is not changed or exchanged each right will entitle the holder to receive at the then current exercise price common stock having a market value equal to two times the exercise price of the right. Until a right is exercised, the holder of a right, as such, will have no rights as a stockholder of the Company, including, without limitation, the rights to vote as a stockholder or receive dividends. The rights, which expire on March 9, 2004, may be redeemed by the Company at a price of $0.01 per right. In fiscal 1993 and 1994, in connection with three acquisitions, the Company granted stock purchase warrants for 468,472 shares. During fiscal 1995, 1996 and 1997, 173,000, 40,750, and 5,000 stock purchase warrants were exercised, respectively. During fiscal 1995, 1996 and 1997, 75,000, 0 and 0 stock purchase warrants were canceled, respectively. Such outstanding stock purchase warrants expire in 2003. In May 1995, the Company issued a former customer a warrant to purchase 50,000 shares of common stock at an exercise price of $7.5625 per share which represented the fair market value of the common stock on the 44 45 date an initial agreement to settle was reached. The warrant was issued as part of the consideration paid to settle litigation relating to the Company's client/server distributions software product. Such warrant was exercised in May 1997. In May 1995, the Company agreed to issue to certain former officers and directors or their designates stock purchase warrants to purchase an aggregate of 50,000 shares of common stock, at an exercise price of $10.00 per share which represented the fair market value of the common stock, in settlement of the Company's obligations to indemnify and defend such individuals under indemnification agreements regarding the facts giving rise to the class action litigation brought against the Company in January 1994. Such warrants expired without being exercised. In January 1996, the Company issued a former customer a warrant to purchase 20,000 shares of common stock at an exercise price of $4.75 per share, which represented the fair market value of the common stock at the date of settlement. The warrant was issued as part of the consideration paid to settle litigation relating to the Company's client/server distribution product. Such warrant was exercised in fiscal year 1996. 7. RESTRICTED STOCK In February 1996, the President, Chief Executive Officer and Chairman of the Board purchased 2,000,000 shares of restricted stock at a purchase price of $3.50, the then fair market value of the Company's common stock. In payment of one-half of the purchase price, the Company executed a secured five-year promissory note in the principal amount of $3,500,000. The note bears simple interest at 6% per annum and is a recourse promissory note. The Company retained a repurchase right with respect to the restricted stock. The repurchase right lapsed with respect to 350,000 shares on the date of the restricted stock grant, and lapses with respect to 29,167 shares each month for 36 months so that after three years the repurchase right shall not apply to 1,400,000 shares. The repurchase right with respect to the remaining 600,000 shares lapses based on fulfillment of certain performance criteria with respect to the Company's operating revenues and profit after taxes for fiscal 1997, fiscal 1998 and fiscal 1999 years, or in any event after ten years. The Company also has loaned to the President, Chief Executive Officer and Chairman of the Board $3,500,000 pursuant to an unsecured five-year recourse promissory note, which bears interest at the rate of 6% per annum. This loan was used to fund the restricted stock purchase along with the secured note referenced above. In February 1996, one of the Company's senior executive officers purchased 500,000 shares of restricted stock at a purchase price of $3.50, the then fair market value of the Company's common stock. In payment of one half of the purchase price, the Company executed a secured five-year promissory note in the principal amount of $875,000. The note bears simple interest at 6% per annum and is a recourse promissory note. The Company retained a repurchase right with respect to the restricted stock. The repurchase right lapsed with respect to 50,000 shares on the date of the restricted stock grant, and lapses with respect to 8,334 shares each month for 36 months, so that after three years the repurchase right shall not apply to 350,000 shares. The repurchase right with respect to the remaining 150,000 shares lapses based on fulfillment of certain performance criteria with respect to the Company's operating revenues and profit after taxes for fiscal 1997, fiscal 1998 and fiscal 1999 years, or in any event after ten years. The Company also has loaned to this senior executive officer $875,000 pursuant to an unsecured five-year recourse promissory note, which bears interest at the rate of 6% per annum. This loan was used to fund the restricted stock purchase along with the secured note referenced above. In April 1996, one of the Company's senior executive officers purchased 450,000 shares of restricted stock at a purchase price of $6.25, the then fair market value of the Company's common stock. In payment of one half of the purchase price, the Company executed a secured five-year promissory note in the principal amount of $1,406,250. The note bears simple interest at 6% per annum and is a recourse promissory note. The Company retained a purchase right with respect to the restricted stock. The repurchase right lapsed with respect to 49,980 shares on the date of the restricted stock grant, and lapses with respect to 6,945 shares each month thereafter for 36 months, so that after three years the repurchase right shall not apply to 300,000 shares. The repurchase right with respect to the remaining 150,000 shares lapses based on fulfillment of certain performance criteria with respect to the Company's operating revenues and profit after taxes for fiscal 1997, fiscal 1998 and fiscal 1999 years, or in any event after ten years. The Company also has loaned to this senior executive officer $1,406,250 pursuant to an unsecured five-year promissory note, which bears interest at 6% per annum. This loan was used to fund the restricted stock purchase along with the secured note referenced above. 45 46 8. PREFERRED STOCK On September 22, 1994, the Company completed a private placement. The Company issued 2,490,000 shares of its newly created Series B Preferred Stock in exchange for cash totaling $13,769,700 to a group of venture capital investors. The preferred shares were issued at a price of $5.53 per share. The price per share was determined on September 9, 1994, at the completion of a term sheet satisfactory to the Company and the investors, and reflects a 20% discount from the average trading price for the Company's common stock for twenty of the thirty preceding days. Such preferred shares are convertible into common shares of the Company on a one-for-one basis at any time at the option of the holders. Such shares automatically convert into common stock of the Company ten days after formal notification by the Company that the average consecutive 20-trading day closing stock price of the common stock has exceeded $22.12 per share. The holder of preferred stock shall be entitled to vote with the holders of common stock on an as converted basis. The holders of a majority of the outstanding Series B Preferred Stock, voting together as a class, have the right to designate two members of the Board of Directors. In fiscal 1997, 55,000 shares of Series B Preferred Stock were converted to common stock. On May 26, 1995, the Company completed a second private placement. The Company issued 231,598 shares of its newly created Series C Preferred Stock in exchange for cash totaling $18,226,700 to a group of venture capital investors. The preferred shares were issued at a price of $78.70 per share. The price per share reflects a 20% discount from the average trading price for the Company's common stock for twenty of the thirty preceding days. Such preferred shares are convertible into common shares of the Company on a ten-for-one basis at any time at the option of the holders. Such shares automatically convert into common stock of the Company ten days after formal notification by the Company that the average consecutive 20-trading day closing stock price of the common stock has exceeded $25.00 per share. The holder of preferred stock shall be entitled to vote with holders of common stock on an as converted basis. In fiscal 1997, 17,795 shares of Series C Preferred Stock were converted to common stock. The holders of the Series B and Series C Preferred Stock have the right to cause the Company to register the sale of shares of common stock issuable upon conversion of the Series B and Series C Preferred Stock. 9. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in one industry segment: the design, development, marketing and support of financial applications software products. A summary of the Company's operations by geographic area is as follows:
United Latin States Australasia Europe Canada America Consolidated -------- ----------- -------- --------- -------- ------------ (in thousands) Year Ended June 30, 1995: Net revenues $ 40,583 $ 8,813 $ 5,156 $ 3,418 $470 $ 58,440 ======== ======== ======== ======== ==== ======== Operating income (loss) (1,429) (1,634) (3,162) (86) 470 (5,841) ======== ======== ======== ======== ==== ======== Identifiable assets 56,032 3,048 4,489 2,965 - 66,534 ======== ======== ======== ======== ==== ======== Year Ended June 30, 1996: Net revenues $ 30,187 $ 8,294 $ 2,134 $ 3,042 $609 $ 44,266 ======== ======== ======== ======== ==== ======== Operating income (loss) (28,392) (1,823) (3,471) (476) 609 (33,553) ======== ======== ======== ======== ==== ======== Identifiable assets 32,642 3,164 2,857 2,249 - 40,912 ======== ======== ======== ======== ==== ======== Year Ended June 30, 1997: Net revenues $ 40,736 $ 7,993 $ 4,426 $ 3,957 $992 $ 58,104 ======== ======== ======== ======== ==== ======== Operating income (loss) (5,895) 388 (1,429) 190 992 (5,754) ======== ======== ======== ======== ==== ======== Identifiable assets 33,444 3,565 2,488 2,281 - 41,778 ======== ======== ======== ======== ==== ========
46 47 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Platinum Software Corporation We have audited the consolidated financial statements of Platinum Software Corporation as of June 30, 1996 and 1997, and for each of the three years in the period ended June 30, 1997, and have issued our report thereon dated July 29, 1997. Our audits also included the financial statement schedule listed in Item 14 (a) of this Annual Report on Form 10-K. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Orange County, California July 29, 1997 47 48 PLATINUM SOFTWARE CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance at Beginning Provision for Amounts Balance at End Description of Year Bad Debt Written Off Other of Year - ----------------------------------- ----------- ------------- ----------- ----------- -------------- FOR THE YEAR ENDED JUNE 30, 1995: Allowance for doubtful accounts $ 3,250 $ 2,635 $(2,476) $ 1,451(1) $ 4,860 ======= ======= ======= =========== ======= FOR THE YEAR ENDED JUNE 30, 1996: Allowance for doubtful accounts $ 4,860 $ 6,623 $(2,360) $ - $ 9,123 ======= ======= ======= =========== ======= FOR THE YEAR ENDED JUNE 30, 1997: Allowance for doubtful accounts $ 9,123 $ 2,095 $(4,955) $ - $ 6,263 ======= ======= ======= =========== =======
(1) Amount represents a reclassification from accrued restructuring costs 48 EX-10.44 2 1996 NONQUALIFIED STOCK PLAN 1 EXHIBIT 10.44 PLATINUM SOFTWARE CORPORATION NONQUALIFIED STOCK OPTION PLAN - 1996 JANUARY 4, 1996 2 PLATINUM SOFTWARE CORPORATION NONQUALIFIED STOCK OPTION PLAN - 1996 1. Purposes of the Plan. The purposes of this Nonqualified Stock Option Plan - 1996 (the "Plan") of Platinum Software Corporation, a Delaware corporation (the "Company"), are (a) to insure the retention of the services of existing executive personnel and key employees or its affiliates; (b) to attract and retain competent new executive personnel and key employees; (c) to provide incentive to all such personnel and employees to devote their utmost effort and skill to the advancement and betterment of the Company, by permitting them to participate in the ownership of the Company and thereby in the success and increased value of the Company; and (d) to allow consultants, business associates and others with important business relationships with the Company the opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company. 2. Shares Subject to the Plan. The shares of stock subject to nonqualified options having the terms and conditions set forth in Section 6 below (hereinafter "nonqualified options") and other provisions of the Plan shall be shares of the Company's authorized but unused or reacquired common stock (herein sometimes referred to as the "Common Stock"). The total number of shares of the Common Stock of the Company which may be issued under the Plan shall not exceed, in the aggregate, five hundred thousand (500,000) shares. The limitations established by the preceding sentence shall be subject to adjustment as provided in Section 7 below. In the event that any outstanding nonqualified option granted under the Plan can no longer under any circumstances be exercised, or in the event that any shares purchased pursuant to the Plan are reacquired by the Company, for any reason, the shares of Common Stock allocable to the unexercised portion of such nonqualified option, or the shares reacquired, as the case may be, may again be subject to grant or issuance under the Plan. 1 3 3. Eligibility. Non-executive officers and other key employees of the Company or of any subsidiary corporation, whether or not he or she is employed by the Company, or consultants, business associates or others with important business relationships with the Company, will be eligible to receive nonqualified options under the Plan. An individual who has been granted a nonqualified option may, if otherwise eligible, be granted an additional nonqualified option or options if the Board or Committee shall so determine. 4. Administration of the Plan. (a) This Plan shall be administered by the Board of Directors of the Company (the "Board") or by a committee (the "Committee") consisting of two (2) or more members of the Board. Members of the Committee may be appointed from time to time by and serve at the pleasure of the Board. No person serving as a member of the Board or the Committee shall act on any matter relating solely to such person's own interests under the Plan or any option thereunder. For purposes of the Plan, the term "Administrator" shall mean the Board, or if the Board delegates responsibility for any matter to the Committee, the Committee. The Administrator may from time to time, in its discretion, determine which persons shall be granted nonqualified options under the Plan, the terms thereof, and the number of shares for which nonqualified options shall be granted. (b) The Administrator shall have full and final authority to determine the persons to whom, and the time or times at which, nonqualified options shall be granted, the number of shares to be represented by each nonqualified option and the consideration to be received by the Company upon the exercise thereof; to interpret the Plan; to amend and rescind rules and regulations relating to the Plan; to determine the form and content of the nonqualified options to be issued under the Plan; to amend and modify the terms of nonqualified options issued under the Plan, including amending and modifying the exercisability provisions; to determine the identity or capacity of any persons who may be entitled to exercise a participant's rights under any nonqualified option under the Plan; to correct any defect or supply any omission 2 4 or reconcile any inconsistency in the Plan or in any nonqualified option agreement in the manner and to the extent the Board or Committee deems desirable to carry the Plan or nonqualified option into effect; to accelerate the exercise date of any nonqualified option; to provide for an option to the Company to repurchase any shares issued upon exercise of an option upon termination of employment; and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Any action, decision, interpretation or determination by the Administrator with respect to the application or administration of the Plan shall be final and binding on all participants and prospective participants. 5. Option Exercise Price. (a) Nonqualified Options. The exercise price of the shares of Common Stock covered by each nonqualified option granted under the Plan shall not be less than the fair market value of such shares on the date the nonqualified option is granted. (b) Fair Market Value. For purposes of this Section 5, fair market value shall, if the Common Stock is not listed or admitted to trading on a stock exchange, be the average of the closing bid price and asked price of the Common Stock in the over-the-counter market on the date the nonqualified option is granted, or, if the Common Stock is then listed or admitted to trading on any stock exchange or the Nasdaq National Market in the over-the-counter market, the closing sale price on such day on the principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on such national market system or principal exchange, then the closing sale price of the Common Stock on such national market system or exchange on the next preceding day on which a sale occurred. During such times as there is not a market price available, the fair market value of the Company's Common Stock shall be determined by the Administrator, which shall consider, among other facts which it considers to be relevant, the book value of such stock and the earnings of the Company. The exercise price or the purchase price, as the case may be, shall be subject to adjustment as provided in Section 7 below. 3 5 6. Terms and Conditions of Nonqualified Options. (a) Terms and Conditions Applicable to Nonqualified Options. Each nonqualified option granted pursuant to this Plan shall be evidenced by a written Nonqualified Option Agreement which shall specify that the options subject thereto are nonqualified options. The granting of a nonqualified option shall take place only when this written Nonqualified Option Agreement shall have been duly executed and delivered by or on behalf of the Company to the optionee to whom such nonqualified option shall be granted. Neither anything contained in the Plan nor in any resolution adopted or to be adopted by the Administrator shall constitute the granting of any nonqualified option. The Nonqualified Option Agreement shall be in such form as the Administrator shall, from time to time, recommend, but shall comply with and be subject to the following terms and conditions: (i) Medium and Time of Payment. The nonqualified option price shall be payable (i) in United States dollars payable in cash, certified check, or bank draft; (ii) subject to any legal restrictions on the acquisition or purchase of its shares by the Company, by the delivery of shares of Common Stock that have been held by optionee for at least six (6) months, which shall be deemed to have a value to the Company equal to the aggregate fair market value of such shares determined at the date of such exercise in accordance with the provisions of Section 5 above; (iii) by the issuance of a promissory note in a form acceptable to the Administrator; (iv) by cancellation of indebtedness of the Company to optionee, (v) by waiver of compensation due or accrued to optionee for services rendered, (vi) provided that a public market for the Company's stock exists, through a "same day sale" commitment from the optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD" Dealer) whereby the optionee irrevocably elects to 4 6 exercise his Option and to sell a portion of the Shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company, (vii) provided that a public market for the Company's stock exists, through a "margin" commitment from the optionee and a NASD Dealer whereby the optionee irrevocably elects to exercise this Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company, or (viii) any combination of (i), (ii), (iii), (iv), (v), (vi), or (vii) above. (ii) Number of Shares. The nonqualified option shall state the total number of shares to which it pertains. (iii) Term of Nonqualified Option. Each nonqualified option granted under the Plan shall expire within a period of not more than ten (10) years from the date the nonqualified option is granted. (iv) Date of Exercise. The Administrator may, in its discretion, provide that a nonqualified option may be exercised immediately or that it may not be exercised in whole or in part for any specified period or periods of time or subject to the completion of specified projects or fulfillment of specified duties or responsibilities or the fulfillment of specified financial or other objectives. Except as may be so provided, any nonqualified option may be exercised in whole at any time or in part from time to time during its term. (v) Termination of Employment. In the event that an optionee who is an employee of the Company shall cease to be employed by the Company or any of its subsidiaries for any reason including without limitation as a result of his or her death or disability, (i) all nonqualified options granted to any such optionee pursuant to this Plan which are not exercisable at the date of such cessation shall terminate immediately and become void and of no effect, and (ii) all nonqualified options granted to any such optionee pursuant to this Plan which are exercisable at the date of such cessation may be exercised as determined by the Administrator, but in any event no later than the date of expiration of the nonqualified option period, and if not so exercised within such time shall become void and of no effect at the end of such time. Notwithstanding the above, the Administrator shall maintain, in its reasonable discretion, the ability to consider the status of an individual performing consulting services for 5 7 the Company or making himself available to perform consulting services for the Company in determining whether an individual is employed by the Company. (b) Other Terms and Conditions. (i) Rights as a Shareholder. A nonqualified optionee shall have no rights as a shareholder with respect to any shares of Common Stock covered by his or her nonqualified option until the date of the issuance of a share certificate to such optionee for such shares. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such share certificate is issued. (ii) Nonassignability of Rights. No nonqualified option Agreement shall be assignable or transferable by the person receiving same except by will or the laws of descent and distribution. During the life of such person, the nonqualified option shall be exercisable only by him or her. (iii) Other Provisions. Any Nonqualified Option Agreement may contain such other terms, provisions and conditions as may be determined by the Administrator. Nonqualified options granted to different persons, or to the same person at different times, may be subject to terms, conditions and restrictions which differ from each other. 7. Changes in Capital Structure. (a) In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation or reorganization in which the Company is the surviving corporation or of a recapitalization, stock split, combination of shares, reclassification, reincorporation, stock dividend (in excess of 2%), or other change in the corporate structure of the Company, appropriate adjustments shall be made by the Board of Directors in the aggregate number and kind of shares subject to this Plan, and the number and kind of shares and the price per share subject to outstanding nonqualified options in order to preserve, but not to increase, the benefits to persons then holding nonqualified options. 6 8 (b) In the event that a Change of Control (as defined below) occurs, the vesting of all nonqualified options shall be accelerated and, concurrent with the effective date of the Change of Control, such persons shall have the right to (i) exercise the nonqualified option in respect to any or all of the shares then subject thereto, or (ii) to the extent applicable depending upon the nature of the Change of Control, exchange the nonqualified option for cash in an amount equal to the number of shares which as of the effective date of the Change of Control may be acquired upon the exercise of the nonqualified option, multiplied by the difference between (A) the fair market value of the consideration to be paid per share in connection with the Change of Control as determined by the Board of Directors, which determination shall be final and binding on the optionee, and (B) the exercise price. Such cash payment shall be paid within thirty (30) days following the consummation of the Change of Control. Neither the approval of the Board or the Committee shall be required in connection with such election and the cash distribution. To the extent possible, the Administrator shall cause written notice of the Change of Control to be given to the persons holding nonqualified options not less than thirty (30) days prior to the anticipated effective date of the Change of Control. In the event of a Change of Control, the Administrator may take such other action as is equitable and fair. Upon consummation of the Change in Control the Plan and all unexercised options granted hereunder shall terminate. (c) For the purposes of this Agreement, the term "Change of Control" shall mean the occurrence of any of the following: (i) Any "person," as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, a Company subsidiary, or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (or a successor to the Company) representing fifty percent (50%) or more of the combined voting power of the then outstanding securities of the Company or such successor; or 7 9 (ii) At least a majority of the directors of the Company constitute persons who were not at the time of their first election to the Board, candidates proposed by a majority of the Board of Directors in office prior to the time of such first election; or (iii) A merger or consolidation in which the Company is not the surviving entity, except for a transaction, the principal purpose of which is to change the state in which the Company is incorporated; or (iv) A sale, transfer or other disposition of assets involving fifty percent (50%) or more in value of the assets of the Company; or (v) The dissolution of the Company, or liquidation of more than fifty percent (50%) in value of the Company; or (vi) Any reverse merger in which the Company is a surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such reverse merger. 8. Amendment and Termination of the Plan. The Board of Directors of the Company may from time to time alter, amend, suspend or terminate the Plan in such respects as the Board of Directors may deem advisable; provided, however, that no such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any person under any nonqualified option theretofore granted to him without his consent. Without limiting the generality of the foregoing, to the extent permitted by applicable law, the Board of Directors of the Company may alter or amend the Plan to comply with requirements under the Internal Revenue Code relating to stock options which give the optionee more favorable tax treatment than that applicable to options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, to the extent permitted by applicable law, any outstanding option granted hereunder shall be subject to the more favorable tax treatment afforded to an optionee pursuant to such terms and conditions as the Administrator may determine. 8 10 Unless the Plan shall theretofore have been terminated, the Plan shall be effective on January 4, 1996, and shall terminate on January 4, 2006. 10. Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to nonqualified options except as otherwise provided herein, will be used for general corporate purposes. 11. No Obligation to Exercise Option or Right of Purchase. The granting of a nonqualified option shall impose no obligation upon the optionee to exercise such nonqualified option. 12. Continuance of Employment. The Plan or the granting of any nonqualified option thereunder shall not impose any obligation on the Company to continue the employment of any optionee. 9 EX-10.45 3 CLIENTELE INCENTIVE STOCK PLAN 1 EXHIBIT 10.45 PLATINUM SOFTWARE CORPORATION CLIENTELE STOCK INCENTIVE PLAN 1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business. Options granted hereunder may either be "incentive stock options," as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or "nonqualified stock options," at the discretion of the Board and as reflected in the terms of the written option agreement. In addition, shares of the Company's Common Stock may be sold hereunder independent of any Option grant. 2. Definitions. As used herein, the following definitions shall apply: A. "Administrator" shall mean the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4(a) of the Plan. B. "Board" shall mean the Board of Directors of the Company. C. "Code" shall mean the Internal Revenue Code of 1986, as amended. D. "Committee" shall mean a committee appointed by the Board in accordance with Section 4(a) of the Plan. E. "Common Stock" shall mean the Common Stock of the Company. F. "Company" shall mean Platinum Software Corporation. G. "Consultant" shall mean any person who is engaged by the Company or any Subsidiary to render consulting services and is compensated for such consulting services and any Director of the Company whether compensated for such services or not. H. "Continuous Status as an Employee or Consultant" shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) any sick leave, military leave, or any other leave of absence approved by the Board; provided, however, that for purposes of Incentive Stock Options, any such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute; or (ii) transfers between locations of the Company or between the Company, its Parent, its Subsidiaries or its successor. 2 I. "Director" shall mean a member of the Board. J. "Disability" shall mean total and permanent disability as defined in Section 22(e)(3) of the Code. K. "Employee" shall mean any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither the payment of a director's fee by the Company nor service as a Director shall be sufficient to constitute "employment" by the Company. L. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. M. "Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. N. "Nonqualified Stock Option" shall mean an Option not intended to quality as an incentive stock option within the meaning of Section 422 of the Code. O. "Notice of Grant" shall mean a written notice evidencing certain terms and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement. P. "Officer" shall mean a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. Q. "Option" shall mean a stock option granted pursuant to the Plan. R. "Option Agreement" shall mean a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option agreement is subject to the terms and conditions of the Plan. S. "Optioned Stock" shall mean the Common Stock subject to an option. T. "Optionee" shall mean an Employee or Consultant who receives an Option. U. "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 424 of the Code. V. "Plan" shall mean this Stock Incentive Plan. W. "Rule 16b-3" shall mean Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. 2 3 X. "Sale" or "Sold" shall include, with respect to the sale of Shares under the Plan, the sale of Shares for consideration in the form of cash or notes, as well as a grant of Shares for consideration in the form of past or future services. Y. "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan. Z. "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424 of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and/or Sold under the Plan is 212,357 shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future Option grants and/or Sales under the Plan; provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. Administration of the Plan. A. Procedure. (i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to Directors, Officers who are not Directors, and Employees who are neither Directors nor Officers. (ii) Administration with Respect to Directors and Officers Subject to Section 16(b). With respect to Option grants made to Employees who are also Officers or Directors subject to Section 16(b) of the Exchange Act, the Plan shall be administered by (a) the Board, if the Board may administer the Plan in compliance with the rules governing a plan intended to qualify as a discretionary plan under Rule 16b-3, or (b) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to comply with the rules governing a plan intended to qualify as a discretionary plan under Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules governing a plan intended to qualify as a discretionary plan under Rule 16b-3. With respect to persons subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with 3 4 all applicable conditions of Rule 16b-3. To the extent any provision of the Plan or action by the Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator. (iii) Administration with Respect to Other Persons. With respect to Option grants made to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (a) the Board or (b) a Committee designated by the Board, which Committee shall be constituted to satisfy the legal requirements relating to the administration of stock option plans under applicable corporate and securities laws and the Code. Once appointed, such Committee shall serve in its designated capacity until otherwise directed by the Board. The Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the legal requirements relating to the administration of stock option plans under state corporate and securities laws and the Code. B. Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in is discretion: (i) to grant Incentive Stock Options in accordance with Section 422 of the Code, or Nonqualified Stock Options; (ii) to authorize Sales of Shares of Common Stock hereunder; (iii) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (iv) to determine the exercise/purchase price per Share of Options to be granted or Shares to be Sold, which exercise/purchase price shall be determined in accordance with Section 8(a) of the Plan; (v) to determine the Employees or Consultants to whom, and the time or times at which, Options shall be granted and the number of Shares to be represented by each Option; (vi) to determine the Employees or Consultants to whom, and the time or times at which, Shares shall be Sold and the number of Shares to be Sold; (vii) to interpret the Plan; (viii) to prescribe, amend and rescind rules and regulations relating to the Plan; 4 5 (ix) to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option; (x) to determine the terms and provisions of each Sale of Shares (which need not be identical) and, with the consent of the purchaser thereof, modify or amend each Sale; (xi) to accelerate or defer (with the consent of the Optionee) the exercise date of any Option; (xii) to accelerate or defer (with the consent of the Optionee or purchaser of Shares) the vesting restrictions applicable to Shares Sold under the Plan or pursuant to Options granted under the Plan; (xiii) to authorize any person to execute on behalf of the Company an instrument required to effectuate the grant of an Option or Sale of Shares previously granted or authorized by the Board; (xiv) to determine the restrictions on transfer, vesting restrictions, repurchase rights, or other restrictions applicable to Shares issued under the Plan; (xv) to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding Options under the Plan and to grant in substitution therefor new Options under the Plan covering the same or different numbers of Shares, but having an Option price per Share consistent with the provisions of Section 8 of this Plan as of the date of the new Option grant; (xvi) to establish, on a case-by-case basis, different terms and conditions pertaining to exercise or vesting rights upon termination of employment, whether at the time of an Option grant or Sale of Shares, or thereafter; (xvii) to approve forms of agreement for use under the Plan; (xviii) to reduce the exercise price of any Option to the then current fair market value if the fair market value of the Common Stock covered by such Option shall have declined since the date the Option was granted; and (xix) to make all other determinations deemed necessary or advisable for the administration of the Plan. C. Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options granted under the Plan or Shares Sold under the Plan. 5 6 5. ELIGIBILITY. A. Persons Eligible. Options may be granted and/or Shares Sold only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Sold Shares may, if he or she is otherwise eligible, be granted an additional Option or Options or Sold additional Shares. B. ISO Limitation. To the extent that the aggregate fair market value: (i) of Shares subject to an Optionee's Incentive Stock Options granted by the Company, any Parent or Subsidiary, which (ii) become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonqualified Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the fair market value of the Shares shall be determined as of the time of grant. C. Section 5(b) Limitations. Section 5(b) of the Plan shall apply only to an Incentive Stock Option evidenced by an Option Agreement which sets forth the intention of the Company and the Optionee that such Option shall qualify as an Incentive Stock Option. Section 5(b) of the Plan shall not apply to any Option evidenced by an Option Agreement which sets forth the intention of the Company and the Optionee that such Option shall be a Nonqualified Stock Option. D. No Right to Continued Employment. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his employment or consulting relationship at any time. 6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company as described in Section 17 of the Plan. It shall continue in effect for a term of ten (10) years, unless sooner terminated under Section 13 of the Plan. 7. TERM OF OPTION. The term of each Option shall be stated in the Notice of Grant; provided, however, that in the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Notice of Grant. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Notice of Grant. 6 7 8. EXERCISE/PURCHASE PRICE AND CONSIDERATION. A. Exercise/Purchase Price. The per-Share exercise/price for the Shares to be issued pursuant to exercise of an Option or a Sale shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option a. granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of the grant. b. granted to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant. (ii) In the case of a Nonqualified Stock Option or Sale a. granted or Sold to a person who, at the time of the grant of such Option or authorization of such Sale, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise/purchase price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of the grant or authorization of Sale, unless otherwise expressly determined by the Administrator. b. granted or Sold to any other person, the per Share exercise/purchase price shall be no less than eighty-five percent (85%) of the fair market value per Share on the date of grant or authorization of Sale, unless otherwise expressly determined by the Administrator. c. Any determination to sell stock at less than fair market value on the date of the grant or authorization of Sale shall be accompanied by an express finding by the Administrator specifying that the sale is in the best interest of the Company, and specifying both the fair market value and the grant or sale price of the stock. (iii) In the case of an Option granted or Sale authorized on or after the effective date of registration of any class of equity security of the Company pursuant to Section 12 of the Exchange Act and prior to six (6) months after the termination of such registration, the per Share exercise/purchase price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant or authorization of Sale. 7 8 B. Fair Market Value. The fair market value per Share shall be determined by the Administrator in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the closing price of the Common Stock (or the closing bid if no sales were reported) for the last market trading day prior to the date of grant of the Option or authorization of Sale or other determination, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a stock exchange, the fair market value per Share shall be the closing price on such exchange for the last market trading day prior to the date of grant of the Option or authorization of Sale or other determination, as reported in The Wall Street Journal. C. Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option or pursuant to a Sale, including the method of payment, shall be determined by the Administrator. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist of: (i) cash; (ii) check; (iii) promissory note; (iv) transfer to the Company of Shares which a. in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and b. having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) delivery of instructions to the Company to withhold from the Shares that would otherwise be issued on the exercise that number of Shares having a fair market value at the time of such exercise equal to the Option exercise price; (vi) such other consideration and method of payment for the issuance of Shares to the extent permitted by legal requirements relating to the administration of stock option plans under applicable corporate and securities laws and the Code; or (vii) any combination of the foregoing methods of payment. If the fair market value of the number of whole Shares transferred or the number of whole Shares surrendered is less than the total exercise price of the Option, the shortfall must be made up in cash or by check. Notwithstanding the foregoing provisions of this Section 8 9 8(C), the consideration for Shares to be issued pursuant to a Sale may not include, in whole or in part, the consideration set forth in subsections (iv) and (v) above. 9. EXERCISE OF OPTION. A. Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under the Option Agreement and Section 8(C) of the Plan. Each Optionee who exercises an Option shall, upon notification of the amount due (if any) and prior to or concurrent with delivery of the certificate representing the Shares, pay to the Company amounts necessary to satisfy applicable federal, state and local tax withholding requirements. An Optionee must also provide a duly executed copy of any stock transfer agreement then in effect and determined to be applicable by the Administrator. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock represented by such stock certificate, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. B. Termination of Employment or Consulting Relationship. In the event that an Optionee's Continuous Status as an Employee or Consultant terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within such period of time as is determined by the Administrator, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the case of an Incentive Stock Option, the Administrator shall determine such period of time (in no event to exceed three (3) months from the date of termination) when the Option is granted. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option 9 10 shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. C. Disability of Optionee. In the event that an Optionee's Continuous Status as an Employee or Consultant terminates as a result of the Optionee's Disability, the Optionee may exercise his or her Option at any time within twelve (12) months from the date of such termination, but only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. D. Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 10. NONTRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will, or by the laws of descent and distribution, and may be exercised during the lifetime of the Optionee only by the Optionee or, if incapacitated, by his or her legal guardian or legal representative. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. A. Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or Sales made or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible 10 11 securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. B. Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, each outstanding Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Administrator. The Administrator may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. C. Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a Parent or Subsidiary of such successor corporation, unless the Administrator determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If the Administrator makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice or such shorter period as the Administrator may specify in the notice, and the Option will terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation and the Optionee, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option. 11 12 Notice of the determination shall be given to each Optionee within a reasonable time after the date of such grant. 13. AMENDMENT AND TERMINATION OF THE PLAN. A. Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided, however, that if required to qualify the Plan under Rule 16b-3 promulgated under Section 16 of the Exchange Act, no amendment shall be made more than once every six (6) months that would change the amount, price or timing of the option grants, other than to comport with changes in the Code or the rules and regulations promulgated thereunder; and provided, further, that, if required to qualify the Plan under Rule 16b-3, no amendment shall be made without the approval of the stockholders of the Company in the manner described in Section 17 of the Plan if the amendment would: (i) increase the number of Shares subject to the Plan, other than in connection with an adjustment under Section 11 of the Plan; (ii) make a change in the designation of the class of Employees or Consultants eligible to be granted Options; or (iii) if the Company has a class of equity security registered under Section 12 of the Exchange Act at the time of such revision or amendment, cause any material increase in the benefits accruing to participants under the Plan. B. Stockholder Approval. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule or statute or other applicable law, rule or regulation, including the requirements of any exchange or quotation system on which the Common Stock is listed or quoted). Such stockholder approval, if required, shall be obtained in such a manner and to such a degree as is required by the applicable law, rule or regulation. C. Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option or a Sale unless the exercise of such Option or consummation of the Sale and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, applicable state securities laws, the Exchange Act, the rules and regulation promulgated thereunder, and the requirements of any stock exchange (including 12 13 NASDAQ) upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. LIABILITY OF COMPANY. A. Inability to Obtain Authority. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of an Option or a Sale, the Company may require the person exercising such Option or to whom Shares are being Sold to represent and warrant at the time of any such exercise or Sale that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. B. Grants Exceeding Allotted Shares. If the Optioned Stock covered by an Option exceeds, as of the date of grant, the number of Shares which may be issued under the Plan without additional stockholder approval, such Option shall be void with respect to such excess Optioned Stock, unless stockholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with Section 13 of the Plan. 17. STOCKHOLDER APPROVAL. All Incentive Options granted under the Plan shall be subject to the condition subsequent of obtaining approval of the Plan by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval of the Plan shall be obtained in the manner and to the degree required under applicable federal and state law. 18. SIX MONTH HOLDING PERIOD FOR AFFILIATES. If the Company registers any class of any equity security pursuant to Section 12 of the Exchange Act, then from the effective date of such registration until six (6) months after the termination of such registration (the Public Period), these limits will apply to each Officer, Director and beneficial owner of ten percent (10%) or more of any class of equity securities of the Company (Affiliates). During the Public Period, any Affiliate shall hold Shares Sold hereunder at least six (6) months from the date of Sale. During the Public Period, at least six (6) months must elapse from the date of grant of an Option to an Affiliate to the date the Affiliate disposes of the Shares acquired upon exercise of the Option, or (if the Option is disposed of other than by exercise) to the date of disposition of the Option itself. 13 EX-10.46 4 CONSULTING AGREEMENT WITH CARMELO J. SANTORO 1 EXHIBIT 10.46 CONSULTING AGREEMENT This Consulting Agreement ("Agreement") is entered into effective as of the 3rd day of September, 1996 ("Effective Date"), by and between Platinum Software Corporation, a Delaware corporation (the "Corporation"), and Carmelo J. Santoro, ("Consultant"). R E C I T A L S A. Consultant has served as Chief Executive Officer and Chairman of the Board of the Corporation and has acquired an extensive background in and knowledge of the Corporation's business and industry in which the Corporation operates. B. Consultant has recently resigned from his position as Chairman of the Board of the Corporation and the Corporation desires to retain Consultant's experience, skills, abilities, background and knowledge and is willing to engage Consultant as a consultant to the Corporation upon the terms contained herein. C. Consultant desires to act as consultant and is willing to do so upon the terms contained herein. NOW THEREFORE, in consideration of the foregoing recitals and of the mutual promises contained herein, the parties hereto agree as follows: 1. Consulting Services. The Corporation agrees to employ Consultant as a consultant to the Chief Executive Officer of the Corporation to provide advice and consulting in connection with the Corporation's business, and to perform such other tasks as reasonably requested by the Chief Executive Officer of the Corporation. All consulting services shall be provided by Consultant at the times and places and in the manner reasonably determined by Consultant, consistent with Consultant's existing commitments. 2. Compensation. (a) During the term of this Agreement, for rendering the services pursuant to this Agreement and for holding himself available to do so, Consultant shall be paid a monthly retainer fee of $11,000 payable on the first of the month. 2 (b) During the term of the Agreement, the Corporation provides the following medical benefits to Consultant and his spouse, at no charge to Consultant: (i) participation in the Corporation's medical insurance plan and preferred provider network, which is presently administered by Prudential Insurance; and (ii) Execucare supplemental medical coverage. 3. Term of Agreement. The term of this Agreement shall commence on the Effective Date and terminate on October 31, 1997. 4. Other Business Activities. Consultant is devoting and will continue to devote part of his time, attention and energies to other business activities. This Agreement shall not limit in any manner those business activities or investments in which Consultant may engage. 5. Withholding Taxes. It is intended that the retainer fee paid to Consultant hereunder shall constitute earnings from self employment income. The Corporation will not withhold any amounts therefrom as federal income tax withholding from wages or as employee contributions under the Federal Insurance Contribution Act or the California State Unemployment Insurance Code or make employer contributions thereunder with respect thereto. Consultant acknowledges that he shall be solely responsible for the estimation and payment of any federal or state income taxes and any federal or state insurance contributions on income attributable hereunder. 6. Miscellaneous. (a) Further Acts. The parties hereto shall execute any and all other documents and do any and all other acts necessary or convenient to effectuate the purposes of this Agreement. (b) Heirs, Successors and Assigns. This Agreement shall be binding on and inure to the benefit of the parties hereto and their heirs, successors and assigns. Since this Agreement is based upon the unique ability of Consultant, he shall have no right to assign this Agreement or any of his rights hereunder without the prior written consent of the Corporation. 2 3 (c) Notices. Any notices required to be given pursuant to this Agreement shall be in writing and shall be given either by personal delivery thereof or by such means as will assure overnight delivery to the person(s) to whom the notice is addressed. Notice given by overnight delivery shall be deemed given one day after being placed in the hands of a reputable carrier. (d) Attorneys' Fees. In the event legal proceedings are commenced or legal advice is sought for the enforcement of this Agreement, for damages for breach hereof, or for any interpretation hereof, the prevailing party shall be entitled to receive costs incurred and attorneys' fees from the losing party. (e) Governing Law. This Agreement shall be governed by and interpreted in accordance with the provisions of the laws of the State of California. (f) Entire Agreement. This Agreement, together with the Agreement between Consultant and the Corporation dated February 8, 1996 represent the entire agreement between the parties hereto, and any prior contract or agreement between the parties hereto relating to the subject matter hereof, to the extent it contradicts this Agreement shall be canceled and shall be of no further force and effect. This Agreement shall have no impact on the February 8, 1996 Agreement which shall remain in full force and effect. This Agreement shall not be deemed modified, altered, changed or amended in any respect, unless done in writing and signed by both of the parties hereto. The parties hereto have executed this Agreement as of the dates set forth below. PLATINUM SOFTWARE CORPORATION ("Corporation") By:______________________________ Its:_____________________________ Date:____________________________ _________________________________ Carmelo J. Santoro ("Consultant") Date: 3 EX-22.1 5 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 22.1 SUBSIDIARIES OF THE COMPANY Clientele Software, Inc. Cypher Business Systems Limited Platinum (Colorado) Inc. (FKA Frx Software, Inc.). Platinum Software (Aust.) Pty., Limited Platinum Software BVI, Ltd. Platinum Software Canada, Ltd. Slatershelfco 173 Limited Platinum Software Foreign Sales Corporation, Inc. Platinum Software (Holdings)Limited Platinum Software (Ireland) Limited Platinum Software North Asia, Ltd. Platinum Software (NZ) Limited Platinum Software (UK) Limited Platinum (Asia) Pte Ltd. Platinum Software Corporation Sdn. Bhd. EX-23.1 6 CONSENT OF INDEPENDENT AUDITORS: ERNST & YOUNG LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS ------------------------------- We consent to the incorporation by reference in the Registration Statements (Form S-8, No. 33-54604) pertaining to the 1990 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Option Purchase Plan, (Form S-8, No. 33-70518) pertaining to the 1993 Nonqualified Stock Option Plan and Key Employee Warrants, (Form S-8, No. 33-71876) pertaining to the 1993 Key Employee Warrants, (Form S-8, No. 33-92270) pertaining to the 1994 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan, (Form S-8, No. 333-06419) pertaining to the 1996 Nonqualified Stock Option Plan, (Form S-8, No. 333-06415) pertaining to the Key Employee Restricted Stock Purchase Plan, (Form S-8, No. 333-28259) pertaining to the Key Employee Restricted Stock Purchase Plan, (Form S-3, No. 333-06555) pertaining to the registration of 70,000 shares issuable upon exercise of warrants, and (Form S-3, No. 333-22029) pertaining to the registration of 50,000 shares issuable upon exercise of warrants, of our reports dated July 29, 1997, with respect to the consolidated financial statements and schedule of Platinum Software Corporation, included in the Annual Report (Form 10-K) for the year ended June 30, 1997. ERNST & YOUNG LLP Orange County, California September 26, 1997 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 6,290 9,542 18,288 6,263 481 29,805 24,406 15,898 41,778 27,053 0 0 30,292 20 (15,864) 41,778 30,320 58,104 5,131 16,258 41,596 0 0 (4,881) 0 (4,881) 0 0 0 (4,881) (0.25) (0.25)
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