<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
---------------
Commission File Number 0-27574
POWERCERV CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-3350778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 NORTH ASHLEY DRIVE, SUITE 2700, TAMPA, FLORIDA 33602
(Address of principal executive offices, including zip code)
(813) 226-2600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
---- ----
As of August 7, 1998, there were 13,830,958 shares of the registrant's common
stock, $.001 par value, outstanding.
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<PAGE> 2
POWERCERV CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 ................................................................................. 2
Condensed Consolidated Statements of Operations for the Three and Six-months Ended
June 30, 1998 and 1997 (unaudited)..................................................................... 3
Condensed Consolidated Statements of Cash Flows for the Six-months Ended
June 30, 1998 and 1997 (unaudited) ................................................................... 4
Notes to Condensed Consolidated Financial Statements (unaudited) ...................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................................. 8
Accountants' Review Report ............................................................................... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders................................................ 20
Item 6. Exhibits and Reports on Form 8-K .................................................................. 21
Signatures ................................................................................................ 22
</TABLE>
ADAPTlications and INTERGY are registered trademarks of the registrant and the
PowerCerv logo, "ERP Plus" and design and "The Plus Your Enterprise Needs" are
trademarks of the registrant. All other trademarks and company names mentioned
are the property of their respective owners.
1
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POWERCERV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,028 $ 6,360
Accounts receivable, net of allowance of
$1,791 and $2,000, respectively 4,296 6,925
Other current assets 333 329
---------- -----------
Total current assets 11,657 13,614
Property and equipment, net 2,472 2,527
Intangible assets, net 763 975
Investment in third party 1,500 1,500
Deposits and other assets 84 71
---------- -----------
Total assets $ 16,476 $ 18,687
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 596 $ 1,363
Accrued expenses 2,939 2,875
Deferred revenue 1,714 1,492
---------- -----------
Total current liabilities 5,249 5,730
Shareholders' equity 11,227 12,957
---------- -----------
Total liabilities and shareholders' equity $ 16,476 $ 18,687
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
POWERCERV CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED JUNE 30, SIX-MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 1,586 $ 2,007 $ 2,948 $ 3,666
Technology resales 373 495 756 972
Service fees 5,351 5,912 10,893 12,532
---------- ---------- ---------- ----------
Total revenues 7,310 8,414 14,597 17,170
---------- ---------- ---------- ----------
Costs and expenses:
Cost of licenses 121 472 299 784
Cost of technology resales 251 397 522 749
Cost of services 4,187 4,982 8,692 10,062
General and administrative 1,121 1,544 2,249 3,091
Sales and marketing 1,533 2,653 2,973 5,190
Research and development 903 1,620 1,857 3,062
---------- ---------- ---------- ----------
Total costs and expenses 8,116 11,668 16,592 22,938
---------- ---------- ---------- ----------
Operating loss (806) (3,254) (1,995) (5,768)
Interest income, net 69 154 150 338
---------- ---------- ---------- ----------
Loss before income taxes (737) (3,100) (1,845) (5,430)
Income tax benefit -- -- -- (886)
---------- ---------- ---------- ----------
Net loss and comprehensive loss $ (737) $ (3,100) $ (1,845) $ (4,544)
========== ========== ========== ==========
Basic and diluted net loss per share $ (0.05) $ (0.22) $ (0.13) $ (0.33)
========== ========== ========== ==========
Shares used in computing basic and
diluted net loss per share 13,806 13,846 13,799 13,844
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
POWERCERV CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED JUNE 30,
----------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,845) $ (4,544)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 709 1,049
Deferred income taxes - (886)
Deferred revenue 222 59
Changes in assets and liabilities 1,909 1,304
----------------- -----------------
Net cash provided by (used in) operating activities 995 (3,018)
----------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment, net (442) (440)
----------------- -----------------
Net cash used in investing activities (442) (440)
----------------- -----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 115 52
----------------- -----------------
Net cash provided by financing activities 115 52
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 668 (3,406)
Cash and cash equivalents, beginning of period 6,360 14,637
----------------- -----------------
Cash and cash equivalents, end of period $ 7,028 $ 11,231
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
POWERCERV CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF PRESENTATION
The condensed consolidated balance sheet of PowerCerv Corporation and
its subsidiary (collectively, the "Company") as of June 30, 1998 and the
condensed consolidated statements of operations for the three and six-months
ended June 30, 1998 and 1997 and the condensed consolidated statements of cash
flows for the six-months ended June 30, 1998 and 1997 have been prepared by the
Company, without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1998 and
for all periods presented have been made. The condensed consolidated balance
sheet at December 31, 1997 has been derived from the Company's audited
consolidated financial statements at that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. These condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1997 included in the Company's 1997 Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1998.
Certain 1997 balance sheet amounts have been reclassified to conform
to the 1998 financial statement presentation.
The results of operations for the three and six-months ended June 30,
1998 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year.
B. REVENUE RECOGNITION
License fees represent revenue from the licensing of the Company's
software application products and its development tools. License fees also
include royalties earned on the Company's application products and related
intellectual properties. Technology resales represent revenue from the
Company's resale of various third-party software products. Service fees
represent revenue from consulting services, education services and support and
maintenance services.
Beginning January 1, 1998, the Company has recognized revenue in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 97-2, as amended, Software Revenue Recognition ("SOP
97-2"). Revenue is recognized from licenses of the Company's software products
when the contract has been executed, the product(s) has been shipped,
collectibility is probable and the software license fees are fixed or
determinable. License revenue from sales of the Company's development tools and
revenue from technology resales is recognized following the procedures above
except generally the Company ships its development tools and technology resale
products under a shrinkwrap license agreement upon the Company's receipt of a
binding customer order as opposed to executing a negotiated contract. The
Company generally accounts for consulting services separate from software
license fees for those arrangements where services are separately stated on a
time and materials basis and are not essential to the customer's functionality
requirements. If any portion of the software license fees is subject to
forfeiture or refund, the Company will postpone revenue recognition until the
contingency has been removed. The Company provides for potential product
returns and allowances at
5
<PAGE> 7
POWERCERV CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
the time of shipment. Historically, product returns and allowances have been
immaterial. Consulting and education revenue is recognized as the services are
performed. Revenue from support and maintenance activities is recognized
ratably over the term of the maintenance period and the unrecognized portion is
recorded as deferred revenue. The Company's adoption of SOP 97-2 did not have a
material effect on the Company's financial statements for the three and
six-month period ended June 30, 1998. Prior to January 1, 1998, the Company
recognized revenue in accordance with the American Institute of Certified Public
Accountants' Statement of Position 91-1, Software Revenue Recognition.
C. NET LOSS PER SHARE
During the year ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128, Earnings Per Share, which sets forth
the requirements for the computation, presentation and disclosures regarding
earnings per share for entities with publicly held common stock.
The basic net loss per share is computed by dividing the net loss
available to common stockholders by the weighted-average number of common shares
outstanding. Common stock equivalents in each of the three and six-month
periods ended June 30, 1998 and 1997 were anti-dilutive due to the net losses
sustained by the Company during each of those periods, thus the diluted net loss
per share in these periods is the same as the basic net loss per share.
D. COMPREHENSIVE INCOME
Beginning January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. Statement 130,
which defines comprehensive income as the change in equity of an enterprise
except for those changes resulting from shareholder transactions, establishes
standards for reporting comprehensive income. For the three and six-month
periods ended June 30, 1998 and 1997, the Company did not have any comprehensive
income (loss) except for the net loss reported on the Condensed Consolidated
Statement of Operations.
E. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Compensation $1,381 $1,370
Severance and related costs 163 411
Other 1,395 1,094
------ ------
$2,939 $2,875
====== ======
</TABLE>
6
<PAGE> 8
POWERCERV CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
F. CONTINGENCIES
A complaint was filed on July 24, 1997 in the United States District
Court for the Middle District of Florida, captioned J. Conrad Lifsey vs. Harold
R. Ross, Gerald R. Wicker, Marc J. Fratello, Roy E. Crippen, III, Donald B.
Hebb, Jr., Thomas S. Roberts, PowerCerv Corporation, Alex Brown & Sons, Inc.,
Robertson, Stephens & Company, ABS Capital Partners, L.P., Summit Investors II,
L.P., and Summit Ventures III, L.P. The complaint purports to be a class
action on behalf of those persons who purchased shares of the Company's common
stock from March 1, 1996 (the date of the Company's initial public offering
of its common stock ("IPO")) through July 24, 1996. The complaint alleges,
among other things, that the defendants violated the Securities Act of 1933 and
the Securities Exchange Act of 1934 in connection with the Company's IPO and in
its subsequent securities filings, press releases and other public statements.
The plaintiff seeks damages of an unspecified amount, rescission of certain
securities sales and certain other remedies. On March 19, 1998, the defendants
filed their motions to dismiss this complaint. An effect of this motion filing
is to postpone any discovery on this case until after the motions are ruled on
by the Court. No ruling has yet been handed down. On April 5, 1998, the Court
ordered the parties to attend a mediation conference by July 30, 1998. The
parties did not resolve this lawsuit in the mediation conference. The
defendants continue to deny any wrongdoing and intend to contest the suit
vigorously.
G. INCOME TAXES
The Company increased its deferred income tax asset valuation
allowance by approximately $280,000 and $701,000 for the three and six-month
periods ended June 30, 1998, respectively, to offset the tax benefit applicable
to the loss incurred during the period. For the three and six-month period
ended June 30, 1997, the Company increased its deferred income tax asset
valuation allowance by approximately $1,178,000. The decision to fully reserve
the deferred income tax asset was primarily the result of the Company's
continued losses from operations.
7
<PAGE> 9
POWERCERV CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT REFERENCES TO THE COMPANY'S TARGET MARKET)
OVERVIEW
The primary mission of PowerCerv Corporation and its wholly-owned
subsidiary, PowerCerv Technologies Corporation (collectively, the "Company" or
"PowerCerv") is to develop, market, license, implement and support open,
modifiable "ERP/back-office" and "front-office" enterprise application software
solutions for mid-size U.S. discrete manufacturing companies with annual
revenues between $25 million and $500 million. The Company's Enterprise
Resource Planning (ERP) application products (which also may be referred to as
"back office" products) facilitate the management of resources and information
to allow manufacturers to reduce order fulfillment times, improve operating
efficiencies and measure critical company performance against defined
objectives. The Company's front-office application products increase the
effectiveness of sales organizations and customer support centers by providing
opportunity management for maximum sales efficiency and problem tracking and
resolution management. The Company also provides a wide range of professional
technical and business consulting services, including application analysis,
design, development, modification and integration programming, training and
deployment for its application products. Separately, the Company provides a
wide range of consulting services to companies who use PowerBuilder(R), a
leading development tool of Sybase, Inc., for client/server systems
development. The Company has also provided complementary development tool
products used to enhance or accelerate the implementation and ongoing
maintenance of its application products, and resells third party technology
resale products to complement the Company's products and services offering.
The discussion in this report contains forward-looking statements that
involve risks and uncertainties. The Company's future actual results may
differ materially from the results discussed herein and including those in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to those discussed in this report, and
the risks discussed under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward-Looking Statements and Associated
Considerations" in the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1998. These risks include, but
are not limited to, matters related to the Company's ability to manage change,
liquidity, fluctuations in the Company's quarterly activities and results of
operations, the availability of qualified consulting personnel, dependence on
product development and its new products, competition, dependence on
client/server environment and dependence on key personnel. Due to these
factors, among others, it is possible that the Company's results of operations
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's common stock would likely be adversely
affected.
The Company's revenues consist primarily of software license fees,
resales of software products developed by third party software vendors
("technology resales") and fees for services, including consulting, education
and support and maintenance. For the quarter ended June 30, 1998, service fees
remain the Company's largest single revenue source, although the Company's
strategy is to seek to increase revenue generated by licensing its products as
a percentage of total revenue.
8
<PAGE> 10
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
Beginning January 1, 1998, the Company has recognized revenue in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 97-2, as amended, Software Revenue Recognition ("SOP
97-2"). Revenue is recognized from licenses of the Company's software products
when the contract has been executed, the product(s) has been shipped,
collectibility is probable and the software license fees are fixed or
determinable. License revenue from sales of the Company's development tools and
revenue from technology resales is recognized following the procedures above
except generally the Company ships its development tools and technology resale
products under a shrinkwrap license agreement upon the Company's receipt of a
binding customer order as opposed to executing a negotiated contract. The
Company generally accounts for consulting services separate from software
license fees for those arrangements where services are separately stated on a
time and materials basis and are not essential to the customer's functionality
requirements. If any portion of the software license fees is subject to
forfeiture or refund, the Company will postpone revenue recognition until the
contingency has been removed. The Company provides for potential product
returns and allowances at the time of shipment. Historically, product returns
and allowances have been immaterial. Consulting and education revenue is
recognized as the services are performed. Revenue from support and maintenance
activities is recognized ratably over the term of the maintenance period and the
unrecognized portion is recorded as deferred revenue. The Company's adoption of
SOP 97-2 did not have a material effect on the Company's financial statements
for the three and six-month periods ended June 30, 1998.
The Company's primary objective is to increase its license revenues and
market share in the middle market. The Company believes that its
ERP/back-office and front-office enterprise application software solutions
effectively meet the needs of mid-size manufacturing companies based on
technology platforms, functionality, agility and integration capabilities. The
Company also believes that the market for enterprise application vendors is
growing rapidly based on, among other factors, the continuing acceptance of
client/server technology, the migration from mainframe computers and year 2000
concerns. The Company is focused on trying to successfully increase its license
revenues while closely managing its operating costs. If these objectives are
achieved, this is intended to result in improved earnings performance. To
achieve the Company's strategy to increase license revenue and market share, the
Company will have to continue to enhance its products, recruit and train
additional sales professionals and recruit and train additional application
consultants. There can be no assurance that the Company will be able to achieve
this strategy and to successfully compete against current and future
competitors.
The Company believes that it was the first enterprise software
application company to provide integrated client/server solutions for both
ERP/back-office and front-office systems from one vendor with a consistent
development methodology, under a common technical architecture and a common look
and feel. The Company's full suite of integrated ERP/back-office and
front-office enterprise application software products is referred to as its
Customer Lifecycle Management (CLM) Solution. In early 1998, the Company began
referring to its CLM Solution as "ERP Plus", trademarked this reference, and has
focused its marketing and sales efforts on this new mark combined with "The Plus
Your Enterprise Needs". In early November 1997, the Company released version
7.0 of its suite of application products. The Company believes this release
enhances its prior product offering. The Company believes that its ERP Plus
product offering, including its 7.0 release, is a competitive advantage. In late
1997 and early 1998 and pursuant to a marketing and sales plan, the Company has
focused its marketing and sales efforts, together with other resources, on a
much narrower target market than in 1997 and prior years. As
9
<PAGE> 11
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT REFERENCES TO THE COMPANY'S TARGET MARKET)
a result, the Company has reduced its focus on its development tools and sale of
third party resale products. On July 2, 1998, the Company announced that it
will discontinue sales of its development tools. Management believes the
Company is positioned to leverage the strength of its ERP Plus application
products and related services for mid-size U.S. discrete manufacturing companies
with annual revenues between $25 million and $500 million. There can be no
assurance that the market will accept the Company's business strategy and
version 7.0 release of its suite of application products, or if it does, that
the Company will be able to successfully compete against other firms also
implementing this or a similar strategy.
In connection with the business strategy discussed above, the Company
approved and implemented a financial operating plan associated with its
marketing and sales focus and hired a president/COO in early March 1998 with
relevant industry experience to assist in connection with executing this plan.
The plan also includes continued enhancement of the Company's application
products, recruiting and training additional marketing and sales professionals,
centralizing the marketing organization in the Company's Tampa headquarters,
increasing the number of regional sales offices and U.S. regional sales vice
presidents, and recruiting and training additional consulting personnel. The
new president/COO has recruited additional management personnel to strengthen
the management team. This includes a senior vice president of marketing, senior
vice president of direct sales and a vice president of corporate services.
Management believes this new plan will assist the Company in attempting to
accomplish its strategic objective to increase license revenues from its
application products; however, there can be no assurance that the Company will
achieve this objective or that the Company's license revenues will increase in
accordance with its plans. Implementation of the Company's strategy to expand
the license sales has in the past, and may in the future, cause the Company's
quarterly results to fluctuate.
The Company's financial operating plan is also designed to
significantly reduce the Company's operating expenses from their fiscal 1997
levels and to minimize the usage of cash. Based upon the financial operating
plan, the Company initiated a reduction in work force of approximately 50
persons from late 1997 through January 1998. The Company's execution of this
plan resulted in a work force reduction and other charge of $1,010, which was
recorded in the fourth quarter of fiscal 1997. As a result of the Company's
implementation of this financial operating plan, the Company expects its
general and administrative, sales and marketing and research and development
operating expenses to be lower during 1998 as compared to 1997.
In general, revenues are difficult to forecast because the market for
client/server software is evolving rapidly and the Company's sales cycle, from
the customer's initial evaluation through purchase of licenses and the related
support and maintenance services, varies substantially from customer to
customer and from product to product. License fee revenue from quarter to
quarter is difficult to forecast as no significant order backlog exists at the
end of any quarter because the Company's products typically are shipped upon
receipt of customers' orders. The Company in the past has realized a
substantial portion of its revenue in the last month of a quarter, with this
revenue concentrated in the last weeks or days of a quarter.
10
<PAGE> 12
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
A substantial portion of the Company's operating expenses is related
to personnel, facilities, sales and marketing programs. The level of spending
for such expenses cannot be adjusted quickly and is therefore fixed in the
short term. The Company's expense levels for personnel, facilities and
marketing programs are based, in significant part, on the Company's
expectations of future revenue. If actual revenue levels on a quarterly basis
are below management's expectations, results of operations are likely to be
adversely affected by a similar amount because a relatively small amount of the
Company's operating expenses varies with its revenues in the short term.
The Company's strategy for increasing its license revenues also
includes supplementing the marketing of its software products and services by
its direct sales force group with indirect marketing channels. These indirect
channels include value-added resellers ("VARs"), original equipment
manufacturers ("OEMs"), strategic alliance partners assisting in generating
product sales and providing consulting services to end users ("teaming
partners") and international distributors. Selling through indirect channels
may limit the Company's contacts with its customers. As a result, the
Company's ability to accurately forecast sales, evaluate customer satisfaction
and recognize emerging customer requirements may be hindered. The Company's
strategy of marketing its products directly to end-users and indirectly through
VARs, OEMs, teaming partners and international distributors may result in
distribution channel conflicts. The Company's direct sales efforts may compete
with those of its indirect channels and, to the extent different resellers
target the same customers, resellers may also come into conflict with each
other. Although the Company has attempted to manage its distribution channels
to avoid potential conflicts, there can be no assurance that channel conflicts
will not materially adversely affect its relationships with existing VARs,
OEMs, teaming partners, or distributors or adversely affect its ability to
attract new VARs, OEMs, teaming partners and international distributors.
In addition, the Company's strategy is to provide its customers with a
wide range of professional technical and business consulting services associated
with implementing and customizing the Company's application products
(application consultants). Separately, the Company provides a wide range of
general consulting services to companies who use PowerBuilder(R), a leading
technology development tool of Sybase, Inc. for client/server systems
development (general consultants). The Company believes that if it is
successful in increasing its application license revenue, its consulting
services revenues associated with the Company's application products will
increase. Conversely, lower application license revenues will negatively impact
its consulting services revenues. With respect to its general consulting
services, the Company continues to focus on medium scale client/server projects.
The market for these types of general consulting services is intensely
competitive and the Company believes its ability to compete successfully depends
upon a number of factors both within and beyond its control, including the
quality of services, ability to recruit, hire, train and retain qualified
technical consultant personnel, and industry and general economic trends. The
Company has experienced higher than expected turnover among its consultants, and
if this continues, consulting services revenue, costs and the resulting profit
margins will be negatively impacted. Although services remain the largest single
revenue source for the Company, there can be no assurance that this strategy
will succeed and that service revenues will increase.
The Company's quarterly revenue and results of operations have
fluctuated significantly in the past and will likely fluctuate in the future.
Causes of such fluctuations have included and may continue to
11
<PAGE> 13
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
include, among others, the demand for the Company's products and services; the
size and timing of orders; the number, timing and significance of new product
and/or product release announcements by the Company and its competitors; the
ability of the Company to develop, introduce, market, sell and ship existing,
new and enhanced versions of the Company's products on a timely basis;
reassignments of consultants from providing billable services to non-billable
roles; the timing of hiring personnel; the level of product and price
competition; changes in operating expenses; changes in average selling prices
and mix between the Company's products, technology resale products and services;
changes in the Company's sales incentive strategy; the mix of direct and
indirect sales; seasonal decline in product sales; changes in customers' budget
constraints and general economic factors. Any one or more of these or other
factors could have a material adverse effect on the Company's business,
financial condition and results of operations. The potential occurrence of any
one or more of these factors makes the prediction of revenue and results of
operations on a quarterly basis difficult.
The market for enterprise software application products and services is
intensely competitive, rapidly changing and significantly affected by new
product offerings and other market activities. A number of companies offer
products similar to the Company's products and services, which are targeted at
mid-size discrete manufacturers. In addition, the Company's market has no
proprietary barriers to entry which would limit competitors from developing
similar products or selling competing products. Many of the Company's existing
competitors, as well as a number of potential competitors, have longer operating
history, more established marketing and sales organizations, greater name
recognition, larger research and development organizations, significantly
greater financial and technical resources and a larger installed base of
customers than the Company. As a result, these competitors may be able to
respond more quickly to new or emerging technologies and to changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products, than can the Company. There can be no assurance that
the Company will be able to compete successfully with existing or new
competitors or that such competitors will not offer or develop products that are
superior to the Company's products or that achieve greater market acceptance.
In addition, increased competition is likely to result in price reductions and
related reductions in gross margins and market share, any one of which could
materially adversely affect the Company's business, results of operations and
financial condition.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data regarding the Company's revenues derived from license fees,
technology resales and service fees:
<TABLE>
<CAPTION>
REVENUES THREE-MONTHS ENDED JUNE 30, SIX-MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1998 CHANGE 1997 1998 CHANGE 1997
- --------------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
License fees $ 1,586 (21%) $ 2,007 $ 2,948 (20%) $ 3,666
Percentage of total revenues 22% 24% 20% 21%
- --------------------------------- -------------------------------------------------------------------------
Technology resales 373 (25%) 495 756 (22%) 972
Percentage of total revenues 5% 6% 5% 6%
- --------------------------------- -------------------------------------------------------------------------
Service fees 5,351 (9%) 5,912 10,893 (13%) 12,532
Percentage of total revenues 73% 70% 75% 73%
- --------------------------------- -------------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT REFERENCES TO THE COMPANY'S TARGET MARKET)
License fees. The Company's license fees are derived primarily from
licensing the Company's application products, and to a lesser extent, from
licensing its development tools. In addition, any royalty fees earned are
included in license fees. The Company establishes its licensing fees using a
tiered pricing approach based on the number of concurrent servers and users.
Source code licenses are available at an additional cost.
License fees revenue decreased for the three and six-month periods
ended June 30, 1998 compared to the same periods in 1997 primarily due to the
fact that the Company is in the early stages of implementing its 1998 plan to
focus its sales and marketing efforts on licensing ERP Plus application software
solutions to a target market. Additionally, the Company is focusing on
rebuilding its sales "pipeline" for this target market. The decrease in license
fees revenue was also attributable to a lower average dollar amount of the
application license transactions and lower tools license revenue. During late
December 1997 and early January 1998, the Company initiated a new plan to
increase license revenues from its applications products. Under this plan, the
Company focused its sales and marketing efforts on licensing its ERP Plus
solutions comprised of back-office and front-office application products to
mid-size U.S. discrete manufacturing companies with annual revenues between $25
million and $500 million. The decision to implement this strategy was the
result of the Company's assessment of the market for enterprise application
software solutions, the Company's products and its strengths. Under this
strategy, the Company approved and implemented a financial operating plan
associated with its marketing and sales focus and hired a president/COO with
relevant industry experience to assist with the execution of this plan. During
the first six-months of 1998 and through mid-August 1998, the Company recruited
a senior vice president of marketing and senior vice president of direct sales,
transitioned a sales executive into senior vice president of channel sales,
centralized its marketing organization in the Company's Tampa headquarters,
and increased the number of U.S. regional sales offices and regional sales vice
presidents from three to six. Management believes the Company's implementation
of this new plan will assist the Company in attempting to accomplish its
strategic objective to increase license revenues from its application products;
however, there can be no assurance that the Company will achieve this objective
or that the Company's license revenues will increase in accordance with
management's expectations.
The Company had been reducing its focus on its development tools due to
increased competition in the software development tools market and the Company's
decision to increase the focus on its ERP Plus enterprise application software
solutions. License fees revenue from development tools has continued to
decrease both in absolute dollars and as a percentage of total license fees.
These and other factors led the Company to announce on July 2, 1998 that it was
discontinuing sales of its development tools. The Company intends to continue to
provide support/maintenance on two of its development tools to June 30, 1999.
Technology resales. Technology resales are derived from licensing
complementary client/server and Internet development tools developed by other
independent software vendors. Technology resales and related services are more
susceptible to change based on the price for such products and services than the
Company's application license fees and related services. Technology resales
revenue decreased 25% and 22% for the three and six-month periods ended June 30,
1998, respectively, compared to the comparable periods ended June 30, 1997 due
to the Company's increased focus on the marketing and sales of its own ERP Plus
application products and the increased market competition for technology resale
products. The Company believes that the 1998 technology resales revenue, as a
percentage of total revenue and in absolute dollars, will continue to be less
than prior year periods.
13
<PAGE> 15
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
Service fees. The Company's service fees consist of revenue from
consulting, education and support/maintenance services. Consulting services are
primarily provided on a time and materials basis, educational services are
generally priced on a per student basis and annual support/maintenance service
fees are based on a percentage of the related license fees. Service fees
revenue decreased 9% and 13% for the three and six-month periods ended June 30,
1998, respectively, compared to the same period during 1997. This decrease was
due mainly to a decrease in the number of billable consultants as a result of
closing certain unprofitable service areas, the Company's December 1997 work
force reduction and higher than expected consultant turnover. Also in
conjunction with the work force reduction, employees who were transitioned from
non-billable to billable positions within the Company were not billable at
customer sites until later during the March 31, 1998 quarter following
additional education and training. An additional factor impacting revenue from
service fees was the Company's ERP Plus internal application training program,
which was undertaken during the three-month period ended June 30, 1998. The
Company's application consultants who participated in this training program were
not otherwise on billable assignments.
COSTS AND EXPENSES
The following table sets forth, for the periods indicated, certain
financial data regarding the Company's costs associated with its license fees,
technology resales and services:
<TABLE>
<CAPTION>
COST OF REVENUES: THREE-MONTHS ENDED JUNE 30, SIX-MONTHS ENDED JUNE 30,
1998 CHANGE 1997 1998 CHANGE 1997
---------------------------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cost of licenses $121 (74%) $472 $299 (62%) $784
Gross profit percentage 92% 76% 90% 79%
---------------------------- ---------------------------------------------------------------------------
Cost of technology resales 251 (37%) 397 522 (30%) 749
Gross profit percentage 33% 20% 31% 23%
---------------------------- ---------------------------------------------------------------------------
Cost of services 4,187 (16%) 4,982 8,692 (14%) 10,062
Gross profit percentage 22% 16% 20% 20%
---------------------------- ---------------------------------------------------------------------------
</TABLE>
Cost of licenses. The cost of licenses consists primarily of
production costs, royalties associated with a module of the Company's
application products, and the amortization of intangible assets. The cost of
licenses decreased 74% and 62% for the three and six-month periods ended June
30, 1998, respectively, as compared to comparable periods in 1997 due primarily
to lower amortization of intangible assets and lower royalties. Management
expects the cost of licenses to continue to be lower during 1998 as compared to
1997 as a result of the Company recording a charge of approximately $1.3 million
during late 1997 to reduce the intangible assets acquired in certain 1996 and
1995 acquisitions to their net realizable value. The Company also expects the
royalty payments to be lower during 1998 as compared to 1997 as certain
contractual royalty obligations have been satisfied.
Cost of technology resales. The cost of technology resales consists
primarily of costs associated with resales of complementary client/server and
Internet development tools developed by independent
14
<PAGE> 16
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
software vendors. Technology resales cost decreased 37% and 30% in the three
and six-month periods ended June 30, 1998, respectively, as compared to
comparable periods in the prior year due to decreased technology resales
revenue. This decrease in technology resales revenue is due to an increased
focus on sales of the Company's own software products and increased market
competition for technology resale products.
Cost of services. The cost of services consists primarily of
compensation and travel costs associated with providing consulting, product
support and maintenance, technical services and education. The cost of services
decreased 16% and 14% for the three and six-month periods ended June 30, 1998,
respectively as compared to the same periods in 1997 due to a decrease in the
number of consultants as a result of closing certain unprofitable service areas
and the Company's December 1997 work force reduction. The gross profit
percentage increased from 16% for the three-month period ended June 30, 1997 to
22% for the three-month period ended June 30, 1998 as a result of several
factors including higher utilization of application consultants and higher
average consultant billable rates.
The following table sets forth, for the periods indicated, certain
financial data regarding the Company's operating expenses:
<TABLE>
<CAPTION>
OPERATING EXPENSES: THREE-MONTHS ENDED JUNE 30, SIX-MONTHS ENDED JUNE 30,
---------------------------------- --------------------------------
1998 CHANGE 1997 1998 CHANGE 1997
- --------------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
General and administrative $1,121 (27%) $1,544 $2,249 (27%) $3,091
Percentage of total revenues 15% 18% 15% 18%
- --------------------------------- -------------------------------------------------------------------------
Sales and marketing 1,533 (42%) 2,653 2,973 (43%) 5,190
Percentage of total revenues 21% 32% 20% 30%
- --------------------------------- -------------------------------------------------------------------------
Research and development 903 (44%) 1,620 1,857 (39%) 3,062
Percentage of total revenues 12% 19% 13% 18%
- --------------------------------- -------------------------------------------------------------------------
</TABLE>
General and administrative ("G&A"). G&A expenses include
compensation, communications, accounting, human resources, legal and related
facilities expenses. The decrease in G&A expenses for the three and six-month
periods ended June 30, 1998 compared to the same periods ended June 30, 1997 is
primarily due to the Company's implementation of the financial operating plan
associated with its marketing and sales focus which included a work force
reduction. The Company expects its G&A expenses to continue to be lower during
1998 as compared to 1997 as a result of implementing and executing on its
financial operating plan.
Sales and marketing. Sales and marketing expenses primarily consist of
compensation paid to sales and marketing personnel, costs of marketing and
related communications costs. Sales and marketing costs decreased 42% and 43%
for the three and six-month periods ended June 30, 1998, respectively as
compared to the same periods in 1997 as a result of the Company's implementation
of the financial operating plan associated with its marketing and sales focus
and continued restructuring of its marketing and sales organizations. During
the first six months of 1998 and through mid-August 1998, the Company recruited
a senior vice president of marketing and senior vice president of direct sales,
transitioned a sales executive into senior vice president of channel sales,
centralized its marketing organization in the Company's Tampa headquarters, and
increased the number of U.S. regional sales offices and regional sales vice
15
<PAGE> 17
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
presidents from three to six. During the remainder of 1998, the Company will
invest additional resources, possibly in excess of the amounts incurred during
the first six-months of 1998, on strengthening the Company's marketing and sales
organizations and their respective programs and initiatives. Nevertheless, the
Company expects its sales and marketing expenses to continue to be lower during
1998 as compared to 1997.
Research and development ("R&D"). R&D costs consist primarily of
compensation and related facilities and equipment costs associated with
developing, maintaining and enhancing the Company's products. Since inception,
the Company has not capitalized any internal R&D costs as the costs incurred
during the period between the point in time that technological feasibility is
established and that a product is released to the market have been
insignificant. R&D costs decreased 44% and 39% for the three and six-month
periods ended June 30, 1998, respectively, as compared to the same periods in
1997 due to the Company's implementation of the financial operating plan
associated with its marketing and sales focus. The Company expects its R&D
expenses to continue to be lower during 1998 as compared to 1997 as a result of
implementing and executing on its financial operating plan.
Income taxes. The Company increased its deferred income tax asset
valuation allowance by approximately $280 and $701 for the three and six-month
periods ended June 30, 1998, respectively, to offset the tax benefit applicable
to the loss incurred during the period. For the three and six-month periods
ended June 30, 1997, the Company increased its deferred income tax asset
valuation allowance by approximately $1,178.
YEAR 2000 COMPLIANCE
The Company has reviewed its computer information systems to identify
any systems that could be affected by the "Year 2000" issue. Year 2000
problems typically arise from computer programs using two characters rather
than four to define the applicable year. This could result in system failure
or miscalculations. The Company presently believes that its software systems
which include its application products and other internally-developed software,
its relational data base management system, and its information systems
hardware used in connection with managing the Company's operations are Year
2000 compliant.
The Company has not assessed fully the impact of the Year 2000
compliance issue on the entities with whom the Company interacts, such as its
channel partners, resellers, distributors, suppliers, manufacturers and
customers. The Company has issued, however, a Year 2000 position statement for
those entities with which the Company does business. The Company also has not
verified that its non-information systems equipment is Year 2000 compliant.
16
<PAGE> 18
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
LIQUIDITY AND CAPITAL RESOURCES
The following tables set forth, for the periods indicated, certain
financial data regarding the Company's working capital balances, cash and cash
equivalents, cash provided by (used in) operating activities, cash used in
investing activities and cash provided by financing activities:
<TABLE>
<CAPTION>
AS OF
---------------------------------------------
June 30, December 31,
1998 CHANGE 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
Working capital $6,408 (19%) $7,884
Cash and cash equivalents 7,028 11% 6,360
<CAPTION>
FOR THE
SIX-MONTHS ENDED JUNE 30,
---------------------------------------------
1998 CHANGE 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
Cash provided by (used in) operating activities $995 133% $(3,018)
Cash used in investing activities (442) -- (440)
Cash provided by financing activities 115 121% 52
</TABLE>
Working capital decreased as of June 30, 1998, compared to December 31,
1997, principally due to the Company's net loss incurred during the first
six-months of 1998. The cash and cash equivalents increased from December 31,
1997 to June 30, 1998 primarily due to increased accounts receivable collections
during the first six-months of 1998 and, as it relates to the first
three-months, certain items including settlements of outstanding receivables
matters.
For the six-month period ended June 30, 1998, cash provided by
operating activities was $995 due to increased receivables collections,
decreased operating expenses as a result of implementing and executing on the
Company's financial operating plan and certain items including settlements of
outstanding receivables matters. During the six-months ended June 30, 1998, the
Company paid approximately $452 in severance costs, office closing costs and
other charges related to its work force reduction and cost cutting measures the
Company began in late December 1997. For the six-months ended June 30, 1997,
the cash used in operating activities was $3,018 and was primarily due to
increased investments in R&D, costs associated with being a public company and
increased infrastructure costs including investments in sales and marketing
organizations.
The Company's cash used in investing activities remained relatively
unchanged for the six-month period ended June 30, 1998 as compared to June 30,
1997. For the six-month period June 30, 1998, approximately $306 of the cash
used in investing activities was spent on the Company's relocation of its
product development group to a larger facility in Anderson, South Carolina.
For the six-month period ended June 30, 1997, the cash used in investing
activities was spent primarily on computer equipment.
At June 30, 1998, the Company's primary source of liquidity consisted
of its cash and cash equivalents balance of $7,028 and its short-term accounts
receivable balance of $4,296. In addition, the
17
<PAGE> 19
POWERCERV CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
Company has an unsecured $5,000 line of credit with a commercial bank for
working capital and other purposes. The interest rate on the line of credit is
equal to LIBOR plus 150 or 200 basis points, based on the Company's tangible net
worth. The line of credit has a February 15, 1999 maturity date and requires
the Company to maintain certain financial ratios. As of June 30, 1998, no
balance was outstanding under the line of credit. On January 26, 1998, the
Company and its bank amended the terms of this line of credit by providing for
the application of a $300 sublimit for the purpose of supporting letters of
credit.
During late 1997 and early 1998, the Company implemented a financial
operating plan associated with its marketing and sales focus which included a
work force reduction and cost cutting measures in line with its objective to
return to profitability. If the Company is not successful in achieving its
targeted license and service revenues and the projected reduction in costs, the
Company may be required to take further actions to align its operating expenses
with its revenues, such as further reductions in work force or other cost
cutting measures. The Company is dependent upon its ability to generate cash
flows from its license and service fees, as well as the collection of its
outstanding accounts receivable, to maintain its current liquidity levels.
The Company believes that, based upon its projected revenues and the
operating expense reductions associated with the recent work force reduction
and new financial operating plan, that funds generated from operations,
existing cash and cash equivalents and its short-term accounts receivable,
together with the availability of the line of credit, will be sufficient to
finance the Company's operations for at least the next twelve months.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. Statement 131 establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company has identified its operating segments as its services
and license products. The Company will be required to adopt this standard for
financial statements for the fiscal year ended December 31, 1998; however,
Statement 131 need not be applied to interim financial statements in the
initial year of its application. As the standard addresses reporting and
disclosure issues only, there will be no impact on earnings from adoption of
this standard.
18
<PAGE> 20
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
PowerCerv Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
PowerCerv Corporation and subsidiary as of June 30, 1998, and the related
condensed consolidated statements of operations and cash flows for the
three-month and six-month periods then ended. These financial statements are
the responsibility of the Company's management. The condensed consolidated
balance sheet of PowerCerv Corporation and subsidiary as of June 30, 1997, and
the related condensed consolidated statements of operations and cash flows for
the three-month period and six-month periods then ended and the condensed
consolidated statements of operations and cash flows for the three-month period
ended March 31, 1998, not separately presented herein, were reviewed by other
accountants whose reports (dated July 21, 1997, except for Note F which is July
24, 1997 and April 17, 1998, respectively) stated that they were not aware of
any material modifications that should be made to those statements for them to
be in conformity with generally accepted accounting principles.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements at June 30, 1998, and for the
three-month and six-month periods then ended for them to be in conformity with
generally accepted accounting principles.
Tampa, Florida
July 17, 1998
<PAGE> 21
POWERCERV CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A complaint was filed on July 24, 1997 in the United States District
Court for the Middle District of Florida, captioned J. Conrad Lifsey vs. Harold
R. Ross, Gerald R. Wicker, Marc J. Fratello, Roy E. Crippen, III, Donald B.
Hebb, Jr., Thomas S. Roberts, PowerCerv Corporation, Alex Brown & Sons, Inc.,
Robertson, Stephens & Company, ABS Capital Partners, L.P., Summit Investors II,
L.P., and Summit Ventures III, L.P. The complaint purports to be a class
action on behalf of those persons who purchased shares of the Company's common
stock from March 1, 1996 (the date of the Company's initial public offering of
its common stock ("IPO")) through July 24, 1996. The complaint alleges, among
other things, that the defendants violated the Securities Act of 1933 and the
Securities Exchange Act of 1934 in connection with the Company's IPO and in its
subsequent securities filings, press releases and other public statements. The
plaintiff seeks damages of an unspecified amount, rescission of certain
securities sales and certain other remedies. On March 19, 1998, the defendants
filed their motions to dismiss this complaint. An effect of this motion filing
is to postpone any discovery on this case until after the motions are ruled on
by the Court. No ruling has yet been handed down. On April 5, 1998, the Court
ordered the parties to attend a mediation conference to be conducted by July
30, 1998. The parties did not resolve this lawsuit in the mediation
conference. The defendants continue to deny any wrongdoing and intend to
contest the suit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on June 2, 1998
("1998 Annual Meeting"). At the 1998 Annual Meeting, the shareholders voted to
elect Marc J. Fratello, Roy E. Crippen, III, Michael J. Simmons, O.G. Greene
and Stuart C. Johnson as directors of the Company, to hold office until the
Company's 1999 Annual Meeting and until their successors are elected and
qualified or earlier resignation, removal from office or death. The
shareholders also voted to approve a proposal to amend the Company's 1995 Stock
Option Plan ("Stock Option Plan") to increase the number of shares available
for issuance under the Stock Option Plan from 2,250,000 shares to 3,675,000
shares and to modify certain of the provisions of the Stock Option Plan
relating to its administration and other matters.
The total number of shares of the Company's common stock, $.001 par
value ("Common Stock"), issued, outstanding and entitled to vote at the 1998
Annual Meeting was 13,796,767 shares of which 12,922,470 shares of Common Stock
were present in person or by proxy. The following list indicates the number of
votes received by each of the nominees for the Company's Board of Directors:
<TABLE>
<CAPTION>
NAME VOTES FOR ABSTENTIONS
---- --------- -----------
<S> <C> <C>
Marc J. Fratello 11,991,730 930,740
Roy E. Crippen, III 12,011,480 910,990
Michael J. Simmons 12,007,780 914,460
O.G. Greene 12,011,730 910,740
Stuart C. Johnson 12,011,730 910,740
</TABLE>
The Stock Option Plan proposal was approved by a majority of the
shareholders present and entitled to vote at the 1998 Annual Shareholders
Meeting. Specifically, of the 12,922,470 shares of
20
<PAGE> 22
Common Stock present in person or by proxy, a total of 8,898,302 voted in favor
of this proposal, 1,603,175 shares of Common Stock voted against, and 2,420,993
shares of Common Stock abstained from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.1 Executive Employment Agreement, dated February 19, 1998, between PowerCerv Corporation and Michael J.
Simmons.
10.2 PowerCerv Corporation Stock Option Agreement, dated February 19, 1998, between PowerCerv Corporation
and Michael J. Simmons.
10.3 PowerCerv Corporation Stock Option Agreement, dated February 19, 1998, between PowerCerv Corporation
and Michael J. Simmons.
10.4 Amended and Restated Executive Employment Agreement, dated April 7, 1998, between PowerCerv Corporation
and Stephen M. Wagman.
10.5 Amended and Restated Executive Employment Agreement, dated April 7, 1998, between PowerCerv
Technologies Corporation and Ronald D. Nall.
15.1 Accountants' Letter regarding Unaudited Interim Financial Information.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on July 14, 1998, to
report under Item 4, Change in Registrant's Certifying Accountant, the
Company's appointment of Ernst & Young LLP as its independent
accountant for the remainder of 1998. On July 7, 1998, the Company
notified KPMG Peat Marwick LLP ("KPMG") that the Company's
relationship with KPMG was terminated.
The Company filed an amendment to a current report on Form 8-K/A on
July 17, 1998, to report under Item 4, Change in Registrant's
Certifying Accountant, a letter from KPMG confirming, as applicable,
the Company's disclosures with respect to KPMG in the Company's Form
8-K filed on July 14, 1998.
21
<PAGE> 23
POWERCERV CORPORATION
FORM 10-Q
(for the quarterly period ended June 30, 1998)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PowerCerv Corporation
Date: August 14, 1998 /s/ Marc J. Fratello
---------------------------
Marc J. Fratello
Chief Executive Officer
(Duly Authorized Officer)
Date: August 14, 1998 /s/ Stephen M. Wagman
---------------------------
Stephen M. Wagman,
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 1998 /s/ Karen L. Surplus
---------------------------
Karen L. Surplus,
Chief Accounting Officer
22
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made
effective as of the 19th day of February, 1998 ("Effective Date"), by and
between PowerCerv Corporation, a Florida corporation located at 400 North
Ashley Drive, Suite 2700, Tampa, Florida 33602 (the "Company") and Michael J.
Simmons, an individual currently residing at 25851 Nellie Gail Road, Laguna
Hills, CA 92653 (the "Executive").
BACKGROUND INFORMATION
A. WHEREAS, the Company and its subsidiary are engaged in designing,
developing, promoting, licensing and supporting client/server application
products and development tools, and providing related technical consulting and
education services; and
B. WHEREAS, the Company desires to employ Executive as its President
and Chief Operating Officer, and Executive desires to be employed by the
Company in this capacity and devote his full time and efforts to the business
and affairs of the Company as described herein, all pursuant to the terms and
subject to the conditions set forth in this Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth herein, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. PRESIDENT AND CHIEF OPERATING OFFICER; DIRECTOR.
(a) The Company hereby agrees to hire Executive to serve in the
capacity of President and Chief Operating Officer of the
Company in accordance with the provisions of this
Agreement. The Executive will be responsible for overseeing
management of the Company's sales organization,
professional services organization, research and
development organization, and the accounting/financial and
human resources departments, and otherwise all in
accordance with the respective roles for the President and
Chief Operating Officer positions as set forth in the
Company's Bylaws. The Executive will report to the Chief
Executive Officer of the Company, will become part of the
Company's "Executive Management" team, and will be treated
as an "executive officer" of the Company for purposes of
Section 16 under the Securities Exchange Act of 1934, as
amended. The Executive hereby accepts such employment upon
the terms and conditions hereinafter set forth.
(b) In addition, upon the Executive's commencement of his
employment with the Company, the Executive will be elected
to serve as a member of the Company's Board of Directors
("Board of Directors"). The Executive agrees to serve in
such director capacity in accordance with the Bylaws of the
Company. In connection with the upcoming Annual Meeting of
the Shareholders of the Company (currently scheduled to
occur on June 2, 1998) and each Annual Meeting of the
Shareholders thereafter during the term of this Agreement,
the Executive shall be nominated to serve as a member of
the Board of Directors for one-year terms following each of
such Annual Meetings.
1
<PAGE> 2
2. TERM. Unless earlier terminated as provided herein, the term of
this Agreement shall commence on or before March 1, 1998 and terminate on
December 31, 2000. Notwithstanding the foregoing, if this Agreement is not
terminated as provided herein on or before the expiration of its initial term,
this Agreement will be automatically renewed for successive one (1) year terms
unless, at least sixty (60) days prior to the expiration of the initial term or
any subsequent one-year renewal term, either party has given written notice to
the other of its intention not to renew this Agreement beyond the end of such
term.
3. DUTIES.
(a) The Executive shall perform all functions and duties
consistent with his positions as described above in Section
1 on behalf of the Company and its subsidiary in a
faithful, efficient, trustworthy and professional manner,
as reasonably required by the Chief Executive Officer of
the Company or as otherwise requested by the Board of
Directors. The Executive agrees to comply with all policies
and regulations of the Company and the terms and conditions
of this Agreement, to devote his best efforts to the
interests of the Company, and will not, without the prior
written consent of the Chief Executive Officer or the Board
of Directors, engage in any other job or activity
detrimental to the Company's interests or in contravention
to the terms and conditions of this Agreement. The
Executive shall be principally based at the Company's
corporate offices in Tampa, Florida and shall travel as
required in connection with the performance of his duties
hereunder. During the term of this Agreement, the Executive
shall devote substantially all of his working time and
efforts to the business and affairs of the Company. The
Executive shall, upon request of the Company, perform
services for any parent or subsidiary of the Company
without compensation except as provided herein.
(b) In addition, the Executive represents that he has not
brought to the Company, and will not bring or use in the
performance of his duties at the Company, any property or
confidential information (whether or not in writing) of a
former employer or third party without that employer's or
third party's written consent. The Executive hereby
certifies that he is not a party to any other agreement (or
subject to any fiduciary obligation) which will interfere
with the Executive's full compliance with this Agreement.
The Executive has not entered into any agreement or
understanding either written or oral in conflict with the
provisions of this Agreement. The Executive acknowledges
and agrees that the Company is hiring him based upon its
understanding that the Executive will be fully capable,
without restriction, of performing under this Agreement in
his capacity as President and Chief Operating Officer for
the Company, and that the Company is relying upon the
representations set forth herein in connection with its
providing this Agreement to the Executive.
4. COMPENSATION. As his entire compensation for all services rendered
to the Company during the term of this Agreement, the Executive shall receive
the compensation provided for in this Section, subject to withholding and other
applicable employment taxes:
(a) Base Salary. Effective upon the Executive's actual first day
of employment with the Company, the Company will pay the
Executive an annual base salary (the "Base Salary") as
follows: (i) for the period commencing on the Executive's
first day of employment with the Company until December 31,
1998, the Annual Base Salary will be paid out at a rate of
$14,583.34 per month; (ii) for the period January 1, 1999
until December 31, 1999, the Annual Base Salary will be
$225,000; and (iii) for the period January 1, 2000 until
December 31, 2000, the Annual Base Salary will be $225,000.
The Base Salary shall be subject to review on an annual
basis by the Compensation Committee of the
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<PAGE> 3
Board of Directors. The Compensation Committee shall not
have the authority to reduce the Base Salary from the
levels set forth in this Agreement.
(b) Target Annual Bonus. Consistent with the bonus program for
"Executive Management" of the Company (and pursuant to the
target annual bonus pay-out provisions of the employment
agreements of Messrs. Fratello, Crippen, Nall and Wagman),
the Executive will be eligible to potentially earn an
annual bonus of $200,000 (the "Target Annual Bonus") per
the provisions of this Section 4(b) for each of the
Company's three (3) fiscal years during the term of this
Agreement. The Target Annual Bonus will be paid in one lump
sum for each of such fiscal years, subject to the Company
and/or Executive, as applicable, achieving certain criteria
as hereinafter set forth. References below to target
revenues and target operating income relate to Company's
"Management Plan Projections" approved by the Board of
Directors no less frequently than annually in advance of
the period or which the targets are being determined.
Actual revenues and actual operating income shall be
computed on a basis consistent with a method by which
target revenues and target operating income for the related
year were computed. Eligibility for payments of the Target
Annual Bonus to Executive shall be for each calendar year
during the term of the Agreement beginning with the
calendar year commencing January 1, 1998 and shall be
computed as follows:
(i) $70,000 will be earned upon Company achieving target
revenues for each calendar year;
(ii) $70,000 will be earned upon Company achieving target
operating income for each calendar year; and
(iii) $60,000 will be earned upon approval of the Board of
Directors after its review of the Executive
Management and/or Executive's presentation of
strategic business accomplishments of the Company
for each calendar year.
If a target referenced in subclause (i) or (ii) above is not
met in a particular calendar year, Executive shall not
receive for such calendar year the part of the Target Annual
Bonus tied to such target. However, notwithstanding anything
to the contrary in this subsection 4(b), if in any calendar
year the Company exceeds the target revenues or target
operating income for such year, the Executive shall be paid
an additional bonus computed as follows: for each 1% that
actual revenues for the calendar year exceed the target
revenues for such calendar year, and for each 1% that the
actual operating income for such calendar year exceeds the
targeted operating income for such year, the Executive shall
be paid an additional $630.00. For example, if Company's
target revenues for a calendar year were $40,000,000 and
actual revenues for such year computed as provided herein
were $50,000,000, then, as actual revenues would have
exceeded projected revenues by 25%, the Executive would be
entitled to an additional Target Annual Bonus related to
target revenues in the amount of $15,750.00 (i.e., 25 x
$630.00). The presentation by the Executive Management and/or
Executive of Company's strategic business accomplishments for
a fiscal year shall be promptly evaluated by the Board of
Directors and the potential related bonus shall be determined
by the Board of Directors in its reasonable discretion. The
Executive shall be eligible to earn all or a portion of such
potential bonus as so determined by the Board of Directors.
All amounts payable pursuant to this Section 4(b) shall be
paid to the Executive promptly after the amount is
determined. The minimum Target Annual Bonus to be paid to the
Executive pursuant to this Section 4(b) for the period
commencing on the Executive's first day of employment
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<PAGE> 4
with the Company until December 31, 1998 shall be $50,000.
Thereafter, the Executive and the Company acknowledge and
agree that there shall be no such minimum Target Annual
Bonus due hereunder for any subsequent fiscal year(s).
Additionally, the Executive acknowledges and agrees that no
advances or draws will be paid under this Agreement.
(c) Stock Options. As of the Effective Date of this Agreement, the
Company agrees to grant the Executive those stock options set
forth below in subsections 4(c)(i) and 4(c)(ii). The Executive
acknowledges and agrees that during the initial term of this
Agreement (through December 31, 2000), the Executive will not
receive nor be entitled to receive any additional stock
options from the Company. In addition, the Executive
acknowledges that all stock options being granted to him below
are not part of or granted pursuant to the Company's 1995
Stock Option Plan, as amended, and accordingly constitute
"non-qualified stock options" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"). If the Company
and the Executive determine that no exemption from the
registration requirements from the Securities Act of 1933 is
available with respect to the shares to be issued upon
exercise of the options, the Company will file a registration
statement with respect to such shares. The stock options to be
granted to the Executive on the Effective Date are as follows:
i) A non-transferable option to purchase 62,000 shares
of the Company's common stock pursuant to a
"PowerCerv Corporation Stock Option Agreement". The
exercise price for this option will be the "fair
market value" on the date of grant, which shall be
the average of the high and low sales prices of the
Company's common stock as reported by the NASDAQ on
the Effective Date of this Agreement. If trading in
the stock or a price quotation does not occur on the
date as of which fair market value is being
determined, the last date on which the stock was
traded or a price was quoted shall determine the fair
market value. This option will vest according to the
following schedule:
<TABLE>
<CAPTION>
Date Portion Vested
---- ---------------
<S> <C>
March 31, 1998 1/10
April 30, 1998 2/10
May 31, 1998 3/10
June 30, 1998 4/10
July 31, 1998 5/10
August 31, 1998 6/10
September 30, 1998 7/10
October 31, 1998 8/10
November 30, 1998 9/10
December 31, 1998 Entire Option
</TABLE>
The stock option described in subsection 4(c)(i)
will expire on the earlier of (x) ten years from the
date of grant, or (y) the first anniversary of
either the date of the Executive's separation of
employment from the Company or the date of the
Recipient's death or disability.
ii) A second non-transferable (except as set forth below
in this subsection 4(c)(ii)) option to purchase
938,000 shares of the Company's common stock pursuant
to a "PowerCerv Corporation Stock Option Agreement".
The exercise price for this
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<PAGE> 5
option will be the "fair market value" on the date of
grant, which shall be the average of the high and low
sales prices of the Company's common stock as
reported by the NASDAQ on the Effective Date of this
Agreement. If trading in the stock or a price
quotation does not occur on the date as of which fair
market value is being determined, the last date on
which the stock was traded or a price was quoted
shall determine the fair market value. This option
will vest according to the schedule set forth on
Exhibit A attached hereto and incorporated herein by
this reference.
The stock option described in subsection 4(c)(ii)
will expire on the earlier of (x) ten (10) years
from the date of grant, or (y) the first anniversary
of the date of the Recipient's death or disability,
or (z) one hundred and fifty (150) days following
the Executive's separation of employment from the
Company. This stock option may be transferred and
assigned, in its entirety, by Executive to an
employee of the Company or its subsidiary, within
thirty (30) days following the Executive's receipt
of the written consent to make such transfer by the
Compensation Committee of the Board of Directors, in
which case the Executive acknowledges that there may
be Federal income tax implications to such transfer
and assignment for which the Executive will be
responsible. The Compensation Committee of the Board
of Directors may, at its sole discretion, review the
Executive's performance in light of the Company's
operating plan to determine whether or not to
accelerate the vesting of any portion of the stock
price-based stock options.
(d) Relocation. In addition to the compensation described above,
the Company will pay the Executive a one-time "Relocation
Allowance" of $40,000, on a pre-tax basis. The Executive
agrees to use the Relocation Allowance exclusively for his
relocation expenses. The Relocation Allowance will be paid
fifty percent (50%) on April 10, 1998 and the remainder on May
10, 1998, or upon such other time schedule as the Executive
and the Chief Executive Officer agree. If the Executive
separates his employment with the Company without Cause (as
"Cause" is defined in Section 9(a) of the Agreement) during
the initial term of this Agreement (before December 31, 2000),
the Executive agrees to promptly return the entire amount of
the Relocation Allowance to the Company. In addition to the
Relocation Allowance described above, the Company agrees to
reimburse the Executive up to $2,500 per month for no more
than six (6) months from the Effective Date for his and his
family's temporary travel and living expenses in Tampa. In
connection with obtaining such reimbursement, the Executive
agrees to submit expense receipts for these travel/living
costs.
5. WORKING FACILITIES. The Company shall provide the Executive with
office space, equipment, facilities, staffing and services which are suitable
to the position of President and Chief Operating Officer and adequate for the
performance of the Executive's duties hereunder.
6. EXPENSES. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in furtherance of
the Company's business in accordance with the Company's written policies and
procedures.
7. VACATION AND HOLIDAYS. The Executive shall be entitled to such
vacation with pay and holidays with pay during each fiscal year of the Company
as shall be approved by the Company. The amount of vacation and holidays
provided to the Executive shall be consistent with the amount given other
comparable executive employees of the Company.
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<PAGE> 6
8. HEALTH, WELFARE AND INSURANCE PLANS. Subject to eligibility
requirements, the Executive will be entitled to participate in any plans,
insurance policies or contracts maintained by the Company relating to
retirement, health, disability and other related benefits. The Executive's
rights with respect to any such benefits shall be subject to the provisions of
the relevant plans, policies or contracts providing such benefits. Nothing
contained herein shall be deemed to impose any obligation on the Company to
adopt or maintain any such plan, policy or contract. As of the date of this
Agreement, the Company does not provide different types or levels of health,
welfare and insurance plan or benefit coverage to its executive employees, and
further, there is no present intention by the Company to change this benefit
policy. However, if the Company were to change its policy relative to executive
benefits, those health, welfare and insurance plan and benefit coverage made
available to the Executive will be consistent with the amount given other
comparable executive employees of the Company.
9. TERMINATION. This Agreement, and the Executive's employment
hereunder, shall terminate in accordance with the provisions of this Section.
(a) By Company. The Company may terminate this Agreement (i) with
Cause at any time upon thirty (30) days prior written notice
to the Executive, (ii) upon the Company's merger,
consolidation, acquisition, liquidation, sale or other
disposition of all or substantially all of its business
and/or assets to a third party; or (iii) without Cause upon
ninety (90) days prior written notice to the Executive, and
the Executive shall work for the Company during such notice
period unless otherwise directed by the Company.
As used in this Agreement, the term "Cause" shall mean (A)
willful and repeated failure to comply with the lawful
directions of the Company's Chief Executive Officer or Board
of Directors or repeated failure to perform the duties as
President and Chief Operating Officer of the Company; (B)
gross negligence or willful misconduct in the performance of
duties to the Company and/or its subsidiaries; (C) commission
of any act of fraud with respect to the Company and/or its
subsidiaries; or (D) conviction of a felony or a crime
involving moral turpitude causing material harm to the
standing and reputation of the Company and/or its
subsidiaries, in each case as determined in good faith by the
Company's Board of Directors.
(b) Death. This Agreement shall terminate immediately upon the
Executive's death.
(c) Disability. If the Executive incurs a Disability (as defined
below) which continues for a period of at least ninety (90)
consecutive days, this Agreement shall terminate on the last
day of such period. Unless the Executive shall perform his
duties hereunder for a continuous period of at least thirty
(30) consecutive days following a period of Disability before
the Executive again incurs a Disability, he shall not be
entitled to start a new ninety (90) consecutive day period
under the provisions of this subsection, but instead may only
continue under the remaining portion of the original ninety
(90) consecutive day period.
As used in this Agreement, the term "Disability" shall mean
the Executive's physical or mental inability, by reason of
illness or accident, to perform the normal duties of his
employment by the Company, subject to any obligation the
Company may have under applicable law to provide reasonable
accommodation. If there is any disagreement between the
Company and the Executive as to the Executive's Disability or
as to the date any such Disability began or ended, the same
shall be determined by a physician
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<PAGE> 7
mutually acceptable to the Company and the Executive. The
determination of such physician shall be conclusive evidence
of any such Disability and of the date any such Disability
began or ended. The Executive shall be available for such an
examination at any reasonable time upon prior reasonable
notice thereof from the Company. If the Executive fails or
refuses to cooperate in such examination, the determination of
the Executive's Disability and the date any such Disability
began or ended shall be made by the Company in its sole
discretion.
(d) Termination by Executive. The Executive may terminate this
Agreement (i) for Good Reason at any time upon thirty (30)
days prior written notice to the Company, or (ii) at any
time upon ninety (90) days prior written notice to the
Company; provided, however, the Executive shall continue to
work for the Company during such notice period unless
otherwise directed by the Company. For the purposes of the
Company's payment of severance under this Agreement,
termination without Cause (under Section 9(a)(iii)) and
termination with Good Reason (under Section 9(d)(i)) shall
effectively be treated in the same manner for severance
payment and stock option vesting purposes. Effectively,
"Good Reason" (as defined below) is equivalent to
"constructive termination" under this Agreement.
As used in this Agreement, "Good Reason" shall mean (A) any
material breach of this Agreement by the Company which has not
been cured within thirty (30) days of the Company's receipt of
written notice of such breach from the Executive, or as soon
thereafter as practicable so long as the Company is diligently
seeking to cure such failure or breach; (B) a material
reduction in the Executive's titles or responsibilities unless
replaced with a new title or new responsibilities of
comparable stature or value to the Company within thirty (30)
days; or (C) a change in the person to whom the Executive will
report, should that person be someone other than Roy Crippen
or Marc Fratello (which subsection "C" hereof shall not apply
if the Executive were elected Chief Executive Officer).
10. PAYMENTS BY COMPANY UPON TERMINATION.
(a) Within ten (10) business days following the effective date of
the termination of the Executive's employment (the
"Termination Date") if based upon the Company's termination of
the Executive with Cause as described under Section 9(a)(i);
or the Executive's death as described under Section 9(b); or
the Executive's Disability as described under Section 9(c); or
the Executive's notice of termination to the Company without
Good Reason as described under Section 9(d)(ii), then the
Company shall pay the Executive (or his estate in the case of
death per Section 9(b)) his Base Salary prorated through the
Termination Date plus any life insurance, disability or other
benefits to which the Executive is entitled in accordance with
the terms and conditions of the Company's health, welfare and
insurance plans.
(b) If the Company is merged, consolidated, acquired, sold,
liquidated, or any other disposition of all or substantially
all of its business and/or assets to a third party as
described under Section 9(a)(ii) above and in which the
Executive is not then offered an equal or better position,
salary and compensation package (as adjusted to reflect cost
of living increases), relocation package and other benefits
with said third party; or if the Company has given notice of
termination to the Executive as described under Section
9(a)(iii); or if the Executive has given notice of termination
to the Company under Section 9(d)(i), then in any one of these
circumstances, and further provided that the
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<PAGE> 8
Executive is not in breach of Sections 11, 12 and 13 of
this Agreement or does not subsequently breach any of said
sections, then Company shall: (i) pay the Executive an
amount equal to twelve (12) months of the Executive's then
current year Base Salary, payable in twelve (12) equal
monthly installments from his Termination Date; (ii)
provide health, disability, life and such other insurance
benefits to the Executive and dependents that he would have
received during said twelve (12) month period following the
Termination Date had such termination not occurred (or if
such insurance plans are no longer available [in the case
of the Company's acquisition], reimbursement by the Company
to the Executive of his reasonable costs for the same or
similar insurance); and (iii) vest the Executive's stock
options in accordance with Section 10(c) below. The
obligation of the Company to pay such severance and vest
stock options is contingent upon the Executive's compliance
with Sections 11, 12 and 13 of this Agreement (as indicated
above) and the Executive's execution of a severance and
general release agreement reasonably satisfactory in form
and substance to the Company.
(c) For purposes of vesting the unvested portions of the
Executive's outstanding stock options, if the Company is
merged, consolidated, acquired, sold, liquidated or any
other disposition of all or substantially all of its
business and/or assets to a third party as described under
Section 9(a)(ii), and provided there is no "pooling"
concern, then one hundred percent (100%) of all outstanding
stock options then held by the Executive shall vest upon
the effective date of such event. If either (i) the Company
has given notice of termination to the Executive as
described under Section 9(a)(iii) of the Agreement, or (ii)
the Executive has given notice of termination to the
Company under Section 9(d)(i) of the Agreement, and
provided there is no "pooling" concern, then 200,000 of the
remaining unvested portion of the stock options then held
by the Executive shall vest upon the Termination Date, and
no further vesting of any nature shall occur with respect
to any other stock options then held by the Executive. For
purposes of the prior sentence, vesting priority shall be
given to the stock options granted under Section 4(c)(ii)
of this Agreement. To the extent there would be a "pooling"
concern, the Company and the Executive agree to work
together in good faith to carry out the intent of this
provision and preserve the Company's ability to do a
"pooling" transaction. If the accelerated vesting of the
options hereunder would (x) subject the Executive to a tax
pursuant to Section 4999 of the Code (or any successor
provision that may be in effect), or (y) result in a
disallowance of a deduction to the Company for all or any
part of the compensation attributable to the option by
reason of Section 280G of the Code (or any successor
provision that may be in effect), the Company shall reduce,
eliminate or postpone the acceleration of the vesting of
the option to the extent necessary to reduce the "present
value" (as this term is defined in Section 280G(d)(4) of
the Code, or any successor provision that may be in effect)
of the compensation attributable to the accelerated vesting
to one dollar less than an amount equal to three times the
Executive's "base amount" (as this term is defined in
Sections 280G(b)(3) and 280G(d) of the Code, or any
successor provisions that may be in effect).
(d) Except as provided in subsection (a), (b) and (c) above, the
Executive (or his estate, if applicable) shall not be
entitled to receive severance pay or any other compensation
upon any termination of his employment.
11. EMPLOYMENT POLICIES. The Executive shall abide by all policies and
procedures of the Company in effect from time to time.
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<PAGE> 9
12. CONFIDENTIALITY AND INVENTIONS CLAUSES.
(a) The Executive agrees not to disclose the terms and conditions
of this Agreement to any other employee of the Company or any
other party except the Executive may disclose such
information to his immediate family, financial advisors or
attorneys.
(b) The Executive agrees to hold in confidence and not use or
disclose without the Company's prior written consent (i)
any information (technical or otherwise) that he obtains or
creates during the term of this Agreement which pertains to
any aspect of the Company's business or (ii) any
information received in confidence by the Company from a
third party, until such information becomes generally known
by the public. The Executive shall not make any
unauthorized copies of such information and will return to
the Company, upon termination of his employment or upon the
Company's request, all tangible forms of such information,
including, without limitation, research and development
projects and strategies, product strategies, internet or
intranet strategies, business or product development
strategies, financial information, partner and customer
relationships, and other information about former, current,
or prospective partners/customers, employee lists and other
information about former, current, or prospective
employees, software programs (source or object codes),
know-how, new product offerings, plans, projections,
confidential business information, copyrights, trade
secrets, and any other proprietary material.
(c) The Executive hereby assigns to the Company all of his rights
in all intellectual property (including, but not limited
to, trade secrets, know-how, inventions, copyrights,
designs, computer programs and software techniques) that
the Executive conceives or develops, in whole or in part,
during his employment with the Company. This assignment
does not cover any intellectual property which: (i) is
conceived and developed entirely on the Executive's own
time; (ii) is conceived and developed without any Company
equipment, supplies, facilities, or trade secrets; and
(iii) does not relate to Company's current or future
business or to the Company's actual or demonstrably
anticipated research or development efforts. The Executive
understand that this assignment does not cover any
inventions completed prior to his employment with the
Company, which inventions are specifically identified on
the attached schedule (which contains no confidential
information). During and after the Executive's employment
with the Company, the Executive agrees to do whatever is
requested by the Company, at the Company's expense, to sign
documents or otherwise assist in obtaining, confirming, and
enforcing the Company's rights in the assigned property
throughout the world.
13. NON-COMPETE.
(a) During the term of this Agreement, as extended, the Executive
may learn of confidential matters essential to the business
and competitive position of the Company, including, without
limitation, its business or product development strategies,
financial information, partner and customer relationships,
and other information about former, current, or prospective
partners/customers, employee lists and other information
about former, current, or prospective employees, software
programs (source or object codes), research and development
plans, know-how, projections, copyrights, trade secrets, or
any other proprietary material and confidential business
information that would unfairly disadvantage the Company
were the Executive to use or disclose such information in
business activities competitive with the Company. The
Executive also may develop contacts and relationships with
(i) former, current, or prospective customers of the
Company or (ii) former, current, or prospective business
partners, or licensors of the Company which, if those
contacts or relationships were used by the Executive in
competition with the Company, would unfairly
9
<PAGE> 10
disadvantage the Company. To protect the Company's trade
secrets, confidential business information, and current and
prospective business relationships, the Executive shall
not, during the term of this Agreement and for a period of
twelve (12) months immediately following the Termination
Date for whatever reason, whether voluntary or involuntary
(with or without cause), directly or indirectly, either as
an individual on the Executive's own account or as a
partner, employee, agent, contractor, officer, director,
stockholder, or otherwise:
(I) Solicit from, accept employment/business from,
consult with, or transact business with any former,
current, or prospective customer or vendor of the
Company with which the Executive had substantial
personal contacts on behalf of the Company
(excluding, however, those companies with whom the
Executive actually had a direct relationship with
prior to his becoming an employee of the Company)
during the twenty-four (24)-month period immediately
preceding the Termination Date; or
(II) Hire, solicit for hire, refer, or retain the
services of any employee of the Company or its
subsidiary for any matter whatsoever during the
period of time which said employee is employed by
the Company or its subsidiary and for six (6) months
thereafter; or
(III) Engage in, consult with, or accept employment from
any business in current or prospective competition
with the Company (excluding, however, those
companies with whom the Executive actually had a
direct relationship with prior to his becoming an
employee of the Company) where such engagement,
consultation, or employment is likely to require the
Executive to use or disclose trade secrets or
confidential business information of the Company.
For purposes of the "pre-existing relationship"
exclusion described in subsections (a) and (c) of
this Section 13(a), the parties agree that the
burden of proof to establish the existence of this
relationship will be on the Executive.
(b) The Executive acknowledges that, in the course of his
employment with the Company, the Executive may (i) obtain
information and knowledge of confidential matters essential
to the business and competitive position of the Company and
(ii) have contacts with customers, partners or vendors of
the Company, which information and knowledge and contacts
are being so provided to the Executive in reliance upon his
execution of this Agreement. The Executive hereby
acknowledges the sufficiency of consideration for this
Agreement, and the Executive further acknowledges that the
confidentiality and customer/vendor protection covenants in
this Agreement are reasonable and necessary to protect the
valid business interests of the Company, including the
Company's valuable trade secrets, other confidential
business information, and relationships with its former,
current, and prospective customers, business partners,
licensors, and vendors.
(c) If any of the provisions of Sections 11, 12 or 13 are found
to be unreasonable in duration, geographical scope, or line
of business, the provision shall not be rendered
unenforceable by this finding, but rather the duration,
geographical scope, or line of business of such provision
shall be deemed automatically reduced or modified with
retroactive effect to the extent necessary to render the
provision enforceable, and such provision shall be enforced
as modified.
(d) The parties to this Agreement acknowledge and agree that
damages in the event of a breach of any of the provisions of
Sections 11, 12 or 13 by the Executive would be
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<PAGE> 11
difficult to ascertain, and therefore the Company, in addition
to and not in limitation of any other rights, remedies or
damages available to it in law or in equity, shall have the
right to injunctive or other equitable relief in any court of
competent jurisdiction, enjoining such breach.
14. INDEMNIFICATION. The Executive shall be, and hereby is,
indemnified by the Company, to the fullest extent permitted by applicable law,
for all costs, claims, expenses (including reasonable attorney's fees and other
litigation costs), damages and losses incurred by Executive by reason of being
employed, or serving in any capacity, as an employee or officer of the Company
or any affiliate thereof.
15. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether by merger,
consolidation, purchase, acquisition or otherwise) to all or
substantially all of the business and/or assets of the
Company, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Section 15(a), "Company"
shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this
Section or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
16. MISCELLANEOUS.
(a) Notice. Any notice required or permitted to be given
hereunder shall be in writing and shall be deemed to have
been given three (3) calendar days following the day in which
it is personally delivered or deposited in the United States
certified mail, return receipt requested and postage prepaid.
Any such notice so mailed to the Executive shall be addressed
to the Executive's last known residence address. Any such
notice so mailed to the Company shall be addressed to its
principal office in Tampa, Florida.
(b) Modification. No provisions of this Agreement may be
modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by
the Founders or their designee and the Executive.
(c) Waiver of Breach or Violation Not Deemed Continuing. The
waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach hereof.
(d) Assignment. The Executive shall not assign all or any portion
of his rights, obligations, or duties under this Agreement to
any third party without the prior written approval of the
Company. Any assignment in violation of this provision shall
be void and of no force or effect.
11
<PAGE> 12
(e) Necessary Action. Each party shall perform any further acts
and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
(f) Attorneys Fees. In the event of a dispute arising under or in
connection with this Agreement, the prevailing party shall be
entitled to collect from the other party all reasonable legal
fees and expenses.
(g) Venue. The Executive hereby consents to personal jurisdiction
and venue, for any action brought by the Company
arising out of a breach or threatened breach of this
Agreement, exclusively in the United States District Court
for the Middle District of Florida, Tampa Division, or in
the Circuit Court in and for Hillsborough County, Florida.
The Executive hereby agrees that any action brought by him,
alone or in combination with others, against the Company,
whether arising out of the Agreement or otherwise, shall be
brought exclusively in the United States District Court for
the Middle District of Florida, Tampa, Division, or in the
Circuit Court in and for Hillsborough County, Florida. The
Executive hereby agrees that any controversy which may
arise under this Agreement would involve complicated and
difficult factual and legal issues. Therefore, if a court
of law determines for any reason that the arbitration
clause of Section 16(h) of this Agreement is unenforceable,
then any action brought by the Company against the
Executive or brought by Executive, alone or in combination
with others, against the Company, whether arising out of
this Agreement or otherwise, shall be determined by a judge
sitting without a jury.
(h) Arbitration. All controversies, claims, disputes, and matters
in question arising out of, or related to, this Agreement
or the breach of this Agreement, or the relations between
the signatories to this Agreement, shall be decided by
arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The parties
agree that the arbitration shall take place exclusively in
Tampa, Florida, and shall be governed by the substantive
law of the state of Florida. Any award rendered by the
arbitrator shall be final, and final judgment may be
entered upon the parties in accordance with applicable law
in any court having jurisdiction thereof, including a
federal district court, pursuant to the Federal Arbitration
Act. The arbitrator may grant the Company injunctive
relief, including mandatory injunctive relief, to protect
the rights of the Company, but the arbitrator shall not be
limited to such relief. This arbitration provision shall
not preclude the Company from seeking temporary or
preliminary injunctive relief in a court of law to protect
its rights, nor shall the filing of such an action
constitute any waiver by the Company of its right to
arbitrate. In connection with the arbitration of any
dispute between the signatories to this Agreement, each
signatory may utilize all methods of discovery authorized
by the Federal and Florida Rules of Civil Procedure.
(i) Entire Agreement. This Agreement, including any attached
schedules, contains the entire agreement of the parties
relating to the subject matter hereof and supersedes all
prior understandings and agreements related to Executive's
employment with the Company.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
WITNESSED BY: EXECUTIVE:
/s/ Michael J. Simmons
- ------------------------ ------------------------------
Michael J. Simmons
POWERCERV CORPORATION
By: /s/ Marc J. Fratello
- ------------------------ ---------------------------
Marc J. Fratello,
Chief Executive Officer
12
<PAGE> 13
EXHIBIT A
<TABLE>
<CAPTION>
SHARES WITH RESPECT TO WHICH
DATE/EVENT THE STOCK OPTION IS EXERCISABLE
---------- ---------------------------------
<S> <C>
Executive's first day of employment w/Company 200,000
March 31 1998 210,000
April 30, 1998 220,000
May 31, 1998 230,000
June 30, 1998 240,000
July 31, 1998 250,000
August 31, 1998 260,000
September 30, 1998 308,000
October 31, 1998 318,000
November 30, 1998 328,000
December 31, 1998 338,000
January 31, 1999 346,333
February 28, 1999 354,666
March 31, 1999 362,999
April 30, 1999 371,332
May 31, 1999 379,665
June 30, 1999 387,998
July 31, 1999 396,331
August 31, 1999 404,664
September 30, 1999 412,997
October 31, 1999 421,330
November 30, 1999 429,663
December 31, 1999 438,000
January 31, 2000 446,333
February 29, 2000 454,666
March 31, 2000 462,999
April 30, 2000 471,332
May 31, 2000 479,665
June 30, 2000 487,998
July 31, 2000 496,331
August 31, 2000 504,664
September 30, 2000 512,997
October 31, 2000 521,330
November 30, 2000 529,663
December 31, 2000 538,000
</TABLE>
The remaining portion of the option, covering the remaining 400,000 shares,
shall become vested on December 31, 2001; provided, however, that this portion
of the option may become vested prior to December 31, 2001, based upon the
performance of the Company's common stock as traded on the NASDAQ as follows:
<TABLE>
<S> <C>
- $5.00/share or higher close price
for 20 consecutive trading days 100,000
- $9.00/share or higher close price
for 20 consecutive trading days 150,000
- $14.00/share or higher close price
for 20 consecutive trading days 150,000
</TABLE>
13
<PAGE> 1
EXHIBIT 10.2
POWERCERV CORPORATION
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement"), effective as of
February 19, 1998, is made by and between PowerCerv Corporation, a Florida
corporation (the "Company"), and Michael J. Simmons (the "Recipient").
In consideration of the mutual covenants herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. GRANT OF OPTION. The Company grants to the Recipient an
option to purchase 62,000 shares of the Company's common stock in accordance
with the terms and conditions of this Agreement (the "Option").
2. OPTION PRICE. The purchase price of the shares of stock
covered by the Option shall be $1.6563 per share.
3. ADJUSTMENTS IN OPTION. In the event that the outstanding
shares of stock subject to the Option are changed into or exchanged for a
different number or kind of shares of the Company or other securities of the
Company by reason of merger, consolidation, recapitalization, reclassification,
stock split, stock dividend or combination of shares, the shares subject to the
Option and the price per share shall be equitably adjusted to reflect such
changes. Such adjustment in the Option shall be made without change in the
total price applicable to the unexercised portion of the Option (except for any
change in the aggregate price resulting from rounding-off of share quantities
or prices) and with any necessary corresponding adjustment in the Option price
per share. Any such adjustment made by the Company shall be final and binding
upon the Recipient, the Company and all other interested persons.
4. PERSON ELIGIBLE TO EXERCISE OPTION. During the lifetime of
the Recipient, only the Recipient may exercise the Option or any portion
thereof. After the death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes unexercisable under the
terms of this Agreement, be exercised by the Recipient's personal
representative or by any other person empowered to do so under the Recipient's
will, trust or under then applicable laws of descent and distribution.
5. MANNER OF EXERCISE. The Option, or any portion thereof, may
be exercised only in accordance with the terms of this Agreement and solely by
delivery to the Secretary of the Company of all of the following items prior to
the time when the Option or such portion becomes unexercisable under the terms
of this Agreement:
(a) Notice in writing signed by the Recipient or the
other person then entitled to exercise the Option or portion thereof,
stating that the Option or portion thereof is thereby exercised, such
notice complying with all applicable rules (if any) established by the
Company;
<PAGE> 2
(b) Full payment (in cash or by cashiers' or certified
check) for the shares with respect to which the Option or portion
thereof is exercised;
(c) Full payment (in cash or by cashiers' or certified
check) upon demand of an amount sufficient to satisfy any federal
(including FICA and FUTA amounts), state, and/or local withholding tax
requirements at the time the Recipient or his beneficiary recognizes
income for federal, state, and/or local tax purposes as the result of
the receipt of Shares pursuant to the exercise of the Option or
portion thereof;
(d) A bona fide written representation and agreement, in
a form satisfactory to the Company, signed by the Recipient or other
person then entitled to exercise the Option or portion thereof,
stating that the shares of stock are being acquired for his own
account, for investment and without any present intention of
distributing or reselling said shares or any of them except as may be
permitted under the Securities Act of 1933, as amended (the "Act"),
and then applicable rules and regulations thereunder, and that the
Recipient or other person then entitled to exercise such Option or
portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is
contrary to the representation and agreement referred to above. The
Company may, in its absolute discretion, take whatever additional
actions it deems appropriate to ensure the observance and performance
of such representations and agreement and to effect compliance with
all federal and state securities laws or regulations. Without
limiting the generality of the foregoing, the Company may require an
opinion of counsel acceptable to it to the effect that any subsequent
transfer of shares acquired on an Option exercise does not violate the
Act and may issue stop-transfer orders covering such shares.
(e) In the event the Option or any portion thereof shall
be exercised pursuant to Section 4 of the Agreement by any person or
persons other than the Recipient, appropriate proof, satisfactory to
the Company, of the right of such person or persons to exercise the
Option.
6. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of
stock deliverable upon the exercise of the Option, or any portion thereof, may
be either previously authorized but unissued shares or issued shares which have
been reacquired by the Company. Such shares shall be fully paid and
nonassessable.
7. RIGHTS OF SHAREHOLDERS. The Recipient shall not be, nor have
any of the rights or privileges of, a shareholder of the Company in respect of
any shares purchasable upon the exercise of any part of the Option unless and
until certificates representing such shares shall have been issued by the
Company to the Recipient.
8. VESTING AND EXERCISABILITY. The Recipient's interest in the
option shall vest according to the schedule described in this Section 8 and
shall be exercisable as to not more than
2
<PAGE> 3
the vested portion of the shares subject to the option at any point in time.
To the extent an option is either unexercisable or unexercised, the unexercised
portion shall accumulate until the option both becomes exercisable and is
exercised, subject to the provisions of Section 9 of the Agreement. The option
granted shall become vested according to the following schedule:
<TABLE>
<CAPTION>
Date Vested Percentage
---- -----------------
<S> <C>
February 19, 1998 0%
March 31, 1998 10%
April 30, 1998 20%
May 31, 1998 30%
June 30, 1998 40%
July 31, 1998 50%
August 31, 1998 60%
September 30, 1998 70%
October 31, 1998 80%
November 30, 1998 90%
December 31, 1998 100%
</TABLE>
The Company's Board of Directors, in its sole and absolute discretion, may
accelerate the vesting of the Option at any time. In addition, the Board of
Directors may accelerate the vesting of the Option in accordance with Section
10 of the Executive Employment Agreement, effective as of February 19, 1998,
between the Company and the Recipient (the "Employment Agreement"). The
provisions of Section 10 of the Employment Agreement are incorporated herein by
reference.
9. DURATION OF OPTION. The Option shall expire on the earliest
of (i) February 19, 2008, (ii) the first anniversary of the date of the
Recipient's death, or (iii) the first anniversary of the date the Recipient
terminates employment with the Company. As of the date of Recipient's
separation of employment from the Company, except as otherwise provided in
Section 10(c) of the Employment Agreement, no further vesting of the Option
shall occur.
10. OPTION NOT TRANSFERABLE. Neither the Option nor any interest
or right therein or part thereof shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition is voluntary or involuntary or by operation of law, by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 10
shall not prevent transfers by will or by the applicable laws of descent and
distribution. In the event of the Recipient's death, the Option shall be
exercisable by the executor or administrator of the Recipient's estate or by
the person or persons to whom the Recipient's rights under the Option shall
pass by the Recipient's will or the applicable laws of descent and
distribution.
11. NOTICES. Any notice to be given under the terms of this
Agreement to the Company
3
<PAGE> 4
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Recipient shall be addressed to him at the address given beneath
his signature below. By a notice given pursuant to this Section 11, either
party may hereafter designate a different address for notices to be given to
him. Any notice which is required to be given to the Recipient shall, if the
Recipient is then deceased, be given to the Recipient's personal representative
if such representative has previously informed the Company of his status and
address by written notice under this Section 11. Any notice shall have been
deemed duly given when enclosed in a properly sealed envelope addressed as
aforesaid, deposited (with postage prepaid) in a United States postal
receptacle.
12. TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.
13. MODIFICATIONS. Any modifications or amendment of any
provision of this Agreement must be in writing and bear the signature of the
duly authorized representatives of both parties.
14. APPLICABLE LAW. The validity of this Agreement and the
rights, obligations and relations of the parties hereunder shall be construed
and determined under and in accordance with the laws of the State of Florida
therein as applied to contracts to be performed in Florida between Florida
residents.
15. ENTIRE AGREEMENT. This Agreement and the Employment Agreement
referred to herein represents the entire understanding and agreement between
the parties with respect to the subject matter hereof, and merges all prior
discussions between them and supersedes and replaces any and every other
agreement or understanding which may have existed between the parties to the
extent that any such agreements or understanding relates to any stock options
issued or to be issued to the Recipient.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties as of the date first written above.
POWERCERV CORPORATION
By: /s/ Marc J. Fratello
------------------------------
Marc J. Fratello, Chairman
and Chief Executive Officer
/s/ Michael J. Simmons
---------------------------------
Michael J. Simmons
4
<PAGE> 1
EXHIBIT 10.3
POWERCERV CORPORATION
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement"), effective as of
February 19, 1998, is made by and between PowerCerv Corporation, a Florida
corporation (the "Company"), and Michael J. Simmons (the "Recipient").
In consideration of the mutual covenants herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. GRANT OF OPTION. The Company grants to the Recipient an
option to purchase 938,000 shares of the Company's common stock in accordance
with the terms and conditions of this Agreement (the "Option").
2. OPTION PRICE. The purchase price of the shares of stock
covered by the Option shall be $1.6565 per share.
3. ADJUSTMENTS IN OPTION. In the event that the outstanding
shares of stock subject to the Option are changed into or exchanged for a
different number or kind of shares of the Company or other securities of the
Company by reason of merger, consolidation, recapitalization, reclassification,
stock split, stock dividend or combination of shares, the shares subject to the
Option and the price per share shall be equitably adjusted to reflect such
changes. Such adjustment in the Option shall be made without change in the
total price applicable to the unexercised portion of the Option (except for any
change in the aggregate price resulting from rounding-off of share quantities
or prices) and with any necessary corresponding adjustment in the Option price
per share. Any such adjustment made by the Company shall be final and binding
upon the Recipient, the Company and all other interested persons.
4. MANNER OF EXERCISE. The Option, or any portion thereof, may
be exercised only in accordance with the terms of this Agreement and solely by
delivery to the Secretary of the Company of all of the following items prior to
the time when the Option or such portion becomes unexercisable under the terms
of this Agreement:
(a) Notice in writing signed by the Recipient or the
other person then entitled to exercise the Option or portion thereof,
stating that the Option or portion thereof is thereby exercised, such
notice complying with all applicable rules (if any) established by the
Company;
(b) Full payment (in cash or by cashiers' or certified
check) for the shares with respect to which the Option or portion
thereof is exercised;
(c) Full payment (in cash or by cashiers' or certified
check) upon demand of an amount sufficient to satisfy any federal
(including FICA and FUTA amounts), state, and/or local withholding tax
requirements at the time the Recipient or his beneficiary recognizes
income for federal, state, and/or local tax purposes as the result of
the receipt of Shares
<PAGE> 2
pursuant to the exercise of the Option or portion thereof;
(d) Unless a registration statement is filed with the
Securities and Exchange Commission and is effective with respect to
the shares underlying the Option, a bona fide written representation
and agreement, in a form satisfactory to the Company, signed by the
Recipient or other person then entitled to exercise the Option or
portion thereof, stating that the shares of stock are being acquired
for his own account, for investment and without any present intention
of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act of 1933, as amended (the "Act"),
and then applicable rules and regulations thereunder, and that the
Recipient or other person then entitled to exercise such Option or
portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is
contrary to the representation and agreement referred to above. The
Company may, in its absolute discretion, take whatever additional
actions it deems appropriate to ensure the observance and performance
of such representations and agreement and to effect compliance with
all federal and state securities laws or regulations. Without
limiting the generality of the foregoing, the Company may require an
opinion of counsel acceptable to it to the effect that any subsequent
transfer of shares acquired on an Option exercise does not violate the
Act and may issue stop-transfer orders covering such shares.
(e) In the event the Option or any portion thereof shall
be exercised by any person or persons other than the Recipient,
appropriate proof, satisfactory to the Company, of the right of such
person or persons to exercise the Option.
5. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of
stock deliverable upon the exercise of the Option, or any portion thereof, may
be either previously authorized but unissued shares or issued shares which have
been reacquired by the Company. Such shares shall be fully paid and
nonassessable.
6. RIGHTS OF SHAREHOLDERS. The Recipient shall not be, nor have
any of the rights or privileges of, a shareholder of the Company in respect of
any shares purchasable upon the exercise of any part of the Option unless and
until certificates representing such shares shall have been issued by the
Company to the Recipient.
7. VESTING AND EXERCISABILITY. The Recipient's interest in the
Option shall vest according to the schedule described in this Section 7 and
shall be exercisable as to not more than the vested portion of the shares
subject to the Option at any point in time. To the extent the Option is either
unexercisable or unexercised, the unexercised portion shall accumulate until
the Option both becomes exercisable and is exercised, subject to the provisions
of Section 8 of the Agreement. The Option shall become vested according to the
following schedule:
2
<PAGE> 3
<TABLE>
<CAPTION>
Shares With Respect To Which
Date Option Becomes Vested
- ---- -----------------------------
<S> <C>
Recipient's Employment Commencement Date 200,000
March 31, 1998 210,000
April 30, 1998 220,000
May 31, 1998 230,000
June 30, 1998 240,000
July 31, 1998 250,000
August 31, 1998 260,000
September 30, 1998 308,000
October 31, 1998 318,000
November 30, 1998 328,000
December 31, 1998 338,000
January 31, 1999 346,333
February 28, 1999 354,666
March 31, 1999 362,999
April 30, 1999 371,332
May 31, 1999 379,665
June 30, 1999 387,998
July 31, 1999 396,331
August 31, 1999 404,664
September 30, 1999 412,997
October 31, 1999 421,330
November 30, 1999 429,663
December 31, 1999 438,000
January 31, 2000 446,333
February 29, 2000 454,666
March 31, 2000 462,999
April 30, 2000 471,332
May 31, 2000 479,665
June 30, 2000 487,998
July 31, 2000 496,331
August 31, 2000 504,664
September 30, 2000 512,997
October 31, 2000 521,330
November 30, 2000 529,663
December 31, 2000 538,000
</TABLE>
The remaining portion of the Option, covering the remaining 400,000 shares,
shall become vested on December 31, 2001; provided, however, that this portion
of the Option may become vested prior to December 31, 2001, based upon the
performance of the Company's common stock as traded on
3
<PAGE> 4
the NASDAQ as follows:
<TABLE>
<CAPTION>
Shares With Respect To Which
Level of Performance Option Becomes Vested
- -------------------- ---------------------
<S> <C>
$5.00/share or higher close price for 100,000
20 consecutive trading days
$9.00/share or higher close price for 150,000
20 consecutive trading days
$14.00/share or higher close price for 150,000
20 consecutive trading days
</TABLE>
The Company's Board of Directors, in its sole and absolute discretion, may
accelerate the vesting of the Option at any time. In addition, the Company's
Board of Directors may accelerate the vesting of the Option in accordance with
Section 10 of the Executive Employment Agreement, effective as of February 19,
1998, between the Company and the Recipient (the "Employment Agreement"). The
provisions of Section 10 of the Employment Agreement are incorporated herein by
reference.
8. DURATION OF OPTION. The Option shall expire on the earliest
of (i) February 19, 2008, (ii) the first anniversary of the date of the
Recipient's death, or (iii) 150 days after the date of the Recipient's
separation of employment from the Company. As of the date of the Recipient's
separation of employment from the Company, except as otherwise provided in
Section 10(c) of the Employment Agreement, no further vesting of the Option
shall occur.
9. TRANSFER OF OPTION. Except as otherwise provided in this
Section 9, neither the Option nor any interest or right therein or part thereof
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition is
voluntary or involuntary or by operation of law, by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of no effect;
provided, however:
(a) That this Section 9 shall not prevent transfers by
will or by the applicable laws of descent and distribution. In the
event of the Recipient's death, the Option shall be exercisable by the
executor or administrator of the Recipient's estate or by the person or
persons to whom the Recipient's rights under the Option shall pass by
the Recipient's will or the applicable laws of descent and
distribution; and
(b) That the Recipient may transfer the Option in its
entirety to an employee of the Company or its subsidiary within 30 days
following the date the Recipient receives from the Compensation
Committee of the Company's Board of Directors a written consent to such
transfer.
4
<PAGE> 5
10. NOTICES. Any notice to be given under the terms of this
Agreement to the Company shall be addressed to the Company in care of its
Secretary and any notice to be given to the Recipient shall be addressed to him
at the address given beneath his signature below. By a notice given pursuant
to this Section 10, either party may hereafter designate a different address
for notices to be given to him. Any notice which is required to be given to
the Recipient shall, if the Recipient is then deceased, be given to the
Recipient's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 10. Any notice shall have been deemed duly given when enclosed in a
properly sealed envelope addressed as aforesaid, deposited (with postage
prepaid) in a United States postal receptacle.
11. TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.
12. MODIFICATIONS. Any modifications or amendment of any
provision of this Agreement must be in writing and bear the signature of the
duly authorized representatives of both parties.
13. APPLICABLE LAW. The validity of this Agreement and the
rights, obligations and relations of the parties hereunder shall be construed
and determined under and in accordance with the laws of the State of Florida
therein as applied to contracts to be performed in Florida between Florida
residents.
14. ENTIRE AGREEMENT. This Agreement and the Employment Agreement
referred to herein represents the entire understanding and agreement between
the parties with respect to the subject matter hereof, and merges all prior
discussions between them and supersedes and replaces any and every other
agreement or understanding which may have existed between the parties to the
extent that any such agreements or understanding relates to any stock options
issued or to be issued to the Recipient.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties as of the date first written above.
POWERCERV CORPORATION
By: /s/ Marc J. Fratello
------------------------------
Marc J. Fratello, Chairman
and Chief Executive Officer
/s/ Michael J. Simmons
------------------------------
Michael J. Simmons
5
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the
"Agreement") is made effective as of the 7th day of April, 1998 (the "Effective
Date"), by and between PowerCerv Corporation, a Florida corporation located at
400 North Ashley Drive, Suite 2700, Tampa, Florida 33602 (the "Company") and
Stephen M. Wagman (the "Executive").
BACKGROUND INFORMATION
A. WHEREAS, on December 16, 1996, the Company and the Executive
entered into an Executive Employment Agreement (the "First Employment
Agreement");
B. WHEREAS, on December 16, 1997, the Company and the Executive
entered into an Amendment to the First Employment Agreement (the "Amendment");
C. WHEREAS, based upon Executive's performance as a member of the
Company's Executive Management Team and his qualifications, the Company desires
to promote the Executive to Chief Financial Officer, in addition to his
remaining Treasurer and Secretary of the Company; and
D. WHEREAS, in light of the Executive's promotion, his acceptance
of new, additional duties and responsibilities at this stage in the term of his
First Employment Agreement and Amendment, and certain other changes being made
to the Company's Executive Management Team, the Company and the Executive
desire to replace and supersede the First Employment Agreement and the
Amendment, and simultaneously restate all terms and conditions of the
Executive's employment pursuant to the terms and subject to the conditions set
forth in this Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth herein, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. RESTATED AGREEMENT; EMPLOYMENT; PROMOTION.
(a) The Company and Executive hereby agree to replace and
supersede the provisions of the First Employment Agreement and
the Amendment with the terms and conditions set forth in this
Agreement. The parties further agree that all aspects of the
Executive's employment with the Company hereafter shall be
governed in accordance with the terms and subject to the
conditions set forth in this Agreement.
(b) In addition to the Executive's titles as Senior Vice President
of Administration, Treasurer and Secretary of the Company, the
Company hereby promotes Executive to the position of Chief
Financial Officer. The Executive will no longer serve under
the title of Chief Counsel. In his new role, the Executive
will be responsible for overseeing management of the Company's
finance, accounting, legal and administration organizations/
departments, all in accordance with the provisions of this
Agreement and the Bylaws of the Company. The Executive will
report to the Vice Chairman and the
<PAGE> 2
Chief Executive Officer of the Company, will continue to be
part of the Company's Executive Management Team, and will
continue to be treated as an "executive officer" of the
Company for purposes of Section 16 under the Securities
Exchange Act of 1934, as amended. The Executive hereby
accepts such employment upon the terms and conditions
hereinafter set forth. The Executive hereby acknowledges and
agrees that if the corporate titles of Senior Vice President
of Administration and/or Secretary are transferred to
someone other than the Executive during the term of this
Agreement, that such event(s) shall not constitute "Good
Reason" per Section 9(d)(B) of this Agreement.
2. TERM. Unless earlier terminated as provided herein, the term
of this Agreement shall commence as of the Effective Date and terminate on
December 31, 2000. Notwithstanding the foregoing, if this Agreement is not
terminated as provided herein on or before the expiration of its initial term,
this Agreement will be automatically renewed for successive one (1) year terms
unless, at least sixty (60) days prior to the expiration of the initial term or
any subsequent one-year renewal term, either party has given written notice to
the other of its intention not to renew this Agreement beyond the end of such
term.
3. DUTIES.
(a) The Executive shall perform all functions and duties
consistent with his positions as described above in Section
1(b) on behalf of the Company and its subsidiary in a
faithful, efficient, trustworthy and professional manner, as
reasonably required by the Chief Executive Officer of the
Company or as otherwise requested by the Board of Directors.
The Executive agrees to comply with all policies and
regulations of the Company and the terms and conditions of
this Agreement, to devote his best efforts to the interests of
the Company, and will not, without the prior written consent
of the Chief Executive Officer or the Board of Directors,
engage in any other job or activity detrimental to the
Company's interests or in contravention to the terms and
conditions of this Agreement. The Executive shall be
principally based at the Company's corporate offices in Tampa,
Florida and shall travel as required in connection with the
performance of his duties hereunder. During the term of this
Agreement, the Executive shall devote substantially all of his
working time and efforts to the business and affairs of the
Company. The Executive shall, upon request of the Company,
perform services for any parent or subsidiary of the Company
without compensation except as provided herein.
(b) In addition, the Executive represents that he has not brought
to the Company, and will not bring or use in the performance
of his duties at the Company, any property, trade secrets or
confidential information (whether or not in writing) of a
former employer or third party without that employer's or
third party's written consent. The Executive hereby certifies
that he is not a party to any other agreement (or subject to
any fiduciary obligation) which will interfere with the
Executive's full compliance with this Agreement. The
Executive has not entered into any agreement or understanding
either written or oral in conflict with the provisions of this
Agreement. The Executive acknowledges and agrees that the
Company is hiring him based upon its understanding that the
Executive will be fully capable, without restriction, of
performing under this Agreement in his capacity as Chief
Financial Officer, Treasurer and Secretary for the Company,
and that the Company is relying upon the representations set
forth herein in connection with its providing this Agreement
to the Executive.
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4. COMPENSATION. As his entire compensation for all services
rendered to the Company during the term of this Agreement, the Executive shall
receive the compensation provided for in this Section, subject to withholding
and other applicable employment taxes:
(a) Base Salary. The Company will pay the Executive an annual
base salary (the "Base Salary") of $150,000. The Executive
will be eligible for increases in his Base Salary for the 1999
calendar year and for the 2000 calendar year of not less than
thirteen percent (13%) from the prior annual period. The Base
Salary shall be subject to review on an annual basis by the
Compensation Committee of the Board of Directors, upon the
recommendation of the Vice Chairman and the Chief Executive
Officer. The Compensation Committee shall not have the
authority to reduce the Base Salary from the levels set forth
in this Agreement.
(b) Target Annual Bonus. Consistent with the bonus program for
"Executive Management" of the Company (and pursuant to the
target annual bonus pay-out provisions of the employment
agreements of Messrs. Fratello, Crippen, Nall and Simmons),
the Executive will be eligible to potentially earn an annual
bonus of $75,000 (the "Target Annual Bonus") per the
provisions of this Section 4(b) for each of the Company's
three (3) fiscal years during the term of this Agreement. The
Target Annual Bonus will be paid in one lump sum for each of
such fiscal years, subject to the Company and/or Executive, as
applicable, achieving certain criteria as hereinafter set
forth. References below to target revenues and target
operating income relate to Company's "Management Plan
Projections" approved by the Board of Directors no less
frequently than annually in advance of the period or which the
targets are being determined. Actual revenues and actual
operating income shall be computed on a basis consistent with
a method by which target revenues and target operating
income for the related year were computed. Eligibility for
payments of the Target Annual Bonus to Executive shall be for
each calendar year during the term of the Agreement beginning
with the calendar year commencing January 1, 1998 and shall be
computed as follows:
(i) $26,250 will be earned upon Company achieving target
revenues for each calendar year;
(ii) $26,250 will be earned upon Company achieving target
operating income for each calendar year; and
(iii) $22,500 will be earned upon approval of the Board of
Directors after its review of the Executive Management
and/or Executive's presentation of strategic business
accomplishments of the Company for each calendar year.
If a target referenced in subclause (i) or (ii) above is not
met in a particular calendar year, Executive shall not receive
for such calendar year the part of the Target Annual Bonus
tied to such target. However, notwithstanding anything to the
contrary in this subsection 4(b), if in any calendar year the
Company exceeds the target revenues or target operating income
for such year, the Executive shall be paid an additional bonus
computed as follows: for each 1% that actual revenues for the
calendar year exceed the target revenues for such calendar
year, and for each 1% that the actual operating income for
such calendar year exceeds the targeted operating income for
such year, the Executive shall be paid an additional $630.00.
For example, if Company's target
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revenues for a calendar year were $40,000,000 and actual
revenues for such year computed as provided herein were
$50,000,000, then, as actual revenues would have exceeded
projected revenues by 25%, the Executive would be entitled to
an additional Target Annual Bonus related to target revenues
in the amount of $15,750.00 (i.e., 25 x $630.00). The
presentation by the Executive Management and/or
Executive of Company's strategic business accomplishments for
a fiscal year shall be promptly evaluated by the Board of
Directors and the potential related bonus shall be determined
by the Board of Directors in its reasonable discretion. The
Executive shall be eligible to earn all or a portion of such
potential bonus as so determined by the Board of Directors.
All amounts payable pursuant to this Section 4(b) shall be
paid to the Executive promptly after the amount is determined.
(c) Automobile Allowance. The Company will pay the Executive a
$300 monthly allowance for an automobile owned or leased by
the Executive for use in connection with the performance of
the Executive's duties under this Agreement. Effective
January 1 of the 1999 and 2000 calendar years, the Executive's
monthly car allowance will be adjusted to $330 and $360,
respectively.
5. WORKING FACILITIES. The Company shall provide the Executive
with office space, equipment, facilities, staffing and services which are
suitable to the position of Chief Financial Officer, Senior Vice President of
Administration, Treasurer and Secretary and adequate for the performance of the
Executive's duties hereunder.
6. EXPENSES. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in furtherance of
the Company's business in accordance with the Company's written policies and
procedures.
7. VACATION AND HOLIDAYS. The Executive shall be entitled to
such vacation with pay and holidays with pay during each fiscal year of the
Company as shall be approved by the Company. The amount of vacation and
holidays provided to the Executive shall be consistent with the amount given
other comparable executive employees of the Company.
8. HEALTH, WELFARE AND INSURANCE PLANS. Subject to eligibility
requirements, the Executive will be entitled to participate in any plans,
insurance policies or contracts maintained by the Company relating to
retirement, health, disability and other related benefits. The Executive's
rights with respect to any such benefits shall be subject to the provisions of
the relevant plans, policies or contracts providing such benefits. Nothing
contained herein shall be deemed to impose any obligation on the Company to
adopt or maintain any such plan, policy or contract. As of the date of this
Agreement, the Company does not provide different types or levels of health,
welfare and insurance plan or benefit coverage to its executive employees, and
further, there is no present intention by the Company to change this benefit
policy. However, if the Company were to change its policy relative to
executive benefits, those health, welfare and insurance plan and benefit
coverage made available to the Executive will be consistent with the amount
given other comparable executive employees of the Company.
9. TERMINATION. This Agreement, and the Executive's employment
hereunder, shall terminate in accordance with the provisions of this Section.
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(a) By Company. The Company may terminate this Agreement (i) with
Cause at any time upon thirty (30) days prior written notice
to the Executive, (ii) upon the Company's merger,
consolidation, acquisition, liquidation, sale or other
disposition of all or substantially all of its business and/or
assets to a third party; or (iii) without Cause upon ninety
(90) days prior written notice to the Executive, and the
Executive shall work for the Company during such notice period
unless otherwise directed by the Company.
As used in this Agreement, the term "Cause" shall mean (A)
willful and repeated failure to comply with the lawful
directions of the Company's Chief Executive Officer or Board
of Directors or repeated failure to perform the duties as
Chief Financial Officer, Treasurer and Secretary of the
Company; (B) gross negligence or willful misconduct in the
performance of duties to the Company and/or its subsidiaries;
(C) commission of any act of fraud with respect to the Company
and/or its subsidiaries; or (D) conviction of a felony or a
crime involving moral turpitude causing material harm to the
standing and reputation of the Company and/or its
subsidiaries, in each case as determined in good faith by the
Company's Board of Directors.
(b) Death. This Agreement shall terminate immediately upon the
Executive's death.
(c) Disability. If the Executive incurs a Disability (as defined
below) which continues for a period of at least ninety (90)
consecutive days, this Agreement shall terminate on the last
day of such period. Unless the Executive shall perform his
duties hereunder for a continuous period of at least thirty
(30) consecutive days following a period of Disability before
the Executive again incurs a Disability, he shall not be
entitled to start a new ninety (90) consecutive day period
under the provisions of this subsection, but instead may only
continue under the remaining portion of the original ninety
(90) consecutive day period.
As used in this Agreement, the term "Disability" shall mean
the Executive's physical or mental inability, by reason of
illness or accident, to perform the normal duties of his
employment by the Company, subject to any obligation the
Company may have under applicable law to provide reasonable
accommodation. If there is any disagreement between the
Company and the Executive as to the Executive's Disability or
as to the date any such Disability began or ended, the same
shall be determined by a physician mutually acceptable to the
Company and the Executive. The determination of such
physician shall be conclusive evidence of any such Disability
and of the date any such Disability began or ended. The
Executive shall be available for such an examination at any
reasonable time upon prior reasonable notice thereof from the
Company. If the Executive fails or refuses to cooperate in
such examination, the determination of the Executive's
Disability and the date any such Disability began or ended
shall be made by the Company in its sole discretion.
(d) Termination by Executive. The Executive may terminate this
Agreement (i) for Good Reason at any time upon thirty (30)
days prior written notice to the Company, or (ii) at any time
upon ninety (90) days prior written notice to the Company;
provided, however, the Executive shall continue to work for
the Company during such notice period unless otherwise
directed by the Company. For the purposes of the Company's
payment of severance under this Agreement, termination without
Cause (under Section 9(a)(iii)) and termination with Good
Reason (under Section 9(d)(i)) shall effectively be treated in
the
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same manner for severance payment and stock option vesting
purposes. Effectively, "Good Reason" (as defined below) is
equivalent to "constructive termination" under this Agreement.
As used in this Agreement, "Good Reason" shall mean (A) any
material breach of this Agreement by the Company which has not
been cured within thirty (30) days of the Company's receipt of
written notice of such breach from the Executive, or as soon
thereafter as practicable so long as the Company is diligently
seeking to cure such failure or breach; or (B) a material
reduction in the Executive's titles or responsibilities unless
replaced with a new title or new responsibilities of
comparable stature or value to the Company within thirty (30)
days.
10. PAYMENTS BY COMPANY UPON TERMINATION.
(a) Within ten (10) business days following the effective date of
the termination of the Executive's employment (the
"Termination Date") if based upon the Company's termination of
the Executive with Cause as described under Section 9(a)(i);
or the Executive's death as described under Section 9(b); or
the Executive's Disability as described under Section 9(c); or
the Executive's notice of termination to the Company without
Good Reason as described under Section 9(d)(ii), then the
Company shall pay the Executive (or his estate in the case of
death per Section 9(b)) his Base Salary prorated through the
Termination Date plus any life insurance, disability or other
benefits to which the Executive is entitled in accordance with
the terms and conditions of the Company's health, welfare and
insurance plans.
(b) If the Company is merged, consolidated, acquired, sold,
liquidated, or any other disposition of all or substantially
all of its business and/or assets to a third party as
described under Section 9(a)(ii) above and in which the
Executive is not then offered an equal or better position,
salary and compensation package (as adjusted to reflect cost
of living increases), relocation package and other benefits
with said third party; or if the Company has given notice of
termination to the Executive as described under Section
9(a)(iii); or if the Executive has given notice of termination
to the Company under Section 9(d)(i), then in any one of these
circumstances, and further provided that the Executive is not
in breach of either of Sections 11 and 12 of this Agreement or
does not subsequently breach any of said sections, then
Company shall: (i) pay the Executive an amount equal to twelve
(12) months of the Executive's then current year Base Salary,
payable in twelve (12) equal monthly installments from his
Termination Date; (ii) provide health, disability, life and
such other insurance benefits to the Executive and dependents
that he would have received during said twelve (12) month
period following the Termination Date had such termination not
occurred (or if such insurance plans are no longer available
[in the case of the Company's acquisition], reimbursement by
the Company to the Executive of his reasonable costs for the
same or similar insurance); and (iii) vest the Executive's
stock options in accordance with Section 10(c) below. The
obligation of the Company to pay such severance and vest stock
options is contingent upon the Executive's compliance with
Sections 11 and 12 of this Agreement (as indicated above) and
the Executive's execution of a severance and general release
agreement reasonably satisfactory in form and substance to the
Company.
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(c) For purposes of vesting the unvested portions of the
Executive's outstanding stock options, if the Company is
merged, consolidated, acquired, sold, liquidated or any other
disposition of all or substantially all of its business and/or
assets to a third party as described under Section 9(a)(ii),
and provided there is no "pooling" concern, then one hundred
percent (100%) of all outstanding stock options then held by
the Executive shall vest upon the effective date of such
event. If either (i) the Company has given notice of
termination to the Executive as described under Section
9(a)(iii) of the Agreement, or (ii) the Executive has given
notice of termination to the Company under Section 9(d)(i) of
the Agreement, and provided there is no "pooling" concern,
then any of those stock options issued to the Executive
(either prior to or in connection with this Agreement) which
would have vested over the next twelve (12) month period
immediately following the Termination Date shall become fully
vested upon the Termination Date, and no further vesting of
any nature shall occur with respect to any other stock options
then held by the Executive. To the extent there would be a
"pooling" concern, the Company and the Executive agree to work
together in good faith to carry out the intent of this
provision and preserve the Company's ability to do a "pooling"
transaction. If the accelerated vesting of the options
hereunder would (x) subject the Executive to a tax pursuant to
Section 4999 of the Code (or any successor provision
that may be in effect), or (y) result in a disallowance of a
deduction to the Company for all or any part of the
compensation attributable to the option by reason of Section
280G of the Code (or any successor provision that may be in
effect), the Company shall reduce, eliminate or postpone the
acceleration of the vesting of the option to the extent
necessary to reduce the "present value" (as this term is
defined in Section 280G(d)(4) of the Code, or any successor
provision that may be in effect) of the compensation
attributable to the accelerated vesting to one dollar less
than an amount equal to three times the Executive's "base
amount" (as this term is defined in Sections 280G(b)(3) and
280G(d) of the Code, or any successor provisions that may be
in effect).
(d) Except as provided in subsection (a), (b) and (c) above, the
Executive (or his estate, if applicable) shall not be entitled
to receive severance pay or any other compensation upon any
termination of his employment.
11. EMPLOYMENT POLICIES. The Executive shall abide by all
policies and procedures of the Company in effect from time to time.
12. CONFIDENTIALITY AND INVENTIONS CLAUSES.
(a) The Executive agrees not to disclose the terms and conditions
of this Agreement to any other employee of the Company or any
other party except the Executive may disclose such information
to his immediate family, financial advisors or attorneys.
(b) The Executive agrees to hold in confidence and not use or
disclose without the Company's prior written consent (i) any
information (technical or otherwise) that he obtains or
creates during the term of this Agreement which pertains to
any aspect of the Company's business or (ii) any information
received in confidence by the Company from a third party,
until such information becomes generally known by the public.
The Executive shall not make any unauthorized copies of such
information and will return to the Company, upon termination
of his employment or upon the Company's request, all tangible
forms of such information, including, without limitation,
research and development projects and
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strategies, product strategies, internet or intranet
strategies, business or product development strategies,
financial information, partner and customer relationships, and
other information about former, current, or prospective
partners/customers, employee lists and other information
about former, current, or prospective employees, software
programs (source or object codes), know-how, new product
offerings, plans, projections, confidential business
information, copyrights, trade secrets, and any other
proprietary material.
(c) The Executive hereby assigns to the Company all of his rights
in all intellectual property (including, but not limited to,
trade secrets, know-how, inventions, copyrights, designs,
computer programs and software techniques) that the Executive
conceives or develops, in whole or in part, during his
employment with the Company. This assignment does not cover
any intellectual property which: (i) is conceived and
developed entirely on the Executive's own time; (ii) is
conceived and developed without any Company equipment,
supplies, facilities, or trade secrets; and (iii) does not
relate to Company's current or future business or to the
Company's actual or demonstrably anticipated research or
development efforts. The Executive understand that this
assignment does not cover any inventions completed prior to
his employment with the Company, which inventions are
specifically identified on the attached schedule (which
contains no confidential information). During and after the
Executive's employment with the Company, the Executive agrees
to do whatever is requested by the Company, at the Company's
expense, to sign documents or otherwise assist in obtaining,
confirming, and enforcing the Company's rights in the assigned
property throughout the world.
13. INDEMNIFICATION. The Executive shall be, and hereby is,
indemnified by the Company, to the fullest extent permitted by applicable law,
for all costs, claims, expenses (including reasonable attorney's fees and other
litigation costs), damages and losses incurred by Executive by reason of being
employed, or serving in any capacity, as an employee or officer of the Company
or any affiliate thereof.
14. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether by merger,
consolidation, purchase, acquisition or otherwise) to all or
substantially all of the business and/or assets of the
Company, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Section 14(a), "Company"
shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this
Section or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
15. MISCELLANEOUS.
(a) Notice. Any notice required or permitted to be given
hereunder shall be in writing and shall be deemed to have been
given three (3) calendar days following the day in which it
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is personally delivered or deposited in the United States
certified mail, return receipt requested and postage prepaid.
Any such notice so mailed to the Executive shall be addressed
to the Executive's last known residence address. Any such
notice so mailed to the Company shall be addressed to its
principal office in Tampa, Florida.
(b) Modification. No provisions of this Agreement may be
modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by
the Founders or their designee and the Executive.
(c) Waiver of Breach or Violation Not Deemed Continuing. The
waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach hereof.
(d) Assignment. The Executive shall not assign all or any portion
of his rights, obligations, or duties under this Agreement to
any third party without the prior written approval of the
Company. Any assignment in violation of this provision shall
be void and of no force or effect.
(e) Necessary Action. Each party shall perform any further acts
and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
(f) Attorneys Fees. In the event of a dispute arising under or in
connection with this Agreement, the prevailing party shall be
entitled to collect from the other party all reasonable legal
fees and expenses.
(g) Venue. The Executive hereby consents to personal jurisdiction
and venue, for any action brought by the Company arising out
of a breach or threatened breach of this Agreement,
exclusively in the United States District Court for the Middle
District of Florida, Tampa Division, or in the Circuit Court
in and for Hillsborough County, Florida. The Executive hereby
agrees that any action brought by him, alone or in combination
with others, against the Company, whether arising out of the
Agreement or otherwise, shall be brought exclusively in the
United States District Court for the Middle District of
Florida, Tampa, Division, or in the Circuit Court in and for
Hillsborough County, Florida. The Executive hereby agrees
that any controversy which may arise under this Agreement
would involve complicated and difficult factual and legal
issues. Therefore, if a court of law determines for any
reason that the arbitration clause of Section 15(h) of this
Agreement is unenforceable, then any action brought by the
Company against the Executive or brought by Executive, alone
or in combination with others, against the Company, whether
arising out of this Agreement or otherwise, shall be
determined by a judge sitting without a jury.
(h) Arbitration. All controversies, claims, disputes, and matters
in question arising out of, or related to, this Agreement or
the breach of this Agreement, or the relations between the
signatories to this Agreement, shall be decided by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The parties agree that the
arbitration shall take place exclusively in Tampa, Florida,
and shall be governed by the substantive law of the state of
Florida. Any award rendered by the arbitrator shall be final,
and final judgment may be entered upon the parties in
accordance with applicable law in any court having
jurisdiction thereof, including a
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federal district court, pursuant to the Federal Arbitration
Act. The arbitrator may grant the Company injunctive relief,
including mandatory injunctive relief, to protect the rights
of the Company, but the arbitrator shall not be limited to
such relief. This arbitration provision shall not preclude
the Company from seeking temporary or preliminary injunctive
relief in a court of law to protect its rights, nor shall the
filing of such an action constitute any waiver by the Company
of its right to arbitrate. In connection with the arbitration
of any dispute between the signatories to this Agreement, each
signatory may utilize all methods of discovery authorized by
the Federal and Florida Rules of Civil Procedure.
(i) Entire Agreement. This Agreement, including any attached
schedules, contains the entire agreement of the parties
relating to the subject matter hereof and supersedes all prior
understandings and agreements related to Executive's
employment with the Company.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
WITNESSED BY: EXECUTIVE:
/s/ Stephen M. Wagman
- ---------------------------- ---------------------------------
Stephen M. Wagman
POWERCERV CORPORATION
By: /s/ Marc J. Fratello
- ---------------------------- ------------------------------
Marc J. Fratello,
Chief Executive Officer
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<PAGE> 1
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the
"Agreement") is made effective as of the 7th day of April, 1998 (the "Effective
Date"), by and between PowerCerv Technologies Corporation, a Florida
corporation located at 400 North Ashley Drive, Suite 2700, Tampa, Florida 33602
(the "Company") and Ronald D. Nall (the "Executive").
BACKGROUND INFORMATION
A. WHEREAS, on February 25, 1997, the Company and the Executive
entered into an Executive Employment Agreement (the "Employment Agreement");
B. WHEREAS, on January 14, 1998, the Company and the Executive
entered into an Amendment to the Employment Agreement (the "Amendment");
C. WHEREAS, in light of the Executive's acceptance of new,
additional duties and responsibilities, and certain other changes being made to
the Executive Management Team of PowerCerv Corporation (of which the Executive
is a member), the Company and the Executive desire to replace and supersede the
Employment Agreement and the Amendment, and simultaneously restate all terms
and conditions of the Executive's employment with the Company pursuant to the
terms and subject to the conditions set forth in this Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth herein, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. RESTATED AGREEMENT; SENIOR VICE PRESIDENT OF SERVICES
AND PRODUCTS.
(a) The Company and Executive hereby agree to replace and
supersede the provisions of the Employment Agreement and the
Amendment with the terms and conditions set forth in this
Agreement. The parties further agree that all aspects of the
Executive's employment with the Company and PowerCerv
Corporation (which hereinafter may be referred to collectively
as the "Company") hereafter shall be governed in accordance
with the terms and subject to the conditions set forth in this
Agreement.
(b) The Company agrees to continue to employ the Executive to
serve in the capacity of Senior Vice President, Services and
Products in accordance with the provisions of this Agreement.
The Executive will be responsible for managing the Company's
Professional Services Organization and the Company's Research
and Development Organization, all in accordance with the
provisions of this Agreement and the Bylaws of the Company.
The Executive will report to the President and Chief Operating
Officer of the Company (the "President/COO"). The Executive
hereby accepts such employment upon the terms and conditions
hereinafter set forth.
<PAGE> 2
2. TERM. Unless earlier terminated as provided herein, the term
of this Agreement shall commence as of the Effective Date and terminate on
December 31, 2000. Notwithstanding the foregoing, if this Agreement is not
terminated as provided herein on or before the expiration of its initial term,
this Agreement will be automatically renewed for successive one (1) year terms
unless, at least sixty (60) days prior to the expiration of the initial term or
any subsequent one-year renewal term, either party has given written notice to
the other of its intention not to renew this Agreement beyond the end of such
term.
3. DUTIES.
(a) The Executive shall perform all functions and duties
consistent with his positions as described above in Section
1(b) on behalf of the Company and its parent organization in a
faithful, efficient, trustworthy and professional
manner, as reasonably required by the President/COO. The
Executive agrees to comply with all policies and regulations
of the Company and the terms and conditions of this Agreement,
to devote his best efforts to the interests of the Company,
and will not, without the prior written consent of the
President/COO, engage in any other job or activity detrimental
to the Company's interests or in contravention to the terms
and conditions of this Agreement. The Executive shall be
principally based at the Company's corporate offices in Tampa,
Florida and shall travel as required in connection with the
performance of his duties hereunder. During the term of this
Agreement, the Executive shall devote substantially all of his
working time and efforts to the business and affairs of the
Company. The Executive shall, upon request of the Company,
perform services for any parent or subsidiary of the Company
without compensation except as provided herein.
(b) In addition, the Executive represents that he has not brought
to the Company, and will not bring or use in the performance
of his duties at the Company, any property, trade secrets or
confidential information (whether or not in writing) of a
former employer or third party without that employer's or
third party's written consent. The Executive hereby certifies
that he is not a party to any other agreement (or subject to
any fiduciary obligation) which will interfere with the
Executive's full compliance with this Agreement. The
Executive has not entered into any agreement or understanding
either written or oral in conflict with the provisions of this
Agreement. The Executive acknowledges and agrees that the
Company is hiring him based upon its understanding that the
Executive will be fully capable, without restriction, of
performing under this Agreement in his capacity as Senior Vice
President, Services and Products for the Company, and that the
Company is relying upon the representations set forth herein
in connection with its providing this Agreement to the
Executive.
4. COMPENSATION. As his entire compensation for all services
rendered to the Company during the term of this Agreement, the Executive shall
receive the compensation provided for in this Section, subject to withholding
and other applicable employment taxes:
(a) Base Salary. The Company will pay the Executive an annual
base salary (the "Base Salary") of $175,000. The Base Salary
will be paid on or about the 15th and 30th of each working
month. The Base Salary shall be subject to review on an
annual basis by the Compensation Committee of the Board of
Directors, as recommended by the President/COO of the Company.
The Compensation Committee shall not have the authority to
reduce the Base Salary from the level set forth in this
Agreement.
2
<PAGE> 3
(b) Target Annual Bonus. Consistent with the bonus program for
Executive Management of the Company (and pursuant to the bonus
pay-out provisions of the employment agreements of Messrs.
Fratello, Crippen, Simmons and Wagman), the Executive will be
eligible to potentially earn an annual bonus of $125,000 (the
"Target Annual Bonus") per the provisions of this Section 4(b)
for each of the Company's three (3) fiscal years during the
term of this Agreement. The Target Annual Bonus will be paid
in one lump sum for each of such fiscal years, subject to the
Company and/or Executive, as applicable, achieving certain
criteria as hereinafter set forth. References below to target
revenues and target operating income relate to Company's
"Management Plan Projections" approved by the Board of
Directors no less frequently than annually in advance of the
period or which the targets are being determined. Actual
revenues and actual operating income shall be computed on a
basis consistent with a method by which target revenues and
target operating income for the related year were computed.
Eligibility for payments of the Target Annual Bonus to
Executive shall be for each calendar year during the term of
the Agreement beginning with the calendar year commencing
January 1, 1998 and shall be computed as follows:
(i) $43,750 will be earned upon Company achieving target
revenues for each calendar year;
(ii) $43,750 will be earned upon Company achieving target
operating income for each calendar year; and
(iii) $37,500 will be earned upon approval of the Board of
Directors after its review of the Executive
Management and/or Executive's presentation of
strategic business accomplishments of the Company for
each calendar year.
If a target referenced in subclause (i) or (ii) above is not
met in a particular calendar year, Executive shall not receive
for such calendar year the part of the Target Annual Bonus
tied to such target. However, notwithstanding anything to the
contrary in this subsection 4(b), if in any calendar year the
Company exceeds the target revenues or target operating income
for such year, Executive shall be paid an additional bonus
computed as follows: for each 1% that actual revenues for the
calendar year exceed the target revenues for such calendar
year, and for each 1% that the actual operating income for
such calendar year exceeds the targeted operating income for
such year, Executive shall be paid an additional $630.00. For
example, if Company's target revenues for a calendar year were
$40,000,000 and actual revenues for such year computed as
provided herein were $50,000,000, then, as actual revenues
would have exceeded projected revenues by 25%, Executive would
be entitled to an additional Target Annual Bonus related to
target revenues in the amount of $15,750.00 (i.e., 25 x
$630.00). The presentation by the Executive Management and/or
Executive of Company's strategic business accomplishments for
a calendar year shall be promptly evaluated by the Board and
the potential related bonus shall be determined by the Board
in its reasonable discretion. Executive shall be eligible to
earn all or a portion of such potential bonus as so determined
by the Board of Directors. All amounts payable pursuant to
this subsection 4(b) shall be paid to Executive promptly after
the amount is determined.
(c) Draw. The Company will pay the Executive an annual draw of
$20,000, which shall be an advance on, and recoverable
against, the amount to be paid under the Executive's
3
<PAGE> 4
Target Annual Bonus. The draw will be divided up equally and
paid out in twenty-four installments along with each pay
period during the term of the Agreement.
(d) Stock Options. Except as specifically addressed hereunder, the
parties agree that the provisions of this Agreement will not
effect the grants of any stock option previously made or to be
made to the Executive by the Company. The parties
acknowledge, however, that the provisions of Section 10 of
this Agreement will apply to the stock option grants
previously made or to be made to the Executive by the Company.
(e) Automobile Allowance. The Company will pay the Executive a
$400 monthly allowance for an automobile owned or leased by
the Executive for use in connection with the performance of
the Executive's duties under his Agreement.
5. WORKING FACILITIES. The Company shall provide the Executive
with office space, equipment, facilities, staffing and services which are
suitable to the position of Senior Vice President, Services and Products and
adequate for the performance of the Executive's duties hereunder.
6. EXPENSES. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in furtherance of
the Company's business in accordance with the Company's written policies and
procedures.
7. VACATION AND HOLIDAYS. The Executive shall be entitled to
such vacation with pay and holidays with pay during each fiscal year of the
Company as shall be approved by the Company. The amount of vacation and
holidays provided to the Executive shall be consistent with the amount given
other comparable executive employees of the Company.
8. HEALTH, WELFARE AND INSURANCE PLANS. Subject to eligibility
requirements, the Executive will be entitled to participate in any plans,
insurance policies or contracts maintained by the Company relating to
retirement, health, disability and other related benefits. The Executive's
rights with respect to any such benefits shall be subject to the provisions of
the relevant plans, policies or contracts providing such benefits. Nothing
contained herein shall be deemed to impose any obligation on the Company to
adopt or maintain any such plan, policy or contract. As of the date of this
Agreement, the Company does not provide different types or levels of health,
welfare and insurance plan or benefit coverage to its executive employees, and
further, there is no present intention by the Company to change this benefit
policy. However, if the Company were to change its policy relative to
executive benefits, those health, welfare and insurance plan and benefit
coverage made available to the Executive will be consistent with the amount
given other comparable executive employees of the Company.
9. TERMINATION. This Agreement, and the Executive's employment
hereunder, shall terminate in accordance with the provisions of this Section.
(a) By Company. The Company may terminate this Agreement (i) with
Cause at any time upon thirty (30) days prior written notice
to the Executive, (ii) upon the Company's merger,
consolidation, acquisition, liquidation, sale or other
disposition of all or substantially all of its business and/or
assets to a third party; or (iii) without Cause upon ninety
(90) days prior written notice to the Executive, and the
Executive shall work for the Company during such notice period
unless otherwise directed by the Company.
4
<PAGE> 5
As used in this Agreement, the term "Cause" shall mean (A)
willful and repeated failure to comply with the lawful
directions of the President/COO or repeated failure to perform
the duties as Senior Vice President, Services and Products of
the Company; (B) gross negligence or willful misconduct in the
performance of duties to the Company; (C) commission of any
act of fraud with respect to the Company; or (D) conviction of
a felony or a crime involving moral turpitude causing material
harm to the standing and reputation of the Company and/or its
subsidiaries, in each case as determined in good faith by the
Company's Board of Directors.
(b) Death. This Agreement shall terminate immediately upon the
Executive's death.
(c) Disability. If the Executive incurs a Disability (as defined
below) which continues for a period of at least ninety (90)
consecutive days, this Agreement shall terminate on the last
day of such period. Unless the Executive shall perform his
duties hereunder for a continuous period of at least thirty
(30) consecutive days following a period of Disability before
the Executive again incurs a Disability, he shall not be
entitled to start a new ninety (90) consecutive day period
under the provisions of this subsection, but instead may only
continue under the remaining portion of the original ninety
(90) consecutive day period.
As used in this Agreement, the term "Disability" shall mean
the Executive's physical or mental inability, by reason of
illness or accident, to perform the normal duties of his
employment by the Company, subject to any obligation the
Company may have under applicable law to provide reasonable
accommodation. If there is any disagreement between the
Company and the Executive as to the Executive's Disability or
as to the date any such Disability began or ended, the same
shall be determined by a physician mutually acceptable to the
Company and the Executive. The determination of such
physician shall be conclusive evidence of any such Disability
and of the date any such Disability began or ended. The
Executive shall be available for such an examination at any
reasonable time upon prior reasonable notice thereof from the
Company. If the Executive fails or refuses to cooperate in
such examination, the determination of the Executive's
Disability and the date any such Disability began or ended
shall be made by the Company in its sole discretion.
(d) Termination by Executive. The Executive may terminate this
Agreement (i) for Good Reason at any time upon thirty (30)
days prior written notice to the Company, or (ii) at any time
upon ninety (90) days prior written notice to the Company;
provided, however, the Executive shall continue to work for
the Company during such notice period unless otherwise
directed by the Company. For the purposes of the Company's
payment of severance under this Agreement, termination without
Cause (under Section 9(a)(iii)) and termination with Good
Reason (under Section 9(d)(i)) shall effectively be treated in
the same manner for severance payment and stock option vesting
purposes. Effectively, "Good Reason" (as defined below) is
equivalent to "constructive termination" under this Agreement.
As used in this Agreement, "Good Reason" shall mean (A) any
material breach of this Agreement by the Company which has not
been cured within thirty (30) days of the Company's receipt of
written notice of such breach from the Executive, or as soon
thereafter as practicable so long as the Company is diligently
seeking to cure such failure
5
<PAGE> 6
or breach; or (B) a material reduction in the Executive's
titles or responsibilities unless replaced with a
new title or new responsibilities of comparable stature or
value to the Company within thirty (30) days.
10. PAYMENTS BY COMPANY UPON TERMINATION.
(a) Within ten (10) business days following the effective date of
the termination of the Executive's employment (the
"Termination Date") if based upon the Company's termination of
the Executive with Cause as described under Section 9(a)(i);
or the Executive's death as described under Section 9(b); or
the Executive's Disability as described under Section 9(c); or
the Executive's notice of termination to the Company without
Good Reason as described under Section 9(d)(ii), then the
Company shall pay the Executive (or his estate in the case of
death per Section 9(b)) his Base Salary prorated through the
Termination Date plus any life insurance, disability or other
benefits to which the Executive is entitled in accordance with
the terms and conditions of the Company's health, welfare and
insurance plans.
(b) If the Company is merged, consolidated, acquired, sold,
liquidated, or any other disposition of all or substantially
all of its business and/or assets to a third party as
described under Section 9(a)(ii) above and in which the
Executive is not then offered an equal or better position,
salary and compensation package (as adjusted to reflect cost
of living increases), relocation package and other benefits
with said third party; or if the Company has given notice of
termination to the Executive as described under Section
9(a)(iii); or if the Executive has given notice of termination
to the Company under Section 9(d)(i), then in any one of these
circumstances, and further provided that the Executive is not
in breach of Sections 11, 12 or 13 of this Agreement or does
not subsequently breach any of said sections, then Company
shall: (i) pay the Executive an amount equal to twelve (12)
months of the Executive's then current year Base Salary,
payable in twelve (12) equal monthly installments from his
Termination Date; (ii) provide health, disability, life and
such other insurance benefits to the Executive and dependents
that he would have received during said twelve (12) month
period following the Termination Date had such termination not
occurred (or if such insurance plans are no longer available
[in the case of the Company's acquisition], reimbursement by
the Company to the Executive of his reasonable costs for the
same or similar insurance); and (iii) vest the Executive's
stock options in accordance with Section 10(c) below. The
obligation of the Company to pay such severance and vest stock
options is contingent upon the Executive's compliance with
Sections 11, 12 and 13 of this Agreement (as indicated above)
and the Executive's execution of a severance and general
release agreement reasonably satisfactory in form and
substance to the Company.
(c) For purposes of vesting the unvested portions of the
Executive's outstanding stock options, if the Company is
merged, consolidated, acquired, sold, liquidated or any other
disposition of all or substantially all of its business and/or
assets to a third party as described under Section 9(a)(ii),
and provided there is no "pooling" concern, then one hundred
percent (100%) of all outstanding stock options then held by
the Executive shall vest upon the effective date of such
event. If either (i) the Company has given notice of
termination to the Executive as described under Section
9(a)(iii) of the Agreement, or (ii) the Executive has given
notice of termination to the Company under Section 9(d)(i) of
the Agreement, and provided there is no "pooling" concern,
then any of those stock
6
<PAGE> 7
options issued to the Executive (either prior to or in
connection with this Agreement) which would have vested over
the next twelve (12) month period immediately following the
Termination Date shall become fully vested upon the
Termination Date, and no further vesting of any nature shall
occur with respect to any other stock options then held by the
Executive. To the extent there would be a "pooling" concern,
the Company and the Executive agree to work together in good
faith to carry out the intent of this provision and preserve
the Company's ability to do a "pooling" transaction. If the
accelerated vesting of the options hereunder would (x) subject
the Executive to a tax pursuant to Section 4999 of the Code
(or any successor provision that may be in effect), or (y)
result in a disallowance of a deduction to the Company for all
or any part of the compensation attributable to the option by
reason of Section 280G of the Code (or any successor provision
that may be in effect), the Company shall reduce, eliminate or
postpone the acceleration of the vesting of the option to the
extent necessary to reduce the "present value" (as this term
is defined in Section 280G(d)(4) of the Code, or any
successor provision that may be in effect) of the compensation
attributable to the accelerated vesting to one dollar less
than an amount equal to three times the Executive's "base
amount" (as this term is defined in Sections 280G(b)(3) and
280G(d) of the Code, or any successor provisions that may be
in effect).
(d) Except as provided in subsection (a), (b) and (c) above, the
Executive (or his estate, if applicable) shall not be entitled
to receive severance pay or any other compensation upon any
termination of his employment.
11. EMPLOYMENT POLICIES. The Executive shall abide by all
policies and procedures of the Company in effect from time to time.
12. CONFIDENTIALITY AND INVENTIONS CLAUSES.
(a) The Executive agrees not to disclose the terms and conditions
of this Agreement to any other employee of the Company or any
other party except the Executive may disclose such information
to his immediate family, financial advisors or attorneys.
(b) The Executive agrees to hold in confidence and not use or
disclose without the Company's prior written consent (i) any
information (technical or otherwise) that he obtains or
creates during the term of this Agreement which pertains to
any aspect of the Company's business or (ii) any information
received in confidence by the Company from a third party,
until such information becomes generally known by the public.
The Executive shall not make any unauthorized copies of such
information and will return to the Company, upon termination
of his employment or upon the Company's request, all tangible
forms of such information, including, without limitation,
research and development projects and strategies, product
strategies, internet or intranet strategies, business or
product development strategies, financial information, partner
and customer relationships, and other information about
former, current, or prospective partners/customers, employee
lists and other information about former, current, or
prospective employees, software programs (source or object
codes), know-how, new product offerings, plans, projections,
confidential business information, copyrights, trade secrets,
and any other proprietary material.
(c) The Executive hereby assigns to the Company all of his rights
in all intellectual property (including, but not limited to,
trade secrets, know-how, inventions, copyrights, designs,
7
<PAGE> 8
computer programs and software techniques) that the Executive
conceives or develops, in whole or in part, during his
employment with the Company. This assignment does not cover
any intellectual property which: (i) is conceived and
developed entirely on the Executive's own time; (ii) is
conceived and developed without any Company equipment,
supplies, facilities, or trade secrets; and (iii) does not
relate to Company's current or future business or to the
Company's actual or demonstrably anticipated research or
development efforts. The Executive understand that this
assignment does not cover any inventions completed prior to
his employment with the Company, which inventions are
specifically identified on the attached schedule (which
contains no confidential information). During and after the
Executive's employment with the Company, the Executive agrees
to do whatever is requested by the Company, at the Company's
expense, to sign documents or otherwise assist in obtaining,
confirming, and enforcing the Company's rights in the assigned
property throughout the world.
13. NON-COMPETE.
(a) During the term of this Agreement, as extended, the Executive
may learn of confidential matters essential to the business
and competitive position of the Company, including, without
limitation, its research and development projects and
strategies, internet or intranet strategies, business or
product development strategies, financial information, partner
and customer relationships, and other information about
former, current, or prospective partners/customers, employee
lists and other information about former, current, or
prospective employees, software programs (source or object
codes), know-how, plans, projections, copyrights, trade
secrets, or any other proprietary material and confidential
business information that would unfairly disadvantage the
Company were the Executive to use or disclose such information
in business activities competitive with the Company. The
Executive also may develop contacts and relationships with
(i) former, current, or prospective customers of the Company
or (ii) former, current, or prospective business partners, or
licensors of the Company which, if those contacts or
relationships were used by the Executive in competition with
the Company, would unfairly disadvantage the Company. To
protect the Company's trade secrets, confidential business
information, and current and prospective business
relationships, the Executive shall not, during the term of
this Agreement and for a period of twelve (12) months
immediately following the Termination Date for whatever
reason, whether voluntary or involuntary (with or without
cause), directly or indirectly, either as an individual on the
Executive's own account or as a partner, employee, agent,
contractor, officer, director, stockholder, or otherwise:
(I) Solicit from, accept from, or transact business with
any former, current, or prospective customer or
vendor of the Company with which the Executive had
substantial personal contacts on behalf of the
Company during the twenty-four month period
immediately preceding the Termination Date; or
(II) Engage in, consult with, or accept employment from
any business in current or prospective competition
with the Company where such engagement, consultation,
or employment is likely to require the Executive to
use or disclose trade secrets or confidential
business information of the Company.
(b) The Executive acknowledges that, in the course of his
employment with the Company, the Executive may (i) obtain
information and knowledge of confidential matters essential to
the
8
<PAGE> 9
business and competitive position of the Company and (ii) have
contacts with customers, partners or vendors of the Company,
which information and knowledge and contacts are being
so provided to the Executive in reliance upon his execution of
this Agreement. The Executive hereby acknowledges the
sufficiency of consideration for this Agreement, and the
Executive further acknowledges that the confidentiality and
customer/vendor protection covenants in this Agreement are
reasonable and necessary to protect the valid business
interests of the Company, including the Company's valuable
trade secrets, other confidential business information, and
relationships with its former, current, and prospective
customers, business partners, licensors, and vendors.
(c) If any of the provisions of Sections 11, 12 or 13 are found to
be unreasonable in duration, geographical scope, or line of
business, the provision shall not be rendered unenforceable by
this finding, but rather the duration, geographical scope, or
line of business of such provision shall be deemed
automatically reduced or modified with retroactive effect to
the extent necessary to render the provision enforceable, and
such provision shall be enforced as modified.
(d) The parties to this Agreement acknowledge and agree that
damages in the event of a breach of any of the provisions of
Sections 11, 12 or 13 by the Executive would be difficult to
ascertain, and therefore the Company, in addition to and not
in limitation of any other rights, remedies or damages
available to it in law or in equity, shall have the right to
injunctive or other equitable relief in any court of competent
jurisdiction, enjoining such breach.
14. INDEMNIFICATION. The Executive shall be, and hereby is,
indemnified by the Company, to the fullest extent permitted by applicable law,
for all costs, claims, expenses (including reasonable attorney's fees and other
litigation costs), damages and losses incurred by Executive by reason of being
employed, or serving in any capacity, as an employee or officer of the Company
or any affiliate thereof.
15. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether by merger,
consolidation, purchase, acquisition or otherwise) to all or
substantially all of the business and/or assets of the
Company, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Section 15(a), "Company"
shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this
Section or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
9
<PAGE> 10
16. MISCELLANEOUS.
(a) Notice. Any notice required or permitted to be given
hereunder shall be in writing and shall be deemed to have been
given three (3) calendar days following the day in which it is
personally delivered or deposited in the United States
certified mail, return receipt requested and postage prepaid.
Any such notice so mailed to the Executive shall be addressed
to the Executive's last known residence address. Any such
notice so mailed to the Company shall be addressed to its
principal office in Tampa, Florida.
(b) Modification. No provisions of this Agreement may be
modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by
the Founders or their designee and the Executive.
(c) Waiver of Breach or Violation Not Deemed Continuing. The
waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach hereof.
(d) Assignment. The Executive shall not assign all or any portion
of his rights, obligations, or duties under this Agreement to
any third party without the prior written approval of the
Company. Any assignment in violation of this provision shall
be void and of no force or effect.
(e) Necessary Action. Each party shall perform any further acts
and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
(f) Attorneys Fees. In the event of a dispute arising under or in
connection with this Agreement, the prevailing party shall be
entitled to collect from the other party all reasonable legal
fees and expenses.
(g) Venue. The Executive hereby consents to personal jurisdiction
and venue, for any action brought by the Company arising out
of a breach or threatened breach of this Agreement,
exclusively in the United States District Court for the Middle
District of Florida, Tampa Division, or in the Circuit Court
in and for Hillsborough County, Florida. The Executive hereby
agrees that any action brought by him, alone or in combination
with others, against the Company, whether arising out of the
Agreement or otherwise, shall be brought exclusively in the
United States District Court for the Middle District of
Florida, Tampa, Division, or in the Circuit Court in and for
Hillsborough County, Florida. The Executive hereby agrees
that any controversy which may arise under this Agreement
would involve complicated and difficult factual and legal
issues. Therefore, if a court of law determines for any
reason that the arbitration clause of Section 16(h) of this
Agreement is unenforceable, then any action brought by the
Company against the Executive or brought by Executive, alone
or in combination with others, against the Company, whether
arising out of this Agreement or otherwise, shall be
determined by a judge sitting without a jury.
(h) Arbitration. All controversies, claims, disputes, and matters
in question arising out of, or related to, this Agreement or
the breach of this Agreement, or the relations between the
signatories to this Agreement, shall be decided by arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The parties agree that the
arbitration shall take place exclusively in Tampa, Florida,
and shall be governed by the substantive law of the state of
Florida. Any award rendered by the
10
<PAGE> 11
arbitrator shall be final, and final judgment may be entered
upon the parties in accordance with applicable law in any
court having jurisdiction thereof, including a federal
district court, pursuant to the Federal Arbitration
Act. The arbitrator may grant the Company injunctive relief,
including mandatory injunctive relief, to protect the rights
of the Company, but the arbitrator shall not be limited to
such relief. This arbitration provision shall not preclude
the Company from seeking temporary or preliminary injunctive
relief in a court of law to protect its rights, nor shall the
filing of such an action constitute any waiver by the Company
of its right to arbitrate. In connection with the arbitration
of any dispute between the signatories to this Agreement, each
signatory may utilize all methods of discovery authorized by
the Federal and Florida Rules of Civil Procedure.
(i) Entire Agreement. This Agreement, including any attached
schedules, contains the entire agreement of the parties
relating to the subject matter hereof and supersedes all prior
understandings and agreements related to Executive's
employment with the Company.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
WITNESSED BY: EXECUTIVE:
/s/ Ronald D. Nall
- ---------------------------- ------------------------------
Ronald D. Nall
- ----------------------------
POWERCERV CORPORATION
By: /s/ Roy E. Crippen, III
----------------------------
Roy E. Crippen, III
Vice Chairman and
Chief Technology Officer
11
<PAGE> 1
Exhibit 15.1
The Board of Directors
PowerCerv Corporation
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No.333-3960) of PowerCerv Corporation for the registration of
3,675,000 shares of its common stock of our report dated July 17, 1998 relating
to the unaudited condensed consolidated interim financial statements of
PowerCerv Corporation that is included in its Form 10-Q for the quarter ended
June 30, 1998.
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a
part of the registration statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
-----------------------------------
Ernst & Young LLP
Tampa, Florida
August 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q
FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,028
<SECURITIES> 0
<RECEIVABLES> 6,087
<ALLOWANCES> (1,791)
<INVENTORY> 0
<CURRENT-ASSETS> 333
<PP&E> 5,293
<DEPRECIATION> (2,821)
<TOTAL-ASSETS> 16,476
<CURRENT-LIABILITIES> 5,249
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 11,213
<TOTAL-LIABILITY-AND-EQUITY> 16,476
<SALES> 0
<TOTAL-REVENUES> 14,597
<CGS> 0
<TOTAL-COSTS> 16,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 134
<INTEREST-EXPENSE> (150)
<INCOME-PRETAX> (1,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,845)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
