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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15322
SYSTEM SOFTWARE ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3144515
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or origination)
500 W. Madison, 32nd Floor
Chicago, Illinois 60661
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (312) 258-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
7% Convertible Subordinated Notes due 2002
Common Stock, par value $0.0033 per Share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or l5(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form l0-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant based upon the closing sale price of the stock as reported on the
Over-the-Counter Bulletin Board service on January 14, 2000, was
$23,109,889.85.
At January 14, 2000, 12,022,759 shares of the registrant's Common Stock
were outstanding.
DOCUMENT INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for the annual meeting of
stockholders, estimated to be held in April 2000, expected to be filed with
the Commission not later than February 28, 2000, is incorporated by reference
into Part III of this Form l0-K.
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PART I
ITEM 1. BUSINESS
The Company
System Software Associates, Inc. (the "Company" or "SSA") is a global
systems solution provider and developer of enterprise resource planning
("ERP") software for companies ranging in size from $50 million to
multibillion dollar global 100 corporations. The Company provides customers
with a comprehensive ERP system and services as well as third-party "best of
breed" products that include customer relationship management ("CRM"), supply
chain management ("SCM"), business intelligence ("BI") and E-commerce
solutions, which are designed to address its customers' enterprise application
("EA") requirements. Application software revenues are derived from the
Company's sales of its proprietary ERP software, BPCS (Business Planning and
Control System), one of the most widely implemented ERP systems in the world,
and other third-party software applications. Service revenues are derived by
providing implementation, integration, software modification and
customization, customer-specific application development, training and
consulting services. The Company markets, sells and services its application
solutions on a global basis from its 33 offices as well as through over 100
independent services provider offices (the "Affiliates") located throughout
the world. In conjunction with its "best of breed" strategy, SSA has entered
into a variety of strategic alliances. Selected SSA alliance partners include
i2 Technologies, iWorks, Manugistics, Trilogy Development Corporation,
Business Objects, IBM and Hewlett-Packard.
Industry Overview
The post Y2K market for Enterprise Application software and services
remains dynamic according to industry projections. Manufacturers, having
achieved substantial cost savings from their initial ERP implementations, are
focusing on initiatives aimed at revenue enhancement and opportunity creation
through development of new business processes across applications, which
deliver new ways of competing. As a result of this fundamental shift from
efficiency-led decisions to effectiveness-driven decisions, the ERP market is
increasingly focused on the key elements of the effectiveness equation:
functionality, reliability and speed. This trend is fast transforming the
current model to a supply chain model, most notably in the areas of channel
enablement, channel expansion and self-service. More recently, the
availability and use of the Internet has created a demand for software which
will operate across the Internet to enhance business-to-business electronic
commerce.
The need for proper domain experience and expertise, and customer demand
for a broad range of application functionalities, is rewarding EA providers
who develop a partnership strategy with key niche solution providers to
provide for "best of breed" product offerings. As a result of this shift,
companies are creating relationships that extend and further complement their
core offering and functionality. These partnerships enable companies to offer
their customers--on a substantially accelerated basis--enhanced, "best of
breed" application solutions across a wide range of manufacturing disciplines.
SSA Strategy
Historically the Company has concentrated primarily on marketing, licensing
and maintaining BPCS, its own proprietary product software, and providing
related support and services to its clients. To capitalize upon evolving
market dynamics, the Company has repositioned itself over the last year to
become a leading international provider of IT application solutions. This
fundamental shift in SSA's strategy to become a "solutions provider" is a
natural progression for the Company. With extensive knowledge of the
operations of its 6,500 customers, the Company is well positioned to provide a
full spectrum of application solutions and services with its proprietary BPCS
product suite as the ERP foundation. The BPCS product offers a core ERP
functionality, which can be customized to customer requirements and integrated
with a variety of SCM, CRM, BI and e-commerce solutions. Furthermore, the
Company's newly developed IFrameworks software enables it to offer timely
business processes assessment, integration and implementation services for a
variety of application solutions.
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By evolving from an ERP-focused firm to a solutions provider, SSA will
better leverage its core strengths, including: i) a large installed base; ii)
industry and application expertise; iii) international sales, marketing and
service infrastructure; iv) customer-specific knowledge and relationships; v)
software customization capabilities; and vi) strong partnering alliances.
Management believes these efforts will result in an enhanced, longer term
relationship with customers and the generation of higher revenue per account
and improved on-going maintenance and service revenues.
The Company's market focus continues to be within targeted vertical
industries, namely consumer packaged goods, food and beverage, consumer
electronics, automotive supply, pharmaceutical/specialty chemical and general
manufacturing.
Product Suite
BPCS consists of over 50 integrated, century dated products designed for
manufacturing, supply chain management and financial applications, as well as
electronic commerce and application development tools. BPCS operates on a
variety of hardware platforms, including the AS/400, HP9000 and NT systems
running the DB/2, Oracle or Informix databases. The entire BPCS product suite
is available in English, and a significant portion of the line is available in
24 other languages including Chinese (simplified and traditional), French,
German, Italian, Japanese, Korean, Portuguese, and Spanish. The BPCS design
meets the localized regulatory policies and statutory requirements of many
countries.
In addition to BPCS, the Company also offers an application development
tool set which enables the development of high transaction volume and
enterprise-wide client/server applications on all supported platforms.
Product Development
To maintain and enhance the breadth and functionality of its software, SSA
devotes significant resources to research and development. The Company employs
professionals with subject matter expertise and skills in the AS/400, UNIX, MS
Windows, and NT operating environments. The Company's focus on developing
advanced applications and maintaining its entire BPCS product suite also
requires professionals skilled in the fields of software development, project
management, systems, and client/server products.
Clients
BPCS has been installed by over 6,500 clients in more than 12,000 sites in
over 70 countries worldwide, the substantial majority of which comprise the
Company's installed base of AS/400 customers. The target marketplace for BPCS
is large and medium-sized firms in such diverse industries as
pharmaceuticals/specialty chemicals, automotive supply, consumer electronics,
consumer packaged goods, food and beverage and general manufacturing.
Sales and Marketing
The Company markets, sells and services its products on a global basis
through its own sales and services organization and a network of affiliates.
The Company supports its clients primarily through a worldwide network of
branch offices, including its 33 SSA offices and over 100 Affiliate offices,
around the world. Historically, the Company has operated on an international
basis with an approximately equal division of revenues coming from North
America, Europe and the rest of the world (Latin America and Asia/Pacific).
SSA's sales effort are conducted through its global accounts teams and
regional sales offices. The global accounts teams target and support 32
multibillion-dollar companies that operate on an international basis. The
regional sales offices locally support global accounts as well as smaller
and/or geographically focused companies. Both global and local clients are
assigned a sales team which work with the customer on a long-term basis. These
sales teams call on accounts on a regular basis and will typically participate
in a customer's technology planning process.
2
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Licensing
In almost all cases, software sales are made pursuant to the Company's
Software License Agreement (the "SLA") which is entered into by the client and
SSA. The gross amount of the software license fee is remitted to the Company
and, if applicable, the Company then pays a commission to the Affiliate. In
certain small countries outside of the United States, the SLA is entered into
by the client, the Company and the Affiliate. SSA enters into individual,
negotiated contracts with its Global Account clients. The SLA typically
provides for either a single license fee to use the product in perpetuity on a
single computer or licensing the products on the basis of the number of users.
License fees for BPCS products typically range from $1,500 to $150,000 per
product.
The Company also charges annual ongoing support fees to clients who desire
product updates and upgrades and "HelpLine" product support through telephonic
and other electronic means. Ongoing support is typically provided to clients
under annual or multi-year maintenance agreements. Occasionally, Affiliates
handle the installation of such upgrades and receive their standard
commissions on maintenance fees received from their clients. An Affiliate may
also perform services and provide hardware to its clients for which the
Affiliate bills directly.
Competition
The ERP application software market is highly competitive, rapidly changing
and significantly affected by new product introductions and other market
activities of industry participants. The Company's BPCS product line is
targeted at the market for IBM AS/400, open systems and client/server
applications software solutions. The Company's current and prospective
competitors offer a variety of products and solutions to address these
markets. The Company's primary competition comes from a large number of
independent software vendors and other sources including (i) companies
offering products that run on UNIX-based systems in a client/server
environment such as Oracle Corporation, Baan Company N.V. and SAP AG, and (ii)
companies offering products that run on AS/400 and other mid-range computers,
including J.D. Edwards. The Company also faces competition from a variety of
other vendors of ERP software, including QAD Inc. In addition, the Company
faces indirect competition from suppliers of custom-developed business
application software that have focused mainly on proprietary mainframe and
minicomputer based systems with highly customized software, such as the
systems consulting groups of major accounting firms and systems integrators.
The Company also faces indirect competition from proprietary systems developed
by the internal MIS departments of large organizations. Competition in SSA's
industry is primarily based on sales ability, quality of the products, breadth
of product line and quality of support. In 1999, the Company also experienced
some price competition in this market, and price competition likely will
continue to be a factor in the future.
Proprietary Rights
SSA regards its application software as proprietary and attempts to protect
it with copyrights, trade secret laws and restrictions on disclosure and
transferring title. Despite these precautions, it may be possible for third
parties to copy aspects of the Company's products or to obtain and use
information which the Company regards as trade secrets without authorization.
Computer software generally cannot be patented and existing copyright laws
afford only limited practical protection. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights in its
products to the same extent as do the laws of the United States.
Staff
As of January 1, 2000, SSA employed approximately 1,500 people. The
Company's success is highly dependent on its ability to attract and retain
qualified staff members. Competition for staff is intense in the software
industry. The Company has no collective bargaining agreements, and SSA
believes that its relations with its staff are good.
3
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EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are as follows:
ROBERT R. CARPENTER, age 44, was appointed Chief Executive Officer and
Chairman of the Board of Directors on September 15, 1999. He was a private
technology investor from 1998 until joining the Company. From 1997 to 1998,
Mr. Carpenter served as President and Chief Executive Officer of Origin
Americas, a subsidiary of Philips B.V. From 1994 to 1997, he was Senior Vice-
President NCR Worldwide Services for AT&T Corporation where he had worldwide
responsibility for NCR's services business. Mr. Carpenter holds a M.B.A. from
Northwestern University Kellogg Graduate School of Management, a M.A. in
Foreign Affairs from the University of Virginia and a B.A. degree from Depauw
University.
CHUCK BIEBIGHAUSER, age 53, joined the company as Senior Vice President,
Global Services and Marketing, on December 15, 1999. He was the principal
consultant with Project Partners, Inc. from early 1999 until joining the
Company. From 1997 to 1999 he held positions as Vice President--Managed
Operations, Vice President--Marketing and CEO of the North America unit of
Origin Technology. From 1996 to 1997, he was Chief Operating Officer of
Pacific Technology Services, Inc. From 1993 to 1996, Mr. Biebighauser served
as a Marketing Director for BSG Consulting and also served in a variety of
technical, sales and senior management roles for EDS from 1973 to 1987. Mr.
Biebighauser holds a B.A. degree from the University of Minnesota.
LORRAINE H. FENTON, age 54, joined the Company as Vice President-
Development on July 1, 1998 and was appointed Vice President-Research and
Development on November 18, 1998. Currently Ms. Fenton has responsibility not
only for worldwide development but also for global support and information
technology. Prior to joining the Company, she served in a variety of
management positions with IBM Corporation over a 31-year tenure. Most recently
at IBM, Ms. Fenton was Vice President, Information Technology, North American
Sales and Distribution. Prior to that she had served as General Manager,
Quality and Information Technology for North American Sales and Vice
President, Quality and Development Operations for North American software
development. Ms. Fenton holds a B.A. degree from Dickinson College, and she
serves on the Board of Trustees of Marymount College in Tarrytown, New York.
JOSEPH J. SKADRA, age 58, was appointed Vice President Finance and
Controller on April 29, 1998. Previously, he was appointed Vice President and
Chief Financial Officer on August 24, 1994. He was employed by Figgie
International, Inc. from 1970 to 1994, where he held various operating and
financial positions at the Vice President level. His last position at Figgie
International was Senior Vice President, Finance and Controller. Mr. Skadra
holds a B.S.B.A. degree from Case Western Reserve University.
ITEM 2. PROPERTIES
The Company's principal administrative, marketing and technical facilities
are located in Chicago, Illinois and consist of approximately 141,000 square
feet of occupied or committed space, subject to a lease terminating in August
2008. In accordance with the 1998 restructuring plan, the Company plans to
sublease approximately 45,000 square feet of the office space. The Company
also leases office space for its regional headquarters and branch offices (see
Note 15 of Notes to Consolidated Financial Statements).
ITEM 3. LEGAL PROCEEDINGS
In January 1997, class action lawsuits against the Company and certain of
its officers were filed in state court in Illinois and in the federal court in
Chicago, Illinois. The Company executed a settlement agreement with the class
plaintiffs in the Illinois state court action. The presiding judge in the
Illinois case approved the settlement on September 30, 1997. Certain
individual objectors to the settlement appealed the fairness of the
settlement. On June 18, 1999, the Illinois Appellate Court affirmed the
settlement of the state court class action. Plaintiffs did not seek leave to
appeal to the Illinois Supreme Court. Accordingly, the state court action has
concluded.
4
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The Company has filed a motion to dismiss in the Federal action, arguing
that the claims in Federal court have already been settled in state court and
are barred by the doctrine of res judicata. That motion is pending.
The Company has been the subject of an ongoing private investigation being
conducted by the Securities and Exchange Commission ("the Commission"). This
investigation began in October 1995, and primarily relates to revenue
recognition issues. The Staff of the Enforcement Division has advised the
Company that it has tentatively concluded that in 1994 through 1997 the
Company improperly recognized revenue on software contracts for UNIX based
software products, and in 1995 and 1996, the Company improperly recognized
revenue on software reseller contracts, and in so doing violated Securities
Exchange Act of 1934 Section 10(b), Securities Act of 1933 Section 17(a), and
other provisions of the federal securities laws. Although the Company believes
there are meritorious defenses in connection with these issues, the Company,
at this time, is unable to predict the outcome of the investigation or the
discussions between the Company and the Staff or, in the event the Commission
brings a proceeding, the likely outcome or consequences to the Company of the
proceeding. There can be no assurance that any actions taken by the Commission
may not have a material adverse effect on the business, financial condition or
results of operations of the Company.
The Company is also subject to other legal proceedings and claims which
arise in the normal course of business. Although the outcome of these
proceedings cannot be determined with certainty, management believes that the
final outcomes of these proceedings should not have a material adverse effect
on the Company's operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK INFORMATION
Price Range of Common Stock and Public Convertible Subordinated Notes
Until September 6, 1999, the Company's common stock was traded on the
Nasdaq National Market. From September 7, 1999 through October 22, 1999, the
Company's common stock was traded on the Nasdaq SmallCap Market. Since October
25, 1999, the Company's common stock has been traded on the Over-the-Counter
Bulletin Board ("OTCBB") service. The following table presents the high and
low market prices for the Company's common stock as reported by the Nasdaq
National Market during the fiscal year ended October 31, 1998 and through
September 6, 1999. Prices from September 7, 1999 through October 22, 1999 are
as reported by the Nasdaq SmallCap Market. Prices from October 25, 1999
through October 31, 1999 are as reported by the OTCBB.
<TABLE>
<CAPTION>
Fiscal 1999 High Low Fiscal 1998 High Low
- ----------- ------ ------ ----------- ------ ------
<S> <C> <C> <C> <C> <C>
First Quarter......... $31.75 $20.50 First Quarter............... $61.00 $27.24
Second Quarter........ 20.75 7.50 Second Quarter.............. 34.76 26.76
Third Quarter......... 11.75 6.63 Third Quarter............... 39.52 21.52
Fourth Quarter........ 7.38 1.44 Fourth Quarter.............. 26.52 15.00
</TABLE>
On August 17, 1999, the Company's stockholders approved a proposal to amend
the Certificate of Incorporation to effect a 1 for 4 reverse stock split of
the Company's outstanding common stock, effective September 2, 1999. All
common stock share and per share data has been restated to reflect the split.
At January 14, 2000 there were approximately 236 holders of record. On
January 14, 2000 the closing price of the Company's common stock, as reported
on the OTCBB, was $2.218.
The Company's Public Convertible Subordinated Notes were traded on the
Nasdaq SmallCap Market until October 25, 1999. Since October 26, 1999, there
has been no established public trading market for the Company's Public
Convertible Subordinated Notes, and they have been traded over the counter.
The following table shows each quarter's high and low closing prices through
October 25, 1999 as reported by the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
Fiscal 1999 High Low Fiscal 1998 High Low
- ----------- ------ ------ ----------- ------- ------
<S> <C> <C> <C> <C> <C>
First Quarter........ $77.50 $66.50 First Quarter............... $112.50 $82.00
Second Quarter....... 68.50 46.00 Second Quarter.............. 87.00 81.00
Third Quarter........ 43.50 34.25 Third Quarter............... 91.25 69.00
Fourth Quarter....... 44.50 32.00 Fourth Quarter.............. 68.50 55.75
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------
1999 1998 1997 1996 1995
------ ------- ------ ------ ------
(in millions, except per share
data)
<S> <C> <C> <C> <C> <C>
Total revenues......................... $315.7 $ 420.8 $430.5 $340.8 $374.1
Net income (loss)...................... (88.2) (128.7) 1.0 (32.8) 26.6
Net income (loss) available for common
stockholders.......................... (89.5) (130.0) (1.4) (32.8) 26.6
Basic earnings (loss) per share of
common stock.......................... (7.46) (11.21) (0.13) (3.04) 2.76
Diluted earnings (loss) per share of
common stock.......................... (7.46) (11.21) (0.13) (3.04) 2.52
Dividends declared per common share.... -- -- -- 0.40 0.32
</TABLE>
6
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<TABLE>
<CAPTION>
At October 31,
----------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total assets................................ $230.0 $360.8 $475.4 $384.4 $393.2
Long-term obligations and Redeemable Series
A Preferred Stock.......................... 176.1 151.2 160.0 75.1 33.9
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of operations
The following table presents, for the periods indicated, certain information
from the consolidated statements of operations as a percentage of total
revenues and the percentage change of such items as compared to the prior year.
<TABLE>
<CAPTION>
Percentage of Total
Revenues Percentage
Year Ended October Increase (Decrease)
31, Over Prior Year
------------------------ ----------------------
1999 1998
versus versus
1999 1998 1997 1998 1997
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.............. 33.3% 51.1% 70.4% (51.2)% (29.0)%
Client services and other. 66.7% 48.9% 29.6% 2.4% 61.3%
------ ------ ------ --------- ---------
Total revenues.......... 100.0% 100.0% 100.0% (25.0)% (2.3)%
------ ------ ------ --------- ---------
Costs and expenses:
Cost of license fees...... 14.0% 17.3% 17.5% (39.3)% (3.1)%
Cost of client services
and other................ 38.4% 33.9% 22.8% (14.9)% 45.0%
Sales and marketing....... 19.6% 19.3% 20.6% (23.8)% (8.0)%
Research and development.. 14.2% 14.3% 12.0% (25.5)% 16.2%
General and
administrative........... 23.7% 21.0% 20.7% (15.4)% (0.6)%
Special charges........... -- 0.3% 1.1% * (77.6)%
Restructuring and other... 6.5% 29.1% -- (83.3)% *
------ ------ ------ --------- ---------
Total costs and
expenses............... 116.4% 135.2% 94.7% (35.4)% 39.6%
------ ------ ------ --------- ---------
Operating income (loss)..... (16.4)% (35.2)% 5.3% (65.0)% *
Non-operating income
(expense), net............. (3.8)% (2.4)% (4.9)% 22.2% (53.5)%
Gain on sale of investment.. 0.8% -- -- * *
------ ------ ------ --------- ---------
Income (loss) before income
taxes...................... (19.4)% (37.6)% 0.4% (61.3)% *
Provision (benefit) for
income taxes............... 8.5% (7.0)% 0.1% * *
------ ------ ------ --------- ---------
Net income (loss)........... (27.9)% (30.6)% 0.3% (31.5)% *
Preferred dividends......... 0.4% 0.3% 0.6% -- (45.8)%
------ ------ ------ --------- ---------
Net income (loss) available
for common stockholders.... (28.3)% (30.9)% (0.3)% (31.2)% *
====== ====== ====== ========= =========
</TABLE>
- --------
*not meaningful
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Revenues
Total revenues decreased 25.0% from 1998 to 1999. All of the Company's
geographic regions recorded lower revenues in 1999. Total revenues decreased
2.3% from 1997 to 1998. Latin America recorded higher revenues in 1998 while
the other regions were flat to down.
License Fees. The principal components of license fee revenues are software
license fees, a portion of post contract support and hardware. License fees
decreased 51.2% in 1999 to $105.1 million compared to $215.2 million in 1998.
This decrease is primarily due to the continued slowdown in demand for
software in the ERP market as clients temporarily postponed contract decisions
due primarily to focusing their efforts and expenditures on final remediation
of year 2000 issues. License fees decreased 29.0% in 1998 to $215.2 million
compared to $303.0 million in 1997.
Client Services. Client services and other revenues increased 2.4% to
$210.6 million in 1999 from $205.6 million in 1998. Client services and other
revenues increased 61.3% to $205.6 million in 1998 from $127.5 million in
1997. The increase in services revenues is attributable to an increase in the
number of billable services personnel in response to continuing demand for
implementation services as well as an increase in productivity of services
personnel. In 1999, however, the Company experienced lower client services
revenues in the second half of the year related to the decline in license fee
revenues in 1998 and 1999.
Costs and Expenses
Cost of License Fees. The principal components of cost of license fees are
commissions paid to independent Affiliates, royalties paid to third parties,
hardware costs, amortization of capitalized software costs and warranty costs.
In 1999, cost of license fees, as a percentage of related license fee
revenues, increased to 42.2% from 33.9% in 1998. The increase is due to a
significant decline in BPCS license fees sold, resulting in a greater
proportion of revenues being generated by the sale of third party software
products and hardware which more than offset a significant decline in the
amortization of software cost. Cost of license fees in 1998, as a percentage
of related license fee revenues, increased to 33.9% from 24.9% in 1997. The
increase is primarily attributable to the decline in license fee revenues, in
particular license fees sold by the direct sales organization. Cost of
hardware rose slightly as a percentage of revenues while amortization of
software cost declined and warranty costs were flat when compared to 1997.
Cost of Client Services and Other. The principal components of cost of
client services and other are salaries and other direct employment costs paid
to the Company's client services personnel and amounts paid to contracted
independent client services professionals. Cost of client services and other
as a percentage of related revenues was 57.5% in 1999 compared to 69.3% in
1998. The decrease is primarily due to increased productivity of client
services personnel as well as less reliance on contracted client services
professionals. In 1997, cost of client services and other was 77.1%. The
decrease from 1997 to 1998 is also due to the increased productivity of client
services personnel.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other direct employment costs of the Company's sales and pre-
sales professionals, as well as marketing costs, which include advertising,
trade shows, and production of sales brochures. Sales and marketing expenses
decreased $19.4 million to $62.0 million in 1999 from $81.4 million in 1998.
The decrease was primarily due to the reduction of direct sales incentives as
a result of the decline in license fee revenues and the positive impact of the
third quarter 1998 and 1999 restructuring. Marketing expenditures were
unchanged in 1999 when compared to 1998. Sales and marketing expenses
decreased $7.1 million from $88.5 million in 1997 to $81.4 million in 1998.
The decrease in sales and marketing expenses is primarily due to a reduction
of direct sales incentives as a result of lower direct license fee revenues
and the positive impact of restructuring, partially offset by an increase in
marketing expenditures.
Research and Development. Total research and development expenditures (R&D)
in 1999 decreased $31.8 million, or 39.1%, to $49.6 million from $81.4 million
in 1998. Total research and development expenditures in
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1998 decreased $11.7 million, or 12.6%, to $81.4 million from $93.1 million in
1997. The decrease in 1999 and 1998 is due, primarily, to reduced development
activities with the release of BPCS Client/Server Version 6.0 as well as the
positive impact of the third quarter 1998 and 1999 restructuring initiatives.
The Company capitalizes software development costs once technological
feasibility is established, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86. In connection with the 1998 restructuring
of operations, the Company determined that it was more appropriate to begin
capitalization of software development costs subsequent to a working model
being developed. Accordingly, the Company capitalized $4.8 million of software
development costs in 1999, $21.3 million in 1998 and $41.4 million in 1997.
The capitalization ratio (capitalized software costs as a percentage of total
R&D expenditures) was 10% in 1999, 26% for 1998 and 44% for 1997. The
capitalization ratio for the second half of 1998 was 10%.
The following table sets forth total research and development expenditures
and related capitalized amounts for the periods indicated.
<TABLE>
<CAPTION>
Year Ended Percentage
October 31, Change
------------------- --------------
1999 1998
versus versus
1999 1998 1997 1998 1997
----- ----- ----- ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Total R&D expenditures...................... $49.6 $81.4 $93.1 (39)% (13)%
Less amount capitalized..................... (4.8) (21.3) (41.4) (77)% (49)%
----- ----- ----- --- ---
Net R&D expenses.......................... $44.8 $60.1 $51.7 (25)% 16%
===== ===== ===== === ===
</TABLE>
General and Administrative. General and administrative expenses decreased
$13.6 million in 1999 to $74.8 million from $88.4 million in 1998 primarily
due to the positive impact of the third quarter 1998 and 1999 restructuring
initiatives. In 1997, general and administrative expenses totaled $88.9
million. The $0.5 million decrease in 1998 over 1997 was primarily due to the
positive impact of the 1998 restructuring.
Special Charges. The special charge of $1.1 million recorded in the first
quarter of 1998, and $3.2 million recorded in the fourth quarter of 1997,
related to the settlement of a lawsuit. In addition, a $1.7 million charge was
recorded in the third quarter of 1997 which related to the settlement of the
Company's class action lawsuits (see Note 15 of Notes to Consolidated
Financial Statements).
Restructuring and other Charges. In the third quarter ended July 31, 1999,
the Company announced a restructuring and other charge of $22.8 million. This
restructuring was a part of a series of actions aimed at completing the
Company's transition to a portfolio solutions provider. The charge includes
severance, reduction of office space in the United States and Canada, assets
and equipment leases related to workforce and office space reductions, and a
write-down of goodwill and assets relating to partnerships no longer essential
to the Company's new solutions strategy. The workforce reduction represents
approximately 320 employees or 16% of June 30, 1999 world-wide employees. The
realignment and reorganization of the Company affected all functional areas:
field sales, services and support operations, marketing, research and
development and general and administrative. Restructuring costs incurred in
1999 were $19.1 million. The following table summarizes the significant
components of the restructuring reserve at October 31, 1999.
<TABLE>
<CAPTION>
Costs Incurred
Restructuring -------------- Balance
and Other Non- Cash at October 31,
Charge Cash Payments Adjustments 1999
------------- ----- -------- ----------- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
Severance and benefits.. $ 1.5 $ -- $1.7 $0.2 $--
Write-down of assets.... 16.0 16.0 -- -- --
Office space............ 3.8 -- 0.4 (0.2) 3.2
Equipment Rent.......... 1.5 -- 1.0 -- 0.5
------ ----- ---- ---- ----
$ 22.8 $16.0 $3.1 $-- $3.7
====== ===== ==== ==== ====
</TABLE>
9
<PAGE>
The company expects to pay $1.5 million of restructuring costs in fiscal
2000 and the remaining $2.2 million in fiscal 2001.
The Company announced a restructuring and other charge of $122.5 million in
the third quarter ended July 31, 1998. The Company decided that it would no
longer add additional functionality or performance to four BPCS application
software versions. The restructuring charge includes a write-down of
capitalized and locally developed software products, a write-down of goodwill
and equipment, certain warranty commitments, a 25% reduction of office space
affecting North America, Latin America, Europe and Asia/Pacific and severance
benefits for approximately 300 employees. The reduction in workforce
represents approximately 12% of June 30, 1998 worldwide employees and affected
all functional areas and employee groups within the Company. The other charge
represents $2.5 million in payments under termination agreements with former
executives of the Company and $0.8 million in future rentals for leased
equipment which would no longer be used as a result of the restructuring plan.
Restructuring costs incurred in 1998 and 1999 totaled $83.5 million and $31.6
million, respectively. The following table summarizes the significant
components of the restructuring reserve at October 31, 1999.
<TABLE>
<CAPTION>
Year ended October 31, 1998 Year ended October 31, 1999
-------------------------------------- ------------------------------------
Costs Incurred Costs Incurred
Restructuring -------------- --------------
and Other Non- Cash Remaining Non- Cash Remaining
Charge Cash Payments Balance Cash Payments Adjustments Balance
------------- ----- -------- --------- ----- -------- ----------- ---------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Severance and benefits.. $ 7.6 $ -- $ 5.8 $ 1.8 $ -- $ 0.7 $(1.1) $--
Write-down of assets.... 65.1 64.4 -- 0.7 0.3 -- (0.4) --
Office space............ 11.1 -- 2.7 8.4 -- 2.6 (3.3) 2.5
Warranty................ 35.4 5.2 2.2 28.0 19.9 8.0 2.5 2.6
Other................... 3.3 -- 3.2 0.1 -- 0.1 -- --
------ ----- ----- ----- ----- ----- ----- ----
$122.5 $69.6 $13.9 $39.0 $20.2 $11.4 $(2.3) $5.1
====== ===== ===== ===== ===== ===== ===== ====
</TABLE>
Adjustments between categories were made to reflect the Company's current
assessment of the category balances at October 31, 1999. In October 1999, the
Company decreased restructuring and other expense by $2.3 million, adjusting
the remaining restructuring reserve at October 31, 1999 down to balances
expected to be incurred. The Company expects to incur $4.3 million of
restructuring costs in fiscal 2000 and the remaining $0.8 million in fiscal
2001 (See Note 4 of Notes to the Consolidated Financial Statements).
Operating Income (Loss). Operating loss in 1999, before restructuring and
other charges, was $(31.4) million, an increased loss of $5.7 million when
compared to the operating loss before restructuring and other charges recorded
in 1998 of $(25.7) million. The primary reason for the greater loss was the
negative profit impact of the significant decline in license fee revenues
largely offset by an 38% improvement in client services gross profit margin
and the favorable profit impact of the 1998 and 1999 restructurings on
operating expenses. Operating income in 1997 was $22.9 million. The $48.6
million decline from 1997 to 1998 was primarily related to lower license fee
revenues. Operating loss in 1999 and 1998 after restructuring and other
charges was $(51.9) million and $(148.2) million, respectively.
Non-operating Income (Expense), Net. In 1999, non-operating expense, net
increased $2.2 million to $12.1 million from $9.9 million in 1998. This
increase is primarily due to interest expense related to borrowings under the
$41.0 million loan and security agreement entered into on August 11, 1999 (See
Note 7 of Notes to the Consolidated Financial Statements). Non-operating
expense, net in 1998 decreased $11.4 million from $21.3 million in 1997. This
represents a reduction in both interest expense and amortization. The
beneficial conversion feature incorporated in the convertible notes issued in
1997 valued at $9.5 million was fully amortized in 1997.
Income Taxes. During the quarter ended July 31, 1999, the Company wrote-off
$34.0 million of net deferred tax assets. This write-off results from an
increase in the valuation allowance, reflecting a change in judgment about the
realizability of the related deferred tax assets in future years. In
accordance with SFAS 109, "Accounting for Income Taxes" management has
assessed that the remaining deferred tax assets will more likely
10
<PAGE>
than not be realized in the future. This assessment is based primarily on
estimates of future operating results. Management's determination that the net
deferred tax asset will be realized is based upon projected future operating
results. The Company has available $43.1 million of foreign net operating loss
carryforwards and $151.5 million of U.S. net operating loss carryforwards.
Certain of the foreign net operating loss carryforwards may be carried forward
indefinitely while the remainder expire in varying amounts beginning on
October 31, 2001. The Company's effective tax rate was approximately 11% in
1999, excluding the $34.0 write-off of net deferred tax assets, 19% in 1998
and 36% in 1997.
Impact of Inflation. To date, the Company has not experienced any
significant effect from inflation. The Company's major expenses have been
salaries and related costs incurred principally for product development and
enhancements, client services, sales and marketing and administration. The
Company generally has been able to meet inflationary increases in costs by
increasing prices of its products and services.
Foreign Currency Exposures. Sales outside of the United States account for
60% to 70% of the Company's total revenues. The Company's international sales
(with the exception of certain Latin American countries) are predominately
invoiced and paid in foreign currencies. Consequently, the Company's revenues
are impacted by the fluctuation of foreign currencies versus the U.S. Dollar.
The operating income impact of such fluctuations, however, is offset to the
extent expenses of the Company's international operations are incurred and
paid for in local currencies.
QUARTERLY RESULTS
The following table contains selected unaudited consolidated financial
results by quarter for 1998 and 1999. In management's opinion, this
information reflects all adjustments (which consisted only of normal recurring
adjustments) necessary to present the results fairly when read in conjunction
with the Consolidated Financial Statements and related notes included
elsewhere herein.
<TABLE>
<CAPTION>
Fiscal 1998 Quarter Ended Fiscal 1999 Quarter Ended
--------------------------------------- ---------------------------------------
January 31 April 30 July 31 October 31 January 31 April 30 July 31 October 31
---------- -------- ------- ---------- ---------- -------- ------- ----------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 99.0 $102.4 $ 106.9 $112.5 $ 89.7 $ 86.7 $ 73.1 $ 66.2
Costs and expenses...... 98.7 114.8 240.6 114.8 97.5 95.9 102.6 71.7
------ ------ ------- ------ ------ ------ ------ ------
Operating income (loss). 0.3 (12.4) (133.7) (2.3) (7.8) (9.2) (29.5) (5.5)
Non-operating income
(expense), net......... (2.3) (2.3) (2.6) (2.7) (2.9) (2.4) (2.7) (4.0)
Gain on sale of
investment............. -- -- -- -- 2.8 -- -- --
------ ------ ------- ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (2.0) (14.7) (136.3) (5.0) (7.9) (11.6) (32.2) (9.5)
Provision (benefit) for
income taxes........... (0.7) (5.3) (21.6) (1.8) (2.8) (4.2) 34.0 --
------ ------ ------- ------ ------ ------ ------ ------
Net income (loss)....... (1.3) (9.4) (114.7) (3.2) (5.1) (7.4) (66.2) (9.5)
Preferred dividends..... 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------ ------ ------- ------ ------ ------ ------ ------
Net income (loss)
available for common
stockholders........... $ (1.6) $ (9.7) $(115.0) $ (3.5) $ (5.4) $ (7.7) $(66.5) $ (9.8)
====== ====== ======= ====== ====== ====== ====== ======
Basic and diluted
earnings (loss) per
share of common stock.. $(0.15) $(0.82) $ (9.66) $(0.29) $(0.45) $(0.64) $(5.54) $(0.82)
====== ====== ======= ====== ====== ====== ====== ======
</TABLE>
The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest revenues and operating
income. This factor, which the Company believes is common in the computer
software industry, typically results in first quarter revenues in any year
being lower than revenues in the immediately preceding fourth quarter. Due to
weakness in the Company's markets in 1999, this seasonal pattern did not
occur; however, it is expected that it will reoccur in the future. In
addition, the Company's European operations generally provide lower revenues
during the summer months as a result of the generally reduced economic
activity in Europe during such time. This seasonal factor could materially
adversely affect third quarter revenues.
11
<PAGE>
The Company has also historically recognized a substantial portion of its
revenues from sales booked and shipped in the last month of a quarter. As a
result, the magnitude of quarterly fluctuations in license fees may not become
evident until late in a particular quarter. If sales forecasted from a
specific customer for a particular quarter are not realized in that quarter,
the Company is unlikely to be able to generate revenues from alternate sources
in time to compensate for the shortfall. As a result, a lost or delayed sale
could have a material adverse effect on the Company's quarterly operating
results. To the extent that significant sales occur earlier than expected,
operating results for subsequent quarters may be adversely affected. The
Company, historically, operated with little backlog because its products are
generally shipped as orders are received. As a result, revenues from license
fees in any quarter are substantially dependent on orders booked and shipped
in that quarter.
Based upon the factors described above, the Company believes that its
quarterly revenues and operating results are likely to vary significantly in
the future, that period-to-period comparison of its results of operations are
not necessarily meaningful and that, as a result, such comparisons should not
be relied upon as indications of future performance. Moreover, there can be no
assurance that the Company's revenues will grow in future periods, at past
rates or at all, or that the Company will be profitable on a quarterly or
annual basis. In future periods, the Company's operating results may be below
the expectations of stock market analysts and investors.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents at October 31, 1999 totaled $24.6 million, a decrease
of $27.8 million when compared to October 31, 1998 cash and equivalents of
$52.4 million. Cash usage was primarily due to operating losses, $14.5 million
of payments related to the Company's 1998 and 1999 restructuring activities
and $9.7 million of total interest paid semi-annually on the Company's
convertible subordinated notes.
Operating cash flows. In 1999 the Company used $49.5 million of cash for
operating activities compared to positive cash generated from operations in
1998 and 1997 of $0.5 million and $9.6 million, respectively. The 1999 use of
cash resulted primarily from the Company's net loss adjusted for net non-cash
charges of $34.5 million, a decrease in accounts payable and other accrued
liabilities of $33.5 million, a decrease in accrued commission and royalties
and accrued compensation and related benefits of $15.0 million, offset by a
decrease in accounts receivable of $35.5 million. The 1998 $0.5 million of
positive operating cash generation was primarily due to a decrease in accounts
receivable of $37.1 million and an increase in accounts payable and other
accrued liabilities of $18.0 million offset by a net loss adjusted for non-
cash charges and credits of $48.7 million. The 1997 $9.6 million of positive
operating cash generation resulted primarily from net income adjusted for non-
cash charges and credits of $48.5 million offset by an increase in accounts
receivable of $42.9 million.
Investing cash flows. Investing activities decreased cash and equivalents
by $1.0 million in 1999, $28.1 million in 1998 and $49.7 million in 1997. The
decrease in cash usage in 1999 and 1998 resulted from a reduction in capital
expenditures as well as a reduction in the amount of software development
costs capitalized. In 1999, the Company sold its minority interest in a German
software company for $3.8 million.
Financing cash flows. Financing activities increased cash and equivalents
$23.0 million in 1999, decreased cash and equivalents in 1998 by $2.1 million,
and increased cash and equivalents in 1997 by $86.5 million. In the fourth
quarter of 1999, the Company closed a $41.0 million loan and security
agreement under which it borrowed $26.0 million. The $26.0 million loan
proceeds plus $ 1.1 million of cash generated from the Company's stock option
and stock purchase plans offset by $1.3 million of dividend payments and $2.8
million of principal payments resulted in the net $23.0 million increase in
1999. In 1998, the Company's $3.4 million of principal payments under
financing obligations plus $1.2 million of dividend payments was offset by
$2.5 million of proceeds from the Company's stock option and stock purchase
plans. In 1997, the Company completed three financing arrangements generating
$160.0 million in cash ($12 million convertible subordinated debt, $10.0
million of redeemable preferred stock, and $138.0 million from a public sale
of convertible debt) offset by the repayment of $72.4 million of existing debt
($46.4 million of Senior Bank Credit Facility and $26.0 million of Senior
Notes ).
12
<PAGE>
On August 11, 1999 the Company closed a $41.0 million loan and security
agreement with a group of lenders headed by Foothill Capital Corporation, a
Wells Fargo Company. The agreement provided for a (i) maximum revolving loan
of $30.0 million which initially included a term loan of $15.0 million ("Term
Loan A"), (ii) a term loan of $8.5 million ("Term Loan B") and (iii) a term
loan of $2.5 million ("Term Loan C"). On December 23, 1999 the Company closed
the first amendment to the agreement, which provided for an additional term
loan of $6.0 million ("Term Loan D"), accelerated the original maturity date
of the loans from August 31, 2002 to June 30, 2000 and amended certain other
provisions of the agreement. On January 28, 2000, the Company entered into a
second amendment to the loan agreement which extended the maturity date of the
loans from June 30, 2000 to November 1, 2000 and amended certain other
provisions of the agreement.
Borrowing availability under the $30.0 million revolving loan, after
netting out Term Loan A, is based primarily on the Company's eligible United
States, Canadian, and United Kingdom accounts receivable balances and may be
limited by certain provisions in the agreement. The rate of interest charged
on the revolving loan is 1% above the Prime Rate of Wells Fargo Bank.
Outstanding letters of credit issued against the revolving loan at October 31,
1999 were $0.2 million.
The Company has received proceeds of $32.0 million from Term Loans A, B, C,
and D, $25.6 million of which was outstanding at October 31, 1999 and $31.6
million of which was outstanding at January 31, 2000. The proceeds were used
to retire the Company's line of credit and to provide working capital for
general corporate purposes. A $1.0 million Term Loan D fee was paid at the
closing of the first amendment, and a $0.3 million amendment fee was added to
the outstanding principal upon execution of the second amendment. A facility
usage fee of 0.5% per month, which is added to the outstanding principal, is
charged on Term Loans A, B, and C as of the first amendment date.
Outstanding principal under Term Loan A (originally $15.0 million; $14.6
million as of October 31, 1999) was repaid monthly beginning October 1, 1999
until the first amendment date. The remaining principal is due at maturity,
November 1, 2000. The rate of interest charged on Term Loan A is 15.0% per
annum, a portion of which may be added to the outstanding principal at the
option of the Company.
Outstanding principal under Term Loan B ($8.5 million), Term Loan C ($2.5
million) and Term Loan D ($6.0 million) is due at maturity, November 1, 2000.
Term Loan C is convertible, at the option of the lender, into common stock of
the Company. The rate of interest charged on Term Loans B, C, and D is 15.0%
per annum, a portion of which may be added to the outstanding principal at the
option of the Company. A maturity fee of $0.9 million is due at maturity.
Other fees that apply to the agreement include an unused line fee and a float
fee based on collections.
The loan agreement is secured by a first priority interest in substantially
all of the Company's assets, including, but not limited to accounts
receivable, general intangibles, and fixed assets.
The loan agreement contains financial covenants including a minimum level
of EBITDA (earnings before interest, taxes, depreciation and amortization) and
a minimum level of recurring services and maintenance revenues. The Company
was unable to maintain compliance with the EBITDA covenant for its quarter
ended October 31, 1999 and received a waiver from October 31, 1999 through and
including January 31, 2000.
OUTLOOK
The Company's primary near-term cash needs consist of operating expenses,
interest expense on its Term Loans, and interest expense on its Public
Convertible Subordinated Notes. The Company's current business plan indicates
that, based upon projected revenues, the Company will generate sufficient cash
from operations, together with cash available under its revolving line of
credit, to pay operating expenses and interest on its Term Loans and Public
Convertible Subordinated Notes when due through the end of fiscal 2000. There
can be no assurance, however, that the Company will generate the revenues
projected in its current business plan, which was developed assuming a rebound
in the market for ERP software and services and the Company's successful
transition to an enterprise application solutions provider, or otherwise
generate or obtain cash sufficient to make the $4.83 million interest payment
on the Convertible Subordinated Notes due on March 15, 2000 and/or pay its
operating expenses on a timely basis.
13
<PAGE>
The Company's loan and security agreement provides for a revolving line of
credit, with borrowing availability based on eligible accounts receivable
balances. However, Foothill Capital Corporation recently notified the Company
that it currently is not permitted to borrow under the revolving line of
credit until certain reporting issues are resolved to Foothill's satisfaction.
Management expects to resolve these reporting issues soon. The Company does
not anticipate a need to utilize the line of credit before mid-March at the
earliest.
The Company's loan and security agreement also requires the Company to
obtain, by March 31, 2000, a letter of intent with respect to a strategic
transaction that is acceptable to the lenders. As previously announced, the
Company has been working since November, 1999 with the firm of Houlihan,
Lokey, Howard and Zukin to identify and explore strategic business
opportunities to address the Company's capital requirements. The process of
soliciting interest in such a transaction is currently underway. The Company
also has begun discussions with significant holders of its Public Convertible
Subordinated Notes about the possibilty of restructuring that debt. There can
be no assurance, however, that the Company will be able to deliver an
acceptable letter of intent to its lenders by March 31, 2000, or that any
strategic transaction or debt restructuring will be completed.
The terms of the Company's Series A Preferred Stock currently provide for
dividends of approximately $300,000 per quarter, with the next dividend
payment date scheduled for February 29, 2000. In December, the Company and the
holders of the Series A Preferred Stock agreed to amend the terms of the
Series A Preferred Stock to allow the Company, with the consent of the
holders, to pay dividends in additional shares of Series A Preferred Stock
instead of cash. The holders agreed to accept additional shares as payment of
the dividend payable on November 30, 1999, and the Company expects that they
will agree to accept additional shares as payment of the dividend payable on
February 29.
The Company's Term Loans, which total approximately $31.6 million as of
January 28, 2000 and are expected to reach approximately $33.4 million by the
end of fiscal 2000, mature on November 1, 2000. The Company's $137.5 million
of Public Convertible Subordinated Notes mature on September 15, 2002. If the
Company is unable to complete a strategic transaction or debt restructuring or
significantly increase its revenues and profitability, it may not have funds
available or be able to refinance these debts as they mature.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative financial instruments and hedging
activities and requires the Company to recognize all derivatives as either
assets or liabilities on the balance sheet and measure them at fair value.
Gains and losses resulting from changes in fair value would be accounted for
based on the use of the derivative and whether it is designated and qualifies
for hedge accounting. The Company will be required to implement SFAS 133 for
its fiscal year 2001. The Company believes that adoption of Statement 133 will
not have a material impact on the Company's financial statements.
ITEM 7A. MARKET RISK
Approximately 60% to 70% of the Company's business is conducted outside the
United States in Europe/Middle East/Africa, Canada, Latin America, and
Asia/Pacific. The majority of business operations are transacted in foreign
currencies except for Latin America where most revenues are invoiced and paid
in U.S. dollars. As a result, the Company has exposure to foreign exchange
fluctuations. The Company is affected by both foreign currency translation and
transaction adjustments. Translation adjustments result from the conversion of
the foreign subsidiaries' balance sheets and income statements to U.S. dollars
at year-end exchange rates and weighted average exchange rates, respectively.
Translation adjustments resulting from this process are recorded directly into
stockholders' equity. Transaction adjustments result from currency exchange
movements when a foreign subsidiary transacts business in a currency that
differs from its local currency. These transactions are recorded as gains or
losses in the Company's income statement.
14
<PAGE>
The Company's foreign exchange exposure is minimized as the majority of the
Company's foreign subsidiaries' business transactions are spread across
approximately 20 different countries and currencies. This geographic diversity
reduces the risk to the Company's operating results. Some foreign exchange
exposure is mitigated as sales are predominately invoiced and paid in foreign
currencies and offset by expenses which are also incurred and paid in the same
currencies. Also, the Company performs periodic reviews of outstanding
balances and settles intercompany accounts to minimize foreign exchange
transaction gains and losses.
The Company has minimal interest rate risk. The Company's $138.0 million
public convertible subordinated notes 7% interest rate and long-term debt 15%
interest rates are fixed and not subject to market fluctuations (see Note 1 of
Notes to Consolidated Financial Statements related to fair value of financial
instruments).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule of the Company are annexed to this
Report as pages F-2 through F-26. An index to such materials appears on page
F-l.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to the directors of the
Company is incorporated by reference from the Company's definitive proxy
statement, expected to be filed with the Commission not later than February
28, 2000. Information regarding executive officers is set forth in Part I of
this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
not later than February 28, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
not later than February 28, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's definitive proxy statement, expected to be filed with the Commission
not later than February 28, 2000.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. The financial statements and schedule filed as part of this report
are listed in the accompanying Index to Financial Statements and Schedule.
The exhibits filed or incorporated by reference as part of this report are
listed in the accompanying Index to Exhibits. The Company will furnish a
copy of any exhibit listed to requesting stockholders upon payment of the
Company's reasonable expenses in furnishing those materials.
b. The Company filed two Form 8-Ks in the fiscal quarter ending October
31, 1999. On September 14, 1999, the Company issued a press release
announcing the appointment of its new Chief Executive Officer and Chairman
of the Board of Directors, Robert R. Carpenter. An 8-K addressing this
press release was filed on September 20, 1999.
An 8-K was filed on September 20, 1999 referencing the Company's August
17,1999 and September 7, 1999 press releases. On August 17, 1999 the
Company issued a press release announcing that the Company's stockholders
voted in favor of the Company's proposal to amend the Certificate of
Incorporation to effect a 1 for 4 reverse stock split and approve the
adoption of a new stock option plan. On September 7, the Company issued a
press release announcing notification that the Nasdaq National Market had
notified the Company on September 2, 1999, that the Company's common stock
would be moved from the NASDAQ Market to the NASDAQ SmallCap Market
effective on September 7, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
System Software Associates, Inc.
/s/ Joseph J. Skadra
-------------------------------------
Joseph J. Skadra
VP Finance and Controller
January 31, 2000
Pursuant to the requirement of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert R. Carpenter Chief Executive Officer and January 31, 2000
____________________________________ Chairman of the Board of
Robert R. Carpenter Directors (Principal
Executive Officer)
/s/ Joseph J. Skadra VP Finance and Controller January 31, 2000
____________________________________ (Principal Financial and
Joseph J. Skadra Accounting Officer)
/s/ Andrew J. Filipowski Director January 31, 2000
____________________________________
Andrew J. Filipowski
/s/ Douglas P. Smith Director January 31, 2000
____________________________________
Douglas P. Smith
Director January 31, 2000
____________________________________
William N. Weaver, Jr.
</TABLE>
17
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
(1)Financial Statements:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of October 31, 1999 and 1998............. F-3
Consolidated Statements of Operations for the years ended October 31,
1999, 1998 and 1997.................................................... F-5
Consolidated Statements of Comprehensive Income for the years ended
October 31, 1999, 1998 and 1997........................................ F-6
Consolidated Statements of Cash Flows for the years ended October 31,
1999, 1998 and 1997.................................................... F-7
Consolidated Statements of Changes in Stockholders' Equity for the years
ended October 31, 1999, 1998 and 1997.................................. F-8
Notes to Consolidated Financial Statements.............................. F-9
(2)Financial Statement Schedule:
The following financial statement schedule is included herein:
Schedule II--Valuation and Qualifying Accounts.......................... F-26
All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
System Software Associates, Inc.
We have audited the accompanying consolidated balance sheets of System
Software Associates, Inc. and subsidiaries as of October 31, 1999 and 1998,
and the related consolidated statements of operations, comprehensive income,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended October 31, 1999. In connection with our audits of the
consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of System
Software Associates, Inc. and subsidiaries as of October 31, 1999 and 1998,
and the results of their operations, and cash flows for each of the years in
the three-year period ended October 31, 1999 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
January 31, 2000
F-2
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
-------------------
ASSETS 1999 1998
------ --------- ---------
(in millions,
except share data)
<S> <C> <C>
Current Assets:
Cash and equivalents...................................... $ 24.6 $ 52.4
Accounts receivable, less allowance for doubtful accounts
of $7.8 and $16.5........................................ 99.1 144.4
Deferred income taxes..................................... 4.4 31.2
Prepaid expenses.......................................... 18.0 23.1
Other current assets...................................... 6.8 4.5
--------- ---------
Total current assets.................................... 152.9 255.6
--------- ---------
Property and Equipment:
Data processing equipment................................. 39.5 41.5
Furniture and office equipment............................ 14.6 16.3
Leasehold improvements.................................... 7.2 8.4
Transportation equipment.................................. 1.8 1.7
--------- ---------
63.1 67.9
Less--Accumulated depreciation and amortization........... 51.0 48.8
--------- ---------
Total property and equipment............................ 12.1 19.1
--------- ---------
Other Assets:
Software costs, less accumulated amortization of $56.5
and $42.9................................................ 30.6 39.5
Cost in excess of net assets of acquired businesses, less
accumulated amortization of $8.9 and $13.0............... 8.1 21.1
Deferred income taxes..................................... 17.6 16.6
Investments in associated companies....................... -- 1.0
Miscellaneous............................................. 8.7 7.9
--------- ---------
Total other assets...................................... 65.0 86.1
--------- ---------
Total Assets.......................................... $ 230.0 $ 360.8
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------------------------------ --------- ---------
(in millions,
except share data)
<S> <C> <C>
Current Liabilities:
Accrued commissions and royalties........................ $ 11.4 $ 20.3
Accounts payable and other accrued liabilities........... 46.1 77.9
Accrued compensation and related benefits................ 14.8 23.1
Deferred revenue......................................... 34.9 44.3
--------- --------
Total current liabilities.............................. 107.2 165.6
--------- --------
Long-Term Obligations:
Long-term debt........................................... 25.6 --
Convertible subordinated notes........................... 137.5 137.3
Other.................................................... 3.9 4.6
--------- --------
Total long-term obligations............................ 167.0 141.9
--------- --------
Deferred Revenue.......................................... 20.3 29.9
--------- --------
Redeemable Series A Preferred Stock, $.01 par value,
convertible, 10,000 shares issued and outstanding
(liquidation preference of $10.0 million)................ 9.1 9.3
--------- --------
Stockholders' Equity:
Preferred stock, $.01 par value, 100,000 shares
authorized, 10,000 shares issued as Series A Preferred
Stock................................................... -- --
Common stock, $.0033 par value, 62,500,000 shares
authorized, 11,995,000 and 11,905,000 shares issued..... -- --
Capital in excess of par value........................... 75.4 72.7
Retained earnings (deficit).............................. (142.4) (52.9)
Accumulated other comprehensive income--cumulative
translation adjustment.................................. (6.6) (5.7)
--------- --------
Total stockholders equity (deficit).................... (73.6) 14.1
Commitments and Contingencies (Note 15)
--------- --------
Total Liabilities and Stockholders' Equity............. $ 230.0 $ 360.8
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended October
31,
-----------------------
1999 1998 1997
------ ------- ------
(in millions, except
per share data)
<S> <C> <C> <C>
Revenues:
License fees........................................ $105.1 $ 215.2 $303.0
Client services and other........................... 210.6 205.6 127.5
------ ------- ------
Total revenues.................................... 315.7 420.8 430.5
------ ------- ------
Costs and Expenses:
Cost of license fees................................ 44.3 73.0 75.3
Cost of client services and other................... 121.2 142.5 98.3
Sales and marketing................................. 62.0 81.4 88.5
Research and development............................ 44.8 60.1 51.7
General and administrative.......................... 74.8 88.4 88.9
Special charges..................................... -- 1.1 4.9
Restructuring and other............................. 20.5 122.5 --
------ ------- ------
Total costs and expenses.......................... 367.6 569.0 407.6
------ ------- ------
Operating income (loss)............................... (51.9) (148.2) 22.9
Non-operating income (expense), net................... (12.1) (9.9) (21.3)
Gain on sale of investment............................ 2.8 -- --
------ ------- ------
Income (loss) before income taxes..................... (61.2) (158.1) 1.6
Provision (benefit) for income taxes.................. 27.0 (29.4) 0.6
------ ------- ------
Net income (loss)..................................... (88.2) (128.7) 1.0
Preferred dividends................................... 1.3 1.3 2.4
------ ------- ------
Net income (loss) available for common stockholders... $(89.5) $(130.0) $ (1.4)
====== ======= ======
Basic and diluted earnings (loss) per share of common
stock................................................ $(7.46) $(11.21) $(0.13)
====== ======= ======
Weighted average common shares outstanding............ 12.0 11.6 10.7
====== ======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended October
31,
----------------------
1999 1998 1997
------ ------- -----
(in millions)
<S> <C> <C> <C>
Net income (loss)...................................... $(88.2) $(128.7) $ 1.0
Change in cumulative translation adjustment............ (0.9) (1.8) (2.7)
------ ------- -----
Comprehensive net income (loss)........................ $(89.1) $(130.5) $(1.7)
====== ======= =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------
1999 1998 1997
------- -------- -------
(in millions)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).................................. $ (88.2) $ (128.7) $ 1.0
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Net assets written off due to restructuring and
other............................................. 16.4 64.4 --
Depreciation and amortization of property and
equipment......................................... 7.8 8.9 9.3
Amortization of other assets....................... 17.3 26.8 40.8
Provision for doubtful accounts.................... 7.4 21.1 3.3
Gain on sale of investment......................... (2.8) -- --
Deferred tax valuation allowance................... 34.0 -- --
Deferred income taxes.............................. (8.2) (33.4) (3.1)
Deferred revenue................................... (18.2) (7.8) (2.8)
Changes in operating assets and liabilities, net of
acquisition:
Accounts receivable.............................. 35.5 37.1 (42.9)
Prepaid expenses................................. 5.1 2.0 (3.3)
Other current assets............................. (5.4) 0.6 1.4
Miscellaneous assets............................. (1.7) (0.7) 5.5
Accrued commissions and royalties................ (8.4) (5.6) (0.2)
Accounts payable and other accrued liabilities... (33.5) 18.0 (1.0)
Accrued compensation and related benefits........ (6.6) (2.2) 1.6
------- -------- ------
Net cash provided by (used in) operating
activities........................................ (49.5) 0.5 9.6
------- -------- ------
Cash Flows From Investing Activities:
(Sales) Purchases of property and equipment, net... -- (2.9) (4.9)
Software costs..................................... (4.8) (23.2) (44.8)
Acquisition, net of cash acquired.................. -- (2.0) --
Proceeds from sale of investment................... 3.8 -- --
------- -------- ------
Net cash flows used in investing activities........ (1.0) (28.1) (49.7)
------- -------- ------
Cash Flows From Financing Activities:
Proceeds from long-term debt....................... 26.0 -- --
Amount borrowed (repaid) under line of credit...... -- -- (46.4)
Repayment of Senior Notes Payable.................. -- -- (26.0)
Proceeds from issuance of convertible subordinated
notes............................................. -- -- 150.0
Proceeds from issuance of Redeemable Series A
Preferred Stock................................... -- -- 10.0
Principal payments under long-term debt............ (0.4) -- --
Principal payments under other financing
obligations....................................... (2.4) (3.4) (2.7)
Proceeds from stock option and stock purchase
plans............................................. 1.1 2.5 1.6
Dividends paid..................................... (1.3) (1.2) --
------- -------- ------
Net cash provided by (used in) financing
activities........................................ 23.0 (2.1) 86.5
------- -------- ------
Effect of exchange rate changes on cash............ (0.3) (1.2) (1.2)
------- -------- ------
Net increase (decrease) in cash and equivalents.... (27.8) (30.9) 45.2
------- -------- ------
Cash and equivalents:
Beginning of year.................................. 52.4 83.3 38.1
------- -------- ------
End of year........................................ $ 24.6 $ 52.4 $ 83.3
======= ======== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in Retained Cumulative Total stockholders'
-------------- excess of earnings translation equity
Shares Amount par value (deficit) adjustment (deficit)
------ ------ ---------- --------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance October 31,
1996................... 42.6 $0.1 $32.8 $ 78.5 $ (1.2) $ 110.2
Retroactive restatement
for 1 for 4 reverse
stock split............ (32.0) (0.1) 0.1
Shares issued upon
exercise of employee
stock options.......... 0.1 1.6 1.6
Tax benefit of stock
options exercised...... 0.5 0.5
Foreign currency
translation adjustment. (2.7) (2.7)
Dividends--Redeemable
Series A Preferred
Stock ($30.00 per
share)................. (0.2) (0.2)
Issuance of warrants.... 2.5 2.5
Beneficial conversion
feature of convertible
subordinated note...... 8.9 8.9
Beneficial conversion
feature of Redeemable
Series A Preferred
Stock.................. 2.2 (2.2) --
Net income.............. 1.0 1.0
----- ---- ----- -------- ------ -------
Balance October 31,
1997................... 10.7 $-- $48.6 $ 77.1 $ (3.9) $ 121.8
----- ---- ----- -------- ------ -------
Shares issued upon
exercise of employee
stock options and
shares issued in
employee stock purchase
plans.................. 0.1 2.5 2.5
Tax benefit of stock
options exercised...... 0.2 0.2
Foreign currency
translation adjustment. (1.8) (1.8)
Dividends--Redeemable
Series A Preferred
Stock ($30.00 per
share)................. (1.3) (1.3)
Issuance of warrants.... 3.5 3.5
Shares issued in
business combination... 0.2 5.9 5.9
Conversion of $12
million private
convertible
subordinated note to
common stock........... 0.9 12.0 12.0
Net loss................ (128.7) (128.7)
----- ---- ----- -------- ------ -------
Balance October 31,
1998................... 11.9 $-- $72.7 $ (52.9) $ (5.7) $ 14.1
----- ---- ----- -------- ------ -------
Shares issued upon
exercise of employee
stock options and
shares issued in
employee stock purchase
plans.................. 0.1 1.1 1.1
Foreign currency
translation adjustment. (0.9) (0.9)
Dividends--Redeemable
Series A Preferred
Stock ($30.00 per
share)................. (1.3) (1.3)
Repricing of warrants... 1.3 1.3
Beneficial conversion
feature of long-term
debt................... 0.3 0.3
Net loss................ (88.2) (88.2)
----- ---- ----- -------- ------ -------
Balance October 31,
1999................... 12.0 $-- $75.4 $ (142.4) $ (6.6) $ (73.6)
===== ==== ===== ======== ====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-8
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--Operations and Significant Accounting Policies:
Nature of operations
System Software Associates, Inc. (the "Company" or "SSA") is a global
systems solution provider and developer of enterprise resource planning
("ERP") software for companies ranging in size from $50 million to
multibillion dollar global 100 corporations. The Company provides customers
with a comprehensive ERP system and services as well as third-party "best of
breed" products that include customer relationship management ("CRM"), supply
chain management ("SCM"), business intelligence ("BI") and E-commerce
solutions, which are designed to address its customers' enterprise application
("EA") requirements. Application software revenues are derived from the
Company's sales of its proprietary ERP software, BPCS (Business Planning and
Control System), one of the most widely implemented ERP systems in the world,
and other third-party software applications. Service revenues are derived by
providing implementation, integration, software modification and
customization, customer-specific application development, training and
consulting services. The Company markets, sells and services its application
solutions on a global basis from its 33 offices as well as through over 100
independent services provider offices (the "Affiliates") located throughout
the world. In conjunction with its "best of breed" strategy, SSA has entered
into a variety of strategic alliances. Selected SSA alliance partners include
i2 Technologies, iWorks, Manugistics, Trilogy Development Corporation,
Business Objects, IBM and Hewlett-Packard.
Principles of consolidation
The consolidated financial statements include the accounts of System
Software Associates, Inc. and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain amounts in the consolidated financial statements have been
reclassified to conform to the 1999 presentation.
Foreign currency translation
The functional currencies for substantially all of the Company's foreign
subsidiaries are their local currencies. The foreign subsidiaries' balance
sheets are translated at the year end rates of exchange and their results of
operations are translated at the weighted average rates of exchange for the
year. Translation adjustments resulting from this process are recorded
directly in stockholders' equity and will be included in the determination of
net income (loss) only upon sale or liquidation of the subsidiaries, which is
not contemplated at this time. Foreign exchange transaction gains (losses)
aggregating $(1.2) million, $2.7 million and $0.6 million are included in
general and administrative expenses for 1999, 1998, and 1997, respectively.
Revenue recognition
American Institute of Certified Public Accountants Statement of Position
97-2, "Software Revenue Recognition" (SOP 97-2) was issued in October 1997 and
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. SOP 97-2 addresses various aspects of the recognition of
revenues on software transactions and supersedes SOP 91-1, the policy
previously followed by the Company. SOP 97-2 provides guidance on software
arrangements consisting of multiple elements, evidence of fair value, delivery
of elements, accounting for service elements, and software arrangements
requiring significant production, modification, or customization of software.
The Company adopted this statement in fiscal year 1999, beginning November 1,
1998. The adoption of this statement has not resulted in a material impact on
the Company's financial statements.
F-9
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues and commissions from software maintenance and HelpLine agreements
are deferred and recognized ratably over the term of the contract. Client
services revenues are recorded when such services are provided. Concentrations
of credit risk with respect to accounts receivable are limited due to a large
customer base and its geographic dispersion.
The principal components of cost of license fees are commissions paid to
independent Affiliates, hardware costs, amortization of capitalized software
costs, warranty costs and royalties paid to third parties. The principal
components of cost of client services and other are salaries paid to the
Company's client services personnel and amounts paid to independent client
services professionals. Accrued Affiliate and salesman commissions are not
paid until the related accounts receivable balances have been collected.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
various methods over the estimated useful lives of the related assets which
range from three to seven years. Leasehold improvements are amortized over the
shorter of the life of the assets or related leases. Gains or losses resulting
from sales or retirements are recorded as incurred, at which time related
costs and accumulated depreciation are removed from the accounts. Maintenance
and repairs are charged to expense as incurred. Depreciation and amortization
of property and equipment was $7.8 million, $8.9 million and $9.3 million in
1999, 1998, and 1997, respectively.
Software costs
Purchased software is capitalized and stated at cost. The Company
capitalizes software development costs in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86. Amortization of capitalized
costs is computed on a straight-line basis using an estimated useful life of
five years or in proportion to current and anticipated revenues, whichever
provides the greater amortization. Capitalized software costs are summarized
as follows:
<TABLE>
<CAPTION>
October 31,
------------
1999 1998
----- -----
(in
millions)
<S> <C> <C>
Purchased software.......................................... $10.6 $10.6
Internally developed software............................... 76.5 71.8
----- -----
87.1 82.4
Less--Accumulated amortization.............................. (56.5) (42.9)
----- -----
Net capitalized software costs.............................. $30.6 $39.5
===== =====
</TABLE>
Amortization of capitalized software costs charged to cost of license fees
aggregated $13.6 million, $22.5 million, and $28.2 million during 1999, 1998,
and 1997, respectively.
Research and development
Research and development expenses, principally the design and development
of software products (exclusive of costs capitalized under SFAS No. 86), are
expensed as incurred.
F-10
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cost in excess of net assets of acquired businesses
The excess of cost over the fair value of the net identifiable assets of
acquired businesses is amortized on a straight-line basis, typically over a
seven-year period. Amortization expense was $2.8 million, $4.1 million and
$3.1 million in 1999, 1998, and 1997, respectively.
Fair value of financial instruments
The fair value of cash and equivalents, receivables, accounts payable and
accrued expenses approximates their carrying values. The fair value of public
convertible subordinated notes using the last Nasdaq quoted market price on
October 25, 1999 is $44.2 million. It was not practical to determine the fair
value of Redeemable Series A Preferred Stock and long-term debt at October 31,
1999 as there are no quoted market prices for these instruments.
Stock-based compensation
The Company utilizes the intrinsic value based method of accounting for its
stock-based compensation agreements.
Earnings per share
During fiscal year 1998, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS No. 128) "Earnings per Share." In
accordance with SFAS 128, basic earnings per share is computed using the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
common shares and dilutive potential common shares outstanding during the
period. Dilutive potential common shares could consist of employee stock
options, warrants or convertible securities using the treasury stock method of
computation. All earnings per share amounts for all periods presented have
been restated to conform to SFAS 128 requirements. The loss per share for
1999, 1998 and 1997 has been computed using only the weighted average number
of shares outstanding.
Shares issuable from securities that could potentially dilute basic
earnings per share in the future that were not included in the computation
earnings per share were as follows:
<TABLE>
<CAPTION>
Year Ended
October 31,
--------------
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Stock options.............................................. 1.0 0.7 0.7
Warrants................................................... 0.9 0.9 0.5
Convertible securities..................................... 3.4 2.1 3.0
--- --- ---
5.3 3.7 4.2
=== === ===
</TABLE>
In August 17, 1999, the Company's stockholders approved a proposal to amend
the Certificate of Incorporation to effect a 1 for 4 reserve stock split of
the Company's outstanding common stock, effective September 2, 1999. All
common stock share and per share data has been restated to reflect the split.
Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
F-11
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statements of cash flows
For purposes of reporting cash flows, the Company considers highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Interest income which is included in the Company's Consolidated
Statements of Operations in non-operating income (expense), net aggregated
$0.8 million, $2.2 million and $1.3 million during 1999, 1998 and 1997,
respectively. Supplemental information is as follows:
<TABLE>
<CAPTION>
Year Ended
October 31,
-----------------
1999 1998 1997
----- ----- -----
(in millions)
<S> <C> <C> <C>
Non-cash investing and financing activities:
Leases capitalized.................................. $ 0.9 $ 0.8 $ 1.7
Repricing of financial advisory and preferred stock
warrants........................................... $ 1.3 $ -- $ --
Shares issued in business combination............... $ -- $ 5.9 $ --
Issuance of common stock purchase warrants.......... $ -- $ 3.5 $ 2.5
Beneficial conversion feature on issuance of long-
term debt.......................................... $ 0.3 $ -- $ --
Beneficial conversion features on issuance of note
and preferred stock................................ $ -- $ -- $11.1
Conversion of private convertible subordinated note. $ -- $12.0 $ --
Cash paid during the period for:
Interest............................................ $10.8 $10.8 $ 8.0
Income taxes........................................ $ 6.0 $ 6.4 $ 2.4
</TABLE>
NOTE 2--Business Combinations:
The Company has periodically expanded its global coverage and strengthened
its product offerings through various acquisitions. These transactions
typically involved the Company acquiring a majority interest or additional
interest in an existing independent Affiliate.
During 1999 and 1997 the Company had no acquisitions. During 1998 the
Company acquired the remaining 81% of SSA Acclaim for $8.0 million resulting
in $7.7 million of goodwill. The Acclaim acquisition was accounted for under
the purchase method and, accordingly, resulted in allocation of the purchase
price to the net assets acquired based upon their estimated fair values as of
the acquisition date. The accompanying consolidated statements of operations
reflect the results of operations of the acquired company since the
acquisition date. Proforma results of operations are not presented as the
acquisition was not significant.
NOTE 3--Investments In Associated Companies:
In the first quarter of 1999, the Company sold its 25% ownership in CS
Controlling Software Systeme for $3.8 million. The sale resulted in a $2.8
million gain which was recorded in the Company's Consolidated Statement of
Operations in gain on sale of investment.
NOTE 4--Restructuring and other charge:
In the third quarter ended July 31, 1999, the Company announced a
restructuring and other charge of $22.8 million. This restructuring was a part
of a series of actions aimed at completing the Company's transition to a
portfolio solutions provider. The charge includes severance, reduction of
office space in the United States and Canada, assets and equipment leases
related to workforce and office space reductions, and a write-down of goodwill
and assets relating to partnerships no longer essential to the Company's new
solutions strategy. The
F-12
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
workforce reduction represents approximately 320 employees or 16% of June 30,
1999 world-wide employees. The realignment and reorganization of the Company
affected all functional areas: field sales, services and support operations,
marketing, research and development and general and administrative.
Restructuring costs incurred in 1999 were $19.1 million. The following table
summarizes the significant components of the restructuring reserve at October
31, 1999.
<TABLE>
<CAPTION>
Restructuring Costs Incurred Balance
and Other Non- Cash at October 31,
Charge Cash Payments Adjustments 1999
------------- ----- -------- ----------- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
Severance and benefits.. $ 1.5 $ -- $1.7 $0.2 $--
Write-down of assets.... 16.0 16.0 -- -- --
Office space............ 3.8 -- 0.4 (0.2) 3.2
Equipment Rent.......... 1.5 -- 1.0 -- 0.5
------ ----- ---- ---- ----
$ 22.8 $16.0 $3.1 $-- $3.7
====== ===== ==== ==== ====
</TABLE>
The company expects to pay $1.5 million of restructuring costs in fiscal
2000 and the remaining $2.2 million in fiscal 2001.
The Company announced a restructuring and other charge of $122.5 million in
the third quarter ended July 31, 1998. The Company decided that it would no
longer add additional functionality or performance to four BPCS application
software versions. The restructuring charge includes a write-down of
capitalized and locally developed software products, a write-down of goodwill
and equipment, certain warranty commitments, a 25% reduction of office space
affecting North America, Latin America, Europe and Asia/Pacific and severance
benefits for approximately 300 employees. The reduction in workforce
represents approximately 12% of June 30, 1998 worldwide employees and affected
all functional areas and employee groups within the Company. The other charge
represents $2.5 million in payments under termination agreements with former
executives of the Company and $0.8 million in future rentals for leased
equipment which would no longer be used as a result of the restructuring plan.
Restructuring costs incurred in 1998 and 1999 totaled $83.5 million and $31.6
million, respectively. The following table summarizes the significant
components of the restructuring reserve at October 31, 1999.
<TABLE>
<CAPTION>
Year ended October 31, 1998 Year ended October 31, 1999
-------------------------------------- ------------------------------------
Restructuring Costs Incurred Costs Incurred
and Other Non- Cash Remaining Non-- Cash Remaining
Charge Cash Payments Balance Cash Payments Adjustments Balance
------------- ----- -------- --------- ----- -------- ----------- ---------
( in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Severance and benefits.. $ 7.6 $ -- $ 5.8 $ 1.8 $ -- $ 0.7 $(1.1) $--
Write-down of assets.... 65.1 64.4 -- 0.7 0.3 -- (0.4) --
Office space............ 11.1 -- 2.7 8.4 -- 2.6 (3.3) 2.5
Warranty................ 35.4 5.2 2.2 28.0 19.9 8.0 2.5 2.6
Other................... 3.3 -- 3.2 0.1 -- 0.1 -- --
------- ----- ----- ----- ----- ----- ----- ----
$ 122.5 $69.6 $13.9 $39.0 $20.2 $11.4 $(2.3) $5.1
======= ===== ===== ===== ===== ===== ===== ====
</TABLE>
Adjustments between categories were made to reflect the Company's current
assessment of the category balances at October 31, 1999. In October 1999, the
Company decreased restructuring and other expense by $2.3 million, adjusting
the remaining restructuring reserve at October 31, 1999 down to balances
expected to be incurred. The Company expects to incur $4.3 million of
restructuring costs in fiscal 2000 and the remaining $0.8 million in fiscal
2001.
F-13
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5--Current Liabilities:
Accrued commissions and royalties and accounts payable and other accrued
liabilities are comprised of the following:
<TABLE>
<CAPTION>
Year Ended
October 31,
-----------
1999 1998
----- -----
(in
millions)
<S> <C> <C>
Accounts payable.............................................. $18.8 $29.7
Accrued commissions........................................... 8.5 18.1
Accrued royalties............................................. 2.9 2.2
Accrued warranty.............................................. 1.9 3.2
Accrued expenses.............................................. 18.9 21.5
Restructuring payable......................................... 4.4 21.3
Other......................................................... 2.1 2.2
----- -----
$57.5 $98.2
===== =====
</TABLE>
NOTE 6--Line of Credit:
On March 25, 1999, the Company secured a $5.0 million committed revolving
line of credit and a $10.0 million uncommitted revolving line of credit.
Borrowings under the agreements bore interest at the prime or LIBOR rate.
During 1999 the Company had borrowed and repaid amounts under the line of
credit agreement and on August 11, 1999 the line of credit was retired with
proceeds from the $41.0 million loan and security agreement (see note 7).
NOTE 7--Long-Term Obligations:
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
October 31,
-------------
1999 1998
------ ------
(in millions)
<S> <C> <C>
Long-term debt............................................. $ 25.6 $ --
Public convertible subordinated notes...................... 137.5 137.3
Restructuring and other payable............................ 8.8 39.0
Obligations under capital leases........................... 2.1 1.7
------ ------
174.0 178.0
Less--Current portions..................................... 7.0 36.1
------ ------
Total long-term obligations............................ $167.0 $141.9
====== ======
</TABLE>
F-14
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term Debt
On August 11, 1999 the Company closed a $41.0 million loan and security
agreement with a group of lenders headed by Foothill Capital Corporation, a
Wells Fargo Company. The agreement provided for (i) a maximum revolving loan
of $30.0 million which initially included a term loan of $15.0 million ("Term
Loan A"), (ii) a term loan of $8.5 million ("Term Loan B") and (iii) a term
loan of $2.5 million ("Term Loan C"). On December 23, 1999 the Company closed
the first amendment to the agreement, which provided for an additional term
loan of $6.0 million ("Term Loan D"), accelerated the original maturity date
of the loans from August 31, 2002 to June 30, 2000 and amended certain other
provisions of the agreement. On January 28, 2000, the Company entered into a
second amendment to the loan agreement which extended the maturity date of the
loans from June 30, 2000 to November 1, 2000 and amended certain other
provisions of the agreement.
Borrowing availability under the $30.0 million revolving loan, after
netting out Term Loan A, is based primarily on the Company's eligible United
States, Canadian, and United Kingdom accounts receivable balances and may be
limited by certain provisions in the agreement. The rate of interest charged
on the revolving loan is 1% above the Prime Rate of Wells Fargo Bank.
Outstanding letters of credit issued against the revolving loan at October 31,
1999 were $0.2 million.
The Company has received proceeds of $32.0 million from Term Loans A, B, C,
and D, $25.6 million of which was outstanding at October 31, 1999 and $31.6
million of which was outstanding at January 31, 2000. The proceeds were used
to retire the Company's line of credit (see Note 6) and to provide working
capital for general corporate purposes. A $1.0 million Term Loan D fee was
paid at the closing of the first amendment, and a $0.3 million amendment fee
was added to the outstanding principal upon execution of the second amendment.
A facility usage fee of 0.5% per month, which is added to the outstanding
principal, is charged on Term Loans A, B, and C as of the first amendment
date.
Outstanding principal under Term Loan A (originally $15.0 million; $14.6
million as of October 31, 1999) was repaid monthly beginning October 1, 1999
until the first amendment date. The remaining principal is due at maturity,
November 1, 2000. The rate of interest charged on Term Loan A is 15.0% per
annum, a portion of which may be added to the outstanding principal at the
option of the Company.
Outstanding principal under Term Loan B ($8.5 million), Term Loan C ($2.5
million) and Term Loan D ($6.0 million) is due at maturity, November 1, 2000.
Term Loan C is convertible, at the option of the lender, into common stock of
the Company. The rate of interest charged on Term Loans B, C, and D is 15.0%
per annum, a portion of which may be added to the outstanding principal at the
option of the Company. A maturity fee of $0.9 million is due at maturity.
Other fees that apply to the agreement include an unused line fee and a float
fee based on collections.
The loan agreement is secured by a first priority interest in substantially
all of the Company's assets, including, but not limited to accounts
receivable, general intangibles, and fixed assets.
The Company's loan and security agreement requires the Company to obtain,
by March 31, 2000, a letter of intent with respect to a strategic transaction
that is acceptable to the lenders. The loan agreement also contains financial
covenants including a minimum level of EBITDA (earnings before interest,
taxes, depreciation and amortization) and a minimum level of recurring
services and maintenance revenues. The Company was unable to maintain
compliance with the EBITDA covenant for its quarter ended October 31, 1999 and
received a waiver from October 31, 1999 through and including January 31,
2000.
Public Convertible Subordinated Notes
On September 12, 1997, the Company issued $138.0 million principal amount
of convertible subordinated notes due September 15, 2002 bearing interest at
7% (the "Public Notes"). Interest is scheduled to be paid March 15 and
September 15 of each year, commencing March 15, 1998. The Public Notes are
subordinated to all existing and future indebtedness of the Company.
F-15
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Public Notes are convertible at the holders' option at any time into
shares of common stock of the Company at $72.24 per share, subject to
adjustments in certain events. The Public Notes are redeemable at the option
of the Company after September 20, 2000 in whole, or in part at any time
(103.5% beginning September 20, 2000 and 101.75% from September 20, 2001 and
thereafter) plus accrued and unpaid interest. In the event that a change in
control occurs, each holder of a Public Note may require the Company to
repurchase all or a portion of such holder's Public Notes at a price equal to
100% of the principal amount thereof plus accrued and unpaid interest to the
purchase date.
Restructuring and Other Payable
At October 31, 1999, the $8.8 million restructuring and other payable
balance represents the unused charges from the 1998 and 1999 restructuring and
other charge. The Company expects to use approximately $5.8 million of the
balance during 2000 and the remaining $3.0 million in 2001. At October 31,
1998, the $39.0 million restructuring and other payable balance represented
the unused charges from the third quarter 1998 restructuring and other charge
(see Note 4).
Capital Lease Obligations
Capital lease obligations represent the present value of future payments
under leases for transportation and data processing equipment. The recorded
cost of these assets aggregated $7.7 million and $6.6 million at October 31,
1999 and 1998, respectively; accumulated amortization thereon aggregated $5.8
million and $4.5 million, respectively. Amortization of assets under capital
leases is included in depreciation and amortization expense.
The following is a schedule of future minimum lease payments under capital
lease obligations, together with the present value of minimum lease payments
at October 31, 1999:
<TABLE>
<CAPTION>
Year Ending October 31, (in millions) Amount
------------------------------------- ------
<S> <C>
2000............................................................... $1.5
2001............................................................... 0.6
2002............................................................... 0.2
----
Total minimum lease payments....................................... 2.3
Less--Amount representing interest................................. 0.2
----
Present value of minimum lease payments............................ 2.1
----
Less--Current maturities........................................... 1.2
----
$0.9
====
</TABLE>
Interest expense which is included in the Company's Consolidated Statements
of Operations in non-operating income (expense), net was $11.7 million, $10.7
million and $9.3 million during 1999, 1998 and 1997, respectively.
NOTE 8--Income Taxes:
Deferred income taxes arise from temporary differences between the income
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements.
Pretax income (loss) from continuing operations was taxed in the following
jurisdictions:
<TABLE>
<CAPTION>
Year Ended October
31,
----------------------
1999 1998 1997
------- ------- ----
(in millions)
<S> <C> <C> <C>
Domestic.......................................... $ (49.0) $(153.0) $4.0
Foreign........................................... (12.2) (5.1) (2.4)
------- ------- ----
$(61.2) $(158.1) $1.6
======= ======= ====
</TABLE>
F-16
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended October
31,
-------------------
1999 1998 1997
----- ------ -----
(in millions)
<S> <C> <C> <C>
Current:
Federal............................................ $ -- $ -- $ 1.6
State.............................................. -- -- --
Foreign............................................ 1.2 4.0 2.1
----- ------ -----
$ 1.2 $ 4.0 $ 3.7
----- ------ -----
Deferred:
Federal............................................ $23.0 $(31.4) $(2.9)
State.............................................. 2.8 (2.0) (0.2)
Foreign............................................ -- -- --
----- ------ -----
25.8 (33.4) (3.1)
----- ------ -----
$27.0 $(29.4) $ 0.6
===== ====== =====
</TABLE>
In addition to taxes incurred on foreign operations, the Company is subject
to and includes foreign taxes on net remittances from foreign Affiliates as a
component in its provision for foreign income taxes. A reconciliation of taxes
based on the federal statutory rate and the Company's actual provision is as
follows:
<TABLE>
<CAPTION>
Year Ended October
31,
--------------------
1999 1998 1997
------ ------ ----
(in millions)
<S> <C> <C> <C>
Income tax at the federal statutory rate............ $(21.4) $(55.4) $0.5
State income taxes, net of federal benefit.......... (0.6) (2.2) 0.2
Foreign operating losses............................ 5.5 5.8 2.9
Research and development tax credit................. -- (0.8) (1.0)
Meals and entertainment............................. 0.3 0.6 0.7
Restructuring expense with no tax benefit........... -- 20.7 --
Net operating loss with no tax benefit.............. 7.3 -- --
Write-down of deferred tax asset.................... 34.0 -- --
Other, net.......................................... 1.9 1.9 (2.7)
------ ------ ----
$27.0 $(29.4) $0.6
====== ====== ====
</TABLE>
F-17
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net deferred tax balance is comprised of (asset) liability:
<TABLE>
<CAPTION>
Year Ended
October 31,
--------------
1999 1998
------ ------
(in millions)
<S> <C> <C>
Revenue (net of commissions) recognized for tax purposes
in advance of financial reporting...................... $ (6.3) $ (6.2)
Capitalization of software costs for financial reporting
purposes............................................... 29.5 32.5
Provision for doubtful accounts......................... (1.4) (4.6)
Rent expense for financial reporting purposes........... (0.6) (0.8)
Expense recognized for financial reporting purposes in
advance of tax......................................... (11.9) (17.1)
Deferred gain........................................... (1.6) (1.6)
Domestic credit carryforwards........................... (1.4) (1.4)
Foreign carryforwards................................... (17.2) (15.6)
Foreign tax credit carryforwards........................ (11.0) (11.0)
Research and development credit carryforwards........... (4.4) (4.4)
Domestic net operating loss carryforwards............... (57.1) (35.5)
Valuation allowance..................................... 64.3 20.7
Other, net.............................................. (2.9) (2.8)
------ ------
$(22.0) $(47.8)
====== ======
</TABLE>
At October 31, 1999, the Company has approximately $43.1 million of foreign
net operating loss carryforwards, $151.5 million of domestic net operating
loss carryforwards, and $11.0 million of foreign tax credit carryforwards and
$5.8 million of domestic tax credit carryforwards. At October 31, 1999 and
October 31, 1998, the Company recorded valuation allowances related to these
items of $64.3 million and $20.7 million, respectively. The Company recognizes
certain deferred tax assets based upon Management's assessment that these
assets will "more likely than not" be recognized in the future in accordance
with SFAS 109, "Accounting for Income Taxes". This assessment is based
primarily on estimates of future operating results.
Of the $43.1 million of foreign net operating loss carryforwards, $15.4
million expire in varying amounts through the fiscal year ending October 31,
2006, and $27.7 million may be carried forward indefinitely. Of the $151.5
million of domestic net operating loss carryforwards, $31.0 million expire on
October 31, 2011, $9.0 million expire on October 31, 2012, $54.1 million
expire on October 31, 2018, and $57.4 million expire on October 31, 2019. The
$11.0 million of foreign tax credit carryforwards expire in varying amounts
through the fiscal year ending on October 31, 2001. Of the $5.8 million of
domestic tax credit carryforwards, $1.4 million expire in varying amounts
through the fiscal year ending on October 31, 2002, and $4.4 million expire in
varying amounts through October 31, 2013.
During 1999, 1998, and 1997 certain employees disposed of shares acquired
through the exercise of stock options that allowed the Company to record
additional compensation expense for tax purposes measured as the difference
between the fair value of the stock and the option price at the date of
exercise. The aggregate tax benefit to the Company of $ 0.0 million, $0.2
million, and $0.5 million, respectively, has been credited to capital in
excess of par value.
NOTE 9--Redeemable Series A Preferred Stock:
On August 29, 1997, the Company issued 10,000 shares of Series A Preferred
Stock and 150,000 common stock purchase warrants to a private investor for
$10.0 million. The shares of Series A Preferred Stock have an initial
liquidation preference of $1,000 per share, increasing to $3,500 per share on
or after the earliest of (i) August 22, 2003, (ii) a change in control and
(iii) certain bankruptcy events (such event, a "Trigger Event")
F-18
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(such liquidation preference as from time to time in effect, the "Liquidation
Price"). The Series A Preferred Stock accrue dividends, payable quarterly in
arrears, at an annual rate of 12% of the Liquidation Price per share, which
increases to 14% of the Liquidation Price per share upon a Trigger Event. The
dividend rate will increase by 4% per annum upon the occurrence and during the
continuance of any payment default or certain other material defaults as
described in the purchase agreement.
The Redeemable Series A Preferred Stock has a beneficial conversion feature
because the fair market value of the Company's stock was in excess of its per
share conversion price at the date of issuance. The value of the beneficial
conversion feature of $2.2 million was recorded in 1997 as an increase to
capital in excess of par value and a decrease to retained earnings (preferred
dividend).
Each share of Series A Preferred Stock is convertible at the holder's
option at any time into 20.1 shares of Common Stock (subject to proportional
and broad-based weighted average anti-dilution).
The Series A Preferred Stock may be redeemed at the option of the holders
thereof at any time (i) on or after August 31, 2003 or (ii) following the
occurrence and continuance of a Redemption Event (as defined below) at a
redemption price equal to the greater of $1,000 per share, plus accrued and
unpaid dividends, or the amount that such holder would have received had such
holder converted the Series A Preferred Stock into Common Stock immediately
prior to the liquidation of the Company. The Series A Preferred Stock may be
redeemed by the Company at any time after the occurrence of a Trigger Event at
a redemption price equal to $3,500 per share, plus accrued and unpaid
dividends.
Upon the occurrence of certain events, including, payment defaults,
covenant defaults in the purchase agreement, cross defaults to acceleration of
other material indebtedness, bankruptcy and a change in control (each, a
"Redemption Event"), the holders of the Series A Preferred Stock may require
the Company to redeem their shares of Series A Preferred Stock at a redemption
price equal to the greater of $1,000 per share, plus accrued and unpaid
dividends or the amount that such holder would have received had such holder
converted the Series A Preferred Stock into Common Stock immediately prior to
the liquidation of the Company.
For so long as at least 2,500 shares of Series A Preferred Stock are
outstanding, the Company must comply with various financial covenants and
restrictions on mergers, consolidations, sales of assets, liens, payment of
dividends and other distributions to, and redemptions of, other classes of
equity and limitations on the issuance of additional debt (other than the
Public Convertible Subordinated Notes, up to $51.0 million (as amended) in
additional senior indebtedness and certain other exceptions).
As a result of the third quarter 1999 and 1998 restructuring and other
charge of $22.8 million and $122.5 million, respectively, the Company did not
comply with the fixed charge coverage ratio and debt to capital ratio
covenants from October 31, 1998 forward. The Company received a waiver from
its preferred stockholder on November 19, 1998, waiving compliance for October
31, 1998, and January 31, 1999. This waiver was extended through July 31,
1999. On August 11, 1999, the preferred stockholder agreement was amended to
replace existing financial covenants with a minimum level of EBITDA (earnings
before interest, taxes, depreciation and amortization) and minimum services
and maintenance revenues. At October 31, 1999, the Company did not meet the
EBITDA financial covenant. The Company obtained a waiver on November 30, 1999.
The Company was in compliance with all other covenants at October 31, 1999. In
addition, the preferred stockholder has agreed to waive compliance with the
EBITDA financial covenant for the Company's fiscal quarter ending January 31,
2000.
F-19
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10--Common Stock Purchase Warrants:
In January 1998, in consideration of certain long-term financial advisory
services, the Company agreed to sell to a financial advisor for a nominal
amount warrants to purchase from the Company up to 331,250 shares of Common
Stock (the "Financial Advisor Warrants"). The Financial Advisor Warrants are
initially exercisable at $38.75 per share, the fair market value at the date
of the issuance and may be exercised at any time or from time to time within a
ten year period, commencing on the warrant issue date. The fair value of the
warrants of $2.8 million was recorded as an increase to capital in excess of
par value and other assets and is being amortized over three years, the term
of the advisory services to be rendered. In August 1999, the Company amended
the common stock purchase warrant agreement to modify the warrant exercise
price. The warrants are now exercisable at $7.20 per share. An additional
value of $0.9 million was recorded as an increase to capital in excess of par
value and other assets and is being amortized over the term of the advisory
services agreement. The fair value of the original warrants of $2.8 million
continues to be amortized over the original three year period.
In January 1998, the Company settled a lawsuit. As part of the settlement
the Company issued warrants to purchase an aggregate of 75,000 shares of the
Company's Common Stock, which warrants are exercisable at $38.75 per share,
the fair market value at the settlement date. The fair value of the warrants
of $0.7 million was recorded as an increase to capital in excess of par value
and a special charge.
On March 4, 1997, the Company issued 193,750 shares of common stock
purchase warrants ("Warrants") as part of amendments to the Company's Line of
Credit and Senior Notes payable agreements. The Warrants are initially
exercisable at $41.28 per share and may be exercised for five years from the
date of issuance. The fair value of the warrants of $0.9 million was recorded
as an increase to capital in excess of par value and other current assets and
was amortized over the term of the amendments.
On August 29, 1997, the Company issued 150,000 shares of common stock
purchase warrants (the "Private Warrants") to a private investor in connection
with the Company's issuance of Redeemable Series A Preferred Stock. Each
holder of a Private Warrant is entitled to purchase shares of Common Stock at
an exercise price equal to $60.50 per share, the fair market value at the date
of issuance of the warrants. The Private Warrants are exercisable at any time
until August 22, 2007. The fair value of the warrants of $0.8 million was
recorded as an increase to capital in excess of par value and a decrease to
Redeemable Series A Preferred Stock which is being accreted as preferred
dividends over six years beginning on the date of issuance. In August 1999,
the Company amended the common stock purchase warrant agreement to modify the
warrant exercise price. The warrants are now exercisable at $7.20 per share.
An additional value of $0.4 million was recorded as an increase to capital in
excess of par value and a decrease to Redeemable Series A Preferred Stock
which is being accreted as preferred dividends over the remaining six years of
the original warrants. The fair value of the original warrants of $0.8 million
continues to be accreted over the original six year period.
In consideration for services performed, during 1997, to arrange the Public
Convertible Subordinated Notes financing, the Company agreed to sell to a
financial advisor for a nominal amount warrants to purchase from the Company
up to 166,113 shares of Common Stock (the "Representative's Warrants"). The
Representative's Warrants are initially exercisable at $72.24 per share and
may be exercised for a period of five years commencing on the first
anniversary of the issuance of such warrants. The fair value of the warrants
of $0.9 million was recorded as an increase to capital in excess of par value
and a decrease to the Public Convertible Subordinated Notes as the warrants
represent the cost of raising capital. The fair value of the warrants is being
accreted as interest expense over five years beginning on the date of
issuance.
The fair value of all warrants (including amended warrants) was calculated
using the Black Scholes valuation model.
F-20
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--Common Stock:
On August 17, 1999, the Company's stockholders approved a proposal to amend
the Certificate of Incorporation to effect a 1 for 4 reverse stock split of
the Company's outstanding common stock, effective September 2, 1999. All
common stock share and per share data has been restated to reflect the split.
NOTE 12--Stock Options:
The Company has certain stock option plans and a long-term incentive plan
under which options to purchase shares of the Company's common stock, stock
appreciation rights, restricted stock, and cash awards may be granted to key
employees and non-employees of the Company and its Affiliates. In August 1999,
the shareholders approved a new stock option plan. The aggregate number of
shares available for grant under the plan are 1,000,000 provided an aggregate
number of common shares granted to one key employee may not exceed 200,000 in
any one calendar year. The shares under the plan are subject to adjustment for
stock splits, stock dividends or other adjustments. In April 1997,
shareholders approved an amendment to the long-term incentive plan, increasing
the aggregate number of common shares to be available for grant to 1,125,000,
from a previous aggregate of 450,000, provided the aggregate number of common
shares which may be granted in any one calendar year, to any one key employee,
shall not exceed 50,000 shares. Options become exercisable in varying periods
and are priced by the Board of Directors, but may not be less than 50% of the
fair market value of the shares at the date of grant. All options granted
during 1999, 1998, and 1997 were granted at fair market value.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Had compensation cost for the
Company's stock option plans been determined consistent with FASB Statement of
Financial Accounting Standards No. 123 ("FAS123"), the Company's net income
(loss) available to common stockholders and earnings (loss) per share of
common stock would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
(in millions except per
share data)
<S> <C> <C> <C> <C>
Net income (loss) available for common
stockholders............................. As Reported $(89.5) $(130.0) $ (1.4)
Pro Forma $(91.0) $(132.2) $ (4.0)
Basic and diluted earnings (loss) per
share of common stock.................... As Reported $(7.46) $(11.21) $(0.13)
Pro Forma $(7.58) $(11.36) $(0.36)
</TABLE>
Under the stock option plans, the exercise price of each option equals the
market price of the Company's common stock on the date of grant. For purposes
of calculating the compensation cost consistent with FAS 123, the fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 1999: risk free interest rate of 5.0%; expected life of 3.0
years; expected volatility of 53%; and no dividends are expected to be paid.
The weighted-average assumptions used in fiscal 1998 are as follows: risk free
interest rate of 5.0%; expected life of 4.5 years; expected volatility of 53%;
and no dividends expected to be paid. The weighted-average assumptions used in
fiscal 1997 are as follows: risk free interest rate of 6.3%; expected life of
5.5 years; expected volatility of 53%; and no dividends expected to be paid.
F-21
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of 1999, 1998 and 1997 stock option activity:
<TABLE>
<CAPTION>
Available Weighted Average
for grant Unexercised Exercisable Exercise Price
--------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance, October 31, 1996.. 106,270 523,107 150,990 $32.16
--------- -------- -------- ------
Authorized................. 675,000
Granted.................... (776,392) 776,392 25.44
Becoming exercisable....... 100,920 17.08
Cancelled.................. 498,824 (498,824) (26,572) 38.68
Exercised.................. (72,674) (72,675) 23.08
--------- -------- -------- ------
Balance, October 31, 1997.. 503,702 728,001 152,663 22.00
--------- -------- -------- ------
Granted.................... (347,378) 347,378 25.32
Becoming exercisable....... 133,425 21.60
Cancelled.................. 253,187 (253,187) (23,026) 24.92
Exercised.................. (81,262) (81,262) 15.88
--------- -------- -------- ------
Balance, October 31, 1998.. 409,511 740,930 181,800 23.36
--------- -------- -------- ------
Granted.................... (751,750) 751,750 12.72
Becoming exercisable....... 233,060 17.99
Cancelled.................. 490,871 (490,871) (106,691) 20.47
Exercised.................. (17,752) (10,259) 18.39
Shares available under new
stock option plan......... 1,000,000 --
--------- -------- -------- ------
Balance, October 31, 1999.. 1,148,632 984,057 297,910 $16.63
========= ======== ======== ======
</TABLE>
The weighted-average fair values of options granted during 1999, 1998 and
1997 are $4.56, $9.20, and $13.84, respectively.
The following table summarizes information about the stock options
outstanding as of October 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------ ---------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number of Life Exercise Number of Exercisable
Range of Exercise Prices Options (Years) Price Options Price
- ------------------------ --------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
$4 to 6................... 275,625 9.8 $ 6 50,000 $ 4
$7 to 19.................. 333,145 7.1 16 170,493 18
$20 to 31................. 324,937 8.9 23 58,467 25
$32 to 60................. 50,350 8.3 40 18,950 39
------- --- --- ------- ---
$4 to 60.................. 984,057 8.5 $17 297,910 $18
======= === === ======= ===
</TABLE>
During 1998 rights under the Company's former stockholder rights plan
expired. On February 1, 1999, the Board of Directors approved the adoption of
a new Stockholder Rights Plan. The plan is designed to deter coercive takeover
tactics and to prevent an acquirer from gaining control of the Company without
offering a fair price to all of the Company's stockholders. The Company
declared a distribution of one right for each share of common stock
outstanding (effected as a stock dividend) to stockholders of record as of
February 12, 1999, and generally to shares issuable under the Company's stock
option plans. Each right entitles the registered holder to purchase from the
Company one share of common stock at a purchase price of $200. Each right is
exercisable ten days after the acquisition of 20% or more of the Company's
voting stock, or the commencement of a tender or exchange offer under which
the offeror would own 30% or more of the Company's stock.
F-22
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the event of a proposed takeover satisfying certain additional
conditions, the rights could be exercised by all holders other than the
takeover bidder at an exercise price of half of the current market price of
the Company's common stock. This would have the effect of significantly
diluting the holdings of the takeover bidder. These rights expire on February
10, 2009.
NOTE 13--Employee Stock Purchase Plans:
On October 1, 1997 the Company established Qualified and Non-Qualified
Employee Stock Purchase Plans ("Stock Purchase Plans") for all eligible U.S.
employees. On April 17, 1998, participation in the Stock Purchase Plan was
extended to all eligible UK employees. During 1999, the Company extended
participation to all eligible Australian and Canadian employees. An aggregate
of 0.5 million shares of the Company's common stock (subject to adjustments
for stock splits, dividends or other relevant changes in the Company's
capitalization) may be sold pursuant to the Stock Purchase Plans. The Stock
Purchase Plans enable employees to purchase, through payroll deductions, the
Company's common stock at a price equal to the lower of 85% of the market
value on the first day of each month or the market value on the purchase date.
During 1999, the Company issued 66,038 shares under this plan.
NOTE 14--Business Segments:
In fiscal 1999, the Company adopted FAS 131, which establishes standards
for reporting information about operating segments and related disclosures
about products and services, geographic information and major customers.
The Company has identified license fees and client services as its
reportable operating segments. The Company does not identify or allocate
depreciation expense, interest income and expense, or taxes to operating
segments. The Other segment column includes corporate expenses which are not
allocated to the reportable segments. Information on reportable segments for
the years ended October 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
License Client
Fees Services Other Total
------- -------- ------- -------
(in millions)
<S> <C> <C> <C> <C>
Year Ended October 31, 1999
Revenues................................... $105.1 $210.6 $ -- $ 315.7
Cost of license fees....................... 44.3 -- -- 44.3
Cost of client services and other.......... -- 121.2 -- 121.2
Sales and marketing........................ 7.5 2.6 51.9 62.0
Research and development................... -- -- 44.8 44.8
General and administrative................. -- -- 74.8 74.8
Other...................................... -- -- 20.5 20.5
Operating income (loss).................... 53.3 86.8 (192.0) (51.9)
Accounts receivable, net................... 49.8 48.5 0.8 99.1
Year Ended October 31, 1998
Revenues................................... $215.2 $205.6 $ -- $ 420.8
Cost of license fees....................... 73.0 -- -- 73.0
Cost of client services and other.......... -- 142.5 -- 142.5
Sales and marketing........................ 16.2 -- 65.2 81.4
Research and development................... -- -- 60.1 60.1
General and administrative................. -- -- 88.4 88.4
Other...................................... -- -- 123.6 123.6
Operating income (loss).................... 126.0 63.1 (337.3) (148.2)
Accounts receivable, net................... 96.1 47.8 0.5 144.4
</TABLE>
F-23
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
License Client
Fees Services Other Total
------- -------- ------- ------
(in millions)
<S> <C> <C> <C> <C>
Year Ended October 31, 1997
Revenues.................................... $303.0 $127.5 $ -- $430.5
Cost of license fees........................ 75.3 -- -- 75.3
Cost of client services and other........... -- 98.3 -- 98.3
Sales and marketing......................... 26.0 -- 62.5 88.5
Research and development.................... -- -- 51.7 51.7
General and administrative.................. -- -- 88.9 88.9
Other....................................... -- -- 4.9 4.9
Operating income (loss)..................... 201.7 29.2 (208.0) 22.9
Accounts receivable, net.................... 164.9 33.4 -- 198.3
</TABLE>
The Company allocates revenue based on the location of the country where
the license is installed or service is delivered. Information as to the
Company's operations in different geographic areas is as follows:
<TABLE>
<CAPTION>
Year Ended October,
-----------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
Long Lived Long Lived Long Lived
Revenues Assets Revenues Assets Revenues Assets
-------- ---------- -------- ---------- -------- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
United States...... $ 89.4 $ 3.2 $129.9 $ 5.8 $148.4 $ 9.5
United Kingdom..... 52.9 2.7 70.9 3.6 32.7 4.3
Rest of world...... 173.4 6.2 220.0 9.7 249.4 11.3
------ ----- ------ ----- ------ -----
$315.7 $12.1 $420.8 $19.1 $430.5 $25.1
====== ===== ====== ===== ====== =====
</TABLE>
No single customer accounted for 10% or more of the consolidated revenues
of the Company in fiscal 1999, 1998 or 1997.
NOTE 15--Commitments and Contingencies:
The Company leases its office space and certain equipment under
noncancelable operating leases that expire at various dates through 2015. Rent
expense under such leases aggregated approximately $20.5 million, $24.4
million, and $28.1 million during 1999, 1998, and 1997, respectively. Minimum
annual rental commitments under noncancelable operating leases for periods
subsequent to October 31, 1999 are as follows: $19.1 million in 2000, $13.7
million in 2001, $10.0 million in 2002, $8.8 million in 2003, $8.0 million in
2004 and $38.7 million in 2005 and thereafter. Annual sublease rental income
commitments for periods subsequent to
October 31, 1999 are as follows: $0.6 million in 2000, $0.4 million in 2001,
$0.4 million in 2002, $0.4 million in 2003, $0.4 million in 2004 and $0.5
million in 2005 and thereafter.
In January 1997, class action lawsuits against the Company and certain of
its officers were filed in state court in Illinois and in the federal court in
Chicago, Illinois. The Company executed a settlement agreement with the class
plaintiffs in the Illinois state court action. The presiding judge in the
Illinois case approved the settlement on September 30, 1997. Certain
individual objectors to the Settlement appealed the fairness of the
settlement. On June 18, 1999, the Illinois Appellate Court affirmed the
settlement of the state court class action. Plaintiffs did not seek leave to
appeal to the Illinois Supreme Court. Accordingly, the state court action has
concluded.
F-24
<PAGE>
SYSTEM SOFTWARE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has filed a motion to dismiss in the Federal action, arguing
that the claims in Federal court have already been settled in state court and
are barred by the doctrine of res judicata. That motion is pending.
The Company has been the subject of an ongoing private investigation being
conducted by the Securities and Exchange Commission ("the Commission"). This
investigation began in October 1995, and primarily relates to revenue
recognition issues. The Staff of the Enforcement Division has advised the
Company that it has tentatively concluded that in 1994 through 1997 the
Company improperly recognized revenue on software contracts for UNIX based
software products, and in 1995 and 1996, the Company improperly recognized
revenue on software reseller contracts, and in so doing violated Securities
Exchange Act of 1934 Section 10(b), Securities Act of 1933 Section 17(a), and
other provisions of the federal securities laws. Although the Company believes
there are meritorious defenses in connection with these issues, the Company,
at this time, is unable to predict the outcome of the investigation or the
discussions between the Company and the Staff or, in the event the Commission
brings a proceeding, the likely outcome or consequences to the Company of the
proceeding. There can be no assurance that any actions taken by the Commission
may not have a material adverse effect on the business, financial condition or
results of operations of the Company.
The Company is also subject to other legal proceedings and claims which
arise in the normal course of business. Although the outcome of these
proceedings cannot be determined with certainty, management believes that the
final outcomes of these proceedings should not have a material adverse effect
on the Company's operations or financial position.
F-25
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in Millions)
<TABLE>
<CAPTION>
Additions Deductions--
Balance at charged write-offs
beginning of to costs and and other Balance at end
period expenses adjustments of period
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts
Year ended October 31,
1999................. $16.5 $ 7.4 $(16.1) $ 7.8
Year ended October 31,
1998................. $16.5 $21.1 $(21.1) $16.5
Year ended October 31,
1997................. $16.5 $ 3.3 $ (3.3) $16.5
Warranty reserve
Year ended October 31,
1999................. $ 3.2 $ -- $ (1.3) $ 1.9
Year ended October 31,
1998................. $ 9.2 $ 7.6 $(13.6) $ 3.2
Year ended October 31,
1997................. $ 8.5 $10.3 $ (9.6) $ 9.2
</TABLE>
F-26
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
3.1 Certificate of Incorporation, as amended to date............. (1)
3.2 Amendment to Certificate of Incorporation, June 6, 1997...... (2)
3.3 By-Laws, as amended to date.................................. (3)
3.4 Certificate of Designations for Series A Preferred Stock..... (2)
3.5 Amendment to Certificate of Incorporation, August 30, 1999... (11)
4.1 Form of Indenture between the Company and Harris Trust and
Savings Bank, as Trustee..................................... (2)
4.2 Form of Note (included in Exhibit 4.1).......................
4.3 Rights Agreement dated February 11, 1999..................... (12)
10.8 Incentive Stock Option Plan.................................. (4)
10.12 Office Lease Northwestern Atrium Center, Chicago, Illinois,
dated July 1, 1987 (the "Chicago Lease")..................... (2)
10.15 Non-Qualified Stock Option Plan.............................. (5)
10.16 SSA Incentive Savings Plan effective May 1, 1986 as amended
and restated November 1, 1988................................ (6)
10.24 Agreement dated August 27, 1990 between the Registrant and
Ameritech Information Systems, Inc. ("Ameritech")............ (7)
10.25 Letter Agreement dated August 27, 1990 among the Registrant,
Ameritech and Northwestern Atrium Center Associates L.P...... (7)
10.31 Long-Term Incentive Plan..................................... (8)
10.45 Amendment to Long Term Incentive Plan........................ (10)
10.46 Agreement dated July 10, 1998 between the Registrant and
Roger Covey.................................................. (14)
10.47 Amendment and Restated Employment Agreement dated October 16,
1998 between the Registrant and William M. Stuek............. (14)
10.49 Loan And Security Agreement By And Among The Registrant, its
Subsidiaries, the Financial Institutions that are identified
therein and Foothill Capital Corporation, as amended
("Foothill Loan Agreement").................................. (13)
10.50 Employment Agreement between the Registrant and Robert R.
Carpenter, dated September 13, 1999..........................
10.51 Settlement Agreement and General Release between the
Registrant and William M. Stuek, dated September 14, 1999....
10.52 Employment Agreement between the Registrant and Charles
Biebighauser dated December 8, 1999..........................
10.53 Employment Agreement between the Registrant and Joseph. J.
Skadra dated August 27, 1998.................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
10.54 Amended and Restated Securities Purchase Agreement between the
Registration and H&Q SSA Investors L.P. ("H&Q Investors
Agreement")................................................... (2)
10.55 Amendment No. 1 to H&Q Investors Agreement.................... (13)
10.56 Amendment No. 2 to H&Q Investors Agreement.................... (13)
10.57 Amendment No. 2 to Foothill Loan Agreement....................
21.1 Subsidiaries of the Registrant................................
23.2 Consent of KPMG LLP, Independent Auditors.....................
27 Financial Data Schedule.......................................
</TABLE>
- --------
(1) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1987.
(2) Incorporated by reference from the Registrant's Form S-3 Registration
Statement effective September 8, 1997 (File No. 333-31271).
(3) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1989.
(4) Incorporated by reference from the Registrant's Form S-1 Registration
Statement effective February 12, 1987 (File No. 33-10920).
(5) Incorporated by reference from the Registrant's Form S-8 Registration
Statement filed on October 4, 1988 (File No. 33-24516).
(6) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1988.
(7) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1990.
(8) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1991.
(9) Incorporated by reference from the Registrant's Form 10-K Annual Report
for the fiscal year ended October 31, 1994.
(10) Incorporated by reference from the Registrant's definitive Proxy
Statement filed on March 13, 1998.
(11) Incorporated by reference from the Registrant's definitive Proxy
Statement filed on July 2, 1999.
(12) Incorporated by reference from the Registrant's Current Report on Form 8-
K filed February 18, 1999.
(13) Incorporated by reference from the Registrant's Current Report on Form 8-
K filed January 7, 2000.
2
<PAGE>
EXHIBIT 10.50
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of the 13th day of September, 1999 (the "Effective Date") by and
between System Software Associates, Inc., a Delaware corporation (the
"Employer"), and Robert R. Carpenter (the "Executive").
RECITALS
--------
A. The Employer desires that the Executive provide services for the benefit
of the Employer and its affiliates and the Executive desires to accept such
employment with the Employer.
B. The Employer and the Executive acknowledge that the Executive will be a
member of the senior management team of the Employer and, as such, will
participate in creating and implementing the Employer's business plan.
C. In the course of employment with the Employer, the Executive will have
access to certain confidential information that relates to or will relate to the
business of the Employer and its affiliates.
D. The Employer desires that any such information not be disclosed to other
parties or otherwise used for unauthorized purposes.
NOW, THEREFORE, in consideration of the above premises and the following
mutual covenants and conditions, the parties agree as follows:
1. Employment. The Employer shall employ the Executive beginning on the
Effective Date. On September 15, 1999, the Employee shall become the Chief
Executive Officer. In addition to the foregoing, the Employer covenants and
agrees that, as soon as reasonably practicable on or after September 15, 1999,
the Executive will be elected as a Director of the Employer and as Chairman of
the Board of Directors (the "Board"). The Executive hereby accepts such
employment on the following terms and conditions.
2. Duties. The Executive shall work for the Employer in a full-time
capacity. The Executive shall have the duties, responsibilities, powers, and
authority customarily associated with the position of Chief Executive Officer
and Chairman of the Board, which duties shall include, but not be limited to,
responsibility for all field-related activities on a worldwide basis, including
all sales, marketing, services and other relationships, as well as
responsibility for the overall financial operations of the Employer and selected
research and development activities of the Employer. The Executive shall report
to, and follow the direction of the Board. In addition to, or in lieu of, the
foregoing, the Executive also shall perform such other and unrelated services
<PAGE>
and duties as may be assigned to him from time to time by the Board consistent
with his position as Chairman of the Board and Chief Executive Officer. The
Executive shall diligently, competently, and faithfully perform all duties, and
shall devote his entire business time, energy, attention, and skill to the
performance of duties for the Employer or its affiliates and will use his best
efforts to promote the interests of the Employer. It shall not be considered a
violation of the foregoing for the Executive (i) to serve on corporate,
industry, civic, religious, or charitable boards or committees, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Employer in accordance with
this Agreement, or (ii) to manage his personal investments or financial affairs.
3. Executive Loyalty. The Executive shall devote all of his time,
attention, knowledge, and skill solely and exclusively to the business and
interests of the Employer, and the Employer shall be entitled to all benefits
and profits arising from or incident to any and all work, services, and advice
of the Executive. The Executive expressly agrees that during the term of this
Agreement, he shall not engage, directly or indirectly, as a partner, officer,
director, stockholder, advisor, agent, employee, or in any other form or
capacity, in any other business similar to that of the Employer. The foregoing
notwithstanding, nothing herein contained shall be deemed to prevent the
Executive from investing his money in the capital stock or other securities of
any corporation whose stock or securities are publicly-owned or are regularly
traded on any public exchange, nor shall anything herein contained be deemed to
prevent the Executive from investing his money in real estate, or to otherwise
manage his personal investments and financial affairs.
4. Term of Employment. Unless sooner terminated as hereinafter provided,
this Agreement shall be entered into for the period commencing on the Effective
Date and ending on September 12, 2003.
5. Compensation.
-- ------------
A. Salary. The Employer shall pay the Executive an annual salary of
$500,000, payable in substantially equal installments in accordance with the
Employer's payroll policy from time to time in effect. The Executive's salary
shall be subject to any payroll or other deductions as may be required to be
made pursuant to law, government order, or by agreement with, or consent of, the
Executive.
B. Guaranteed Bonus. The Employer shall pay the Executive the sum of
$600,000 within fifteen (15) business days of the execution of this Agreement.
If the Executive is terminated for "Cause," as defined in Paragraph 7C, or
terminates his employment for other than "Good Reason," as defined in Paragraph
7D, the Executive shall return to the Employer an amount equal to $320,000,
multiplied by a fraction, with the numerator being equal to six (6) less the
number of full calendar months that the Executive has been employed by the
Employer, and the denominator being equal to six (6).
C. Fiscal Year 2000 Bonus. For the fiscal year ending October 31,
2000, the Executive shall participate in a bonus program, which program shall
provide the Executive with
2
<PAGE>
an opportunity to achieve a targeted bonus of up to $1,000,000. The Executive
shall be entitled to receive fifty percent (50%) of the targeted bonus of
$1,000,000, or $500,000, if the Employer attains a positive Operating Income as
reflected in the Employer's audited financial statements for such fiscal year
(prepared in accordance with the current accounting practices of the Employer).
If the Operating Income of the Employer is at least $1.00 per share based on the
number of shares outstanding as of the date of this Agreement without giving
effect to the options granted hereunder (Operating Income equal to 12.5 million
dollars), the Executive shall receive an additional $500,000, so that, in the
aggregate, his fiscal year 2000 bonus shall be $1,000,000. If the Operating
Income of the Employer is greater than $0 and less than $1.00 per share, the
Executive shall receive a bonus of $5,000 for each $.01 per share (based on the
number of shares outstanding as of the date of this Agreement without giving
effect to the options granted hereunder) in Operating Income. Any bonus earned
hereunder shall be payable on or before December 31, 2000, or, if later, within
ten (10) days of the completion of the audited financial statements for fiscal
year 2000, but in no event later than January 15, 2001 based on the Employer's
year-end unaudited financial statements (if audited financial statements are
unavailable at that time). In the event the number of shares of the Employer's
common stock outstanding as of the date hereof is increased or decreased, the
formula in this Paragraph 5C shall be adjusted proportionately.
D. Incentive Bonus. For all fiscal years subsequent to the fiscal
year ending October 31, 2000, the Executive shall participate in an annual bonus
program, which program shall provide the Executive with an opportunity to
achieve a targeted annual bonus of up to $500,000. The actual terms and
conditions of the annual bonus program shall be established by the Employer,
with input from the Executive, shall be memorialized in a written document to be
prepared by the Employer and which will be incorporated herein by reference, and
will provide for the payment of an annual bonus hereunder if the Employer
achieves specified company-wide objectives and if the Executive achieves
specified personal management objectives. All such objectives shall be agreed
upon by the Executive and the Board prior to the beginning of each fiscal year
of the Employer. Any bonus earned hereunder shall be payable no later than sixty
(60) days following the end of the Employer's fiscal year in which the bonus is
earned.
E. Stock Options. Effective on the date hereof, the Employer shall
grant the Executive an option to purchase one million (1,000,000) shares of the
common stock of the Employer. Fifty thousand (50,000) of such shares shall be
granted in accordance with and pursuant to the terms of the Employer's Long-Term
Incentive Plan. The grant of such stock option has been memorialized in the
Option Agreement attached hereto as Exhibit A. Nine hundred fifty thousand
(950,000) of such shares shall be granted in accordance with and pursuant to the
terms of the Option Agreements attached hereto as Exhibits B and C.
F. Other Benefits. During the term of this Agreement, the Employer
shall:
(1) include the Executive in any life insurance (including, but
not limited to, a term life insurance policy for the Executive, upon
satisfaction of any applicable physical examination, with a death
benefit of $3,000,000 and with the beneficiar(ies) to be designated by
the Executive), disability insurance (including,
3
<PAGE>
but not limited to, a supplemental individual disability policy with
monthly disability payments of $10,000 per month), medical, dental or
health insurance, vacation of twenty-five (25) days per year, savings,
pension and retirement plans and other benefit plans or programs
(including, if applicable, any excess benefit or supplemental
executive retirement plans) maintained by the Employer for the benefit
of its executives; and
(2) include the Executive in such perquisites as the Employer may
establish from time to time that are commensurate with his position
and at least comparable to those received by other executives of the
Employer.
6. Expenses. The Employer shall reimburse the Executive for all
reasonable and approved business expenses, provided the Executive submits paid
receipts or other documentation acceptable to the Employer and as required by
the Internal Revenue Service to qualify as ordinary and necessary business
expenses under the Internal Revenue Code of 1986, as amended (the "Code").
7. Termination. Notwithstanding anything in Paragraph 4 of this Agreement
to the contrary, the Executive's services shall terminate upon the first to
occur of the following events:
A. At the end of the term of this Agreement.
B. Upon the Executive's date of death or the date the Executive is
given written notice that he has been determined to be disabled by the Employer.
For purposes of this Agreement, the Executive shall be deemed to be disabled if
the Executive is absent from his duties with the Employer on a full-time basis
for one-hundred eighty (180) consecutive calendar days, due to mental or
physical illness. A termination of the Executive's employment by the Employer
for disability shall be communicated to the Executive by written notice and
shall be effective on the tenth (10th) calendar day after receipt of such notice
by the Executive, unless the Executive returns to full-time performance of his
duties before such tenth (10th) calendar day.
C. On the date the Employer provides the Executive with written
notice that he is being terminated for "Cause." For purposes of this Agreement,
the Executive shall be deemed terminated for Cause if the Employer terminates
the Executive after the Executive:
(1) shall have been indicted (or the equivalent thereof) for any
felony including, but not limited to, a felony involving fraud, theft,
misappropriation, dishonesty, or embezzlement;
(2) shall have committed intentional acts of gross misconduct
that materially impair the goodwill or business of the Employer or
cause material damage to its property, goodwill, or business; or
(3) shall have willfully refused to, or willfully failed to,
perform his material duties hereunder, provided, however, that no
termination under this
4
<PAGE>
subparagraph (3) shall be effective unless the Executive does not cure
such refusal or failure to the Employer's satisfaction as soon as
practicable after the Employer gives the Executive written notice
identifying such refusal or failure (and, in any event, within thirty
(30) calendar days after receipt of such written notice).
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that his action or omission was in the best
interests of the Employer. A termination of the Executive's employment for Cause
shall be effected in accordance with the following procedures. The Employer
shall give the Executive written notice ("Notice of Termination for Cause") of
its intention to terminate the Executive's employment for Cause, setting forth
in reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the Board Meeting for Cause. The
"Board Meeting for Cause" means a meeting of the Board at which the Executive's
termination for Cause will be considered, that takes place not less than ten
(10) and not more than twenty (20) business days after the Executive receives
the Notice of Termination for Cause. The Executive shall be given an
opportunity, together with counsel, to be heard at the Board Meeting for Cause.
The Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Board Meeting for Cause by a majority vote of
the entire membership of the Board, stating that in the good faith opinion of
the Board, the Executive is guilty of the conduct described in the Notice of
Termination for Cause, and that such conduct constitutes Cause under this
Agreement.
D. On the date the Executive terminates his employment for "Good
Reason." For purposes of this Agreement, "Good Reason" means:
(1) the assignment to the Executive of any duties materially
inconsistent in any respect with Paragraph 2 of this Agreement, or any
other action by the Employer that results in a diminution in the
Executive's position, authority, duties or responsibilities, other
than an isolated, insubstantial and inadvertent action that is not
taken in bad faith and is remedied by the Employer after receipt of
notice thereof from the Executive;
(2) any requirement by the Employer that the Executive's services
be rendered primarily at a location or locations other than within the
greater Chicago metropolitan area and for other than a de minimis
period of time;
(3) any breach of this Agreement by the Employer that is not
remedied by the Employer within five (5) business days after receipt
of notice thereof from the Executive, or as soon thereafter as may be
commercially practicable;
(4) any failure by the Employer to comply with any provision of
Paragraph 5 of this Agreement, other than an isolated, insubstantial
and inadvertent failure that is not taken in bad faith and is remedied
by the Employer promptly after receipt of notice thereof from the
Executive;
5
<PAGE>
(5) any purported termination of the Executive's employment by
the Employer for a reason or in a manner not expressly permitted by
this Agreement;
(6) the resignation by the Executive following a "Change in
Control." A "Change in Control" shall be deemed to occur on the
earliest of (a) the acquisition by any entity, person, or group of
beneficial ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, of more than 50% of the outstanding
capital stock of the Employer entitled to vote for the election of
directors ("Voting Stock"); (b) the completion by any entity, person,
or group (other than the Employer or a subsidiary of the Employer) of
the purchase of more than 50% of the outstanding Voting Stock of the
Employer; (c) the effective time of (1) a merger or consolidation of
the Employer with one or more corporations as a result of which the
holders of the outstanding Voting Stock of the Employer immediately
prior to such merger hold less than 50% of the Voting Stock of the
surviving or resulting corporation, or (2) a transfer of substantially
all of the property or assets of the Employer other than to an entity
of which the Employer owns at least 80% of the Voting Stock; and (d)
the election to the Board, without the recommendation or approval of
the incumbent Board, of directors constituting a majority of the
number of directors of the Employer then in office;
(7) the entry against the Employer of any material, adverse
finding or judgment (either from a financial reputation or other
business perspective), in connection with any lawsuit, arbitration,
regulatory action or investigation by any governmental agency or body
based on any alleged act, omission, cause or thing occurring prior to
the date of this Agreement;
(8) the failure of the Employer to register Shares to be issued
under Section 6 of Exhibits B and C within six (6) months after this
Agreement is executed; or
(9) the failure by the Employer to make provision for, or to
timely pay or deposit, any federal, state or local employment or other
taxes.
A termination of employment by the Executive for Good Reason shall be
effectuated by giving the Employer written notice ("Notice of Termination for
Good Reason") of the termination within three (3) months of the event
constituting Good Reason, setting forth in reasonable detail the specific
conduct of the Employer that constitutes Good Reason and the specific provisions
of this Agreement on which Executive relies. In the event of a termination by
the Executive for Good Reason following a Change in Control, the Executive shall
provide the Employer with written notice within six (6) months of such Change in
Control that he has decided to terminate his employment. A termination of
employment by the Executive for Good Reason shall be effective on the fifth
(5th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than thirty (30) business days after the notice is given).
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E. On the date the Executive terminates his employment for any
reason, other than for the reason set forth in Paragraph 7D, provided that the
Executive shall give the Employer ninety (90) days written notice prior to such
date of his intention to terminate this Agreement.
F. On the date the Employer terminates the Executive's employment for
any reason, other than a reason set forth in Paragraph 7C, provided that the
Employer shall give the Executive ninety (90) days written notice prior to such
date of its intention to terminate this Agreement.
8. Compensation Upon Termination.
A. If the Executive's services are terminated pursuant to Paragraph
7A, 7B, 7C or 7E, the Executive shall be entitled to his salary through his
final date of active employment, plus any accrued but unused vacation pay. The
Executive also shall be entitled to any benefits mandated under the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA) or required under the terms of
any death, insurance, or retirement plan, program, or agreement provided by the
Employer and to which the Executive is a party or in which the Executive is a
participant, including, but not limited to, any short-term or long-term
disability plan or program, if applicable.
B. If the Executive's services are terminated pursuant to Paragraph
7D or 7F, the Executive shall be entitled to his salary through his final date
of active employment, plus any accrued but unused vacation pay. The Executive
also shall be entitled to the present value of his current base salary (as set
forth in Paragraph 5A) for a period of twenty-four (24) months, payable in a
single lump sum within thirty (30) calendar days of such termination (based upon
a five percent (5%) discount rate), provided he signs an agreement that releases
the Employer from actions, suits, claims, proceedings and demands related to the
period of employment and/or the termination of employment (other than for
compensation or indemnification provided under this Agreement). The Executive
also shall be entitled to any benefits mandated under the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA) or required under the terms of any
death, insurance, or retirement plan, program, or agreement provided by the
Employer and to which the Executive is a party or in which the Executive is a
participant.
C. This Paragraph 8 shall not supersede or invalidate any severance
benefit agreement or other benefit plans to which the Executive is a party or in
which the Executive is a participant; provided, however, if a change in control
shall occur (as defined in Section 280G(b)(2)(a)(i) of the Code), and a
determination is made by legislation, regulation, ruling directed to the
Executive or the Employer, or court decision, that the aggregate amount of any
payment made to the Executive hereunder, or pursuant to any plan, program, or
policy of the Employer in connection with, on account of, or as a result of,
such change in control constitutes "excess parachute payments" under the Code
that are subject to the excise tax provisions of Section 4999 of the Code, or
any successor sections thereof, the Executive shall be entitled to receive from
the Employer, in addition to any other amounts payable hereunder, an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all
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<PAGE>
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed thereon) and any excise tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the excise tax
imposed. All determinations required to be made under this Paragraph 8,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a certified public accounting firm designated by
the Employer and reasonably acceptable to the Executive which is one of the five
largest accounting firms in the United States (the "Accounting Firm"), which
shall provide detailed supporting calculations both to the Employer and the
Executive within fifteen (15) business days of the receipt of notice from the
Executive that there has been an excess parachute payment, or such earlier time
as is requested by the Employer. All fees and expenses of the Accounting Firm
shall be borne solely by the Employer. Any Gross-Up Payment, as determined
pursuant to this Paragraph 8 shall be paid by the Employer to the Executive
within five (5) business days of the receipt of the Accounting Firm's
determination. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Employer should have been made ("Underpayment") consistent with the
calculations required to be made hereunder. In the event that the Employer
exhausts its remedies hereunder and the Executive thereafter is required to make
a payment of any excise tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Employer to or for the benefit of the Executive. The Executive shall
notify the Employer in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Employer of the Gross-Up
Payment. Such notification shall be given as soon as practicable but no later
than ten (10) business days after the Executive is informed in writing of such
claim and shall apprise the Employer of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the thirty (30) day period following the date on
which he gives such notice to the Employer (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Employer notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(1) give the Employer any information reasonably requested by the
Employer relating to such claim;
(2) take such action in connection with contesting such claim as the
Employer shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Employer;
(3) cooperate with the Employer in good faith in order effectively to
contest such claim; and
(4) permit the Employer to participate in any proceedings relating to
such claim;
8
<PAGE>
provided, however, that the Employer shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any excise tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provision of
this Paragraph 8C, the Employer shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Employer shall
determine. Notwithstanding anything herein to the contrary, if, after the
receipt by the Executive of an amount advanced by the Employer pursuant to this
Paragraph 8C, the Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Employer's substantial
compliance with the requirements of this Paragraph 8C) promptly pay to the
Employer the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Employer pursuant to Paragraph 8C, a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Employer does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
9. Protective Covenants. The Executive acknowledges and agrees that
solely by virtue of his employment by, and relationship with, the Employer, he
has acquired and will continue to acquire "Confidential Information", as
hereinafter defined, and that, but for his association with the Employer, the
Executive will not have had access to said Confidential Information. In return
for the consideration described in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
as a condition precedent to the Employer entering into this Agreement, and as an
inducement to the Employer to do so, the Executive hereby represents, warrants,
and covenants as follows:
A. The Executive has executed and delivered this Agreement as his
free and voluntary act, after having determined that the provisions contained
herein are of a material benefit to him, and that the duties and obligations
imposed on him hereunder are fair and reasonable and will not prevent him from
earning a comparable livelihood following the termination of his employment with
the Employer;
B. The Executive has read and fully understands the terms and
conditions set forth herein, has had time to reflect on and consider the
benefits and consequences of entering into this Agreement, and has had the
opportunity to review the terms hereof with an attorney or other representative,
if he so chooses;
9
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C. The execution and delivery of this Agreement by the Executive does
not conflict with, or result in a breach of or constitute a default under, any
agreement or contract, whether oral or written, to which the Executive is a
party or by which the Executive may be bound;
D. The Executive agrees that, during the time of his employment and
for a period of six (6) months after the termination of the Executive's
employment hereunder for any reason whatsoever or for no reason, whether
voluntary or involuntary, the Executive will not, except on behalf of the
Employer, solicit, on his own behalf or on behalf of any other person, the
services of any person who is an employee of the Employer, nor solicit any of
the Employer's employees to terminate employment with the Employer, provided,
however, the Executive may hire employees of the Employer who initiated contact
with the Executive and have announced their intent to terminate their employment
with the Employer;
E. The Executive agrees that both during his employment and
thereafter the Executive will not, for any reason whatsoever, use for himself or
disclose to any person not employed by the Employer any "Confidential
Information" of the Employer acquired by the Executive during his relationship
with the Employer. The Executive further agrees to use Confidential Information
solely for the purpose of performing duties with the Employer and further agrees
not to use Confidential Information for his own private use or commercial
purposes or in any way detrimental to the Employer. The Executive agrees that
"Confidential Information" includes but is not limited to: (1) any financial,
business, planning, operations, services, potential services, products,
potential products, technical information and/or know-how, formulas, production,
purchasing, marketing, sales, personnel, customer, broker, supplier, or other
information of the Employer; (2) any papers, data, records, processes, methods,
techniques, systems, models, samples, devices, equipment, compilations,
invoices, customer lists, or documents of the Employer; (3) any confidential
information or trade secrets of any third party provided to the Employer in
confidence or subject to other use or disclosure restrictions or limitations;
and (4) any other information, written, oral, or electronic, whether existing
now or at some time in the future, whether pertaining to current or future
developments, which pertains to the Employer's affairs or interests or with whom
or how the Employer does business. The Employer acknowledges and agrees that
Confidential Information does not include (1) information properly in the public
domain, or (2) information in the Executive's possession prior to the date of
his original employment with the Employer;
F. During and after the term of employment hereunder, the Executive
will not remove from the Employer's premises any documents, records, files,
notebooks, correspondence, computer printouts, computer programs, computer
software, price lists, microfilm, or other similar documents containing
Confidential Information, including copies thereof, whether prepared by him or
others, except as his duty shall require, and in such cases, will promptly
return such items to the Employer. Upon termination of his employment with the
Employer, all such items including summaries or copies thereof, then in the
Executive's possession, shall be returned to the Employer immediately;
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<PAGE>
G. The Executive recognizes and agrees that all ideas, inventions,
enhancements, plans, writings, and other developments or improvements (the
"Inventions") conceived by the Executive, alone or with others, during the term
of his employment, whether or not during working hours, that are within the
scope of the Employer's business operations or that relate to any of the
Employer's work or projects, are the sole and exclusive property of the
Employer. The Executive further agrees that (1) he will promptly disclose all
Inventions to the Employer and hereby assigns to the Employer all present and
future rights he has or may have in those Inventions, including without
limitation those relating to patent, copyright, trademark or trade secrets; and
(2) all of the Inventions eligible under the copyright laws are "work made for
hire." At the request of and without charge to the Employer, the Executive will
do all things deemed by the Employer to be reasonably necessary to perfect title
to the Inventions in the Employer and to assist in obtaining for the Employer
such patents, copyrights or other protection as may be provided under law and
desired by the Employer, including but not limited to executing and signing any
and all relevant applications, assignments or other instruments. Notwithstanding
the foregoing, pursuant to the Employee Patent Act, Illinois Public Act 83-493,
the Employer hereby notifies the Executive that the provisions of this Paragraph
9 shall not apply to any Inventions for which no equipment, supplies, facility
or trade secret information of the Employer was used and which were developed
entirely on the Executive's own time, unless (1) the Invention relates (i) to
the business of the Employer, or (ii) to actual or demonstrably anticipated
research or development of the Employer, or (2) the Invention results from any
work performed by the Executive for the Employer;
H. The Executive acknowledges and agrees that all customer lists,
supplier lists, and customer and supplier information, including, without
limitation, addresses and telephone numbers, are and shall remain the exclusive
property of the Employer, regardless of whether such information was developed,
purchased, acquired, or otherwise obtained by the Employer or the Executive. The
Executive agrees to furnish to the Employer on demand at any time during the
term of this Agreement, and upon termination of this Agreement, his complete
list of the correct names and places of business and telephone numbers of all of
its customers served by him, including all copies thereof wherever located. The
Executive further agrees to immediately notify the Employer of the name and
address of any new customer, and report all changes of a location of old
customers, so that upon the termination of this Agreement, the Employer will
have a complete list of the correct names and addresses of all of its customers
with which the Executive has had dealings. The Executive also agrees to furnish
to the Employer on demand at any time during the term of this Agreement, and
upon the termination of this Agreement, any other records, notes, computer
printouts, computer programs, computer software, price lists, microfilm, or any
other documents related to the Employer's business, including originals and
copies thereof; and
I. It is agreed that any breach or anticipated or threatened breach
of any of the Executive's covenants contained in this Paragraph 9 will result in
irreparable harm and continuing damages to the Employer and its business and
that the Employer's remedy at law for any such breach or anticipated or
threatened breach will be inadequate and, accordingly, in addition to any and
all other remedies that may be available to the Employer at law or in equity in
such event, any court of competent jurisdiction may issue a decree of specific
performance or
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issue a temporary and permanent injunction, without the necessity of the
Employer posting bond or furnishing other security and without proving special
damages or irreparable injury, enjoining and restricting the breach, or
threatened breach, of any such covenant, including, but not limited to, any
injunction restraining the Executive from disclosing, in whole or part, any
Confidential Information. The Executive acknowledges the truthfulness of all
factual statements in this Agreement and agrees that he is estopped from and
will not make any factual statement in any proceeding that is contrary to this
Agreement or any part thereof.
10. Notices. Any and all notices required in connection with this
Agreement shall be deemed adequately given only if in writing and (a) personally
delivered, or sent by first class, registered or certified mail, postage
prepaid, return receipt requested, or by recognized overnight courier, (b) sent
by facsimile, provided a hard copy is mailed on that date to the party for whom
such notices are intended, or (c) sent by other means at least as fast and
reliable as first class mail. A written notice shall be deemed to have been
given to the recipient party on the earlier of (a) the date it shall be
delivered to the address required by this Agreement; (b) the date delivery shall
have been refused at the address required by this Agreement; (c) with respect to
notices sent by mail or overnight courier, the date as of which the Postal
Service or overnight courier, as the case may be, shall have indicated such
notice to be undeliverable at the address required by this Agreement; or (d)
with respect to a facsimile, the date on which the facsimile is sent and receipt
of which is confirmed. Any and all notices referred to in this Agreement, or
which either party desires to give to the other, shall be addressed to his
residence in the case of the Executive, or to its principal office in the case
of the Employer.
11. Waiver of Breach. A waiver by the Employer of a breach of any
provision of this Agreement by the Executive shall not operate or be construed
as a waiver or estoppel of any subsequent breach by the Executive. No waiver
shall be valid unless in writing and signed by an authorized officer of the
Employer.
12. Assignment. The Executive acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Employer under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Employer .
13. Entire Agreement. This Agreement sets forth the entire and final
agreement and understanding of the parties and contains all of the agreements
made between the parties with respect to the subject matter hereof. This
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto, with respect to the subject matter hereof. No change
or modification of this Agreement shall be valid unless in writing and signed by
the Employer and the Executive. If any provision of this Agreement shall be
found invalid or unenforceable for any reason, in whole or in part, then such
provision shall be deemed modified, restricted, or reformulated to the extent
and in the manner necessary to render the same valid and enforceable, or shall
be deemed excised from this Agreement, as the case may require, and this
Agreement shall be construed and enforced to the maximum extent permitted by
law, as if such provision had been originally incorporated herein as so
modified, restricted, or reformulated or as
12
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if such provision had not been originally incorporated herein, as the case may
be. The parties further agree to seek a lawful substitute for any provision
found to be unlawful; provided, that, if the parties are unable to agree upon a
lawful substitute, the parties desire and request that a court or other
authority called upon to decide the enforceability of this Agreement modify
those restrictions in this Agreement that, once modified, will result in an
agreement that is enforceable to the maximum extent permitted by the law in
existence at the time of the requested enforcement.
14. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered a construction of the provisions hereof.
15. Execution of Agreement. This Agreement may be executed in several
counterparts, each of which shall be considered an original, but which when
taken together, shall constitute one agreement.
16. Recitals. The recitals to this Agreement are incorporated herein as
an integral part hereof and shall be considered as substantive and not precatory
language.
17. Fees. The Employer agrees to reimburse the Executive for any
reasonable attorneys' fees or other expenses incurred by the Executive in
connection with the negotiation, preparation and review of this Agreement.
18. Indemnification. To the fullest extent permitted by law, the Employer
agrees to indemnify the Executive against, and to hold the Executive harmless
from any and all claims, lawsuits, losses, damages, assessments, penalties,
expenses, costs and liabilities of any kind or nature, including without
limitation, court costs and attorneys' fees, which the Executive may sustain
directly as a result of, or in connection with, the Employer's breach or
violation of any provision of this Agreement or any other act or omission by
Employer or its employees or any suit or other proceeding brought by a third
party (including but not limited to governmental or regulatory agencies or
bodies) in connection with the foregoing or in connection with any act or
omission of the Executive while he was employed or serves as an officer or
director of the Employer or any affiliate thereof, unless such claim, lawsuit,
loss, damage, assessment, penalty, expense, cost or liability is the result of
the Executive's gross negligence or willful misconduct.
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19. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without reference to its
conflict of law provisions. Any and all disputes arising under this Agreement,
other than a dispute arising under Paragraph 9, initially shall be referred by
the parties hereto to non-binding mediation for resolution. If such mediation is
unsuccessful in resolving the dispute (or in the context of Paragraph 9 hereof),
any court action commenced to enforce this Agreement shall have as its sole and
exclusive venue the County of Cook, Illinois.
IN WITNESS WHEREOF, the parties have set their signatures on the date first
written above.
EMPLOYER: EXECUTIVE:
SYSTEM SOFTWARE ASSOCIATES,
INC.,
a Delaware corporation
/s/ Robert R. Carpenter
--------------------------------------
Robert R. Carpenter
By: /s/ William N. Weaver, Jr.
Its: Director/Assistant Secretary
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EXHIBIT A
---------
SYSTEM SOFTWARE ASSOCIATES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made effective this 13th day of September, 1999 between
System Software Associates, Inc., a Delaware corporation (the "Company"), and
Robert R. Carpenter (the "Optionee").
WHEREAS, the Company desires to grant to the Optionee an option to purchase
shares of its common capital stock (the "Shares") under the Company's Long-Term
Incentive Plan (the "Plan"); and
WHEREAS, the Company and the Optionee understand and agree that any terms
used herein have the same meanings as in the Plan (the Optionee being referred
to in the Plan as a "Participant").
NOW, THEREFORE, in consideration of the following mutual covenants and for
other good and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION
The Company grants to the Optionee the right and Option to purchase all or
any part of an aggregate of 50,000 Shares (the "Option") on the terms and
conditions and subject to all the limitations set forth herein and in the
Plan, which is incorporated herein by reference. The Optionee acknowledges
receipt of a copy of the Plan and acknowledges that the definitive records
pertaining to the grant of this Option, and exercises of rights hereunder,
shall be retained by the Company. The Option granted herein is intended to
be a Nonstatutory Option as defined in the Plan.
2. PURCHASE PRICE
The purchase price of the Shares subject to the Option shall be Four
Dollars ($4.00) per Share, the Fair Market Value of the Shares at the close
of business on September 13, 1999.
3. EXERCISE OF OPTION
Subject to the Plan and this Agreement, the Option shall be exerciseable in
its entirety effective immediately. The Option shall expire on, and shall
be exercised (if at all) prior to the first to occur of:
(a) September 12, 2009;
(b) Ninety (90) days after the date on which the Optionee shall cease, for
any reason or cause whatsoever, and without regard to such reason or
cause (except as set forth in
<PAGE>
(c) and (d) below) to be an employee of, or consultant to, the Company
or any affiliate or subsidiary thereof;
(c) The date the Optionee's employment is terminated, if it is terminated
for "Cause" as that term is defined in the Optionee's Employment
Agreement (the "Employment Agreement") with the Company made and
entered into effective as of the 13th day of September, 1999; or
(d) Twelve months from the date the Optionee's employment is terminated,
if it is terminated pursuant to Paragraph 7B of the Employment
Agreement, in which case the Option, to the extent it is otherwise
exerciseable on the date the Optionee's employment is terminated, may
be exercised by the Optionee or his legal representative or estate
within such twelve month period.
Upon expiration of the Option without it having been duly exercised, the
Option shall be and become null, void, and of no further effect.
4. EXERCISE OF OPTION AND ISSUANCE OF STOCK
The Option may be exercised in whole or in part (to the extent that it is
exerciseable in accordance with its terms) by giving written notice (or any
other approved form of notice) to the Company. Such written notice shall be
signed by the person exercising the Option, shall state the number of
Shares with respect to which the Option is being exercised, shall contain
the warranty, if any, required under the Plan and shall specify a date
(other than a Saturday, Sunday or legal holiday) not less than five (5) nor
more than ten (10) days after the date of such written notice, as the date
on which the Shares will be purchased, at the principal office of the
Company during ordinary business hours, or at such other hour and place
agreed upon by the Company and the person or persons exercising the Option,
and shall otherwise comply with the terms and conditions of this Agreement
and the Plan. On the date specified in such written notice (which date may
be extended by the Company if any law or regulation requires the Company to
take any action with respect to the Shares prior to the issuance thereof),
the Company shall accept payment for the Shares and shall deliver to the
Optionee an appropriate certificate or certificates for the Shares as to
which the Option was exercised.
The Option price of any Shares shall be payable at the time of exercise as
determined by the Company in its sole discretion either:
(a) in cash, by certified check or bank check, or by wire transfer; or
(b) in whole shares of the Company's common stock, provided, however, that
if such shares were acquired pursuant to an incentive stock option
plan (as defined in Code Section 422) of the Company or Affiliate,
then the applicable holding period requirements of said Section 422
have been met with respect to such shares, and, provided further, that
if the Optionee is subject to the reporting requirements of Section 16
of the Securities Exchange Act of 1934, as amended from time to time,
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then, if (i) such shares were granted pursuant to an option, then such
option must have been granted at least six (6) months prior to the
exercise of the Option hereunder, and (ii) such shares were purchased
other than through the grant and exercise of an option, such shares
were owned by the Optionee for more than six (6) months prior to the
exercise of the Option hereunder; or
(c) in any combination of (a) or (b) above.
The fair market value of the stock to be applied toward the purchase price
shall be determined as of the date of exercise of the Option in a manner
consistent with the determination of fair market value with respect to the
grant of an Option under the Plan. Any certificate for shares of
outstanding stock of the Company used to pay the purchase price shall be
accompanied by a stock power duly endorsed in blank by the registered
holder of the certificate, with signature guaranteed in the event the
certificate shall also be accompanied by instructions from the Optionee to
the Company's transfer agent with respect to disposition of the balance of
the shares covered thereby.
The Company shall pay all original issue taxes with respect to the issuance
of Shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith. The holder of this Option
shall have the rights of a stockholder only with respect to those Shares
covered by the Option which have been registered in the holder's name in
the share register of the Company upon the due exercise of the Option.
5. NON-ASSIGNABILITY
This Option shall not be transferable by the Optionee and shall be
exerciseable only by the Optionee, except as the Plan may otherwise
provide.
6. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by registered or certified mail, return receipt
requested, addressed as follows:
To the Company: System Software Associates, Inc.
500 West Madison
Chicago, Illinois 60661
Attn: Long-Term Incentive Plan Award Committee
To the Optionee: Robert R. Carpenter
c/o System Software Associates, Inc.
500 W. Madison St.
Chicago, IL 60661
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With a copy to: David S. Barritt
Chapman and Cutler
111 W. Monroe St.
Chicago, IL 60603
or to such other address or addresses of which notice in the same manner
has previously been given. Any such notice shall be deemed to have been
given when mailed in accordance with the foregoing provisions.
7. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of Illinois.
8. BINDING EFFECT
This Agreement shall (subject to the provisions of Section 5 hereof) be
binding upon the heirs, executors, administrators, successors and assigns
of the parties hereto.
IN WITNESS WHEREOF, the Company and the Optionee have caused this Agreement
to be executed on their behalf, by their duly authorized representatives, all on
the day and year first above written.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ William N. Weaver, Jr.
----------------------------
Its: Director/Assistant Secretary
----------------------------
OPTIONEE
/s/ Robert R. Carpenter
---------------------------
Robert R. Carpenter
4
<PAGE>
EXHIBIT B
---------
SYSTEM SOFTWARE ASSOCIATES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made effective this 13th day of September, 1999 between
System Software Associates, Inc., a Delaware corporation (the "Company"), and
Robert R. Carpenter (the "Optionee").
WHEREAS, in accordance with the terms of that certain Employment Agreement
(the "Employment Agreement") as executed by and between the Company and the
Optionee effective of even date herewith, the Company desires to grant to the
Optionee an option to purchase shares of its common capital stock (the
"Shares"); and
WHEREAS, the grant hereunder shall not be under the Company's Long-Term
Incentive Plan.
NOW, THEREFORE, in consideration of the following mutual covenants and for
other good and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION
The Company grants to the Optionee the right and option to purchase all or
any part of an aggregate of 750,000 Shares (the "Option") on the terms and
conditions and subject to all the limitations set forth herein. The
Optionee acknowledges that the definitive records pertaining to the grant
of this Option, and exercises of rights hereunder, shall be retained by the
Company. The Option granted herein is intended to be a nonstatutory
option.
2. PURCHASE PRICE
The purchase price of the Shares subject to the Option shall be Four
Dollars ($4.00) per Share, the fair market value of the Shares at the close
of business on September 13, 1999.
3. EXERCISE OF OPTION
Subject to this Agreement, the Option shall be exerciseable as follows:
<PAGE>
<TABLE>
<CAPTION>
EXERCISE PERIOD
Vesting Expiration
Number of Shares Date Date
- ---------------- ------------------ ------------------
<C> <S> <C>
150,000 September 13, 1999 September 12, 2009
150,000 September 13, 2000 September 12, 2009
150,000 September 13, 2001 September 12, 2009
150,000 September 13, 2002 September 12, 2009
150,000 September 13, 2003 September 12, 2009
</TABLE>
Notwithstanding anything in this Paragraph 3 to the contrary, the Shares
subject to the Option shall be exercisable, as described below, upon the
following events (if such events occur sooner than the dates set forth
above):
(a) Upon a "Change in Control," as such term is defined in Paragraph 7D(6)
of the Employment Agreement, all Shares not then exercisable shall
immediately become exerciseable and shall be exercisable in accordance
with the terms of the Plan.
(b) (i) Upon the first date that the closing sales price of the Common
Stock as reported on the NASDAQ National Market System shall have been
equal to or in excess of $7.00 per share, as adjusted for stock splits
or stock dividends, for any sixty (60) Trading Days (as defined below)
out of any consecutive ninety (90) calendar days during the period
beginning on September 13, 1999 and ending on September 12, 2003 (the
"Option Acceleration Period"), 300,000 Shares in the aggregate shall
be exerciseable, whether or not they were previously exercisable in
accordance with the Exercise Period set forth above. Such adjustment
to the Exercise Period shall occur only upon the initial attainment of
such sixty-day share price during any ninety (90) consecutive calendar
day period. A "Trading Day" shall be defined as any day on which the
principal national securities exchange or market quotation system on
which the Common Stock is then listed or admitted for trading is open.
(ii) Upon the first date that the closing sales price of the Common
Stock as reported on the NASDAQ National Market System shall have been
equal to or in excess of $15.00 per share, as adjusted for stock
splits or stock dividends, for sixty (60) Trading Days out of any
consecutive ninety (90) calendar days during the Option Acceleration
Period, 450,000 Shares in the aggregate shall be exerciseable, whether
or not they were previously exercisable in accordance with the
Exercise
2
<PAGE>
Period set forth above. Such adjustment to the Exercise Period shall
occur only upon the initial attainment of such sixty-day share price
during any ninety (90) consecutive calendar day period.
(iii) Upon the first date that the closing sales price of the Common
Stock as reported on the NASDAQ National Market Systems shall have
been equal to or in excess of $20.00 per share, as adjusted for stock
splits or stock dividends, for sixty (60) Trading Days out of any
consecutive ninety (90) calendar days during the Option Acceleration
Period, 600,000 Shares in the aggregate shall be exercisable, whether
or not they were previously exercisable in accordance with the
Exercise Period set forth above. Such adjustment to the Exercise
Period shall occur only upon the initial attainment of such sixty-day
share price during any ninety (90) consecutive calendar day period.
(iv) Upon the first date that the closing sales price of the Common
Stock as reported on the NASDAQ National Market Systems shall have
been equal to or in excess of $25.00 per share, as adjusted for stock
splits or stock dividends, for sixty (60) Trading Days out of any
consecutive ninety (90) calendar days during the Option Acceleration
Period, the remaining Shares of the Option, if otherwise unexercisable
at such time, shall become exerciseable.
Except as set forth in subparagraph 3(a) above in the event of a Change in
Control, any Option, to the extent not yet vested in accordance with the
Exercise Period set forth above, shall expire on the date the Optionee's
employment is terminated. Any Option that is vested in accordance with the
Exercise Period set forth above shall expire on, and shall be exercised (if
at all) prior to the first to occur of:
(a) September 12, 2009;
(b) Ninety (90) days after the date on which the Optionee shall cease, for
any reason or cause whatsoever, and without regard to such reason or
cause (except as set forth in (c) and (d) below) to be an employee
of, or consultant to, the Company or any affiliate or subsidiary
thereof;
(c) The date the Optionee's employment is terminated, if it is terminated
for "Cause" as that term is defined in the Employment Agreement; or
(d) Twelve months from the date the Optionee's employment is terminated,
if it is terminated pursuant to Paragraph 7B of the Employment
Agreement, in which case the Option, to the extent it is otherwise
exerciseable on the date the Optionee's employment is terminated, may
be exercised by the Optionee or his legal representative or estate
within such twelve month period.
Upon expiration of the Option without it having been duly exercised, the
Option shall be and become null, void, and of no further effect.
3
<PAGE>
4. EXERCISE OF OPTION AND ISSUANCE OF STOCK
The Option may be exercised in whole or in part (to the extent that it is
exerciseable in accordance with its terms) by giving written notice (or any
other approved form of notice) to the Company. Such written notice shall
be signed by the person exercising the Option, shall state the number of
Shares with respect to which the Option is being exercised, and shall
specify a date (other than a Saturday, Sunday or legal holiday) not less
than five (5) nor more than ten (10) days after the date of such written
notice, as the date on which the Shares will be purchased, at the principal
office of the Company during ordinary business hours, or at such other hour
and place agreed upon by the Company and the person or persons exercising
the Option, and shall otherwise comply with the terms and conditions of
this Agreement. On the date specified in such written notice (which date
may be extended by the Company if any law or regulation requires the
Company to take any action with respect to the Shares prior to the issuance
thereof), the Company shall accept payment for the Shares and shall deliver
to the Optionee an appropriate certificate or certificates for the Shares
as to which the Option was exercised.
The Option price of any Shares shall be payable at the time of exercise as
determined by the Company in its sole discretion either:
(a) in cash, by certified check or bank check, or by wire transfer; or
(b) in whole shares of the Company's common stock, provided, however, that
if such shares were acquired pursuant to an incentive stock option
plan (as defined in Code Section 422) of the Company or Affiliate,
then the applicable holding period requirements of said Section 422
have been met with respect to such shares, and, provided further, that
if the Optionee is subject to the reporting requirements of Section 16
of the Securities Exchange Act of 1934, as amended from time to time,
then, if (i) such shares were granted pursuant to an option, then such
option must have been granted at least six (6) months prior to the
exercise of the Option hereunder, and (ii) such shares were purchased
other than through the grant and exercise of an option, such shares
were owned by the Optionee for more than six (6) months prior to the
exercise of the Option hereunder; or
(c) in any combination of (a) or (b) above.
The fair market value of the stock to be applied toward the purchase price
shall be determined as of the date of exercise of the Option. Any
certificate for shares of outstanding stock of the Company used to pay the
purchase price shall be accompanied by a stock power duly endorsed in blank
by the registered holder of the certificate, with signature guaranteed in
the event the certificate shall also be accompanied by instructions from
the Optionee to the Company's transfer agent with respect to disposition of
the balance of the shares covered thereby.
The Company shall pay all original issue taxes with respect to the issuance
of Shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in
4
<PAGE>
connection therewith. The holder of this Option shall have the rights of a
stockholder only with respect to those Shares covered by the Option which
have been registered in the holder's name in the share register of the
Company upon the due exercise of the Option.
5. REPRESENTATIONS AND COVENANTS OF THE OPTIONEE
In connection with the grant of the Option hereunder, the Optionee
represents and warrants to the Company that:
(a) The Shares subject to the Option under this Agreement shall be
acquired for the Optionee's own account and not with a view to, or
present intention of, distribution in violation of the Securities Act
of 1933 (the "1933 Act") or any applicable state securities laws, and
the Shares will not be disposed of in contravention of the 1933 Act or
any applicable state securities laws.
(b) The Optionee is sophisticated in financial matters and is able to
evaluate the risks and benefits of the Option and the Shares.
(c) The Optionee acknowledges that he is able to bear the economic risk of
the exercise of the Option for an indefinite period of time, because
the Shares have not been registered under the 1933 Act and, therefore,
cannot be resold unless subsequently registered under the 1933 Act or
an exemption from such registration is available.
(d) The Optionee has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the grant of the Option
and has had full access to such information concerning the Company as
he has requested.
(e) The Optionee has the full right, power and authority to execute and
deliver this Agreement and to perform his obligations hereunder. This
Agreement constitutes the valid and legally binding obligations of the
Optionee enforceable against him in accordance with its terms, except
as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting the
enforcement of creditors' rights generally, now or hereafter in effect
and subject to the application of equitable principles and the
availability of equitable remedies.
(f) The Optionee is not a party to, subject to or bound by any agreement
or any judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body which would prevent the execution or
delivery of this Agreement by him or the consummation of the
transactions contemplated hereby.
6. REGISTRATION
The Optionee understands that the Shares are not currently being registered
under the 1933 Act by reason of their contemplated issuance in a
transaction exempt from the registration and prospectus delivery
requirements of the 1933 Act pursuant to Section 4(2) thereof. The
5
<PAGE>
Optionee further agrees that he will not sell or otherwise dispose of the
Shares unless such sale or other disposition has been registered or is
exempt from registration under the 1933 Act and has been registered or
qualified or is exempt from registration or qualification under applicable
securities laws of any state. The Optionee understands that a restrictive
legend consistent with the foregoing, and as set forth in Paragraph 8, will
be placed on the certificates evidencing the Shares, and related stop
transfer instructions will be noted in the stock transfer records of the
Company and/or its stock transfer agent for the Shares. The foregoing
notwithstanding, the Company agrees that it will use all reasonable efforts
to cause a registration of the Shares obtained by the Optionee through the
exercise of all or any portion of the Option to be declared effective
within two (2) months after the date of this Agreement.
7. WITHHOLDING
The Company shall have the power and right to deduct or withhold, or
require the Optionee to remit to the Company, an amount sufficient to
satisfy federal, state, and local taxes required by law to be withheld with
respect to any grant made under or as a result of this Agreement. In the
alternative, upon any taxable event hereunder, the Optionee may elect,
subject to Company approval, to satisfy the withholding requirement in
whole or in part, by having the Company withhold Shares that would
otherwise be transferred to the Optionee having a fair market value, on the
date the tax is to be determined, equal to the minimum marginal tax that
could be imposed on the transaction. All elections shall be made in
writing and signed by the Optionee.
8. LEGEND
The Optionee shall be bound by the provisions of the following legend (or
similar legend) which shall be endorsed upon the certificate(s) evidencing
the Shares issued pursuant to the grant of the Option hereunder.
"The shares represented by this certificate have been acquired for
investment and they may not be sold or otherwise transferred by any
person in the absence of an effective registration statement for the
shares under the Securities Act of 1933 or an opinion of counsel
satisfactory to the Company that an exemption from registration is
then available."
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the outstanding Shares of the Company are changed into or
exchanged for a different number or kind of shares or other securities of
the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, change in par
value, stock split-up, combination of shares or dividends payable in
capital stock, or the like, appropriate adjustments to prevent dilution or
enlargement of the Shares granted to, or available for, the Optionee shall
be made in the manner and kind of Shares granted hereunder.
6
<PAGE>
10. NON-ASSIGNABILITY
This Option shall not be transferable by the Optionee and shall be
exerciseable only by the Optionee, except as the Board of Directors may
otherwise provide.
11. NOTICES
Any notices required or permitted by the terms of this Agreement shall be
given by registered or certified mail, return receipt requested, addressed
as follows:
To the Company: System Software Associates, Inc.
500 West Madison
Chicago, Illinois 60661
Attn: Board of Directors
To the Optionee: Robert R. Carpenter
c/o System Software Associates, Inc.
500 W. Madison St.
Chicago, IL 60661
With a copy to: David S. Barritt
Chapman and Cutler
111 W. Monroe St.
Chicago, IL 60603
or to such other address or addresses of which notice in the same manner
has previously been given. Any such notice shall be deemed to have been
given when mailed in accordance with the foregoing provisions.
12. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of Illinois.
7
<PAGE>
13. BINDING EFFECT
This Agreement shall (subject to the provisions of Section 10 hereof) be
binding upon the heirs, executors, administrators, successors and assigns
of the parties hereto.
IN WITNESS WHEREOF, the Company and the Optionee have caused this Agreement
to be executed on their behalf, by their duly authorized representatives, all on
the day and year first above written.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ William N. Weaver, Jr.
------------------------------------
Its: Director/Assistant Secretary
-----------------------------------
OPTIONEE
/s/ Robert R. Carpenter
-----------------------------
Robert R. Carpenter
8
<PAGE>
EXHIBIT C
---------
SYSTEM SOFTWARE ASSOCIATES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made effective this 13th day of September, 1999 between
System Software Associates, Inc., a Delaware corporation (the "Company"), and
Robert R. Carpenter (the "Optionee").
WHEREAS, in accordance with the terms of that certain Employment Agreement
(the "Employment Agreement") as executed by and between the Company and the
Optionee effective of even date herewith, the Company desires to grant to the
Optionee an option to purchase shares of its common capital stock (the
"Shares"); and
WHEREAS, the grant hereunder shall not be under the Company's Long-Term
Incentive Plan.
NOW, THEREFORE, in consideration of the following mutual covenants and for
other good and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION
The Company grants to the Optionee the right and option to purchase all or
any part of an aggregate of 200,000 Shares (the "Option") on the terms and
conditions and subject to all the limitations set forth herein. The
Optionee acknowledges that the definitive records pertaining to the grant
of this Option, and exercises of rights hereunder, shall be retained by the
Company. The Option granted herein is intended to be a nonstatutory
option.
2. PURCHASE PRICE
The purchase price of the Shares subject to the Option shall be Ten Dollars
($10.00) per Share.
3. EXERCISE OF OPTION
Subject to this Agreement, the Option shall be exerciseable as follows:
<TABLE>
<CAPTION>
EXERCISE PERIOD
Vesting Expiration
Number of Shares Date Date
- ---------------- ------------------ ------------------
<S> <C> <C>
200,000 September 13, 2003 September 12, 2009
</TABLE>
<PAGE>
Notwithstanding anything in this Paragraph 3 to the contrary, the Shares
subject to the Option shall be exercisable, as described below, upon the
following events:
(a) Upon a "Change in Control," as such term is defined in Paragraph 7D(6)
of the Employment Agreement, all Shares not then exercisable shall
immediately become exerciseable and shall be exercisable in accordance
with the terms of the Plan.
(b) Upon the first date that the closing sales price of the Common Stock
as reported on the NASDAQ National Market System shall have been equal
to or in excess of $40.00 per share, as adjusted for stock splits or
stock dividends, for any sixty (60) Trading Days (as defined below)
out of any consecutive ninety (90) calendar days during the period
beginning on September 13, 1999 and ending on September 12, 2003 (the
"Option Acceleration Period"), all Shares subject to the option shall
be exerciseable, whether or not they were previously exercisable in
accordance with the Exercise Period set forth above. Such adjustment
to the Exercise Period shall occur only upon the initial attainment of
such sixty-day share price during any ninety (90) consecutive calendar
day period. A "Trading Day" shall be defined as any day on which the
principal national securities exchange or market quotation system on
which the Common Stock is then listed or admitted for trading is open.
Except as set forth in subparagraph 3(a) above in the event of a Change in
Control, the Option shall expire on, and shall be exercised (if at all)
prior to the first to occur of:
(a) September 12, 2009;
(b) Ninety (90) days after the date on which the Optionee shall cease, for
any reason or cause whatsoever, and without regard to such reason or
cause (except as set forth in (c) and (d) below) to be an employee
of, or consultant to, the Company or any affiliate or subsidiary
thereof;
(c) The date the Optionee's employment is terminated, if it is terminated
for "Cause" as that term is defined in the Employment Agreement; or
(d) Twelve months from the date the Optionee's employment is terminated,
if it is terminated pursuant to Paragraph 7B of the Employment
Agreement, in which case the Option, to the extent it is otherwise
exerciseable on the date the Optionee's employment is terminated, may
be exercised by the Optionee or his legal representative or estate
within such twelve month period.
Upon expiration of the Option without it having been duly exercised, the
Option shall be and become null, void, and of no further effect.
4. EXERCISE OF OPTION AND ISSUANCE OF STOCK
The Option may be exercised in whole or in part (to the extent that it is
exerciseable in accordance with its terms) by giving written notice (or any
other approved form of notice)
2
<PAGE>
to the Company. Such written notice shall be signed by the person
exercising the Option, shall state the number of Shares with respect to
which the Option is being exercised, and shall specify a date (other than a
Saturday, Sunday or legal holiday) not less than five (5) nor more than ten
(10) days after the date of such written notice, as the date on which the
Shares will be purchased, at the principal office of the Company during
ordinary business hours, or at such other hour and place agreed upon by the
Company and the person or persons exercising the Option, and shall
otherwise comply with the terms and conditions of this Agreement. On the
date specified in such written notice (which date may be extended by the
Company if any law or regulation requires the Company to take any action
with respect to the Shares prior to the issuance thereof), the Company
shall accept payment for the Shares and shall deliver to the Optionee an
appropriate certificate or certificates for the Shares as to which the
Option was exercised.
The Option price of any Shares shall be payable at the time of exercise as
determined by the Company in its sole discretion either:
(a) in cash, by certified check or bank check, or by wire transfer; or
(b) in whole shares of the Company's common stock, provided, however, that
if such shares were acquired pursuant to an incentive stock option
plan (as defined in Code Section 422) of the Company or Affiliate,
then the applicable holding period requirements of said Section 422
have been met with respect to such shares, and, provided further, that
if the Optionee is subject to the reporting requirements of Section 16
of the Securities Exchange Act of 1934, as amended from time to time,
then, if (i) such shares were granted pursuant to an option, then such
option must have been granted at least six (6) months prior to the
exercise of the Option hereunder, and (ii) such shares were purchased
other than through the grant and exercise of an option, such shares
were owned by the Optionee for more than six (6) months prior to the
exercise of the Option hereunder; or
(c) in any combination of (a) or (b) above.
The fair market value of the stock to be applied toward the purchase price
shall be determined as of the date of exercise of the Option. Any
certificate for shares of outstanding stock of the Company used to pay the
purchase price shall be accompanied by a stock power duly endorsed in blank
by the registered holder of the certificate, with signature guaranteed in
the event the certificate shall also be accompanied by instructions from
the Optionee to the Company's transfer agent with respect to disposition of
the balance of the shares covered thereby.
The Company shall pay all original issue taxes with respect to the issuance
of Shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith. The holder of this Option
shall have the rights of a stockholder only with respect to those Shares
covered by the Option which have been registered in the holder's name in
the share register of the Company upon the due exercise of the Option.
3
<PAGE>
5. REPRESENTATIONS AND COVENANTS OF THE OPTIONEE
In connection with the grant of the Option hereunder, the Optionee
represents and warrants to the Company that:
(a) The Shares subject to the Option under this Agreement shall be
acquired for the Optionee's own account and not with a view to, or
present intention of, distribution in violation of the Securities Act
of 1933 (the "1933 Act") or any applicable state securities laws, and
the Shares will not be disposed of in contravention of the 1933 Act or
any applicable state securities laws.
(b) The Optionee is sophisticated in financial matters and is able to
evaluate the risks and benefits of the Option and the Shares.
(c) The Optionee acknowledges that he is able to bear the economic risk of
the exercise of the Option for an indefinite period of time, because
the Shares have not been registered under the 1933 Act and, therefore,
cannot be resold unless subsequently registered under the 1933 Act or
an exemption from such registration is available.
(d) The Optionee has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the grant of the Option
and has had full access to such information concerning the Company as
he has requested.
(e) The Optionee has the full right, power and authority to execute and
deliver this Agreement and to perform his obligations hereunder. This
Agreement constitutes the valid and legally binding obligations of the
Optionee enforceable against him in accordance with its terms, except
as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting the
enforcement of creditors' rights generally, now or hereafter in effect
and subject to the application of equitable principles and the
availability of equitable remedies.
(f) The Optionee is not a party to, subject to or bound by any agreement
or any judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body which would prevent the execution or
delivery of this Agreement by him or the consummation of the
transactions contemplated hereby.
6. REGISTRATION
The Optionee understands that the Shares are not currently being registered
under the 1933 Act by reason of their contemplated issuance in a
transaction exempt from the registration and prospectus delivery
requirements of the 1933 Act pursuant to Section 4(2) thereof. The
Optionee further agrees that he will not sell or otherwise dispose of the
Shares unless such sale or other disposition has been registered or is
exempt from registration under the 1933 Act and has been registered or
qualified or is exempt from registration or qualification under applicable
securities laws of any state. The Optionee understands that a restrictive
4
<PAGE>
legend consistent with the foregoing, and as set forth in Paragraph 8, will
be placed on the certificates evidencing the Shares, and related stop
transfer instructions will be noted in the stock transfer records of the
Company and/or its stock transfer agent for the Shares. The foregoing
notwithstanding, the Company agrees that it will use all reasonable efforts
to cause a registration of the Shares obtained by the Optionee through the
exercise of all or any portion of the Option to be declared effective
within two (2) months after the date of this Agreement.
7. WITHHOLDING
The Company shall have the power and right to deduct or withhold, or
require the Optionee to remit to the Company, an amount sufficient to
satisfy federal, state, and local taxes required by law to be withheld with
respect to any grant made under or as a result of this Agreement. In the
alternative, upon any taxable event hereunder, the Optionee may elect,
subject to Company approval, to satisfy the withholding requirement in
whole or in part, by having the Company withhold Shares that would
otherwise be transferred to the Optionee having a fair market value, on the
date the tax is to be determined, equal to the minimum marginal tax that
could be imposed on the transaction. All elections shall be made in
writing and signed by the Optionee.
8. LEGEND
The Optionee shall be bound by the provisions of the following legend (or
similar legend) which shall be endorsed upon the certificate(s) evidencing
the Shares issued pursuant to the grant of the Option hereunder.
"The shares represented by this certificate have been acquired for
investment and they may not be sold or otherwise transferred by any
person in the absence of an effective registration statement for the
shares under the Securities Act of 1933 or an opinion of counsel
satisfactory to the Company that an exemption from registration is
then available."
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event that the outstanding Shares of the Company are changed into or
exchanged for a different number or kind of shares or other securities of
the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, change in par
value, stock split-up, combination of shares or dividends payable in
capital stock, or the like, appropriate adjustments to prevent dilution or
enlargement of the Shares granted to, or available for, the Optionee shall
be made in the manner and kind of Shares granted hereunder.
10. NON-ASSIGNABILITY
This Option shall not be transferable by the Optionee and shall be
exerciseable only by the Optionee, except as the Board of Directors may
otherwise provide.
5
<PAGE>
11. NOTICES
Any notices required or permitted by the terms of this Agreement shall be
given by registered or certified mail, return receipt requested, addressed
as follows:
To the Company: System Software Associates, Inc.
500 West Madison
Chicago, Illinois 60661
Attn: Board of Directors
To the Optionee: Robert R. Carpenter
c/o System Software Associates, Inc.
500 W. Madison St.
Chicago, IL 60661
With a copy to: David S. Barritt
Chapman and Cutler
111 W. Monroe St.
Chicago, IL 60603
or to such other address or addresses of which notice in the same manner
has previously been given. Any such notice shall be deemed to have been
given when mailed in accordance with the foregoing provisions.
12. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of Illinois.
6
<PAGE>
13. BINDING EFFECT
This Agreement shall (subject to the provisions of Section 10 hereof) be
binding upon the heirs, executors, administrators, successors and assigns
of the parties hereto.
IN WITNESS WHEREOF, the Company and the Optionee have caused this Agreement
to be executed on their behalf, by their duly authorized representatives, all on
the day and year first above written.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ William N. Weaver, Jr.
--------------------------------
Its: Director/Assistant Secretary
-------------------------------
OPTIONEE
/s/ Robert R. Carpenter
-----------------------------
Robert R. Carpenter
7
<PAGE>
EXHIBIT 10.51
SETTLEMENT AGREEMENT AND GENERAL RELEASE
THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE (the "Agreement") is made and
entered into as of the 14th day of September, 1999 (the "Effective Date"), by
and between System Software Associates, Inc., a Delaware corporation (the
"Employer"), and William M. Stuek ("Stuek").
RECITALS
--------
A. Stuek has been employed by the Employer as its Chief Executive Officer
and Chairman of its Board of Directors.
B. The Employer and Stuek agree that his employment has terminated
effective September 15, 1999 and that he has resigned as Chairman of, and as a
member of, the Board of Directors, also effective on September 15, 1999.
NOW, THEREFORE, in consideration of the above premises and the following
mutual covenants and conditions, the parties agree as follows:
1. Termination of Employment. Effective the close of business on
September 15, 1999, the Employer and Stuek agree that his employment with the
Employer terminated and, also effective on September 15, 1999, that Stuek has
resigned as Chairman of, and as a member of, the Board of Directors of the
Employer. Stuek's termination shall be deemed to have occurred by virtue of his
voluntary resignation under mutually amicable circumstances.
2. Release Payments.
A. In accordance with the terms of the Amended and Restated
Employment Agreement made and entered into effective as of the 16th day of
October, 1998 by and between the Employer and Stuek (the "Employment
Agreement"), and as a settlement payment hereunder, the Employer shall
continue to pay Stuek his annual base salary of $500,000 for a period of
twenty-four months (through and including September 15, 2001). The amount
payable hereunder shall be subject to any payroll or other deductions as
may be required to be made pursuant to law, government order, or by
agreement with, or consent of, Stuek.
B. The Employer and Stuek hereby agree that, in further consideration
of this Agreement, the 110,625 shares of the Employer's Common Stock in
which Stuek is vested pursuant to the terms of Exhibits A and B of the
Employment Agreement shall, notwithstanding the terms thereof, continue to
be exercisable through and including September 15, 2002, beginning
September 30, 1999. In addition, and as further consideration, Stuek shall
immediately become vested in an option to purchase an
<PAGE>
additional 42,062 shares of Common Stock under Exhibits A and B, which
option shall be exercisable through and including September 15, 2002. The
Employer agrees that it will use all reasonable efforts to cause a
registration of the shares of Common Stock obtained by Stuek through the
exercise of all or any portion of the option hereunder to be declared
effective as soon as practicable after Stuek requests the filing of such a
registration statement.
C. Ten percent (10%) of the payments made hereunder shall be in
consideration of the release of any claim under the Age Discrimination in
Employment Act of 1967, as amended, and as described in Paragraph 3, and
Stuek agrees that such consideration is in addition to anything of value to
which he already is entitled. The remainder of the payments shall be in
consideration of the release of all other claims described below in
Paragraph 3, and the Protective Agreement described in, and incorporated by
reference in, Paragraph 6.
D. Stuek agrees that he has been paid for all earned but unused
vacation pay. Except as set forth in this Agreement, no other sums
(contingent or otherwise), other than unpaid expense reimbursements
incurred through September 15, 1999 for which he shall be paid in the
ordinary course of business, shall be paid to Stuek in respect of his
employment with the Employer, and any such sums (whether or not owed) are
hereby expressly waived by Stuek, provided, however, that Stuek (i) may
elect to continue his health insurance coverage, as mandated by COBRA,
which may continue to the extent required by applicable law, and (ii) shall
be entitled to receive his account balance, if any, under the Employer's
401(k) Plan in accordance with the terms of such Plan.
3. General Release.
A. As a material inducement to the Employer to enter into this
Agreement and in consideration of the payments to be made by the Employer
to Stuek in Paragraph 2 above, Stuek, with full understanding of the
contents and legal effect of this Agreement, and having the right and
opportunity to consult with his counsel, releases and discharges the
Employer, its stockholders, officers, directors, supervisors, managers,
employees, agents, representatives, attorneys, divisions, subsidiaries and
affiliates, and its and their predecessors, successors, heirs, executors,
administrators, and assigns (collectively, the "Employer Released Parties")
from any and all claims, actions, causes of action, grievances, suits,
charges, or complaints of any kind or nature whatsoever, that he ever had
or now has, whether fixed or contingent, liquidated or unliquidated, known
or unknown, suspected or unsuspected, and whether arising in tort,
contract, statute, or equity, before any federal, state, local, or private
court, agency, arbitrator, mediator, or other entity, regardless of the
relief or remedy. Without limiting the generality of the foregoing, it
being the intention of the parties to make this Agreement as broad and as
general as the law permits, this Agreement specifically includes any and
all claims arising from any alleged violation by the Employer Released
Parties under the Age Discrimination in Employment Act of 1967, as amended;
Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act
of 1866, as amended by the Civil Rights Act of 1991 (42 U.S.C. (S) 1981);
the
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Rehabilitation Act of 1973, as amended; the Employee Retirement Income
Security Act of 1974, as amended; the Illinois Wage Payment and Collection
Act; the Illinois Human Rights Act, the Chicago Human Rights Ordinance, the
Cook County Human Rights Ordinance, and other similar state or local laws;
the Americans with Disabilities Act; the Family and Medical Leave Act; the
Equal Pay Act; Executive Order 11246; Executive Order 11141; and any other
statutory claim, employment or other contract claim or implied contract
claim (including, but not limited to, any claim arising under the
Employment Agreement and any exhibits thereto), or common law claim for
wrongful discharge, defamation, or invasion of privacy arising out of or
involving his employment with the Employer, the termination of his
employment with the Employer, or involving any continuing effects of his
employment with the Employer or termination of his employment with the
Employer. Stuek further acknowledges that he is aware that statutes exist
that render null and void releases and discharges of any claims, rights,
demands, liabilities, action and causes of action which are unknown to the
releasing or discharging party at the time of execution of the release and
discharge. Stuek hereby expressly waives, surrenders and agrees to forego
any protection to which he otherwise would be entitled by virtue of the
existence of any such statute in any jurisdiction including, but not
limited to, the State of Illinois. The foregoing notwithstanding, this
Paragraph 3A does not release the Employer Released Parties from any claims
Stuek may have with respect to the enforcement of the terms of this
Agreement.
B. As a material inducement to Stuek to enter into this Agreement and
in consideration of his releases and other items of value provided by him
hereunder, the Employer, on behalf of itself and all of the Employer
Released Parties, with full understanding of the contents and legal effect
of this Agreement, and having the right and opportunity to consult with its
counsel, releases and discharges Stuek and his successors, heirs,
executors, administrators, representatives and assigns (collectively, the
"Stuek Released Parties") from any and all claims, actions, causes of
action, grievances, suits, charges, or complaints of any kind or nature
whatsoever, that it and/or they ever had or now has or have, whether fixed
or contingent, liquidated or unliquidated, known or unknown, suspected or
unsuspected, and whether arising in tort, contract, statute, or equity,
before any federal, state, local, or private court, agency, arbitrator,
mediator, or other entity, regardless of the relief or remedy. Without
limiting the generality of the foregoing, it being the intention of the
parties to make this Agreement as broad and as general as the law permits,
this Agreement specifically includes any and all claims arising from any
alleged violation by the Stuek Released Parties under any statute, law,
ordinance, regulation, or contract, and any other statutory claim,
employment or other contract claim or implied contract claim, or common law
claim for defamation, or invasion of privacy, or arising out of or
involving his employment with the Employer, the termination of his
employment with the Employer, or involving any continuing effects of his
employment with the Employer or termination of his employment with the
Employer. The Employer, on behalf of the Employer Released Parties,
further acknowledges that it and they are aware that statutes exist that
render null and void releases and discharges of any claims, rights,
demands, liabilities, action and causes of action which are unknown to the
releasing or discharging party at the time of execution of the release and
discharge. The Employer, on behalf of itself and the Employer
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<PAGE>
Released Parties, hereby expressly waives, surrenders and agrees to forego
any protection to which it or they otherwise would be entitled by virtue of
the existence of any such statute in any jurisdiction including, but not
limited to, the State of Illinois. The foregoing notwithstanding, this
Paragraph 3B does not release the Stuek Released Parties from any claims
the Employer may have with respect to the enforcement of the terms of this
Agreement.
4. Covenant Not to Sue.
A. Stuek, for himself, his heirs, executors, administrators,
successors and assigns covenants and agrees not to bring, file, charge,
claim, sue or cause, assist, or permit to be brought, filed, charged or
claimed any action, cause of action, or proceeding based upon any of the
claims released under Paragraph 3A hereof, and further covenants and agrees
that this Agreement is, will constitute and may be pleaded as, a bar to any
such claim, action, cause of action or proceeding. If any government
agency or court assumes jurisdiction of any charge, complaint, or cause of
action released by this Agreement, Stuek will not seek and will not accept
any personal equitable or monetary relief in connection with such
investigation, civil action, suit or legal proceeding.
B. The Employer, on behalf of all the Employer Released Parties,
covenants and agrees not to bring, file, charge, claim, sue or cause,
assist, or permit to be brought, filed, charged or claimed any action,
cause of action, or proceeding based upon any of the claims released under
Paragraph 3B hereof, and further covenants and agrees that this Agreement
is, will constitute and may be pleaded as, a bar to any such claim, action,
cause of action or proceeding. If any government agency or court assumes
jurisdiction of any charge, complaint, or cause of action released by this
Agreement, the Employer and the Employer Released Parties will not seek and
will not accept any equitable or monetary relief in connection with such
investigation, civil action, suit or legal proceeding.
5. No Disparaging, Untrue Or Misleading Statements.
A. From and after the Effective Date, Stuek represents that he has
not made or authorized, and agrees that he will not make or authorize, to
any third party any disparaging, untrue, or misleading written or oral
statements about or relating to the Employer or its products or services
(or about or relating to any officer, director, agent, employee, or other
person acting on the Employer's behalf). Stuek acknowledges that his
continuing entitlement to payments under Paragraph 2 of the Agreement shall
be conditioned upon his continuing compliance with Paragraphs 5, 6 and 9 of
the Agreement and any violation of Paragraphs 5, 6 or 9 by Stuek shall
terminate the Employer's obligation to continue to make payments under
Paragraph 2.
B. From and after the Effective Date, the Employer represents that it
has taken and will continue to take commercially reasonable efforts to
ensure that it has not made or authorized and will not make or authorize,
to any third party any disparaging, untrue, or misleading written or oral
statements about or relating to Stuek or his job performance.
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<PAGE>
6. Protective Agreement.
A. Stuek agrees that he will not, for any reason whatsoever, whether
voluntarily or involuntarily, use for himself or disclose to any person any
"Confidential Information" of the Employer acquired by Stuek during his
relationship with the Employer. Confidential Information includes but is
not limited to: (a) any financial, business, planning, operations,
services, potential services, products, potential products, technical
information and/or know-how, formulas, production, purchasing, marketing,
sales, personnel, customer, broker, supplier or other information of the
Employer; (b) any papers, data, records, processes, methods, techniques,
systems, models, samples, devices, equipment, compilations, invoices,
customer lists or documents of the Employer; (c) any confidential
information or trade secrets of any third party provided to the Employer in
confidence or subject to other use or disclosure restrictions or
limitations; and (d) any other information, written, oral or electronic,
whether existing now or at some time in the future, which pertains to the
Employer's affairs or interests or with whom or how the Employer does
business. The Employer acknowledges and agrees that Confidential
Information does not include (i) information properly in the public domain,
or (ii) information in Stuek's possession prior to the date of his original
employment with the Employer. In addition, Stuek acknowledges and agrees
that he shall continue to be bound by the terms and conditions of the
protective agreement to which he is a party under Paragraph 9 of the
Employment Agreement, the terms of which are incorporated herein by
reference. Stuek further acknowledges and agrees that he is estopped from
and will not dispute in any proceeding the enforceability of this Paragraph
6(a).
B. It is agreed that breach of this Paragraph 6 will result in
irreparable harm and continuing damages to the Employer and its business
and that the Employer's remedy at law for any such breach or threatened
breach, will be inadequate and, accordingly, in addition to such other
remedies as may be available to the Employer at law or in equity in such
event, any court of competent jurisdiction may issue a temporary and
permanent injunction, without the necessity of the Employer posting bond
and without proving special damages or irreparable injury, enjoining and
restricting the breach, or threatened breach, of this Paragraph 6,
including, but not limited to, any injunction restraining the breaching
party from disclosing, in whole or part, any Confidential Information. In
addition to, but not in lieu of, the remedies contained herein, the
Employer and Stuek agree that for purposes of this Agreement, damages will
be difficult to assess and, in recognition thereof, Stuek shall pay and the
Employer shall accept as liquidated damages, and not as a penalty, the sum
of $250,000. Stuek will pay all of the Employer's costs and expenses,
including reasonable attorneys' and accountants' fees, incurred in
enforcing this Paragraph 6.
7. Severability. If any provision of this Agreement shall be found by a
court to be invalid or unenforceable, in whole or in part, then such provision
shall be construed and/or modified or restricted to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed excised
from this Agreement, as the case may require, and this
5
<PAGE>
Agreement shall be construed and enforced to the maximum extent permitted by
law, as if such provision had been originally incorporated herein as so modified
or restricted, or as if such provision had not been originally incorporated
herein, as the case may be. The parties further agree to seek a lawful
substitute for any provision found to be unlawful; provided, that, if the
parties are unable to agree upon a lawful substitute, the parties desire and
request that a court or other authority called upon to decide the enforceability
of this Agreement modify the Agreement so that, once modified, the Agreement
will be enforceable to the maximum extent permitted by the law in existence at
the time of the requested enforcement.
8. Waiver. A waiver by either party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver or
estoppel of any subsequent breach. No waiver shall be valid unless in writing
and signed by an authorized officer of the Employer (if an Employer waiver) or
by Stuek (if a Stuek waiver).
9. Miscellaneous Provisions.
A. Both parties agree they will keep the terms, contents, and amounts
set forth in this Agreement completely confidential and, other than as
required by statute, regulation, a court of competent jurisdiction, or the
rules of any governmental agency, will not disclose any information
concerning this Agreement's terms and amounts to any person other than each
party's attorney, accountants, tax advisors, or (if disclosed by Stuek)
Stuek's immediate family.
B. Stuek represents and certifies that he has carefully read and
fully understands all of the provisions and effects of this Agreement, has
knowingly and voluntarily entered into this Agreement freely and without
coercion, and acknowledges that on September 10, 1999, the Employer advised
him to consult with an attorney prior to executing this Agreement and
further advised him that he had twenty-one (21) days from the Effective
Date within which to consider this Agreement. Stuek is voluntarily
entering into this Agreement and neither the Employer nor its agents,
representatives, or attorneys made any representations concerning the terms
or effects of this Agreement other than those contained in the Agreement
itself.
C. Stuek acknowledges that he has seven (7) days from the date this
Agreement is executed in which to revoke his acceptance of this Agreement,
and this Agreement will not be effective or enforceable until such seven
(7)-day period has expired.
10. Complete Agreement. This Agreement sets forth the entire agreement
between the parties, and, except as set forth in Paragraph 6 of this Agreement,
fully supersedes any and all prior agreements or understandings between the
parties pertaining to actual or potential claims arising from Stuek's employment
with the Employer or the termination of Stuek's employment with the Employer.
11. Reimbursement. If Stuek or his heirs, executors, administrators,
successors or assigns (a) breaches Paragraphs 5, 6 or 9(a) of this Agreement, or
(b) attempts to challenge the
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<PAGE>
enforceability of this Agreement, or (c) files a charge of discrimination, a
lawsuit, or a claim of any kind for any matter released herein, Stuek or his
heirs, executors, administrators, successors or assigns shall be obligated to
tender back to the Employer all payments made to him or them under this
Agreement.
12. Amendment. This Agreement may not be altered, amended, or modified
except in writing signed by both Stuek and the Employer.
13. Future Cooperation. In connection with any and all claims, disputes,
negotiations, investigations, lawsuits or administrative proceedings involving
the Employer, Stuek agrees to make himself available, upon reasonable notice
from the Employer, to provide information or documents, provide declarations or
statements to the Employer, meet with attorneys or other representatives of the
Employer, prepare for and give depositions or testimony, and/or otherwise
cooperate in the investigation, defense or prosecution of any or all such
matters.
14. Joint Participation. The parties hereto participated jointly in the
negotiation and preparation of this Agreement, and each party has had the
opportunity to obtain the advice of legal counsel and to review and comment upon
the Agreement. Accordingly, it is agreed that no rule of construction shall
apply against any party or in favor of any party. This Agreement shall be
construed as if the parties jointly prepared this Agreement, and any uncertainty
or ambiguity shall not be interpreted against one party and in favor of the
other.
15. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered a construction of the provisions hereof.
16. Execution of Agreement. This Agreement may be executed in several
counterparts, each of which shall be considered an original, but which when
taken together, shall constitute one Agreement.
17. Recitals. The recitals to this Agreement are an integral part hereof
and shall be considered as substantive and not precatory language.
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<PAGE>
18. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, and any court action
commenced to enforce this Release shall have as its sole and exclusive venue the
County of Cook, Illinois.
PLEASE READ THIS AGREEMENT AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS
BEFORE SIGNING IT. THIS AGREEMENT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS, INCLUDING THOSE UNDER THE FEDERAL AGE DISCRIMINATION IN EMPLOYMENT ACT,
AND OTHER FEDERAL, STATE AND LOCAL LAWS PROHIBITING DISCRIMINATION IN
EMPLOYMENT.
IN WITNESS WHEREOF, the parties have set their signatures on the date first
written above.
SYSTEM SOFTWARE ASSOCIATES, INC. WILLIAM M. STUEK
By: /s/ Kirk Isaacson /s/ William M. Stuek
- ------------------------------------- ---------------------------
Its:
---------------------------------
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Exhibit 10.52
Employment Agreement
This Employment Agreement (the "Agreement") is made and entered into as of the
8th day of December, 1999, by and between System Software Associates, Inc., a
Delaware corporation (hereinafter the "Company"), and Charles Biebighauser
(hereinafter the "Employee").
WHEREAS, the Company desires that the Employee provide services for the benefit
of the Company (including, to the extent required, all subsidiary and related
companies of the Company; hereinafter collectively the "Affiliates") and the
Employee desires to accept such employment with the Company; and
WHEREAS, in the course of employment with the Company, the Employee will have
access to certain confidential information that relates to or will relate to the
business of the Company and its Affiliates, and the Company desires that any
such information not be disclosed to other parties or otherwise used for
unauthorized purposes.
NOW, THEREFORE, in consideration of the above premises and the following terms
and mutual covenants, the parties agree as follows:
1. Employment. The Employee shall serve as Senior Vice-President, Global
Services and Marketing. The Employee hereby accepts such employment and
position on the terms contained herein.
2. Duties and Employee Loyalty. The Employee shall work for the Company in a
full-time capacity and shall have the duties, responsibilities, powers and
authority customarily associated with the position of Senior Vice-President,
Global Services and Marketing, which duties shall include, but not be limited
to, responsibility for activities associated with: (a) the development and/or
implementation of the Company's services offerings; (b) the development and
implementation of product and sales marketing strategies; and (c) such other
duties and functions as are assigned from time to time by the undersigned or his
designee. The Employee shall report to the undersigned or his designee
(hereinafter "Employee's Manager"). The Employee shall devote his entire
business time, attention, energy, knowledge, and skill to the performance of
duties for the Company and will use his best efforts to promote the interests of
the Company and its Affiliates.
The Employee expressly agrees that during the term of this Agreement, he shall
not engage, directly or indirectly, as a partner, officer, director,
stockholder, advisor, agent, employee, or in any other form or capacity, in any
other business similar to that of the Company. The foregoing notwithstanding,
nothing herein contained shall be deemed to prevent the Employee from investing
in the capital stock or other securities of any corporation whose stock or
securities are publicly owned or are regularly traded on any public exchange.
3. Term of Employment. Unless sooner terminated as in accordance with
Paragraph 7, this Agreement shall be entered into commencing as of December 15,
1999 (hereinafter the "Start Date") and shall thereafter continue until
expiration in accordance with the terms and conditions of this Agreement.
4. Compensation. For all services rendered by the Employee to the Company, the
Company shall pay to the Employee during his period of employment the following
compensation:
Base Salary. The Employee shall be entitled to an annual base salary of
$250,000.00 (hereinafter "Base Salary") commencing as of the Start Date,
payable in substantially equal installments in accordance with the Company's
then current local payroll policy.
Annual Incentive Bonus. The Employee shall be entitled to participate in an
annual bonus program which shall provide the Employee an opportunity to
achieve a targeted annual bonus of up to $150,000.00, based on achievement of
specified organizational and personal management objectives (hereinafter
"Annual Incentive Bonus"). The Employee agrees that incentive bonus payments
are not guaranteed income and are based upon actual performance and
achievement of established objectives on a fiscal year basis. The actual
payment of
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<PAGE>
earned incentive bonus payments shall be made by the Company within sixty
(60) days from the end of the fiscal year.
Adjustments to Base Salary and Annual Incentive Bonus. The Base Salary
and/or Annual Incentive Bonus may be increased (but may not be reduced,
unless there is a significant change in the Employee's duties and
responsibilities) by the Employee's Manager. To that end, the Employee shall
periodically receive a performance review in accordance with the Company's
then existing policies. For informational purposes only, the Company's
current policy provides for an annual performance review (which may or may
not, at the Company's option, include an adjustment in the Employee's Base
Salary and/or Annual Incentive Bonus).
Additional Compensation. The Employee is also eligible to be considered for
participation, during the term of his employment, in such other compensation
programs as may be available by the Company from time to time (commensurate
with the Employee's position and compensation).
Grant of Stock Options. In accordance with the Company's stock option plan,
Employee will receive a grant of 75,000 stock options in the Company's common
stock. The strike price of the options will be the price of SSA's common
stock as of the close of business on the Start Date. The stock options will,
subject to Paragraph 7, below, vest as follows: 2/3rds (50,000 stock options)
immediately upon the Employee's Start Date; the remaining 1/3rd (25,000 stock
options) on the first anniversary date of the Employee's Start Date. The
grant of such stock options, in accordance with the foregoing, will be
memorialized in an option agreement pursuant to and in accordance with the
Company's stock option plan.
Deductions. The Employee agrees that the Company shall withhold from any and
all compensation required to be made to the Employee under this Agreement all
federal, state, local and/or other taxes or payroll deductions which the
Company determines are required to be withheld in accordance with applicable
statutes and/or regulations from time to time in effect or as otherwise
withheld pursuant to the consent or agreement of the Employee.
5. Benefits. During the term of this Agreement, the Employee shall be eligible
to participate in any life insurance, disability insurance, medical, dental, or
health insurance, vacation, savings, pension and retirement plans and other
benefit plans or programs as may be maintained by the Company for the benefit of
its employees (commensurate with the Employee's position and compensation).
6. Expenses. During the term of this Agreement, the Company shall promptly
reimburse the Employee for all reasonable and approved business expenses
incurred by him in connection with the performance of his duties to the Company,
upon substantiation of such expenses in accordance with the policies of the
Company in effect from time to time.
7. Termination. The Employee's services shall terminate upon the first to occur
of the following events:
Termination Without Cause. The Company expressly reserves the right to
terminate the employment of the Employee hereunder other than for cause,
disability or death, as provided for below. In the event that the Employee's
employment shall have been so terminated by the Company other than for cause,
death, or disability, the Employee shall be entitled to receive the
equivalent of one (1) month's Base Salary (as may have been adjusted from
time to time during the term of this Agreement and in accordance with the
terms hereof) for each month of employment (hereinafter "Severance Payment"),
subject to a maximum Severance Payment amount equal to twelve (12) months
Base Salary. The Company will, at its option, pay the Severance Payment on
either a lump sum basis (in which payment shall be made within thirty (30)
days of termination) or otherwise in accordance with its then current local
payroll policies. In addition, in the event that the Employees' employment
is terminated as a result of a Change of Control (as defined below), the
vesting period with respect to certain stock options granted to the Employee
pursuant to Paragraph 4, above, shall accelerate as provided for below.
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<PAGE>
Voluntary Termination and Termination for Cause. The Employee's employment
may be voluntarily terminated by him at any time by giving sixty (60) days
written notice thereof to the Company (or such shorter period of time as may
be agreed upon by the Company). Additionally, the Employee's employment may
be terminated at any time for cause (as hereinafter defined), effective
immediately upon the giving of written notice to the Employee.
If at any time during the term of this Agreement: (a) the Employee shall have
voluntarily terminated his employment with the Company; or (b) the Company
shall have terminated the employment of the Employee for cause (as
hereinafter defined), the Employee shall be entitled to receive only his Base
Salary (as may have been adjusted from time to time during the term of this
Agreement and in accordance with the terms hereof) up to the date of
termination plus any accrued but unused vacation pay. The Employee shall
also be entitled to any benefits mandated under the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA) or required under the terms of any
life insurance or retirement plan, program, or agreement provided by the
Company and to which the Employee is a party or in which the Employee is a
participant, including, but not limited to, any short-term or long-term
disability plan or program, if applicable.
For purposes of this Agreement, the Employee shall be deemed terminated "for
cause" if the Company terminates the Employee after the Employee: (a) shall
have been formally indicted (or the equivalent thereof) for any felony
including, but not limited to, a felony involving fraud, theft,
misappropriation, dishonesty, or embezzlement; (b) shall have committed
intentional acts of gross misconduct that materially impair the goodwill or
business of the Company or Affiliates or cause material damage to any
property, goodwill, or business; or (c) shall have refused to, or willfully
failed to, perform his material duties, provided, however, that no
termination under this subparagraph (c) shall be effective unless the
Employee does not cure such refusal or failure to the Company's satisfaction
as soon as practicable after the Company gives the Employee written notice
identifying such refusal or failure (and, in any event, within thirty (30)
calendar days after receipt of such written notice). No act or failure to
act on the part of the Employee shall be considered "willful" unless it is
done, or omitted to be done, by the Employee in bad faith or without
reasonable belief that his action or omission was in the best interests of
the Company.
Termination Due to Disability. This Agreement and any termination of
employment as a result of a disability shall be subject to the disability
policy as established by the Company from time to time.
Termination Due to Death. In the event of the Employee's death during the
term of this Agreement, the Employee's employment hereunder shall immediately
terminate and, in such event, the Employee's estate shall be entitled to
receive the Employee's Base Salary (as may have been adjusted from time to
time during the term of this Agreement and in accordance with the terms
hereof) to the last day of the month during which the Employee's death shall
have occurred and such additional benefits, if any, as may be provided by any
insurance or other benefits to which the Employee may have participated in or
otherwise became entitled to during his period of employment, as established
or maintained by the Company for its employees from time to time.
Termination Due to Good Reason. The Employee's employment may be terminated
by him by written notice for a Good Reason (as hereinafter defined) by giving
sixty (60) days written notice thereof to the Company (or such shorter period
of time as may be agreed upon by the Company), at any time within one hundred
eighty (180) days following the event giving rise to the Good Reason (as
defined below). In such event, the Employee shall be entitled to receive a
Severance Payment as described above and subject to any further limitation as
set forth below. In such event, the Company will, at its option, pay the
Severance Payment on either a lump sum basis (in which payment shall be made
within thirty (30) days of termination) or otherwise in accordance with its
then current local payroll policies.
In the event that the Employee's employment shall have been terminated by him
for Good Reason (as hereinafter defined) or by the Company due to a Change of
Control, the vesting period with respect to certain stock options granted to
the Employee pursuant to Paragraph 4, above, shall accelerate so as to permit
the Employee to exercise, in accordance with the terms of the Company's stock
option plan, all stock options
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which would have vested within a period of twelve (12) months' from the
effective date of termination of employment.
The term "Good Reason" shall mean either:
(a) the elimination of the Employee's position or a material diminution in
the Employee's authority, functions, duties or responsibilities, which
has occurred as a result of a Change of Control (as hereinafter defined)
or otherwise; it being expressly understood and agreed that in the event
of the elimination of the Employee's position or a material diminution
in the Employee's authority, functions duties or responsibilities for
any reason other than a Change of Control, the maximum Severance Payment
amount to be paid to the Employee shall not exceed an amount equal to
three (3) months Base Salary; or
(b) a failure by the Company to either reaffirm the Employee's current
position with the Company or offer the Employee a comparable position at
the same or greater compensation level within thirty (30) days following
a Change of Control (as defined below).
The term "Change of Control" shall mean a material change in the management
structure of the Company which has occurred as a result of either: (a) a sale
of a controlling interest of the Company to a third party; (b) a sale of the
Company to a third party of all or substantially all of the Company's stock
or assets; or (c) a merger of the Company with another unrelated entity.
Treatment of Annual Incentive Bonus Upon Termination. In the event of
termination of the employment of the Employee for any reason, the Employee
shall be entitled to receive any Annual Incentive Bonus or other compensation
(other than Base Salary) in respect of the fiscal year of the Company in
which the termination shall take place; the specific amount of the Annual
Incentive Bonus and/or additional compensation to be paid to the Executive to
be: (a) prorated based upon the earlier of the effective date of the
Employee's termination of employment or the date the Employee ceases to
perform services on behalf of the Company; and (b) dependent upon the
Company's achievement of the underlying bonus program to which the Annual
Incentive Bonus and/or other compensation relates. In addition, in the event
that at the time of his termination, the Employee is due, but has not yet
received, payment of any Annual Incentive Bonus, or portion thereof, or other
compensation (other than Base Salary), such amount(s) shall be paid to
Employee in accordance with the Company's local payroll policies.
Payment Contingencies: Payment to the Employee of the Severance Payment,
together with any other amounts to be paid to the Employee pursuant to this
Paragraph 7, is contingent upon: (a) the Employee signing an agreement that
releases the Company from actions, suits, claims, proceedings and demands
related to the period of employment and/or the termination of employment; (b)
the Employee returning, in good condition, all property belonging to Company;
and (d) the Employee remaining in compliance with his obligations of
confidentiality.
8. EMPLOYEE CONFIDENTIALITY OBLIGATIONS. The Employee acknowledges and agrees
that solely by virtue of his employment by, and relationship with the Company,
he will acquire confidential information relating to the Company and its
Affiliates; such confidential information includes, but is not limited to: (a)
any financial business, planning, operations, services, potential services,
products, potential products, technical information and/or know-how, formulas,
production, purchasing, marketing, sales, personnel, customer, broker, supplier,
or other information of the Company or Affiliates; (b) any papers, data,
records, processes, methods, techniques, systems, models, samples, devices,
equipment, compilations, invoices, customer lists, or documents of the Company
or Affiliates; (c) any confidential information or trade secrets of any third
party provided to the Company in confidence or subject to other use of
disclosure restrictions or limitations; and (d) any other information, written,
oral, or electronic, whether existing now or at some time in the future, whether
pertaining to current or future developments, which pertains to the Company's or
Affiliate's affairs or interests or with whom or how the Company or Affiliates
conduct business (hereinafter collectively "Information").
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The Employee further acknowledges and agrees that in consideration of the terms
and conditions set forth in this Agreement, including, without limitation, the
compensation to be paid to the Employee hereunder, the Employee shall sign and
abide by the terms and conditions of the Employee Confidentiality Agreement,
attached hereto and deemed a part hereof (hereinafter "Employee Confidentiality
Agreement"), including, without limitation, the restriction on the Employee's
subsequent employment opportunities as set forth in Section 4 thereof. In
addition, the Employee acknowledges and agrees that the restrictions contained
in Section 4 of the Employee Confidentiality Agreement are necessary and
reasonable in order to protect the Company in the conduct of its business and
will not prevent the Employee from earning a comparable livelihood following the
termination of his employment with the Company.
The Information described in this Paragraph 8 shall be deemed to be included in
the definition of "Proprietary Information" as set forth in the Employee
Confidentiality Agreement and shall be subject to the terms and conditions
contained therein.
9. ADDITIONAL PROVISIONS. The Company and the Employee further agree as
follows:
Assignment. The Employee acknowledges that the services to be rendered by
him are unique and personal. Accordingly, the Employee may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The rights and obligations of the Company under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Company.
Notices. All notices required or permitted hereunder shall be in writing and
deemed effectively given upon personal delivery or upon deposit in the United
States mails, by registered or certified mail, postage prepaid, addressed to
the other party hereto.
Entire Agreement. This Agreement constitutes the entire agreement between the
parties, and supersedes all prior agreements and understandings relating to
the subject matter hereof. If any provision of this Agreement shall be found
invalid or unenforceable for any reason, in whole or in part, then such
provision shall be deemed modified, restricted, or reformulated to the extent
and in the manner necessary to render the same valid and enforceable, or
shall be deemed excised from this Agreement, as the case may require, and
this Agreement shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated
herein as so modified, restricted, or reformulated or as if such provision
had not been originally incorporated herein, as the case may be.
Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.
Headings. The paragraph and subparagraph headings used in this Agreement are
for convenience only and shall not be deemed to be considered a construction
of the provisions hereof.
Immigration and Reform Control Act of 1986. This Agreement is contingent
upon submission by the Employee of the appropriate documentation for
verification in compliance with the Immigration and Reform Control Act of
1986, as amended.
Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of
Illinois.
Relocation. In the event that the Employee and the Employee's Manager
mutually agree that it would be in the best interests of the Company for the
Employee to relocate his primary residence to the Chicago, Illinois
geographic area (being the location of the Company's corporate headquarters),
the Company will reimburse the Employee for reasonable relocation expenses.
Relocation expenses may include such items as reasonable selling expenses,
packing and unpacking expenses, loan origination fees for the Employee's new
primary residence, and/or other reasonable expenses as mutually agreed
between the Company and the Employee.
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THE EMPLOYEE HAS READ AND FULLY UNDERSTANDS THE TERMS AND CONDITIONS SET FORTH
IN THIS AGREEMENT, HAS HAD TIME TO REFLECT ON AND CONSIDER THE BENEFITS AND
CONSEQUENCES OF ENTERING INTO THIS AGREEMENT, AND HAS HAD THE OPPORTUNITY TO
REVIEW THE TERMS HEREOF WITH AN ATTORNEY OR OTHER REPRESENTATIVE, IF HE SO
CHOOSES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written at the introductory paragraph to this Agreement.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ Robert R. Carpenter
--------------------------------------------
Typed or Printed Name: Robert R. Carpenter
--------------------------
EMPLOYEE:
By: /s/ Charles Biebighauser
--------------------------------------------
Typed or Printed Name: Charles Biebighauser
------------------------
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EMPLOYEE CONFIDENTIALITY AGREEMENT
This Agreement is made and entered into as of the 8th day of December, 1999, by
and between System Software Associates, Inc., a Delaware corporation with its
principal place of business at 500 West Madison Street, Chicago, Illinois, 60661
("SSA") and Charles Biebighauser ("EMPLOYEE").
WHEREAS, SSA has expended considerable time, effort and resources in the
development of certain proprietary information, which must be maintained as
confidential in order to ensure the success of SSA's business;
WHEREAS, EMPLOYEE has access to such information; and
WHEREAS, each of SSA's other employees has been or shall be obligated to
maintain the secrecy of such proprietary information as a condition of his/her
continued employment by SSA.
NOW THEREFORE, in consideration of the covenants and promises contained herein,
and of EMPLOYEE's continued employment by SSA, the compensation and benefits
received by EMPLOYEE from SSA and the access given EMPLOYEE to the aforesaid
information, the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the term "PROPRIETARY INFORMATION" means any
and all information, oral or written, that is not generally known by persons not
employed by or parties to contracts with SSA, including but not limited to:
(a) inventions, designs, discoveries, works of authorship, improvements or
ideas developed or otherwise possessed by SSA;
(b) SSA's proprietary software, consisting of computer programs in source or
object code and all related documentation and training materials,
including all upgrades, updates, improvements and modifications thereof
and including programs and documentation in incomplete stages of design or
research and development;
(c) the subject matter of SSA's patents, design patents, copyrights, trade
secrets, trademarks, service marks, trade names, trade dress, manuals,
operating instructions and other industrial property to the extent that
such information is unavailable to the public and/or is in incomplete
stages of design or research and development;
(d) SSA's business operations, including marketing, research and product
development plans and strategies which have been or are being considered;
(e) SSA's pricing information and pricing methods; and
(f) SSA's lists of past, existing or potential clients and customers.
2. OWNERSHIP OF PROPRIETARY INFORMATION
(a) EMPLOYEE acknowledges that SSA is the owner of the PROPRIETARY INFORMATION
and agrees not to contest any such ownership rights of SSA, either during
or after EMPLOYEE's employment with SSA.
(b) Subject to Paragraph 2(c) EMPLOYEE agrees to assign to SSA at any time
during and after EMPLOYEE's employment with SSA, promptly at SSA's request
and without additional compensation, all of EMPLOYEE's right, title and
interest in and to any and all inventions, designs, discoveries, works of
authorship, improvements, or software in or to which EMPLOYEE may acquire
rights in whole or in part as a result of his/her employment by SSA, and
to sign such documents and do such acts as may be reasonably necessary to
accomplish such assignment.
(c) Pursuant to the Illinois Employees' Patent Act, Public Act 83-493, the
parties agree that Paragraph 2(b) shall not apply to an invention for
which no equipment, supplies, facility or trade secret information of SSA
was used and which was developed entirely on EMPLOYEE's own time, unless
the invention (i)
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relates to the business of SSA or to SSA's actual or demonstrably
anticipated research or development; or (ii) results from any work
performed by EMPLOYEE for SSA.
(d) EMPLOYEE acknowledges that any computer programs, documentation or other
copyrightable works created in whole or in part by EMPLOYEE during his
employment with SSA shall be considered "works made for hire" under the
U.S. Copyright Act, 17 U.S.C. 101 and shall become part of the PROPRIETARY
INFORMATION.
3. NONDISCLOSURE OF PROPRIETARY INFORMATION. For so long as the PROPRIETARY
INFORMATION has not entered into the public domain (through no fault of
EMPLOYEE), EMPLOYEE agrees to hold the PROPRIETARY INFORMATION in the strictest
confidence, both during and after EMPLOYEE's employment relationship with SSA.
To this end, EMPLOYEE shall:
(a) not make, or permit or cause to be made copies of the PROPRIETARY
INFORMATION, except as necessary to carry out EMPLOYEE's duties as
prescribed by SSA;
(b) not disclose or reveal the PROPRIETARY INFORMATION, or any portion
thereof, to any person except other SSA employees who have signed
nondisclosure agreements with SSA;
(c) take all reasonable precautions to prevent the inadvertent disclosure of
the PROPRIETARY INFORMATION to any unauthorized person;
(d) not transport or cause to be transported the PROPRIETARY INFORMATION
outside the premise of SSA, except as necessary to carry out EMPLOYEE's
duties as prescribed by SSA; and
(e) not without SSA's authorization participate directly or indirectly in the
development, marketing, sale, licensing or other exploitation of software
products or services which embody or are derived from the PROPRIETARY
INFORMATION.
EMPLOYEE expressly agrees that disclosures prohibited hereby include, without
limitation, disclosure of similarities or possible similarities between the
PROPRIETARY INFORMATION and the work product of another person or company.
4. TERMINATION OF EMPLOYMENT. Upon termination of his/her employment for any
reason whatsoever, EMPLOYEE shall deliver to SSA all written or printed
documents, all tapes, disks and other electronic media and all other tangible
property in EMPLOYEE's possession which contain any PROPRIETARY INFORMATION.
For the period of one year after such termination, EMPLOYEE shall not, directly
or indirectly (including without limitation as an officer, director, employer,
employee, advisor, consultant or investor) (i) hire or solicit the employment or
services of any person who is an employee of SSA, or (ii) engage in the
development, production, distribution, sale, licensing, or marketing of software
products or services to any customer of SSA or any prospect of SSA's to whom SSA
has delivered a proposal in the previous six (6) months. In addition, for a
period of six (6) months after such termination, EMPLOYEE shall not solicit,
accept employment or engage in any other activity, directly or indirectly
(including without limitation as an officer, director, employer, employee,
advisor, consultant or investor) with the following entities, being direct
competitors of SSA: Oracle, Baan, J.D. Edwards, SAP, and JBA. If the foregoing
covenant is held to be more restrictive than permitted by applicable law, the
objectionable restriction shall be construed as being limited to the maximum
restriction permitted.
5. NOTICE OF PATENT AND COPYRIGHT APPLICATIONS. During the period of one year
after the termination of his/her employment relationship with SSA, EMPLOYEE
shall notify SSA of all patents and copyrights applied for by EMPLOYEE and to
provide SSA with a description of such patents and copyrights sufficient to
enable SSA to determine whether the works over which they are claimed relate to,
or are derived from, the PROPRIETARY INFORMATION.
6. INJUNCTIVE RELIEF. EMPLOYEE acknowledges and agrees that in the event of
any breach or threatened breach by EMPLOYEE of any of the provisions of this
Agreement, damages shall be an inadequate remedy and SSA shall be entitled to
injunctive and otherwise equitable relief. SSA's rights under this provision
are in addition to all rights otherwise available to it at law or in equity.
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7. SEVERABILITY. In the event that any provision hereof is found invalid or
unenforceable pursuant to a judicial decree or decision, the invalidity and
unenforceability of such provision shall not affect the other provisions of this
Agreement and all such other provisions shall remain in full force and effect.
It is expressly agreed that the existence of any claim or cause of action of
EMPLOYEE against SSA, whether or not predicated on this Agreement, shall not
constitute a defense to the enforcement of this Agreement by SSA.
8. WAIVER. No waiver of any provision of this Agreement or any rights or
obligations of either party hereunder shall be effective unless pursuant to a
written instrument signed by the party or parties making such a waiver, and such
waiver shall be effective only in the specific instance and for the specific
purpose stated therein.
9. GOVERNING LAW. This Agreement and any controversy arising hereunder shall
be governed by and interpreted in accordance with the laws of the State of
Illinois.
EMPLOYEE states that he has freely and voluntarily entered into this Agreement,
and that he has read and understood each and every provision hereof. EMPLOYEE
acknowledges receiving a fully executed copy of this Agreement. Signed this 8th
day of December, 1999.
SYSTEM SOFTWARE ASSOCIATES, INC. EMPLOYEE
By: /s/ Robert R. Carpenter /s/ Charles Biebighauser
--------------------------------- ---------------------------------
Title:
------------------------------
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EXHIBIT 10.53
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of the
27th day of August, 1998 ("Effective Date"), by and between System Software
Associates, Inc., a Delaware corporation (hereinafter the "Company"), and Joseph
J. Skadra (hereinafter the "Employee").
WHEREAS, the Company desires that the Employee provide services for the benefit
of the Company (including, to the extent required, all subsidiary and related
companies of the Company; hereinafter collectively the "Affiliates") and the
Employee desires to accept such employment with the Company; and
WHEREAS, in the course of employment with the Company, the Employee will have
access to certain confidential information that relates to or will relate to the
business of the Company and its Affiliates, and the Company desires that any
such information not be disclosed to other parties or otherwise used for
unauthorized purposes.
NOW, THEREFORE, in consideration of the above premises and the following terms
and mutual covenants, the parties agree as follows:
1. Employment. The Employee shall serve as Vice President Finance and
Controller. The Employee hereby accepts such employment and position on the
terms contained herein.
2. Duties and Employee Loyalty. The Employee shall work for the Company in a
full-time capacity and shall have the duties, responsibilities, powers and
authority customarily associated with the position of Vice President Finance and
Controller, which duties shall include, but not be limited to, responsibility
for preparation and maintaining the Company's financial reports, together with
such other duties and functions as are assigned from time to time by the
Employee's Manager. The Employee shall report to the Company's Chief Financial
Officer or his/her designee (hereinafter "Employee's Manager"). The Employee
shall devote his entire business time, attention, energy, knowledge, and skill
to the performance of duties for the Company and will use his best efforts to
promote the interests of the Company and its Affiliates.
The Employee expressly agrees that during the term of this Agreement, he shall
not engage, directly or indirectly, as a partner, officer, director,
stockholder, advisor, agent, employee, or in any other form or capacity, in any
other business similar to that of the Company. The foregoing notwithstanding,
nothing herein contained shall be deemed to prevent the Employee from investing
in the capital stock or other securities of any corporation whose stock or
securities are publicly owned or are regularly traded on any public exchange.
3. Term of Employment. Unless sooner terminated as in accordance with
Paragraph 7, this Agreement shall be entered into commencing as of its Effective
Date (hereinafter the "Start Date") and shall thereafter continue until
expiration in accordance with the terms and conditions of this Agreement.
4. Compensation. For all services rendered by the Employee to the Company, the
Company shall pay to the Employee during his period of employment the following
compensation:
Base Salary. The Employee shall be entitled to an annual base salary of
$250,000.00 (hereinafter "Base Salary"); said Base Salary to be made
retroactive commencing as of August 1, 1998, payable in substantially equal
installments in accordance with the Company's then current local payroll
policy.
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Annual Incentive Bonus. The Employee shall be entitled to participate in
an annual bonus program which shall provide the Employee an opportunity to
achieve a targeted annual bonus of up to $100,000.00, based on achievement
of specified organizational and personal management objectives (hereinafter
"Annual Incentive Bonus"). The Employee agrees that incentive bonus
payments are not guaranteed income and are based upon actual performance
and achievement of established objectives on a fiscal year or quarterly
basis. The actual payment of earned incentive bonus payments shall be made
by the Company on a periodic basis in accordance with the Company's then
current payroll policy. Currently, such periodic payments coincide with the
Company's fiscal quarters and fiscal year-end.
Adjustments to Base Salary and Annual Incentive Bonus. The Base Salary
and/or Annual Incentive Bonus may be increased (but may not be reduced,
unless there is a significant change in the Employee's duties and
responsibilities) by the Employee's Manager. To that end, the Employee
shall periodically receive a performance review in accordance with the
Company's then existing policies. For informational purposes only, the
Company's current policy provides for an annual performance review (which
may or may not, at the Company's option, include an adjustment in the
Employee's Base Salary and/or Annual Incentive Bonus).
Additional Compensation. The Employee is also eligible to be considered
for participation, during the term of his employment, in such other
compensation programs as may be available by the Company from time to time
(commensurate with the Employee's position and compensation).
Grant of Stock Options. In accordance with the Company's Long Term
Incentive Plan, the Employee is hereby granted 30,000 stock options in the
Company's common stock. The strike price on these options will be $5.625
per share; being the value of a share of the Company's common stock as of
the close of market on July 27, 1998. The stock options will, subject to
Paragraph 7, below, vest in four equal annual installments (7,500 stock
options per installment) over a four (4) year employment period beginning
one year after the Start Date. The grant of such stock options, in
accordance with the foregoing, will be memorialized in an option agreement
pursuant to and in accordance with the Company's Long Term Incentive Plan.
Deductions. The Employee agrees that the Company shall withhold from any
and all compensation required to be made to the Employee under this
Agreement all federal, state, local and/or other taxes or payroll
deductions which the Company determines are required to be withheld in
accordance with applicable statutes and/or regulations from time to time in
effect or as otherwise withheld pursuant to the consent or agreement of the
Employee.
5. Benefits. During the term of this Agreement, the Employee shall be eligible
to participate in any life insurance, disability insurance, medical, dental, or
health insurance, vacation, savings, pension and retirement plans and other
benefit plans or programs as may be maintained by the Company for the benefit of
its employees (commensurate with the Employee's position and compensation).
6. Expenses. During the term of this Agreement, the Company shall promptly
reimburse the Employee for all reasonable and approved business expenses
incurred by him in connection with the performance of his duties to the Company,
upon substantiation of such expenses in accordance with the policies of the
Company in effect from time to time.
7. Termination. The Employee's services shall terminate upon the first to occur
of the following events:
Termination Without Cause. The Company expressly reserves the right to
terminate the employment of the Employee hereunder other than for cause,
disability or death, as provided for below. In the event that the
Employee's employment shall have been so terminated by the Company other
than for cause, death, or disability, the Employee shall be entitled to
receive the equivalent of twelve (12) months Base Salary (as may have been
adjusted from time to time during the term of this Agreement and in
accordance with the terms hereof) (hereinafter "Severance Payment"). The
Company will pay this Severance Payment on a lump sum basis within thirty
(30) days of termination. In addition, in the event that the Employee's
employment shall have been so terminated, the vesting period with respect
to stock options granted to the Employee pursuant to
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Paragraph 4, above, shall accelerate so as to permit the Employee to
exercise, in accordance with the terms of SSA's Long Term Incentive Plan,
any such stock options which would have otherwise vested within a period of
twenty-four (24) months after the Employee's effective date of termination
of employment. Notwithstanding the foregoing, in the event that the
Employees' employment is terminated by the Company as a result of a Change
of Control (as defined below), the vesting period with respect to stock
options granted to the Employee pursuant to Paragraph 4, above, shall
accelerate as provided for below.
Voluntary Termination and Termination for Cause. The Employee's employment
may be voluntarily terminated by him at any time by giving sixty (60) days
written notice thereof to the Company (or such shorter period of time as
may be agreed upon by the Company). Additionally, the Employee's employment
may be terminated at any time for cause (as hereinafter defined), effective
immediately upon the giving of written notice to the Employee.
If at any time during the term of this Agreement: (a) the Employee shall
have voluntarily terminated his employment with the Company; or (b) the
Company shall have terminated the employment of the Employee for cause (as
hereinafter defined), the Employee shall be entitled to receive only his
Base Salary (as may have been adjusted from time to time during the term of
this Agreement and in accordance with the terms hereof) up to the date of
termination plus any accrued but unused vacation pay. The Employee shall
also be entitled to any benefits mandated under the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA) or required under the terms of
any life insurance or retirement plan, program, or agreement provided by
the Company and to which the Employee is a party or in which the Employee
is a participant, including, but not limited to, any short-term or long-
term disability plan or program, if applicable.
For purposes of this Agreement, the Employee shall be deemed terminated
"for cause" if the Company terminates the Employee after the Employee: (a)
shall have been formally indicted (or the equivalent thereof) for any
felony including, but not limited to, a felony involving fraud, theft,
misappropriation, dishonesty, or embezzlement; (b) shall have committed
intentional acts of gross misconduct that materially impair the goodwill or
business of the Company or cause material damage to its property, goodwill,
or business; or (c) shall have refused to, or willfully failed to, perform
his material duties, provided, however, that no termination under this
subparagraph (c) shall be effective unless the Employee does not cure such
refusal or failure to the Company's satisfaction as soon as practicable
after the Company gives the Employee written notice identifying such
refusal or failure (and, in any event, within thirty (30) calendar days
after receipt of such written notice). No act or failure to act on the part
of the Employee shall be considered "willful" unless it is done, or omitted
to be done, by the Employee in bad faith or without reasonable belief that
his action or omission was in the best interests of the Company.
Termination Due to Disability. This Agreement and any termination of
employment as a result of a disability shall be subject to the disability
policy as established by the Company from time to time.
Termination Due to Death. In the event of the Employee's death during the
term of this Agreement, the Employee's employment hereunder shall
immediately terminate and, in such event, the Employee's estate shall be
entitled to receive the Employee's Base Salary (as may have been adjusted
from time to time during the term of this Agreement and in accordance with
the terms hereof) to the last day of the month during which the Employee's
death shall have occurred and such additional benefits, if any, as may be
provided by any insurance or other benefits to which the Employee may have
participated in or otherwise became entitled to during his period of
employment, as established or maintained by the Company for its employees
from time to time.
Termination Due to Change of Control. The Employee's employment may be
terminated by him by written notice for a Good Reason (as hereinafter
defined) by giving ninety (90) days written notice thereof to the Company
(or such shorter period of time as may be agreed upon by the Company), at
any time within one hundred eighty (180) days following a Change of Control
(as defined below). In such event, the Employee
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shall be entitled to receive the Severance Payment as described above. The
Company will pay the Severance Payment on a lump sum basis within thirty
(30) days of termination.
In the event that the Employee's employment shall have been terminated by
him in accordance with the foregoing or by the Company due to a Change of
Control, the vesting period with respect to all stock options granted to
the Employee pursuant to Paragraph 4, above, shall accelerate so as to
permit the Employee to exercise, in accordance with the terms of SSA's Long
Term Incentive Plan, all stock options which would have otherwise vested in
accordance with the terms of this Agreement.
The term "Good Reason" shall mean either: (a) the elimination of the
Employee's position or a material diminution in the Employee's authority,
functions, duties or responsibilities, which has occurred as a result of a
Change of Control (as hereinafter defined); or (b) a failure by the Company
to either reaffirm the Employee's current position with the Company or
offer the Employee a comparable position at the same or greater
compensation level within thirty (30) days following a Change of Control
(as defined below).
The term "Change of Control" shall mean a material change in the management
structure of the Company which has occurred as a result of either: (a) a
sale of a controlling interest of the Company to a third party; (b) a sale
of the Company to a third party of all or substantially all of the
Company's stock or assets; or (c) a merger of the Company with another
unrelated entity.
Treatment of Annual Incentive Bonus Upon Termination. In the event of
termination of the employment of the Employee for any reason, the Employee
shall be entitled to receive any Annual Incentive Bonus or other
compensation (other than Base Salary) in respect of the fiscal quarter of
the Company in which the termination shall take place; the specific amount
of the Annual Incentive Bonus and/or additional compensation to be paid to
the Executive to be: (a) prorated based upon the earlier of the effective
date of the Employee's termination of employment or the date the Employee
ceases to perform services on behalf of the Company; and (b) dependent upon
the Company's achievement of the underlying bonus program to which the
Annual Incentive Bonus and/or other compensation relates. In addition, in
the event that at the time of his termination, the Employee is due, but has
not yet received, payment of any Annual Incentive Bonus, or portion
thereof, or other compensation (other than Base Salary), such amount(s)
shall be paid to Employee in accordance with the Company's payroll policy
from time to time in effect.
Payment Contingencies: Payment to the Employee of the Severance Payment,
together with any other amounts to be paid to the Employee pursuant to this
Paragraph 7, is contingent upon: (a) the Employee signing an agreement that
releases the Company from actions, suits, claims, proceedings and demands
related to the period of employment and/or the termination of employment;
(b) the Company being permitted to offset from the severance pay hereunder
any salary paid to the Employee during the ninety (90) day notice period
(or such shorter period of time as may be provided for herein or otherwise
agreed upon by the Company) if the Employee performs no services during
such notice period; (c) the Employee returning, in good condition, all
property belonging to Company; and (d) the Employee remaining in compliance
with his obligations of confidentiality including, without limitation, the
Employee's adherence to the restrictions placed upon his subsequent
employment opportunities pursuant to Paragraph 8, below.
8. EMPLOYEE CONFIDENTIALITY OBLIGATIONS. The Employee acknowledges and agrees
that solely by virtue of his employment by, and relationship with the Company,
he will acquire confidential information relating to the Company and its
Affiliates; such confidential information includes, but is not limited to: (a)
any financial business, planning, operations, services, potential services,
products, potential products, technical information and/or know-how, formulas,
production, purchasing, marketing, sales, personnel, customer, broker, supplier,
or other information of the Company or Affiliates; (b) any papers, data,
records, processes, methods, techniques, systems, models, samples, devices,
equipment, compilations, invoices, customer lists, or documents of the Company
or Affiliates; (c) any confidential information or trade secrets of any third
party provided to the Company in confidence or subject to other use of
disclosure restrictions or limitations; and (d) any other information, written,
oral, or electronic, whether existing now or at some time in the future, whether
pertaining to current or future
4
<PAGE>
developments, which pertains to the Company's or Affiliate's affairs or
interests or with whom or how the Company or Affiliates conduct business
(hereinafter collectively "Information").
The Employee further acknowledges and agrees that in consideration of the terms
and conditions set forth in this Agreement, including, without limitation, the
compensation to be paid to the Employee hereunder, the Employee shall sign and
abide by the terms and conditions of the Employee Confidentiality Agreement,
attached hereto and deemed a part hereof (hereinafter "Employee Confidentiality
Agreement"), including, without limitation, the restriction on the Employee's
subsequent employment opportunities as set forth in Section 4 thereof. In
addition, the Employee acknowledges and agrees that the restrictions contained
in Section 4 of the Employee Confidentiality Agreement are necessary and
reasonable in order to protect the Company in the conduct of its business and
will not prevent the Employee from earning a comparable livelihood following the
termination of his employment with the Company. The Employee further agrees that
for a minimum period of one (1) year following the termination of his employment
with the Company, he shall disclose the existence and terms of the Employee
Confidentiality Agreement to each subsequent employer and hereby consents to and
the Company is hereby given permission to disclose the existence and terms of
the Employee Confidentiality Agreement to any such subsequent employer.
The Information described in this Paragraph 8 shall be deemed to be included in
the definition of "Proprietary Information" as set forth in the Employee
Confidentiality Agreement and shall be subject to the terms and conditions
contained therein.
9. ADDITIONAL PROVISIONS. The Company and the Employee further agree as
follows:
Assignment. The Employee acknowledges that the services to be rendered by
him are unique and personal. Accordingly, the Employee may not assign any
of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company.
Notices. All notices required or permitted hereunder shall be in writing
and deemed effectively given upon personal delivery or upon deposit in the
United States mails, by registered or certified mail, postage prepaid,
addressed to the other party hereto.
Entire Agreement. This Agreement constitutes the entire agreement between
the parties, and supersedes all prior agreements and understandings
relating to the subject matter hereof. If any provision of this Agreement
shall be found invalid or unenforceable for any reason, in whole or in
part, then such provision shall be deemed modified, restricted, or
reformulated to the extent and in the manner necessary to render the same
valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law, as if such provision had been
originally incorporated herein as so modified, restricted, or reformulated
or as if such provision had not been originally incorporated herein, as the
case may be.
Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.
Headings. The paragraph and subparagraph headings used in this Agreement
are for convenience only and shall not be deemed to be considered a
construction of the provisions hereof.
Immigration and Reform Control Act of 1986. This Agreement is contingent
upon submission by the Employee of the appropriate documentation for
verification in compliance with the Immigration and Reform Control Act of
1986, as amended.
Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of
Illinois.
5
<PAGE>
THE EMPLOYEE HAS READ AND FULLY UNDERSTANDS THE TERMS AND CONDITIONS SET FORTH
IN THIS AGREEMENT, HAS HAD TIME TO REFLECT ON AND CONSIDER THE BENEFITS AND
CONSEQUENCES OF ENTERING INTO THIS AGREEMENT, AND HAS HAD THE OPPORTUNITY TO
REVIEW THE TERMS HEREOF WITH AN ATTORNEY OR OTHER REPRESENTATIVE, IF HE SO
CHOOSES.
THIS AGREEMENT IS CONTINGENT UPON THE EMPLOYEE'S SIGNED ACCEPTANCE OF SAME NO
LATER THAN 5:00 P.M. (CENTRAL STANDARD TIME) ON _______________________.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written at the introductory paragraph to this Agreement.
SYSTEM SOFTWARE ASSOCIATES, INC.
By: /s/ Kirk Isaacson
----------------------------------------
Typed or Printed Name: Kirk Isaacson
---------------------
EMPLOYEE:
By: /s/ Joseph J. Skadra
----------------------------------------
Typed or Printed Name: Joseph J. Skadra
---------------------
6
<PAGE>
EMPLOYEE CONFIDENTIALITY AGREEMENT
This Agreement is made and entered into as of the _____ day of ___________,
199__, by and between System Software Associates, Inc., a Delaware corporation
with its principal place of business at 500 West Madison Street, Chicago,
Illinois, 60661 ("SSA") and ___________________________ ("EMPLOYEE").
WHEREAS, SSA has expended considerable time, effort and resources in the
development of certain proprietary information, which must be maintained as
confidential in order to ensure the success of SSA's business;
WHEREAS, EMPLOYEE has access to such information; and
WHEREAS, each of SSA's other employees has been or shall be obligated to
maintain the secrecy of such proprietary information as a condition of his/her
continued employment by SSA.
NOW THEREFORE, in consideration of the covenants and promises contained herein,
and of EMPLOYEE's continued employment by SSA, the compensation and benefits
received by EMPLOYEE from SSA and the access given EMPLOYEE to the aforesaid
information, the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the term "PROPRIETARY INFORMATION" means any
and all information, oral or written, that is not generally known by persons not
employed by or parties to contracts with SSA, including but not limited to:
(a) inventions, designs, discoveries, works of authorship, improvements or
ideas developed or otherwise possessed by SSA;
(b) SSA's proprietary software, consisting of computer programs in source or
object code and all related documentation and training materials,
including all upgrades, updates, improvements and modifications thereof
and including programs and documentation in incomplete stages of design or
research and development;
(c) the subject matter of SSA's patents, design patents, copyrights, trade
secrets, trademarks, service marks, trade names, trade dress, manuals,
operating instructions and other industrial property to the extent that
such information is unavailable to the public and/or is in incomplete
stages of design or research and development;
(d) SSA's business operations, including marketing, research and product
development plans and strategies which have been or are being considered;
(e) SSA's pricing information and pricing methods; and
(f) SSA's lists of past, existing or potential clients and customers.
2. OWNERSHIP OF PROPRIETARY INFORMATION
(a) EMPLOYEE acknowledges that SSA is the owner of the PROPRIETARY INFORMATION
and agrees not to contest any such ownership rights of SSA, either during
or after EMPLOYEE's employment with SSA.
(b) Subject to Paragraph 2(c) EMPLOYEE agrees to assign to SSA at any time
during and after EMPLOYEE's employment with SSA, promptly at SSA's request
and without additional compensation, all of EMPLOYEE's right, title and
interest in and to any and all inventions, designs, discoveries, works of
authorship, improvements, or software in or to which EMPLOYEE may acquire
rights in whole or in part as a result of his/her employment by SSA, and
to sign such documents and do such acts as may be reasonably necessary to
accomplish such assignment.
(c) Pursuant to the Illinois Employees' Patent Act, Public Act 83-493, the
parties agree that Paragraph 2(b) shall not apply to an invention for
which no equipment, supplies, facility or trade secret information of SSA
was used and which was developed entirely on EMPLOYEE's own time, unless
the invention (i)
7
<PAGE>
relates to the business of SSA or to SSA's actual or demonstrably
anticipated research or development; or (ii) results from any work
performed by EMPLOYEE for SSA.
(d) EMPLOYEE acknowledges that any computer programs, documentation or other
copyrightable works created in whole or in part by EMPLOYEE during his
employment with SSA shall be considered "works made for hire" under the
U.S. Copyright Act, 17 U.S.C. 101 and shall become part of the PROPRIETARY
INFORMATION.
3. NONDISCLOSURE OF PROPRIETARY INFORMATION. EMPLOYEE agrees to hold the
PROPRIETARY INFORMATION in the strictest confidence, both during and after
EMPLOYEE's employment relationship with SSA. To this end, EMPLOYEE shall:
(a) not make, or permit or cause to be made copies of the PROPRIETARY
INFORMATION, except as necessary to carry out EMPLOYEE's duties as
prescribed by SSA;
(b) not disclose or reveal the PROPRIETARY INFORMATION, or any portion thereof,
to any person except other SSA employees who have signed nondisclosure
agreements with SSA;
(c) take all reasonable precautions to prevent the inadvertent disclosure of
the PROPRIETARY INFORMATION to any unauthorized person;
(d) not transport or cause to be transported the PROPRIETARY INFORMATION
outside the premise of SSA, except as necessary to carry out EMPLOYEE's
duties as prescribed by SSA; and
(e) not without SSA's authorization participate directly or indirectly in the
development, marketing, sale, licensing or other exploitation of software
products or services which embody or are derived from the PROPRIETARY
INFORMATION.
EMPLOYEE expressly agrees that disclosures prohibited hereby include, without
limitation, disclosure of similarities or possible similarities between the
PROPRIETARY INFORMATION and the work product of another person or company.
4. TERMINATION OF EMPLOYMENT. Upon termination of his/her employment for any
reason whatsoever, EMPLOYEE shall deliver to SSA all written or printed
documents, all tapes, disks and other electronic media and all other tangible
property in EMPLOYEE's possession which contain any PROPRIETARY INFORMATION.
For the period of one year after such termination, EMPLOYEE shall not, directly
or indirectly (including without limitation as an officer, director, employer,
employee, advisor, consultant or investor) (i) hire or solicit the employment or
services of any person who is an employee of SSA, or (ii) engage in the
development, production, distribution, sale, licensing, or marketing of software
products directly competitive with SSA's software products including without
limitation software designed to run on IBM AS/400, IBM RS/6000, HP9000 computers
or their successors. If the foregoing covenant is held to be more restrictive
than permitted by applicable law, the objectionable restriction shall be
construed as being limited to the maximum restriction permitted.
5. NOTICE OF PATENT AND COPYRIGHT APPLICATIONS. During the period of one year
after the termination of his/her employment relationship with SSA, EMPLOYEE
shall notify SSA of all patents and copyrights applied for by EMPLOYEE and to
provide SSA with a description of such patents and copyrights sufficient to
enable SSA to determine whether the works over which they are claimed relate to,
or are derived from, the PROPRIETARY INFORMATION.
6. INJUNCTIVE RELIEF. EMPLOYEE acknowledges and agrees that in the event of
any breach or threatened breach by EMPLOYEE of any of the provisions of this
Agreement, damages shall be an inadequate remedy and SSA shall be entitled to
injunctive and otherwise equitable relief. SSA's rights under this provision
are in addition to all rights otherwise available to it at law or in equity.
7. SEVERABILITY. In the event that any provision hereof is found invalid or
unenforceable pursuant to a judicial decree or decision, the invalidity and
unenforceability of such provision shall not affect the other provisions of this
Agreement and all such other provisions shall remain in full force and effect.
It is expressly agreed that the
8
<PAGE>
existence of any claim or cause of action of EMPLOYEE against SSA, whether or
not predicated on this Agreement, shall not constitute a defense to the
enforcement of this Agreement by SSA.
8. WAIVER. No waiver of any provision of this Agreement or any rights or
obligations of either party hereunder shall be effective unless pursuant to a
written instrument signed by the party or parties making such a waiver, and such
waiver shall be effective only in the specific instance and for the specific
purpose stated therein.
9. GOVERNING LAW. This Agreement and any controversy arising hereunder shall
be governed by and interpreted in accordance with the laws of the State of
Illinois.
EMPLOYEE states that he has freely and voluntarily entered into this Agreement,
and that he has read and understood each and every provision hereof. EMPLOYEE
acknowledges receiving a fully executed copy of this Agreement. Signed this 27th
day of August, 1998.
SYSTEM SOFTWARE ASSOCIATES, INC. EMPLOYEE
By: /s/ Kirk Isaacson /s/ Joseph J. Skarda
---------------------------- ----------------------------
Title: VP and General Counsel
-------------------------
9
<PAGE>
EXHIBIT 10.57
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
---------------------------
SECOND AMENDMENT dated as of January 28, 2000 (this "Amendment") to
the LOAN AND SECURITY AGREEMENT dated as of August 11, 1999, as amended by the
FIRST AMENDMENT dated as of December 23, 1999 (the "Loan Agreement") by and
among SYSTEM SOFTWARE ASSOCIATES, INC., a Delaware corporation (the "Borrower"),
SYSTEM SOFTWARE ASSOCIATES LIMITED, a corporation organized under the laws of
England and Wales, SSA-ACCLAIM LIMITED, a corporation organized under the laws
of England and Wales, SSA SOFTWRIGHT LIMITED, a corporation organized under the
laws of England and Wales, SSA CANADA CORPORATION, a corporation organized under
the laws of Canada (together with the Borrower, each an "Obligor" and
collectively the "Obligors", each of the financial institutions signatories
hereto (such financial institutions, together with their respective successors
and assigns, each a "Lender" and collectively, the "Lenders", and FOOTHILL
CAPITAL CORPORATION, a California corporation, as agent for the Lenders (in such
capacity, the "Agent").
WHEREAS, the Obligors have requested the Lender Group to amend certain
terms of the Loan Agreement, and the Lender Group is willing to amend the Loan
Agreement subject to the terms and conditions of this Amendment.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and conditions hereinafter set forth, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Capitalized Terms. All capitalized terms used in this Amendment
(including, without limitation, in the recitals hereto) and not otherwise
defined shall have their respective meanings set forth in the Loan Agreement.
2. Term. Section 3.4 of the Loan Agreement is hereby amended by
deleting the reference to "June 30, 2000" set forth therein and inserting
"November 1, 2000" in lieu thereof.
3. EBITDA. Section 7.20(a) of the Loan Agreement is hereby amended
by deleting the reference to "$9,200,000" for the fiscal quarter ended 4/30/2000
and substituting in lieu thereof a reference to "$5,400,000".
4. Agreements and Consents. Anything contained in Sections 7.14
[Affiliates], 7.23 [Preferred Stock] and 7.27 [Amendment to Certain Documents]
of the Loan Agreement to the contrary notwithstanding, the Required Lenders
hereby consent to the
<PAGE>
amendment to the Amended and Restated Securities Purchase Agreement between the
Borrower and H&Q SSA Investors, L.P. for the sole purpose of waiving compliance
with or deleting financial covenants and otherwise conforming such agreement to
reflect certain changes to the Loan Agreement contained in this Amendment.
5. Conditions. This Amendment shall become effective only upon
satisfaction in full of the following conditions precedent (the first date upon
which all such conditions have been satisfied being herein called the "Amendment
Effective Date"):
(a) Representations and Warranties; No Event of Default. The
representations and warranties contained herein, in Section 5 of the Loan
Agreement and in each other Loan Document and certificate or other writing
delivered to the Agent and the Lenders pursuant hereto on or prior to the
Amendment Effective Date shall be correct on and as of the Amendment Effective
Date as though made on and as of such date (except to the extent that such
representations and warranties expressly relate solely to an earlier date in
which case such representations and warranties shall be true and correct on and
as of such date); and no Default or Event of Default shall have occurred and be
continuing on the Amendment Effective Date or would result from this Amendment
becoming effective in accordance with its terms, unless any such Event of
Default has previously been waived in accordance with Section 15 of the Loan
Agreement.
(b) Delivery of Documents. The Agent shall have received on or
before the Amendment Effective Date the following, each in form and substance
satisfactory to the Agent and, unless indicated otherwise, dated the Amendment
Effective Date:
(i) counterparts of this Amendment, duly executed by the
Obligors and the Lenders, and of the reaffirmation and consent
attached hereto as Exhibit A-1, duly executed by an authorized officer
of each Guarantor; and
(ii) such other agreements, instruments, approvals, opinions
and other documents as the Agent may reasonably request.
(c) Proceedings. All proceedings in connection with the
transactions contemplated by this Amendment, and all documents incidental
thereto, shall be satisfactory to the Agent and its special counsel, and the
Agent and such special counsel shall have received all such information and such
counterpart originals or certified copies of documents, and such other
agreements, instruments, approvals, opinions and other documents, as the Agent
or such special counsel may reasonably request.
(d) Fees. (i) Borrower shall have paid to the Agent, for the
benefit of the Lenders with a Term Loan A Sub-Commitment, a fee of $125,000,
such fee to be paid-in-kind by being added to the principal balance of the Term
Loan A Amount.
2
<PAGE>
(ii) Borrower shall have paid to the Agent, for the benefit
of the Lenders with a Term Loan B Commitment, a fee of $175,000, such
fee to be paid-in-kind by being added to the principal balance of the
Term Loan B Amount.
6. Representations and Warranties. Each of the Obligors warrant as
follows:
(a) Except as previously disclosed in writing to the Agent: (i)
the representations and warranties herein, in the Loan Agreement and in each
other Loan Document and certificate or other writing delivered to the Lenders on
or prior to the Amendment Effective Date shall be correct and accurate on and as
of the Amendment Effective Date as though made on and as of such date; and (ii)
no Default or Event of Default shall have occurred and be continuing on the
Amendment Effective Date or would result from this Amendment becoming effective
in accordance with its terms.
(b) Each of the Obligors (i) is a corporation, duly organized,
validly existing and in good standing under the laws of its state of
organization, (ii) has all requisite power and authority to execute, deliver and
perform this Amendment, and to perform the Loan Agreement, as amended hereby,
and (iii) is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary.
(c) The execution, delivery and performance by each Obligor of
this Amendment, and the performance by each such Obligor of the Loan Agreement,
as amended hereby, (i) have been duly authorized by all necessary action, (ii)
do not and will not contravene such Obligor's charter or by-laws, any applicable
law or any contractual restriction binding on or otherwise affecting it or any
of its properties, (iii) do not and will not result in or require the creation
of any lien or other encumbrance (other than pursuant to any Loan Documents)
upon or with respect to any of its properties, and (iv) do not and will not
result in any suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to its operations or
any of its properties.
(d) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or agency or other
regulatory body is required in connection with the due execution, delivery and
performance by any Obligor of this Amendment, or for the performance of the Loan
Agreement, as amended hereby.
(e) This Amendment, the Loan Agreement, as amended hereby, and
each other Loan Document to which any Obligor is a party is a legal, valid and
binding obligation of such Obligor, enforceable against such Obligor in
accordance with its terms, except as such enforceability may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally.
7. Release by Borrowers. (a) Definition of "Related Parties" and
"Claims". For purposes of this Section 7, "Related Parties" and "Claims" shall
be defined as follows:
3
<PAGE>
"Related Parties" means, with respect to a party released, such
party's parents, subsidiaries, affiliates, successors, predecessors,
assigns, officers, directors, employees, agents, representatives,
attorneys, accountants and shareholders, if any.
"Claims" means any and all claims, losses, debts, liabilities,
demands, obligations, promises, acts, omissions, agreements, costs and
expenses, damages, injuries, suits, actions and causes of action,
including without limitation any and all rights of setoff, recoupment
or counterclaim, of any kind or nature whatsoever, in law or in
equity, known or unknown, suspected or unsuspected, contingent or
fixed.
(b) Release by Obligors. Excluding any continuing obligations of the
Lenders and the Agent under the express terms and provisions of the Loan
Agreement, the Loan Documents and this Amendment, each Obligor hereby releases,
acquits, and forever discharges the Lenders and the Agent, and each of them, as
well as their respective Related Parties, of and from any and all Claims arising
out of, related to or in any way connected with any action or failure to act,
prior to execution of this Amendment, in response to or in connection with any
events or circumstances arising under or otherwise related to the Loan Agreement
and the Loan Documents or any Defaults or Events of Default occurring under the
Loan Agreement.
8. Continued Effectiveness of the Loan Agreement. (a) Except as
otherwise expressly provided herein, the Loan Agreement and the other Loan
Documents are, and shall continue to be, in full force and effect and are hereby
ratified and confirmed in all respects, except that on and after the Amendment
Effective Date (i) all references in the Loan Agreement to "this Agreement",
"hereto", "hereof", "hereunder" or words of like import referring to the Loan
Agreement shall mean the Loan Agreement as amended by this Amendment and (ii)
all references in the other Loan Documents to the "Loan Agreement", "thereto",
"thereof", "thereunder" or words of like import referring to the Loan Agreement
shall mean the Loan Agreement as amended by this Amendment.
(b) The Obligors hereby acknowledge and agree that this Amendment
constitutes a "Loan Document" under the Loan Agreement. Accordingly, it shall
be an Event of Default under the Loan Agreement if (i) any representation or
warranty made by the Obligors under or in connection with this Amendment shall
have been untrue, false or misleading in any material respect when made, or (ii)
the Obligors shall fail to perform or observe any term, covenant or agreement
contained in this Amendment.
9. Costs and Expenses. The Obligors shall pay all out-of-pocket
costs and expenses of the Lender Group (including, without limitation, the
reasonable fees and service charges of counsel to any member of the Lender
Group) in connection with this Amendment.
10. Miscellaneous. (a) This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
4
<PAGE>
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
11. THE OBLIGORS, LENDERS AND THE AGENT EACH HEREBY IRREVOCABLY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AMENDMENT OR THE ACTIONS OF THE LENDER GROUP IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT HEREOF.
[Remainder of this page intentionally left blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
SYSTEM SOFTWARE ASSOCIATES, INC., a Delaware
corporation
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SYSTEM SOFTWARE ASSOCIATES LIMITED, a corporation
organized under the laws of England and Wales
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA-ACCLAIM LIMITED, a corporation organized under the
laws of England and Wales
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA SOFTWRIGHT LIMITED, a corporation organized under
the laws of England and Wales
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA CANADA CORPORATION, a corporation organized under
the laws of Canada
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
6
<PAGE>
FOOTHILL CAPITAL CORPORATION,
as Agent and as a Lender
By: /S/ Erik R. Sawyer
--------------------------------------------
Name: Erik R. Sawyer
Title: Vice President
ABLECO FINANCE LLC,
as a Lender
By: /s/ Kevin Genda
____________________________________________
Name: Kevin Genda
Title:
A2 FUNDING LP,
as a Lender
By: A2 Fund Management LLC,
its General Partner
By: /s/ Kevin Genda
____________________________________________
Name: Kevin Genda
Title:
7
<PAGE>
Exhibit A-1
-----------
REAFFIRMATION AND CONSENT
All capitalized terms used herein but not otherwise defined herein
shall have the meanings ascribed to them in that certain Second Amendment to
Loan and Security Agreement, dated as of January 28, 2000 (the "Amendment"). The
undersigned hereby (a) represents and warrants to the Lender Group that the
execution, delivery, and performance of this Reaffirmation and Consent are
within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, or regulation,
or any order, judgment, decree, writ, injunction, or award of any arbitrator,
court, or governmental authority, or of the terms of its charter or by laws, or
of any contract or undertaking to which it is a party or by which any of its
properties may be bound or affected; (b) consents to the amendment of the Loan
Agreement by the Amendment; (c) acknowledges and reaffirms its obligations owing
to the Lender Group under the Guaranty and any other Loan Documents to which it
is a party; and (d) agrees that each of the Guaranty and any other Loan
Documents to which it is a party is and shall remain in full force and effect.
Although the undersigned has been informed of the matters set forth herein and
has acknowledged and agreed to same, it understands that the Lender Group has no
obligations to inform it of such matters in the future or to seek its
acknowledgement or agreement to future amendments, and nothing herein shall
create such a duty. Delivery of an executed counterpart of this Reaffirmation
and Consent by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Reaffirmation and Consent. Any party
delivering an executed counterpart of this Reaffirmation and Consent by
telefacsimile also shall deliver an original executed counterpart of this
Reaffirmation and Consent but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Reaffirmation and Consent. This Reaffirmation and Consent shall be governed
by the laws of the State of New York, as more fully set forth in Section 20 of
the Guaranty.
SYSTEM SOFTWARE ASSOCIATES LIMITED, a corporation
organized under the laws of England and Wales
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
<PAGE>
SSA-ACCLAIM LIMITED, a corporation organized under the
laws of England and Wales
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA SOFTWRIGHT LIMITED, a corporation organized under
the laws of England and Wales
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA CANADA CORPORATION, a corporation organized under
the laws of Canada
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SYSTEM SOFTWARE ASSOCIATES IBERICA
S.A., a corporation organized under the laws of Spain
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA SYSTEM SOFTWARE ASSOCIATES GmbH,
a corporation organized under the laws of Germany
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
2
<PAGE>
SSA ITALIA SPA, a corporation organized under
the laws of Italy
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA BENELUX B.V., a corporation organized under the
laws of the Netherlands
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SYSTEM SOFTWARE ASSOCIATES ASIA
PACIFIC PTE LTD, a corporation organized under
the laws of Singapore
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA PACIFIC PTY LIMITED, a corporation
organized under the laws of Australia
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA PACIFIC (NZ) LIMITED, a corporation
organized under the laws of New Zealand
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
3
<PAGE>
SYSTEM SOFTWARE ASSOCIATES DO
BRASIL LTDA., a corporation organized under the
laws of Brazil
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SYSTEM SOFTWARE ASSOCIATES INC. de
MEXICO, S.A. de C.V., a corporation organized
under the laws of Mexico
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA JAPAN CORPORATION, a Delaware corporation
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SSA PACIFIC RIM CORPORATION, a Delaware
corporation
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
SYSTEM SOFTWARE ASSOCIATES (JAPAN) LLC,
a Delaware limited liability company
By: /s/ Joseph J. Skadra
----------------------------------------------
Name: Joseph J. Skadra
Title: VP Finance and Controller
4
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation % Stock
---- --------------- -------
<S> <C> <C>
Astral International Corporation Mississippi 100.00
Castillo Informatica, S.A. Spain 100.00
Computer Options, Inc. Delaware 100.00
Knight Enterprises, Inc. Texas 100.00
Noftek N.W., Inc. Oregon 100.00
Priority Systems, Inc. Texas 100.00
Sovata Beheer BV Netherlands 100.00
SSA Acclaim Limited United Kingdom 100.00
SSA Benelux B.V. Netherlands 100.00
SSA Canada Corporation Canada 100.00
System Software Associates Caribbean, Inc. Delaware 100.00
SSA Colombia S.A. Colombia 100.00
SSA Hong Kong Ltd. Hong Kong 100.00
SSA Itallia S.p.A. Italy 100.00
System Software Japan Corp. Delaware 100.00
SSA Korea Ltd. Korea 100.00
SSA Nordic AB Sweden 100.00
SSA North Central Minnesota 100.00
SSA Pacific (New Zealand) Ltd. New Zealand 100.00
System Software Services Pty. Ltd. Australia 100.00
System Software Pacific Rim Corporation Delaware 100.00
SSA Software (Malaysia) SDN.BHD. Malaysia 100.00
SSA Softwright Limited England 100.00
SSA GmbH Germany 100.00
System Software Associates Do Brasil Ltda. Brazil 100.00
SSA (Beijing) Co. Ltd. China 100.00
System Software Associates (Japan) LLC Delaware 100.00
System Software Associates AG, Basel Switzerland 100.00
System Software Associates Asia Pacific Pte. Ltd. Singapore 100.00
SSA Iberica S.A. Spain 100.00
SSA de Mexico, S.A. de C.V. Mexico 100.00
System Software Associates Limited England 100.00
SSA France S.A. France 100.00
System Software Associates (FSC), Inc. U.S. Virgin Islands 100.00
Wallop Investments (Proprietary) Limited South Africa 100.00
</TABLE>
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
System Software Associates, Inc.:
We consent to incorporation by reference in the registration statements [(Nos.
33-14261, 333-36777, 33-24516, 333-90337 and 333-90339)] on Form S-8 and
registration statements [(Nos. 33-46449, 33-62207, 333-06647, 333-09463, 333-
21561, 333-29355, 333-31271, 333-35195, 333-35771, 33-64551, 33-70516 and 333-
71663)] on Form S-3 of System Software Associates, Inc. of our report dated
January 31, 2000 relating to the consolidated balance sheets of System Software
Associates, Inc. and subsidiaries as of October 31, 1999 and 1998, and the
related consolidated statements of operations, comprehensive income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended October 31, 1999, and the related schedule, which report appears in
the October 31, 1999 annual report on Form 10-K of System Software Associates,
Inc.
/s/ KPMG LLP
Chicago, Illinois
January 31, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 24,600
<SECURITIES> 0
<RECEIVABLES> 106,900
<ALLOWANCES> 7,800
<INVENTORY> 0
<CURRENT-ASSETS> 152,900
<PP&E> 63,100
<DEPRECIATION> 51,000
<TOTAL-ASSETS> 230,000
<CURRENT-LIABILITIES> 107,200
<BONDS> 137,500
9,100
0
<COMMON> 200
<OTHER-SE> (73,800)
<TOTAL-LIABILITY-AND-EQUITY> 230,000
<SALES> 315,700
<TOTAL-REVENUES> 315,700
<CGS> 0
<TOTAL-COSTS> 367,600
<OTHER-EXPENSES> (2,800)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,100
<INCOME-PRETAX> (61,200)
<INCOME-TAX> 27,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89,500)
<EPS-BASIC> (7.46)
<EPS-DILUTED> (7.46)
</TABLE>
