<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
(mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission File Number 0-23852
PROJECT SOFTWARE & DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction (I.R.S employer
incorporation or organization) identification number)
100 CROSBY DRIVE, BEDFORD MASSACHUSETTS 01730
(Address of principal executive offices, including zip code)
(formerly at 20 University Road
Cambridge, MA. 02138)
(781) 280-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No
Number of shares outstanding of the Registrant's common stock as of the latest
practicable date: 9,955,089 shares of common stock, $.01 par value per share, as
of April 30, 1998.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
<TABLE>
<CAPTION>
PAGE
- ----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets (unaudited) as of March 3
31, 1998 and September 30, 1997.
Consolidated Statements of Operations (unaudited) 4
for the three and six months ended March 31, 1998
and 1997.
Consolidated Statements of Cash Flows (unaudited) 5
for the three and six months ended March 31, 1998
and 1997.
Notes to Consolidated Financial Statements 6
(unaudited).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29
SIGNATURE 31
</TABLE>
2
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MARCH 31, SEPTEMBER 30,
1998 1997
---- ----
(IN THOUSANDS,EXCEPT SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,285 $ 25,964
Marketable securities 38,692 38,299
Accounts receivable, trade, less allowance
for doubtful accounts of $2,200 at March 31,
1998 and $2,286 at September 30, 1997, respectively 25,761 24,021
Prepaid expenses 2,861 1,877
Other assets 1,045 1,244
Deferred income taxes 1,851 1,806
--------- ---------
Total current assets 87,495 93,211
--------- ---------
Property and equipment, net 9,432 7,322
Computer software costs, net 518 --
Goodwill, net 1,175 1,447
Deferred income taxes 316 214
Other assets 51 45
--------- ---------
Total assets $ 98,987 $ 102,239
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,064 $ 9,809
Accrued compensation 2,951 4,494
Income taxes payable 2,294 3,678
Deferred revenue 11,083 9,750
Deferred income taxes 213 394
--------- ---------
Total current liabilities 26,605 28,125
--------- ---------
Deferred income taxes 436 12
Deferred rent 63 12
Deferred revenue 128 120
Commitments and contingencies
Preferred stock, $.01 par value;1,000,000 authorized,
none issued and outstanding -- --
Common stock, $.01 par value;15,350,000 authorized;
issued and outstanding 9,935,484 and 9,856,474 for March 31,
1998 and September 30, 1997, respectively 99 99
Additional paid-in capital 49,026 48,163
Retained earnings 23,630 26,108
Cumulative translation adjustment (825) (629)
Net unrealized (loss)/gain on marketable securities (175) 229
--------- ---------
Total stockholders' equity 71,755 73,970
--------- ---------
Total liabilities and stockholders' equity $ 98,987 $ 102,239
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Software $ 13,252 $ 11,215 $ 24,395 $ 24,888
Support and services 14,987 10,971 28,954 20,677
------------ ------------ ------------ ------------
Total revenues 28,239 22,186 53,349 45,565
------------ ------------ ------------ ------------
Cost of revenues:
Software 1,225 618 1,829 1,251
Support and services 8,034 5,894 14,620 11,182
------------ ------------ ------------ ------------
Total cost of revenues 9,259 6,512 16,449 12,433
------------ ------------ ------------ ------------
Gross margin 18,980 15,674 36,900 33,132
Operating expenses:
Sales and marketing 9,090 8,232 17,171 15,571
Product development 3,085 2,883 5,769 5,374
General and administrative 2,355 2,437 4,695 4,959
Charge for purchased in-process 9,172 - - - 9,172 - - -
product development
------------ ------------ ------------ ------------
Total operating expenses 23,702 13,552 36,807 25,904
------------ ------------ ------------ ------------
(Loss)/income from operations (4,722) 2,122 93 7,228
Interest income (expense), net 665 487 1,402 946
Other income (expense), net (248) (199) (236) (141)
------------ ------------ ------------ ------------
(Loss)/income before income taxes (4,305) 2,410 1,259 8,033
Provision for income taxes 1,678 874 3,737 2,968
------------ ------------ ------------ ------------
Net (loss)/income $ (5,983) $ 1,536 $ (2,478) $ 5,065
============ ============ ============ ============
Net (loss)/income per share, basic $ (0.60) $ 0.16 $ (0.25) $ 0.52
------------ ------------ ------------ ------------
Net (loss)/income per share, diluted $ (0.60) $ 0.15 $ (0.25) $ 0.50
------------ ------------ ------------ ------------
Shares used to calculate net (loss)/income per share
Basic 9,911,496 9,767,352 9,888,015 9,737,837
Diluted 9,911,496 10,133,795 9,888,015 10,130,841
Supplemental Data: (1)
Adjusted operating income $ 4,450 $ 2,122 $ 9,265 $ 7,228
Adjusted net income applicable to $ 3,190 $ 1,536 $ 6,694 $ 5,065
shareholders
Shares used to calculate net income 10,067,707 10,133,795 10,055,016 10,130,841
per share, diluted
Adjusted net income per share, diluted $ 0.32 $ 0.15 $ 0.67 $ 0.50
</TABLE>
(1) Excludes charge for purchased in-process product development.
The accompanying notes are an integral part
of the consolidated financial statements.
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PROJECT SOFTWARE & DEVELOPMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997
----- ----
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ (2,478) $ 5,065
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,941 1,680
Loss on sale and disposal of property
and equipment 6 28
Amortization of discount on marketable securities 55 794
Deferred rent 51 (34)
Deferred taxes 88 (407)
Charge for purchased in-process product development 9,173 --
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable (1,543) 3,713
Prepaid expenses (967) (64)
Other assets 184 (740)
Accounts payable (1,006) 533
Accrued compensation (1,513) (2,330)
Income taxes payable (1,370) 1,198
Deferred revenue 1,424 306
--------- ---------
Net cash provided by/(used in) operating activities 4,045 9,742
--------- ---------
Cash flows from investing activities:
Acquisitions of business, net of cash (7,464) --
Acquisitions of property and equipment (2,800) (2,345)
Additions to computer software costs (891) (70)
Purchase of marketable securities (59,518) (48,278)
Sale of marketable securities 58,666 47,006
--------- ---------
Net cash used in investing activities (12,007) (3,687)
--------- ---------
Cash flows from financing activities:
Payments on bank loans (471) --
Payments of debenture (1,056) --
Proceeds from exercise of stock options 863 1,380
including related tax benefit
--------- ---------
Net cash (used in)/provided by financing activities (664) 1,380
--------- ---------
Effect of exchange rate changes on cash (53) (196)
--------- ---------
Net (decrease) increase in cash and cash equivalents (8,679) 7,239
Cash and cash equivalents, beginning of period 25,964 9,097
--------- ---------
Cash and cash equivalents, end of period $ 17,285 $ 16,336
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
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PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Project Software & Development, Inc. (PSDI) and its majority-owned
subsidiaries (collectively, the "Company"), as of March 31, 1998 and have been
prepared by the Company in accordance with generally accepted accounting
principles for interim reporting and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All intercompany accounts and transactions have
been eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. The results of operations for the periods
presented herein are not necessarily indicative of the results of operations to
be expected for the entire fiscal year, which ends on September 30, 1998, or for
any other future period.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended September
30, 1997 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on December 29, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. INCOME PER SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing income available to common
shareholders by the weighted average common shares outstanding plus additional
common shares that would have been outstanding if dilutive potential common
shares had been issued. For purposes of this calculation, stock options are
considered common stock equivalents in periods in which they have a dilutive
effect.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share (SFAS
128) replaces APB Opinion No. 15, Earnings Per
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Share. SFAS 128 simplifies the computation of EPS by replacing the presentation
of primary EPS with a presentation of basic EPS. It requires dual presentation
of basic and diluted EPS by entities with complex capital structures. The
Company adopted SFAS 128 per the effective date for the periods ended after
December 15, 1997.
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
BASIC EPS 03/31/98 03/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income $(5,982,818) $ 1,535,729
Weighted average common
shares outstanding 9,911,496 9,767,352
Basic income per share $ (0.60) $ 0.16
DILUTED EPS
- --------------------------------------------------------------------------------
Net income $(5,982,818) $ 1,535,729
Weighted average common
shares outstanding 9,911,496 9,767,352
Common stock equivalents (1) 366,443
---------------------------------------------
Total diluted
shares 9,911,496 10,133,795
Diluted income
per share $ (0.60) $ 0.15
SIX MONTHS ENDED
BASIC EPS 03/31/98 03/31/97
- --------------------------------------------------------------------------------
Net income $(2,478,008) $ 5,064,556
Weighted average common
shares outstanding 9,888,015 9,737,837
Basic income per share $ (0.25) $ 0.52
DILUTED EPS
- --------------------------------------------------------------------------------
Net income $(2,478,008) $ 5,064,556
Weighted average common
shares outstanding 9,888,015 9,737,837
Common stock equivalents (1) 393,004
---------------------------------------------
Total diluted
shares 9,888,015 10,130,841
Diluted income
per share $ (0.25) $ 0.50
</TABLE>
(1) Common stock equivalents are not included because they are anti-dilutive.
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C. ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) is effective for fiscal years beginning after December 15,
1997. SFAS 130 requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. The Company will adopt SFAS 130 in fiscal year ended
September 30, 1999.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131) is effective for financial
statements for periods beginning after December 15, 1997. This statement will
change the way companies report annual financial statements and requires them to
report selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues, and its major customers. The Company will adopt SFAS 131 for
the current fiscal year ended September 30, 1998.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits" (SFAS 132) is effective for
financial statements for fiscal years beginning after December 15, 1997. SFAS
132 revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
The Company will adopt SFAS 132 in the fiscal year ended September 30, 1999.
Statement of Position ("SOP") 97-2, "Software Revenue Recognition" was issued in
October 1997 and addresses software revenue recognition matters. The SOP
supersedes SOP 91-1 and is effective for transactions entered into for fiscal
years beginning after December 15, 1997. In March 1998, the adoption date of
certain provisions of SOP No. 97-2 were postponed. Based upon its reading and
interpretation of SOP 97-2 the Company believes its current revenue recognition
policies and practices are materially consistent with the SOP.
D. COMPUTER SOFTWARE COSTS
Internally developed software costs capitalized were $0 and $675,000 for the
three and six months ended March 31, 1998. There were no software costs
capitalized in the three and six months ended March 31, 1997. Amortization
expense was $135,000 and $127,000 for the three months ended March 31, 1998 and
1997, respectively, and $158,000 and $254,000 for the six months ended March 31,
1998 and 1997, respectively. Software costs are
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<PAGE> 9
amortized on a straight-line basis over the estimated useful or market life of
the software (generally, fifteen months).
E. ACQUISITIONS
On February 6, 1998, the Company acquired the stock of A.R.M. Group Inc.,
Ontario, Canada for the sum of $10.3 million in cash, stock and assumed
liabilities. A.R.M. Group Inc. was a privately-held organization that helped
businesses solve maintenance and materials management problems. A.R.M launched
the M|Net solution and emerged as a leader in shared inventory networks over
which distributors, manufacturers and purchasers of Maintenance Repair
Operations (MRO) supplies conduct their business. The Company recorded the
acquisition using the purchase method of accounting with $9.2 million of the
purchase price allocated to in-process product development and charged to the
consolidated statement of operations on March 31, 1998, $452 thousand allocated
to purchased technology, and $657 thousand allocated to tangible assets. The
Company determined that certain aspects of the acquired technology had not
reached technological feasibility and had no alternative future use. The Company
expensed the portion of the purchase price allocable to such in-process product
development at the date of acquisition. The operating results of this acquired
business has been included in the consolidated statement of operations from the
date of acquisition.
F. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest and taxes were as follows:
<TABLE>
<CAPTION>
Six Month Ended
--------------------------
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Interest........................................... $ 4 $ 2
Income taxes....................................... 4,113 525
</TABLE>
Acquisitions of businesses were as follows:
<TABLE>
<CAPTION>
Six Month Ended
--------------------------
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Fair value of assets acquired...................... $10,280 $ --
Fair value of liabilities assumed.................. 2,751 --
Net cash payments.................................. 6,400 --
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information this Quarterly Report contains
forward-looking statements. The forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Future Performance."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's opinions only as of the date hereof. The
Company undertakes no obligation to revise or publicly release the results of
any revision to these forward-looking statements. Readers should carefully
review the risk factors described in other documents of the Company files from
time to time with the Securities and Exchange Commission, including the Annual
Report on Form 10-K for the fiscal year ended September 30, 1997 and the
Quarterly Reports on Form 10-Q filed by the Company in fiscal 1998.
OVERVIEW
The Company develops, markets and supports applications software used by
businesses, government and other organizations to improve the productivity of
facilities, plants and production equipment. The Company's revenues are derived
primarily from two sources: software licenses and fees for services, including
support contracts, training and consulting services and connect fees for on-line
charges to engage in electronic commerce for Maintenance Repair Operations (MRO)
supplies. The Company has experienced a significant shift in the sources of its
revenues as a result of its decision to concentrate its resources on the
development and marketing of enterprise-wide asset maintenance management
systems operating in a client/server environment.
The Company's principal products are its client/server versions of MAXIMO.
Client/server MAXIMO runs on Oracle 7, SQLServer, SYBASE and SQLBase platforms.
The product acquired as a result of the acquisition of Maintenance Automation
Corporation ("MAC") on March 1, 1996, MAXIMO ADvantage, is intended for the
lowerend maintenance market. MAXIMO ADvantage supports Microsoft Access for the
single user, PC LAN segment.
The Company made MAXIMO 4.0 generally available in March 1998. The release of
MAXIMO 4.0 will combine an open architecture with self-service Java components,
business process workflow, and enhanced safety features. This helps
organizations better manage maintenance operations and prevent equipment
disruptions and down
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time. MAXIMO 4.0 includes safety and compliance features so that companies can
implement in-depth tracking and reporting processes that adhere to mandated
regulatory guidelines.
The Company's other client/server product, P/X is no longer actively sold or
marketed. The Company also no longer actively markets its mainframe and other
project management software products. However, the Company does provide
technical support and other services to the P/X and mainframe installed customer
base.
ACQUISITIONS
On February 6, 1998, the Company acquired the stock of A.R.M. Group Inc.,
Ontario, Canada for the sum of $10.3 million in cash, stock and assumed
liabilities. A.R.M. Group Inc. was a privately-held organization that helped
businesses solve maintenance and materials management problems. A.R.M launched
the M|Net solution and emerged as a leader in shared inventory networks over
which distributors, manufacturers and purchasers of MRO supplies conduct their
business. The Company recorded the acquisition using the purchase method of
accounting with $9.2 million of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations on
March 31, 1998, $452 thousand allocated to purchased technology, and $657
thousand allocated to tangible assets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES
<TABLE>
<CAPTION>
Three Months CHANGE % Three Months
(in thousands) Ended 03/31/98 Ended 03/31/97
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Software licenses $13,252 18.2% $11,215
Percentage of total revenues 46.9% 50.5%
Support and services $14,987 36.6% $10,971
Percentage of total revenues 53.1% 49.5%
Total revenues $28,239 27.3% $22,186
</TABLE>
The growth in total revenues is generated from the Company's MAXIMO software and
related support and services. A significant portion of the Company's total
revenues are derived from operations outside the United States. Revenues from
sales outside the United States increased 51.1% to $13.9 million or 49.1% of
total revenues for the three months ended March 31, 1998,
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compared to $9.2 million or 41.5% of total revenues for the three months ended
March 31, 1997.
Revenues from the client/server versions of MAXIMO increased 30.2% to $26.3
million or 93.0% of total revenues for the three months ended March 31, 1998
compared to $20.2 million or 91.2% of total revenues for the three months ended
March 31, 1997. The increase in MAXIMO client/server software licenses for the
quarter is attributable in part to an increase in the number of licenses sold
and the general availability of MAXIMO Release 4.0.
Revenues from MAXIMO ADvantage decreased 1.2% or 4.3% of total revenues for the
three months ended March 31, 1998 compared to 5.5% of total revenues for the
three months ended March 31, 1997.
Revenues from licenses of P/X and from related support and services decreased
24.4% to $384 thousand or 1.4% of total revenues for the three months ended
March 31, 1998 compared to $508 thousand or 2.3% of total revenues for the three
months ended March 31, 1997. The Company no longer focuses on selling and
marketing this product.
The Company's new electronic commerce product, M|Net, acquired as a result of
the A.R.M. Group Inc. acquisition on February 6, 1998, recognized revenues of
$237 thousand for the quarter.
The increase in support and services revenues is attributable to increases in
both MAXIMO support contracts and consulting services. Consulting services
continue to be a larger percentage of total revenues due to additional service
demands in connection with large scale implementations of the Company's MAXIMO
client/server product. For the period, over 90% of all MAXIMO client/server
customers have renewed their maintenance contracts.
COST OF REVENUES
<TABLE>
<CAPTION>
Three Months CHANGE % Three Months
(in thousands) Ended 03/31/98 Ended 03/31/97
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Software licenses $1,225 98.2% $618
Percentage of software licenses 9.2% 5.5%
Support and services $8,034 36.3% $5,894
Percentage of support and services 53.6% 53.7%
Total cost of revenues $9,259 42.2% $6,512
Percentage of total revenues 32.8% 29.4%
</TABLE>
Cost of software revenues consists of royalties paid to vendors of third party
software, the amortization of capitalized software, the cost of software product
packaging and media, and
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<PAGE> 13
certain employee costs related to software duplication, packaging and shipping.
The increase in the cost of software revenues is due primarily to royalties paid
to third party vendors for software and costs for third party software products.
Cost of support and services consists primarily of personnel costs for employees
and the related costs of benefits and facilities. The increase in the cost of
support and services is attributable to the hiring of employees and the
extensive use of third-party consultants contracted to perform services for the
Company. The Company utilizes the services of these higher cost third party
consultants in order to meet the services backlog. The cost of the services
component as a percentage of services revenues increased to 74.0% from 68.7% for
the three months ended March 31, 1998 and 1997, respectively. The increase is
partially attributable to the loss of billable days associated with a global
services meeting for MAXIMO Release 4.0 training and the costs associated with
the meeting, which will not recur this fiscal year.(1)
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Months CHANGE % Three Months
(in thousands) Ended 03/31/98 Ended 03/31/97
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and marketing $9,090 10.4 % $8,232
Percentage of total revenues 32.2% 37.1%
Product development $3,085 7.0 % $2,883
Percentage of total revenues 10.9% 13.0%
General and administrative $2,355 (3.4)% $2,437
Percentage of total revenues 8.3% 11.0%
In-Process Product Development $9,172 N/A
Percentage of total revenues 32.5% 100% N/A
</TABLE>
The increase in sales and marketing expenses in the three months ended March 31,
1998 is primarily due to increases in sales, sales support and marketing
personnel and travel and lodging expenses due partially to price increases
imposed by the airline and travel industries. The comparative quarters expense
levels were a larger percentage of revenues as they were established for
budgeted revenue levels that were not achieved.
The increase in product development expenses in the three months ended March 31,
1998 is primarily due to the engagement of additional employees and third party
consultants who worked on the new client/server release of MAXIMO. The Company's
new release of MAXIMO 4.0 was generally made available in March 1998.
- ----------
(1) Forward looking statement
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<PAGE> 14
There were no internal software costs capitalized in the three months ended
March 31, 1998 and 1997. The comparative quarters expense levels were a larger
percentage of revenues as they were established for budgeted revenue levels that
were not achieved. The Company will continue to make investments in a new MAXIMO
Java-based component architecture application.(1) The Company will also expend
development dollars on its M|Net electronic commerce product for MRO supply
chain management.(1) The Company will continue to invest in client/server MAXIMO
including application software products developed by Oracle, Peoplesoft and
SAP.(1) Additionally, a new version of client/server MAXIMO will be made
available later in the year that will support the European Monetary Policy.(1)
The decrease in general and administrative expenses for the three months ended
March 31, 1998 is primarily due to a decrease in bad debt expenses, as adequate
reserves already exist. Partially offsetting the reduction of bad debt expenses
in the three months ended March 31, 1998 was an increase in legal fees for
counsel for outside directors, proxy statement review and preparation, and
growth in international operations.
In connection with the A.R.M. Group Inc. acquisition, the Company acquired
in-process product development of $9.2 million. The Company determined that
certain aspects of the acquired technology had not reached technological
feasibility and had no alternative future use. The Company reached this
conclusion based on information prepared by a third party. The Company expensed
the portion of the purchase price allocable to in-process product development at
the date of acquisition.
NON-OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Months CHANGE % Three Months
(in thousands) Ended 03/31/98 Ended 03/31/97
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income(expense),net $ 665 36.6 % $ 487
Other income (expense),net $(248) (24.6)% $(199)
</TABLE>
The increase in interest income for the three months ended March 31, 1998 is
attributable to interest earned on increased cash equivalents from cash flow
generated from operations including accounts receivable collections. The days
sales outstanding were improved to 82 days from 96 days at March 31, 1998 and
March 31, 1997, respectively. The Company has established a target of 90 to 95
days for its days sales outstanding.(1) The increase in other expense is
primarily attributable to accrued translation losses on certain Asian
receivables. Given the nature of the
- ----------
(1) Forward looking statement
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<PAGE> 15
Asian economies, further losses may be realized in the future if the currencies
do not stabilize in relation to the dollar. (1)
PROVISION FOR INCOME TAXES
The Company's effective tax rate before a one time non-deductible charge for
purchased in-process product development was 34.4% for the three months ended
March 31, 1998. The Company's effective tax rate for the three months ended
March 31, 1997 was 36.3%. The Company anticipates that its 1998 effective
quarterly rates will not exceed 37%. (1)
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
REVENUES
<TABLE>
<CAPTION>
Six Months CHANGE % Six Months
(in thousands) Ended 03/31/98 Ended 03/31/97
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Software licenses $24,395 (2.0)% $24,888
Percentage of total revenues 45.7% 54.6%
Support and services $28,954 40.0 % $20,677
Percentage of total revenues 54.3% 45.4%
Total revenues $53,349 17.1 % $45,565
</TABLE>
The growth in total revenues is generated from the Company's MAXIMO software and
related support and services. A significant portion of the Company's total
revenues are derived from operations outside the United States. Revenues from
sales outside the United States increased 27.7% to $24.9 million or 47% of total
revenues for the six months ended March 31, 1998, compared to $19.5 million or
42.8% of total revenues for the six months ended March 31, 1997.
Revenues from the client/server versions of MAXIMO increased 19.9% to $49.5
million or 92.9% of total revenues for the six months ended March 31, 1998
compared to $41.3 million or 90.6% of total revenues for the six months ended
March 31, 1997.
Revenues from MAXIMO Advantage decreased 1.0% or 4.5% of total revenues for the
six months ended March 31, 1998 compared or 5.4% of total revenues for the six
months ended March 31, 1997.
Revenues from licenses of P/X and from related support and services decreased
31.7% to $888 thousand or 1.7% of total revenues for the six months ended March
31, 1998 compared to $1.3 million or 2.9% of total revenues for the six months
ended March
- ----------
(1) Forward looking statement
15
<PAGE> 16
31, 1997. The Company no longer focuses on selling and marketing this product.
The decrease in software license revenues is attributable to the lengthening of
the sales cycle experienced by the Company with respect to its client/server
product during the first quarter of 1998. The Company believes that the
expansion or lengthening of the sales cycle can be attributed to a number of
factors, including but not limited to, the timing of new product releases by the
Company and its competitors, which has resulted in more demonstrations and
competitive analysis by potential customers and the linkage by customers of the
selection of a maintenance management system with the selection of an ERP
system. Another factor that may have contributed to the decrease in software
license revenues is that the Company was not adequately focused on the lower,
mid-price segment of the client/server market. Lastly, the Company believes that
a Schedule 13D filed by one of the directors of the Company concerning the
potential sale of the Company may have also adversely affected sales for the
period. There can be no assurances that these factors will not continue to have
adverse effects on software license revenue. (1)
The increase in support and services revenues is attributable to increases in
both MAXIMO support contracts and consulting services. Consulting services
continue to be a larger percentage of total revenues due to additional service
demands in connection with large scale implementations of the Company's MAXIMO
client/server product.
COST OF REVENUES
<TABLE>
<CAPTION>
Six Months CHANGE % Six Months
(in thousands) Ended 03/31/98 Ended 03/31/97
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Software licenses $1,829 46.2% $1,251
Percentage of software licenses 7.5% 5.0%
Support and services $14,620 30.7% $11,182
Percentage of support and services 50.5% 54.1%
Total cost of revenues $16,449 32.3% $12,433
Percentage of total revenues 30.8% 27.3%
</TABLE>
Cost of software revenues consists of royalties paid to vendors of third party
software, the amortization of capitalized software, the cost of software product
packaging and media, and certain employee costs related to software duplication,
packaging and shipping. The increase in the cost of software revenues is due
primarily to royalties paid to third party vendors for software and costs for
third party software products.
- ----------
(1) Forward looking statement
16
<PAGE> 17
Cost of support and services consists primarily of personnel costs for employees
and the related costs of benefits and facilities. The increase in the cost of
support and services is attributable to the hiring of employees and the
extensive use of third-party consultants contracted to perform services for the
Company. The Company utilizes the services of these higher cost third party
consultants in order to meet the services backlog.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Six Months CHANGE % Six Months
(in thousands) Ended 03/31/98 Ended 03/31/97
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and marketing $17,171 10.3 % $15,571
Percentage of total revenues 32.2% 34.2%
Product development $5,769 7.4 % $5,374
Percentage of total revenues 10.8% 11.8%
General and administrative $4,695 (5.3)% $4,959
Percentage of total revenues 8.8% 10.9%
In-Process Product Development $9,172 N/A
Percentage of total revenues 17.2% 100% N/A
</TABLE>
The increase in sales and marketing expenses in the six months ended March 31,
1998 is primarily due to increases in the number of sales, sales support and
marketing personnel and price increases imposed by the airline and travel
industries. The comparative quarters expense levels were a larger percentage of
revenues as they were established for budgeted revenue levels that were not
achieved.
The increase in product development expenses in the six months ended March 31,
1998 is primarily due to the engagement of additional employees and third party
consultants who worked on the new client/server releases of MAXIMO. The
Company's new release of MAXIMO 4.0 was generally made available in March 1998.
Software costs capitalized in the six months ended March 31, 1998 and 1997 were
$675,000 and $0, respectively. The comparative quarters expense levels were a
larger percentage of revenues as they were established for budgeted revenue
levels that were not achieved. The Company will continue to make investments in
a new MAXIMO Java-based component architecture application.(1) The Company will
also expend development dollars on its M|Net electronic commerce product for MRO
supply chain management.(1) The Company will continue to invest in client/server
MAXIMO including application software products developed by Oracle, Peoplesoft
and SAP.(1) Additionally, a new version of client/server MAXIMO will be made
available later in the year that will support the European Monetary Policy.(1)
- ----------
(1) Forward looking statement
17
<PAGE> 18
The decrease in general and administrative expenses for the six months ended
March 31, 1998 is primarily due to a decrease in bad debt expenses, as adequate
reserves already exist. Partially offsetting the reduction of bad debt expenses
in the six months ended March 31, 1998 was an increase in legal fees for counsel
for outside directors, proxy statement review and preparation, and growth in
international operations.
In connection with the A.R.M. Group Inc. acquisition, the Company acquired
in-process product development of $9.2 million. The Company determined that
certain aspects of the acquired technology had not reached technological
feasibility and had no alternative future use. The Company reached this
conclusion based on information prepared by a third party. The Company expensed
the portion of the purchase price allocable to such in-process product
development at the date of acquisition.
NON-OPERATING EXPENSES
<TABLE>
<CAPTION>
Six Months CHANGE % Six Months Ended
(in thousands) Ended 03/31/98 03/31/97
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income(expense),net $1,402 48.2% $946
Other income (expense),net $(236) (67.4)% $(141)
</TABLE>
The increase in interest income for the six months ended March 31, 1998 is
attributable to interest earned on increased cash equivalents from cash flow
generated from operations including accounts receivable collections. The
increase in other expense is primarily attributable to accrued translation
losses on certain Asian receivables. Given the nature of the Asian economies,
further losses may be realized in the future if the currencies do not stabilize
in relation to the dollar. (1)
PROVISION FOR INCOME TAXES
The Company's effective tax rate before a one time non-deductible charge for
purchased in-process product development was 35.8% for the six months ended
March 31, 1998. The Company's effective tax rate for the six months ended March
31, 1997 was 36.9%. The income tax expense provided during 1998 reflects the
nondeductible nature of certain acquisition related charges of the A.R.M. Group
Inc. The Company anticipates that its 1998 effective annual rates will not
exceed 37%. (1)
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had cash and cash equivalents and marketable
securities of approximately $56 million and
- ----------
(1) Forward looking statement
18
<PAGE> 19
working capital of $60.9 million. Cash generated by operations for the six
months ended March 31, 1998 was $4.1 million, primarily attributable to the
purchase of in-process product development in connection with the A.R.M. Group
acquisition. Also contributing to the use of cash by operations was an increase
in receivables as a result of the increase in revenues, bonuses paid to
employees, income taxes paid, payments made to trade vendors, and prepaid
royalties paid to third party software vendors. Also offsetting the use of cash
by operating activities is cash generated by depreciation and deferred
maintenance revenues. Cash used in investing activities totaled $2.8 million,
primarily for improvements related to the relocation of the Company's corporate
headquarters in December 1997 and the purchase of marketable securities. Cash
used in financing activities was $664 thousand, primarily for payment of bank
loans and debentures assumed from the acquisition of the ARM Group, offset by
proceeds received from exercises of employee stock options.
As of March 31, 1998, the Company's principal commitments consisted primarily of
an office lease for its headquarters. The Company leases its facilities and
certain equipment under non-cancelable operating lease agreements that expire at
various dates through November 2003. The Company relocated its corporate
headquarters in December 1997. Under the terms of the lease agreement, upon
termination of the lease the Company has the right to extend the lease for an
additional six year term for an agreed upon fixed cost. The Company's
expenditures for construction and leasehold improvements in connection with the
relocation were $2.2 million.
The Company believes that its current cash balances combined with cash flow from
operations will be sufficient to meet its working capital and capital
expenditure requirements through at least September 30, 1999. (1)
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Certain computer programs
that have date sensitive software and use two digits only may recognize a date
using "00" as the year 1900 rather than the year 2000.
The Company has made a recent assessment of its internal business information
systems and estimate that the costs associated with preparing internal systems
for the Year 2000 should not exceed $100,000.(1) The Company also utilizes other
third party software products, network equipment and telecommunications
products. The Company is currently taking steps to address the impact, if any,
of the Year 2000 issue relating to third party products, failure of any critical
technology components to operate properly in the
- ----------
(1) Forward looking statement
19
<PAGE> 20
Year 2000 may have an adverse impact on business operations or require the
Company to incur unanticipated expenses to remedy any problems.(1)
The Company warrants that its current versions of MAXIMO and P/X client/server
products and MAXIMO ADvantage are year 2000 enabled. The Company's other product
Project 2 is no longer sold but the Company does offer support for this product.
The Company will release an upgrade of this product that is year 2000 enabled.
The Company estimates that the cost to upgrade this product and any other older
versions of its products will not have a material adverse effect on its results
of operations or financial condition.(1)
FACTORS AFFECTING FUTURE PERFORMANCE
The nature of forward-looking information is that such information involves
assumptions, risks and uncertainties. Certain public documents of the Company
and oral statements made by authorized officers, directors, employees, agents
and representatives of the Company, acting on its behalf, may include
forward-looking information which will be influenced by the following and other
assumptions, risks and uncertainties. Forward-looking information requires
management of the Company to make assumptions, estimates, forecasts and
projections regarding the Company's future results as well as the future
effectiveness of the Company's strategic plans and future operational decisions.
Forward-looking statements made by or on behalf of the Company are subject to
the risk that the forecasts, projections, and expectations of management, or
assumptions underlying such forecasts, projections and expectations, may become
inaccurate. Accordingly, actual results and the Company's implementation of its
plans and operations may differ materially from forward-looking statements made
by or on behalf of the Company. The following discussion identifies certain
important factors that could affect the Company's actual results and actions and
could cause such results and actions to differ materially from any
forward-looking statements made by or on behalf of the Company that related to
such results and actions. Other factors, which are not identified herein, could
also have such an effect.
GENERAL ECONOMIC RISK FACTORS
To date, inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation will not adversely
affect the Company's financial results in the future.
- ----------
(1) Forward looking statement
20
<PAGE> 21
RAPID TECHNOLOGICAL CHANGE
The computer software industry is characterized by rapid technological advances,
changes in customer requirements and frequent product introductions and
enhancements. The Company's success depends upon its ability to continue to
enhance its current products and to develop and introduce new products that keep
pace with technological developments, respond to evolving customer requirements
and achieve market acceptance. In particular, the Company believes that it must
continue to respond quickly to users' needs for broad functionality and to
advances in hardware and operating systems. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could result in a loss of competitiveness and revenues. There can be no
assurance that the Company will be successful in developing and marketing new
products or product enhancements, or that the Company will not experience
significant delays in developing such new products or product enhancements,
which delays could have a material adverse effect on the Company's results of
operations. In addition, there can be no assurance that new products and product
enhancements developed by the Company will achieve market acceptance.
DEPENDENCE ON MAXIMO
The Company's revenues are primarily attributable to the licensing of its MAXIMO
client/server product, introduced in 1991, and to related services and support.
Revenues from licenses of MAXIMO and related services and support accounted for
approximately 96.3% of the Company's total revenues in fiscal 1997. The
Company's financial performance in fiscal 1998 will depend on continued market
acceptance of MAXIMO. The Company believes that continued market acceptance of
MAXIMO will largely depend on its ability to enhance and broaden the
capabilities of MAXIMO, by, among other things, developing additional
application modules for MAXIMO, versions of MAXIMO and by developing and
incorporating into the MAXIMO product technologies that are emerging in
connection with the Internet. Any factor adversely affecting sales of MAXIMO,
such as delays in development, significant software flaws, incompatibility with
significant hardware platforms, operating systems or databases, increased
competition or negative evaluations of the products, would have a material
adverse effect on the Company's business and financial results.
The Company made MAXIMO Release 4.0 generally available in March 1998. The
failure of MAXIMO 4.0 to achieve market acceptance would have a material adverse
effect on the Company's business and financial results.
21
<PAGE> 22
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has experienced, and may in the future experience, significant
period-to-period fluctuations in revenues and operating results. The Company's
revenues and income from operations typically grow at a lower rate or decline in
the first quarter of each fiscal year, compared to the fourth quarter of the
preceding fiscal year. In addition, revenues are typically higher in the fourth
quarter than in other quarters of the year. The Company believes that these
quarterly patterns are partly attributable to the Company's sales commission
policies, which compensate members of the Company's direct sales force for
meeting or exceeding annual quotas. In addition, the Company's quarterly
revenues and operating results have fluctuated historically, due to the number
and timing of product introductions and enhancements, the budgeting and
purchasing cycles of customers, the timing of product shipments and the timing
of marketing and product development expenditures. The Company typically
realizes more than 60% of its revenue from sales of software licenses in the
last two weeks of a quarter, frequently even in the last days of a quarter.
Large software license contracts may have a significant impact on revenues for
any quarter and could therefore result in significant fluctuations in quarterly
revenues and operating results. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company generally ships its products upon receipt of orders and maintains no
significant backlog. As a result, revenues from license fees in any quarter are
substantially dependent on orders booked and shipped in that quarter. A delay in
or loss of orders can cause significant variations in operating results. A
significant portion of the Company's operating expenses are fixed in the short
term, and planned expenditures are based primarily on sales forecasts.
Accordingly, if revenues do not meet the Company's expectations in any given
quarter, operating results may be materially adversely affected.
COMPETITION
The market for applications software is intensely competitive and rapidly
changing. While the Company believes that it has competed effectively to date,
competition in its industry is likely to intensify as current competitors expand
their product lines and new companies enter the market. To remain successful in
the future, the Company must respond promptly and effectively to the challenges
of technological change, evolving standards and its competitors' innovations by
continually enhancing its own product, services and support offerings, as well
as its marketing programs. There can be no assurance that the Company will
continue to be able to compete successfully in the future.
22
<PAGE> 23
The market for asset maintenance software is fragmented by geography, by
hardware platform and by industry orientation, and is characterized by a large
number of competitors. Currently, the Company's client/server versions of
MAXIMO, MAXIMO Enterprise and Workgroup, compete with products of a number of
large vendors some of which have traditionally provided maintenance software
running on mainframes and minicomputers and are now offering systems for use in
the client/server environment. MAXIMO Enterprise also competes with integrated
enterprise resource planning systems which are provided by several large vendors
and which include maintenance modules. MAXIMO Workgroup encounters competition
from vendors of low cost maintenance management systems designed initially for
use by a single user or limited number of users as vendors of these products
upgrade their functionality to enter the client/server market. MAXIMO ADvantage
competes with a number of competitors, including a national vendor and other
various small regional companies.
The MRO supply chain management business using electronic commerce has many
diverse competitors offering a wide range of differing products, services and
technologies. While the Company believes that electronic commerce products and
technologies compliment the Company's existing products, there can be no
assurance that the Company will be able to compete successfully in this market.
Certain of the Company's competitors have greater financial, marketing, service
and support and technological resources than the Company. To the extent that
such competitors increase their focus on the asset maintenance or planning and
cost systems markets, the Company could be at a competitive disadvantage.
INTERNATIONAL OPERATIONS
A significant portion of the Company's total revenues are derived from
operations outside the United States. The Company derived 43.8%, 40.5%, and
38.4% of its total revenue from sales outside the United States in fiscal years
1997, 1996, and 1995, respectively. The Company expects that international
revenues will continue to be a significant percentage of total revenues. The
Company expects international revenues to continue to grow in absolute dollars
during 1998, and accordingly, continues to invest heavily in international
infrastructure, global product functionality and translated versions of
financial and other software products. In the event international expansion
and/or product globalization efforts are not successful, the Company's business
operating results and financial condition may be adversely affected. This
international business is subject to various risks common to international
activities, including exposure to currency fluctuations, greater difficulty in
collecting accounts receivable, political and economic instability, the greater
difficulty of administering business abroad and the need to comply with a wide
variety of foreign import and United States export laws and regulatory
requirements.
23
<PAGE> 24
A significant portion of the Company's total revenue is derived from
international operations which are conducted in foreign currencies. Changes in
the values of these foreign currencies relative to the United States dollar have
in the past adversely affected, and may in the future affect, the Company's
results of operations and financial position. Gains and losses on translation to
United States dollars and settlement of receivables from international
subsidiaries may contribute to fluctuations in the Company's results of
operations. To date, the Company has not engaged in currency hedging
transactions. The Company may in the future undertake currency hedging, although
there can be no assurance that hedging transactions, if entered into, would
materially reduce the effects of fluctuations in foreign currency exchange rates
on the Company's results of operations. The Company experienced lower than
anticipated revenue growth rates in the Asia Pacific region during the first and
second quarters of fiscal 1998 in part due to the economic difficulties that
have occurred throughout this region. There can be no assurances that the
economy of this region will recover in the near future or that the Company's
growth rates in this geographic region will return to the previous levels if the
recovery occurs.
DEPENDENCE ON THIRD PARTIES
The client/server versions of MAXIMO operate with the Oracle 7, SQLServer,
SYBASE and SQLBase, SQLServer database management systems. MAXIMO ADvantage runs
on the Microsoft Access database. Introduction and increased market acceptance
of database management systems with which the Company's products do not operate,
or failure of Oracle, SYBASE, SQLBase, SQLServer or Access to achieve continued
market acceptance, could adversely affect the market for the Company's products.
The Company has entered into non-exclusive license agreements with Centura
Software Corporation, Scribe Technologies, Incorporated, Logical Software
Solutions Corporation, Cognos Corporation , Netronic Software GmbH, HSB
Reliability Technologies Corporation, Intelligent Labeling Technologies,
Incorporated, and WebLogic, Incorporated, pursuant to which the Company
incorporates into its products software providing certain application
development, user interface, business intelligence, workflow and graphics
capabilities developed by these companies. If the Company were unable to renew
these licenses, or if any of such vendors were to become unable to support and
enhance its products, the Company could be required to devote additional
resources to the enhancement and support of these products or to acquire or
develop software providing equivalent capabilities, which could cause delays in
the development and introduction of products incorporating such capabilities.
24
<PAGE> 25
PRODUCT DEVELOPMENT: INTERNET
The Company is currently developing a Java-based component architect software
application to incorporate into the MAXIMO product technologies emerging in
conjunction with the Internet. Internet technologies and applications generally
are developing and gaining acceptance rapidly in the market. MRO supply chain
management using electronic commerce is a nascent market with many standards and
technologies remaining to be developed. Accordingly, developing technologies
pose risks to the Company. The Company believes that electronic commerce
products and technologies compliment the Company's existing products. There can
be no assurance that the Company will successfully anticipate trends in this
market, that the Company will be successful in Internet technology development
or acquisition efforts or that the Company's Internet applications, if
developed, will achieve market acceptance.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's success is dependent upon proprietary technology. The Company
currently has no patents and protects its technology primarily through
copyrights, trademarks, trade secrets and employee and third party
non-disclosure agreements. The Company's software products are sometimes
licensed to customers under "shrink wrap" licenses included as part of the
product packaging. Although, in larger sales, the Company's shrink wrap licenses
may be accompanied by specifically negotiated agreements signed by the licensee,
in many cases its shrink wrap licenses are not negotiated with or signed by
individual licensees. Certain provisions of the Company's shrink wrap licenses,
including provisions protecting against unauthorized use, copying, transfer and
disclosure of the licensed program, may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the steps taken by the Company
to protect its proprietary rights will be adequate to prevent misappropriation
of its technology or development by others of similar technology. Although the
Company believes that its products and technology do not infringe on any
existing proprietary rights of others, there can be no assurance that third
parties will not assert infringement claims in the future.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on certain key executive officers and technical
employees, the loss of one or more of whom could have an adverse impact on the
future operations of the Company. The Company continues to hire a significant
number of additional sales, services and technical personnel. Competition for
hiring of such personnel in the software industry is intense, and the Company
from time to time experiences difficulty in
25
<PAGE> 26
locating candidates with the appropriate qualifications within the desired
geographic locations, or with certain industry specific domain expertise. It is
widely held that the technology industry is at or beyond a condition of full
employment. The Company does not have employment contracts with, and does not
maintain key person life insurance policies on, any personnel although it does
have an arrangement relating to severance payments with David M. Sample, the
Company's President, Chief Executive Officer and Chairman of the Board. In
addition, the Company may need to hire additional skilled personnel to support
the continued growth of its business. There can be no assurance that the Company
will be able to retain its existing personnel or attract additional qualified
employees.
MAXIMO ADVANTAGE; MAINTENANCE AUTOMATION CORPORATION
The core of the software constituting MAXIMO ADvantage was acquired by the
Company through its acquisition of Maintenance Automation Corporation ("MAC").
MAC's product, Chief ADvantage, has been renamed MAXIMO ADvantage and enhanced
since the acquisition. The software architecture for PC-based MAXIMO ADvantage
is significantly different from the client/server architecture of MAXIMO
Enterprise and Workgroup. Since its acquisition of MAC, the Company has incurred
significant additional and unexpected costs in developing a new release of
MAXIMO ADvantage that meets the quality and functionality standards demanded by
the Company. In addition to these unexpected costs, there was a delay in excess
of six months in completing a new release of this product. The Company has
restructured MAC's telesales distribution operation for MAXIMO ADvantage. No
assurance can be given that MAC will in the future be profitable or that its
telesales distribution operation for MAXIMO ADvantage will achieve the Company's
goals.
CERTAIN RISKS ASSOCIATED WITH ACQUISITIONS
As part of its overall strategy, the Company plans to continue to acquire or
invest in complementary companies, products, or technologies and to enter into
joint ventures and strategic alliances with other companies. There can be no
assurance that the Company would be successful in overcoming the risks
associated or problems encountered in connection with such business
combinations, investments, or joint ventures, or that such transactions will not
materially adversely affect the Company's business, financial condition, or
operating results.
POSSIBLE CONTINUED VOLATILITY OF STOCK PRICE
Fiscal 1997 was marked by significant fluctuations in the market price of the
common stock, par value $.01 per share, of the Company (the "Common Stock").
Factors such as announcements of technological innovations or new products by
the Company, its competitors and other third parties, as well as quarterly
26
<PAGE> 27
variations in the Company's results of operations and market conditions in the
industry, may cause the market price of the Common Stock to continue to
fluctuate significantly. In addition, the stock market in general has recently
experienced substantial price and volume fluctuations, which have particularly
affected the market prices of many software companies and which have often been
unrelated to the operating performance of such companies. These broad market
fluctuations also may adversely affect the market price of the Common Stock.
LITIGATION RISKS
The Company is subject to the normal risks of litigation with respect to its
business operation.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Certain computer programs
that have date sensitive software and use two digits only may recognize a date
using "00" as the year 1900 rather than the year 2000.
The Company has made a recent assessment of its internal business information
systems and estimate that the costs associated with preparing internal systems
for the Year 2000 should not exceed $100,000. The Company also utilizes other
third party software products, network equipment and telecommunications
products. The Company is currently taking steps to address the impact, if any,
of the Year 2000 issue relating to third party products, failure of any critical
technology components to operate properly in the Year 2000 may have an adverse
impact on business operations or require the Company to incur unanticipated
expenses to remedy any problems.
The Company warrants that its current versions of MAXIMO and P/X client/server
products and MAXIMO ADvantage are year 2000 enabled. The Company's other product
Project 2 is no longer sold but the Company does offer support for this product.
The Company will release an upgrade of this product that is year 2000 enabled.
The Company estimates that the cost to upgrade this product and any other older
versions of its products will not have a material adverse effect on its results
of operations or financial condition.
EFFECT OF ACCOUNTING PRONOUNCEMENTS
Statement of Position ("SOP") 97-2, "Software Revenue Recognition" was issued in
October 1997 and addresses software revenue recognition matters. The SOP
supersedes SOP 91-1 and is effective for transactions entered into for fiscal
years beginning after December 15, 1997. In March 1998, the adoption date of
certain provisions of SOP No. 97-2 were postponed. Based upon its reading and
interpretation of SOP 97-2 the Company
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<PAGE> 28
believes its current revenue recognition policies and practices are materially
consistent with the SOP.
NO REVISIONS OR UPDATES TO FORWARD-LOOKING STATEMENTS
The Company will have no obligation to release publicly any revision or update
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
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Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Organization of the Company
(included as Exhibit 3.3 to the Company's Registration Statement on
Form S-1, Registration No. 33-76420, and incorporated herein by
reference)
3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996,) and incorporated herein by reference)
3.3 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (which is
attached as Exhibit A to the Rights Agreement and included as
Exhibit 4(b) to the Company's Current Report on Form 8-K dated
February 2, 1998, File No. 0-23852, and incorporated herein by
reference)
4. Intruments Defining the Rights of Security-Holders
4.1 Specimen certificate for the Common Stock of the Company
(included as Exhibit 4.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-76420, and
incorporated herein by reference)
4.2 Article 4B of the Amended and Restated Articles of
Organization of the Company (included as Exhibit 4.1 to the
Company's Registration Statement on Form S-1, Registration No.
33-76420, and incorporated herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between
Project Software & Development, Inc. and BankBoston, N.A. as
Rights Agent (included as Exhibit 4(a) to the Company's
Current Report on Form 8-K dated February 2, 1998, File No.
0-23852, and incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of Project
29
<PAGE> 30
Software & Development, Inc. (which is attached as Exhibit A
to the Rights Agreement and included as Exhibit 4(b) to the
Company's Current Report on Form 8-K dated February 2, 1998,
File No. 0-23852, and incorporated herein by reference)
4.5 Form of Rights Certificate (which is attached as Exhibit B
to the Rights Agreement and included as included as Exhibit
4(c) to the Company's Current Report on Form 8-K dated
February 2, 1998, File No. 0-23852, and incorporated herein by
reference)
10 Material Contracts
10.1 Stock Purchase Agreement dated as of February 6, 1998 among
Project Software & Development, Inc. PSDI Canada Limited,
Inc., A.R.M. Group Inc. and the Stockholders of A.R.M. Group
Inc.
10.2 1998 Executive Bonus Plan
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
27.6 Financial Data Schedule
27.7 Financial Data Schedule
(b) Reports filed on Form 8-K
The Company filed a current report on Form 8-K on February 2,
1998 with respect to the adoption of a stockholder rights
plan.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROJECT SOFTWARE & DEVELOPMENT, INC.
Date: May 15, 1998 By: /s/ Paul D. Birch
------------ ------------------------------
Paul D. Birch
Authorized Officer
Executive Vice President Finance &
Administration, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
31
<PAGE> 32
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
- --- ---------------------------------------------------------------------
3.1 Amended and Restated Articles of Organization of the Company
(included as Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No. 33 -76420, and
incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended(included as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996, commission File No.
0-23852) and incorporated herein by reference)
3.3 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of Project Software &
Development, Inc. (included as Exhibit 4(b)to the Company's
Current Report on Form 8-K dated February 2, 1998, File No.
0-23852,and incorporated herein by reference)
4.1 Specimen certificate for the Common Stock of the Company
(included as exhibit4.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-76420, and
incorporated herein by reference)
4.2 Article 4B of the Amended and Restated Articles of
Organization of the Company (included as Exhibit 4.1 to the
Company's Registration Statement on Form S-1, Registration No.
33-76420, and incorporated herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between Project
Software & Development, Inc. and BankBoston, N.A. as Rights
Agent (included as Exhibit 4(a) to the Company's Current
Report on Form 8-K dated February 2, 1998, File No.
0-23852,and incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of Project Software &
Development, Inc. (included as Exhibit 4(b)to the Company's
Current Report on Form 8-K dated February 2, 1998, File No.
0-23852,and incorporated herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4(c)to the
Company's Current Report on Form 8-K dated February 2, 1998,
File No. 0-23852,and incorporated herein by reference)
10.1 Stock Purchase Agreement dated as of February 6, 1998 among
Project Software & Development, Inc., PSDI Canada Limited,
Inc., A.R.M. Group Inc. ad the Stockholders of A.R.M. Group
Inc.
10.2 1998 Executive Bonus Plan
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
27.6 Financial Data Schedule
27.7 Financial Data Schedule
<PAGE> 1
STOCK PURCHASE AGREEMENT
dated as of
February 6, 1998
among
PROJECT SOFTWARE & DEVELOPMENT, INC.,
PSDI CANADA LIMITED,
A.R.M. GROUP INC.
and the
STOCKHOLDERS OF A.R.M. GROUP INC.
<PAGE> 2
TABLE OF CONTENTS
Page
1. DEFINITIONS..............................................................1
1.1 Defined Terms. ..................................................1
1.2 Other Definitional Matters. .....................................6
2. PURCHASE AND SALE OF THE WARRANT AND THE SHARES..........................6
2.1 A.R.M. Purchase and Sale. .......................................6
2.2 Transfer Taxes. .................................................6
3. PURCHASE PRICE OF THE WARRANT AND THE SHARES. ..........................6
4. CLOSING AND PAYMENT OF PURCHASE PRICE ..................................7
4.1 Closing. ........................................................7
4.2 Deliveries at the Closing. ......................................7
4.3 Stockholders' Representative......................................8
4.4 Restrictions on PSDI Shares.......................................9
5. REPRESENTATIONS OF THE STOCKHOLDERS. ..................................13
5.1 Due Organization, Etc. .........................................13
5.2 Capital Stock....................................................13
5.3 Authority. .....................................................13
5.4 Minute Books. ..................................................13
5.5 Subsidiaries.....................................................14
5.6 Due Authorization, Etc...........................................15
5.7 Financial Statements. ..........................................16
5.8 Title to and Condition of Assets. ..............................19
5.9 Real Property....................................................20
5.10 Intellectual Property............................................21
5.11 Inventory. .....................................................24
5.12 Contracts. .....................................................24
5.13 Litigation. ....................................................27
5.14 Foreign Language Contracts. ....................................27
5.15 Banking Facilities. ............................................27
5.16 Labor Matters. .................................................27
5.17 Compliance with Laws. ..........................................28
5.18 Employment Matters; Employee Benefit Plans.......................28
5.19 Environmental Matters. .........................................32
5.20 Bonuses and Termination Payments. ..............................33
5.21 Absence of Certain Events. .....................................34
5.22 Schedule of Warranty and Product Liability Claims. .............34
5.23 Distributors. ..................................................34
5.24 Customers. .....................................................34
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<PAGE> 3
5.25 Suppliers. .....................................................35
5.26 Permits. .......................................................35
5.27 No Undisclosed Liabilities. ....................................35
5.28 Taxes. .........................................................36
5.29 Insurance. .....................................................38
5.30 Budgets. .......................................................38
5.31 Investment Canada................................................38
5.32 Bankruptcy.......................................................39
5.33 Personal Property Leases. ......................................39
5.34 Data Processing. ...............................................39
5.35 Notices. .......................................................40
5.36 Employment Contracts. ..........................................40
5.37 Self-Insured Plans...............................................40
5.38 Affiliated Transactions. ........................................40
5.39 Intercompany Services. .........................................40
5.40 Brokerage Fees. ................................................40
5.41 Export Controls. ...............................................41
5.42 No Misrepresentation. ..........................................41
6. REPRESENTATIONS OF THE STOCKHOLDERS REGARDING THE
SHARES AND THE WARRANT. ...............................................41
6.1 Title. .........................................................41
6.2 Authority. .....................................................41
6.3 Corporate Stockholder. .........................................41
6.4 Residence of Stockholders. ......................................42
6.5 Restrictions. ..................................................42
6.6 Enforceability; Conflicts. .....................................42
6.7 Investment Representations.......................................42
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. ..........................44
7.1 Organization and Standing. .....................................44
7.2 Due Authorization. .............................................44
7.3 Conflicts, Approvals, Etc. .....................................44
7.4 No Brokers. ....................................................45
8. REPRESENTATIONS AND WARRANTIES OF PSDI. ...............................45
8.1 Organization and Standing. .....................................45
8.2 Due Authorization. .............................................45
8.3 Conflicts, Approvals, Etc. .....................................45
8.4 No Brokers. ....................................................46
8.5 Due Issuance.....................................................46
8.6 Rule 144 Requirements. .........................................46
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<PAGE> 4
9. COVENANTS OF THE STOCKHOLDERS. ........................................46
9.1 Further Assurances. ............................................46
9.2 Confidentiality. ...............................................46
10. INDEMNIFICATION.........................................................47
10.1 Indemnification of PSDI Indemnified Parties by the Stockholders..47
10.2 Indemnification of PSDI Indemnified Parties by the Stockholders
with Respect to the Shares and the Warrant. .....................47
10.3 Special Indemnities. ...........................................48
10.4 Indemnification of the Stockholder Indemnified Parties. ........48
10.5 Limitation of Stockholders' Liability for Certain PSDI
Indemnified Party Claims. .......................................49
10.6 Collection of PSDI Claims. .....................................50
10.7 Notice of Claims.................................................50
10.8 Defense and Prosecution of Third Party Claims....................50
10.9 Settlement of Third Party Claims. ..............................51
10.10 Interest on Claims. ............................................51
10.11 Payment of Indemnity Obligations.................................51
10.12 Exclusive Remedy. ...............................................52
11. TAX MATTERS.............................................................52
11.1 Elections. .....................................................52
11.2 Allocation of Purchase Price. ..................................52
11.3 Post-Closing Date Tax Matters....................................52
12. MISCELLANEOUS PROVISIONS................................................53
12.1 Headings. ......................................................53
12.2 Assigns..........................................................53
12.3 Survival.........................................................54
12.4 Entire Agreement.................................................54
12.5 Waivers; Amendments, Supplements.................................54
12.6 Incorporation....................................................54
12.7 Law..............................................................54
12.8 Jurisdiction.....................................................54
12.9 Publicity........................................................55
12.10 Knowledge Qualifiers.............................................55
12.11 Notices..........................................................55
12.12 Cumulative Remedies. ...........................................56
12.13 Certain Expenses. ..............................................56
12.14 Deliveries to Counsel. .........................................56
12.15 Counterparts. ..................................................56
12.16 Number and Gender. .............................................56
12.17 Currency. ......................................................56
-iii-
<PAGE> 5
12.18 Time of Essence. ...............................................56
12.19 Language. ......................................................56
-iv-
<PAGE> 6
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated as of February 6,
1998, among Project Software & Development, Inc., a Massachusetts corporation,
with its principal place of business at 100 Crosby Drive, Bedford, Massachusetts
01730 ("PSDI"), PSDI Canada Limited, a Canadian corporation that is a
wholly-owned subsidiary of PSDI, with its principal place of business at 4145
North Service Road, Suite 200, Burlington, Ontario L7L6A3 ("Purchaser"), A.R.M.
Group Inc., an Ontario corporation with its principal place of business at 200
Queens Avenue, Suite 200, London, Ontario N6A1J3 (the "Company"), and those
persons whose names are set forth on Schedule 5.2 hereto (hereinafter referred
to individually as a "Stockholder" and collectively as the "Stockholders"), who
collectively own all of the issued and outstanding capital stock of the Company.
WHEREAS, each of the Stockholders owns the number of issued and outstanding
shares of the class A common shares and the class B common shares (the "Common
Stock") of the Company set forth opposite his or her name on Schedule 5.2
hereto, which shares in the aggregate represent all of the issued and
outstanding shares of capital stock of the Company (collectively, the "Shares");
WHEREAS, the Company and its Subsidiaries are in the business of
distributing, selling and servicing asset maintenance computer software systems
and developing, producing, distributing, selling and servicing electronic
commerce software systems;
WHEREAS, Purchaser wishes to purchase from Ravenna Capital Corporation, an
Ontario corporation ("Ravenna"), and Ravenna wishes to sell to Purchaser that
certain warrant to purchase 23.93 common shares in the capital of the Company
issued to Ravenna by the Company as of December 16, 1996 (the "Warrant"; such
purchase and sale being hereinafter referred to as the "Warrant Purchase");
WHEREAS, Purchaser wishes to purchase from the Stockholders, and the
Stockholders wish to sell to Purchaser, all of the Shares for the consideration
set forth below (such purchase and sale being hereinafter referred to as the
"Stock Purchase"); and
NOW, THEREFORE, in consideration of the premises and the mutual promises,
covenants, and conditions hereinafter set forth, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS
1.1 DEFINED TERMS. As used herein, the following terms shall have the
following meanings:
"AFFILIATE" shall mean, with respect to any person or entity, any other
person or entity that controls, is controlled by or is under common control with
such person or entity.
1
<PAGE> 7
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
section 1504(a) or any similar group defined under a similar provision of state,
local, or foreign law.
"A-B" shall have the meaning set forth in Section 5.10(i) of this Agreement.
"BENEFIT PLAN" shall have the meaning set forth in Section 5.18(c) of this
Agreement.
"BENEFIT PLAN LAWS" shall have the meaning set forth in Section 5.18(e) of
this Agreement.
"CAUSE" shall have the meaning set forth in Section 4.4(b) of this Agreement.
"CLOSING" shall have the meaning set forth in Section 4.1 of this Agreement.
"CLOSING DATE" shall have the meaning set forth in Section 4.1 of this
Agreement.
"CODE" shall have the meaning set forth in Section 5.18(g) of this Agreement.
"COMMERCIAL SOFTWARE" shall have the meaning set forth in Section 5.10(a) of
this Agreement.
"COMMON STOCK" shall have the meaning set forth in the Recitals of this
Agreement.
"COMPANY" shall have the meaning set forth in the Recitals of this Agreement.
"COMPANY LEASE" shall have the meaning set forth in Section 5.9 of this
Agreement.
"COMPANY PROPRIETARY RIGHTS" shall have the meaning set forth in Section
5.10(a) of this Agreement.
"DATA PROCESSING SYSTEM" shall have the meaning set forth in Section 5.34 of
this Agreement.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in Treasury
Regulation section 1.1502-13.
"EFFECTIVE TIME" shall have the meaning set forth in Section 4.1 of this
Agreement.
"ENCUMBRANCES" shall have the meaning set forth in Section 5.10 of this
Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section 5.19(d) of
this Agreement.
"ERISA" shall have the meaning set forth in Section 5.18(g) of this
Agreement.
"ESCROW AGENT" shall have the meaning set forth in Section 4.2(a) of this
Agreement.
"ESCROW AGREEMENT" shall have the meaning set forth in Section 4.2(d) of
this Agreement.
2
<PAGE> 8
"ESCROW FUND" shall have the meaning set forth in Section 4.2(a) of this
Agreement.
"EXCESS LOSS ACCOUNT" has the meaning set forth in Treasury Regulation
section 1.1502-19.
"FAIR MARKET VALUE PER SHARE" shall have the meaning set forth in Section
4.4(b) of this Agreement.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 5.7(a) of
this Agreement.
"GAAP" shall have the meaning set forth in Section 5.7(b) of this Agreement.
"GOOD REASON" shall have the meaning set forth in Section 4.4(b) of this
Agreement.
"GOVERNMENTAL AGENCIES" shall have the meaning set forth in Section 5.6(b) of
this Agreement.
"GST" shall have the meaning set forth in Section 5.28(j) of this Agreement.
"HAZARDOUS MATERIAL" shall have the meaning set forth in Section 5.19(e) of
this Agreement.
"INDEMNIFIED PARTIES" shall have the meaning set forth in Section 10.4 of
this Agreement.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 10.7 of this
Agreement.
"INVOLVED STOCKHOLDERS" shall mean Larry C. Peterson Revocable Trust, Mary
Jill Peterson Revocable Trust, Trust Company of Toledo, Trustee Midwest Fluid
Power Company Savings and Profit Sharing Plan & Trust Larry C. Peterson Directed
Account, Working Ventures Canadian Fund Inc. and Steven E. Kwiatkowski.
"LIABILITY" means any cost, expense, charge, debt, claim, obligation and
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
Taxes; provided, however, that any liability for Taxes shall be decreased to the
extent the amount of such liability may be offset by the application of tax
losses of the Company or its Subsidiaries.
"LIQUIDATED DAMAGES AMOUNT" shall have the meaning set forth in Section
4.4(b) of this Agreement.
"LOSS AND EXPENSE" shall have the meaning set forth in Section 10.1 of this
Agreement.
"NON-COMPETITION AGREEMENT" shall have the meaning set forth in Section
4.2(c) of this Agreement.
"NOTICE" shall have the meaning set forth in Section 5.35 of this Agreement.
3
<PAGE> 9
"OTHER STOCKHOLDERS" shall mean the Stockholders other than (i) the Involved
Stockholders and (ii) the Principal Stockholders.
"PENSION PLAN" shall have the meaning set forth in Section 5.19(e) of this
Agreement.
"PERMITS" shall have the meaning set forth in Section 5.6(b) of this
Agreement.
"PERSON" means an individual, a partnership, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof) and the executors, administrators or other legal representatives of an
individual in such capacity.
"PERSONAL PROPERTY LEASES" shall have the meaning set forth in Section 5.33
of this Agreement.
"PRINCIPAL STOCKHOLDERS" shall mean Stephen M. Caslick, Edwin H. Meyer, John
S. Kennedy and Barry J. Murphy.
"PSDI" shall have the meaning set forth in the Recitals to this Agreement.
"PSDI CLAIMS" shall have the meaning set forth in Section 10.5 of this
Agreement.
"PSDI INDEMNIFIED PARTIES" shall have the meaning set forth in Section 10.1
of this Agreement.
"PSDI SHARES" shall have the meaning set forth in Section 3 of this
Agreement.
"PURCHASE PRICE" shall have the meaning set forth in Section 3 of this
Agreement.
"PURCHASER" shall have the meaning set forth in the Recitals hereto.
"RAVENNA" shall have the meaning set forth in the Recitals to this Agreement.
"REQUIRED CONSENT CONTRACTS" shall have the meaning set forth in Section
5.12(b) of this Agreement.
"SHARES" shall have the meaning set forth in the Recitals of this Agreement.
"STOCKHOLDER" shall have the meaning set forth in the Recitals of this
Agreement. Without limiting the foregoing, the term "Stockholder" shall include
Ravenna notwithstanding the fact that, although Ravenna owns the Warrant, it
does not own any shares of Common Stock.
"STOCKHOLDER INDEMNIFIED PARTIES" shall have the meaning set forth in Section
10.4 of this Agreement.
4
<PAGE> 10
"STOCKHOLDERS' REPRESENTATIVE" shall mean, initially, Stephen Caslick.
"STOCK PURCHASE" shall have the meaning set forth in the Recitals of this
Agreement.
"SUBSIDIARY" shall mean, with respect to any person or entity, (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such person or entity
directly or indirectly through Subsidiaries, (ii) any partnership, association,
joint venture or other entity in which such person or entity directly or
indirectly through Subsidiaries has more than a 50% equity interest at the time
or the power to elect a majority of the Board of Directors or similar governing
body and (iii) any other corporation, partnership, association, joint venture or
other entity that is controlled by such person or entity directly or indirectly
through Subsidiaries, and, when used with respect to the Company, shall include,
without limitation, Innovative Maintenance Systems, Inc., doing business as
Efficient Systems, an Ontario corporation, Maintenet Corp., an Ontario
corporation, Maintenet Corporation, an Ohio corporation and A.R.M.M. Inc., a
Michigan corporation.
"SUBSIDIARY SHARES" shall have the meaning set forth in Section 5.5 of this
Agreement.
"TAX" (and, with the correlative meaning, "Taxes" and "Taxable") shall mean:
(i) any Canadian or United States federal, provincial, state, local or
foreign income, gross receipts, windfall profits, severance, property,
production, sales, use, goods and services, value added, capital, capital
gains, net worth, profits, employer health, documentary, license,
franchise, employment, unemployment, disability, payroll, withholding,
alternative or add-on minimum, ad valorem, transfer, excise, stamp, or
environmental tax, or any other tax, charge, fee, levy, impost, premium,
custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, including Canada Pension Plan and provincial pension plan
contributions, employment or unemployment insurance payments and workers
compensation premiums, together with any installments with respect thereto
and together with any interest, fine or penalty, addition to tax or
additional amount imposed by any governmental authority and whether
disputed or not; and
(ii) liability of the Company or any Subsidiary of the Company for the
payment of amounts with respect to payments of a type described in clause
(i) as a result of being a member of an affiliated, consolidated, combined
or unitary group, or as a result of any obligation of the Company under
any tax sharing arrangement or Tax indemnity arrangement.
"TAX RETURN" shall mean any return, report, declaration, remittance,
information notices and other documents of every nature (including any attached
schedules) required to be filed by or on behalf of the Company with respect to
any Tax or in respect of any other provision in any domestic or foreign federal,
provincial, municipal, state, territorial or other taxing statute, including,
without
5
<PAGE> 11
limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
"THIRD PARTY" shall have the meaning set forth in Section 10.8 of this
Agreement.
"TREASURY REGULATION" shall mean those regulations promulgated under the
Code.
"THIRD PARTY CLAIM" shall have the meaning set forth in Section 10.8 of this
Agreement.
"WARRANT" shall have the meaning set forth in the Recitals to this Agreement.
"WARRANT PURCHASE" shall have the meaning set forth in the Recitals to this
Agreement.
1.2 OTHER DEFINITIONAL MATTERS. Terms defined in the singular shall have a
comparable meaning when used in the plural, and VICE VERSA.
2. PURCHASE AND SALE OF THE WARRANT AND THE SHARES
2.1 A.R.M. PURCHASE AND SALE. Upon and subject to the terms and conditions
hereof, at the Closing (as hereinafter defined) (a) each of the Principal
Stockholders shall sell, transfer and convey, assign and deliver to PSDI, and
PSDI shall purchase, acquire and accept from each of the Principal Stockholders,
the number of shares of Common Stock equal to the product of (i) 70.41
multiplied by (ii) a fraction, the numerator of which shall be the number of
shares of Common Stock held of record by such Principal Stockholder immediately
prior to such sale, transfer, conveyance, assignment and delivery and the
denominator of which shall be the number of shares of Common Stock held of
record by all of the Principal Stockholders immediately prior to any such sale,
transfer, conveyance, assignment and delivery, and (b) each Stockholder shall
sell, transfer and convey, assign and deliver to Purchaser, and Purchaser shall
purchase, acquire and accept from each Stockholder, all of the Common Stock or
the Warrant, as the case may be, owned by each such Stockholder (after giving
effect to Section 2.1(a) hereof).
2.2 TRANSFER TAXES. Each Stockholder shall pay all transfer Taxes and fees
imposed upon a sale of stock or a warrant arising out of or relating to the
Stock Purchase or the Warrant Purchase which arise under the laws of Canada or
the jurisdiction in which such Stockholder resides or under the laws of which
such Stockholder was organized, as the case may be. It shall be the
responsibility of each Stockholder to see that all such Taxes and fees are paid
to the appropriate Governmental Agency (as defined below) in accordance with all
applicable laws and regulations.
3. PURCHASE PRICE OF THE WARRANT AND THE SHARES. The purchase price (the
"Purchase Price") for the Shares and the Warrant shall be, in the aggregate,
US$6,400,042.70, to be paid by Purchaser, and 27,458 shares of the common stock,
par value $.01 per share, of PSDI determined by (the "PSDI Shares") to be paid
by PSDI. The purchase price for the Warrant shall be US$119,403 and the purchase
price for the Shares shall be US$6,280,639.70 and the PSDI Shares.
6
<PAGE> 12
4. CLOSING AND PAYMENT OF PURCHASE PRICE
4.1 CLOSING. The consummation of the Stock Purchase and the Warrant
Purchase (the "Closing") and all other transactions provided for in this
Agreement that have not previously been consummated shall take place at the
offices of Foley, Hoag & Eliot LLP, One Post Office Square, Boston,
Massachusetts 02109 at 10:00 a.m., Eastern Time, on February 6, 1998 or at such
other time and place, and on such other date, as may be agreed upon by the
parties hereto (the "Closing Date"). The Closing shall be effective as of 12:02
a.m., Eastern Time, on the Closing Date (the "Effective Time").
4.2 DELIVERIES AT THE CLOSING. At the Closing:
(a) Upon and subject to the terms and conditions hereof and in
consideration of the sale, transfer, conveyance, assignment and delivery of the
Warrant and the Shares to Purchaser and PSDI, Purchaser and PSDI shall pay: (i)
by wire transfer of immediately available funds from Purchaser to the
Stockholders, in the amounts set forth opposite each such Stockholder's name on
Schedule 5.2 hereto, US$5,680,042.70, (ii) by issuance and delivery, by PSDI, to
the Principal Stockholders of the number of PSDI Shares set forth opposite each
such Principal Shareholder's name on Schedule 5.2 hereto and (iii) from
Purchaser to the Stockholders' Representative on behalf of the Stockholders
US$720,000 (the "Escrow Fund"), which the Stockholders' Representative shall
concurrently deposit with State Street Bank and Trust Company, as escrow agent
(the "Escrow Agent") to secure the obligations of the Stockholders under Section
10 hereof.
(b) At the Closing, each Stockholder shall deliver to Purchaser or
PSDI, as the case may be, the Warrant or certificates evidencing the Shares, as
the case may be, owned by such Stockholder, duly endorsed in blank or with stock
powers or other instruments of assignment of the Shares or the Warrant, as the
case may be, in form and substance satisfactory to Purchaser, duly executed by
such Stockholder, against payment by Purchaser and PSDI in accordance with
Section 4.2(a) of US$5,680,042.70 and issuance of the PSDI Shares.
(c) PSDI and Peterson, Kwiatkowski, Sinclair and those Stockholders
whose names are set forth on Schedule 4.2(c) hereto shall execute and deliver
the Non-Competition Agreement in substantially the forms attached as EXHIBITS
A-1, A-2, A-3 and A-4 hereto, respectively, (the "Non-Competition Agreement").
Each of Peterson, Kwiatkowski and such Stockholders agrees to be bound by the
Non-Competition Agreement between it and PSDI and PSDI agrees to be bound by
each such Non-Competition Agreement.
(d) PSDI, Purchaser and the Stockholder's Representative, on behalf of
the Stockholders, shall execute and deliver the Escrow Agreement in
substantially the form attached as EXHIBIT B hereto (the "Escrow Agreement").
Each of the Stockholders and Purchaser agrees to be bound by the Escrow
Agreement.
(e) The Company and Larry C. Peterson shall execute and deliver the
Termination Agreement in substantially the form attached as EXHIBIT C hereto.
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(f) The parties shall exchange all other documents that the
Stockholders or Purchaser may reasonably request be delivered at the Closing so
as effectively to consummate the transactions contemplated hereby.
4.3 STOCKHOLDERS' REPRESENTATIVE.
(a) In order to administer efficiently the obligations of the
Stockholders and the Purchaser hereunder and under the Escrow Agreement,
including, without limitation, any matters relating to any defense and/or
settlement of any claims for which the Stockholders may be required to indemnify
the PSDI Indemnified Parties (as defined below) pursuant to Section 10 hereof,
the Stockholders hereby appoint the Stockholders' Representative as their agent
and representative, and the Stockholders' Representative hereby accepts such
appointment.
(b) The Stockholders hereby authorize the Stockholders' Representative
for and on behalf of the Stockholders and as their attorney-in-fact and
representative (i) to take all action necessary in connection with any matters
relating to the defense and/or settlement of any claims for which the
Stockholders may be required to indemnify the PSDI Indemnified Parties pursuant
to Section 10 hereof (but only with respect to claims payable solely out of the
Escrow Fund), (ii) to execute and deliver the Escrow Agreement with such
modifications as the Stockholders' Representative deems necessary or
appropriate, (iii) during the time that property remains in the Escrow Fund
pursuant to the Escrow Agreement, to give and receive all notices required to be
given under this Agreement and the other agreements contemplated hereby to which
all of the Stockholders are a party, including the Escrow Agreement and (iv) to
execute and deliver documentation, with such modifications as the Stockholders'
Representative deems necessary or appropriate, evidencing the receipt by the
Stockholders of the Purchase Price.
(c) In the event that the Stockholders' Representative dies, becomes
unable to perform his responsibilities hereunder or resigns from such position,
John S. Kennedy shall automatically fill such vacancy and shall be deemed to be
the Stockholders' Representative for all purposes of this Agreement. In the
event that John S. Kennedy is unable or becomes unable to perform his
responsibilities hereunder or resigns from such position, Working Ventures
Canadian Fund Inc. shall select another representative to fill such vacancy and
such substituted representative shall be deemed to be the Stockholders'
Representative for all purposes of this Agreement.
(d) All decisions and actions by the Stockholders' Representative,
including, without limitation, the execution and delivery of the Escrow
Agreement with such modifications as the Stockholders' Representative deems
necessary or appropriate and the defense or settlement of any claims for which
the Stockholders may be required to indemnify the PSDI Indemnified Parties
pursuant to Section 10 hereof (but only with respect to claims payable solely
out of the Escrow Fund), shall be binding upon all of the Stockholders, and no
Stockholder shall have the right to object, dissent, protest or otherwise
contest the same.
(e) By their execution of this Agreement, the Stockholders agree that:
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(i) the PSDI Indemnified Parties shall be able to rely conclusively
on the instructions and decisions of the Stockholders' Representative as to the
settlement of any claims for indemnification by the PSDI Indemnified Parties
pursuant to Section 10 hereof or any other actions required or desirable to be
taken by the Stockholders' Representative hereunder and no party hereunder shall
have any cause of action against the Purchaser for any action taken by the
Purchaser in reliance upon the instructions or decisions of the Stockholders'
Representative;
(ii) all actions, decisions and instructions of the Stockholders'
Representative, including, without limitation, the execution and delivery of the
Escrow Agreement, shall be conclusive and binding upon all of the Stockholders
and no Stockholder shall have any cause of action against the Stockholders'
Representative for any action taken or not taken, decision made or instruction
given by the Stockholders' Representative under this Agreement, except for fraud
or willful breach of this Agreement by the Stockholders' Representative;
(iii) the provisions of this Section 4.3 are independent and
severable, are irrevocable and coupled with an interest and shall be enforceable
notwithstanding any rights or remedies that any Stockholder may have in
connection with the transactions contemplated by this Agreement; and
(iv) the provisions of this Section 4.3 shall be binding upon the
heirs, legal representatives, successors and assigns of each Stockholder, and
any references in this Agreement to a Stockholder or the Stockholders shall mean
and include the successors to the Stockholders' rights hereunder, whether
pursuant to testamentary disposition, the laws of descent and distribution or
otherwise.
(f) All fees and expenses incurred by the Stockholders'
Representative in connection with this Agreement or the Escrow Agreement shall
be paid by each Stockholder in the same proportion as that set forth opposite
such Stockholder's name on Schedule 5.2.
4.4 RESTRICTIONS ON PSDI SHARES.
(a) The following restrictions on transfer of the PSDI Shares and other
agreements shall apply.
(i) No PSDI Shares, or any interest therein, may be sold, pledged or
otherwise transferred at any time or under any circumstances unless (A) one year
has elapsed from the Closing Date and (B) either (1) the PSDI Shares proposed to
be transferred have been registered under the Act and qualified under all other
applicable securities laws, or (2) PSDI has received an opinion of counsel
acceptable to PSDI to the effect that such sale, pledge or transfer may be
effected without registration under the Act or qualification under all other
applicable securities laws and the proposed transferee has made such
representations and agreements as PSDI shall require to assure compliance with
the Act and such laws.
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(ii) The Principal Stockholders shall enter into such "lock-up" or
similar agreements with respect to the PSDI Shares as may be required by the
underwriters in any public offering of PSDI securities to the same extent as
such underwriters generally require employees of PSDI or its Affiliates with
responsibilities comparable to those to the Principal Stockholders to enter into
such "lock-up" or similar agreements; provided, however, that the Principal
Stockholders shall have no obligation to enter into any such "lock-up" or
similar agreement that does not terminate by its terms on the earlier of 90 days
from the date of the final prospectus relating to any such public offering of
PSDI securities and 60 days after the first anniversary of the date hereof.
Without limiting the foregoing, the Principal Stockholders shall be subject to
the same restrictions on the purchase or sale of PSDI securities during
so-called "black out" periods in which employees of PSDI or its Affiliates may
be in possession of material non-public information concerning PSDI.
(b) (i) In the event that a Principal Stockholder's employment by the
Company shall be terminated at any time prior to the first anniversary of the
the Closing Date voluntarily by such Principal Stockholder without Good Reason
(as defined below) or involuntarily for Cause (as defined below), then the
Company shall have the right to purchase, and if the Company so elects, such
Principal Stockholder shall sell to the Company, at the price of US$.01 per
share, that number of PSDI Shares equal to such Principal Stockholder's
Liquidated Damages Amount (as defined below) divided by the Fair Market Value
Per Share (as defined below), rounded up to the next whole share. Because the
Principal Stockholders and the other parties hereto hereby agree that the Loss
and Expense (as hereinafter defined) suffered by PSDI in the event of such a
termination of employment would be impossible to calculate they hereby further
agree to fix such Loss and Expense as a liquidated amount for each Principal
Stockholder as follows: Stephen M. Caslick, US$101,664; John S. Kennedy,
US$101,664; Edwin H. Meyer, US$101,664; and Barry J. Murphy, US$45,576 (the
"Liquidated Damages Amount"). The term "Good Reason" shall mean with respect to
a Principal Stockholder any action by the Company that results in (i) a material
reduction in the compensation and benefits payable by the Company to such
Principal Stockholder on an annual basis, (ii) the failure to cause such
Principal Stockholder to be reelected or reappointed to the office and position
to which such Principal Stockholder was elected and appointed in connection with
the consummation of the transactions contemplated hereby, such offices being
General Manager in the case of Stephen M. Caslick, Operations Manager in the
case of John S. Kennedy, Manager, Professional Services in the case of Barry J.
Murphy and Manager, m/net Sales in the case of Edwin H. Meyer, unless such
failure to be reelected or reappointed arose out of such Principal Stockholder's
own choice, (iii) the removal of such Principal Stockholder from the office and
position referred to in clause (ii) above other than for Cause, or (iv) a
relocation of the place to which such Principal Stockholder reports for work to
a place more than 25 miles outside of London, Ontario. The term "Cause" shall
mean with respect to a Principal Stockholder (i) fraud, embezzlement or other
deliberate dishonesty of such Principal Stockholder with respect to the Company
or an Affiliate thereof, including without limitation any intentional
misrepresentation or intentional omission of a material fact in or from the
Agreement or the exhibits or schedules hereto or the other documents delivered
by such Principal
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Stockholder at Closing, (ii) conviction of such Principal Stockholder of a
criminal offense involving moral turpitude or (iii) breach by such Principal
Stockholder of the Noncompetition Agreement. The term "Fair Market Value Per
Share" shall mean with respect to a Principal Stockholder the closing price of
the common stock, $.01 par value, of PSDI ("PSDI Common Stock") as reported by
the Nasdaq Stock Market at the close of the market on the effective date of the
termination of such Principal Stockholder's employment voluntarily without Good
Reason or involuntarily for Cause or, if such effective date shall not occur on
a Nasdaq Stock Market trading day, at the close of the market on the next
succeeding Nasdaq Stock Market trading day; PROVIDED, HOWEVER that, if the PSDI
Common Stock is not, as of the date of any determination of Fair Market Value
Per Share, traded on the Nasdaq Stock Market, the "Fair Market Value Per Share"
of PSDI Common Stock shall be the closing price of PSDI Common Stock (or if no
closing price is quoted, the average of the last bid and last asked prices of
PSDI Common Stock) on the principal securities exchange or over-the-counter
market in which PSDI Common Stock is then traded or, if not traded on any such
exchange or in any such market, the "Fair Market Value Per Share" of PSDI Common
Stock shall be determined in good faith by the Board of Directors of PSDI.
(ii) In the event that a Principal Stockholder's employment by the
Company shall be terminated at any time prior to the first anniversary of the
Closing Date voluntarily by such Principal Stockholder without Good Reason or
involuntarily for Cause, PSDI shall deliver to such Principal Stockholder a
check in the amount of the purchase price for the PSDI Shares being repurchased
against delivery of any instruments reasonably requested by PSDI to effect or
confirm the transfer of the PSDI Shares by such Principal Stockholder of PSDI.
PSDI shall, after termination or exercise of all purchase rights hereunder,
deliver to such Principal Stockholder a certificate or certificates representing
the PSDI Shares, if any, as to which he is entitled to ownership free and clear
of such purchase rights.
(iii) If a Principal Stockholder shall have been continuously
employed by the Company or another subsidiary of PSDI from the date hereof
through the first anniversary of the date of this Agreement has voluntarily
terminated his employment with Good Reason or has been involuntarily terminated
without Cause, then ownership of all of the PSDI Shares held by such Principal
Stockholder as of such date shall no longer be subject to the repurchase rights
set forth in this Section 4.4(b)(and, if requested by a Principal Stockholder,
PSDI will use commercially reasonable efforts to remove any legends on the
certificates representing the PSDI Shares relating to such repurchase rights and
cause the return of such certificates to such Principal Stockholder). The PSDI
Shares shall, however, remain subject to the restrictions contained in this
Agreement, to the extent then applicable.
(iv) In order to facilitate the exercise of the purchase rights
hereunder, PSDI shall hold pursuant to this Agreement all certificates
representing PSDI Shares, together with an adequate number of undated and
otherwise blank stock powers executed by each Principal Stockholder. PSDI shall
have the right to cause transfers of PSDI Shares to be effected pursuant to this
Section 4 (including transfers into its treasury) notwithstanding any failure of
any Principal Stockholder to take the action required of him pursuant to this
Agreement; provided, however, that no transfer of PSDI Shares shall be effected
hereunder
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unless (A) payment therefor has been made or tendered to the Principal
Stockholder or his executor or other legal representative and (B) in the event
of the voluntary termination of a Principal Stockholder's employment without
Good Reason or involuntary termination of a Principal Stockholder's employment
for Cause, not less than 30 days has elapsed since the date of such termination
and such Principal Stockholder has not provided notice to PSDI of the
commencement of litigation contesting the characterization of any determination
that a voluntary termination occurred without "Good Reason" or an involuntary
termination occurred as "for Cause". Notwithstanding anything to the contrary
contained in this Section 4.4, the restrictions on transfer of the PSDI shares
and the repurchase rights contained in this Section 4.4 shall continue in full
force and effect until the final and conclusive disposition of such litigation
and the expiration of any period for filing an appeal in respect thereof.
(c) Each certificate representing PSDI Shares shall prominently bear a
legend in substantially the following terms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS THE REGISTRATION PROVISIONS OF SAID ACT HAVE BEEN COMPLIED WITH OR
UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
OR "BLUE SKY" LAWS OF ANY JURISDICTION. THEY MAY NOT BE OFFERED OR SOLD
WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IN FORM AND
SUBSTANCE SATISFACTORY TO THE COMPANY, THAT THE PROPOSED TRANSACTION WILL
BE EXEMPT FROM REGISTRATION, QUALIFICATION AND FILINGS IN ALL SUCH
JURISDICTIONS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND REPURCHASE RIGHTS AND MAY NOT BE SOLD, EXCHANGED,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH AND SUBJECT TO ALL THE TERMS AND CONDITIONS OF A CERTAIN
STOCK PURCHASE AGREEMENT DATED AS OF FEBRUARY 6, 1998, A COPY OF WHICH THE
CORPORATION WILL FURNISH TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST
AND WITHOUT CHARGE.
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5. REPRESENTATIONS OF THE STOCKHOLDERS. As a material inducement to PSDI's
and Purchaser's entering into this Agreement and completing the transactions
contemplated by this Agreement and acknowledging that PSDI and Purchaser are
entering into this Agreement in reliance upon the representations and warranties
of the Stockholders set out in this Section 5, each of the Stockholders hereby,
jointly and severally, warrants and represents to PSDI and Purchaser, on the
date hereof as follows:
5.1 DUE ORGANIZATION, ETC. The Company is a corporation duly organized,
validly subsisting and in good standing under the laws of Ontario and has the
requisite corporate power and authority to own its property and to carry on its
business as presently conducted. The Company is duly qualified to do business as
a foreign corporation in all jurisdictions in which the failure to so qualify
would have a material adverse effect on the assets, properties or financial
condition of the Company. Schedule 5.1 sets forth a list of all jurisdictions in
which the Company is duly qualified to do business as a foreign corporation.
5.2 CAPITAL STOCK.
(a) AUTHORIZED STOCK OF THE COMPANY. The authorized capital stock of
the Company consists of an unlimited number of Class A common shares, of which
449.56 shares are outstanding and an unlimited number of Class B common shares
of which 348 shares are outstanding. The outstanding shares of Common Stock are
held of record by the Stockholders in the amounts set forth opposite their
respective names on Schedule 5.2 (a) hereto. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, were not issued in
violation of any person's preemptive rights, and are fully paid and
nonassessable.
(b) OPTIONS AND CONVERTIBLE SECURITIES OF THE COMPANY. Except as set
forth on Schedule 5.2 (b) hereto, there are no outstanding subscriptions,
options, warrants, conversion rights, calls or other rights, securities,
agreements or commitments obligating the Company to issue, sell or otherwise
dispose of, transfer or convey shares of its capital or any securities or
obligations convertible into, or exercisable or exchangeable for, any shares of
its capital stock. Except as set forth on Schedule 5.2(b), there are no voting
trusts or other agreements or understandings to which the Company or any
Stockholder is a party with respect to the voting of the shares of Common Stock,
and the Company is not a party to or bound by any outstanding restrictions,
options or other obligations, agreements or commitments to sell, repurchase,
redeem or acquire any outstanding shares of Common Stock or other equity
securities of the Company.
5.3 AUTHORITY. The Company has full legal right, power and authority to
enter into, and perform the transactions contemplated by, this Agreement.
5.4 MINUTE BOOKS. The minute books of the Company and of each of its
Subsidiaries are complete in all material respects and accurately reflect all
actions taken by the respective stockholders, boards of directors and committees
of each such corporation or other entity and contain true, correct and complete
copies of its charter, by-laws, the minutes of every meeting of its board of
directors and every committee thereof and of its shareholders and every written
resolution of its directors and shareholders. The share certificate book,
register of
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shareholders, register of transfers and register of directors and officers or
other registers fulfilling similar functions of the Company and each of its
Subsidiaries are complete and accurate in all material respects.
5.5 SUBSIDIARIES.
(a) Schedule 5.5 sets forth the name, governing jurisdiction, principal
place of business, directors and officers, ownership, authorized, issued and
outstanding equity securities and legal status (if other than a corporation) of
each direct and indirect Subsidiary of the Company and the information set out
in Schedule 5.5 is true and complete.
(b) Other than as set forth on Schedule 5.5, the Company, or a
Subsidiary of the Company whose share ownership is described on Schedule 5.5, is
the registered and beneficial owner of all of the outstanding shares in the
capital of each Subsidiary of the Company as well as 39.8% of the outstanding
shares of Vision Corporation, an Ontario corporation, and 12% of the interests
in Advanced Channel Procurement Ltd., an Ohio limited liability company
("Subsidiary Shares"). All of such shares are validly issued, are fully paid,
nonassessable and free of all preemptive rights and are held by the Company or
by a Subsidiary of the Company, free and clear of all liens, claims, charges and
other encumbrances and rights of third parties whatsoever, with no personal
liability attaching to the ownership thereof. No shares in the capital of any
Subsidiary of the Company, and no partnership or other equity interests in any
other Subsidiary of the Company, have been reserved for issuance for any purpose
and except as set forth in Schedule 5.5, there is outstanding no subscription,
option, warrant, call, right, contract, commitment, understanding or arrangement
relating to the issuance, sale or transfer of any such shares or partnership or
other equity interests or securities by the Company, any Subsidiary of the
Company or any other person or entity including any right of conversion or
exchange of any outstanding security or other instrument. Except as set forth in
Schedule 5.5, there is outstanding no preemptive right or restriction on
transfer with respect to any Subsidiary Shares by reason of the provisions of
any law, certificate of incorporation or by-laws or similar charter or
organization documents of any Subsidiary of the Company or any agreement or
otherwise. Except as set forth in Schedule 5.5, there is outstanding no voting
trust, voting agreement, proxy, or other agreement or understanding with respect
to the voting of, or the exercise of any other rights with respect to, any
Subsidiary Shares.
(c) Each Subsidiary of the Company is duly organized, validly
subsisting and in good standing under the laws of the jurisdiction under which
it was created or incorporated, has the requisite power and authority to own its
property and carry on its business as presently conducted, is qualified to do
business in those jurisdictions in which failure so to qualify would have a
material adverse effect on the assets, properties or financial condition of such
Subsidiary and is adequately capitalized under applicable laws.
(d) Every representation and warranty made by the Stockholders or the
Company with respect to the Company in this Agreement shall also be deemed to be
made and shall also apply, mutatis mutandis, with respect to each of the Company
and each Subsidiary of the Company and all of their respective assets,
properties and businesses.
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(e) Except as set forth on Schedule 5.5, neither the Company nor any
Subsidiary of the Company has outstanding, nor is subject to any obligation or
requirement to make, any investment (in the form of a loan, capital contribution
or otherwise) in any entity.
5.6 DUE AUTHORIZATION, ETC.
(a) The execution and delivery of this Agreement, and all other
documents required to be executed and delivered by the Company pursuant to this
Agreement, the taking of all actions required in connection herewith or
therewith, and the performance by the Company of the obligations to be performed
by the Company, as the case may be, hereunder and thereunder have been duly
authorized by all necessary corporate action of the Company and the
Stockholders. This Agreement has been, and on the Closing Date all other
documents required to be executed and delivered by the Company pursuant to this
Agreement shall be, duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms subject, however, to limitations on enforcement
imposed by bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of the rights of creditors and others and to the extent equitable
remedies such as specific performance and injunctions are only available in the
discretion of the court from which they are sought.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby do not and will not conflict with or result in any breach, violation of
or default or an event that, with notice or lapse of time or both, would be a
breach, violation or default under or permit or result in the acceleration of
any obligation, loss or amendment of any rights, permit or result in the
creation or imposition of any lien or encumbrance, or give rise to any
obligation under, the terms, conditions or provisions of the charter or by-laws
of the Company or any Subsidiary of the Company, or any indenture, mortgage,
lease, license, agreement, instrument or other document to which the Company or
any Subsidiary of the Company is a party or by which the Company or any
Subsidiary of the Company or any of their properties is bound, including,
without limitation, the Subsidiary Shares, or any permit, judgment, order,
decree or any statute, law, ordinance, rule or regulation applicable to the
Company or any Subsidiary of the Company, any of their properties or businesses
or any of the transactions contemplated hereby. No certificate, consent, permit,
license, approval, order or authorization of or issued by, or registration,
declaration or filing with, any Canadian or United States federal, provincial,
state, local or foreign governmental agency, instrumentality or authority (all
such certificates, consents, permits, licenses, approvals, orders,
authorizations, registrations, declarations or filings being hereinafter
referred to as "Permits"; and all such agencies, instrumentalities and
authorities being hereinafter referred to as "Governmental Agencies"), or any
other person or entity is required in connection with the execution, delivery
and performance of this Agreement, the consummation of the transactions
contemplated hereby or to permit the Company or any Subsidiary of the Company to
carry on its business after the Closing as the business is currently carried on
by the Company or any such Subsidiary.
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5.7 FINANCIAL STATEMENTS.
(a) The Company has delivered to Purchaser the following consolidated
financial statements of the Company and its Subsidiaries (collectively, the
"Financial Statements"):
(i) unaudited balance sheets and related statements of income and
changes in financial position as at the end of and for its fiscal year ended
July 31, 1995 and 1996;
(ii) the audited balance sheet and related statements of income and
changes in financial position as at the end of and for its fiscal year ended
July 31, 1997; and
(iii) the unaudited balance and related statements of income and
changes in financial position sheet as at the end of and for the four-month
period ended November 30, 1997.
(b) All of the foregoing Financial Statements have been prepared in
accordance with Canadian generally accepted accounting principles ("GAAP")
consistently applied (except that the balance sheet referenced in clause (iii)
of subsection (a) above may omit footnotes and may be subject to normal,
recurring year-end adjustments which shall not be, individually or in the
aggregate, material to the business, operations or financial condition of the
Company), are complete and correct in all material respects and fairly present
the financial position and the results of operations of the Company at the dates
and for the periods indicated thereon.
(c) Except as set forth on Schedule 5.7(c), all accounting ledgers and
other books and records of the Company and each of its Subsidiaries are located
at the principal office of the Company in London, Ontario, and present fairly
the financial condition, results of operations and changes in financial position
of the Company and its Subsidiaries as of the date, and for the periods
indicated.
(d) Except as set forth on Schedule 5.7(d) since November 30, 1997, the
business of the Company has been conducted in the ordinary course and in
conformity with recent past practice. Without limiting the generality of the
foregoing, since November 30, 1997, except as set forth on Schedule 5.7(d), the
Company has not:
(i) sold, leased, transferred or otherwise disposed of (including
any transfers from the Company to any of its Affiliates), or mortgaged or
pledged, or imposed or suffered to be imposed any Encumbrance (as defined below)
on, or granted a security interest in, any of the assets reflected on the
balance sheet of the Company as at November 30, 1997 or any assets acquired by
the Company after the such date, except for licenses of software, sales, leases,
transfers or other dispositions in the ordinary course of business consistent
with past practice;
(ii) canceled any debts owed to, waived any claims held by the
Company (including the settlement of any claims or litigation) or waived any
rights of material value;
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(iii) created, incurred, guaranteed or assumed any indebtedness for
borrowed money (whether accrued, absolute, contingent or otherwise) or entered
into any capitalized leases, except for leases of office equipment in the
ordinary course of business consistent with past practice not exceeding
US$25,000;
(iv) accelerated collection of notes or accounts receivable to a
date prior to the date such collection would have occurred in the ordinary
course of business;
(v) delayed payment of any account payable or other liability of the
Company beyond its due date or the date when such liability would have been paid
in the ordinary course of business consistent with past practice;
(vi) allowed the levels of raw materials, supplies, work-in-process,
finished goods or other materials included in its inventory to vary in any
material respect from levels customarily maintained;
(vii) granted or paid any bonus or other special compensation (other
than bonuses aggregating US$200,000 paid to the employees of the Company or its
Subsidiaries in the amounts set forth on Schedule 5.7(d)(vii)) or increased the
compensation or benefits payable or to become payable to any Stockholder or any
directors, officers or employees or instituted any increase in or otherwise
amended any profit sharing, bonus, incentive, deferred compensation, insurance,
pension, retirement, medical, hospital, disability, welfare or other employee
benefit plan except for increases required by law;
(viii) except with respect to licenses of computer software
incorporating Company Proprietary Rights (as hereinafter defined) in the
ordinary course of business consistent with past practice, sold, assigned or
transferred or permitted to lapse or otherwise failed to preserve any patents,
trademarks, trade names, copyrights, trade secrets or other intangible assets of
the Company, or, to the knowledge of the Company, disclosed any proprietary or
confidential information to any person or entity (other than Purchaser, its
Affiliates and agents);
(ix) declared, set aside or paid any dividend or made any other
distribution (whether in cash, stock or other property) to any of the
shareholders of the Company in respect of any Common Stock or other securities
of the Company;
(x) changed its capital structure or stock ownership in any way,
including, without limitation, the purchase, redemption, issuance, call for
purchase or redemption or other acquisition of any shares of Common Stock or any
other securities of the Company or the acceleration of the exercise period of
any option, warrant or other security of the Company;
(xi) entered into any contract or commitment or taken any other
action that is not in the ordinary course of business or that, at the time the
Company entered into such contract or commitment or took such action, might
reasonably have been expected to
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have an adverse impact on the transactions contemplated by this Agreement or the
Company's business;
(xii) entered into financial arrangements for the benefit of any
shareholder except in the ordinary course of business consistent with past
practice;
(xiii) amended the charter or by-laws of the Company or any
Subsidiary of the Company;
(xiv) borrowed or agreed to borrow any funds or voluntarily
incurred, or assumed or become subject to, whether directly or by way of
guaranty or otherwise, any obligation or liability, except obligations incurred
in the ordinary course of business consistent with past practices;
(xv) paid, discharged or satisfied any claim, obligation or
liability, other than (A) the payment, discharge or satisfaction in the ordinary
course of business of obligations reflected on or reserved against in the
Balance Sheet at November 30, 1997, or (B) any individual claim, obligation or
liability not exceeding US$25,000 that was incurred since the date of the
Balance Sheet at November 30, 1997 in the ordinary course of business consistent
with past practices or in connection with this transaction (it being understood
for purposes of this Section 5.7(d)(xv)(B) the phrase "any individual claim,
obligation or liability" shall not include the payroll obligations to the extent
paid, discharged or satisfied in the ordinary course of business, consistent
with past practice, of the Company and its Subsidiaries);
(xvi) except as required by this Agreement or by applicable law,
adopted, modified or amended in any respect, any agreement or plan (including
severance arrangements) for the benefit of its employees;
(xvii) made any capital expenditures or commitments for any capital
expenditures exceeding, in the aggregate, US$25,000;
(xviii) entered into, amended, terminated or changed any agreement,
contract, or commitment involving payment or receipt by it, in the aggregate, of
more than US$25,000;
(xix) knowingly done any act or omitted to do any act, or permitted
an act or omission to act, that will cause a breach of any agreement, contract,
undertaking or other commitment;
(xx) merged or consolidated with any entity or purchased the equity
capital of any entity or, except in the ordinary course of business consistent
with past practices, any assets not exceeding US$25,000 in the aggregate;
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(xxi) waived, released, transferred or permitted to lapse any claims
or rights that had a value, or involved payment or receipt by the Company or its
Subsidiaries, of more than US$25,000, in the aggregate, or that would have had
or could reasonably be expected to have had a material adverse effect;
(xxii) made any change in any method of accounting or accounting
practice;
(xxiii) paid, loaned, or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of its officers, directors or Affiliates, or any officer or director of any
of its Affiliates, except for normal business advances to employees consistent
with past practices, directors' fees, compensation to officers and compensation
increases permitted or contemplated by any other provision of this Agreement,
and except for intercompany advances or payments;
(xxiv) terminated, canceled or modified in any material respect or
received notice or a request for termination, cancellation or modification in
any material respect of any material contract or agreement to which the Company
is a party;
(xxv) suffered any material adverse change including, without
limitation, in respect of its business, assets, financial condition, relations
with its customers or products, including, without limitation, in respect of the
proposed timing and feasibility of products being developed by the Company; or
(xxvi) agreed or committed to do or authorized any of the foregoing.
5.8 TITLE TO AND CONDITION OF ASSETS.
(a) Except as set forth on Schedule 5.8, the Company or a Subsidiary of
the Company, as the case may be, has good and marketable title to all of the
tangible assets on the balance sheet of the Company as at November 30, 1997 in
each case subject to no security interests, mortgages, liens or encumbrances or
other rights of third parties whatsoever, except for liens for taxes not yet due
and payable, and, with respect to real estate, minor encumbrances or exceptions
to title that do not materially impair the present uses of such assets. The
tangible assets are sufficient to permit the continued operation of the
Company's and its Subsidiaries' businesses in substantially the same manner as
conducted on July 31, 1997. Schedule 5.8 sets out a complete and accurate list
of all locations where the tangible assets of the Company and its Subsidiaries
are situated, including a brief description of the tangible assets at each
location. Except as set forth in Schedule 5.5, there is no agreement, option or
other right or privilege outstanding in favor of any person or entity for the
purchase from the Company or any of its Subsidiaries of its business or any of
its assets not in the ordinary course of business. Substantially all of the
tangible assets of the Company and its Subsidiaries (including, without
limitation, substantially all computer equipment owned by the Company or its
Subsidiaries) are in good operating condition and repair, ordinary wear and tear
excepted.
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(b) Except as set forth on Schedule 5.8, all receivables shown on the
balance sheet of the Company as at November 30, 1997, and all receivables
accrued by the Company since the date of such balance sheet, have arisen in the
ordinary course of business and have been collected or, to the knowledge of the
Company, are collectible in the aggregate amount shown, less any allowances for
doubtful accounts and sales returns reflected therein, and, in the case of
receivables arising since the date of such balance sheet, any additional
allowances in respect thereof calculated in a manner consistent with the
allowances reflected in such balance sheet. Schedule 5.8 sets forth the aging of
accounts receivable of the Company and of each Subsidiary of the Company as of
November 30, 1997. Except as set forth on Schedule 5.8, each account receivable
of the Company and of each Subsidiary of the Company represents the undisputed,
bona fide sale and delivery of goods or services to, or as directed by, the
account debtors set forth on such Schedule. None of such accounts receivable is
represented by a note or chattel paper other than such leases properly
characterized as conditional sales as described in Schedule 5.8 or is due from a
Subsidiary of the Company or an Affiliate of the Company or any party which does
not deal at arm's-length with the Company.
5.9 REAL PROPERTY.
(a) The Company and its Subsidiaries own no real property and, since
their incorporation or formation, have owned no real property.
(b) Schedule 5.9 hereto lists each lease, sublease, license or other
agreement under which the Company or any Subsidiary of the Company uses,
occupies or has the right to occupy any real property (each, a "Company Lease").
Complete copies of the Company Leases, and all material amendments thereto
(which are identified on Schedule 5.9), have previously been delivered by the
Company to Purchaser. Neither the Company nor its Subsidiaries have mortgaged,
pledged or granted a lien or a security interest in any of the Company Leases.
The Company Leases are in full force and effect and are binding and enforceable
against each of the parties thereto in accordance with their respective terms;
except as set forth on Schedule 5.9, none of the Company Leases has been amended
since the date of delivery of a copy thereof to Purchaser. Neither the Company
nor, to the knowledge of the Company, any other party to a Company Lease, has
committed a material breach or default under any Company Lease, nor has there
occurred any event that with the passage of time or the giving of notice or both
would constitute such a breach or default, nor are there any facts or
circumstances that would reasonably indicate that the Company or any Subsidiary
of the Company is likely to be in material breach or default thereunder.
Schedule 5.9 correctly identifies each Company Lease that requires the consent
of any third party in connection with the transactions contemplated hereby. No
material construction, alteration or other leasehold improvement work with
respect to the real property covered by any of the Company Leases remains to be
paid for or to be performed by the Company or any Subsidiary of the Company.
None of the Company Leases has been assigned by the Company or a Subsidiary of
the Company in favor of any other party. The current uses of the premises to
which each Company Lease relates comply with applicable laws.
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5.10 INTELLECTUAL PROPERTY.
(a) Except as set forth on Schedule 5.10 hereto, the Company or a
Subsidiary of the Company owns all inventions, works, patents, information,
data, trademarks, domain names, trade names, service marks, copyrights, and any
registrations or applications therefor, schematics, technology, know-how, trade
secrets, algorithms, computer software programs or applications (in both source
code and object code form), and tangible or intangible proprietary information
or material (excluding software programs generally available to the public
through retail dealers in computer software or directly from the manufacturer or
the developer, which have been licensed to the Company or a Subsidiary of the
Company as an end-user without a right to modify, distribute or sublicense the
same and which are used in the Company's or such Subsidiaries' business but are
in no way incorporated into the Company's or its Subsidiaries' products
("Commercial Software")) that are used in the business of the Company or a
Subsidiary of the Company as currently conducted or as currently proposed to be
conducted by the Company and each Subsidiary of the Company (the "Company
Proprietary Rights"), free and clear of any and all mortgages, pledges, liens,
claims charges, security interests or leases ("Encumbrances.") Except as set
forth on Schedule 5.10, there is no reason why the Company and its Subsidiaries
will not be able to continue to own, license or use all Company Proprietary
Rights necessary for the lawful conduct of their business as currently conducted
and as currently proposed to be conducted, without any infringement or conflict
with the rights of others arising as a result of patents held by or licensed to
such other persons or, to the knowledge of the Company, without any infringement
or conflict with the rights of others arising other than as a result of such
patents. Except as set forth on Schedule 5.10, all of the Company's and its
Subsidiaries' rights in and to the Company Proprietary Rights are freely
assignable in their own names, including the right to create derivative works,
and the Company and its Subsidiaries are under no obligation to obtain any
approval or consent for use of any of the Company Proprietary Rights.
(b) Set forth on Schedule 5.10 is a complete list of all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, computer software programs or applications and tangible proprietary
information included in the Company Proprietary Rights, specifying, where
applicable, the jurisdictions in which each such Company Proprietary Right has
been issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Except as set forth
on Schedule 5.10, none of the Company's or its Subsidiaries' currently marketed
software products has been registered for copyright protection with the Canadian
Intellectual Property Office or the United States Patent and Trademark Office or
Register of Copyrights or any other foreign offices nor has the Company or a
Subsidiary of the Company received any written request to make any such
registration.
(c) Except as set forth on Schedule 5.10, the Company and its
Subsidiaries are not obligated to pay any royalties or other compensation to any
third party in respect of its ownership, use or license of any of the Company
Proprietary Rights.
(d) Set forth on Schedule 5.10 is a complete list of all material
licenses, sublicenses and other agreements as to which the Company or any
Subsidiary of the Company is a
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party and pursuant to which the Company or any other person is authorized to use
any Company Proprietary Right, which includes the identity of all parties
thereto, a description of the nature and subject matter thereof, the applicable
royalty and the term thereof. The Company Proprietary Rights include all
patents, trademarks, trade names, service marks, trade secrets and software that
are necessary for the Company or its Subsidiaries to satisfy and perform such
licenses, sublicenses and agreements. Neither the Company nor any Subsidiary of
the Company is in violation of any license, sublicense or agreement described on
such list except such violations as do not materially impair the Company's and
its Subsidiaries' rights under such license, sublicense or agreement. Such
licenses, sublicenses and agreements are in full force and effect and, to the
knowledge of the Company, with respect to parties other than the Company or any
Subsidiary of the Company, are binding and enforceable against each of the
parties thereto in accordance with their respective terms. Except as set forth
in Schedule 5.5, the execution and delivery of this Agreement by the Company,
and the consummation of the transactions contemplated hereby, will not cause the
Company or its Subsidiaries to be in violation or default under any such
license, sublicense or agreement, nor entitle any other party to any such
license, sublicense or agreement to terminate or modify such license, sublicense
or agreement.
(e) All of the Company Proprietary Rights set forth on Schedule 5.10 as
having been issued by, registered with or filed with the Canadian Intellectual
Property Office or the United States Patent and Trademark Office or Register of
Copyrights or the corresponding offices of other countries listed on Schedule
5.10 have been so duly issued by or registered with (based on certificates or
other written documents that the Company or its Subsidiaries have received from
such office, register or other offices) or, duly filed in, as the case may be,
and have been properly maintained and renewed in accordance with all applicable
provisions of law and administrative regulations in Canada, the United States
and each such other country. The Company and each Subsidiary of the Company have
taken reasonable precautions (i) to protect their rights in the Company
Proprietary Rights and (ii) to maintain the confidentiality of their trade
secrets, pending patent applications, know-how and other confidential Company
Proprietary Rights, and there have been no acts or omissions by the officers,
directors and shareholders of the Company or its Subsidiaries or, to the
knowledge of the Company, any other employee of the Company or its Subsidiaries,
the result of which would be to compromise the rights of the Company or its
Subsidiaries to apply for or enforce appropriate legal protection of such
Company Proprietary Rights, except as set forth on Schedule 5.10. Without
limiting the generality of the foregoing, the Company's and its Subsidiaries'
products, packaging and documentation contain copyright notices sufficient to
notify others of the Company's and its Subsidiaries' copyright protection on the
copyrighted portions of the Company Proprietary Rights.
(f) Except as set forth on Schedule 5.10, no claims with respect to the
Company Proprietary Rights have been asserted or, to the knowledge of the
Company, are threatened by any person nor are there any valid grounds for any
bona fide claims, to the knowledge of the Company, with respect to any such
valid grounds relating to copyrights, trademarks, service marks or trade
secrets, to the effect that the development, sale, licensing or use of any of
the products of the Company or its Subsidiaries as now developed, sold or
licensed or used or proposed for development, use, sale or licensing by the
Company or its Subsidiaries infringes on any copyright, patent, trademark,
service mark or trade secret, against the use by the Company or its
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Subsidiaries of any trademarks, service marks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs and
applications used in the Company's or its Subsidiaries' businesses as currently
conducted or as proposed to be conducted by the Company or its Subsidiaries, or
challenging the ownership by the Company or its Subsidiaries, validity or
effectiveness of any of the Company Proprietary Rights. To the knowledge of the
Company, there is no unauthorized use, infringement or misappropriation of any
of the Company Proprietary Rights by any third party, including any employee or
former employee of the Company or its Subsidiaries. No Company Proprietary Right
or product of the Company or its Subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by the Company or its Subsidiaries.
(g) Except as set forth on Schedule 5.10(g), each current or former
employee, officer and consultant of the Company or its Subsidiaries that
contributed materially to the creation or invention of any of the Company
Proprietary Rights executed a confidentiality agreement in substantially the
form attached hereto as Schedule 5.10 prior to the time of any such creation or
invention, agreeing to maintain the confidentiality of the Company Proprietary
Rights and the Company's and its Subsidiaries' other confidential information.
Except as set forth on Schedule 5.10(g), no employee, officer or consultant of
the Company or its Subsidiaries incorporated anything into the Company
Proprietary Rights in violation or in breach of any term or provision of any
employment or consulting contract, proprietary information and inventions
agreement, non- competition agreement or any other contract or agreement between
such employee, officer or consultant and another party. To the knowledge of the
Company, no employee, officer or consultant of the Company or its Subsidiaries
is in violation of any term of any employment or consulting contract,
proprietary information and inventions agreement, non-competition agreement, or
any other contract or agreement relating to the relationship of any such
employee, officer or consultant with the Company or its Subsidiaries or any
previous employer.
(h) The Company or its Subsidiaries have in their possession copies of
source code for all computer programs that are material to the business of the
Company and its Subsidiaries and that form part of the Company Proprietary
Rights. Such source code is fully documented in a manner that a reasonably
skilled programmer in the programming environment specified in Schedule 5.10
could understand, modify, compile and otherwise utilize all aspects of the
related computer programs without reference to other sources of information. The
Company and its Subsidiaries do not use, nor do the Company Proprietary Rights
contain or utilize, any encryption, enciphering or other similar technology. The
computer programs of the Company containing the Company Proprietary Rights that
have been made available generally to the public do not contain any viruses,
time locks, trojan horses, back doors or other means by which they may be
disabled or remotely accessed or bugs that materially interfere with the
operation of the computer programs containing the Company Proprietary Rights.
Except with respect to the Company Proprietary Rights distributed to Vision
Corporation pursuant to that certain license agreement dated December 2, 1997,
all copies of any computer programs forming part of the Company Proprietary
Rights have been distributed solely in object code form with notices containing
the notations "copyright" or "(c)" and "copyright [year of publication]
[company]". Except with respect to the Company Proprietary Rights distributed to
Vision Corporation pursuant to that certain license agreement dated December 2,
1997, there has been no disclosure of such programs other than
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through licensing of object code versions since the respective dates listed in
Schedule 5.10. Each copy so distributed is the subject of the valid, existing
and enforceable license agreement in the form attached in Schedule 5.10. The
Company and its Subsidiaries have existing back-ups of, and regularly back up,
all computer programs and data which form part of the Company Proprietary Rights
in a secure location to which it has immediate unrestricted access. The computer
programs included within the Company Proprietary Rights operate in all material
respects within their specifications, and contain no data dependency which might
render them inoperable, erratic or incorrectly operating (for example, dates
involving the years 1999 or 2000). The use of the Company's or its Subsidiaries'
electronic commerce computer programs to facilitate transactions does not
violate any laws or regulations applicable to such transactions and such
programs store and reproduce data in a format convenient for taking any acts
necessary to comply with such laws or regulations. Other than customer support
requests in the ordinary course of business, the Company and its Subsidiaries
have not received any complaints from licensees about the incorrect operation of
their products, or any product liability claims.
(i) Schedule 5.10, attached hereto, lists and describes any and all (i)
custom software developed by the Company pursuant to the Technical Consulting
Agreement dated as of June 2, 1997 by and between the Allen-Bradley Company
("A-B") and the Company (the "A-B Agreement") that, pursuant to Subsection 1 of
the Section of entitled "Inventions, Copyrights, Etc." of the A-B Agreement, is,
has become or will become the sole and exclusive property of A-B or the owner of
the A-B Information (as that term is defined in Subsection 1 of the Section
entitled "Inventions, Copyrights, Etc." of the A-B Agreement); (ii) "Materials"
(as that term is defined in Subsection 2 of the Section entitled "Inventions,
Copyrights, Etc." of the A-B Agreement) to which any right, title or interest
has been assigned or should be assigned by the Company to A-B pursuant to the
A-B Agreement; and (iii) Materials which are works made for hire by the Company
pursuant to the A-B Agreement. Notwithstanding the immediately preceding
sentence, the Company need not list on Schedule 5.10 Materials that are
comprised of intellectual property that originated with A-B, its Affiliates or
customers, provided that the Company retains the right to produce comparable
materials for third parties and can do so without using any A-B intellectual
property or infringing any of A-B's rights.
5.11 INVENTORY. Except to the extent of the aggregate reserves provided
for in the latest dated balance sheet included in the Financial Statements, all
inventory owned by the Company or its Subsidiaries is in good condition and
repair, is fully saleable in the ordinary course of business at normal prices
and of merchantable quality without any restriction on resale, was produced or
acquired in the ordinary course of business, is not obsolete or slow moving and,
in both quantity and nature, is appropriate for use in the operation of the
business of the Company or its Subsidiaries as currently conducted. All such
inventory manufactured by the Company or any of its Subsidiaries, and, to the
knowledge of the Company, all other inventory owned by the Company or its
Subsidiaries, is free from defects in design, materials and workmanship.
5.12 CONTRACTS.
(a) Except as set forth on Schedule 5.12, neither the Company nor any
Subsidiary of the Company is a party to any written or oral:
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(i) agreement, contract or commitment for the future purchase of, or
payment for, supplies or products, or for the performance of services by a third
party which supplies, products or services involving in any one case US$25,000
or more;
(ii) agreement, contract or commitment to sell or supply products or
to perform services involving products to be supplied or services including
maintenance services to be performed during the term of such agreement, contract
or commitment at a price of, in any one case, US$25,000 or more;
(iii) lease of personal property under which the Company or a
Subsidiary of the Company is either lessor or lessee, which lease provides for
payments in the aggregate in excess of US$25,000;
(iv) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or other instrument, contract or commitment for
the borrowing or lending of money or agreement or arrangement for a line of
credit or guarantee, pledge or undertaking of the indebtedness of any other
person;
(v) commitment or agreement for any capital expenditure or leasehold
improvement in excess of US$25,000;
(vi) agreement, contract or commitment limiting or restraining the
Company or a Subsidiary of the Company from conducting its business as now
conducted;
(vii) license with respect to the Company Proprietary Rights
(whether the Company or a Subsidiary of the Company is a licensee or licensor
thereunder), franchise, distributorship, source code escrow or other agreement
which relates in whole or in part to the Company Proprietary Rights, in each
case material to the business and operations of the Company;
(viii) contract, agreement or commitment, whether written or oral,
with any present or former independent contractor of the Company or a Subsidiary
of the Company or with respect to the independent contracting arrangement with
any person or entity by the Company or a Subsidiary of the Company;
(ix) contract, agreement or commitment with the Company or any
Subsidiary of the Company;
(x) bonus, deferred compensation, pension, severance,
profit-sharing, stock option, employee stock purchase or retirement plan,
contract or arrangement or other employee benefit plan or arrangement;
(xi) agreement for personal services with a term of service
specified in the agreement or any agreement for personal services in which the
Company or a Subsidiary of
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the Company has agreed on the termination of such agreement to make any payments
greater than those that would otherwise be imposed by law;
(xii) agreement of guarantee or indemnification of the obligations
of a third party;
(xiii) agreement or commitment containing a covenant limiting or
purporting to limit the freedom of the Company or a Subsidiary of the Company to
compete with any person in any geographic area or to engage in any line of
business;
(xiv) joint venture or profit-sharing agreement;
(xv) distribution, VAR or OEM agreement (identifying any that
contain exclusivity provisions);
(xvi) agreement or arrangement with any third party to develop any
intellectual property or other asset expected to be used or currently used or
useful in the business of the Company or a Subsidiary of the Company;
(xvii) agreement or arrangement for the Company or a Subsidiary of
the Company to develop any intellectual property or other asset for any third
party;
(xviii) agreement or arrangement providing for the payment of any
commission based on sales;
(xix) agreement or commitment to which present or former directors
or officers (or their Affiliates or members of their immediate families) or
Affiliates (or directors or officers of an Affiliate) are also parties;
(xx) agreement or commitment where the Company or a Subsidiary of
the Company pursuant to the express terms of such agreement or commitment could
be required by a third party, in such party's sole discretion, to return
payments received by the Company or such Subsidiary more than ninety days after
such receipt for the sale, license or distribution of any of its products or
services;
(xxi) agreement or commitment entitling a third party to the most
favorable price or other terms for any product or service the Company or a
Subsidiary of the Company offers to any other third party;
(xxii) agreement not described above (ignoring, solely for this
purpose, any dollar amount thresholds in those descriptions) involving the
payment or receipt by the Company or a Subsidiary of the Company of more than
US$25,000, other than the Company Leases; or
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(xxiii) agreement not described above that was not made in the
ordinary course of business or that is material to the financial condition,
business, operations, assets, results of operations or prospects of the Company.
(b) Except as set forth on Schedule 5.12, all contracts, leases,
instruments, licenses and other agreements or documents described on Schedule
5.12 (ignoring, solely for this purpose, any dollar amount thresholds in those
descriptions) are valid and in full force and effect and the Company or a
Subsidiary of the Company is entitled to the full benefit and advantage thereof
in accordance with its terms and the Company or a Subsidiary of the Company has
not, nor, to the knowledge of the Company, has any other party thereto, breached
any provision of, or defaulted under the terms of any such contract, lease,
instrument, license or other agreement or document and to the knowledge of the
Company there has not occurred any event which, with the lapse of time or giving
of notice or both, would constitute a default under any such contract, lease,
instrument, license or other agreement or document. Other than customer support
requests in the ordinary course of business, the Company and its Subsidiaries
have not received notice of any dispute between the Company or a Subsidiary of
the Company and any other party in respect of any such contract, lease,
instrument, license or other agreement or document. Schedule 5.12 identifies
each agreement and other document set forth on Schedule 5.12 or disclosed by the
Company on another Schedule hereto that requires the consent of a third party in
connection with the transactions contemplated hereby (the "Required Consent
Contracts").
5.13 LITIGATION. Except as set forth on Schedule 5.13, there is no action,
suit, litigation, claim, application, complaint, proceeding or investigation
pending or, to the knowledge of the Company, threatened by or against the
Company or any Subsidiary of the Company or any of their respective businesses,
properties or assets or affecting their respective businesses, properties,
assets or operations. To the knowledge of the Company, there is no factual or
legal basis which could give rise to any such action, suit, litigation, claim,
application, complaint, proceeding or investigation. Neither the Company, any
Subsidiary of the Company nor any of its properties or assets is subject to any
order, writ, injunction, decree or judgment of any court or Governmental Agency.
5.14 FOREIGN LANGUAGE CONTRACTS. No contract, agreement or commitment
relating to the business of the Company or its Subsidiaries that is expressed in
a language other than English provides for any liabilities or obligations of the
Company or any of its Subsidiaries (whether accrued, absolute, contingent or
otherwise, and whether due or to become due) that could reasonably be expected
to have a material adverse effect on the business, assets, financial condition
or prospects of the Company.
5.15 BANKING FACILITIES. Schedule 5.15 sets forth a complete and correct
list of all the names and locations of all banks or other depository
institutions in which any Subsidiaries of the Company have accounts or safe
deposit boxes, together with the names of all persons authorized to draw on such
accounts or safe deposit boxes.
5.16 LABOR MATTERS. The employees of the Company and of each Subsidiary of
the Company are not represented by any trade union or employee organization or
group or covered by
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any collective bargaining agreement. Neither the Company nor any Subsidiary of
the Company has engaged in any unfair labor practice and there is no unfair
labor practice complaint pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary of the Company. There is no application,
complaint or proceeding filed or pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary of the Company with or before
any labor relations board or human rights tribunal or any similar government
tribunal or agency or under any statute. Neither the Company nor any Subsidiary
of the Company has experienced any work stoppage or other labor difficulty or
any unionization attempt except as set forth on Schedule 5.16 and none is
pending or threatened. Except as set forth on Schedule 5.16, there is no
discrimination charge (relating to sex, age, race, national origin, handicap or
veteran status) pending before any Governmental Agency nor, to the knowledge of
the Company, any reasonable basis therefor, and there is no labor strike or
similar dispute or labor arbitration proceeding pending or, to the knowledge of
the Company, threatened against or involving the Company or any Subsidiary of
the Company. There is no outstanding demand for union representation of
employees of the Company or any Subsidiary of the Company. No representation
question is pending before any labor relations board involving any attempt to
organize a bargaining unit including any employees of the Company or any
Subsidiary of the Company. All current assessments in respect of workers'
compensation premiums exigible against the Company and its Subsidiaries have
been paid to date, there are no current or threatened penalty assessments on
account of workers' compensation affecting the Company and its Subsidiaries and
their businesses
5.17 COMPLIANCE WITH LAWS. The Company and each Subsidiary of the Company
has complied in all material respects with all Canadian and United States
federal, provincial, state, local and foreign laws, regulations and orders
applicable to their respective businesses, and with the United States Foreign
Corrupt Practices Act, 15 U.S.C. sec.sec.78m, 78dd-1, 78dd-2 and 78ff (as if it
were applicable to the Company, each Subsidiary and their respective business)
and similar non- United States laws, and the present uses by the Company and
each Subsidiary of the Company of their respective properties and the operation
of the businesses of the Company and each Subsidiary of the Company.
5.18 EMPLOYMENT MATTERS; EMPLOYEE BENEFIT PLANS.
(a) Except as set forth on Schedule 5.18(a), there are not any
grievances, disputes or controversies pending or, to the knowledge of the
Company, threatened between the Company or any of its Subsidiaries and any of
their respective present or former employees or independent contractors or any
person or entity representing any such employee or independent contractor.
Neither the Company nor any of its Subsidiaries is currently subject to any
claims by present or former employees or independent contractors of the Company
or any such Subsidiary, including, without limitation, claims for wages,
salaries, commissions or benefits, except in respect of amounts provided for in
the Financial Statements or incurred in the ordinary course of business
consistent with past practice.
(b) Except as set forth on Schedule 5.18(b), the Company and each of
its Subsidiaries, has paid or provided for all amounts currently due and payable
to all of its present or former employees and independent contractors,
including, without limitation, straight time and
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overtime pay, vacation pay, fringe benefits, severance pay, and disability
payments and has paid, and will pay, on or before the Effective Time, over to
the appropriate Governmental Agencies or other appropriate persons or entities,
all accrued Taxes, social security and other payments required to be withheld
and payable with respect to such present and former employees and independent
contractors through the Effective Time including, without limitation, income
taxes, Canada Pension Plan, contributions, provincial pension plan
contributions, employment insurance premiums and employer health taxes. Except
as set forth on Schedule 5.18(b), neither the Company nor any of its
Subsidiaries has liability for unfunded worker's compensation claims.
(c) Schedule 5.18(c) sets forth all the employee benefit, health,
welfare, supplemental unemployment benefit, bonus, pension, profit sharing,
deferred compensation, stock compensation, stock purchase, retirement,
hospitalization insurance, medical, dental, legal disability and similar plans
and arrangements or practices maintained at any time for employees of the
Company or any Subsidiary of the Company (the "Benefit Plans").
(d) Except as set forth on Schedule 5.18(d), neither the Company nor
any Subsidiary of the Company maintains a formal or informal severance pay plan
or policy for its employees; nor, except as set forth in the plans or policies
listed on such Schedule, does the Company or any Subsidiary of the Company
provide to its employees severance pay.
(e) Each Benefit Plan set forth on Schedule 5.18(e) has been
administered in accordance with its terms and has been established, invested and
administered in compliance in all respects with all other Canadian or United
States federal, provincial, state, local and foreign laws, regulations, orders
or other legislative, administrative or judicial promulgations applicable to it
(the "Benefit Plan Laws") and in accordance with all understandings, written or
oral, between the Company, its Subsidiaries and the employees of the Company and
of its Subsidiaries, and all reports required by any Governmental Agency with
respect thereto have been or as of the Closing will have been timely filed.
Neither the Company nor any person or entity under common control with the
Company is in default or violation of any provisions of any Benefit Plan or any
law, regulation or order related thereto and no moneys are owing with respect to
any such default or violation.
(f) The Company has heretofore delivered to Purchaser or its counsel
true, correct and complete copies of all the Benefit Plans as amended as of the
date hereof together with all related documentation including, without
limitation, all (i) the trust agreements, investment management agreements or
other funding vehicles related to all Benefit Plans, (ii) any summary plan
description related thereto, and (iii) all agreements, professional opinions,
reports, plan descriptions, actuarial reports, financial statements, material
correspondence and other documents of a type comparable to those described in
this Section 5.18(f) that are required to be entered into, received, prepared or
filed pursuant to the Benefit Plan Laws, if any.
(g) No liability under Title IV of the United States Employee
Retirement Income Security Act of 1973, as amended ("ERISA"), has been incurred
by the Company or any of its Subsidiaries with respect to any Benefit Plan or
any pension plan maintained by a trade or business, whether or not incorporated,
which is under common control with the Company within the meaning of Sections
414(b) or (c) of the United States Internal Revenue Code of 1986, as
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amended (the "Code"). No Benefit Plan has incurred any "accumulated funding
deficiency" (whether or not waived) as that term is defined in Section 412 of
the Code.
(h) There has been no "prohibited transaction" (as such term is defined
in Section 4975 of the Code or in Part 4 of Subtitle B of Title I of ERISA) with
respect to any Benefit Plan. No penalty or tax under Section 502(i) of ERISA or
Section 4975 of the Code has been imposed upon the Company or any of its
Subsidiaries with respect to its ownership or operation of any of the Company's
or its Subsidiaries' assets. The transactions contemplated by this Agreement
will not result in any vesting or accrual under any Benefit Plan.
(i) The Company has delivered to Purchaser a true and complete copy of
all employee handbooks and all employment policies currently used in connection
with the Company's and its Subsidiaries' businesses and operations.
(j) Except as set forth on Schedule 5.18(j), there are no unfunded
liabilities or obligations with respect to any of the Benefit Plans, under any
Canadian or United States federal, provincial, state, local or foreign laws,
regulations or orders.
(k) No Benefit Plan contains any assets allocable to participants other
than to current or former employees of the Company or any Subsidiary of the
Company formerly employed in connection with the business of the Company or a
Subsidiary of the Company or their beneficiaries.
(l) Neither the Company nor any Subsidiary of the Company currently
maintains any Benefit Plan under which the Company or any Subsidiary of the
Company has any present or future liability to persons other than current
employees of the Company or a Subsidiary of the Company or former employees of
the Company or any Subsidiary of the Company and their beneficiaries.
(m) No event has occurred with respect to any Pension Plan since
January 1, 1986, which constitutes a partial termination of such Pension Plan
under Section 411(d)(3) of the Code.
(n) No fact or circumstance exists that could adversely affect the tax
exempt status of a Benefit Plan. None of the Benefit Plans enjoys any special
tax status under the Income Tax Act (Canada) or under other Benefit Plan Laws,
nor have any advance tax rulings been sought or received in respect of the
Benefit Plans. No Benefit Plan is subject to any qualification or registration
required under any Benefit Plan Law.
(o) No material changes have occurred to any of the Benefit Plans or
are expected to occur which would affect the actuarial reports or financial
statements required to be provided to Purchaser pursuant to Section
5.18(f)(iii). No amendments have been made to any Benefit Plan and no
improvements to any Benefit Plan have been promised and no amendments or
improvements to a Benefit Plan will be made or promised prior to Closing. There
have been no improper withdrawals, applications or transfers of assets from any
Benefit Plan or the trusts or
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other funding media relating thereto, and none of the Company, any Subsidiary
thereof nor any of their agents, has been in breach of any fiduciary obligation
with respect to the administration of any Benefit Plan or the trusts or other
funding media relating thereto. Subject to approvals under Benefit Plan Laws,
Purchaser may merge any Benefit Plan or the assets transferred from any Benefit
Plan with any other arrangement, plan or fund.
(p) All obligations regarding the Benefit Plans have been satisfied,
there are no outstanding defaults or violations by any party thereto and no
taxes, penalties or fees are owing or exigible under any of the Benefit Plans.
All contributions or premiums required to be made under the terms of each
Benefit Plan or by Benefit Plan Laws have been made in a timely fashion in
accordance with Benefit Plan Laws and the terms of the Benefit Plans, and the
Company and its Subsidiaries do not have, and as of Closing will not have, any
liability (other than liabilities accruing after Closing) with respect to any of
the Benefit Plans. Contributions or premiums will be paid by the Company or its
Subsidiaries on an accrual basis for the period up to Closing even though not
otherwise required to be made until a later date in respect of the period that
includes Closing. No insurance policy or any other contract or agreement
affecting any Benefit Plan requires or permits a retroactive increase in
premiums or payments due thereunder. The level of insurance reserves established
with respect to each Benefit Plan is reasonable and sufficient to provide for
all incurred but unreported claims.
(q) There are no pending or threatened investigations, litigation,
proceedings or enforcement actions concerning the Benefit Plans or against the
Company or its Subsidiaries (or beneficiaries) with respect to any of the
Benefit Plans nor any insurance policy, trust agreement or other contract
relating thereto, and there exists no state of facts which after notice or lapse
of time or both could reasonably be expected to give rise to any such
investigation, proceeding or enforcement action.
(r) There are no actions, suits or claims pending or threatened by
former or present employees of the Company or its Subsidiaries (or their
beneficiaries) with respect to the Benefit Plans or any insurance policy or
other contract relating thereto (other than routine claims for benefits).
(s) Each Benefit Plan, to the extent that it requires funding, is fully
funded or fully insured on both an ongoing and solvency basis pursuant to the
actuarial assumptions in Schedule 5.18(j).
(t) No provision of any of the Benefit Plans prohibits the Company or a
Subsidiary of the Company, as the case may be, from unilaterally amending,
modifying, varying or terminating, in whole or in part, such Benefit Plan or
taking contribution holidays under or withdrawing surplus from such Benefit Plan
subject only to approvals required by the Benefit Plan Laws.
(u) All employee data necessary to administer each Benefit Plan has
been provided to Purchaser and is true and correct in all material respects as
of the date hereof and the Company will notify Purchaser of any changes thereto
occurring prior to the Closing.
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(v) Except as disclosed in Schedule 5.18(v), none of the Benefit Plans
provides benefits to retired employees or to the beneficiaries or dependents of
retired employees.
(w) The Company and its Subsidiaries do not have any contribution or
other obligation or liability, as of the date hereof, with respect to any
multi-employer pension or employee benefit plan.
5.19 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.19:
(a) Neither the Company nor any Subsidiary of the Company has violated,
and each of the Company and each of its Subsidiaries is in material compliance
with, all Environmental Laws (as defined below) applicable to it. Neither the
Company or any Subsidiary of the Company nor, to the knowledge of the Company,
any other person or entity has caused or permitted any Hazardous Material (as
defined below) to be produced, used, stored, handled or transported, except in
compliance with all applicable Environmental Laws. Neither the Company or any
Subsidiary of the Company nor, to the knowledge of the Company, any other person
or entity has caused or permitted any Hazardous Material to be stored, emitted,
released, discharged or otherwise disposed of except in compliance with all
applicable Environmental Laws. There has been no release, discharge or clean-up
of Hazardous Materials in connection with the operation of the business of the
Company or any Subsidiary of the Company, any other business concluded by the
Company or any assets or properties of any Subsidiary of the Company by the
Company, the Company's lessees, employees or agents. The properties of the
Company and each of its Subsidiaries are free from Hazardous Materials.
(b) There has been no litigation, proceeding, administrative action or
investigation brought or, to the knowledge of the Company, threatened against
the Company or any Subsidiary of the Company, or any settlement reached by the
Company or any such Subsidiary with any person or entity concerning the alleged
presence, disposal or release of any Hazardous Materials, and currently there is
no litigation, proceeding, administrative action or investigation pending or, to
the knowledge of the Company, threatened concerning the alleged presence,
disposal or release of any Hazardous Materials of the Company or any Subsidiary
of the Company.
(c) Neither the Company nor any Subsidiary of the Company has exposed
any employee or other individual to any substance or condition, or owned or
operated any property or facility in any manner that would or could reasonably
be expected in the future to cause the Company, any Subsidiary of the Company or
Purchaser to be liable for damages, fines or penalties, or to incur expenses
(including, without limitation, legal and consulting fees) in connection with
any claim of illness of or personal injury to any employee or other individual.
Without limiting the generality of the foregoing, the Company and its
Subsidiaries have not violated and are in full compliance with all applicable
state, local and foreign laws, regulations and orders governing occupational
safety and health standards.
(d) Neither the Company nor any Subsidiary of the Company is or has
been, subject to any proceedings alleging the violation of any Environmental Law
or to determine whether
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any remedial action is needed to respond to a release. There are no
circumstances that could reasonably be expected to give rise to any civil or
criminal proceedings or liability regarding the release or presence of a
Hazardous Material or the violation of any Environmental Law by the Company or
any Subsidiary of the Company, or their respective employees, agents or others
for whom it is responsible. There are no proceedings nor any circumstances or
material facts which could, if true, give rise to any proceedings, in which it
is alleged that the Company or any Subsidiary of the Company or any of their
respective predecessors are potentially responsible for a domestic or foreign
federal, provincial, state, municipal or local clean-up or remediation of lands
contaminated with Hazardous Materials or for any other remedial or corrective
action under an Environmental Law. The Company and each Subsidiary of the
Company and their respective predecessors have maintained all environmental and
operating documents and records in the manner and for the time periods required
by the Environmental Laws. There has never been conducted an environmental audit
of the Company or any Subsidiary of the Company. For purposes of this Section,
an environmental audit includes any evaluation, assessment, review or study
performed at the request of or on behalf of the Company or any Subsidiary of the
Company, a prospective purchaser of the Company or any Subsidiary of the Company
or their respective business or assets, a court or a Governmental Agency.
(e) As used in this Agreement, "Environmental Laws" shall mean all
Canadian or United States federal, provincial, state, local and foreign laws,
rules, regulations and guidances relating to pollution or protection of the
environment or public or occupational or human health and safety, and the
manufacture, importation, handling, transportation, storage, disposal and
treatment of Hazardous Materials including, without limitation, laws, rules and
regulations relating to production, storage, emission, discharge, release or
threatened release of any Hazardous Material into ambient air, surface water,
ground water or land, or otherwise relating to pollution control or the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
(f) As used in this Agreement the term "Hazardous Materials" means any
substance or pollutant, any solid, liquid, gas, odor, heat, sound, vibration,
radiation or combination of them that is categorized as hazardous or is
regulated or prohibited by any Environmental Law.
(g) As used in Section 5.19, the term "release" includes an actual or
potential discharge, deposit, spill, leak, pumping, pouring, emission, emptying,
injection, escape, leaching, seepage or disposal of a Hazardous Material which
is or may be in breach of any Environmental Laws.
5.20 BONUSES AND TERMINATION PAYMENTS. Schedule 5.20 sets forth each
bonus, termination or other severance payment which the Company or any
Subsidiary of the Company is obligated to pay other than pursuant to law to any
officer or employee of the Company or any Subsidiary of the Company or any
independent contractor engaged by the Company or any Subsidiary of the Company
on account of the transactions contemplated hereunder or the termination of such
officer's employment after the date hereof. Except as set forth on Schedule
5.7(d), as of the Closing Date, all payments due to officers or other employees
of, or independent contractors engaged by, the Company or any Subsidiary of the
Company by way of salaries,
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bonuses, incentive, commission, severance or termination payments will have been
made and neither the Company nor any Subsidiary of the Company will have accrued
any such payments to be made after the Closing Date (other than in respect of
salaries and wages for current pay periods and bonuses, vacation pay,
commissions and severance payments payable under plans generally applicable to
employees of the Company and its Subsidiaries).
5.21 ABSENCE OF CERTAIN EVENTS. Since the date of the financial statements
of the Company referred to in Section 5.7(a)(ii), the Company and its
Subsidiaries have conducted their businesses only in the ordinary course in the
same manner as theretofore conducted and there has not since such date been any
material adverse change (whether or not covered by insurance) in the business,
results of operations, financial condition, assets or liabilities or prospects
of the Company or any of its Subsidiaries or in the manner of conducting the
businesses of the Company and its Subsidiaries nor has the Company or any
Subsidiary of the Company suffered the loss of any Permit or of any agreement,
contract or commitment required to be set forth on Schedule 5.12.
5.22 SCHEDULE OF WARRANTY AND PRODUCT LIABILITY CLAIMS. Schedule 5.22
contains a true and complete listing of (a) all products manufactured or sold by
the Company or any Subsidiary of the Company and returned to the Company or any
such Subsidiary because of warranty or other problems during the period from
July 31, 1996 to the present, (b) all product liability claims made against the
Company or any Subsidiary of the Company with respect to the business of the
Company or any such Subsidiary during the period from July 31, 1996 to the
present and (c) to the extent available, all credits, credit memos, offsets and
allowances made with respect to all warranty and other claims and problems with
respect to products made or sold by the Company or any Subsidiary of the Company
during the period from July 31, 1996 to the present. Except as set forth on
Schedule 5.13, during the period from July 31, 1996 to the present, neither the
Company nor any Subsidiary of the Company has been a defendant in any product
liability litigation relating to any products made or sold by the Company or any
Subsidiary of the Company and, to the knowledge of the Company, no such
litigation was threatened during such period. The reserves established on the
latest dated balance sheet included in the Financial Statements, whether for
returned products, free upgrade of product, warranty payments or otherwise, are
adequate to account for all such contingent liabilities of the Company and its
Subsidiaries.
5.23 DISTRIBUTORS. Schedule 5.23 contains a true and complete list of all
persons and entities through whom the Company and each Subsidiary of the Company
has sold its products during the period since July 31, 1994, as broker, agent,
distributor or otherwise, and of all agreements and contracts with any such
broker, agent, distributor or other person or entity in connection with the
marketing or sale of any of the Company's and each its Subsidiaries' products
during such period.
5.24 CUSTOMERS. Schedule 5.24 contains a true and complete list of all
customers of the Company and each Subsidiary of the Company during the period
from July 31, 1996 to the present and all persons other than such customers that
presently have maintenance arrangements with the Company or any Subsidiary of
the Company. Except as set forth on Schedule 5.24, none of the Inventory is
identified to any order or agreement, and neither the Company nor any Subsidiary
of the Company is a party to any such order or agreement with any person or
entity
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related to the sale or potential sale of any of its products. Except as set
forth on Schedule 5.24, to the knowledge of the Company, none of the listed
customers has provided notice of an intention to cease doing business with the
Company or any Subsidiary of the Company in any respect or otherwise to change
its business relationship with the Company or any Subsidiary of the Company and
there are no unresolved disputes with any customers.
5.25 SUPPLIERS. A true and complete list of all suppliers from or through
whom the Company or any Subsidiary of the Company has purchased products or
services for use in connection with its business since July 31, 1996 has been
delivered to Purchaser or its counsel. To the knowledge the Company, none of
such suppliers has provided notice of an intention to change its business
relationship with the Company or any Subsidiary of the Company or to cease doing
business with the Company or any Subsidiary of the Company and there are no
unresolved disputes with any suppliers. Except as set forth on Schedule 5.12,
neither the Company nor any Subsidiary of the Company is a party to any material
agreement (whether a requirements, output, volume purchase, discount or license
agreement or otherwise) with any person or entity related to the purchase or
potential purchase of any supplies used in connection with the business of the
Company or any Subsidiary of the Company.
5.26 PERMITS. Except as set forth on Schedule 5.26, each of the Company
and each Subsidiary of the Company has obtained all material Permits from, has
given all notices to, and has made all material filings with and material
reports to, all Governmental Agencies required for or in connection with the
lawful and continuous operation of the business of the Company and each
Subsidiary of the Company, respectively, as they are currently being conducted,
including, without limitation, all such Permits as may be required to permit
lawful use, storage, treatment, handling and disposal of any Hazardous Materials
stored, used or generated by the Company. Except as set forth on Schedule 5.26,
all of such Permits, notices, filings and reports are in full force and effect,
are unaffected by the transactions contemplated hereby and, at the Closing Date,
will continue to be in full force and effect without the need for any consent of
or filing with Governmental Agency. Except as set forth on Schedule 5.26, none
of such Permits, notices, filings or reports will expire or is subject to
renewal within one year. All of the material Permits of the Company and each
Subsidiary of the Company are listed on Schedule 5.26 (including any applicable
expiration dates) and are in full force and effect. Except as set forth on
Schedule 5.26, the Company and each Subsidiary of the Company has complied and
is in compliance with all conditions or requirements imposed by any of such
Permits and no notice has been provided and there is no reason to believe that
any Governmental Agency intends to cancel, terminate or modify any such Permit
or to require additional material Permits, notices, filings or reports with
respect to the operation of the business of the Company or any Subsidiary of the
Company or that valid grounds for any such cancellation, termination or
modification exist.
5.27 NO UNDISCLOSED LIABILITIES. Except as and to the extent disclosed on
the latest dated balance sheet included in the Financial Statements or Schedule
5.27, neither the Company nor any Subsidiary of the Company had or will have at
the date of each such balance sheet and has as of the date hereof or will have
on the Closing Date, any liabilities or obligations (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) other than
liabilities or obligations incurred in the ordinary course of business and
liabilities or obligations disclosed in
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this Agreement or which, by the terms of this Agreement are not required to be
disclosed in this Agreement. No Subsidiary of the Company has outstanding any
indebtedness for money borrowed from any bank or other financial institution.
5.28 TAXES.
(a) Except as set forth on Schedule 5.28 attached hereto, (i) the
Company and each Subsidiary of the Company has filed on or before the date
hereof all Tax Returns required to be filed by the Company or such Subsidiary on
or before the Closing Date; (ii) no extension of time in which to file any such
Tax Return is in effect; (iii) all such Tax Returns are complete and accurate
and disclose all Taxes required to be paid by the Company and each Subsidiary of
the Company for the periods covered thereby and all Taxes shown to be due on
such Tax Returns have been timely paid; (iv) all Taxes (whether or not shown on
any Tax Return) owed by the Company or any Subsidiary of the Company and
required to be paid on or before the Closing Date have been (or will be) timely
paid on or prior to Closing; (v) neither the Company nor any Subsidiary of the
Company has waived or been requested to waive any statute of limitations in
respect of Taxes; (vi) there is no action, suit, investigation, audit, claim or
assessment pending or proposed or threatened and no notice thereof has been
received with respect to Taxes of the Company or any Subsidiary of the Company
and no basis exists therefor; (vii) all deficiencies asserted or assessments
made as a result of any examination of the Tax Returns referred to in clause (i)
have been paid in full; (viii) there are no liens for Taxes upon the assets of
the Company except liens relating to Taxes not yet due and payable; (ix) all
Taxes which the Company or any Subsidiary of the Company are required by law to
withhold or to collect on or before the Closing Date have been or will be duly
withheld and collected, and have been or will be paid or accrued; (x) the
accruals for deferred Taxes reflected in the balance sheet of the Company as at
November 30, 1997 are adequate to cover any deferred Tax liability of the
Company determined in accordance with GAAP through the date thereof and the
accruals for deferred Taxes will be in respect of liabilities incurred in the
ordinary course of business of the Company or any Subsidiary; (xi) there are no
Tax rulings, requests for rulings, or closing agreements relating to the Company
or any Subsidiary of the Company which could affect the Company's or any of its
Subsidiaries' liability for Taxes for any period after the Closing Date; and
(xii) no claim has ever been made by a Taxing authority in a jurisdiction where
the Company or any of its Subsidiaries does not pay Taxes or file Tax Returns
asserting that the Company or any of its Subsidiaries is or may be subject to
Taxes assessed by such jurisdiction. No federal, state, provincial, municipal,
local, and foreign income Tax Returns filed with respect to any of the Company
and its Subsidiaries for taxable periods ended on or after December 31, 1993,
have been audited or, to the knowledge of the company, are currently the subject
of an audit. The Company has delivered to PSDI correct and complete copies of
all federal, provincial, and foreign Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of the Company
and its Subsidiaries since December 31, 1993.
(b) Neither the Company nor any of its Subsidiaries has entered into an
agreement contemplated in section 80.04 of the Income Tax Act (Canada) or any
equivalent provincial provision.
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(c) There are no circumstances existing which could result in the
application of section 78 of the Income Tax Act (Canada) or any equivalent
provincial provision to the Company or any of its Subsidiaries
(d) Neither the Company nor any of its Subsidiaries has acquired an
asset from a person with whom it did not deal at arm's length for the purposes
of the Income Tax Act (Canada) or for the purposes of any relevant provincial
income tax legislation for consideration greater than the fair market value of
such asset at the time of its acquisition by such corporation, nor disposed of
such an asset to such a person for consideration less than its fair market value
at the time of its disposition by such corporation.
(e) At the Closing Date, for the purposes of the Income Tax Act
(Canada), the Company and its Subsidiaries will own depreciable property of the
prescribed classes and having undepreciated capital costs as set out in Schedule
5.28(e).
(f) Neither the Company nor any of its Subsidiaries will at any time be
deemed to have a capital gain pursuant to subsection 80.03(2) of the Income Tax
Act (Canada) as a result of any transaction or event taking place in any
taxation year ending on or before the Closing Date.
(g) The Company has paid all Taxes imposed by the Retail Sales Tax Act
(Ontario) on the acquisition of its tangible personal property as defined in the
Retail Sales Tax Act (Ontario), and none of its tangible personal property has
been transferred at any time on a tax exempt basis under the provisions of
Section 13 of Regulation 1013 to the Retail Sales Tax Act (Ontario) or any
predecessor thereof.
(h) None of the Company and its Subsidiaries has filed a consent under
Code section 341(f) concerning collapsible corporations. None of the Company and
its Subsidiaries has made any payments, is obligated to make any payments, or is
a party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code section 280G. None of
the Company and its Subsidiaries has been a United States real property holding
corporation within the meaning of Code section 897(c)(2) during the applicable
period specified in Code section 897(c)(1)(A)(ii). None of the Company and its
Subsidiaries is a party to any Tax allocation or sharing agreement. None of the
Company and its Subsidiaries (A) has been a member of an Affiliated Group filing
a consolidated federal income Tax Return (other than a group the common parent
of which was the Company) or (B) has any Liability for the taxes of any Person
(other than any of the Company and its Subsidiaries) under Treasury Regulation
section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(i) Schedule 5.28(i) sets forth the following information with respect
to each of the Company and its Subsidiaries (or, in the case of clause (B)
below, with respect to each of the Subsidiaries) as of the most recent
practicable date: (A) the cost amount or basis of the Company or Subsidiary in
its assets; (B) the cost amount or basis of the stockholder(s) of the Subsidiary
in its stock (or the amount of any Excess Loss Account); (C) the amount of any
net operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution
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allocable to the Company or Subsidiary; and (D) the amount of any deferred gain
or loss allocable to the Company or Subsidiary arising out of any Deferred
Intercompany Transaction.
(j) Each of the Company and its Subsidiaries is in compliance with all
registration, reporting and remittance obligations in respect of all provincial,
federal sales tax and goods and services tax ("GST") legislation. Without
restricting the generality of the foregoing, each of the Company and Innovative
Maintenance Systems, Inc., Vision Corporation and Maintenet Corp. is duly
registered under the Excise Tax Act (Canada) for GST purposes, and their GST
registration numbers are set forth in Schedule 5.28(j) hereto. In addition, all
input tax credits claimed are justified and have been duly calculated, and all
documents in support of the input tax credits claimed since January 1, 1991, and
copies of any elections, agreements or arrangements made with Revenue Canada
Customs, Excise and Taxation, and all written communications between the Company
and its Subsidiaries and Revenue Canada Customs, Excise and Taxation, or access
thereto, have been provided to PSDI or Purchaser.
5.29 INSURANCE. Each of the Company and each Subsidiary of the Company
maintains, and has maintained for the three years prior to the date hereof,
insurance on its properties and assets in such amounts and covering such risks
as is reasonable for the business of the Company and each Subsidiary of the
Company, respectively and customary for similar businesses in the industries in
which the Company and each Subsidiary of the Company, respectively operates.
Schedule 5.29 sets forth a list of all policies or binders of insurance
maintained, owned or held by the Company and each Subsidiary of the Company on
their properties and assets on the date hereof. The Company and each Subsidiary
of the Company shall keep or cause such insurance or comparable insurance to be
kept in full force and effect through the Closing Date. The Company and each
Subsidiary of the Company have complied in all material respects with each of
such insurance policies and binders and had not failed to give any notice or
present any claim thereunder in a due and timely manner. There are no
outstanding unpaid claims under any of such insurance policies or binders and
the Company and each Subsidiary of the Company have not received any notice of
cancellation or non-renewal of any such policy or binder. All premiums due and
payable under any such insurance policies or binders have been duly paid. All
such insurance policies and binders are in full force and effect and the Company
and each Subsidiary of the Company are not in default thereunder. The Company
has delivered to Purchaser correct and complete copies of the most recent
inspection reports, if any, received from insurance underwriters as to the
condition of any of the assets or properties of the Company and its
Subsidiaries.
5.30 BUDGETS. Schedule 5.30 lists (a) as of the date hereof the most
recent budgets of capital, payroll and other expenditures of the Company
prepared in the ordinary course of business for the fiscal year ending July 31,
1998 and (b) the total capital expenditures through December 31, 1997, if any,
for each capital expenditure project for which funds are proposed to be expended
during 1997 and 1998.
5.31 INVESTMENT CANADA. If the value of the Company's assets as shown in
the audited consolidated financial statements of the Company for the fiscal year
immediately preceding the Closing is equal to or greater than Cdn$5,000,000
then,
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(a) the Company does not engage in the following activities:
(i) the publication, distribution or sale of books, magazines,
periodicals, newspapers or music in print or machine readable form;
(ii) the production, distribution, sale or exhibition of film, video
recordings, audio or video music recordings; or
(iii) radio communication in which the transmissions are intended
for direct reception by the general public, or any radio, television or cable
television broadcasting undertakings or any satellite programming and broadcast
network services; and
(b) the value of the Company's assets as shown in the audited
consolidated financial statements of the Company for the fiscal year immediately
preceding the Closing is less than Cdn$172,000,000.
5.32 BANKRUPTCY. Neither the Company nor any Subsidiary of the Company is
an insolvent person within the meaning of the Bankruptcy and Insolvency Act
(Canada) nor has any of them made an assignment in favor of its creditors nor a
proposal in bankruptcy to its creditors or any class thereof nor had any
petition for a receiving order presented in respect of it. Neither the Company
nor any Subsidiary of the Company has initiated proceedings with respect to a
compromise or arrangement with its creditors or for its winding up, liquidation
or dissolution. No receiver has been appointed in respect of the Company or any
Subsidiary of the Company or any of their respective assets and no execution or
distress has been levied upon any of the such assets.
5.33 PERSONAL PROPERTY LEASES. Schedule 5.33 lists all the personal
property leases of the Company and its Subsidiaries ("Personal Property Leases")
(including, without limitation, all chattel leases, equipment leases, rental
agreements, conditional sales agreements and other similar agreements) and
identifies the ones which cannot be terminated by the Company or its
Subsidiaries without liability at any time upon less than 30 days' notice or
which involve payment by it in the future of more than $5,000. Each Personal
Property Lease is in full force and effect and has not been amended, and the
Company or a Subsidiary of the Company, as the case may be, is entitled to the
full benefit and advantage of each Personal Property Lease in accordance with
its terms. Each Personal Property Lease is in good standing and there has not
been any default by any party under any Personal property Lease nor any dispute
between the Company or a Subsidiary of the Company, as the case may be, and any
other party under any Personal Property Lease.
5.34 DATA PROCESSING. The computer equipment and associated peripheral
devices and the related operating and application systems and other software
owned, leased or licensed by the Company and its Subsidiaries other than
off-the-shelf personal computer software subject to transferable licenses ("Data
Processing System") adequately meets the data processing needs of the Company's
and its Subsidiaries' respective businesses and operations as presently
conducted. Each of the Company and its Subsidiaries have taken appropriate
action by instruction, agreement or otherwise with its employees or other
persons permitted access to system application programs and
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data files used in the Data Processing System to protect against unauthorized
access, use, copying, modification, theft and destruction of such programs and
files.
5.35 NOTICES. All notices required to be given to any party under
applicable law or pursuant to any contract or other obligation to which the
Company or any Subsidiary of the Company is a party or by which the Company or
any Subsidiary of the Company is bound or which is applicable to any of their
assets in connection with the execution and delivery of this Agreement or the
completion of the transactions contemplated by this Agreement ("Notices") are
listed in Schedule 5.35. Except for the Notices, no notice is required to be
delivered to any party in connection with the execution and delivery of this
Agreement and the completion of the transactions contemplated by this Agreement
or to permit the Company to carry on its business after the Closing as the
business is currently carried on by the Company.
5.36 EMPLOYMENT CONTRACTS. Schedule 5.36 lists all the employees of the
Company and each Subsidiary of the Company as of the date of this Agreement and
the age, position, status, length of service, compensation and benefits of each
of them, respectively. Except as set out in Schedule 5.36, neither the Company
nor any Subsidiary of the Company is a party to or bound by any contracts or
requirements of applicable law in respect of any employee or former employee,
including:
(a) any contracts for the employment or statutorily required
re-employment of any employee; or
(b) any bonus, deferred compensation, profit sharing, pension,
retirement, hospitalization insurance or other plans or arrangements providing
employee benefits, except for the plans providing employee benefits described in
Schedule 5.18(c).
5.37 SELF-INSURED PLANS. Neither the Company nor any Subsidiary of the
Company has established a medical or dental plan for the benefit of any or all
of its or their present or former employees under which the Company or a
Subsidiary of the Company has undertaken to pay for the provision of medical or
dental services to such present or former employees.
5.38 AFFILIATED TRANSACTIONS. Neither the Company nor any Subsidiary of
the Company is liable in respect of advances, loans, guarantees to or on behalf
of any shareholder, officer, director, employee or affiliate of the Company or
any Subsidiary of the Company or any other person or entity with whom the
Company or any Subsidiary of the Company does not deal at arm's length.
5.39 INTERCOMPANY SERVICES. There are no material intercompany services
provided to the Company by any Stockholder or by an Affiliate of any Stockholder
other than the Company.
5.40 BROKERAGE FEES. Neither the Company or any Subsidiary of the Company
nor any Stockholder has entered into any agreement which would entitle any
person or any entity to any valid claim against either the Company or Purchaser
for a broker's commission, finder's fee or any
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like payment in respect of the purchase and sale of the Shares or any other
matters contemplated by this Agreement.
5.41 EXPORT CONTROLS. The distribution, sale, use and licensing of the
Company Proprietary Rights, including, without limitation, any encryption
algorithms contained therein, does not violate any United Sates or Canadian
export control laws. To the knowledge of the Company, there is no factual or
legal basis which could give rise to any action, suit, investigation, audit,
claim or assessment relating to a violation of any such export control laws.
5.42 NO MISREPRESENTATION. Neither this Agreement and the exhibits and
schedules hereto nor the other documents delivered at the Closing contains, or
will contain, any untrue statement of material fact or omits, or will omit, to
state a material fact necessary to make the statements contained herein or
therein not misleading to a prospective purchaser of the Shares and the Warrant
seeking full information as to the Company and the Subsidiaries of the Company
and their respective properties, businesses and affairs. Except for those
matters disclosed in this Agreement or the Schedules hereto, there are no facts
not disclosed in this Agreement or the Schedules hereto which might reasonably
be expected to result in a material adverse effect on the business or financial
results of the Company or any of its Subsidiaries.
6. REPRESENTATIONS OF THE STOCKHOLDERS REGARDING THE SHARES AND THE WARRANT.
As a material inducement to PSDI's and Purchaser's entering into this Agreement
and completing the transactions contemplated by this Agreement and acknowledging
that PSDI and Purchaser are entering into this Agreement in reliance upon the
representations and warranties of the Stockholders set out in this Section 6,
each Stockholder, severally and not jointly, represents and warrants to PSDI and
Purchaser as follows:
6.1 TITLE. Each Stockholder is the registered and beneficial holder of and
has good and marketable title to the Common Stock or the Warrant, as the case
may be, which is to be transferred to Purchaser by each such Stockholder
pursuant to this Agreement, free and clear of any and all covenants, conditions,
restrictions, voting trust arrangements, liens, charges, encumbrances, options
and adverse claims or rights whatsoever. Schedule 5.2 attached hereto sets forth
a true and correct description of the Common Stock and any rights to acquire the
Common Stock owned by each Stockholder.
6.2 AUTHORITY. Each Stockholder has the full right, power, capacity and
authority to enter into this Agreement and to transfer, convey and sell to
Purchaser at the Closing the Shares or the Warrant, as the case may be, to be
sold by such Stockholder hereunder and, upon consummation of the purchase
contemplated hereby, Purchaser will acquire from such Stockholder good and
marketable title to the Shares or the Warrant, as the case may be, free and
clear of all covenants, conditions, restrictions, voting trust arrangements,
liens, charges, encumbrances, options and adverse claims or rights whatsoever.
6.3 CORPORATE STOCKHOLDER. Each Stockholder which is a corporation is
validly subsisting under the laws of the jurisdiction of its incorporation, has
the corporate power and authority and is qualified to own and dispose of its
Shares or the Warrant, as the case may be, and
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no act or proceeding has been taken by or against any such Stockholder in
connection with the dissolution, liquidation, winding up, bankruptcy or
reorganization of such Stockholder. The execution and delivery of this Agreement
and such other agreements and instruments and the completion of the transactions
contemplated by this Agreement and such other agreements and instruments have
been duly authorized by all necessary corporate action on the part of each
Stockholder which is a corporation and its shareholders.
6.4 RESIDENCE OF STOCKHOLDERS. Except for the Stockholders listed in
Schedule 6.4 attached hereto, no Stockholder is a non-resident of Canada for
purposes of Section 116 of the Income Tax Act (Canada).
6.5 RESTRICTIONS. No Stockholder is a party to, subject to or bound by any
agreement or any judgment, order, writ, prohibition, injunction, decree or award
of any Governmental Agencies that would prevent the execution or delivery of
this Agreement by any Stockholder or the transfer, conveyance and sale of the
Shares or the Warrant, as the case may be, to be sold by each Stockholder to the
Purchaser pursuant to the terms hereof.
6.6 ENFORCEABILITY; CONFLICTS. This Agreement has been duly executed by
each Stockholder. This Agreement and all other agreements, instruments or
documents delivered at or in connection with the Closing to which a Stockholder
is a party constitutes a valid and legally binding obligations of such
Stockholder, enforceable against such Stockholder in accordance with their
respective terms subject, however, to limitations on enforcement imposed by
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of the rights of creditors and others and to the extent equitable remedies such
as specific performance and injunctions are only available in the discretion of
the court from which they are sought. The execution, delivery and performance of
this Agreement by such Stockholder and the consummation by such Stockholder of
the transactions contemplated hereby do not and will not conflict with or result
in any breach, violation of or default or an event that, with notice or lapse of
time or both, would be a breach, violation or default under the terms,
conditions or provisions of the charter or by-laws of such Stockholder, if such
Stockholder is a corporation, the Company or any Subsidiary of the Company, or
any indenture, mortgage, lease, license, agreement, instrument or other document
to which the Stockholder is a party or by which the Stockholder is bound, or any
permit, judgment, order, decree or any statute, law, ordinance, rule or
regulation applicable to the Stockholder. Except as referred to in the last
sentence of Section 5.6(b), or otherwise required under the terms of this
Agreement, no Permit of or with any Governmental Agency is required to be filed
or obtained on or before the Closing Date in connection with the execution and
delivery of this Agreement by each Stockholder or any agreement to be executed
and delivered in connection herewith, or the consummation by each Stockholder of
the transactions contemplated hereby and thereby.
6.7 INVESTMENT REPRESENTATIONS.
(a) Each Principal Stockholder understands that any of the PSDI Shares,
to be received by such Principal Stockholder pursuant to this Agreement have not
been and will not be registered under the United States Securities Act of 1933,
as amended (the "Securities Act"), or qualified under the securities or "Blue
Sky" laws of any jurisdiction, and PSDI is not nor will it be
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under any obligation to register such PSDI Shares under the securities Act or
the "Blue Sky" laws of any jurisdiction. Each Principal Stockholder further
understands that such (i) PSDI Shares will constitute "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act and that, as
such the PSDI Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or unless an exemption from the registration
requirements thereof is available and (ii) the transfer or resale of such PSDI
Shares may be subject to restrictions (including hold periods) under applicable
provincial securities laws in Canada and compliance with such restrictions is
the sole responsibility of the Principal Stockholders and each of the Principal
Stockholders has been advised to consult their own legal advisors in this
regard.
(b) Each Principal Stockholder will not sell or otherwise dispose of
any of the PSDI Shares without registration under the Securities Act and
qualification under the "Blue Sky" laws of the appropriate jurisdiction, unless
an exemption from registration and qualification thereunder is available.
(c) Each Principal Stockholder further acknowledges (x) that he is
aware (i) of the restrictions on resale the PSDI Shares under the Securities Act
and the General Rules and Regulations thereunder (including, without limitation,
Rule 144 thereunder) and (ii) that any routine sales of PSDI Shares made in
reliance upon such Rule 144 can only be made after complying with the one-year
holding period described in such Rule and then only in limited amounts (unless
the two-year holding period under Rule 144(k) shall have been satisfied) in
accordance with the terms and conditions of such Rule and (y) that, in order to
make sales of the PSDI Shares under such Rule 144, it is necessary that there be
available adequate current public information about PSDI at the time of any such
sale.
(d) Each Principal Stockholder represents that he is acquiring the PSDI
Shares for his own account for investment and not for, with a view to or in
connection with any resale or distribution thereof.
(e) In connection with the transfer of any of the PSDI Shares, the
relevant Stockholder shall deliver written notice to PSDI describing in
reasonable detail the transfer or proposed transfer, together with a request
that PSDI seek, and PSDI shall use commercially reasonable efforts to obtain, at
the expense of PSDI, an opinion of counsel to the effect that such transfer of
the PSDI Shares may be effected without registration of such shares under the
Securities Act and under any applicable state securities laws.
(f) Each Principal Stockholder acknowledges that he has been granted
the opportunity to ask questions of, and receive answers from, representatives
of PSDI concerning PSDI and the PSDI Shares and to obtain any additional
information which such Stockholder deems necessary to verify the accuracy of the
answers he received from such representatives.
(g) Each Principal Stockholder further represents that by reason of his
business and financial experience, and the business and financial experience of
those Persons retained by him to advise him with respect to his investment in
the PSDI Shares to be received by him pursuant to this Agreement, such Principal
Stockholder, together with such advisors, has such knowledge,
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sophistication and experience in business and financial matters as to be capable
of evaluating the merits and risks of the prospective investment, and is able to
bear the economic risk of such investment and is able to afford a complete loss
of such investment.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. As a material inducement to
the Company's and the Stockholders' entering into this Agreement and completing
the transactions contemplated by this Agreement and acknowledging that the
Company and the Stockholders are entering into this Agreement in reliance upon
representations of Purchaser set out in this Section 7, Purchaser hereby
warrants and represents to the Company and the Stockholders as follows:
7.1 ORGANIZATION AND STANDING. Purchaser is duly organized, validly
existing and in good standing under Canadian law and has the requisite corporate
power and authority to own its property and to carry on its business as
presently conducted.
7.2 DUE AUTHORIZATION. The execution and delivery of this Agreement and
all other documents required to be executed and delivered by Purchaser pursuant
to this Agreement, the taking of all action required in connection herewith or
therewith, and the performance by Purchaser of the obligations to be performed
by it, as the case may be, hereunder and thereunder have been duly authorized by
all necessary corporate action, including, without limitation, authorization by
the directors of Purchaser. This Agreement has been and on the Closing Date each
other document required to be executed shall be, duly executed and delivered by
Purchaser pursuant to this Agreement, and constitutes a valid and binding
obligation of Purchaser enforceable in accordance with its terms, subject,
however, to limitations on enforcement imposed by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of the rights of
creditors and others and to the extent equitable remedies such as specific
performance and injunctions are only available in the discretion of the court
from which they are sought.
7.3 CONFLICTS, APPROVALS, ETC. The execution and delivery of this
Agreement by Purchaser, and the consummation by Purchaser of the transactions
contemplated hereby do not and will not conflict with or result in any breach,
violation or default or an event that, with notice or lapse of time or both,
would be a breach, violation or default under or permit or result in the
acceleration of any obligation, loss or amendment of any rights, permit or
result in the creation of any lien or encumbrance, or give rise to any
obligation under the terms, conditions or provisions of the charter or by-laws
of Purchaser, or any indenture, indenture, mortgage, lease, license, agreement,
instrument or other document to which Purchaser is a party or by which Purchaser
is bound, or any permit, judgment, order, decree or any statute, law, ordinance,
rule or regulation applicable to Purchaser. Except as referred to in the last
sentence of Section 5.6(b), or otherwise required under the terms of this
Agreement, no Permit of or with any Governmental Agency is required to be filed
or obtained on or before the Closing Date in connection with the execution and
delivery of this Agreement by Purchaser or any agreement to be executed and
delivered in connection herewith, or the consummation by Purchaser of the
transactions contemplated hereby and thereby.
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7.4 NO BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Purchaser in such manner as to give rise to
any valid claim against the Company or the Stockholders for any broker's or
finder's fee or similar compensation in connection with the transactions
contemplated by this Agreement.
8. REPRESENTATIONS AND WARRANTIES OF PSDI. As a material inducement to the
Company's entering into this Agreement and completing the transactions
contemplated by this Agreement and acknowledging that the Company is entering
into this Agreement in reliance upon representations of PSDI set out in this
Section 8, PSDI hereby warrants and represents to the Company and the
Stockholders as follows:
8.1 ORGANIZATION AND STANDING. PSDI is duly organized, validly existing
and in good standing under Massachusetts law and has the requisite corporate
power and authority to own its property and to carry on its business as
presently conducted.
8.2 DUE AUTHORIZATION. The execution and delivery of this Agreement and
all other documents required to be executed and delivered by PSDI pursuant to
this Agreement, the taking of all action required in connection herewith or
therewith, and the performance by PSDI of the obligations to be performed by it,
as the case may be, hereunder and thereunder have been duly authorized by all
necessary corporate action, including, without limitation, authorization by the
directors of PSDI. This Agreement has been and on the Closing Date each other
document required to be executed shall be, duly executed and delivered by PSDI
pursuant to this Agreement, and constitutes a valid and binding obligation of
PSDI enforceable in accordance with its terms, subject, however, to limitations
on enforcement imposed by bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of the rights of creditors and others and to the
extent equitable remedies such as specific performance and injunctions are only
available in the discretion of the court from which they are sought.
8.3 CONFLICTS, APPROVALS, ETC. The execution and delivery of this
Agreement by PSDI, and the consummation by PSDI of the transactions contemplated
hereby do not and will not conflict with or result in any breach, violation or
default or an event that, with notice or lapse of time or both, would be a
breach, violation or default under or permit or result in the acceleration of
any obligation, loss or amendment of any rights, permit or result in the
creation of any lien or encumbrance, or give rise to any obligation under the
terms, conditions or provisions of the charter or by-laws of PSDI, or any
indenture, indenture, mortgage, lease, license, agreement, instrument or other
document to which PSDI is a party or by which PSDI is bound, or any permit,
judgment, order, decree or any statute, law, ordinance, rule or regulation
applicable to PSDI. Except as referred to in the last sentence of Section 5.6(b)
and except for the necessary disclosures under the United States Securities
Exchange Act of 1934, as amended, or otherwise required under the terms of this
Agreement, no Permit of or with any Governmental Agency is required to be filed
or obtained on or before the Closing Date in connection with the execution and
delivery of this Agreement by PSDI or any agreement to be executed and delivered
in connection herewith, or the consummation by PSDI of the transactions
contemplated hereby and thereby.
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8.4 NO BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of PSDI in such manner as to give rise to any
valid claim against the Company for any broker's or finder's fee or similar
compensation in connection with the transactions contemplated by this Agreement.
8.5 DUE ISSUANCE. The PSDI Shares, when issued and delivered in accordance
with the terms hereof, will be duly authorized, validly issued and fully paid
and nonassessable.
8.6 RULE 144 REQUIREMENTS. PSDI agrees that (a) it shall file with the
Securities and Exchange Commission in a timely manner all reports and other
documents required of PSDI under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended; and (b) PSDI shall otherwise
reasonably cooperate with the Principal Stockholders to permit them to effect
resales of the PSDI Shares in accordance with Securities and Exchange Commission
Rule 144 (or other applicable exemptive rules).
9. COVENANTS OF THE STOCKHOLDERS.
9.1 FURTHER ASSURANCES. The Stockholders jointly and severally agree that
they shall at any time and from time to time after the Closing and without
expense to Purchaser or PSDI, execute, acknowledge, seal and deliver all such
instruments and documents as Purchaser or PSDI may reasonably request to perfect
the transfer and delivery to Purchaser of all right, title and interest in and
to the Shares and the Warrant and otherwise to give effect to this Agreement and
the transactions contemplated hereby. Without limiting the generality of the
foregoing, the Stockholders shall execute, acknowledge, seal and deliver to
Purchaser and any Affiliate of Purchaser all such consents, licenses or Permits
and approvals or applications therefor (i) as may be required for the Company or
any Subsidiary of the Company to satisfy the condition precedent set forth in
Section 11.8 and (ii) as Purchaser or PSDI shall deem necessary or desirable to
accomplish the purchase of the Shares or to enable Purchaser and any Affiliate
of Purchaser fully to conduct the business of the Company and each Subsidiary of
the Company.
9.2 CONFIDENTIALITY. Each of the Stockholders agrees that such Stockholder
shall keep, and shall use its respective best efforts to ensure that its
respective employees and agents shall keep confidential, and shall not disclose
to any third party or use, any information which is known or ought to be known
to be confidential or proprietary information or trade secret relating to the
business of the Company and its Subsidiaries (whether or not specifically
identified as confidential) including, without limitation, the terms of
distribution contracts, vendor lists, customer lists, business plans, designs,
financial and cost information and know-how, except to the extent such
information is published by Purchaser or PSDI or such disclosure or use is made
with the written consent of Purchaser or PSDI. Each of the Stockholders
acknowledges that the breach by it of this Section 9.2 would cause serious and
irreparable harm to Purchaser or PSDI, the Company and the Subsidiaries of the
Company which cannot be adequately compensated for in damages and in the event
of any breach by any Stockholder of the provisions of this Section, each
Stockholder hereby consents to an injunction being issued against it,
restraining it from any further breach of this provision, but such action shall
not be construed as to be in derogation of any other remedy which
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the Purchaser, PSDI, the Company or the Subsidiaries of the Company may have in
the event of such a breach.
10. INDEMNIFICATION
10.1 INDEMNIFICATION OF PSDI INDEMNIFIED PARTIES BY THE STOCKHOLDERS.
Subject to the terms and conditions of this Section 10, the Stockholders,
jointly and severally, agree to indemnify and hold harmless PSDI, each
Subsidiary or Affiliate of PSDI (including, without limitation, the Purchaser,
the Company and its Subsidiaries, if applicable) and their respective directors,
officers, employees, affiliates, agents, representatives, successors and assigns
(collectively the "PSDI Indemnified Parties") from and against all damages,
claims, actions, causes of action, losses, expenses, costs, obligations, and
liabilities including, without limitation, liabilities for reasonable attorneys'
fees and expenses, all costs (including overhead) for the time of employees of
PSDI or any Subsidiary of PSDI and the cost of borrowing funds from the date any
PSDI Indemnified Party pays any amount or otherwise incurs any loss with respect
to any such damages, claims, actions, causes of action, losses, expenses, costs,
obligations and liabilities until the date such PSDI Indemnified Party receives
indemnification therefor, which shall include an imputed accrual of interest at
the rate at which such PSDI Indemnified Party would have borrowed funds on any
such amount or loss in the event such PSDI Indemnified Party does not actually
borrow funds in connection with such amount or loss (collectively, "Loss and
Expense") which may be made or brought against a PSDI Indemnified Party or which
it may suffer or incur directly or indirectly as a result of, in respect of or
arising out of:
(a) any incorrectness in or breach of any representation or warranty
made by the Stockholders pursuant to Section 5 of this Agreement or in any
certificate, instrument or other document delivered pursuant hereto or in
connection herewith;
(b) any breach of or failure to perform or fulfill any covenants or
agreements set forth in this Agreement by the Company or a Stockholder;
(c) any failure of the Company to obtain, or to cause its Subsidiaries
to obtain, any consent, approval or Permit before the Closing and the use in
connection with the business of PSDI or any Affiliate of PSDI of any
subcontract, sublicense or other arrangement provided by the Company or its
Subsidiaries in place of any such consent, approval or Permit; or
(d) any guaranty of the credit card charges of any employee or former
employee of the Company or a Subsidiary of the Company (but only to the extent
such charges do not relate directly to bona fide expenses of the business of the
Company or a Subsidiary of the Company or are not reflected in the Closing
Balance Sheet).
10.2 INDEMNIFICATION OF PSDI INDEMNIFIED PARTIES BY THE STOCKHOLDERS WITH
RESPECT TO THE SHARES AND THE WARRANT. Subject to the terms and conditions of
this Section 10, each of the Stockholders, severally but not jointly, agree to
indemnify and hold harmless PSDI Indemnified Parties from and against all Loss
and Expense which may be made or brought against a PSDI Indemnified Party or
which it may suffer or incur directly or indirectly as a result of, in respect
of or
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arising out of any incorrectness in or breach of any representation or warranty
made by such Stockholder pursuant to Section 6 of this Agreement or in any
certificate, instrument or other document delivered pursuant thereto or in
connection therewith.
10.3 SPECIAL INDEMNITIES.
(a) In addition to and without limiting the generality of Sections 10.1
and 10.2 above, the Principal Stockholders, jointly and severally, shall
indemnify the PSDI Indemnified Parties and save them fully harmless against all
Loss and Expense which may be made or brought against a PSDI Indemnified Party
or which it may suffer or incur directly or indirectly as a result of, in
respect of or arising out of those certain Share Exchange Agreements dated as of
February 6, 1998 by and among the Company and each of Stephen M. Caslick, John
S. Kennedy and Edwin H. Meyer.
(b) In addition to and without limiting the generality of Sections 10.1
and 10.2 above, in the event that (i) a Principal Stockholder's employment by
the Company shall be terminated at any time prior to the first anniversary of
the Closing Date voluntarily by such Principal Stockholder without Good Reason
or involuntarily for Cause and (ii) the Liquidated Damages Amount with respect
to such Principal Stockholder shall exceed the product of such Principal
Stockholder's PSDI Shares multiplied by the Fair Market Value Per Share, the
Principal Stockholders, jointly and severally, shall indemnify the PSDI
Indemnified Parties and save them fully harmless against all Loss and Expense
resulting from such excess arising from any Principal Stockholder's inability to
fund a Liquidated Amount solely by reselling PSDI Shares to PSDI pursuant to
Section 4.4 hereof unless such inability to fund a Liquidated Amount arose from
PSDI's inability to repurchase such PSDI Shares under applicable law. For
avoidance of doubt, the indemnification obligation of a Principal Stockholder
under this Section 10.3(b) shall be equal to the excess, if any, of the
Liquidated Amount of such Principal Stockholder over the product of the number
of PSDI shares sold by such Principal Stockholder to PSDI pursuant to Section
4.4 times the Market Price Per Share.
10.4 INDEMNIFICATION OF THE STOCKHOLDER INDEMNIFIED PARTIES. Purchaser and
PSDI, jointly and severally agree that they shall indemnify and hold harmless
the Stockholders and the directors, officers, employees, affiliates, agents,
representatives, successors and assigns of the Stockholders (collectively, the
"Stockholder Indemnified Parties" and, together with the PSDI Indemnified
Parties, the "Indemnified Parties") from and against all Loss and Expense which
may be made or brought against a Company Indemnified Party or which it may
suffer or incur directly or indirectly as a result of, in respect of or arising
out of:
(a) any incorrectness in or breach of any representation or warranty
made by Purchaser or PSDI pursuant to this Agreement or in any certificate,
instrument or other document delivered pursuant hereto or in connection
herewith; or
(b) any breach of or failure to perform or fulfill any of its covenants
or agreements set forth in this Agreement by Purchaser or PSDI.
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10.5 LIMITATION OF STOCKHOLDERS' LIABILITY FOR CERTAIN PSDI INDEMNIFIED
PARTY CLAIMS. The obligations and liabilities of the Stockholders hereunder with
respect to any claim for indemnification for Loss and Expense by any of the PSDI
Indemnified Parties ("PSDI Claims") shall be subject to the following
limitations:
(a) No indemnification shall be required to be made by the Stockholders
hereunder unless the amount of PSDI Claims exceeds US$50,000 in the aggregate
with respect to PSDI Claims relating to Taxes in which case all Loss and Expense
relating to Taxes owing by the Stockholders at such time and at any time
thereafter may be recovered.
(b) No indemnification shall be required to be made by the Stockholders
hereunder with respect to PSDI Claims do not relate to Taxes unless the amount
of all PSDI Claims (including PSDI Claims relating to Taxes) exceeds US$150,000
in the aggregate, in which case all Loss and Expense owing by the Stockholders
arising out of any PSDI Claims at such time and at any time thereafter may be
recovered. For the removal of doubt, PSDI Claims relating to Taxes shall be
aggregated with all other PSDI Claims for purposes of the determination of
whether PSDI Claims exceed US$150,000.
(c) Except with respect to PSDI Claims arising out of any incorrectness
in or breach of a representation or warranty made severally but not jointly
pursuant to Section 6 of this Agreement, no Other Stockholder shall have any
liability in respect of any PSDI Claims in excess of such Other Stockholder's
interest in the Escrow Fund.
(d) Except with respect to PSDI Claims arising out of any incorrectness
in or breach of a representation or warranty made severally but not jointly
pursuant to Section 6 of this Agreement, no Involved Stockholder shall have any
liability in respect of any PSDI Claims in excess of the Purchase Price
multiplied by the percentage set forth opposite such Involved Stockholder's name
on Schedule 10.5.
(e) Except with respect to PSDI Claims arising out of any incorrectness
in or breach of a representation or warranty made severally but not jointly
pursuant to Section 6 of this Agreement, the Principal Stockholders shall not
have any liability in respect of any PSDI Claims in excess of the Purchase Price
multiplied by 50.15%.
(f) For PSDI claims in excess of the Escrow Amount (as defined in the
Escrow Agreement), each Involved Stockholder shall only be liable in respect of
a portion of each PSDI Claim equal to the amount of such PSDI Claim multiplied
by the percentage set forth opposite such Involved Stockholder's name on
Schedule 10.5.
Subject to the next succeeding sentence, the limitations contained in this
Section 10.5 shall not apply to PSDI Claims arising out of Section 10.3 of this
Agreement or arising out of or relating to any intentional or fraudulent
misrepresentation or action by one or more Stockholders, including without
limitation any intentional misrepresentation or omission of a material fact in
or from this Agreement or the exhibits or schedules hereto or the other
documents delivered by the Stockholders at the Closing. The limitations set
forth in Section 10.5(c) with respect to Other
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Stockholders or Section 10.5(d) with respect to Involved Stockholders shall
remain in effect with respect to all Other Stockholders and Involved
Stockholders other than an Other Stockholder or Involved Stockholder that is
responsible for any such intentional or fraudulent misrepresentation or action.
10.6 COLLECTION OF PSDI CLAIMS. Except as set forth in the next succeeding
sentence, in seeking to collect the amount of any PSDI Claim, the PSDI
Indemnified Parties will seek to collect such amount by the return to the PSDI
Indemnified Parties of property from the Escrow Fund, and will only seek to
collect the amount of such PSDI Claim from other assets of the Stockholders if
collection from property in the Escrow Fund is insufficient to satisfy the
amount of such PSDI Claim. In seeking to collect the amount of any PSDI Claim
arising out of any incorrectness in or breach of a representation or warranty
made pursuant to Section 6 of this Agreement or any claim pursuant to Section
10.3(a) of this Agreement, any indemnification payment required to be made by a
Stockholder to any PSDI Indemnified Party pursuant to this Section 10 may be
paid, in the sole discretion of such PSDI Indemnified Party, either by transfer
of payment from the Escrow Fund or by direct transfer of funds by the
Stockholder or Stockholders liable for such payment to the PSDI Indemnified
Parties.
10.7 NOTICE OF CLAIMS. If any Indemnified Party believes that it has
suffered or incurred any Loss and Expense, such Indemnified Party shall notify
the party from whom indemnity is to be sought (the "Indemnifying Party") in
writing, describing such Loss and Expense, the amount thereof, if known, and the
method of computation of such Loss and Expense, all with reasonable specificity
and containing a reference to the applicable provisions in respect of which such
Loss and Expense shall have occurred, PROVIDED, HOWEVER, that failure to give
any such notification shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Party shall have been actually prejudiced
as a result of such failure. If any action at law or suit in equity is
instituted or threatened by a third party with respect to which any of the
parties hereto intends to claim any liability or expense as Loss and Expense
under this Section 10.7, such party shall notify the Indemnifying Party of such
action or suit, PROVIDED, HOWEVER, that failure to give any such notification
shall not affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure.
10.8 DEFENSE AND PROSECUTION OF THIRD PARTY CLAIMS. The Indemnifying Party
under this Section 10 shall have the right at its expense, to conduct and
control, through counsel of its own choosing, any third party claim, action or
suit ("Third Party Claim"). If the Indemnifying Party elects to assume such
control, the Indemnifying party shall reimburse the Indemnified Party for all of
the Indemnified Party's out-of-pocket expenses incurred as a result of such
participation or assumption. The Indemnified Party shall have the right to
participate in the negotiation, settlement or defense of such Third Party Claim
and to retain counsel to act on its behalf, provided that the fees and
disbursements of such counsel shall be paid by the Indemnified Party unless the
Indemnifying Party consents to the retention of such counsel at its expense or
unless the named parties to any action or proceeding include both the
Indemnifying Party and the Indemnified Party and a representation of both the
Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential differing interests between them
(such as the availability of different defenses). If, having elected to assume
control of the negotiation, settlement
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or defense of the Third Party Claim, the Indemnifying Party thereafter fails to
conduct such negotiation, settlement or defense with reasonable diligence, then
the Indemnified Party shall be entitled to assume such control and the
Indemnifying Party shall be bound by the results obtained by the Indemnified
Party with respect to such Third Party Claim. If any Third Party Claim is of a
nature such that (i) the Indemnified Party is required by applicable law or the
order of any court, tribunal or regulatory body having jurisdiction, or (ii) it
is necessary in the reasonable view of the Indemnified Party acting in good
faith and in a manner consistent with reasonable commercial practices, in
respect of (A) a Third Party Claim by a customer relating to products or
services supplied by the Company or a Subsidiary of the Company or (B) a Third
Party Claim relating to any contract or agreement which is necessary to the
ongoing operations of the business of the Company or a Subsidiary of the Company
or any material part thereof in order to avoid material damage to the
relationship between the Indemnified Party and any of its major customers or to
preserve the rights of the Indemnified Party under such an essential contract or
agreement, to make a payment to any person (a "Third Party") with respect to the
Third Party Claim before the completion of settlement negotiations or related
legal proceedings, as the case may be, then the Indemnified Party may make such
payment and the Indemnifying Party shall, promptly after demand by the
Indemnified Party, reimburse the Indemnified Party for such payment. If the
amount of any liability of the Indemnified Party under the Third Party Claim in
respect of which such a payment was made, as finally determined, is less than
the amount which was paid by the Indemnifying Party to the Indemnified Party,
the Indemnified Party shall, promptly after receipt of the difference from the
Third Party, pay the amount of such difference to the Indemnifying Party. If
such a payment, by resulting in settlement of the Third Party Claim, precludes a
final determination of the merits of the Third Party Claim and the Indemnified
Party and the Indemnifying Party are unable to agree whether such payment was
unreasonable in the circumstances having regard to the amount and merits of the
Third Party Claim, then such dispute shall be referred to and finally settled by
binding arbitration from which there shall be no appeal.
10.9 SETTLEMENT OF THIRD PARTY CLAIMS. If the Indemnifying Party fails to
assume control of the defense of any Third Party Claim, the Indemnified Party
shall have the exclusive right to contest, settle or pay the amount claimed.
10.10 INTEREST ON CLAIMS. The amount of any claim for Loss and Expense
submitted under Section 10.7 as damages or by way of indemnification shall bear
interest from and including the date any Indemnified Party is required to make
payment in respect thereof at the rate of 10% per annum calculated from and
including such date to but excluding the date reimbursement of such claim for
Loss and Expense by the Indemnifying Party is made, and the amount of such
interest shall be deemed to be part of such claim.
10.11 PAYMENT OF INDEMNITY OBLIGATIONS. All indemnification payments
required to be made pursuant to this Section 10 including, without limitation,
reimbursement for expenses incurred in connection with the defense of a Third
Party Claim (whether prior to or following final disposition of any such
action), shall be paid within thirty (30) days of demand therefor; provided,
however, that in the event of a bona fide dispute as to the obligation or
liability of a Stockholder with respect to all or any part of a PSDI claim, such
PSDI claim or the portion thereof as to which there is a bona fide dispute, as
the case may be, shall be paid upon resolution of such dispute by
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agreement or following the final decision of any court of competent jurisdiction
from which no appeal may be taken.
10.12 EXCLUSIVE REMEDY. Subject to the next succeeding sentence, all
claims made by virtue of the representations, warranties, covenants and
agreements contained in, or otherwise made in connection with, this Agreement
shall be made under, and subject to the limitations set forth in, this Section
10, which from and after the Closing Date shall be the exclusive remedy for any
party hereto for any breach of this Agreement or other claim arising hereunder.
The immediately preceding sentence shall not limit any right of any party hereto
to seek equitable relief (including, without limitation, specific performance or
injunctive relief) in respect of any breach of any covenant or other agreement
contained herein.
11. TAX MATTERS.
11.1 ELECTIONS. Following the Closing, Purchaser may cause the Company to
join in making an election under section 338 or section 338(h)(10) of the Code
and any corresponding elections under state, local, or foreign tax law (each a
"Section 338 Election") with respect to the Stock Purchase and the Warrant
Purchase hereunder and an election under section 338 of the Code with respect to
any one or more of the Company's other Subsidiaries. For greater certainty, but
without in any way limiting the representations or warranties set forth in
Section 5.28 or the Stockholders' obligations to indemnify the PSDI Indemnified
Parties pursuant to Section 10, no Stockholder shall be required to pay to the
Company, its subsidiaries, the Purchaser or PSDI on account of Tax due and owing
solely by reason of the Section 338 Election.
11.2 ALLOCATION OF PURCHASE PRICE. The parties agree that the Purchase
Price and the liabilities of the Company and its Subsidiaries (plus other
relevant items) will be allocated to the assets of the Company and its
Subsidiaries for all United States purposes (including Tax and financial
accounting purposes) as set forth in Schedule 11.2. PSDI, Purchaser, the
Company, its Subsidiaries, and the Stockholders shall file all Tax Returns
(including amended returns and claims for refund) and information reports in a
manner consistent with such allocation.
11.3 POST-CLOSING DATE TAX MATTERS.
(a) The Purchaser shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company and its Subsidiaries for all
periods ending on or prior to the Closing Date which are filed after the Closing
Date. The Purchaser shall permit the Stockholders to review and comment on each
such Tax Return described in the preceding sentence prior to filing.
(b) The Purchaser shall prepare or cause to be prepared and file or
cause to be filed any Tax Returns of the Company and its Subsidiaries for Tax
periods which begin before the Closing Date and end after the Closing Date. For
purposes of this Section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such taxable period ending on the Closing Date shall (x) in the case of any
Taxes other than Taxes based upon or related to income or receipts, but not
including GST, be deemed to be the amount of such Tax for
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the entire taxable period multiplied by a fraction the numerator of which is the
number of days in the taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period, and (y)
in the case of any Tax based upon or related to income or receipts and GST be
deemed equal to the amount which would be payable if the relevant taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company and its Subsidiaries.
(c) (i) PSDI, Purchaser, the Company and its Subsidiaries, and the
Stockholders shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Company and its Subsidiaries and the
Stockholders agree (A) to retain all books and records with respect to Tax
matters pertinent to the Company and its Subsidiaries relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by the PSDI, Purchaser or the
Stockholders, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing authority,
and (B) to give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so
requests, the Company and its Subsidiaries or the Stockholders, as the case may
be, shall allow the other party to take possession of such books and records.
(ii) The Company, PSDI, Purchaser and the Stockholders further
agree, upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
(iii) The Company, PSDI, Purchaser and the Stockholders further
agree, upon request, to provide the other party with all information that either
party may be required to report pursuant to section 6043 of the Code and all
Treasury Department Regulations promulgated thereunder.
12. MISCELLANEOUS PROVISIONS
12.1 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
12.2 ASSIGNS. This Agreement, including, without limitation, the
provisions of Section 12.8 shall be binding upon and inure to the benefit of the
successors and permitted assigns of each of the parties hereto. This Agreement
may not be assigned by either party without the written consent of the other;
PROVIDED, HOWEVER, that Purchaser may assign any or all its rights and interests
but not its obligations hereunder to an Affiliate of Purchaser that agrees in
writing to be
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bound by all of the terms, conditions and provisions contained herein
(including, without limitation, Section 12.2).
12.3 SURVIVAL. Notwithstanding any investigation conducted before or after
the Closing, and notwithstanding any knowledge or notice of any fact or
circumstance which the Company and the Stockholders, the Company or Purchaser
may have as the result of such investigation or otherwise, Purchaser, on the one
hand, and the Stockholders, on the other, shall each be entitled to rely upon
the representations, warranties and covenants of the other in this Agreement.
Each of the representations, warranties and covenants contained in this
Agreement shall survive all such transactions and the Closing for a period of
one year, except that the representations and warranties of the Stockholders set
forth in and Sections 5.10 and 5.19 shall survive for a period of three years,
the representations and warranties of the Stockholders set forth in Section 5.28
shall survive until the expiration of all applicable statutes of limitations
relating thereto (as the same may be extended from time to time) and the
representations and warranties of the Stockholders set forth in Sections 5.1,
5.5, 5.42 and 6.1 shall survive without limitation. Except as provided above,
all provisions of this Agreement shall forever survive the execution, delivery
and performance of this Agreement, Closing and the execution, delivery and
performance of any and all documents delivered in connection with this
Agreement.
12.4 ENTIRE AGREEMENT. This Agreement and the documents referred to in it
and to be delivered pursuant to it constitute the entire agreement between the
parties pertaining to its subject matter and supersede all prior and
contemporaneous agreements, understandings, negotiations, and discussions of the
parties, whether oral or written. The parties acknowledge that they negotiated
this Agreement and no construction of this Agreement shall arise against either
of them in respect of responsibility for drafting this Agreement.
12.5 WAIVERS; AMENDMENTS, SUPPLEMENTS. Any waiver or a breach of any term
or condition of this Agreement must be in writing and shall not operate as a
waiver of any other or subsequent breach of such term or condition or of any
term or condition, nor shall any failure to enforce any provision hereof operate
as a waiver of such provision or of any other provision hereof. No amendment,
supplement, modification, waiver or termination of any provision of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby.
12.6 INCORPORATION. All agreements, schedules, exhibits referred to herein
or herein specified are hereby incorporated by reference and made a part hereof.
12.7 LAW. This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of The Commonwealth of Massachusetts, without
regard to its principles of conflicts of laws.
12.8 JURISDICTION. The parties hereby irrevocably consent to the exclusive
jurisdiction and venue of any provincial or federal court sitting in the
metropolitan area of Toronto, Ontario, over any action or proceeding arising out
of or relating to this Agreement or any agreement or document delivered in
connection herewith or therewith, and agree that all claims in respect of such
action or proceeding may be heard and determined in such state or federal court.
The parties each
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consent to the jurisdiction of such court or courts and agrees that the service
upon it of summons and complaint by ordinary mail shall be sufficient for such
court or courts to exercise personal jurisdiction over the parties. The parties
waive any objection to any action or proceeding in any provincial or federal
court sitting in the metropolitan area of Toronto, Ontario, on the basis of
forum non-conveniens.
12.9 PUBLICITY. Except as otherwise required by law or as disclosed by any
of the parties to their respective auditors or counsel in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the making of any filings with any Governmental Agency required
under this Agreement), the parties agree that all matters related to this
Agreement and the transactions contemplated hereby are confidential and shall
maintain, and shall use their respective best efforts to cause their respective
employees and agents to maintain, the confidentiality of all such matters no
such party shall make any public disclosure or announcement thereof without the
prior review and approval of the other party, which approval shall not be
unreasonably withheld or delayed.
12.10 KNOWLEDGE QUALIFIERS. Knowledge of the Company shall be deemed, for
purposes of Section 5 of this Agreement, to include, without limitation, the
knowledge (including matters such person, in the exercise of his
responsibilities, ought to know or had a duty to inquire about) of the
Stockholders and of officers and functional managers of the Company, and each of
the Company's Subsidiaries, on the date hereof and on any other date, including
the Closing Date, on which a representation or warranty is given hereunder.
12.11 NOTICES. All notices and other communications which may be required
hereunder shall be in writing and given by prepaid, first class, registered or
certified mail, or by a nationally recognized overnight delivery service, or by
personal delivery, as follows:
TO THE STOCKHOLDERS:
Stephen Caslick
Site 5
R.R. No. 1
Kincardine, Ontario
N2Z 2X3
With a copy to:
John D. Hiscock, Esq.
255 Queens Avenue
Suite 1660
London, Ontario
N6A 5R8
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TO PURCHASER:
Project Software & Development, Inc.
20 University Road
Cambridge, MA 02138
Attention: Paul D. Birch
With a copy to:
Peter M. Rosenblum, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
or at such other address as hereafter shall be furnished by any party to the
other parties hereto.
12.12 CUMULATIVE REMEDIES. All rights and remedies of the parties
hereunder shall be cumulative and in addition to all other remedies provided
hereunder or by agreement, law or otherwise.
12.13 CERTAIN EXPENSES. Except as otherwise expressly provided herein,
each of the parties hereto shall bear its own expenses. Without limiting the
generality of the foregoing, it is expressly understood that the fees and
expenses of Shumaker, Loop and Kendrick LLP, Hiscock, Kelly & Wright and
Stikeman, Elliott incurred in connection with the transactions contemplated
herein are solely the responsibility of the Stockholders.
12.14 DELIVERIES TO COUNSEL. The delivery of any document by the
Stockholders or the Company to counsel to Purchaser shall be deemed, for all
purposes of this Agreement, to constitute a delivery of such document to
Purchaser and such counsel.
12.15 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
12.16 NUMBER AND GENDER. Unless the context otherwise requires, words
importing the singular include the plural and vice versa and words importing
gender include all genders.
12.17 CURRENCY. Except as otherwise expressly provided in this Agreement,
all dollar amounts referred to in this Agreement are stated in U.S. dollars.
12.18 TIME OF ESSENCE. Time shall be of the essence of this Agreement in
all respects.
12.19 LANGUAGE. The parties hereto have required that this Agreement and
all deeds, documents and notices relating to this Agreement be drawn up in the
English language. Les parties
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aux presentes ont exige que le present contrat et tous autres contrats,
documents ou avis afferents aux presentes soient rediges en langue anglaise.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first written above.
PROJECT SOFTWARE & DEVELOPMENT, INC.
By:___________________________________
Name:
Title:
A.R.M. GROUP INC.
By:___________________________________
Name:
Title:
PSDI CANADA LIMITED
By:___________________________________
Name:
Title:
STOCKHOLDERS:
WORKING VENTURES CANADIAN FUND INC.
By:___________________________________
Name:
Title:
RAVENNA CAPITAL CORPORATION
By:___________________________________
Name:
Title:
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<PAGE> 64
KEY TRUST COMPANY OF OHIO, N.A.
TRUSTEE FOR SHUMAKER, LOOP &
KENDRICK RETIREMENT PLAN IN TRUST FOR
JOHN H. BURSON
By:___________________________________
MARY JILL PETERSON REVOCABLE TRUST
By:___________________________________
Name:
Title:
LARRY C. PETERSON REVOCABLE TRUST
By:___________________________________
Name:
Title:
BRIAN A. FOORD REVOCABLE TRUST
By:___________________________________
Name:
Title:
WILLIAM H. BALLOU REVOCABLE TRUST
By:___________________________________
Name:
Title:
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<PAGE> 65
TRUST COMPANY OF TOLEDO, TRUSTEE
MIDWEST FLUID POWER COMPANY SAVINGS
AND PROFIT SHARING PLAN & TRUST LARRY
C. PETERSON DIRECTED ACCOUNT
By:___________________________________
Name:
Title:
Witness:
____________________________ _________________________________________
Stephen M. Caslick
Witness:
____________________________ _________________________________________
Edwin H. Meyer
Witness:
____________________________ _________________________________________
John S. Kennedy
Witness:
____________________________ _________________________________________
Barry J. Murphy
Witness:
____________________________ _________________________________________
Russell D. Furlong
Witness:
____________________________ _________________________________________
Steven E. Kwiatkowski
Witness:
____________________________ _________________________________________
Tamerah K. Kwiatkowski
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Witness:
____________________________ _________________________________________
Erin S. Peterson
Witness:
____________________________ _________________________________________
Tad R. Peterson
Witness:
____________________________ _________________________________________
Thomas L. Geisbuhler
STOCKHOLDERS' REPRESENTATIVE
_________________________________________
Stephen M. Caslick,
Stockholders' Representative
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EXHIBIT A-1
NONCOMPETITION AGREEMENT
This Noncompetition Agreement, dated as of this 6th day of February, 1998
(this "Agreement"), among Project Software & Development, Inc., a Massachusetts
corporation ("PSDI"), PSDI Canada Limited, a Canadian corporation and a
wholly-owned, indirect subsidiary of PSDI (the "Purchaser"), A.R.M. Group Inc.,
an Ontario corporation and wholly-owned subsidiary of Purchaser (the "Company"),
and Larry C. Peterson ("Peterson").
WHEREAS, pursuant to a Stock Purchase Agreement dated as of the date hereof
by and among PSDI, Purchaser, the Company, Peterson and the other holders of the
Common Stock of the Company (the "Stockholders") (the "Stock Purchase
Agreement"), Purchaser and PSDI and the Stockholders have agreed subject to the
terms and conditions set forth therein, to purchase and sell, respectively, the
outstanding shares of the common stock of the Company;
WHEREAS, Peterson had substantial stockholdings in the Company that,
pursuant to the Stock Purchase Agreement, were exchanged for cash; and
WHEREAS, Peterson possesses an intimate knowledge of the business and
affairs of the Company and its policies, methods, personnel and operations.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. NONCOMPETITION. For a period of one year from the date hereof (the
"Restricted Period"), Peterson shall not, directly or indirectly, as an owner,
partner, shareholder, consultant, agent, employee or co-venturer of any Person
(as hereinafter defined) compete with the Company by engaging in the Company's
Business (as hereinafter defined) anywhere in the United States or Canada or in
any other country where the Company or its Affiliates (as hereinafter defined),
resellers, distributors or the like engage in business. For purposes of this
Agreement, "Company's Business" shall mean the business of designing,
developing, manufacturing, selling, buying, acquiring, licensing, leasing,
furnishing, maintaining, or dealing in computer software that is used by a third
party in connection with the procurement of goods and/or services. Except as
specifically prohibited by this section, nothing herein shall prohibit Peterson
from engaging in the field of distribution or distribution logistics. In
addition, during the Restricted Period Peterson may purchase up to one percent
of any series of outstanding voting securities of any Person competing in the
Company's Business if such series is listed on a national or regional securities
exchange or publicly traded in the "over-the-counter" market. Notwithstanding
the foregoing, "Company Business" shall not include the acquisition and use of
software by Midwest Fluid Power Co. or Depot Direct or their Affiliates for
their own use, whether internal or as a means of implementing communications
with their customers or suppliers; provided that such software is commercially
available.
<PAGE> 68
2. NONSOLICITATION. During the Restricted Period, Peterson shall not (a)
solicit, encourage, or take any other action which is intended to induce any
employee of the Company or any of its Affiliates to terminate his or her
employment with the Company or any such Affiliates in order to become employed
by or otherwise perform services for any other Person, or (b) knowingly
interfere in any manner with the employment relationship between the Company or
any of its Affiliates and any such employee of the Company or any such
Affiliate.
3. CERTAIN DEFINITIONS. For purposes of this Agreement, (a) the term
"Person" shall mean an individual, a corporation, an association, a partnership,
an estate, a trust and any other entity or organization, (b) the term
"Affiliate" shall mean with respect to any Person, any Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person, and (c) the term "control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
4. CONFIDENTIAL INFORMATION. Peterson acknowledges that, in the course of
his relationship with the Company, he has received and may in the future receive
information about, and access to, trade secrets and proprietary information that
are vital to the competitive position and success of the Company and its
Affiliates. Peterson shall hold confidential all of the Company's (and its
Affiliates') trade secrets and proprietary information in his possession, and
shall not, without the Company's written consent, during the term of this
Agreement or thereafter, use any of such trade secrets and other proprietary
information or any part thereof, for any purpose other than those of the Company
or disclose any of such trade secrets or proprietary information to any Person
other than in connection with his relationship with the Company and for the
purposes of its business after due authorization by an officer of the Company.
As used in this Agreement, the term "trade secret and proprietary information"
shall mean information (whether in documented form or not) concerning the
organization, business or finances of the Company or its Affiliates which the
Company or its Affiliates provided to Peterson or about which Peterson learned
during his relationship with the Company and which has not been disclosed to
others except Persons in a confidential relationship with the Company or its
Affiliates and who have an obligation to the Company or its Affiliates not to
disclose such information, which is not known or available to others in the
trade, and which is entitled to protection as a trade secret or proprietary
information under the laws of the province of Ontario. Notwithstanding the
foregoing, Peterson shall have no obligation of confidentiality with respect to
any trade secret or proprietary information which shall be voluntarily disclosed
by the Company or its Affiliates without restriction or which shall otherwise
enter the public domain without fault on the part of Peterson. The Company
acknowledges that Peterson has been actively engaged in the business of owning,
operating and investing in industrial distribution and distribution logistics
entities and has, in that capacity, acquired significant general knowledge in
these fields. Utilization of the general knowledge acquired by Peterson (in
contrast with
2
<PAGE> 69
utilization of the Company's trade secrets, which is prohibited) is in no way
restricted by this Section 4.
5. AMENDMENTS AND SUPPLEMENTS. This Agreement may not be amended, modified
or supplemented by the parties hereto in any manner, except by an instrument in
writing signed by the Company and Peterson.
6. NO WAIVER. The terms and conditions of this Agreement may be waived only
by a written instrument signed by the party waiving compliance. The failure of
any party hereto to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
such party thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a waiver of
any other or subsequent breach or non-compliance. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
7. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of the province of Ontario,
without regard to its principles of conflicts of laws.
8. NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered by hand, sent by facsimile
transmission with confirmation of receipt, sent via a reputable overnight
courier service with confirmation of receipt requested, or mailed by registered
or certified mail (postage prepaid and return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice), and shall be deemed given on the date on which
delivered by hand or otherwise on the date of receipt as confirmed:
To Purchaser or the Company:
c/o Project Software & Development, Inc.
100 Crosby Drive
Bedford, Massachusetts 01730
Facsimile: (781) 280-2209
Attention: Chief Financial Officer
With a copy to:
Peter M. Rosenblum, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
3
<PAGE> 70
To Peterson:
Larry C. Peterson
211 Stone Oak Court
Holland, OH 43528
With a copy to:
John H. Burson
Schumaker, Loop & Kendrick LLP
1000 Jackson
Toledo, OH 43624-1573
Facsimile: (419) 241-6894
9. CONSTRUCTION OF AGREEMENT. A reference to a Section shall mean a Section
in this Agreement unless otherwise expressly stated. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation."
10. ENTIRE AGREEMENT, ASSIGNABILITY, ETC.. This Agreement and the Stock
Purchase Agreement and the documents and other agreements among the parties
hereto and thereto as contemplated by or referred to herein or therein
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. This Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder, except as otherwise expressly provided herein and shall not
be assignable by operation of law or otherwise, except that Purchaser and the
Company may assign their rights hereunder to any Affiliate of Purchaser or the
Company.
11. VALIDITY. In the event that any provision of this Agreement shall be
determined to be unenforceable by reason of its extension for too great a period
of time or over too large a geographic area or over too great a range of
activities, it shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it may be enforceable.
If, after application of the preceding sentence, any provision of this Agreement
shall be determined to be invalid, illegal or otherwise unenforceable by a court
of competent jurisdiction, the validity, legality and enforceability of the
other provisions of this Agreement shall not be affected thereby. Except as
otherwise provided in this Section 11 any invalid,
4
<PAGE> 71
illegal or unenforceable provision of this Agreement shall be severable, and
after any such severance, all other provisions hereof shall remain in full force
and effect.
12. REMEDIES. Peterson recognizes that money damages alone would not
adequately compensate Purchaser and its Affiliates in the event of breach by
Peterson of this Agreement, and Peterson therefore agrees that, in addition to
all other remedies available to Purchaser and its Affiliates, at law, in equity
or otherwise, Purchaser and its Affiliates shall be entitled to injunctive
relief for the enforcement hereof. All rights and remedies hereunder are
cumulative and are in addition to and not exclusive of any other rights and
remedies available, at law, in equity, by agreement or otherwise.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
[Remainder of page intentionally left blank.]
5
<PAGE> 72
IN WITNESS WHEREOF, the parties have caused this Noncompetition Agreement
to be executed as an agreement under seal as of the date first written above.
Project Software & Development, Inc.
By:_________________________
Title:
A.R.M. Group Inc.
By:_________________________
Title:
PSDI Canada Limited
By:_________________________
Title:
____________________________
Larry C. Peterson
6
<PAGE> 73
EXHIBIT A-2
NONCOMPETITION AGREEMENT
This Noncompetition Agreement, dated as of this 6th day of February, 1998
(this "Agreement"), among Project Software & Development, Inc., a Massachusetts
corporation ("PSDI"), PSDI Canada Limited, a Canadian corporation and a
wholly-owned subsidiary of PSDI (the "Purchaser"), A.R.M. Group Inc., an Ontario
corporation and wholly-owned subsidiary of Purchaser (the "Company"), and Steven
E. Kwiatkowski ("Kwiatkowski").
WHEREAS, pursuant to a Stock Purchase Agreement dated as of the date hereof
by and among PSDI, Purchaser, the Company, Kwiatkowski and the other holders of
the Common Stock of the Company (the "Stockholders") (the "Stock Purchase
Agreement"), Purchaser and PSDI and the Stockholders have agreed subject to the
terms and conditions set forth therein, to purchase and sell, respectively, the
outstanding shares of the common stock of the Company;
WHEREAS, Kwiatkowski had substantial stockholdings in the Company that,
pursuant to the Stock Purchase Agreement, were exchanged for cash; and
WHEREAS, Kwiatkowski possesses an intimate knowledge of the business and
affairs of the Company and its policies, methods, personnel and operations.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. NONCOMPETITION. For a period of one year from the date of this Agreement
(the "Restricted Period"), Kwiatkowski shall not, directly or indirectly, as an
owner, partner, shareholder, consultant, agent, employee or co-venturer of any
Person (as hereinafter defined) compete with the Company by engaging in the
Company's Business (as hereinafter defined) anywhere in the United States or
Canada or in any other country where the Company or its Affiliates (as
hereinafter defined), resellers, distributors or the like engage in business.
For purposes of this Agreement, "Company's Business" shall mean the business of
designing, developing, manufacturing, selling, buying, acquiring, licensing,
leasing, furnishing, maintaining, or dealing in computer software that is used
by a third party in connection with the procurement of goods and/or services.
Except as specifically prohibited by this section, nothing herein shall prohibit
Kwiatkowski from engaging in the field of distribution or distribution
logistics. In addition, during the Restricted Period Kwiatkowski may purchase up
to one percent of any series of outstanding voting securities of any Person
competing in the Company's Business if such series is listed on a national or
regional securities exchange or publicly traded in the "over-the-counter"
market. Notwithstanding the foregoing, "Company Business" shall not include the
acquisition and use of software by Depot Direct or its Affiliates for their own
use, whether internal or as a means of implementing communications with their
customers or suppliers; provided that such software is commercially available.
<PAGE> 74
2. NONSOLICITATION. During the Restricted Period, Kwiatkowski shall not (a)
solicit, encourage, or take any other action which is intended to induce any
employee of the Company or any of its Affiliates to terminate his or her
employment with the Company or any such Affiliates in order to become employed
by or otherwise perform services for any other Person, or (b) knowingly
interfere in any manner with the employment relationship between the Company or
any of its Affiliates and any such employee of the Company or any such
Affiliate.
3. CERTAIN DEFINITIONS. For purposes of this Agreement, (a) the term
"Person" shall mean an individual, a corporation, an association, a partnership,
an estate, a trust and any other entity or organization, (b) the term
"Affiliate" shall mean with respect to any Person, any Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person, and (c) the term "control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
4. CONFIDENTIAL INFORMATION. Kwiatkowski acknowledges that, in the course
of his relationship with the Company, he has received information about, and
access to, trade secrets and proprietary information that are vital to the
competitive position and success of the Company and its Affiliates. Kwiatkowski
shall hold confidential all of the Company's (and its Affiliates') trade secrets
and proprietary information in his possession, and shall not, without the
Company's written consent, during the term of this Agreement or thereafter, use
any of such trade secrets and other proprietary information or any part thereof,
for any purpose other than those of the Company or disclose any of such trade
secrets or proprietary information to any Person other than in connection with
his relationship with the Company and for the purposes of its business after due
authorization by an officer of the Company. As used in this Agreement, the term
"trade secret and proprietary information" shall mean information (whether in
documented form or not) concerning the organization, business or finances of the
Company or its Affiliates which the Company or its Affiliates provided to
Kwiatkowski or about which Kwiatkowski learned during his relationship with the
Company and which has not been disclosed to others except Persons in a
confidential relationship with the Company or its Affiliates and who have an
obligation to the Company or its Affiliates not to disclose such information,
which is not known or available to others in the trade, and which is entitled to
protection as a trade secret or proprietary information under the laws of the
province of Ontario. Notwithstanding the foregoing, Kwiatkowski shall have no
obligation of confidentiality with respect to any trade secret or proprietary
information which shall be voluntarily disclosed by the Company or its
Affiliates without restriction or which shall otherwise enter the public domain
without fault on the part of Kwiatkowski. The Company acknowledges that
Kwiatkowski has been actively engaged in the business of managing and operating
industrial distribution and distribution logistics entities and has, in that
capacity, acquired significant general knowledge in these fields. Utilization of
the general knowledge acquired by Kwiatkowski (in
2
<PAGE> 75
contrast with utilization of the Company's trade secrets, which is prohibited)
is in no way restricted by this Section 4.
5. AMENDMENTS AND SUPPLEMENTS. This Agreement may not be amended, modified
or supplemented by the parties hereto in any manner, except by an instrument in
writing signed by the Company and Kwiatkowski.
6. NO WAIVER. The terms and conditions of this Agreement may be waived only
by a written instrument signed by the party waiving compliance. The failure of
any party hereto to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
such party thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a waiver of
any other or subsequent breach or non-compliance. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
7. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of the province of Ontario,
without regard to its principles of conflicts of laws.
8. NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered by hand, sent by facsimile
transmission with confirmation of receipt, sent via a reputable overnight
courier service with confirmation of receipt requested, or mailed by registered
or certified mail (postage prepaid and return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice), and shall be deemed given on the date on which
delivered by hand or otherwise on the date of receipt as confirmed:
To Purchaser or the Company:
c/o Project Software & Development, Inc.
100 Crosby Drive
Bedford, Massachusetts 01730
Facsimile: (781) 280-2209
Attention: Chief Financial Officer
With a copy to:
Peter M. Rosenblum, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
3
<PAGE> 76
To Kwiatkowski:
Mr. Steven E. Kwiatkowski
690 Oak Knoll
Perrysburg, OH 43551
9. CONSTRUCTION OF AGREEMENT. A reference to a Section shall mean a Section
in this Agreement unless otherwise expressly stated. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation."
10. ENTIRE AGREEMENT, ASSIGNABILITY, ETC.. This Agreement and the Stock
Purchase Agreement and the documents and other agreements among the parties
hereto and thereto as contemplated by or referred to herein or therein
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. This Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder, except as otherwise expressly provided herein and shall not
be assignable by operation of law or otherwise, except that Purchaser and the
Company may assign their rights hereunder to any Affiliate of Purchaser or the
Company.
11. VALIDITY. In the event that any provision of this Agreement shall be
determined to be unenforceable by reason of its extension for too great a period
of time or over too large a geographic area or over too great a range of
activities, it shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it may be enforceable.
If, after application of the preceding sentence, any provision of this Agreement
shall be determined to be invalid, illegal or otherwise unenforceable by a court
of competent jurisdiction, the validity, legality and enforceability of the
other provisions of this Agreement shall not be affected thereby. Except as
otherwise provided in this Section 11 any invalid, illegal or unenforceable
provision of this Agreement shall be severable, and after any such severance,
all other provisions hereof shall remain in full force and effect.
12. REMEDIES. Kwiatkowski recognizes that money damages alone would not
adequately compensate Purchaser and its Affiliates in the event of breach by
Kwiatkowski of this Agreement, and Kwiatkowski therefore agrees that, in
addition to all other remedies available to Purchaser and its Affiliates, at
law, in equity or otherwise, Purchaser and its Affiliates shall be entitled to
injunctive relief for the enforcement hereof. All rights and remedies hereunder
are cumulative and are in addition to and not exclusive of any other rights and
remedies available, at law, in equity, by agreement or otherwise.
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<PAGE> 77
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Noncompetition Agreement
to be executed as an agreement under seal as of the date first written above.
Project Software & Development, Inc.
By:_________________________
Title:
A.R.M. Group Inc.
By:_________________________
Title:
PSDI Canada Limited
By:_________________________
Title:
____________________________
Steven E. Kwiatkowski
5
<PAGE> 78
EXHIBIT A-3
NONCOMPETITION AGREEMENT
This Noncompetition Agreement, dated as of this 6th day of February, 1998
(this "Agreement"), among Project Software & Development, Inc., a Massachusetts
corporation ("PSDI"), PSDI Canada Limited, a Canadian corporation and a
wholly-owned subsidiary of PSDI (the "Purchaser"), A.R.M. Group Inc., an Ontario
corporation and wholly-owned subsidiary of Purchaser (the "Company"), and Paula
Sinclair (the "Employee)
WHEREAS, pursuant to a Stock Purchase Agreement dated as of the date hereof
by and among PSDI, Purchaser, the Company and the holders of the Common Stock of
the Company (the "Stockholders") (the "Stock Purchase Agreement"), PSDI and
Purchaser and the Stockholders have agreed subject to the terms and conditions
set forth therein, to purchase and sell, respectively, the outstanding shares of
the common stock;
WHEREAS, the Employee will receive a substantial cash bonus pursuant to the
Stock Purchase Agreement.
WHEREAS, the Employee possesses an intimate knowledge of the business and
affairs of the Company and its policies, methods, personnel and operations.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. NONCOMPETITION. During her employment with the Company and for a period
of one year from the date of the termination of the Employee's employment with
the Company for any reason (the "Restricted Period"), the Employee shall not,
directly or indirectly, as an owner, partner, shareholder, consultant, agent,
employee or co-venturer of any Person (as hereinafter defined) compete with the
Company by engaging in the Company's Business (as hereinafter defined) anywhere
in the United States or Canada or in any other country where the Company or its
Affiliates (as hereinafter defined), resellers, distributors or the like engage
in business. For purposes of this Agreement, the term the "Company's Business"
shall mean the business of designing, developing, manufacturing, selling, buying
for the purposes of licensing or reselling, licensing, leasing, furnishing,
maintaining, or dealing in computer software that is used by a third party in
connection with the maintenance management of plants, equipment, facilities and
infrastructure or that is used in connection with the operation of an electronic
commerce network that serves a market in which the Company is providing
electronic commerce services as of the date of the termination of Employee's
employment with the Company. Notwithstanding the foregoing, the Employee may
purchase up to one percent of any series of outstanding voting securities of any
Person competing in the Company's Business if such series is listed on a
national or regional securities exchange or publicly traded in the
"over-the-counter" market.
<PAGE> 79
2. NONSOLICITATION. During the Restricted Period, the Employee shall not
(a) solicit, encourage, or take any other action which is intended to induce any
employee of the Company or any of its Affiliates to terminate his or her
employment with the Company or any such Affiliates in order to become employed
by or otherwise perform services for any other Person, or (b) knowingly
interfere in any manner with the employment relationship between the Company or
any of its Affiliates and any such employee of the Company or any such
Affiliate.
3. CERTAIN DEFINITIONS. For purposes of this Agreement, (a) the term
"Person" shall mean an individual, a corporation, an association, a partnership,
an estate, a trust and any other entity or organization, (b) the term
"Affiliate" shall mean with respect to any Person, any Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person, and (c) the term "control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
4. CONFIDENTIAL INFORMATION. The Employee acknowledges that, in the course
of her employment by the Company, she has received and will continue to receive
information about, and access to, trade secrets and proprietary information that
are vital to the competitive position and success of the Company and its
Affiliates. The Employee shall hold confidential all of the Company's (and its
Affiliates') trade secrets and proprietary information in her possession, and
shall not, without the Company's written consent, during the term of this
Agreement or thereafter, use any of such trade secrets and other proprietary
information or any part thereof, for any purpose other than those of the Company
or disclose any of such trade secrets or proprietary information to any Person
other than in connection with her employment by the Company and for the purposes
of its business after due authorization by an officer of the Company. As used in
this Agreement, the term "trade secret and proprietary information" shall mean
information (whether in documented form or not) concerning the organization,
business or finances of the Company or its Affiliates which the Company or its
Affiliates may provide to the Employee or about which the Employee has learned
or may learn during her employment by the Company and which has not been
disclosed to others except Persons in a confidential relationship with the
Company or its Affiliates and who have an obligation to the Company or its
Affiliates not to disclose such information, which is not known or available to
others in the trade, and which is entitled to protection as a trade secret or
proprietary information under the laws of the province of Ontario.
Notwithstanding the foregoing, the Employee shall have no obligation of
confidentiality with respect to any trade secret or proprietary information
which shall be voluntarily disclosed by the Company or its Affiliates without
restriction or which shall otherwise enter the public domain without fault on
the part of the Employee.
5. INVENTIONS. The Employee agrees that if, during her employment by the
Company, the Employee made, conceived, discovered or reduced to practice (either
alone or with others) or shall make, conceive, discover or reduce to practice
any invention, modification, discovery,
2
<PAGE> 80
design, development, improvement, process, formula, data, technique, know-how,
secret or intellectual property right whatsoever or any interest therein
(whether or not patentable or registrable under copyright or similar statutes or
subject to analogous protection) (herein called "Inventions") that relates to
any of the products or services being developed, manufactured or sold by the
Company or its Affiliates or which may conveniently be used in relation
therewith or which may be used in place of any such product or service, or
results from tasks assigned to the Employee by the Company (or a Person
designated by the Company in writing) or results, in whole or in part, from the
use of property or premises owned, leased or contracted for by the Company, such
Inventions and the benefits thereof shall immediately become the sole and
absolute property of the Company and its assigns, and the Employee shall
promptly disclose to the Company (or any Persons designated by it) each such
Invention. The Employee hereby agrees to assign, and hereby assigns to the
Company, any rights the Employee may have or acquire in the Inventions and
benefits and/or rights resulting therefrom to the Company and its assigns
without compensation and agrees to communicate, without cost or delay, and
without publishing the same, all available information relating thereto (with
all necessary plans and models) to the Company, it being understood that any
prospective assignment of Inventions shall be to the fullest extent permissible
by law only.
During the term hereof and at any time thereafter, the Employee shall, at
the request and cost of the Company, sign, execute, make and do all such deeds,
documents, acts and things as the Company and its duly authorized agents may
reasonable require:
(a) to apply for, obtain and vest in the name of the Company alone (unless
the Company otherwise directs) letters patent, copyrights or other analogous
protection in any country throughout the world and when so obtained or vested to
renew or restore the same; and
(b) to defend any opposition proceedings in respect of such applications
and any opposition proceedings or petitions or applications for revocation of
such letters patent, copyright or other analogous protection.
The Employee hereby irrevocably designates and appoints the Company and its
duly authorized officers and agents as Employee's agent and attorney-in-fact, to
act for and in the Employee's behalf and stead to execute and file any such
application or applications and to do all other lawfully permitted acts to
further the prosecution thereon with the same legal force and effect as if
executed by the Employee in the event the Company is unable, after reasonable
effort, to secure the Employee's signature on any letters patent, copyright or
other analogous protection relating to an Invention, whether because of the
Employee's physical or mental incapacity or for any other reason whatsoever.
6. NO EMPLOYMENT AGREEMENT. Nothing herein is intended to create any
binding obligation on the part of either the Employee, PSDI, the Company or
Purchaser for the Employee to remain as an Employee of the Company.
3
<PAGE> 81
7. AMENDMENTS AND SUPPLEMENTS. This Agreement may not be amended, modified
or supplemented by the parties hereto in any manner, except by an instrument in
writing signed by the Company and the Employee.
8. NO WAIVER. The terms and conditions of this Agreement may be waived only
by a written instrument signed by the party waiving compliance. The failure of
any party hereto to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
such party thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a waiver of
any other or subsequent breach or non-compliance. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
9. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of the province of Ontario,
without regard to its principles of conflicts of laws.
10. NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered by hand, sent by facsimile
transmission with confirmation of receipt, sent via a reputable overnight
courier service with confirmation of receipt requested, or mailed by registered
or certified mail (postage prepaid and return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice), and shall be deemed given on the date on which
delivered by hand or otherwise on the date of receipt as confirmed:
To Purchaser or the Company:
c/o Project Software & Development, Inc.
20 University Road
Cambridge, Massachusetts 02138
Facsimile: (781) 280-2209
Attention: Chief Financial Officer
With a copy to:
Peter M. Rosenblum, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
To the Employee:
4
<PAGE> 82
_____________________
_____________________
_____________________
_____________________
With a copy to:
_____________________
_____________________
_____________________
_____________________
11. CONSTRUCTION OF AGREEMENT. A reference to a Section shall mean a
Section in this Agreement unless otherwise expressly stated. The titles and
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation."
12. ENTIRE AGREEMENT, ASSIGNABILITY, ETC.. This Agreement and the Stock
Purchase Agreement and the documents and other agreements among the parties
hereto and thereto as contemplated by or referred to herein or therein
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. This Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder, except as otherwise expressly provided herein and shall not
be assignable by operation of law or otherwise, except that Purchaser and the
Company may assign their rights hereunder to any Affiliate of Purchaser or the
Company.
13. VALIDITY. In the event that any provision of this Agreement shall be
determined to be unenforceable by reason of its extension for too great a period
of time or over too large a geographic area or over too great a range of
activities, it shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it may be enforceable.
If, after application of the preceding sentence, any provision of this Agreement
shall be determined to be invalid, illegal or otherwise unenforceable by a court
of competent jurisdiction, the validity, legality and enforceability of the
other provisions of this Agreement shall not be affected thereby. Except as
otherwise provided in this Section 13 any invalid, illegal or unenforceable
provision of this Agreement shall be severable, and after any such severance,
all other provisions hereof shall remain in full force and effect.
5
<PAGE> 83
14. REMEDIES. The Employee recognizes that money damages alone would not
adequately compensate Purchaser and its Affiliates in the event of breach by the
Employee of this Agreement, and the Employee therefore agrees that, in addition
to all other remedies available to Purchaser and its Affiliates, at law, in
equity or otherwise, Purchaser and its Affiliates shall be entitled to
injunctive relief for the enforcement hereof. All rights and remedies hereunder
are cumulative and are in addition to and not exclusive of any other rights and
remedies available, at law, in equity, by agreement or otherwise.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Noncompetition Agreement
to be executed as an agreement under seal as of the date first written above.
Project Software & Development, Inc.
By:_________________________
Title:
A.R.M. Group Inc.
By:_________________________
Title:
PSDI Canada Limited
By:_________________________
Title:
____________________________
Paula Sinclair
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EXHIBIT A-4
NONCOMPETITION AGREEMENT
This Noncompetition Agreement, dated as of this 6th day of February, 1998
(this "Agreement"), among Project Software & Development, Inc., a Massachusetts
corporation ("PSDI"), PSDI Canada Limited, a Canadian corporation and a
wholly-owned subsidiary of PSDI (the "Purchaser"), A.R.M. Group Inc., an Ontario
corporation and wholly-owned subsidiary of Purchaser (the "Company"), and (the
"Employee).
WHEREAS, pursuant to a Stock Purchase Agreement dated as of the date hereof
by and among PSDI, Purchaser, the Company, the Employee and the other holders of
the Common Stock of the Company (the "Stockholders") (the "Stock Purchase
Agreement"), PSDI and Purchaser and the Stockholders have agreed subject to the
terms and conditions set forth therein, to purchase and sell, respectively, the
outstanding shares of the common stock;
WHEREAS, the Employee had substantial stockholdings in the Company that,
pursuant to the Stock Purchase Agreement, were exchanged for cash; and
WHEREAS, the Employee possesses an intimate knowledge of the business and
affairs of the Company and its policies, methods, personnel and operations.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. NONCOMPETITION. During his employment with the Company and for a period
of one year from the date of the termination of the Employee's employment with
the Company for any reason (the "Restricted Period"), the Employee shall not,
directly or indirectly, as an owner, partner, shareholder, consultant, agent,
employee or co-venturer of any Person (as hereinafter defined) compete with the
Company by engaging in the Company's Business (as hereinafter defined) anywhere
in the United States or Canada or in any other country where the Company or its
Affiliates (as hereinafter defined), resellers, distributors or the like engage
in business. For purposes of this Agreement, the term the "Company's Business"
shall mean the business of designing, developing, manufacturing, selling, buying
for the purposes of licensing or reselling, acquiring, licensing, leasing,
furnishing, maintaining, or dealing in computer software that is used by a third
party in connection with the maintenance management of plants, equipment,
facilities and infrastructure or that is used in connection with the operation
of an electronic commerce network that serves a market in which the Company is
providing electronic commerce services or a market in which the Company
reasonably anticipates providing electronic commerce services prior to the
expiration of the Restricted Period as of the date of the termination of the
Employee's employment with the Company. Notwithstanding the foregoing, the
Employee may purchase up to one percent of any series of outstanding voting
securities of any Person competing in the Company's Business if such series is
listed on a national or regional securities exchange or publicly traded in the
"over-the-counter" market.
<PAGE> 85
2. NONSOLICITATION. During the Restricted Period, the Employee shall not
(a) solicit, encourage, or take any other action which is intended to induce any
employee of the Company or any of its Affiliates to terminate his or her
employment with the Company or any such Affiliates in order to become employed
by or otherwise perform services for any other Person, or (b) knowingly
interfere in any manner with the employment relationship between the Company or
any of its Affiliates and any such employee of the Company or any such
Affiliate.
3. CERTAIN DEFINITIONS. For purposes of this Agreement, (a) the term
"Person" shall mean an individual, a corporation, an association, a partnership,
an estate, a trust and any other entity or organization, (b) the term
"Affiliate" shall mean with respect to any Person, any Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person, and (c) the term "control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
4. CONFIDENTIAL INFORMATION. The Employee acknowledges that, in the course
of his employment by the Company, he will receive information about, and access
to, trade secrets and proprietary information that are vital to the competitive
position and success of the Company and its Affiliates. The Employee shall hold
confidential all of the Company's (and its Affiliates') trade secrets and
proprietary information in his possession, and shall not, without the Company's
written consent, during the term of this Agreement or thereafter, use any of
such trade secrets and other proprietary information or any part thereof, for
any purpose other than those of the Company or disclose any of such trade
secrets or proprietary information to any Person other than in connection with
his employment by the Company and for the purposes of its business after due
authorization by an officer of the Company. As used in this Agreement, the term
"trade secret and proprietary information" shall mean information (whether in
documented form or not) concerning the organization, business or finances of the
Company or its Affiliates which the Company or its Affiliates may provide to the
Employee or about which the Employee may learn during his employment by the
Company and which has not been disclosed to others except Persons in a
confidential relationship with the Company or its Affiliates and who have an
obligation to the Company or its Affiliates not to disclose such information,
which is not known or available to others in the trade, and which is entitled to
protection as a trade secret or proprietary information under the laws of the
province of Ontario. Notwithstanding the foregoing, the Employee shall have no
obligation of confidentiality with respect to any trade secret or proprietary
information which shall be voluntarily disclosed by the Company or its
Affiliates without restriction or which shall otherwise enter the public domain
without fault on the part of the Employee.
5. INVENTIONS. The Employee agrees that if, during his employment by the
Company, the Employee shall (either alone or with others) make, conceive,
discover or reduce to practice
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<PAGE> 86
any invention, modification, discovery, design, development, improvement,
process, formula, data, technique, know-how, secret or intellectual property
right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Inventions") that relates to any of the products or
services being developed, manufactured or sold by the Company or its Affiliates
or which may conveniently be used in relation therewith or which may be used in
place of any such product or service, or results from tasks assigned to the
Employee by the Company (or a Person designated by the Company in writing) or
results, in whole or in part, from the use of property or premises owned, leased
or contracted for by the Company, such Inventions and the benefits thereof shall
immediately become the sole and absolute property of the Company and its
assigns, and the Employee shall promptly disclose to the Company (or any Persons
designated by it) each such Invention. The Employee hereby agrees to assign, and
to the extent he may lawfully do so, hereby assigns to the Company, any rights
the Employee may have or acquire in the Inventions and benefits and/or rights
resulting therefrom to the Company and its assigns without compensation and
shall communicate, without cost or delay, and without publishing the same, all
available information relating thereto (with all necessary plans and models) to
the Company.
Upon disclosure of each Invention to the Company, during the term hereof
and at any time thereafter, the Employee shall, at the request and cost of the
Company, sign, execute, make and do all such deeds, documents, acts and things
as the Company and its duly authorized agents may reasonable require:
(a) to apply for, obtain and vest in the name of the Company alone (unless
the Company otherwise directs) letters patent, copyrights or other analogous
protection in any country throughout the world and when so obtained or vested to
renew or restore the same; and
(b) to defend any opposition proceedings in respect of such applications
and any opposition proceedings or petitions or applications for revocation of
such letters patent, copyright or other analogous protection.
The Employee hereby irrevocable designates and appoints the Company and its
duly authorized officers and agents as Employee's agent and attorney-in-fact, to
act for and in the Employee's behalf and stead to execute and file any such
application or applications and to do all other lawfully permitted acts to
further the prosecution thereon with the same legal force and effect as if
executed by the Employee in the event the Company is unable, after reasonable
effort, to secure the Employee's signature on any letters patent, copyright or
other analogous protection relating to an Invention, whether because of the
Employee's physical or mental incapacity or for any other reason whatsoever.
6. NO EMPLOYMENT AGREEMENT. Nothing herein is intended to create any
binding obligation on the part of either the Employee, PSDI, the Company or
Purchaser for the Employee to remain as a consultant of the Company.
3
<PAGE> 87
7. AMENDMENTS AND SUPPLEMENTS. This Agreement may not be amended, modified
or supplemented by the parties hereto in any manner, except by an instrument in
writing signed by the Company and the Employee.
8. NO WAIVER. The terms and conditions of this Agreement may be waived only
by a written instrument signed by the party waiving compliance. The failure of
any party hereto to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
such party thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a waiver of
any other or subsequent breach or non-compliance. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
9. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of the province of Ontario,
without regard to its principles of conflicts of laws.
10. NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered by hand, sent by facsimile
transmission with confirmation of receipt, sent via a reputable overnight
courier service with confirmation of receipt requested, or mailed by registered
or certified mail (postage prepaid and return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice), and shall be deemed given on the date on which
delivered by hand or otherwise on the date of receipt as confirmed:
To Purchaser or the Company:
c/o Project Software & Development, Inc.
20 University Road
Cambridge, Massachusetts 02138
Facsimile: (781) 280-2209
Attention: Chief Financial Officer
With a copy to:
Peter M. Rosenblum, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
To the Employee:
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<PAGE> 88
With a copy to:
John Hiscock, Esq.
One London Place
Suite 1660
255 Queens Avenue
London, Ontario
11. CONSTRUCTION OF AGREEMENT. A reference to a Section shall mean a
Section in this Agreement unless otherwise expressly stated. The titles and
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation."
12. ENTIRE AGREEMENT, ASSIGNABILITY, ETC.. This Agreement and the Stock
Purchase Agreement and the documents and other agreements among the parties
hereto and thereto as contemplated by or referred to herein or therein
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. This Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder, except as otherwise expressly provided herein and shall not
be assignable by operation of law or otherwise, except that Purchaser and the
Company may assign their rights hereunder to any Affiliate of Purchaser or the
Company.
13. VALIDITY. In the event that any provision of this Agreement shall be
determined to be unenforceable by reason of its extension for too great a period
of time or over too large a geographic area or over too great a range of
activities, it shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it may be enforceable.
If, after application of the preceding sentence, any provision of this Agreement
shall be determined to be invalid, illegal or otherwise unenforceable by a court
of competent jurisdiction, the validity, legality and enforceability of the
other provisions of this Agreement shall not be affected thereby. Except as
otherwise provided in this Section 13 any invalid, illegal or unenforceable
provision of this Agreement shall be severable, and after any such severance,
all other provisions hereof shall remain in full force and effect.
14. REMEDIES. The Employee recognizes that money damages alone would not
adequately compensate Purchaser and its Affiliates in the event of breach by the
Employee of this Agreement, and the Employee therefore agrees that, in addition
to all other remedies available to Purchaser and its Affiliates, at law, in
equity or otherwise, Purchaser and its
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<PAGE> 89
Affiliates shall be entitled to injunctive relief for the enforcement hereof.
All rights and remedies hereunder are cumulative and are in addition to and not
exclusive of any other rights and remedies available, at law, in equity, by
agreement or otherwise.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Noncompetition Agreement
to be executed as an agreement under seal as of the date first written above.
Project Software & Development, Inc.
By:_________________________
Title:
A.R.M. Group Inc.
By:_________________________
Title:
PSDI Canada Limited
By:_________________________
Title:
____________________________
[Name of Employee]
6
<PAGE> 90
EXHIBIT B
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Escrow Agreement") is made as of February 6,
1998 among Project Software & Development, Inc., a Massachusetts corporation
("PSDI"), PSDI Canada Limited, a Canadian Corporation (the "Purchaser"), Stephen
M. Caslick, (the "Stockholders' Representative") acting for and on behalf of
Ravenna Capital Corporation ("Ravenna"), and the stockholders of A.R.M. Group
Inc., an Ontario corporation (the "Company"), and State Street Bank and Trust
Company, as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Purchaser and the Company are parties to that certain Stock
Purchase Agreement, dated as of February 6, 1998 (the "Agreement");
WHEREAS, under the Agreement, the Company and the holders of the capital
stock of the Company and Ravenna (the "Stockholders") have agreed to indemnify
Purchaser as and to the extent provided in Section 10 of the Agreement (the
"Indemnities");
WHEREAS, to secure the performance of the Indemnities, the Stockholders'
Representative has deposited on behalf of the Stockholders $720,000 of the
Purchase Price (as such term is defined therein) pursuant to the terms of the
Agreement, to be pledged, deposited and held in escrow under this Escrow
Agreement (the amount so pledged, deposited and held in escrow under this Escrow
Agreement at any time being hereinafter referred to as the "Escrow Amount");
WHEREAS, the Escrow Agent has agreed to hold the Escrow Amount pursuant to
the terms of this Escrow Agreement; and
WHEREAS, the Stockholders have selected the Stockholders' Representative to
represent them in certain matters, including, but not limited to, the
negotiation, execution and delivery of this Escrow Agreement and the
Stockholders' Representative is attorney-in-fact for each Stockholder in
connection with such negotiation, execution and delivery;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. DEFINITIONS
(a) Capitalized terms used but not defined herein shall have the
respective meanings set forth in the Agreement.
<PAGE> 91
(b) "BUSINESS DAY" shall mean any day in which commercial banks are
open for business in Boston, Massachusetts.
(c) "INDEMNITIES" shall mean the indemnification agreements of the
Stockholders set forth in Section 10 of the Agreement.
(d) "COMPANY COMMON STOCK" shall mean the Class A common shares and
the Class B common shares of the Company.
(e) "ESCROW DISTRIBUTION PERCENTAGE" shall mean initially the
percentage of each holder of Company Common Stock as set forth in SCHEDULE 1(E)
hereto and determined by dividing (i) the number of shares of Company Common
Stock owned by such holder by (ii) the total number of shares of Company Common
Stock outstanding, as such percentage may be adjusted from time to time pursuant
to Section 3(e) hereof. For purposes of this definition, the 23.93 Class A
common shares issuable to Ravenna upon exercise of the Warrant to acquire shares
in the capital stock of the Company dated December 1, 1996 held by Ravenna shall
be deemed to be Company Common Stock owned by Ravenna and outstanding for
purposes of subsections (i) and (ii), respectively, of this Section 1(e). PSDI,
the Purchaser and the Stockholders' Representative acknowledge that the Escrow
Distribution Percentage of each Stockholder is subject to adjustment pursuant to
Section 3(e) below and agree to furnish the Escrow Agreement with a revised
SCHEDULE 1(E) setting forth the revised Escrow Distribution Percentage of each
Stockholder promptly (and in any event within five (5) Business Days) following
receipt by any PSDI Indemnified Party of an indemnification payment of the type
referred to in Section 3(e).
(f) "PSDI INDEMNIFIED PARTIES" shall mean any or all of PSDI, any
subsidiary or affiliate of PSDI and their respective directors, officers,
employees, affiliates, agents, representatives, successors and assigns.
2. DEPOSIT AND USE OF ESCROW AMOUNT
(a) The Stockholders' Representative hereby deposits with the Escrow
Agent, to be held and dealt with pursuant to the terms and subject to the
conditions of this Escrow Agreement, as security for the performance of the
Indemnities, cash in the amount of the Escrow Amount to be deposited in an
escrow account designated "PSDI Escrow Account" or similar designation (the
"Escrow Account").
(b) The Escrow Agent hereby acknowledges receipt from Purchaser of the
Escrow Amount and agrees to deposit such amount in the Escrow Account.
(c) The Escrow Agent is hereby authorized and directed, and the Escrow
Agent agrees, to hold and dispose of the Escrow Amount (together with any
interest or distributions
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<PAGE> 92
received thereon) and to act as Escrow Agent in accordance with the terms,
conditions and provisions of this Escrow Agreement.
3. DISPOSITION OF ESCROW AMOUNT FOR CLAIMS. The PSDI Indemnified Parties
shall be entitled to payment from the Escrow Amount in the amount by which, at
any time and from time to time, the PSDI Indemnified Parties are entitled to be
indemnified pursuant to the Indemnities, and pursuant to the following
provisions.
(a) PSDI may, at any time or from time to time prior to the first
anniversary of the date of this Escrow Agreement, assert a claim (the "Claim")
pursuant to Section 10 of the Agreement against the Escrow Amount by notice (the
"Claim Notice") to the Stockholders' Representative, with a copy to the Escrow
Agent. The Claim Notice shall state in reasonable detail the basis for the
Claim, the estimated dollar amount thereof and the identity of the PSDI
Indemnified Party entitled to payment in respect of such Claim and shall provide
disbursement instructions with respect to amounts claimed.
(b) If the Stockholders' Representative receives a Claim Notice, it
may, as herein provided, respond to such Claim Notice (with a copy to the Escrow
Agent) and dispute all or a portion of the amount claimed within thirty (30)
days from the date the same was delivered to the Escrow Agent (herein called the
"Response Period"). If the Stockholders' Representative does not so respond to
the Claim Notice within the Response Period, then the Escrow Agent, within five
(5) Business Days after the expiration of the Response Period, shall deliver to
the relevant PSDI Indemnified Parties cash in the amount specified in the Claim
Notice, or such lesser amount as shall then remain of the Escrow Amount.
(c) At any time during the Response Period, the Stockholders'
Representative may notify the PSDI Indemnified Parties, with a copy to the
Escrow Agent, that the Claim Notice or any portion thereof is disputed by the
Stockholders' Representative or that the Stockholders' Representative is
defending the basis for the Claim (such notice being hereinafter referred to as
the "Dispute Notice"). Upon receipt of a Dispute Notice, the Escrow Agent: (i)
shall, within five (5) business days after receipt by it of a Dispute Notice,
deliver to the PSDI Indemnified Parties cash in an amount equal to that portion,
if any, of the Claim which is not disputed by the Stockholders' Representative
(as set forth in the Response Notice) and (ii) shall designate the amount
subject to the Claim which is disputed by the Stockholders' Representative.
Thereafter, the Escrow Agent shall not dispose of that remaining portion of the
Escrow Amount, subject to a Claim until the occurrence of one of the following
events:
(i) The Escrow Agent shall have been directed to deliver such
amount in accordance with the joint written instructions of the PSDI
Indemnified Parties and the Stockholders' Representative; or
(ii) The Escrow Agent shall have received (x) a copy of a final
decision of a court of competent jurisdiction with respect to the Claim or
Claims set forth in the Claim
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<PAGE> 93
Notice and (y) a certificate of the Clerk or any Assistant Clerk of PSDI or
a certificate of the Stockholders' Representative certifying that such
decision is a "final decision", in which case the Escrow Agent shall
dispose of such disputed amount in accordance with such final decision. As
used herein, a "final decision" shall mean the final decision of any court
of competent jurisdiction from which no appeal may be taken, whether
because of lapsed time or otherwise.
(d) The Escrow Agent shall not dispose of the Escrow Amount other than
as provided in this Escrow Agreement.
(e) Notwithstanding the provisions of Section 1(e), to the extent that
a PSDI Indemnified Party receives an indemnification payment from the Escrow
Amount as a result of a Claim arising out of any incorrectness in or breach of a
representation or warranty made by a Stockholder pursuant to Section 6 of the
Agreement or any Claim arising under Section 10.3 of the Agreement in respect of
a Stockholder, the portion of the Escrow Amount attributable to such Stockholder
(i.e., the Escrow Amount multiplied by such Stockholder's Escrow Distribution
Percentage) shall be decreased by the amount of the indemnification payment
received by a PSDI Indemnified Party from the Escrow Amount in respect of such
Claim attributable to such Stockholder. Following any such decrease, the Escrow
Distribution Percentages for each Stockholder shall be recalculated to a new
percentage (that shall not be less than zero) obtained by dividing (i) the
result of (A) the product of the Escrow Distribution Percentage of such
Stockholder immediately prior to any such decrease multiplied by the Escrow
Amount immediately prior to any such decrease minus (B) the decrease, if any, to
the Escrow Amount attributable to such Stockholder as a result of such Claim, by
(ii) the Escrow Amount immediately following all such decreases relating to such
Claim. Promptly and in any event within five Business Days following any
adjustment to the Escrow Distribution Percentage of any Stockholder, PSDI and
the Stockholders' Representative shall deliver to the Escrow Agent a revised
SCHEDULE 1(E) setting forth the Escrow Distribution Percentages of the
Stockholders, as adjusted pursuant to this Section 3(e).
4. DELIVERY OF FUNDS TO STOCKHOLDERS. The Escrow Agent shall disburse the
Escrow Amount in the following manner:
On the date which is twelve (12) months after the Closing Date, the Escrow
Agent shall deliver to the Stockholders an amount equal to (A) the Escrow Amount
then remaining in escrow minus (B) the sum of (x) any amount designated as
subject to a Claim pursuant to a Claim Notice to the extent such Claim has not
been resolved prior to such date and amounts claimed therein released and (y)
any amount that the Escrow Agent is entitled to retain from the Escrow Account
in respect of the portion of its fees and expenses payable by the Stockholders
pursuant to Section 14 below. Any amount retained in escrow after such date
shall be held by the Escrow Agent subject to the terms and conditions of this
Escrow Agreement. Upon resolution of any Claim that had not been resolved on the
date which was twelve (12) months after the Closing Date, the Escrow Agent shall
deliver to the Stockholders cash in an amount equal to (A) the amount that had
been designated as subject to such Claim minus (B) the sum of (x) the amount
that is determined in accordance with
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<PAGE> 94
Section 3 to be required to satisfy such Claim and (y) any amount that the
Escrow Agent is entitled to retain from the Escrow Account in respect of the
portion of its fees and expenses payable by the Stockholders pursuant to Section
14 below. All deliveries or distributions of funds from the Escrow Account to
the Stockholders shall be made to the Stockholders in accordance with their
respective Escrow Distribution Percentages (as set forth on the then current
SCHEDULE 1(E) hereto and in accordance with wire or other disbursement
instructions provided by the Stockholders' Representative to the Escrow Agent in
writing.
5. INCOME.
(a) Upon receipt by the Escrow Agent of specific written investment
instructions from PSDI and the Stockholders' Representative, the Escrow Agent is
hereby authorized and directed to invest and re-invest the Escrow Amount in any
of the following investments (collectively, "Eligible Investments"), as
specified in such instructions:
(i) certificates of deposit of or interest bearing accounts with
national banks or corporations endowed with trust powers, including the
Escrow Agent, having capital and surplus in excess of $100,000,000; or
(ii) State Street Bank Insured Money Market Deposit Account
("IMMA").
Investments pursuant to such investment instructions described above shall
in all instances be subject to availability (including any time-of-day
requirements). In no instance shall the Escrow Agent have any obligation to
provide investment advice of any kind.
(b) LIQUIDITY. The Escrow Agent shall be authorized at all times and
from time to time to liquidate any investment of the Escrow Amount as may be
necessary to provide available cash to make any release, disbursement or payment
called for under the terms of this Agreement. The Escrow Agent shall have no
responsibility or liability for any losses resulting from liquidation of the
Escrow Amount (such as liquidation prior to maturity).
(c) EARNINGS AND LOSSES. Investment earnings and other income from
investment of the Escrow Funds (net of transaction costs) shall, subject to
Section 14 hereof, be paid to the Stockholders pro rata in accordance with their
respective Escrow Distribution Percentages on an annual basis; and all losses
incurred on any investment shall be debited to the Escrow Account. In no event
shall the Escrow Agent have any liability under this Escrow Agreement for
investment losses incurred on any investment or reinvestment.
(d) TAX REPORTING. The parties hereto agree that, for tax reporting
purposes, all interest or other income earned from the investment of the Escrow
Amounts shall be allocable to the Stockholders in accordance with their
respective Escrow Distribution Percentages.
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(e) CERTIFICATION OF TAX IDENTIFICATION NUMBER. The parties hereto
agree to provide the Escrow Agent with a certified tax identification number by
signing and returning a Form W-9 (or Form W-8, in the case of non-U.S. persons)
to the Escrow Agent within 30 days from the date hereof. The parties hereto
understand that, in the event their tax identification numbers are not certified
to the Escrow Agent, the Internal Revenue Code may require withholding of a
portion of any interest or other income earned on the investment of the Escrow
Amounts, in accordance with the Internal Revenue Code, as amended from time to
time.
6. LIABILITY AND COMPENSATION OF ESCROW AGENT.
(a) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence, bad faith or willful misconduct. The Escrow Agent
hereby acknowledges receipt of a copy of the Agreement, but except for
references thereto for definitions of certain words and terms not defined
herein, the Escrow Agent is not charged with any duty or obligation arising
under the Agreement and the duties and obligations of the Escrow Agent hereunder
shall be determined solely by the express provisions of this Escrow Agreement,
it being specifically understood that the following provisions are accepted by
all of the parties hereto. Each of the Stockholders and PSDI jointly and
severally agree to indemnify and hold the Escrow Agent harmless from and against
any and all liability and expense which may arise out of or in connection with
this Escrow Agreement or with the administration of the Escrow Agent's duties
hereunder, including, but not limited to, legal fees and expenses and other
costs and expenses of defending or preparing to defend against any claim of
liability in the premises, unless such loss, liability or expense shall be
caused by the Escrow Agent's gross negligence, bad faith or willful misconduct.
In no event shall the Escrow Agent be liable for indirect, punitive, special or
consequential damages.
Each of PSDI and the Stockholders, jointly and severally, agree to assume
any and all obligations imposed now or hereafter by any applicable tax law with
respect to the payment of Escrow Amounts under this Agreement, and to indemnify
and hold the Escrow Agent harmless from and against any taxes, additions for
late payment, interest, penalties and other expenses, that may be assessed
against the Escrow Agent on any such payment or other activities under this
Escrow Agreement. PSDI and the Stockholders' Representative undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Escrow Agreement. Each of PSDI and
the Stockholders, jointly and severally, agree to indemnify and hold the Escrow
Agent harmless from any liability on account of taxes, assessments or other
governmental charges, including without limitation the withholding or deduction
or the failure to withhold or deduct same, and any liability for failure to
obtain proper certifications or to properly report to governmental authorities,
to which the Escrow Agent may be or become subject in connection with or which
arises out of this Escrow Agreement, including costs and expenses (including
reasonable legal fees and expenses), interest and penalties.
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<PAGE> 96
The provisions of this paragraph (a) shall survive the resignation or
removal of the Escrow Agent or the termination of this Escrow Agreement.
(b) The Escrow Agent shall be entitled to rely and act upon any
instructions or directions (including wire transfer instructions whether
incorporated herein or provided in a separate written instruction) furnished to
it in writing signed by both PSDI and the Stockholders' Representative pursuant
to any provision of this Escrow Agreement and shall be entitled to treat as
genuine, and as the document it purports to be, any letter, paper or other
document furnished to it by either PSDI or the Stockholders' Representative and
reasonably believed by the Escrow Agent to be genuine and to have been signed
and presented by the proper party or parties and shall have no responsibility
for determining the accuracy thereof.
(c) The Escrow Agent may apply for advice to counsel of its choice
(including in-house counsel), and may rely upon such advice as it thereupon
receives in writing; or it may act or refrain from acting in accordance with
such advice and shall not, as a result thereof, be answerable to any other
person for acting in good faith in reliance thereon.
(d) The parties hereto acknowledge and agree that the Escrow Agent
shall not be obligated to take any legal or other action hereunder which might
in its judgment involve expense or liability unless it shall have been furnished
with indemnity acceptable to it.
(e) The Escrow Agent has no responsibility for the sufficiency of this
Agreement for any purpose. Without limiting the foregoing, if any security
interest is referred to herein, the Escrow Agent shall have no responsibility
for, and makes no representation or warranty as to, the creation, attachment or
perfection of any such security interest or the sufficiency of this Agreement
therefor.
7. STOCKHOLDERS' REPRESENTATIVE.
(a) In connection with their adoption and approval of the Agreement,
the Stockholders irrevocably constituted and appointed the Stockholders'
Representative as their agent to, on their behalf (and on behalf of each of
them), perform the functions and exercise the authority set forth in the
Agreement. The authority conferred on the Stockholders' Representative in the
Agreement includes, without limitation, the power to: (i) execute and deliver
this Escrow Agreement; (ii) approve and initial any interlineation and/or
insertions appearing in this Escrow Agreement; (iii) execute and deliver such
amendments of this Escrow Agreement, and other agreements and documents executed
and delivered in connection with the escrow arrangement, as the Stockholders'
Representative, in its sole judgment, shall deem to be necessary or advisable;
(iv) execute and deliver all notices, requests, consents and other
communications and perform all actions required or permitted to be delivered or
performed under this Escrow Agreement and the Agreement and all other documents,
agreements and instruments executed in connection therewith; (v) receive all
notices, requests and other communications under this Escrow Agreement and the
Agreement and all other documents, agreements and instruments executed in
connection therewith;
7
<PAGE> 97
(vi) handle, contest, dispute, compromise, adjust, settle, litigate, appeal or
otherwise deal with any and all claims, breaches, obligations, liabilities,
encumbrances, orders, judgments and decrees with respect to the Indemnities;
(vii) expend in the carrying out of its powers or duties hereunder such sums as
the Stockholders' Representative shall deem necessary or advisable; and (viii)
generally act for and on behalf of the Stockholders (and each of them) in all
matters connected with this Escrow Agreement and the Agreement, as fully and
with the same force and effect as such Stockholders (individually or
collectively) might act in person.
(b) The Stockholders' Representative shall be the representative of
the Stockholders only, and neither PSDI nor any affiliate of PSDI, shall be
responsible or liable for any of his or her acts or omissions.
8. TAXES. Any taxes incurred in connection with any income earned on the
Escrow Amount shall be borne by each Stockholder in an amount equal to such
taxes multiplied by the relevant Escrow Distribution Percentage.
9. GRANT OF SECURITY INTEREST IN ESCROW AMOUNT. The Stockholders hereby
grant a first lien and security interest to the PSDI Indemnified Parties in all
monies and property held in the Escrow Amount, together with all proceeds
therefrom and products thereof. For the limited and sole purpose of perfecting
such security interest, the Escrow Agent appointed under this Escrow Agreement
shall serve as the agent and bailee in possession of such collateral for the
benefit of the PSDI Indemnified Parties. Any monies disbursed pursuant to and in
accordance with Section 4 hereof shall thereupon be automatically released as
collateral and the security interest therein shall automatically terminate. In
no event shall the Escrow Agent have any duty to give any property held by it
hereunder any greater degree of care than it gives its own property.
10. CONTROVERSIES. If any controversy arises between the parties to this
Escrow Agreement, or with any other party concerning the terms or conditions of
this Escrow Agreement or the property held hereunder, the Escrow Agent shall not
be required to determine the controversy or to take any action regarding it. The
Escrow Agent may and is hereby authorized to hold all documents and funds
without liability to anyone and may wait for settlement of any such controversy
by final appropriate legal proceedings or mutual agreement of the parties
involved or other means as, in the Escrow Agent's discretion, may be required.
The Escrow Agent may but is under no duty whatsoever to institute or defend any
legal proceeding which relates to the Escrow Amount.
11. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign at any time
upon giving at least thirty (30) days' written notice to each of the parties to
this Escrow Agreement; provided, however, that no such resignation shall become
effective until the appointment of a successor escrow agent which shall be
accomplished as follows: Prior to the effective date of the resignation as
specified in such notice, PSDI will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrow Amounts to a successor escrow
agent that it selects subject to the reasonable consent of the Stockholders'
Representative. Such successor escrow agent shall be a
8
<PAGE> 98
bank or trust company, organized and existing under the laws of the United
States or any state thereof, subject to examination by state or federal
authorities, and have capital and surplus in excess of $50,000,000. If, however,
PSDI shall fail to name a successor escrow agent within twenty (20) days after
the notice of resignation from the Escrow Agent, the Stockholders'
Representative shall be entitled to name such successor escrow agent subject to
the reasonable consent of PSDI. If no successor escrow agent is named by and
consented to by PSDI or the Stockholders' Representative, the Escrow Agent may
apply to a court of competent jurisdiction for the appointment of a successor
escrow agent. The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be vested with
all the estates, properties, rights, powers and duties of the predecessor escrow
agent as if originally named as escrow agent. The resigning Escrow Agent shall
thereupon be discharged from any further obligations under this Escrow
Agreement.
12. BENEFIT; SUCCESSORS AND ASSIGNS. This Escrow Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns but shall not be assignable by any party hereto
without the written consent of all of the other parties hereto; PROVIDED,
HOWEVER, that PSDI may assign its rights and delegate its obligations hereunder
to any person to whom the rights of PSDI may be assigned under the Agreement and
to any successor corporation in the event of a merger, consolidation or transfer
or sale of all or substantially all of their respective stock or assets and that
the Escrow Agent may assign its rights hereunder to a successor Escrow Agent
appointed hereunder. Except for the parties to this Agreement, the Stockholders
and the PSDI Indemnified Parties, this Escrow Agreement is not intended to
confer on any person not a party hereto any rights or remedies hereunder. This
Escrow Agreement shall be binding upon the respective parties hereto and their
heirs, executors, successors and assigns.
13. NOTICES. All notices, instructions and other communications required or
permitted to be given hereunder or necessary or convenient in connection
herewith shall be in writing and shall be deemed to have been duly delivered
upon delivery, if delivered personally, or upon mailing, if mailed, postage
prepaid, registered or certified mail, as follows:
IF TO THE ESCROW AGENT:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Mr. John MacLeod
9
<PAGE> 99
PSDI Escrow
IF TO PSDI:
Project Software & Development, Inc.
20 University Road
Cambridge, MA 02138
Attention: Paul D. Birch
WITH COPY TO:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: Peter M. Rosenblum, Esq.
IF TO THE STOCKHOLDERS' REPRESENTATIVE:
Mr. Stephen Caslick
Site 5
R.R. No. 1
Kincardine, Ontario
N2Z 2X3
WITH COPY TO:
John D. Hiscock, Esq.
225 Queens Avenue
Suite 1660
London, Ontario
N6A 5R8
or to such other address as the Escrow Agent, PSDI or the Stockholders'
Representative, as the case may be, shall designate in writing to the parties
hereto.
14. FEES AND EXPENSES OF ESCROW AGENT. The Escrow Agent shall be entitled
to receive the fees and expenses for its normal services hereunder in accordance
with the attached fee schedule set forth on EXHIBIT A hereto for each year or
portion thereof that any portion of the Escrow Amount remains in escrow and
shall be entitled to be reimbursed for any legal fees and expenses incurred in
connection with the preparation of this Agreement. One-half of such fees and
expenses shall be payable by PSDI and the balance of such fees and expenses
shall be payable by the Stockholders out of the Escrow Amount or earnings or
other income thereon. The Escrow Agent is specifically authorized to withdraw
50% of such fees and expenses from the Escrow Account provided that an
accounting of any such withdrawal is reasonably promptly provided to PSDI and
10
<PAGE> 100
the Stockholders' Representative. The Escrow Agent shall be entitled to
reimbursement in accordance with this Section 14 on demand for all expenses
incurred in connection with the administration of the escrow created hereby
which are in excess of its compensation for normal services hereunder, including
without limitation, payment of any legal fees and expenses incurred by the
Escrow Agent in connection with the resolution of any claim by any party
hereunder.
15. TERMINATION. Upon delivery of the entire Escrow Amount, this Escrow
Agreement shall be terminated.
16. GOVERNING LAW; AMENDMENTS. This Escrow Agreement shall be governed by
and construed in accordance with the substantive laws of the Commonwealth of
Massachusetts, without reference to its principles of conflicts of law. The
provisions of this Escrow Agreement may be amended modified or waived only by
written instrument executed by each of the parties hereto. No such amendment,
modification or waiver shall be effective to alter or enlarge the Escrow Agent's
duties, discretion and obligations hereunder without its prior consent. A waiver
of any of the terms and conditions of this Escrow Agreement on one occasion
shall not constitute a waiver of the other terms and conditions of this Escrow
Agreement, or of such terms and conditions on any other occasion.
17. COUNTERPARTS. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. INTERPRETATION. Titles and headings to Sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Escrow Agreement.
19. CONSENT TO JURISDICTION AND SERVICE. Purchaser, PSDI, the Stockholders'
Representative and the Escrow Agent hereby absolutely and irrevocably consent
and submit to the jurisdiction of the courts of The Commonwealth of
Massachusetts and of any federal court located in said Commonwealth in
connection with any actions or proceedings brought against any of them by the
Escrow Agent arising out of or relating to this Escrow Agreement. In any such
action or proceeding, Purchaser, PSDI, the Stockholders' Representative and the
Escrow Agent hereby absolutely and irrevocably waive personal service of any
summons, complaint, declaration or other process and hereby absolutely and
irrevocably agree that service thereof may be made by certified or registered
first class mail directed to Purchaser, PSDI, the Stockholders' Representative
and the Escrow Agent, as the case may be, at their respective addresses in
accordance with Section 13 hereof.
20. FORCE MAJEURE. Neither Purchaser, PSDI, nor the Stockholders'
Representative nor the Escrow Agent shall be responsible for delays or failure
sin performance resulting from acts beyond its control. Such acts shall include
but not be limited to acts of God, strikes, lockouts, riots,
11
<PAGE> 101
acts of war, epidemics, governmental regulations superimposed after the fact,
fire, communication line failures, computer viruses, power failures, earthquakes
or other disasters.
21. REPRODUCTION OF DOCUMENTS. This Escrow Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties hereto agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was
12
<PAGE> 102
made by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction shall likewise be admissible in evidence.
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Agreement as of the date first above written.
STOCKHOLDERS' REPRESENTATIVE:
__________________________________
Stephen M. Caslick
ESCROW AGENT:
STATE STREET BANK AND TRUST
COMPANY, as Escrow Agent
By:_______________________________
Name:
Title:
PROJECT SOFTWARE & DEVELOPMENT, INC.
By:_______________________________
Paul D. Birch
Executive Vice President - Administration and
and Finance and Chief Financial Officer
PSDI CANADA LIMITED
By:_______________________________
Paul D. Birch
Secretary
13
<PAGE> 103
SCHEDULE 1(E)
ESCROW DISTRIBUTION PERCENTAGES
Name Stockholder Percentage
- ---- ----------------------
Stephen M. Caslick 14.1210%
John Kennedy 14.1210%
Edwin Meyer 14.1210%
Barry Murphy 6.3300%
Russell Furlong 6.5880%
Working Ventures Canadian Fund 14.5640%
Key Trust Co. of OH 2.9130%
L.C. Peterson Rev. Trust 6.3100%
Trust Co. Of Toledo 2.9130%
M.J. Peterson Rev. Trust 4.8550%
Steven Kwiatkowski 4.2720%
Tamerah Kwiatkowski 0.5830%
Erin S. Peterson 0.9700%
Tad R. Peterson 0.9700%
Thomas L. Geisbuhler 0.4860%
Brian A. Foord Rev. Trust 0.4860%
W.H. Ballou Rev. Trust 0.4860%
Ravenna Capital Corporation 2.9130%
14
<PAGE> 104
EXHIBIT A
FEE SCHEDULE
ANNUAL ESCROW FEE
$2,500 per year or any part thereof
INVESTMENT FEE (IF APPLICABLE)
40 basis points (.0040) of the average daily net assets on investments in
State Street money market funds
WIRE FEE
$20.00 per wire
OUT OF POCKET EXPENSES
Out of pocket expenses such as counsel fees and expenses, telephone,
postage, insurance, shipping charges, outside investment charges and
supplies will be charged at cost.
15
<PAGE> 105
EXHIBIT C
TERMINATION AGREEMENT
This Termination Agreement, dated as of this 6th day of February, 1998
(this "Agreement"), is by and between A.R.M. Group Inc., an Ontario corporation
(the "Company") and Larry C. Peterson ("Peterson").
WHEREAS, pursuant to a Stock Purchase Agreement dated as of the date hereof
by and among Project Software & Development, Inc. ("PSDI"), PSDI Canada Limited
("Purchaser"), the Company, Peterson and certain other parties thereto (the
"Stock Purchase Agreement"), and the holders of all of the issued and
outstanding capital stock of the Company have agreed, subject to the terms and
conditions set forth therein, to sell all of the issued and outstanding capital
stock of the Company to Purchaser and PSDI and Purchaser and PSDI have agreed,
subject to such terms and conditions, to buy such capital stock;
WHEREAS, Peterson is a party to an Employment Agreement dated December 10,
1996 with the Company (the "Existing Employment Agreement");
WHEREAS, it is a condition to the obligations of PSDI and Purchaser to
consummate the transactions contemplated by the Stock Purchase Agreement that
Peterson enter into this Agreement; and
WHEREAS, pursuant to the Stock Purchase Agreement the Purchaser will
acquire certain shares of the Company from Peterson for cash and Peterson wishes
to enter into such transaction and receive such consideration.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. TERMINATION OF EXISTING EMPLOYMENT AGREEMENT. The Company and Peterson
agree that the Existing Employment Agreement is hereby terminated and of no
further force or effect, except that the section in the Existing Employment
Agreement titled "Ownership of Proprietary Information" shall continue to
survive such termination to the extent it relates to inventions developed by
Peterson during the term of the Existing Employment Agreement. The section of
the Existing Employment Agreement entitled "Remedies" shall continue to survive
such termination to the extent necessary to enforce the rights of the Company
under the preceding sentence.
2. GENERAL. This Agreement may not be amended, modified or supplemented by
the parties hereto in any manner, except by an instrument in writing signed by
the Company and Peterson. The terms and conditions of this Agreement may be
waived only by a written instrument signed by the party waiving compliance. This
Agreement shall be governed by, and
<PAGE> 106
construed and enforced in accordance with, the substantive laws of the province
of Ontario, without regard to its principles of conflicts of laws. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. The invalidity or unenforceability
of any provision of this Agreement shall not effect the validity or
enforceability of any other provision of this Agreement, each of which shall
remain in full force and effect. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
* * * * *
IN WITNESS WHEREOF, the parties have caused this Termination Agreement to
be executed as an agreement under seal as of the date first written above.
A. R. M. GROUP INC.
By:____________________________________
Title:
________________________________________
Larry C. Peterson
2
<PAGE> 1
Exhibit 10.2
PROJECT SOFTWARE & DEVELOPMENT, INC. & SUBSIDIARIES
YEAR ENDED SEPTEMBER 30, 1998
EXECUTIVE BONUS PLAN
September 1997
<PAGE> 2
PROJECT SOFTWARE & DEVELOPMENT, INC. & SUBSIDIARIES
YEAR ENDED SEPTEMBER 30, 1998
EXECUTIVE BONUS PLAN
1. PURPOSE
The purpose of the FY98 Executive Bonus Plan ("Plan") is to provide key
management employees of Project Software & Development, Inc. and its
subsidiaries ("Company"), with an incentive to make significant and
extraordinary contributions to the long-term performance and growth of the
Company, to join the common interest of the Company and key executives,
and to attract and retain executives of exceptional ability.
2. ADMINISTRATION
2.1 The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee"). The Committee
will base all decisions and awards on quarterly and annual financial
statements filed with the Securities and Exchange Commission.
2.2 By adoption of this Plan the Board has deemed eligible those
individuals named in Appendix I. The Board shall have full and
complete authority and discretion to make binding decisions on the
administration of the Plan and shall adopt such rules and
regulations and make all other determinations deemed by it necessary
or desirable for the administration of the Plan.
2.3 The Compensation Committee and Board of Directors of the Company
shall have the authority to amend or terminate the Plan, provided,
however, that if the Plan is amended or terminated, the Company
shall be required to complete payment to each Participant of the
amount which that Participant otherwise would have received based on
the provisions set forth in paragraph 7.2.
3. DEFINITIONS
3.1 PLAN YEAR means the fiscal year ended September 30, 1998.
3.2 PLAN QUARTER means each of the three-month periods ended December
31, 1997, March 31, 1998, June 30, 1998, and September 30, 1998.
3.3 PARTICIPANT means any executive of the Company who is designated in
Appendix I.
<PAGE> 3
3.4 PERMANENT DISABILITY, means a Participant's inability, as a result
of illness, incapacity, disease or calamity to perform a substantial
part of his primary job responsibilities as set forth in his
employment contract or job description for any concurrent six month
period.
3.5 PLAN means this FY98 Executive Bonus Plan.
3.6 Except as otherwise indicated by the context, any masculine term
used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
3.7 COMPANY means Project Software & Development, Inc. and its
subsidiaries included in the consolidated financial statements.
3.8 PLAN NET INCOME means net income as disclosed in the consolidated
quarterly financial statements of the Company, before deductions and
additions of:
(i) Taxes calculated by net income.
(ii) Extraordinary items as defined under US generally accepted
accounting principles.
(iii) One time expense adjustments arising out of any acquisition
accounted for as either a pooling or purchase.
4. ELIGIBILITY AND PARTICIPATION
Executives eligible for bonuses under the Plan shall be those individuals
specified in Appendix I.
5. BONUS FUNDING MECHANISM
5.1 The on-target bonus Fund will be determined as follows:
(a) Each Participant will be eligible to receive an on-target
funded earnings bonus if the Company achieves quarterly and
annual Plan Net Income as stated in Appendix II.
(b) The percentage of the on-target bonus described in Appendix I
earned by each Participant on achievement of the amounts
stated in Appendix II in respect of cumulative quarterly and
year end is:
(i) Q1 0%
(ii) Q2 15%
(iii) Q3 25%
(iv) Q4 30%
(v) Year end 30%
<PAGE> 4
(c) As a result, the full on-target bonus stated in Appendix I for
each Participant can only be achieved if all three quarters
and annual Plan Net Income equal or exceed all of the target
amounts stated in Appendix II.
5.2 An incremental funded bonus is available on corporate achievement
above the on-target earnings specified in Appendix II and will be
calculated as follows:
(a) The aggregate incremental bonus amount to be distributed to
all Plan Participants in each Plan Quarter will be 2% of the
difference between Plan Net Income and the amounts stated in
Appendix II for the quarter.
(b) The aggregate incremental bonus amount to be distributed to
all Plan Participants in respect of year end will be 3% of the
difference between Plan Net Income and the amount stated in
Appendix II for the year.
(c) The amount of bonus calculated in Section 5.2 (a) and (b)
shall be distributed as follows:
David Sample 45%
Paul Birch 25%
Operations Executive 15%
Jack Young 15%
6. PAYMENT OF BONUSES
Funded bonus under the provisions of 5.1 and 5.2 will be payable sixty
days after the end of the period in which the bonus was earned provided
that:
6.1 Each executive's goals for the quarter must be met for funded bonus
to be paid;
6.2 The results for the period have been issued to the public.
7. TERMINATION OF EMPLOYEE
7.1 If a Participant's employment is terminated prior to the conclusion
of any Plan Quarter or, following the conclusion of a Plan Year, or
prior to any payment being made:
<PAGE> 5
(a) By reason of (i) any deliberate material breach by the
Participant of his employment obligations with the Company,
which, if curable, is not cured within ten (10) days after the
Company shall have notified the Participant in writing
describing to Participant all material facts concerning such
breach,
(ii) any deliberate material breach by the Participant of his
employment obligations with the Company, which is not
curable according to notice from the Company, or (iii)
the conviction of a felony or the commission of a
material, fraudulent act by the Participant against the
Company;
(b) Voluntarily by Participant other than for a "Reason
Constituting Good Cause." Reasons Constituting Good Cause are
limited to: (i) a significant change in the nature and scope
of Participant's duties combined with a change in the
Participant's title resulting in a position of materially
lesser authority, or (ii) a reduction in the Participant's
base compensation.
Then, Participant shall cease to have any rights to any amounts
unpaid on the date of termination of employment.
7.2 If a Participant's employment is terminated:
(a) By reason of Death, Permanent Disability; or
(b) By the Company for a reason other than one described at
subparagraph 7.1(a);
If such a termination occurs prior to the conclusion of any Plan
Quarter or Year, the Participant shall receive the amount which the
Participant otherwise would have been entitled to receive had he
remained in the employ of the Company through the end of the Plan
Year, but pro-rated based on the number of complete months of
employment with the Company during such Plan Year. The amount earned
shall be paid according to the Plan rules.
8. BENEFICIARY DESIGNATIONS
8.1 If a Participant's employment with the Company is terminated by his
death or if he dies after termination of his employment but prior to
the distribution to him of all amounts payable to him under the
Plan, any amounts otherwise payable to him hereunder shall be
distributed to his designated beneficiary or beneficiaries. For the
purposes of this plan a
<PAGE> 6
Participant's beneficiary will be the beneficiary designated under
Company provided life insurance coverage. However, a Participant may
from time to time revoke or change any beneficiary designation on
file with the Company.
If there is no effective beneficiary designation on file with the
Company at the time of a Participant's death, distribution of
amounts otherwise payable to the deceased Participant under this
Plan shall be made to the Participant's estate. If a beneficiary
designated by the Participant to receive his benefits shall survive
the Participant but die before receiving all distributions
hereunder, the balance thereof shall be paid to such deceased
beneficiary's estate, unless the deceased beneficiary designation
provides otherwise.
8.2 The Company shall deduct from the distributions to be made to a
Participant or his designated beneficiary or beneficiaries under
this Plan any federal, state or local withholding or other taxes or
charges which the Company is from time to time required to deduct
under applicable law and all amounts distributable under this Plan
are stated herein before any such deductions. The Company may rely
on a written opinion from its legal counsel regarding any questions
which may arise in connection with any such deductions.
9. RIGHTS, PRIVILEGES AND DUTIES OF PARTICIPATION
9.1 No participant or other person shall have any interest in any fund
or in any specific asset or assets of the Company and its
Subsidiaries by reason of being a Participant under this Plan nor
any right to receive any distributions under the Plan except as and
to the extent expressly provided in the Plan.
9.2 The Company shall have the right, but shall be under no obligation,
to segregate cash to fund bonuses payable under the Plan. However,
any such segregated amounts shall at all times remain Company
assets, subject to the claims of its creditors.
9.3 Each Participant shall be entitled to receive a current copy of the
Plan upon his designation as a Participant if a written request for
a copy of the Plan is provided to the Chief Financial Officer.
Thereafter, as long as he remains a Participant, he shall be
entitled to receive copies of any amendments to the Plan within
sixty (60) days after their adoption.
9.4 The designation of any employee as a Participant under this Plan
shall not be construed as conferring upon such employee any right to
remain in the employ of the Company and each such Participant shall
remain an
<PAGE> 7
employee at will. The right of the Company to discipline or
discharge an employee shall not be affected in any manner by reason
of such employee's designation as a Participant under this Plan.
9.5 To the extent permitted by law, the right of any Participant or any
beneficiary to receive any payment hereunder shall not be subject to
alienation, transfer, sale, assignment, pledge, attachment,
garnishment or encumbrance of any kind. Any attempt to alienate,
transfer, sell, assign, pledge or otherwise encumber any such
payment whether presently or thereafter payable, shall be void. Any
payment due hereunder shall not in any manner be subject to any
debts or liabilities of any Participant or his beneficiary.
<PAGE> 8
APPENDIX I
PROJECT SOFTWARE & DEVELOPMENT, INC.
EXECUTIVE BONUS PLAN
ELIGIBLE PARTICIPANTS
<TABLE>
<CAPTION>
On-target Bonus
as a % of On-target
Base Salary Base Salary Bonus
----------- ----------- -----
<S> <C> <C> <C>
David Sample $290,000 100% $290,000
Paul Birch 180,000 75% 135,000
Operations
Executive 175,000 75% 87,500
Jack Young 155,000 50% 77,500
</TABLE>
<PAGE> 9
APPENDIX II
PROJECT SOFTWARE & DEVELOPMENT, INC.
EXECUTIVE BONUS PLAN
ON-TARGET CUMULATIVE EARNINGS
<TABLE>
<CAPTION>
<S> <C>
Q1 FY1998 Year to Date Not Applicable
Q2 FY1998 Year to Date $12,750,000
Q3 FY1998 Year to Date $19,000,000
Q4 FY1998 Year to Date $28,000,000
-----------
FY1998 Total Year to Date $28,000,000
===========
</TABLE>
The on-target earnings established for each plan quarter and
the year for any year will not be less than 125% of the actual
earnings in the corresponding period of the prior year.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 17,285
<SECURITIES> 38,692
<RECEIVABLES> 27,961
<ALLOWANCES> 2,200
<INVENTORY> 0
<CURRENT-ASSETS> 87,495
<PP&E> 17,660
<DEPRECIATION> 8,228
<TOTAL-ASSETS> 98,987
<CURRENT-LIABILITIES> 26,605
<BONDS> 0
0
0
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