<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
(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)
(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: 10,587,877 shares of common stock, $.01 par value per share,
as of July 31, 1999.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Balance Sheets (unaudited) as of June 30, 1999 and September 30, 3
1998.
Consolidated Statements of Operations (unaudited) for the three and nine 4
months ended June 30, 1999 and 1998.
Consolidated Statements of Cash Flows (unaudited) for the nine months ended 5
June 30, 1999 and 1998.
Notes to Consolidated Financial Statements (unaudited). 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 11
OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 35
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 36
SIGNATURE 38
</TABLE>
2
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, SEPTEMBER 30,
-------- -------------
1999 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS,EXCEPT SHARE DATA)
Current assets:
Cash and cash equivalents $ 50,070 $ 28,454
Marketable securities 27,137 38,922
Accounts receivable, trade, less allowance
for doubtful accounts of $2,745 at June 30,
1999 and $2,614 at September 30, 1998, respectively 38,440 30,658
Prepaid expenses 4,665 2,799
Other assets 1,444 1,128
Deferred income taxes 1,503 1,697
--------- ---------
Total current assets 123,259 103,658
--------- ---------
Marketable securities 12,645 --
Property and equipment, net 9,767 8,823
Computer software costs, net -- 248
Goodwill, net 1,154 1,082
Deferred income taxes 748 671
Other assets 418 38
--------- ---------
Total assets $ 147,991 $ 114,520
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,228 $ 8,189
Accrued compensation 4,931 5,800
Income taxes payable 4,003 4,063
Deferred revenue 17,067 12,651
Deferred income taxes 187 287
--------- ---------
Total current liabilities 37,416 30,990
--------- ---------
Deferred income taxes 168 103
Deferred rent 155 144
Deferred revenue 285 615
Equity in minority interest 44 44
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value;1,000,000 authorized,
none issued and outstanding
Common stock, $.01 par value;15,350,000 authorized;
10,557,202 and 9,982,230 issued at June 30,
1999 and September 30, 1998, respectively 106 100
Additional paid-in capital 65,154 50,410
Retained earnings 45,388 32,330
Accumulated other comprehensive income (725) (216)
--------- ---------
Total stockholders' equity 109,923 82,624
--------- ---------
Total liabilities and stockholders' equity $ 147,991 $ 114,520
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 4
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
(in thousands, except share and per share data)
Revenues:
Software $ 15,605 $ 13,754 $ 43,481 $ 38,150
Support and services 20,820 17,496 59,771 46,450
------------ ----------- ------------ ------------
Total revenues 36,425 31,250 103,252 84,600
------------ ----------- ------------ ------------
Cost of revenues:
Software 1,034 1,147 3,694 2,976
Support and services 10,661 9,038 29,944 23,658
------------ ----------- ------------ ------------
Total cost of revenues 11,695 10,185 33,638 26,634
------------ ----------- ------------ ------------
Gross margin 24,730 21,065 69,614 57,966
Operating expenses:
Sales and marketing 11,824 9,856 32,239 27,027
Product development 3,700 3,622 10,804 9,391
General and administrative 2,866 2,411 8,248 7,106
Charge for purchased in-process
product development - - - - - - - - - 9,172
------------ ----------- ------------ ------------
Total operating expenses 18,390 15,889 51,291 52,696
------------ ----------- ------------ ------------
Income from operations 6,340 5,176 18,323 5,270
Interest income 685 664 2,012 2,066
Interest expense (1) (5) (25) (11)
Other income (expense), net (277) (100) (528) (331)
------------ ----------- ------------ ------------
Income before income taxes 6,747 5,735 19,782 6,994
Provision for income taxes 2,269 2,052 6,724 5,789
------------ ----------- ------------ ------------
Net income $ 4,478 $ 3,683 $ 13,058 $ 1,205
============ =========== ============ ============
Net income per share, basic $ 0.44 $ 0.37 $ 1.29 $ 0.12
------------ ----------- ------------ ------------
Net income per share, diluted $ 0.43 $ 0.36 $ 1.26 $ 0.12
------------ ----------- ------------ ------------
Shares used to calculate net income per share
Basic 10,272,928 9,971,370 10,102,820 9,915,800
Diluted 10,516,711 10,121,729 10,348,409 10,077,254
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
<PAGE> 5
PROJECT SOFTWARE & DEVELOPMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,058 $ 1,205
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,308 3,087
Loss on sale and disposal of property
and equipment 22 --
Amortization of discount on marketable securities 142 84
Deferred rent 12 91
Deferred income taxes 55 287
Charge for purchased in-process product development -- 9,184
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable (8,003) (5,230)
Prepaid expenses (1,902) (1,360)
Other assets (1,074) 183
Accounts payable 2,666 (1,515)
Accrued compensation (821) (723)
Income taxes payable 37 (437)
Deferred revenue 4,350 2,626
-------- --------
Net cash provided by operating activities 11,850 7,482
-------- --------
Cash flows from investing activities:
Acquisitions of business, net of cash 141 (7,466)
Acquisitions of property and equipment (3,641) (3,571)
Additions to computer software costs -- (1,081)
Purchase of marketable securities (33,934) (66,605)
Sale of marketable securities 32,827 65,785
-------- --------
Net cash used in investing activities (4,607) (12,938)
-------- --------
Cash flows from financing activities:
Payments on bank loans -- (467)
Payments of debenture -- (1,050)
Proceeds from issuance of common stock,
net of issuance costs 13,554 --
Proceeds from exercise of stock options
including related tax benefit 1,195 1,442
-------- --------
Net cash provided by/(used in) financing activities 14,749 (75)
-------- --------
Effect of exchange rate changes on cash (376) 369
-------- --------
Net increase/(decrease) in cash and cash equivalents 21,616 (5,162)
Cash and cash equivalents, beginning of period 28,454 25,964
-------- --------
Cash and cash equivalents, end of period $ 50,070 $ 20,802
======== ========
</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 June 30, 1999 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, 1999, 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, 1998 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on December 29, 1998.
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 dilutive potential common shares in periods in which they have a
dilutive effect.
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Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
BASIC EPS 06/30/99 06/30/98
- ------------------------------------------------------------------------
<S> <C> <C>
Net income $ 4,477,723 $ 3,682,532
Weighted average common
shares outstanding 10,272,928 9,971,370
Basic income per share $ 0.44 $ 0.37
DILUTED EPS
- ------------------------------------------------------------------------
Net income $ 4,477,723 $ 3,682,532
Weighted average common
shares outstanding 10,272,928 9,971,370
Dilutive potential common shares 243,783 150,359
-------------------------------
Total diluted 10,516,711 10,121,729
Shares
Diluted income $ 0.43 $ 0.36
Per share
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
BASIC EPS 06/30/99 06/30/98
- ------------------------------------------------------------------------
<S> <C> <C>
Net income $13,058,119 $ 1,204,524
Weighted average common
shares outstanding 10,102,820 9,915,800
Basic income per share $ 1.29 $ 0.12
DILUTED EPS
- ------------------------------------------------------------------------
Net income $13,058,119 $ 1,204,524
Weighted average common
shares outstanding 10,102,820 9,915,800
Dilutive potential common shares 245,589 161,454
-------------------------------
Total diluted 10,348,409 10,077,254
Shares
Diluted income $ 1.26 $ 0.12
Per share
</TABLE>
C. ACCOUNTING STANDARDS
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
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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, 1999.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) was issued in June 1998. It is
effective for fiscal years beginning after June 15, 2000, with earlier adoption
encouraged. The Company will adopt SFAS 133 in the fiscal year ended September
30, 2001. The Company believes that the provisions of SFAS 133 will not, when
adopted, have a material impact on the Company's consolidated financial
statements.
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1) provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial statements for fiscal years beginning
after December 15, 1998, and should be applied to internal-use computer software
costs incurred those fiscal years for all projects, including those projects in
progress upon initial application of the SOP. The Company adopted SOP 98-1 in
the second quarter of fiscal 1999.
D. ACQUISITIONS
On December 10, 1998, the Company acquired the shares and assumed net
liabilities of its Italian distributor, Work Management Consulting, s.r.l, for
the sum of $411,000. The transaction was accounted for using the purchase method
of accounting. The resulting goodwill is being amortized on a straight-line
basis over five years. This acquisition was deemed to be immaterial for
presentation of pro forma information.
E. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest and taxes were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
(in thousands) 1999 1998
---- ----
<S> <C> <C>
Interest........................................ $ 25 $ 11
Income taxes ................................... 6,415 4,753
</TABLE>
8
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Acquisitions of businesses were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
--------------------
(in thousands) 1999 1998
---- ----
<S> <C> <C>
Fair value of assets acquired.................. $592 $ 10,280
Fair value of liabilities assumed.............. 729 2,751
Net cash payments.............................. 180 6,400
</TABLE>
F. COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
following is presented in accordance with this statement:
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998
------- -------
<S> <C> <C>
Net income $ 4,478 $ 3,683
Other comprehensive income, net of tax:
Unrealized gain/(loss) on securities 58 (217)
arising during period
Foreign currency translation adjustment (28) 176
Comprehensive income $ 4,508 $ 3,642
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998
------- -------
<S> <C> <C>
Net income $ 13,058 $ 1,205
Other comprehensive income, net of tax:
Unrealized loss on securities (105) (621)
arising during period
Foreign currency translation adjustment (404) (20)
Comprehensive income $ 12,549 $ 564
</TABLE>
G. COMMON STOCK
In April 1999, the Company signed an agreement with W.W. Grainger, Inc., whereby
W.W. Grainger acquired 500,000 shares of
9
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the Company's common stock. Net proceeds to the Company, after issuance costs
was approximately $13.6 million.
10
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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 identified by footnotes in the text. 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 "Factors
Affecting Future Performance". Readers should also carefully review the risk
factors described in other documents that the Company files from time to time
with the Securities and Exchange Commission, including the Annual Report on Form
10-K filed by the Company on December 29, 1998.
OVERVIEW
The Company develops, markets and supports enterprise asset maintenance
software. Businesses, government agencies and other organizations use MAXIMO to
assist them in maintaining high-value capital assets such as plants, facilities
and production equipment. The Company's revenues are derived primarily from two
sources: (i) software licenses and (ii) fees for services, including support
contracts, training and consulting services and transactions fees for on-line
charges to engage in electronic commerce for MRO supplies. Through its
subsidiary MRO.com, Inc., the Company complements its enterprise asset
maintenance software with an Internet-based business-to-business e-Commerce
network and set of desktop requisition and on-line procurement software
products. The Company's products are designed to enable customers to reduce
downtime, control maintenance expenses, cut spare parts inventories and costs,
improve purchasing efficiency, and more effectively deploy productive assets,
personnel and other resources.
In the second quarter of fiscal 1999, the Company formed a new wholly-owned
subsidiary, MRO.com, Inc. MRO.com, Inc. provides on-line procurement solutions
for capital intensive industries and the manufacturing and distribution channels
that serve them. These solutions will enable buyers at companies to efficiently
manage the complex balance between both planned and spot buy procurement
activities. MRO.com, Inc. links an on-line community of MRO ("Maintenance,
Repair and Operating") suppliers and buyers to a group of Internet-based
procurement products and that reduce purchasing and inventory costs. The buyers,
many of whom are already using the Company's MAXIMO Enterprise Asset Management
software, will be offered a new set of Internet-based procurement products as
well as a connection to the community of MRO suppliers being assembled by
MRO.com. It is intended that as a result, users will benefit from reduced
purchasing and inventory
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costs. The Company will be making significant investments in MRO.com over the
next few quarters and will most likely experience losses in this business
segment. (1)
The new MRO.com initial product offerings will include the following:
mroBuyer(TM): mroBuyer was generally made available in June 1999. mroBuyer is
part of a suite of Internet-based procurement products designed to link buyers
and suppliers in streamlining purchasing efficiencies. mroBuyer links front-line
employees to mroMarketplace(TM), which is mro.com's growing online community of
supplier catalogs to make MRO related purchases. mroBuyer includes the following
four components:
- - Desktop Requisition: a browser-based interface to supplier catalog content
and purchase order transaction management information. The desktop
requisition tool provides users with the ability to search for and select
parts from online catalogs, create requisitions and purchase orders online
and electronically transfer purchase orders through the mroNetwork(TM) to a
company's selected suppliers. It also provides the ability to view
real-time inventory availability, order status information, invoice and
shipping history and contract pricing.
- - mroIntegration Gateway(TM): a standards-based, open architecture,
application program interface (API) that provides a seamless connection to
leading ERP systems such as SAP, Oracle, and PeopleSoft. The Gateway
provides a connection to the leading points of integration with human
resources, storeroom inventory, purchase order management, general ledger
accounts and accounts payable.
- - Workflow: a Java-based application that provides requisition routing and
approval based on a company's pre-defined business rules. Requisitions
requiring approval are automatically routed through the approval chain by
e-mail. An advanced graphical interface is used to create custom rules and
workflow models.
- - mroTransaction Server(TM): an industry-standard, XML-based connection to
the mroMarketplace that provides live, real-time status on orders and
transactions between connected buyer and suppliers.
mroSupplier(TM): mroSupplier provides MRO supplier organizations with the tools
to overcome the management and cost hurdles associated with Internet
Procurement.
- -----------------------------
(1) Forward looking statement
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<PAGE> 13
- - mroSupplier's electronic catalog assists suppliers with catalog development
and maintenance activities, such as data scrubbing and formatting. Supplier
catalogs are aggregated at the mroMarketplace, where they can be posted for
access by all buyers in the community or customized to reflect the unique
price and trading agreements of individual buying organizations.
mroSupplier provides additional functionality to enable suppliers to update
and change catalogs as needed.
- - mroIntegration Gateway(TM): a standards-based, open architecture,
application program interface (API) that provides a seamless connection to
leading ERP systems such as SAP, Oracle, and PeopleSoft. The Gateway
provides a connection to the leading points of integration with human
resources, storeroom inventory, purchase order management, general ledger
accounts and accounts payable.
- - mroTransaction Server(TM): an industry-standard, XML-based connection to
the mroMarketplace that provides live, real-time status on orders and
transactions between connected buyer and suppliers.
Suppliers can also leverage the mroTransaction Server software to provide
trading partners with access to price and availability information on items
listed in their catalog in a secure, real-time environment.
mroMarketplace(TM): A Web-based community designed to establish the critical
mass of buyers and suppliers required for effective management of the indirect
supply chain.
The mroMarketplace is a content aggregation hub for more than 40 suppliers,
including MRO distribution leader W.W. Grainger, Inc., whose catalog represents
2,000 suppliers and more than 2 million MRO products and services.
The Company plans to invest significantly over the next year in its new MRO
web-based products and to develop content and add suppliers to www.mro.com,
MRO.com's e-Commerce hub. (1)
- -----------------------------
(1) Forward looking statement
13
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES
<TABLE>
<CAPTION>
Three Months CHANGE % Three Months
Ended 06/30/99 Ended 06/30/98
--------------------------------------------
<S> <C> <C> <C>
(in thousands)
Software licenses $15,605 13.5% $13,754
Percentage of total revenues 42.8% 44.0%
Support and services $20,820 19.0% $17,496
Percentage of total revenues 57.2% 56.0%
Total revenues $36,425 16.6% $31,250
</TABLE>
The growth in revenues is generated primarily by support and services from the
Company's enterprise asset management product, MAXIMO. A significant portion of
the Company's revenues are derived from operations outside of the United States.
Revenues from sales outside the United States increased 18.0% to $16.4 million
or 45.2% of revenues for the three months ended June 30, 1999, compared to $13.9
million or 44.5% of revenues for the three months ended June 30, 1998. The
increase in the percentage of revenues generated outside the U.S. for the three
months ended June 30, 1999 compared to the three months ended June 30, 1998 can
be attributed to the Company's continued global expansion.
Software licenses for the three months ended June 30, 1999 increased 13.5% to
$15.6 million from $13.8 million. MAXIMO client/server software license revenue
for the three months ended June 30, 1999 increased 12.2% to $14.7 million from
$13.1 million. While software licenses as a percentage of revenues decreased to
42.8% in the three months ended June 30, 1999 from 44.0% in the three months
ended June 30, 1998, they remained within the Company's targeted range of 40 to
45% for the quarter. The Company anticipates remaining in this range through
early 2000. (1)
During the quarter ended June 30, 1999, the Company's MRO.com business unit
concluded a significant e-commerce sale to a major global manufacturer for which
it recorded approximately $500,000 of revenue.
- -----------------------------
(1) Forward looking statement
14
<PAGE> 15
Support and services revenues increased 19.0% over the prior quarter. Consulting
services grew 18.0% for the three months ended June 30, 1999 compared to the
three months ended June 30, 1998 and continue to be a large percentage of total
revenues due to additional service demands in connection with large scale
implementations of the Company's MAXIMO product. Support services grew to 22.7%
for the three months ended June 30, 1999 compared to the three months ended June
30, 1998. The increase in the percentage of support revenues is in direct
relation to the increase in software license revenues and the high renewal rate
for MAXIMO maintenance contracts.
COST OF REVENUES
<TABLE>
<CAPTION>
Three Months CHANGE % Three Months
Ended 06/30/99 Ended 06/30/98
--------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Software licenses $ 1,034 (9.9)% $ 1,147
Percentage of software licenses 6.6% 8.3%
Support and services $ 10,661 18.0% $ 9,038
Percentage of support and services 51.2% 51.7%
Total cost of revenues $ 11,695 14.8% $10,185
Percentage of total revenues 32.1% 32.6%
</TABLE>
Cost of software revenues consists of software purchased for resale, 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 decrease in
the cost of software revenues is due primarily to no amortization of capitalized
software and documentation, offset somewhat by software purchased for resale.
The decrease as a percentage of revenue is attributable to leverage from fixed
third party license fee commitments and no software amortization.
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 heavy services demand and backlog. The Company
has not been successful in hiring personnel in this area due to current job
market and expertise needed to fill these positions. The cost of support and
services as a percentage of support and services revenues decreased to 51.2%
from 51.7% for the three months ended June 30, 1999 and 1998, respectively. The
Company realizes the cost of third party consulting expenses according to when
the service is
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performed.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Months CHANGE % Three Months
(in thousands) Ended 06/30/99 Ended 06/30/98
--------------------------------------------------
<S> <C> <C> <C>
Sales and marketing $ 11,824 20.0% $9,856
Percentage of total revenues 32.5% 31.5%
Product development $ 3,700 2.2% $3,622
Percentage of total revenues 10.2% 11.6%
General and administrative $ 2,866 18.9% $2,411
Percentage of total revenues 7.9% 7.7%
</TABLE>
The increase in sales and marketing expenses for the three months ended June 30,
1999 is primarily due to increases in sales and marketing personnel, sales
commissions based on revenue growth, travel expenses, and costs for global
expansion.
The increase in product development expenses for the three months ended June 30,
1999 is attributable to an increase in salary related expenses due to the timing
of hiring of additional personnel and no capitalization of software costs for
the three months ended June 30, 1999. Capitalization of software costs were $0
and $675 thousand for the three months ended June 30, 1999 and 1998,
respectively. The decrease as a percentage of revenues for the three months
ended June 30, 1999 is primarily attributable to the delays in hiring personnel.
The Company plans to continue to expend development dollars on its electronic
commerce products for MRO supply chain management.(1) The Company will also
continue to make investments in a new MAXIMO Java-based web application
component architecture, including a mobile application suite of products.(1) The
Company will continue to invest in client/server MAXIMO, including
application-programming interfaces to enterprise resource planning application
software products developed by Oracle, PeopleSoft, Baan and SAP. (1)
The increase in general and administrative expenses for the three months ended
June 30, 1999 is primarily due to the hiring of additional general and
administrative personnel and related benefits, as well as, professional fees and
other expenses to support the global expansion of the Company.
- -----------------------------
(1) Forward looking statement
16
<PAGE> 17
NON-OPERATING EXPENSES
<TABLE>
<CAPTION>
(in thousands) Three Months CHANGE % Three Months
Ended 06/30/99 Ended 06/30/98
--------------------------------------------
<S> <C> <C> <C>
Interest income $ 685 3.2% $ 664
Interest (expense) $ (1) (80.0)% $ (5)
Other income (expense) $(277) 177.0% $(100)
</TABLE>
Interest income for the period ended June 30, 1999 is attributable to interest
earned on cash equivalents from cash flow generated from operations including
accounts receivable collections.
The increase in other expense is primarily attributable to expenses related to
exchange rate fluctuations in Latin America and Asia Pacific.
PROVISION FOR INCOME TAXES
The Company's effective tax rates were 33.6% and 35.8% for the three months
ended June 30, 1999 and 1998, respectively. The Company anticipates that its
fiscal 1999 effective tax rate will not exceed 35%. (1)
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
REVENUES
<TABLE>
<CAPTION>
Nine Months CHANGE % Nine Months
(in thousands) Ended 06/30/99 Ended 06/30/98
---------------------------------------------
<S> <C> <C> <C>
Software licenses $ 43,481 14.0% $ 38,150
Percentage of total revenues 42.1% 45.1%
Support and services $ 59,771 28.7% $ 46,450
Percentage of total revenues 57.9% 54.9%
Total revenues $103,252 22.0% $ 84,600
</TABLE>
The growth in revenues is generated primarily by support and services from the
Company's enterprise asset management product, MAXIMO. A significant portion of
the Company's revenues are derived from operations outside the United States.
Revenues from sales outside the United States increased 27.3% to $49.4 million
or 48.0% of revenues for the nine months ended June 30, 1999, compared to $38.8
million or 45.8% of revenues for the nine
- -----------------------------
(1) Forward looking statement
17
<PAGE> 18
months ended June 30, 1998. The increase in the percentage of revenues generated
outside the U.S. for the nine months ended June 30, 1999 compared to the nine
months ended June 30, 1998 can be attributed to the Company's continued global
expansion.
Software licenses for the nine months ended June 30, 1999 increased 14.0% to
$43.5 million from $38.2 million. Contributing to this increase was a
significant e-commerce license concluded with W.W. Grainger, Inc. in December
1998 for which the Company recognized approximately $3.0 million in revenue, as
well as, increases in the number of MAXIMO licenses. MAXIMO client/server
software license revenue for the nine months ended June 30, 1999 increased 8.6%
to $39.3 million from $36.2 million. While software licenses as a percentage of
revenues have decreased to 42.1% in the nine months ended June 30, 1999 from
45.1% in the nine months ended June 30, 1998, they still remain within the
Company's targeted range of 40 to 45% of revenues. The Company anticipates
remaining in this range through early 2000 (1).
During the quarter ended June 30, 1999, the Company's MRO.com business unit
concluded a significant e-commerce sale to a major global manufacturer for which
it recorded approximately $500,000 of revenue.
Support and services revenues have increased 28.7% over the comparable period.
Consulting services grew 32.3% for the nine months ended June 30, 1999 compared
to the nine months ended June 30, 1998 and continue to be a large percentage of
total revenues due to additional service demands in connection with large scale
implementations of the Company's MAXIMO product. Support services grew to 23.7%
for the nine months ended June 30, 1999 compared to the nine months ended June
30, 1998. The increase in the percentage of support revenues is in direct
relation to the increase in software license revenues and the high renewal rate
for MAXIMO maintenance contracts.
- -----------------------------
(1) Forward looking statement
18
<PAGE> 19
COST OF REVENUES
<TABLE>
<CAPTION>
Nine Months CHANGE % Nine Months
(in thousands) Ended 06/30/99 Ended 06/30/98
-------------------------------------------------
<S> <C> <C> <C>
Software licenses $ 3,694 24.1% $ 2,976
Percentage of software licenses 8.5% 7.8%
Support and services $ 29,944 26.6% $23,658
Percentage of support and services 50.1% 50.9%
Total cost of revenues $ 33,638 26.3% $26,634
Percentage of total revenues 32.6% 31.5%
</TABLE>
Cost of software revenues consists of software purchased for resale, 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 software purchased for resale,
royalties paid to third party vendors and production materials.
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 heavy services demand and backlog. The Company
has not been successful in hiring personnel in this area due to current job
market and expertise needed to fill these positions. The cost of support and
services as a percentage of support and services revenues decreased to 50.1%
from 50.9% for the nine months ended June 30, 1999 and 1998, respectively. The
Company realizes the cost of third party consulting expenses according to when
the service is performed.
19
<PAGE> 20
OPERATING EXPENSES
<TABLE>
<CAPTION>
Nine Months CHANGE % Nine Months
(in thousands) Ended 06/30/99 Ended 06/30/98
--------------------------------------------------
<S> <C> <C> <C>
Sales and marketing $ 32,239 19.3% $27,027
Percentage of total revenues 31.2% 31.9%
Product development $ 10,804 15.0% $ 9,391
Percentage of total revenues 10.5% 11.1%
General and administrative $ 8,248 16.1% $ 7,106
Percentage of total revenues 8.0% 8.4%
In-Process Product Development N/A $ 9,172
Percentage of total revenues N/A (100%) 10.8%
</TABLE>
The increase in sales and marketing expenses for the nine months ended June 30,
1999 is primarily due to increases in sales and marketing personnel, sales
commissions based on revenue growth, travel expenses, and costs for global
expansion.
The increase in product development expenses for the nine months ended June 30,
1999 is attributable to an increase in salary related expenses due to the hiring
of additional personnel and no capitalization of software costs for the nine
months ended June 30, 1999. Capitalization of software costs were $0 and $675
thousand for the nine months ended June 30, 1999 and 1998, respectively.
The Company plans to continue to expend development dollars on its electronic
commerce products for MRO supply chain management.(1) The Company will also
continue to make investments in a new MAXIMO Java-based web application
component architecture, including a mobile application suite of products. (1)
The Company will continue to invest in client/server MAXIMO including
application-programming interfaces to enterprise resource planning application
software products developed by Oracle, PeopleSoft, Bann and SAP. (1)
The increase in general and administrative expenses for the nine months ended
June 30, 1999 is primarily due to the hiring of additional general and
administrative personnel and related benefits, as well as professional fees and
other expenses to support the global expansion of the Company.
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
- -----------------------------
(1) Forward looking statement
20
<PAGE> 21
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 in the nine months ended
June 30, 1998.
NON-OPERATING EXPENSES
<TABLE>
<CAPTION>
(in thousands) Nine Months CHANGE % Nine Months
Ended 06/30/99 Ended 06/30/98
------------------------------------------------
<S> <C> <C> <C>
Interest income $ 2,012 (2.6)% $ 2,065
Interest(expense) $ (25) 127.3% $ (10)
Other income (expense) $ (528) 59.5% $ (331)
</TABLE>
Interest income for the period ended June 30, 1999 is attributable to interest
earned on cash equivalents from cash flow generated from operations including
accounts receivable collections.
The increase in other expense is primarily attributable to expenses related to
exchange rate fluctuations in Latin America and Asia Pacific.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 34.0% for the nine months ended June 30,
1999. The Company's effective tax rate before a one time non-deductible charge
for purchased in-process product development was 35.8% for the nine months ended
June 30, 1998. The income tax expense provided during 1998 reflects the
nondeductible nature of certain acquisition-related charges. The Company
anticipates that its fiscal 1999 effective tax rate will not exceed 35%. (1)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had cash and cash equivalents and marketable
securities of approximately $89.9 million and working capital of $85.8 million.
Cash generated by operations for the nine months ended June 30, 1999 was $11.9
million, primarily attributable to net income and an increase in deferred
revenue and accounts payable, offset by an increase in receivables as a result
of the geographic distribution of revenues. The days sales outstanding were 95
days for the quarter ended June 30, 1999 compared to 84 days for the quarter
ended June 30, 1998. The increase is primarily due to the geographic
distribution of revenues. The Company has established a target of 90 to 95 days
for its quarterly days sales outstanding. (1)
- -----------------------------
(1) Forward looking statement
21
<PAGE> 22
Cash used in investing activities totaled $4.6 million, primarily for the
purchase of marketable securities and the purchase of property and equipment.
Cash generated by financing activities was $14.7 million, primarily from
proceeds of an investment by W.W. Grainger, Inc., ("Grainger"), a leading
business-to-business provider of MRO supplies and related information. In April
1999, the Company signed agreements with Grainger, whereby Grainger acquired
500,000 shares of the Company's common stock for $14.5 million and acquired a
two-year option to purchase 5% of the Company's wholly-owned subsidiary,
MRO.com, Inc. for $3.8 million. Also contributing to cash generated by financing
activities are proceeds received from exercises of employee stock options.
As of June 30, 1999, the Company's principal commitment consisted primarily of
an office lease for its headquarters. 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 leases
its facilities and certain equipment under non-cancelable operating lease
agreements that expire at various dates through November 2003.
The Company may use a portion of its cash to acquire businesses, products and
technologies complementary to its business. (1) The Company also plans on making
significant investments over the next year in its new MRO.com web-based products
and to develop content and add suppliers to www.mro.com, MRO.com's e-Commerce
hub.
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, 2000. (1)
YEAR 2000
"The information contained under this heading constitutes a 'Year 2000 Readiness
Disclosure' under the Year 2000 Information and Readiness Disclosure Act."
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.
- -----------------------------
(1) Forward looking statement
22
<PAGE> 23
Management has initiated a program to prepare the Company's financial,
manufacturing and other critical systems and applications for the year 2000. The
focus of the program is to identify affected software and hardware, develop a
plan to correct that software or hardware in the most effective manner and
implement and monitor that plan. The Company continues to assess the readiness
of its significant suppliers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Company utilizes other third party software products, network
equipment and telecommunications 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. There can be no guarantee that the systems of other
companies will be timely converted, or that a failure to convert by another
company would not have a material adverse effect on the Company. The Company
currently estimates that the costs associated with preparing internal systems
for the Year 2000 should not exceed $100,000. (1) To date, the Company has not
had to spend any material funds on updating its internal systems. However, there
can be no assurances that as the Company continues its program of reviewing
internal systems that the costs will not exceed $100,000. The Company is in the
process of finalizing a contingency plan based on the final results gathered
from its suppliers and third parties. The Company plans to finalize this plan by
end of September 1999.
The Company has evaluated its software products and determined that the current
versions of MAXIMO Release 4.0.0, 4.0.1, 4.0.2, 4.0.3, and 3.0.3 will continue
to operate properly into the Year 2000. MAXIMO version 3.0.2 is not fully
compliant. Customers must take the steps described in the Company's year 2000
readiness documentation to address the issues or the customers must upgrade to
MAXIMO Release 4.0.3, 4.0.1, 4.0.2, or 3.0.3 and allow adequate time for
conversion of data. MAXIMO releases prior to MAXIMO Release 3.0.2 must be
upgraded from the user's existing version to MAXIMO Release 4.0.3, 4.0.1, 4.0.2,
or 3.0.3 in order to be year 2000 compliant. Upgrades will be provided free of
charge. MAXIMO ADvantage 4.0 will continue to operate properly into the Year
2000. Customers using prior versions of ADvantage must be upgraded to ADvantage
4.0 and allow adequate time for conversion of data in order to be year 2000
compliant. Upgrades will be provided free of charge. The Company's electronic
commerce products are currently being tested for year 2000 compliance. Testing
is scheduled to be completed by the end of September 1999. The Company's product
PROJECT/2 is no longer sold but the Company does offer support for this product.
PROJECT/2 is not fully compliant. Customers must take the steps described in the
Company's year 2000 readiness documentation to address the issues or the
customers must upgrade to the recommended versions and allow adequate time for
conversion of data. Upgrades will be provided free of charge. MAXIMO
- -----------------------------
(1) Forward looking statement
23
<PAGE> 24
Scheduler releases prior to MAXIMO Scheduler Release 3.0 and P/X releases prior
to P/X Version 2.2.0 are not fully compliant. Customers must take the steps
described in the Company's year 2000 readiness documentation to address issues
or the customers must upgrade to the recommended versions and allow adequate
time for conversion of data. Upgrades will be provided free of charges. The
Company estimates that the cost to upgrade all of its products to be year 2000
enabled will be approximately $500,000. (1)
EURO COMPLIANCE
On January 1, 1999, eleven European Union member states adopted the euro as
their common national currency. Thereafter, until January 1, 2002, the
transition period, either the euro or a participating country's present currency
will be accepted as legal tender. Beginning on January 1, 2002, euro-denominated
bills and coins will be issued, and by July 1, 2002, only the euro will be used.
A significant number of the Company's customers are located, or transact
business with, or have operations in participating European Union countries. As
a result, the computer systems or software used by these companies may need to
be upgraded to comply with data storage and computational euro requirements. In
the first fiscal quarter of 1999, the Company released a new English language
client/server version of MAXIMO (MAXIMO 4.0.1) that accepts, stores, calculates,
converts and reports euro currency. In the second quarter of fiscal 1999, the
Company released primary language versions of MAXIMO 4.0.1 in Brazilian
Portuguese, Dutch, French, German, Latin American Spanish, and Swedish. The
Company also released a new English language client/server version of MAXIMO
(MAXIMO 4.0.2) for Workflow in the second quarter of fiscal 1999 that is euro
compliant as defined above. In the third quarter of fiscal 1999, the Company
released an English language version of mroBuyer's(TM) Desktop Requisition that
is also euro compliant as defined above. The amount of development dollars spent
on the euro release will not have a material adverse effect on the Company's
results of operations or financial condition.(1) The Company has initiated a
program to determine what, if any, internal systems need to be replaced to
comply with the requirements for the adoption of the euro.
- -----------------------------
(1) Forward looking statement
24
<PAGE> 25
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.
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. Such
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.
25
<PAGE> 26
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 93.8% of the Company's total revenues in fiscal 1998. The
Company's financial performance in fiscal 1999 depends 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 the English language version of MAXIMO Release 4.0 generally
available in March 1998 for new clients. In the fourth quarter of the fiscal
year ended 1998, the Company released primary language versions of MAXIMO 4.0 in
Brazilian Portuguese, Dutch, French, German, Japanese, Latin American Spanish,
and Swedish. The failure of MAXIMO 4.0 to achieve market acceptance would have a
material adverse effect on the Company's business and financial results.
NEW PRODUCTS; NEW MARKETS
In the second quarter of fiscal 1999, the Company formed a new wholly-owned
subsidiary, MRO.com, Inc. MRO.com links an on-line community of MRO suppliers
and buyers to a group of internet-based procurement products. There can be no
assurance that the Company's MRO products will be sold successfully in the
business-to-business electronic commerce market or if the Company's MRO products
will achieve market acceptance.
The Company's future success in the electronic commerce market may depend on its
ability to accurately determine the functionality and features required by its
customers, as well as, the ability to enhance its MRO products and deliver them
in a timely manner.
The Internet procurement market is a nascent market that may undergo rapid
technological change. The Company cannot predict the present and future size of
the potential market for its MRO products and services. The Company may incur
substantial costs to enhance and modify its MRO products and services in order
to meet the demands of this growing and changing market.
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 a significant portion 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
26
<PAGE> 27
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 product 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 products, 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.
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 including both independent software vendors and certain
enterprise resource planning vendors. Independent software vendors include
Datastream, Inc. and Indus Group. MAXIMO also competes with integrated
enterprise resource planning systems which are provided by several large
vendors, such as SAP and JD Edwards and others, and which include maintenance
modules. Currently, the Company's client/server versions of MAXIMO 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 also
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.
The MRO supply chain management business using electronic commerce has many
diverse competitors offering a wide range of differing products, services and
technologies. The Company
27
<PAGE> 28
expects competition to intensify as current competitors expand their product
offerings and new competitors enter the market. In addition, the market for
electronic procurement solutions is relatively new and underdeveloped. While the
Company believes that electronic commerce products and technologies complement
the Company's existing products, there can be no assurance that the Company will
be able to compete successfully in this market. Many of the Company's enterprise
asset management competitors are also entering the MRO e-commerce market. The
current potential competitors include, Ariba, Clarus, Commerce One, Concur,
Connect, Harbinger, IBM, Intellisys, Microsoft, Netscape, Oracle, PeopleSoft,
SAP and others.
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 45.7%, 43.8%, and
40.5% of its total revenue from sales outside the United States in fiscal years
1998, 1997, and 1996, 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 1999, 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.
A significant portion of the Company's total revenue is derived from
international operations that 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
28
<PAGE> 29
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 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, SQLServer, and
SQLBase database management systems. Introduction and increased market
acceptance of database management systems with which the Company's products do
not operate could adversely affect the market for the Company's products.
The Company has entered into nonexclusive license agreements with Centura
Software Corporation, Scribe Technologies, Incorporated, Cognos Corporation,
Netronic Software GmbH, HSB Reliability Technologies Corporation, Intelligent
Labeling Technologies, Incorporated, WebLogic, Incorporated, webMethods, Inc.,
Marimba, Inc., and Intermat, Inc. pursuant to which the Company incorporates
into its products software providing certain application development, user
interface, business intelligence, content 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.
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 complement the Company's Enterprise Asset Management
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.
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<PAGE> 30
If Internet usage continues to grow rapidly, its infrastructure may not be able
to support customer and user demands and its performance and reliability may
decline. If outages or delays on the Internet occur frequently or increase in
frequency, overall Internet usage including usage of the Company's products and
services could grow more slowly or decline. The Company is dependent upon
improvements being made to the entire Internet as well as to its individual
customers' networking infrastructures to alleviate overloading and congestion.
If these improvements are not made, the ability of the Company's customers to
utilize the Company's solution will be hindered, and the Company's business,
operating results and financial condition may suffer.
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 nondisclosure
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.
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.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on certain key executive officers and technical
employees, the loss of one or more of who 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,
30
<PAGE> 31
and the Company from time to time experiences difficulty in locating candidates
with the appropriate qualifications within the desired geographic locations, or
with certain industry specific domain expertise. It is widely believed 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. 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.
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 1998 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
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 information contained under this heading constitutes a 'Year 2000 Readiness
Disclosure' under the Year 2000 Information and Readiness Disclosure Act."
31
<PAGE> 32
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.
Management has initiated a program to prepare the Company's financial,
manufacturing and other critical systems and applications for the year 2000. The
focus of the program is to identify affected software and hardware, develop a
plan to correct that software or hardware in the most effective manner and
implement and monitor that plan. The Company continues to assess the readiness
of its significant suppliers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Company utilizes other third party software products, network
equipment and telecommunications 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. There can be no guarantee that the systems of other
companies will be timely converted, or that a failure to convert by another
company would not have a material adverse effect on the Company. The Company
currently estimates that the costs associated with preparing internal systems
for the Year 2000 should not exceed $100,000. To date, the Company has not had
to spend any material funds on updating its internal systems. However, there can
be no assurances that as the Company continues its program of reviewing internal
systems that the costs will not exceed $100,000. The Company is in the process
of finalizing a contingency plan based on the final results gathered from its
suppliers and third parties. The Company plans to finalize this plan by end of
September 1999.
The Company has evaluated its software products and determined that the current
versions of MAXIMO Release 4.0.0, 4.0.1, 4.0.2, 4.0.3, and 3.0.3 will continue
to operate properly into the Year 2000. MAXIMO version 3.0.2 is not fully
compliant. Customers must take the steps described in the Company's year 2000
readiness documentation to address the issues or the customers must upgrade to
MAXIMO Release 4.0.3, 4.0.1, 4.0.2, or 3.0.3 and allow adequate time for
conversion of data. MAXIMO releases prior to MAXIMO Release 3.0.2 must be
upgraded from the user's existing version to MAXIMO Release 4.0.3, 4.0.1, 4.0.2,
or 3.0.3 in order to be year 2000 compliant. Upgrades will be provided free of
charge. MAXIMO ADvantage 4.0 will continue to operate properly into the Year
2000. Customers using prior versions of ADvantage must be upgraded to ADvantage
4.0 and allow adequate time for conversion of data in order to be year 2000
compliant. Upgrades will be provided free of charge. The Company's electronic
commerce products are currently being tested for year 2000 compliance. Testing
is scheduled to be completed by the end of September 1999. The Company's product
PROJECT/2 is no longer sold but the Company does offer support for this product.
PROJECT/2 is not fully compliant. Customers must take the steps described in the
Company's year 2000 readiness documentation to address the issues or the
customers must upgrade to the recommended versions and allow adequate time for
conversion of data. Upgrades will be provided free of charge. MAXIMO Scheduler
releases prior to MAXIMO Scheduler Release 3.0 and P/X releases prior to P/X
Version 2.2.0 are not fully compliant. Customers must take the steps described
in the Company's year 2000 readiness documentation to
32
<PAGE> 33
address issues or the customers must upgrade to the recommended versions and
allow adequate time for conversion of data. Upgrades will be provided free of
charges. The Company estimates that the cost to upgrade all of its products to
be year 2000 enabled will be approximately $500,000.
The Company does not believe that the advent of the Millennium has caused any
positive or negative impact on revenues from the Company's software products
during fiscal 1998. While the Company has experienced customer requests to
replace non-compliant Year 2000 applications, it also believes that certain
market segments have deferred procuring asset maintenance systems while they
complete the implementation of ERP systems. The Company cautions that there may
be a slow down in the future in the enterprise application market due to
cautious information technology spending due to the year 2000 issues. The
Company will continue to monitor the potential impact of the arrival of the
Millennium on its software revenues.
EURO COMPLIANCE
On January 1, 1999, eleven European Union member states adopted the euro as
their common national currency. Thereafter, until January 1, 2002, the
transition period, either the euro or a participating country's present currency
will be accepted as legal tender. Beginning on January 1, 2002, euro-denominated
bills and coins will be issued, and by July 1, 2002, only the euro will be used.
A significant number of the Company's customers are located, or transact
business with, or have operations in participating European Union countries. As
a result, the computer systems or software used by these companies may need to
be upgraded to comply with data storage and computational euro requirements. In
the first fiscal quarter of 1999, the Company released a new English language
client/server version of MAXIMO (MAXIMO 4.0.1) that accepts, stores, calculates,
converts and reports euro currency. In the second quarter of fiscal 1999, the
Company released primary language versions of MAXIMO 4.0.1 in Brazilian
Portuguese, Dutch, French, German, Latin American Spanish, and Swedish. The
Company also released a new English language client/server version of MAXIMO
(MAXIMO 4.0.2) for Workflow in the second quarter of fiscal 1999 that is euro
compliant as defined above. In the third quarter of fiscal 1999, the Company
released an English language version of mroBuyer's(TM) Desktop Requisition that
is also euro compliant as defined above. The amount of development dollars spent
on the euro release will not have a material adverse effect on the
33
<PAGE> 34
Company's results of operations or financial condition. The Company has
initiated a program to determine what, if any, internal systems need to be
replaced to comply with the requirements for the adoption of the euro.
NO REVISIONS OR UPDATES TO FORWARD-LOOKING STATEMENTS
The Company has 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.
34
<PAGE> 35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
THE COMPANY DOES NOT HAVE ANY MATERIAL RISKS UNDER THIS ITEM.
35
<PAGE> 36
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.376420, 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, 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. (which is
attached as Exhibit A to the Rights Agreement 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. Instruments defining the Rights of Security Holders, Including
Indentures
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 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)
36
<PAGE> 37
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. Material Contracts
10.3 Stock Purchase Agreement between W.W. Grainger, Inc.
and the Company dated April 20, 1999.
10.4 Stock Option Agreement between W.W. Grainger, Inc. and
the Company dated April 20, 1999.
10.5 Registration Rights Agreement between W.W. Grainger,
Inc. and the Company dated April 20, 1999.
27. Financial Data Schedule
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no current reports filed on Form 8-K for the three months
ended June 30, 1999.
37
<PAGE> 38
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: August 13, 1999 By: /s/ Paul D. Birch
--------------- -----------------
Paul D. Birch
Authorized Officer
Executive Vice President Finance &
Administration, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
38
<PAGE> 39
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 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. (which is
attached as Exhibit A to the Rights Agreement 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
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 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)
10.3 Stock Purchase Agreement between W.W. Grainger, Inc. and the Company
dated April 20, 1999.
10.4 Stock Option Agreement between W.W. Grainger, Inc. and the Company
dated April 20, 1999.
10.5 Registration Rights Agreement between W.W. Grainger, Inc. and the
Company dated April 20, 1999.
27.1 Financial Data Schedule
<PAGE> 1
STOCK PURCHASE AGREEMENT
BETWEEN
W. W. GRAINGER, INC.
AND
PROJECT SOFTWARE & DEVELOPMENT, INC.
APRIL 20, 1999
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
April 20, 1999, by and between W.W. Grainger, Inc., an Illinois corporation (the
"Purchaser"), and Project Software & Development, Inc., a Massachusetts
corporation (the "Company").
WHEREAS, the Purchaser wishes to purchase from the Company, and the
Company wishes to sell to the Purchaser 500,000 shares of the Company's common
stock, $0.01 par value per share (the "Common Stock").
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
The following terms are used with the meanings given them herein:
"Affiliate" means: (a) with respect to a person, any member of such
person's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a person or entity, any person or entity
which directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with such person or entity.
"Assets" means assets of every kind and everything that is or may be
available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
"Closing" means the closing of the sale and purchase of shares of
Common Stock pursuant to the Agreement.
"Closing Date" means 10:00 a.m. C.D.T. on such date as is five (5)
business days following the satisfaction or waiver of the latest to occur of the
conditions precedent described in Section 3.2 or such other time and date as
shall be mutually agreed upon by the Purchaser and the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and all
Laws promulgated pursuant thereto or in connection therewith.
"Commission" means the Securities and Exchange Commission or any other
<PAGE> 3
governmental authority at the time administering the Securities Act or the
Exchange Act.
"Confidential Information" shall have the meaning set forth in Section
4.3.
"Contract" shall mean any contract, lease, sales order, purchase order,
agreement, warranty, indenture, mortgage, note, bond, right, warrant or
instrument, whether written or verbal.
"Control" means possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
voting securities, by Agreement or otherwise).
"Environmental Law" shall mean any Law that imposes liability or
standards of conduct concerning, or otherwise relates to, discharges, emissions,
releases or threatened releases of noises, odors or any pollutants, contaminants
or hazardous or toxic wastes, substances or materials, whether as matter or
energy, into ambient air, water or land, or otherwise relating to the
manufacture, processing, generation, distribution, use, treatment, storage,
disposal, cleanup, transport or handling of pollutants, contaminants or
hazardous or toxic wastes, substances or materials, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, the Toxic Substances Control
Act of 1976, as amended, the Federal Water Pollution Control Act Amendments of
1972, as amended, the Clean Water Act of 1977, as amended, any so-called
"Superfund" or "Superlien" Law (including those already referenced in this
definition) and any other Law having a similar subject matter.
"Environmental Permit" shall mean any Permit required by or pursuant to
any applicable Environmental Law.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all laws promulgated pursuant thereto or in connection therewith.
"Exhibit" means an exhibit attached to the Agreement.
"Hart-Scott-Rodino" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and all Laws promulgated pursuant thereto or in
connection therewith.
"Intellectual Property" shall mean all United States and foreign
patents (including continuations, continuations-in-part, reissues and
re-examinations thereof) and patent applications; registered and unregistered
trade names, trademarks, service names and service marks (and applications for
registration of the same) and all goodwill associated therewith; copyrights and
copyright registrations (and applications for the same); trade secrets; computer
<PAGE> 4
data (including formulations and analyses), computer programs and software (in
source code and object code form) and firmware and all related programming, user
and systems documentation; inventions, processes and designs (whether or not
patentable or reduced to practice); know-how and formulae; and all other
intellectual property rights and assets.
"Interim Financial Statements" shall have the meaning set forth in
Section 4.4.
"Law" or "Laws" means all foreign, federal, state and local statutes,
laws, ordinances, regulations, rules, resolutions, orders, determinations,
writs, injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified persons or
entities and to the businesses and Assets thereof (including, without
limitation, Laws relating to securities registration and regulation; the sale,
leasing, ownership or management of real property; employment practices, terms
and conditions, and wages and hours; building standards, land use and zoning;
safety, health and fire prevention; and environmental protection).
"Lien" shall mean any lien (except for any lien for taxes not yet due
and payable), mortgage, charge, restriction, pledge, security interest, option,
lease, sublease or right of any third party.
"Loss" and "Losses" means any and all actual out of pocket: losses,
liabilities, damages, costs and expenses (including reasonable attorneys' fees),
taxes, penalties, fines, expenditures, judgments and awards.
"Material Adverse Effect" shall mean an effect on the business,
operations, assets, liabilities, results of operations, cash flows, condition
(financial or otherwise) or prospects of the Company and its subsidiaries, taken
as a whole, which is materially adverse.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotations System.
"Ordinary Course of Business" means ordinary course of business
consistent with past practices.
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or department or agency of a
government.
"Purchase Price" shall have the meaning set forth in Article II.
"Representatives" has the meaning set forth in Section 4.4.
"Section" means a Section (or a subsection) of the Agreement.
<PAGE> 5
"Securities Act" means the Securities Act of 1933, as amended, and all
laws promulgated pursuant thereto or in connection therewith.
"Shares" shall have the meaning set forth in Article II.
"Subsidiary" or "Subsidiaries" means any corporation or other entity of
which at least 80% of the outstanding securities or other interests having
rights to vote or otherwise exercise Control are held, directly or indirectly,
by the Company or another subsidiary.
"Voting Securities" means shares of any class of capital stock of the
Company which are then entitled to vote generally in the election of directors.
ARTICLE II
SALE AND PURCHASE OF SHARES
On the basis of the representations, warranties and agreements
contained herein, and subject to the terms and conditions hereof, the Company
hereby agrees to issue and sell to the Purchaser, and the Purchaser agrees to
purchase from the Company 500,000 shares of Common Stock (the "Shares"). In
consideration for the Shares, the Purchaser shall pay (the "Purchase Price") to
the Company an amount equal to $14,500,000. At the Closing, the Purchaser shall
deliver to the Company the Purchase Price by wire transfer of immediately
available funds, and the Company will deliver to the Purchaser a certificate, as
the Purchaser may request, registered in the name of the Purchaser evidencing
the Shares.
ARTICLE III
CLOSING
3.1. CLOSING OF SALE AND PURCHASE. Subject to the terms and
conditions of this Agreement, the Closing shall take place on the Closing Date.
3.2. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS. The
Purchaser's obligation to purchase and pay for the Shares on the Closing Date is
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) Each of the representations and warranties of the Company
contained in Article 5 of this Agreement shall be true and correct as
of the date hereof and as of the Closing Date, except to the extent
they expressly refer to another time or period, in which case they
shall be true and correct as of such time or period.
(b) The Company and the Purchaser each shall have received all
consents,
<PAGE> 6
authorizations and approvals of governmental authorities which are
required to be obtained in order to consummate the transactions
contemplated hereby, including, without limitation, the expiration or
termination of any applicable waiting periods under Hart-Scott-Rodino.
(c) No order, injunction or decree issued by any court or
governmental authority of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Closing or
any of the transactions contemplated thereby shall be in effect.
(d) There shall not be any suit, action, investigation,
inquiry or other proceeding instituted by any governmental authority
which seeks to enjoin or otherwise prevent consummation of the Closing
or the transactions contemplated thereby or which would individually,
or in the aggregate with each other failure to satisfy such condition,
or in the aggregate with all other unsatisfied conditions that have not
been waived result in a Material Adverse Effect.
(e) The Company shall have duly performed and complied in all
material respects with each obligation, covenant, agreement and
condition required by this Agreement to be performed or complied with
by the Company at or prior to the Closing.
(f) Since the date of this Agreement, there shall not have
occurred any event, change or effect having, or that would reasonably
be likely to have, individually or in the aggregate, a Material Adverse
Effect.
(g) The Purchaser shall have received on the Closing Date the
opinion of Foley, Hoag & Eliot L.L.P. to the effect that: (i) the
Company is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization; (ii) the Company has the
corporate power and authority to own, operate and lease its Assets and
to carry on its business as currently conducted; (iii) the execution,
delivery and performance of this Agreement by the Company is within the
corporate power and authority of the Company and does not require any
additional consents or approvals of the shareholders of the Company;
(iv) the Shares issued to the Purchaser pursuant to this Agreement have
been duly authorized and validly issued; and (v) upon payment for the
Shares pursuant to this Agreement, title to the Shares will pass to the
Purchaser free and clear of any claim, Lien, adverse interest or
incumbrance of any kind.
(h) Except as contemplated by this Agreement or as reasonably
required to carry out their obligations hereunder, the Company and its
Subsidiaries shall, through the Closing Date, have conducted their
respective businesses only in the Ordinary Course of Business and, in
addition, shall not have: (i) issued any capital stock or any options,
warrants or other rights to subscribe for or purchase any of their
capital stock or any securities convertible into or exchangeable for
their capital stock (other than to employees
<PAGE> 7
in the Ordinary Course of Business); (ii) directly or indirectly
redeemed, purchased or otherwise acquired any of their capital stock;
(iii) effected a split, reclassification or other change in or of any
of their capital stock; (iv) amended their certificate or articles of
incorporation, bylaws or equivalent documents (excepts as may have been
necessary to comply with the applicable statutes, rules, regulations or
orders issued by any governmental or regulatory authority); (v) merged
or consolidated with any Person or entered into any agreement that
provided for the merger or consolidation with any Person; or (vi)
entered into any new material line of business or exited a current
material line of business of the Company.
(i) The Purchaser shall have received a certificate executed
by the Company's Chief Executive Officer and Chief Financial Officer
stating that the representations and warranties of the Company are true
and correct as of the date of execution of this Agreement and as of the
Closing Date and that the Company has complied with all of its
covenants set forth in this Agreement.
3.3. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS. The Company's
obligation to sell and issue the Shares on the Closing Date is subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) Each of the representations and warranties of the
Purchaser contained in Article 6 of this Agreement shall be true and
correct at the date hereof and as of the Closing Date as if made at and
as of the Closing Date, except to the extent they expressly refer to
another time or period, in which case they shall be true and correct as
of such time or period.
(b) The Company and the Purchaser each shall have received all
consents, authorizations and approvals of governmental authorities
which are required to be obtained in order to consummate the
transactions contemplated hereby, including, without limitation, the
expiration or termination of any applicable waiting periods under
Hart-Scott-Rodino.
(c) No order, injunction or decree issued by any court or
governmental authority of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Closing or
any of the transactions contemplated thereby shall be in effect.
(d) There shall not be any suit, action, investigation,
inquiry or other proceeding instituted by any governmental authority
which seeks to enjoin or otherwise prevent consummation of the Closing
or the transactions contemplated thereby or which would individually,
or in the aggregate with each other failure to satisfy such condition,
or in the aggregate with all other unsatisfied conditions that have not
been waived,
<PAGE> 8
prevent, materially delay or materially impair the ability of Purchaser
to consummate the transactions contemplated hereby.
(e) The Purchaser shall have duly performed and complied in
all material respects with each obligation, covenant, agreement and
condition required by this Agreement to be performed or complied with
by the Purchaser at or prior to the Closing.
3.4. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER AND
THE COMPANY. The obligations of the Purchaser and the Company pursuant to this
Agreement are subject to the execution, on or before the Closing Date, of the
following agreements:
(a) The Stock Option Agreement;
(b) The Registration Rights Agreement; and
(c) The Cooperation Agreement.
The simultaneous Closing of the foregoing agreements shall satisfy this
condition.
ARTICLE IV
ADDITIONAL UNDERTAKINGS AND COVENANTS
The Purchaser and the Company hereby covenant and agree with each other
as follows:
4.1. CONSENTS AND APPROVALS.
(a) The Company and the Purchaser shall take all measures
reasonably necessary or advisable to secure such consents,
authorizations and approvals of governmental and supragovernmental
authorities and of private persons or entities with respect to the
transactions contemplated by this Agreement, and to the performance of
all other obligations of such parties hereunder, as may be required by
any applicable statute or regulation of the United States or any
country, state or other jurisdiction or by any Agreement of any kind
whatsoever to which the Purchaser, the Company or any of its
Subsidiaries is a party or by which the Purchaser, the Company or any
of its Subsidiaries is bound.
(b) The Purchaser and the Company shall (i) cooperate in the
filing of all forms, notifications, reports and information, if any,
required or reasonably deemed advisable pursuant to applicable
statutes, rules, regulations or orders of any governmental or
supragovernmental authority in connection with the transactions
contemplated by this
<PAGE> 9
Agreement and (ii) use their respective good faith efforts to cause any
applicable waiting periods thereunder to expire and any objections to
the transactions contemplated hereby to be withdrawn before the
Closing.
(c) In addition to the obligations set forth in Section
4.1(b), as promptly as practicable, and in any event no later than
fifteen (15) days following the execution of this Agreement, the
Company and the Purchaser shall complete any filing that may be
required pursuant to Hart-Scott-Rodino, or shall mutually agree that no
such filing is required. The Company and the Purchaser shall diligently
take (or fully cooperate in the taking of) all actions, and provide any
additional information, required or reasonably requested in order to
comply with the requirements of Hart-Scott-Rodino.
4.2. PUBLICITY. Prior to the Closing Date, no public announcement or
other publicity regarding the existence of this Agreement or its contents or the
transactions contemplated hereby shall be made by Purchaser or the Company or
any of their respective Affiliates, officers, directors, employees,
representatives or agents, without the prior written agreement of the Purchaser
and the Company, in any case, as to form, content, timing and manner of
distribution or publication; provided, that nothing in this Section 4.2 shall
prevent any party from (a) making any public announcement required by Law or the
rules of any stock exchange so long as, if such party is Purchaser, Purchaser
consults with the Company, and if such party is the Company, the Company
consults with Purchaser, in each case as to the form, content, timing and manner
of distribution or publication, (b) discussing this Agreement or its contents or
the transactions contemplated hereby with those Persons whose approval,
agreement or opinion, as the case may be, is required for consummation of such
particular transaction or transactions or (c) enforcing its rights hereunder.
4.3. CONFIDENTIALITY.
(a) Without the prior written consent of the other party, any
information relating to the Company or the Purchaser provided to or
generated by either the Company or the Purchaser in connection with the
transactions contemplated hereby which is confidential, proprietary, or
otherwise not generally available to the public (but excluding (i)
information obtained independently from third-party sources without
knowledge that the source has violated any fiduciary or other duty not
to disclose such information and (ii) other information that is in the
public domain or otherwise publicly available) (the "Confidential
Information") will be kept confidential by the other party and each of
their respective directors, officers, employees and representatives
(collectively, "Representatives"), using the same standard of care in
safeguarding the Confidential Information as the parties hereto employ
when protecting their own proprietary information which the parties
desire not to disseminate or publish. It is understood (i) that such
Representatives shall be informed by the Purchaser and the Company of
the confidential nature of the Confidential Information, (ii) that such
Representatives shall be
<PAGE> 10
bound by the provisions of this section as a condition of receiving the
Confidential Information and (iii) that, in any event, the Purchaser
and the Company shall be responsible for any breach of this Agreement
by any of its Representatives.
(b) Without the prior written consent of the Company, other
than as required by applicable law, the Purchaser will not, and will
direct its Representatives not to, disclose to any Person either the
fact that the Confidential Information has been made available to the
Purchaser or that the Purchaser has inspected any portion of the
Confidential Information.
(c) If the Purchaser or its Representatives are requested or
required (by oral question, interrogatories, requests for information
or documents, subpoena, civil investigative demand or similar process)
to disclose any Confidential Information, the Purchaser will, as soon
as practicable, notify the Company of such request or requirement so
that the Company may seek an appropriate protective order. If, in the
absence of a protective order or the receipt of a waiver hereunder, the
Purchaser or its Representatives are, in the opinion of the Purchaser's
counsel, compelled to disclose the Confidential Information or else
stand liable for contempt or suffer other censure or significant
penalty, the Purchaser may disclose only such of the Confidential
Information to the party compelling disclosure as is required by law.
The Purchaser shall not be liable for the disclosure of Confidential
Information pursuant to the preceding sentence. The Purchaser will,
prior to any said disclosure, exercise all reasonable efforts to assist
the Company in obtaining a protective order or other reliable assurance
that confidential treatment will be accorded the Confidential
Information.
(d) The Purchaser's corporate policy prohibits any of its
directors or employees who learn of material nonpublic information
about the Company (or any other Person with whom the Purchaser does
business) through the course of their employment from purchasing or
selling securities of the Company (or any other such Person) or from
communicating such information to any other person under circumstances
in which it is reasonably foreseeable that such person is likely to
purchase or sell such securities.
4.4. INTERIM FINANCIAL STATEMENTS. The Company has provided the
Purchaser with unaudited consolidated financial statements of the Company and
the subsidiaries, consisting of a balance sheet and an income statement covering
the three months ended March 31, 1999 (such financial statements, "Interim
Financial Statements"). The Interim Financial Statements have been prepared in
accordance with generally accepted accounting principles and have been prepared
in a manner consistent with the financial statements contained in the Company
Reports filed on Form 10-Q and fairly present in all material respects the
consolidated financial position of the Company and its subsidiaries as of its
date.
4.5. RULE 144 REQUIREMENTS. The Company shall use its best efforts
to (a) file with the
<PAGE> 11
Securities and Exchange Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended; and (b) the Company shall otherwise reasonably
cooperate with Purchaser to permit it to effect resales in accordance with
Securities and Exchange Commission Rule 144.
4.6. AGREEMENT NOT TO SELL. The Purchaser agrees not to sell its
Shares for a period of one year from the date hereof; PROVIDED, HOWEVER, that if
the Company and the Purchaser agree to extend the termination date of the
Cooperation Agreement for an additional period of not less than one year, the
Purchaser shall agree not to sell its Shares for an additional period of one
year, except pursuant to the Purchaser's rights under the Registration Rights
Agreement; PROVIDED, FURTHER, the obligations imposed by this Section 4.6 shall
automatically terminate in the event of a change of control of the Company which
shall be deemed to include, without limitation: (i) the merger of the Company
with any other Person if the holders of the Company's common stock immediately
prior to the merger own less than 50% of the common stock of the surviving
parent company; (ii) the accumulation by any Person, other than a current
stockholder of the Company, of more than 25% of the outstanding voting
securities of the Company; and (iii) the resignation of both Mr. Robert Daniels
and Mr. Norman E. Drapeau from the positions of Chairman of the Board and Chief
Executive Officer of the Company respectively.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants (which representation and warranty
shall be deemed to include the disclosure with respect thereto so specified in
the Disclosure Schedule) to the Purchaser as follows:
5.1. ORGANIZATION AND STANDING. The Company is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has the corporate or equivalent power and authority to own,
operate and lease its Assets and to carry on its business as currently
conducted. The Company and its Subsidiaries are duly qualified to conduct
business and are in good standing in every jurisdiction in which the nature of
the respective business conducted or Assets owned by it makes such qualification
necessary (and the Subsidiaries are duly organized and validly existing under
the laws of their respective jurisdiction of organization), except where the
failure so to qualify (or to be organized and existing) would not have a
Material Adverse Effect. The Company and the Subsidiaries each have all
governmental licenses, authorizations, consents and approvals required to carry
on its business as currently conducted except where the failure to hold such
licenses, authorizations, consents or approvals would not have a Material
Adverse Effect.
5.2. AUTHORIZATION. The execution, delivery and performance by the
Company of this Agreement and the issuance and sale of the Shares by the Company
and compliance with all the
<PAGE> 12
provisions of this Agreement: (a) are within the corporate power and authority
of the Company; (b) do not require any consent or approval of any stockholders
of the Company; and (c) have been authorized by all required corporate
proceedings on the part of the Company. The issuance and sale of the Shares will
not trigger any current Company shareholders' rights plan or violate (or create
any rights under) the provisions of M.G.L.A. chapters 110C, 110D, 110E and 110F.
The Company has furnished to the Purchaser true and correct copies of the
Company's Articles of Organization and By-Laws as in effect on the date of this
Agreement. This Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, subject, however, to the
limitations of 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 are only available in the discretion of the
court from which they are sought.
5.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 15,350,000 shares of Common Stock, of which 10,043,623 shares were
outstanding as of the close of business on April 16, 1999, and 1,000,000 shares
of undesignated preferred stock, none of which are issued or outstanding as of
such date. All of the outstanding shares of Common Stock, and the Shares, have
been duly authorized, and the outstanding shares of Common Stock are, and the
Shares upon issuance and payment therefor as provided herein will be, validly
issued, fully paid and nonassessable. The Company has no commitments to issue or
deliver any shares of capital stock as of April 16, 1999, other than 1,172,878
shares subject to issuance pursuant to outstanding stock options and other than
pursuant to the Company's Employee Stock Purchase Plan. Except as provided in
the stockholders' rights plan adopted by the Company in January 1998, there are
no preemptive or other outstanding rights, options, warrants, conversion rights,
stock appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of the Company or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe
for or acquire, any securities of the Company, and no securities or obligations
evidencing such rights are issued or outstanding. The Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote on any matter.
5.4. COMPANY REPORTS; FINANCIAL STATEMENTS.
(a) The Company's definitive Proxy Statements for its 1998 and
1999 Annual Meeting of Stockholders, (b) the Company's Quarterly Report
on Form 10-Q for the quarterly periods ended December 31, 1997, March
31, 1998, June 30, 1998, December 31, 1998, and March 31, 1999 (when
filed) and (c) the Company's Annual Report on Form 10-K for the year
ended September 30, 1998 may collectively, together with any such
reports filed subsequent to the date hereof, be referred to as the
"Company Reports". As of their respective dates the Company Reports
complied (or when filed will comply) as to form in all material
respects with the requirements of the Securities Act or the
<PAGE> 13
Exchange Act, as applicable, and the rules and regulations of the
Commission. As of their respective dates, the Company Reports did not
contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they
were made, not misleading.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the
related notes and schedules) fairly presents (or will fairly present)
in all material respects the consolidated financial position of the
Company and its Subsidiaries as of its date and each of the
consolidated statements of income and of cash flow included in or
incorporated by reference into the Company Reports (including any
related notes and schedules) fairly presents (or will fairly present)
in all material respects the consolidated results of operations and
cash flows, as the case may be, of the Company and its Subsidiaries for
the periods set forth therein (subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during
the periods involved, except as may be noted therein.
5.5. TAXES. The Company and each of its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Company or any or its
Subsidiaries except to the extent the failure to pay would not have a Material
Adverse Effect. Such returns are true and accurate in all material respects. The
charges, accruals and reserves on the books of the Company and its Subsidiaries
in respect of taxes are, in the opinion of the Company, adequate.
5.6. GOVERNMENTAL FILINGS; NO VIOLATIONS.
(a) Other than the filings, permits, authorizations, consents,
approvals and/or notices pursuant to or required by (i)
Hart-Scott-Rodino, (ii) the Exchange Act, (iii) the Securities Act,
(iv) state securities or "blue-sky" laws, and (v) NASDAQ, and except as
may result from any facts or circumstances relating to the Purchaser or
its affiliates, in connection with the execution and delivery of this
Agreement by the Company and the consummation by the Company of the
issuance of the Shares, there are no filings, authorizations, consents,
approvals or notices required with or by any Court, administrative
agency, commission, government or regulatory authority, domestic or
foreign, except those that the failure to make or obtain will not,
individually or in the aggregate, have a Material Adverse Effect.
(b) Subject to compliance with the filings described in
Section 5.7(a), the execution, delivery and performance of this
Agreement by the Company do not, and the
<PAGE> 14
consummation by the Company of the issuance of the Shares will not,
constitute or result in (i) a breach or violation of, or a default
under, the Articles of Organization or by-laws of the Company or the
comparable governing instruments of any of its Subsidiaries, (ii) a
breach or violation of, or a default under, or the acceleration of any
obligations or the creation of a Lien, pledge, security interest or
other encumbrance on the assets of the Company or any of its
Subsidiaries (with or without notice, lapse of time or both) pursuant
to, any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation ("Contracts") binding upon the Company
or any of its Subsidiaries, (iii) any change in the rights or
obligations of any party under any of those Contracts, (iv) the
impairment of the Company's or any of its Subsidiaries' business or
adversely affect any licenses or approvals necessary to enable the
Company and its Subsidiaries to carry on their business as presently
conducted, except for any conflict, breach, violation, default,
acceleration, declaration, imposition or impairment that would not have
a Material Adverse Effect.
5.7. LITIGATION AND LIABILITIES.
(a) Except as disclosed in the Company Reports filed prior to
the date hereof, there are no actions, suits, claims, proceedings or
investigations pending against, or to the knowledge of the Company,
threatened against or affecting, the Company or any of its Subsidiaries
or any of their respective properties before any governmental entity or
otherwise that (i) individually or in the aggregate would be expected
to have a Material Adverse Effect, (ii) in any manner challenges or
seeks to prevent, enjoin, alter or delay the transactions contemplated
hereby or (iii) alleges criminal action or inaction. As of the date
hereof, neither the Company, its Subsidiaries nor any of their
respective properties is subject to any order, writ, judgment,
injunction, decree, determination or award having, or that would
reasonably be expected to have, a Material Adverse Effect or that would
prevent or delay the consummation of the transactions contemplated
hereby. Except as disclosed in the Company Reports, there are no
pending or, to the knowledge of the Company, threatened claims for
indemnification by the Company or any of its Subsidiaries in favor of
directors, officers, employees and agents of the Company or any of its
Subsidiaries.
5.8. COMPLIANCE WITH LAWS; PERMITS. Except as set forth in the
Company Reports, the businesses of each of the Company and its Subsidiaries have
been, and are being, conducted in compliance with all applicable Laws except in
any such case for noncompliance that, individually or in the aggregate, would
not have a Material Adverse Effect. The Company and its Subsidiaries each has
all permits, licenses, trademarks, patents, trade names, copyrights, service
marks, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted except those the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect.
<PAGE> 15
5.9. NO ADVERSE EFFECTS OR CHANGES. Since September 30, 1998,
neither the Company nor any Subsidiary has experienced: (i) any Material Adverse
Effect, (ii) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered into in
the Ordinary Course of Business, (iii) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the Ordinary Course of Business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, or (vi) any loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a Material Adverse Effect.
5.10. MATERIAL CONTRACTS. All of the material Contracts of the
Company and its Subsidiaries that are required to be described in the Company
Reports or to be filed as exhibits thereto pursuant to Item 601 of Regulation
S-K promulgated by the Commission are described in the Company Reports or filed
as exhibits thereto. Neither the Company nor any of its Subsidiaries, nor to the
best of the Company's knowledge, any other party is in breach of or in default
under any such Contract, except for such breaches and defaults as individually
or in the aggregate have not had and will not have a Material Adverse Effect.
5.11. YEAR 2000 COMPLIANCE.
(a) That the occurrence in or use by any of the Company's
current or future versions of its software systems that the Company
markets or licenses (collectively, the "Commercial Systems") of dates
on or after January 1, 2000 ("Millennial Dates") will not materially
adversely affect the Commercial Systems' performance with respect to
date- dependent data, computations, output, or other functions
(including, without limitation, calculating, comparing and sequencing)
and that the Commercial Systems will create, store, process and output
information related to or including Millennial Dates without material
error or omissions and at no additional cost to the Company; the
foregoing warranty is subject to error-free input of date data in
appropriate format to the Commercial Systems.
(b) That as of December 31, 1999, the occurrence in or use by
any of the Company's current or future software systems used for its
internal business operations (collectively, the "Internal Systems") of
dates on or after January 1, 2000, will not materially adversely affect
the Internal Systems' performance with respect to date- dependent data,
computations, output, or other functions (including, without
limitation, calculating, comparing and sequencing) and that the
Internal Systems will create, store, process and output information
related to or including Millennial Dates without material error or
omissions; the foregoing warranty is subject to error-free input
<PAGE> 16
of date data in appropriate format to the Internal Systems. The Company
represents and warrants that, to its best estimates and knowledge, the
costs associated with reaching the foregoing warranty status shall not
materially adversely affect the Company.
5.12. INTELLECTUAL PROPERTY. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent
rights, inventions, trade secrets, know-how, trademarks, technology, licenses,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Company Reports; the expiration in accordance
with the terms of the applicable agreements of any patent, patent rights,
trademarks, service marks, trade names or copyrights would not to the Company's
knowledge have a Material Adverse Effect on the Company; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect on the Company.
5.13. ENVIRONMENTAL MATTERS.
(a) The Company and its Subsidiaries are in compliance with
all Environmental Laws, and no condition exists or event has occurred
which, with or without notice or the passage of time or both, would
constitute a violation of or give rise to any liability, obligation or
Lien under any Environmental Law; and
(b) the Company and its Subsidiaries are in possession of all
Environmental Permits, if any, required for the conduct or operation of
their respective businesses (or any part thereof), and are in
compliance with all of the requirements and limitations included in
such Environmental Permits.
5.14. ACCURACY OF STATEMENTS. This Agreement and any schedule or
certificate furnished or to be furnished by or on behalf of the Company or any
Subsidiary to Purchaser in connection with this Agreement taken as a whole, do
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they are made, not misleading.
<PAGE> 17
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
6.1. ORGANIZATION AND STANDING. The Purchaser is duly organized,
validly existing and in good standing under the laws of the State of Illinois,
and has the corporate power and authority to own, operate and lease its Assets
and to carry on its business as currently conducted. The Purchaser is duly
qualified to conduct its business and is in good standing in every jurisdiction
in which the nature of the respective business conducted or Assets owned by it
makes such qualification necessary and where the failure so to qualify would
have a Material Adverse Effect, and has all governmental licenses,
authorizations, consents and approvals required to carry on its business as
currently conducted except where the failure to hold such licenses,
authorizations, consents or approvals would not have a Material Adverse Effect.
6.2. AUTHORIZATION. The execution, delivery and performance by the
Purchaser of this Agreement: (a) are within the power and authority of the
Purchaser; (b) do not require any consent or approval of any stockholders of the
Purchaser; and (c) have been authorized by all required proceedings on the part
of the Purchaser. This Agreement constitutes a valid and binding obligation of
the Purchaser, enforceable in accordance with its terms.
6.3. NO REGISTRATION UNDER THE SECURITIES ACT. The Purchaser
understands that the Shares to be purchased by it under this Agreement have not
been registered under the Securities Act, in reliance upon exemptions contained
in the Securities Act or interpretations thereof, and cannot be offered for
sale, sold or otherwise transferred unless such Common Stock being acquired
hereunder subsequently is so registered or qualifies for exemption from
registration under the Securities Act. The Purchaser acknowledges that, except
as provided in that certain Registration Rights Agreement between the Company
and the Purchaser and dated as of the date hereof, the Purchaser has no right to
require the Company to register the Shares. The Purchaser understands and agrees
that each certificate representing Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE
<PAGE> 18
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS."
6.4. ACQUISITION FOR INVESTMENT. The Shares are being acquired
under this Agreement by the Purchaser in good faith solely for its own account,
for investment and not with a view toward resale or other distribution within
the meaning of the Securities Act. The Shares will not be offered for sale, sold
or otherwise transferred by the Purchaser without either registration or
exemption from registration under the Securities Act it being understood that
any sale or disposition of the Shares is in Purchaser's control.
6.5. EVALUATION OF MERITS AND RISKS OF INVESTMENT. The Purchaser is
an "accredited investor" within the meaning of Rule 501(a) promulgated under the
Securities Act. The Purchaser has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of the Purchaser's investment in the Shares being acquired hereunder. The
Purchaser understands and is able to bear any economic risks associated with
such investment (including, without limitation, the necessity of holding such
Shares for an indefinite period of time, inasmuch as such Shares have not been
registered under the Securities Act). The Purchaser has had an opportunity to
request, and has received or had access to, all information as the Purchaser has
considered necessary to make a determination to purchase the Shares, and has had
all questions which have been asked by the Purchaser satisfactorily answered by
the Company. The Purchaser has not been offered the Shares by any form of
general solicitations or general advertising.
6.6. STANDSTILL PROVISIONS.
(a) Until the fifth anniversary of the date of the execution
of this Agreement, without the prior written approval of the Company,
unless a change in control of the Company has occurred in the meantime,
neither the Purchaser nor its Affiliates will (i) acquire, offer to
acquire, or agree to acquire, directly or indirectly, by purchase,
tender offer or otherwise, any assets or Voting Securities of the
Company or direct or indirect rights or options to acquire any assets
or Voting Securities of the Company, or solicit or assist any other
person so acquiring, offering to acquire or agreeing to acquire such
assets or securities, rights or options, (ii) announce or publicly
propose any extraordinary transaction involving the Company, or any
Voting Securities or assets of the Company; (iii) make, or participate,
directly or indirectly, in any "solicitation" of "proxies" to vote (as
such terms are used in the proxy rules of the Commission), or seek to
advise or influence any
<PAGE> 19
person or entity with respect to the voting of, any Voting Securities;
(iv) form, join or in any way participate in a "group" within the
meaning of Section 13(d)(3) of the Exchange Act with respect to any
Voting Securities or (v) otherwise act, alone or in concert with
others, to seek to control the management, board of directors, or
policies of the Company; PROVIDED, HOWEVER, that the Purchaser may
purchase shares of Common Stock other than the Shares without violating
this section so long as such purchase, combined with the Shares, would
not exceed 5% of the outstanding shares of the Company on a
fully-diluted basis following such purchase.
(b) In the event that any time prior to the fifth anniversary
of the execution of this Agreement, (i) the Board of Directors of the
Company recommends to the stockholders of the Company an acquisition
proposal involving a business combination proposed to be accounted for
as a pooling of interests (a "Pooling Proposal"), and if at such time
the Purchaser holds an amount of Common Stock equal to 5% or more of
the then outstanding Common Stock, or (ii) the Company shall be advised
in writing by its independent public accountants that the assertion by
the Purchaser of statutory appraisal rights in respect of such Pooling
Proposal (considered in light of all the facts and circumstances then
known to such accountants, but without regard to the assertion of
appraisal rights by any other stockholder of the Company) would be
likely to preclude accounting for the transaction as a pooling, then in
such event the Purchaser will refrain from perfecting its statutory
appraisal rights, if any, in respect of the Pooling Proposal.
ARTICLE VII
MISCELLANEOUS
7.1. SURVIVAL. This Article VII and the agreements of the Company
and the Purchaser contained in Section 4.2 (Publicity) and Section 4.3
(Confidentiality) shall survive the issuance and sale of the Shares in
accordance with their terms. This Article VII and the agreements of the Company
and the Purchaser contained in Section 7.3 (Expenses) shall survive the
termination of this Agreement. All representations, warranties in Sections 5 and
6 (except Section 4.3, 4.5 and 6.6) shall survive for eighteen months from the
Closing Date. The representations and warranties made in Section 6.6 shall
survive for a period of five years from the Closing Date. The covenants made in
Section 4.3 and 4.5 shall survive indefinitely. All other covenants and
agreements in this Agreement shall not survive the consummation of the issuance
of the Shares or the termination of this Agreement.
<PAGE> 20
7.2. ADDITIONAL ACTIONS AND DOCUMENTS. Each of the parties
hereto hereby agrees to take or cause to be taken such further actions, to
execute, deliver and file or cause to be executed, delivered and filed such
further documents, and will obtain such consents, as may be necessary or as may
be reasonably requested in order to fully effectuate the purposes, terms and
conditions of this Agreement.
7.3. EXPENSES. Each party hereto shall pay its own expenses
incident to this Agreement and the transactions contemplated hereunder,
including all legal and accounting fees and disbursements, except that the
Company shall pay all required filing fees under Hart-Scott-Rodino.
7.4. ASSIGNMENT. The Purchaser shall have the right to assign its
rights and obligations under this Agreement, in whole or in part, to a
wholly-owned subsidiary or to designate any of its wholly-owned subsidiaries (to
the extent permitted by Law) to receive directly the shares of Common Stock to
be purchased hereunder or to exercise any of the rights of the Purchaser, or to
perform any of its obligations. Except as set forth in the previous sentence and
as otherwise expressly permitted hereunder, the Company and the Purchaser shall
not assign its rights and obligations under this Agreement, in whole or in part,
whether by operation of law or otherwise, without the prior written consent of
the other party hereto, and any such assignment contrary to the terms hereof
shall be null and void and of no force and effect. In no event shall the
assignment by the Company or the Purchaser of its respective rights or
obligations under this Agreement, whether before or after the Closing, release
the Company or the Purchaser from its respective liabilities and obligations
hereunder.
7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the
Disclosure Schedule, the Exhibits and other documents referred to herein or
furnished pursuant hereto, constitutes the entire agreement among the parties
hereto with respect to the transactions contemplated herein, and it supersedes
all prior oral or written agreements, commitments or understandings with respect
to the matters provided for herein. No amendment, modification or discharge of
this Agreement shall be valid or binding unless set forth in writing and duly
executed and delivered by the party against whom enforcement of the amendment,
modification, or discharge is sought.
7.6. WAIVER. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement or under any other
documents furnished in connection with or pursuant to this Agreement shall
impair any such right, power or privilege or be construed as a waiver of any
default or
<PAGE> 21
any acquiescence therein. No single or partial exercise of any such right, power
or privilege shall preclude the further exercise of such right, power or
privilege, or the exercise of any other right, power or privilege. No waiver
shall be valid against any party hereto unless made in writing and signed by the
party against whom enforcement of such waiver is sought and then only to the
extent expressly specified therein.
7.7. SEVERABILITY. If any part of any provision of this Agreement
or any other agreement or document given pursuant to or in connection with this
Agreement shall be invalid or unenforceable in any respect, such part shall be
ineffective to the extent of such invalidity or unenforceability only, without
in any way affecting the remaining parts of such provision or the remaining
provisions of this Agreement.
7.8. GOVERNING LAW. This Agreement, the rights and obligations of
the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of Delaware
(excluding the choice of law rules thereof).
7.9. NOTICES. All notices, demands, requests, or other communications
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
telegram, telecopy or telex, addressed as follows:
If to Purchaser:
Prior to June 1, 1999 After June 1, 1999
W.W. Grainger, Inc. W.W. Grainger, Inc.
455 Knightsbridge Parkway 100 Grainger Parkway
Lincolnshire, Illinois 60069-3620 Lake Forest, Illinois 60045
Attention: Secretary Attention: Secretary
By Fax: (847) 793-6398 By Fax: (847) 535-9240
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
<PAGE> 22
Fax: (312) 701-7711
Attention: Thomas N. Jersild
If to the Company:
Project Software & Development, Inc.
100 Crosby Drive
Bedford, MA 01730
Fax: (781) 280-0207
Attention: Chief Financial Officer
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Fax: (617) 832-7000
Attention: Peter M. Rosenblum
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be hand delivered,
sent, mailed, telecopied or telexed in the manner described above, or which
shall be delivered to a telegraph company, shall be deemed sufficiently given,
served, sent, received or delivered for all purposes at such time as it is
delivered to the addressee (with the return receipt, the delivery receipt, or
(with respect to a telecopy or telex) the answerback being deemed conclusive,
but not exclusive, evidence of such delivery) or at such time as delivery is
refused by the addressee upon presentation.
7.10. HEADINGS. Section headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
7.11. EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It shall
not be necessary that the signatures of, or on behalf of, each party, or that
the signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single Agreement. It shall not be necessary in making proof of this
Agreement to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.
<PAGE> 23
7.12. LIMITATION ON BENEFITS. The covenants, undertakings and
agreements set forth in this Agreement shall be solely for the benefit of, and
shall be enforceable only by, the parties hereto and their respective
successors, heirs, executors, administrators, legal representatives and
permitted assigns.
7.13. BINDING EFFECT. Subject to any provisions hereof restricting
assignment, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors, heirs, executors,
administrators, legal representatives and assigns.
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or have caused this Agreement to be duly executed on their behalf, as
of the date first above written.
THE PURCHASER
W. W. GRAINGER, INC.
By: /s/ John A. Schweig
--------------------------------
Name: John A. Schweig
Its: Senior Vice-President
THE COMPANY
PROJECT SOFTWARE & DEVELOPMENT, INC.
By: /s/ Norman E. Drapeau
--------------------------------
Name: Norman E. Drapeau
Its: President and CEO
<PAGE> 1
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into
as of April 20, 1999 by and among Project Software & Development, Inc., a
corporation organized under the laws of Massachusetts ("PSDI"), and W.W.
Grainger, Inc., a corporation organized under the laws of Illinois ("Grainger").
RECITALS
A. Concurrently with the execution and delivery of this
Agreement, PSDI and Grainger are entering into a Cooperation Agreement, dated as
of April 20, 1999 (the "Cooperation Agreement"), which provides, among other
things, upon the terms and subject to the conditions thereof, for the
development, marketing and management of an electronic commerce and procurement
system (as defined therein) and a Stock Purchase Agreement, dated as of April
20, 1999 (the "Stock Purchase Agreement"), which provides for the purchase by
Grainger, at a price and on other terms stated therein, of shares of PSDI common
stock; and
B. PSDI has agreed to grant to Grainger an option to acquire
certain shares of common stock of its wholly-owned subsidiary MRO.com, a
corporation organized under the laws of Delaware ("MRO") ("MRO Common Stock"),
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, to induce Grainger to enter into the Cooperation
Agreement and the Stock Purchase Agreement and in consideration of the
representations, warranties, covenants and agreements contained herein and in
the Cooperation Agreement and the Stock Purchase Agreement, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Grant of Option. PSDI hereby grants to Grainger an irrevocable
option (the "MRO Option") to purchase that number of shares of MRO Common Stock
which is equal to 5% of the aggregate number of shares of MRO Common Stock that
were issued and outstanding shares or issuable shares (calculated on a fully
diluted basis taking into account any options, warrants, conversion rights,
redemption or repurchase rights, securities convertible or exchangeable into
equity interests, purchase contracts and other rights to purchase or acquire)
immediately preceding such exercise (including, without limitation, any shares
held by Grainger or its designee).
2. Exercise and Termination of the MRO Option.
(a) Exercise. The MRO Option may be exercised by Grainger at any
time beginning and including April 20, 1999 and ending and including April 20,
2001 on not more than one occasion (the "Exercise Period"). If the Cooperation
Agreement shall, at the expiration of its initial term, not have been renewed
for a term extending until at least April 20, 2001 or, if on or
<PAGE> 2
before such date, the Cooperation Agreement shall have been terminated by
Grainger other than pursuant to Section 6 of the Cooperation Agreement by reason
of the material default of PSDI, then in such event the MRO Option shall not be
exercisable to any extent.
(b) Exercise Procedure. In the event that Grainger wishes to
exercise the MRO Option, Grainger shall deliver to PSDI written notice (an
"Exercise Notice") specifying the total number of shares of MRO Common Stock
that Grainger wishes to purchase. Grainger shall, upon delivery of the Exercise
Notice and tender of the applicable aggregate Exercise Price (as defined below),
immediately be deemed to be the holder of record of the shares of MRO Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of PSDI shall then be closed or that certificates representing such shares of
MRO Common Stock shall not theretofore have been delivered to Grainger. The
closing of a purchase of shares of MRO Common Stock hereunder (a "Closing")
shall occur on a date, and at a time designated by Grainger in an Exercise
Notice delivered at least two (2) business days prior to the date of such
Closing, or, if a Bring-Down Request shall have been made pursuant to Section
6(a) below, not less than ten (10) calendar days after the date of such Exercise
Notice.
(c) Termination of the MRO Option. Notwithstanding the foregoing,
if during the Exercise Period the MRO Option is prevented from being exercised
by any judgment, decree or order, the MRO Option shall remain exercisable and
shall not terminate until 5:00 p.m., Eastern Standard Time, on the tenth (10th)
business day after the earlier of (x) the date on which such impediment shall
become final and not subject to appeal and (y) the day after such impediment
shall have been removed. Notwithstanding the expiration of the MRO Option,
Grainger shall be entitled to purchase the shares of MRO Common Stock with
respect to which Grainger had exercised the MRO Option prior to such expiration.
(d) Exercise Price. The purchase price per share of MRO Common
Stock pursuant to the MRO Option (the "Exercise Price") shall be payable in cash
and the Exercise Price shall be $3,750,000 for all of the MRO Common Stock
subject to the MRO Option.
3. Closing. At any Closing:
(a) PSDI shall deliver to Grainger or its designee a single
certificate in definitive form representing the number of shares of MRO Common
Stock designated by Grainger in its Exercise Notice, such certificate to be
registered in the name of Grainger or its designee and to bear the legend set
forth in Section 7;
(b) Grainger shall deliver to PSDI the aggregate Exercise Price
for the shares of MRO Common Stock so designated and being purchased by wire
transfer of immediately available funds to the account or accounts specified in
writing by PSDI.
4. Representations and Warranties of PSDI. PSDI represents and
warrants as of the
<PAGE> 3
date hereof as follows:
(a) Organization and Standing. Each of PSDI and MRO is duly
organized, validly existing and in good standing under the laws of Massachusetts
and Delaware, respectively;
(b) Authorization. The execution, delivery and performance by PSDI
of this Agreement and the sale of the MRO Common Stock and compliance with all
the provisions of this Agreement: (a) are within the corporate power and
authority of PSDI; (b) do not require any consent or approval of any
stockholders of PSDI; and (c) have been authorized by all required corporate
proceedings on the part of PSDI. This Agreement constitutes a valid and binding
obligation of PSDI, enforceable in accordance with its terms.
(c) Execution, Etc. This Agreement has been duly and validly
executed and delivered by PSDI, and, assuming the due authorization, execution
and delivery hereof by Grainger, constitutes the valid and binding obligation of
PSDI, enforceable against PSDI in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally, and except that
the availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding therefor may
be brought; the execution and delivery of this Agreement by PSDI does not, the
consummation by PSDI of the transactions contemplated hereby will not, violate
or conflict with, (i) any provision of the PSDI charter or the by-laws of PSDI,
(ii) any provision of any material agreement or obligation of PSDI, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to PSDI or any of its properties or assets.
5. Representations and Warranties of Grainger. Grainger
represents and warrants to PSDI that:
(a) Organization and Standing. Grainger is duly organized,
validly existing and in good standing under the laws of Illinois;
(b) Authorization. The execution, delivery and performance by
Grainger of this Agreement and compliance with all the provisions of this
Agreement: (a) are within the corporate power and authority of Grainger; (b) do
not require any consent or approval of any stockholders of Grainger; and (c)
have been authorized by all required corporate proceedings on the part of
Grainger. This Agreement constitutes a valid and binding obligation of Grainger,
enforceable in accordance with its terms.
(c) Execution, Etc. This Agreement has been duly and validly
executed and delivered by Grainger, and, assuming the due authorization,
execution and delivery hereof by PSDI, constitutes the valid and binding
obligation of Grainger, enforceable against Grainger in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
<PAGE> 4
reorganization or other similar laws affecting the enforcement of creditors'
rights generally, and except that the availability of equitable remedies,
including specific performance, may be subject to the discretion of any court
before which any proceeding therefor may be brought; the execution and delivery
of this Agreement by Grainger does not, the consummation by Grainger of the
transactions contemplated hereby will not, violate or conflict with (i) any
provision of the Grainger charter or the by-laws of Grainger, (ii) any provision
of any material agreement or obligation of Grainger, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Grainger or any of its properties or assets.
6. Covenants of PSDI. PSDI covenants and agrees that:
(a) PSDI Representations and Warranties. Not later than 10
calendar days following PSDI's receipt of an Exercise Notice PSDI will, if
requested in such Exercise Notice (a "Bring- Down Request"), deliver to Grainger
an instrument executed by PSDI in which PSDI makes to Grainger all of the
representations and warranties stated in Exhibit A on the terms there stated,
which instrument shall be deemed to be a part of this Agreement and to have been
delivered to Grainger as a material inducement to Grainger's exercise, upon
which Grainger shall have relied in such exercise.
(b) Access to MRO Records. Upon PSDI's receipt of any Exercise
Notice including a Bring-Down Request, PSDI will provide Grainger with such
information and access to such personnel, records and properties as Grainger may
reasonably request for Grainger's conducting of due diligence investigations
concerning the advisability of its purchase of MRO Common Stock.
(c) Operation of MRO. Until the expiration of the Exercise Period
or until such time (if any) as Grainger shall have exercised the MRO Option,
whichever is earlier, MRO and its subsidiaries shall be the primary entities
through which PSDI engages in the Internet Procurement Business, and a majority
of the Internet Procurement Business of PSDI shall be conducted by or through
MRO and its subsidiaries. For this purpose, "PSDI" shall include all entities
that are controlled by or under common control with PSDI, and "Internet
Procurement Business" shall mean PSDI's providing to its customers the
capability to initiate, transact and complete purchases over the Internet of
replacement parts for maintenance and repair operations.
(d) Registration Rights. If at any time a public offering shall be
made of MRO Common Stock, PSDI will cause Grainger to be given piggyback
registration rights with respect thereto on the same terms as are provided (but,
in this case, with respect to MRO Common Stock) in the Registration Rights
Agreement between PSDI and Grainger of even date herewith.
7. Restrictive Legends. Each certificate representing shares of
MRO Common Stock issued to Grainger hereunder shall include a legend in
substantially the following form:
<PAGE> 5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
OR BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR
IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
It is understood and agreed that (i) the reference to the resale restrictions of
the Securities Act and state securities or Blue Sky laws in the foregoing legend
shall be removed by delivery of substitute certificate(s) without such reference
if Grainger shall have delivered to PSDI a copy of a letter from the staff of
the Securities and Exchange Commission, or an opinion of counsel, in form and
substance reasonably satisfactory to PSDI, to the effect that such legend is not
required for purposes of the Securities Act or such laws. In addition, such
certificates shall bear any other legend as may be required by law.
8. Binding Effect; No Assignment; No Third-Party Beneficiaries.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement, neither this Agreement nor the rights
or obligations of either party hereto are assignable unless, the assignment is
made to an affiliate or subsidiary of the parties hereto, by operation of law or
with the written consent of the other party, and any such attempted assignment
in violation of this Agreement shall be void and of no force or effect. Nothing
contained in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto and their respective permitted assigns any
rights or remedies of any nature whatsoever.
9. Validity.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other governmental or regulatory
authority holds any provisions of this Agreement to be null, void or
unenforceable, the parties hereto shall negotiate in good faith the execution
and delivery of an amendment to this Agreement in order, as nearly as possible,
to effectuate, to the extent permitted by law, the intent of the parties hereto
with respect to such provision and the economic effects thereof.
(c) If for any reason any such court or other governmental or
regulatory authority determines that Grainger is not permitted to acquire, the
full number of shares of MRO Common Stock provided in this Agreement (as the
same may be adjusted), it is the express intention of PSDI to allow Grainger to
acquire such lesser number of shares as may be permissible without any other
amendment or modification hereof.
(d) Each party agrees that, should any court or other governmental
or regulatory
<PAGE> 6
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent herewith,
or not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
10. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if (a) delivered personally, or (b) if
sent by overnight courier service (receipt confirmed in writing), or (c) if
delivered by facsimile transmission (with receipt confirmed), or (d) five days
after being mailed by registered or certified mail (return receipt requested) to
the parties in each case to the following addresses (or at such other address
for a party as shall be specified by like notice):
IF TO GRAINGER, TO:
- ------------------
By Mail, Overnight Courier or Hand:
Prior to June 1, 1999 After June 1, 1999
W.W. Grainger, Inc. W.W. Grainger, Inc.
455 Knightsbridge Parkway 100 Grainger Parkway
Lincolnshire, Illinois 60069-3620 Lake Forest, Illinois 60045
Attention: Secretary Attention: Secretary
By Fax: (847) 793-6398 By Fax: (847) 535-9240
IF TO PROJECT SOFTWARE & DEVELOPMENT, INC., TO:
- ----------------------------------------------
By Mail, Overnight Courier or Hand:
100 Crosby Drive
Bedford, MA 01730
Attention: Chief Financial Officer
By Fax: (781) 280-0207
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Fax: (617) 832-7000
Attention: Peter M. Rosenblum
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
PRODUCT SOFTWARE & DEVELOPMENT, INC.
By: /s/ Norman E. Drapeau
----------------------------------
Name: Norman E. Drapeau
Its: President and CEO
W.W. GRAINGER, INC.
By: /s/ John A. Schweig
----------------------------------
Name: John A. Schweig
Its: Senior Vice-President
<PAGE> 8
EXHIBIT A
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
PSDI represents and warrants to Grainger that, except as otherwise set
forth in the attached Disclosure Schedule:
1. The representations and warranties set forth in Section 4 of
the Stock Option Agreement are true and correct.
2. ORGANIZATION AND STANDING. MRO (herein sometimes called the
"Company") is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and has the corporate or equivalent
power and authority to own, operate and lease its assets and to carry on its
business as currently conducted. The Company and its subsidiaries are duly
qualified to conduct business and are in good standing in every jurisdiction in
which the nature of the respective business conducted or assets owned by it
makes such qualification necessary and where the failure so to qualify would
have a material adverse effect on its business or financial condition (a
"material adverse effect"), and has all governmental licenses, authorizations,
consents and approvals required to carry on its business as currently conducted
except where the failure to hold such licenses, authorizations, consents or
approvals would not have a material adverse effect.
3. AUTHORIZATION. The issuance and sale of the shares will not
trigger any current Company shareholders' rights plan or violate (or create any
rights under) the provisions of M.G.L.A. chapters 110C, 110D, 110E and 110F. The
Company has furnished to Grainger (herein sometimes called the "Purchaser") true
and correct copies of the Company's Certificate of Incorporation and By-Laws as
in effect on the date of this representation and warranty.
4. CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is as stated on the Disclosure Schedule. All of the
outstanding shares of Common Stock, and the shares, have been duly authorized,
and the outstanding shares of Common Stock are, and the shares upon issuance and
payment therefor as provided herein will be, validly issued, fully paid and
nonassessable. The Company has no commitments to issue or deliver any shares of
capital stock, other than pursuant to this option. There are no preemptive or
other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of the Company or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe
for or acquire, any securities of the Company, and no securities or obligations
evidencing such rights are issued or outstanding. The Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote on any matter.
<PAGE> 9
5. COMPANY REPORTS; FINANCIAL STATEMENTS. The Company's latest
financial statements included in the audited financial statements of PSDI,
copies of which have been furnished to Grainger (the "Company Reports), fairly
present in all material respects the consolidated financial position of the
Company and its subsidiaries as of its date and each of the consolidated
statements of income and of cash flow included in or incorporated by reference
into the Company Reports (including any related notes and schedules) fairly
present in all material respects the consolidated results of operations and cash
flows, as the case may be, of the Company and its subsidiaries for the periods
set forth therein (subject, in the case of interim statements, to notes and
normal year-end audit adjustments that will not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein.
6. TAXES. The Company and each of its subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Company or any or its
subsidiaries the failure to pay which would have a material adverse effect. Such
returns are true and accurate in all material respects. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
taxes are, in the opinion of the Company, adequate.
7. GOVERNMENTAL FILINGS. In connection with the option exercise
and share sales, there are no filings, authorizations, consents, approvals or
notices required with or by any court, administrative agency, commission,
government or regulatory authority, domestic or foreign, except those that the
failure to make or obtain will not, individually or in the aggregate, have a
material adverse effect.
8. LITIGATION AND LIABILITIES. There are no actions, suits,
claims, proceedings or investigations pending against, or to the knowledge of
PSDI or the Company, threatened against or affecting, the Company or any of its
subsidiaries or any of their respective properties before any governmental
entity or otherwise that (i) individually or in the aggregate would be expected
to have a material adverse effect, (ii) in any manner challenges or seeks to
prevent, enjoin, alter or delay the transactions contemplated hereby or (iii)
alleges criminal action or inaction. As of the date hereof, neither the Company,
its subsidiaries nor any of their respective properties is subject to any order,
writ, judgment, injunction, decree, determination or award having, or that would
reasonably be expected to have, a material adverse effect or that would prevent
or delay the consummation of the transactions contemplated hereby. Except as
disclosed in the Company Reports, there are no pending or, to the knowledge of
the Company, threatened claims for indemnification by the Company or any of its
subsidiaries in favor of directors, officers, employees and agents of the
Company or any of its Subsidiaries.
9. COMPLIANCE WITH LAWS; PERMITS. The businesses of each of the
Company and its
<PAGE> 10
subsidiaries have been, and are being, conducted in compliance with all
applicable laws except in any such case for noncompliance that, individually or
in the aggregate, would not have a material adverse effect. The Company and its
subsidiaries each has all permits, licenses, trademarks, patents, trade names,
copyrights, service marks, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct its
business as presently conducted except those the absence of which would not,
individually or in the aggregate, have a material adverse effect.
10. NO ADVERSE EFFECTS OR CHANGES. Since the date of the latest
PSDI Company Report, neither the Company nor any subsidiary has experienced: (i)
any material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
11. MATERIAL CONTRACTS. Neither the Company nor any of its
Subsidiaries, to the best of the Company's knowledge, nor any other party is in
breach of or in default under any material contract, except for such breaches
and defaults as individually or in the aggregate have not had and will not have
a material adverse effect.
12. YEAR 2000 COMPLIANCE. The occurrence in or use by any of the
Company's current or future versions of its software systems that the Company
markets or licenses (collectively, the "Commercial Systems") of dates on or
after January 1, 2000 ("Millennial Dates") will not materially adversely affect
the Commercial Systems' performance with respect to date-dependent data,
computations, output, or other functions (including, without limitation,
calculating, comparing and sequencing). The Commercial Systems will create,
store, process and output information related to or including Millennial Dates
without material error or omissions and at no additional cost to the Company;
the foregoing warranty is subject to error-free input of date data in
appropriate format to the Commercial Systems.
As of December 31, 1999, the occurrence in or use by any of the
Company's current or future software systems used for its internal business
operations (collectively, the "Internal Systems") of dates on or after January
1, 2000 will not materially adversely affect the Internal
<PAGE> 11
Systems' performance with respect to date-dependent data, computations, output,
or other functions (including, without limitation, calculating, comparing and
sequencing). That the Internal Systems will create, store, process and output
information related to or including Millennial Dates without material error or
omissions; the foregoing warranty is subject to error-free input of date data in
appropriate format to the Internal Systems. To PSDI's best estimates and
knowledge, the costs associated with reaching the foregoing Internal Systems
warranty status shall not materially adversely affect the Company.
13. INTELLECTUAL PROPERTY. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent
rights, inventions, trade secrets, know-how, trademarks, technology, licenses,
service marks, trade names and copyrights which are necessary to conduct its
businesses as presently conducted; the expiration in accordance with the terms
of the applicable agreements of any patent, patent rights, trademarks, service
marks, trade names or copyrights would not to the Company's knowledge have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; the Company has not received any notice of, and
has no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of and has no knowledge of, any infringement
of or conflict with asserted rights of others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise.
14. ENVIRONMENTAL MATTERS.
(a) The Company and its subsidiaries are in compliance with all
environmental laws, and no condition exists or event has occurred which, with or
without notice or the passage of time or both, would constitute a violation of
or give rise to any liability, obligation or lien under any environmental law;
and
(b) the Company and its subsidiaries are in possession of all
environmental permits, if any, required for the conduct or operation of their
respective businesses (or any part thereof), and are in compliance with all of
the requirements and limitations included in such environmental permits.
15. ACCURACY OF STATEMENTS. These representations and warranties
and any schedule or certificate furnished or to be furnished by PSDI to
Purchaser in connection herewith taken as a whole, does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they are made, not misleading.
The representations and warranties stated above shall survive for 18
months following the option exercise.
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
on April 20, 1999 between Project Software & Development, Inc., a Massachusetts
corporation (the "Company"), and W.W. Grainger, Inc., an Illinois corporation
(the "Investor").
WHEREAS, Investor has requested that the Company issue and sell
Investor an aggregate of 500,000 Shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), pursuant to a stock purchase agreement
dated as of even date herewith (the "Stock Purchase Agreement"); and
WHEREAS, the Investor has requested and the Company is willing to grant
certain registration rights to the Investor as contemplated by the Stock
Purchase Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
Person, and any Person in which such Person owns 50% or more of the voting
equity interests.
"Overhang Risk" means a substantial risk that the offering and sale of
some or all shares sought to be sold in a Piggyback Registration will
substantially reduce the proceeds or price per unit to be derived from a
registration by the Person on whose behalf a registration statement is filed.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, governmental authority or other entity or
association.
"Registrable Shares" means any shares of Common Stock acquired pursuant
to the Stock Purchase Agreement and held by the Investor. As to any particular
Registrable Shares, such shares will cease to be Registrable Shares when and to
the extent that: (i) they are sold pursuant
<PAGE> 2
to a public offering registered under the Securities Act or (ii) the holder of
such Registrable Shares sells them to the public in compliance with Rule 144
under the Securities Act (or any similar rule then in force) or (iii) all of
such Shares may be sold in a three month period under Rule 144.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
ARTICLE II
PIGGYBACK REGISTRATIONS
SECTION 2.1 RIGHT TO PIGGYBACK. If the Company proposes to undertake an
underwritten offering of Common Stock for its account or the account of others
and the registration form to be used for such offering may be used for the
registration of Registrable Shares (a "Piggyback Registration"), the Company
will give prompt written notice to all holders of Registrable Shares of its
intention to effect such a registration (a "Piggyback Notice"). Subject to
SECTIONS 2.2 and 2.3, the Company will include in such registration all
Registrable Shares with respect to which the Company has received written
requests for inclusion therein. The holders of Registrable Shares shall be
entitled to an unlimited number of Piggyback Registrations. The Company hereby
represents that no person is entitled by any agreement with the Company (or
otherwise except as reflected in Section 2.2 (b) and (c) below) to any demand or
piggyback rights to register shares of the Company's common stock, other than
the Massachusetts Capital Resource Company ("MCRC"), which is entitled to
certain demand and piggyback registration rights with respect to approximately
111,750 shares of Common Stock pursuant to Article V of that certain
Subordinated Note and Warrant Purchase Agreement dated December 10, 1992 between
the Company and MCRC.
SECTION 2.2 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriter(s) advise(s) the Company and the Investor in
writing that in its/their opinion the number of securities requested to be
included in such registration would create an Overhang Risk, the Company will
include in such registration: (a) first, the securities the Company proposes to
sell; (b) second, up to 400,000 shares owned beneficially by Susan H. Daniels;
(c) third, on a pro rata basis based on the number of shares beneficially owned
by each as to which registration has been requested, the Registrable Shares
requested to be included therein and any other shares requested to be included
in such registration that are owned beneficially by Robert L. Daniels and by
MCRC; (d) fourth by Persons other than the holders of Registrable Shares
pursuant to registration rights granted after the date of this Agreement; and
(e) fifth, such other securities as to which registration is requested on the
basis of the number of shares of such securities owned by each such holder.
<PAGE> 3
SECTION 2.3 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is a secondary registration on behalf of holders of the Company's
securities other than the Registrable Shares, and the managing underwriter(s)
advise(s) the Company and the Investor in writing that in its/their opinion the
number of securities requested to be included in the registration would create
an Overhang Risk, the Company will include in the registration: (a) first, the
securities requested to be included therein by the holders requesting such
registration pursuant to demand registration rights; (b) second, up to 400,000
shares owned beneficially by Susan H. Daniels; (c) third, on pro rata basis
based on the number of shares beneficially owned by each as to which
registration has been requested, the Registrable Shares requested to be included
therein and any other shares requested to be included in such registration that
are owned beneficially by Robert L. Daniels and by MCRC; and (d) fourth, all
other shares as to which registration is requested.
SECTION 2.4 UNDERWRITING AGREEMENT. The right of any holder of
Registrable Securities to participate in such distribution shall be conditioned
upon such holder's agreement to enter into a written agreement with the managing
underwriter in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
ARTICLE III
REGISTRATION PROCEDURES
Whenever the holders of Registrable Shares request that any Registrable
Shares be registered pursuant to this Agreement, the Company will use its best
efforts to effect the registration and the sale of such Registrable Shares in
accordance with the intended method of disposition thereof, and pursuant thereto
the Company as expeditiously as possible will:
SECTION 3.1 NOTICE. Give the Investor written notice, no less than 10
days prior to the filing of the registration statement, of the Company's
intention to conduct a public offering pursuant to which the Investor's
registration rights would apply. Within 7 days of receipt of such notice, the
Investor will advise the Company whether the Investor wishes to include
Registrable Shares in such registration statement, and if so, the number of
shares it wishes to include.
SECTION 3.2 REGISTRATION STATEMENT. Prepare and file with the
Securities and Exchange Commission (the "SEC") a registration statement with
respect to such Registrable Shares and use its reasonable efforts to cause such
registration statement to become effective; provided, however, that the Company
may delay the filing or effectiveness of such registration statement or suspend
sales at any time under the registration statement immediately upon notice to
the undersigned at the last known address of the undersigned, for a period or
periods of time not to exceed in the aggregate 90 days during any 12-month
period, if there then exists material, non-public information relating to the
Company and, in the reasonable opinion of the Board of
<PAGE> 4
Directors of the Company, disclosure of such information would jeopardize an
important corporate objective and is not otherwise required by law; provided,
further, that the Company shall have the right to withdraw the registration
statement should it decide that it no longer wishes to pursue such offering.
SECTION 3.3 AMENDMENTS AND SUPPLEMENTS. Prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as are necessary to keep the
registration statement effective for the period required by the intended method
of disposition or to describe the terms of any offering made from an effective
Shelf Registration, and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by the registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement.
SECTION 3.4 COPIES OF STATEMENT. Furnish to each seller of Registrable
Shares and to its underwriter the number of copies of the registration
statement, each amendment and supplement thereto, the prospectus included in the
registration statement (including each preliminary prospectus) and any other
documents that the seller reasonably requests to facilitate the disposition of
its Registrable Shares.
SECTION 3.5 BLUE SKY LAWS. Use its reasonable efforts to register or
qualify such Registrable Shares under the securities or "blue sky" laws of any
jurisdiction(s) that any seller reasonably requests and do any and all other
acts and things that reasonably are necessary or advisable to enable such seller
to consummate the disposition in such jurisdiction(s) of its Registrable Shares;
provided, that the Company will not be required to: (a) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section, (b) subject itself to taxation in any such jurisdiction,
(c) consent to general service of process in any such jurisdiction or (d)
qualify such Registrable Shares in any jurisdiction where expressions of
investment interest are not sufficient reasonably to justify the expense of
qualification in that jurisdiction or where such qualification would require the
Company to register as a broker or dealer in such jurisdiction.
SECTION 3.6 ANTIFRAUD RULES. Notify each seller of such Registrable
Shares: (a) when a prospectus relating thereto is required to be delivered under
the Securities Act, or (b) of the happening of any event as a result of which
the prospectus contains an untrue statement of a material fact or omits any
material fact necessary to make the statements therein not misleading, and in
such event, at the request of any seller, the Company will prepare a supplement
or amendment to the prospectus so that, as thereafter delivered to the
purchasers or offerees of such Registrable Shares, such prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading.
SECTION 3.7 SECURITIES EXCHANGE LISTINGS. Cause all such Registrable
Shares to be
<PAGE> 5
listed on each securities exchange or quotation system on which similar
securities issued by the Company are then listed and to be qualified for trading
on each system on which similar securities issued by the Company from time to
time are qualified.
SECTION 3.8 TRANSFER AGENT AND REGISTRAR. Provide a transfer agent and
registrar for all such Registrable Shares not later than the effective date of
such registration statement and thereafter maintain a transfer agent and
registrar.
SECTION 3.9 DUE DILIGENCE. Permit the Investor, and its accountants and
counsel to conduct a reasonable due diligence investigation of the Company which
shall include (if necessary in the opinion of Counsel to the Investor)
inspection of all financial and other records, pertinent corporate documents and
assets of the Company, and reasonable access to the Company's officers,
directors, employees and independent accountants who shall supply all
information, certificates, opinions and "comfort letters" reasonably requested
by the Investor, or such accountants or counsel.
SECTION 3.10 EARNING STATEMENT. Use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering the
period of at least twelve months beginning with the first day of the Company's
first full calendar quarter after the effective date of the registration
statement, which earning statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder.
SECTION 3.11 MANAGEMENT AVAILABILITY. In connection with underwritten
offerings, make available appropriate management personnel for participation in
the preparation and drafting of the registration statement, in due diligence
meetings and in a series of "road show" meetings located in various cities.
SECTION 3.12 STOP ORDERS. In the event of the issuance of any stop
order suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any equity securities included in such registration statement
for sale in any jurisdiction, the Company will use its reasonable best efforts
to obtain the withdrawal of such order promptly.
SECTION 3.13 COMFORT LETTER. Obtain a "comfort letter" from the
Company's independent public accountants addressed to the selling holders of
Registrable Shares and the underwriters in customary form and covering such
matters of the type customarily covered by comfort letters as the holders of a
majority of the Registrable Shares being sold reasonably request.
The Investor on behalf of itself and any transferees of Registrable
Shares severally agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind
<PAGE> 6
described in SECTION 3.6 or 3.12, the holders of Registrable Shares promptly
will discontinue any disposition of Registrable Shares pursuant to a Piggyback
Registration until receipt of copies of an appropriate supplement or amendment
to the prospectus under SECTION 3.6 or until the withdrawal of the stop order
under SECTION 3.12, as appropriate.
ARTICLE IV
REGISTRATION EXPENSES
SECTION 4.1 EXPENSES BORNE BY COMPANY. Except as specifically otherwise
provided in SECTION 4.2, the Company will be responsible for the payment of all
expenses incident to any Piggyback Registration, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or "blue sky" laws, printing expenses, messenger and delivery
expenses, the fees and disbursements of counsel for the Company, and all
independent certified public accountants and other Persons retained by the
Company (all such expenses being the "Registration Expenses").
SECTION 4.2 EXPENSES BORNE BY SELLING SHAREHOLDERS. The selling
shareholders will be responsible for the payment of underwriting discounts,
commissions and other sales expenses incident to any Piggyback Registration and
for the fees and expenses of their counsel, if any.
ARTICLE V
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION BY COMPANY. The Company agrees to
indemnify, to the extent permitted by law, each holder of Registrable Shares
sold in an offering pursuant to a registration statement hereunder, its
officers, directors and trustees and each Person who controls (within the
meaning of the Securities Act) such holder against all losses, claims, damages,
liabilities or expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus relating to such offering, or any amendment or supplement thereto, or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are caused by or contained in any information furnished in
writing to the Company by such holder or by the underwriters expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus, or any amendments or supplements thereto, after the
Company has furnished it with a sufficient number of copies of the same.
SECTION 5.2 INDEMNIFICATION BY HOLDERS. In connection with any
registration statement in which a holder of Registrable Shares is participating,
each such holder will furnish to the Company in writing any information that the
Company reasonably requests for use in
<PAGE> 7
connection with the registration statement or prospectus and, to the extent
permitted by law, will indemnify the Company, its directors and officers and
each Person who controls (within the meaning of the Securities Act) the Company
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus, or any amendment
or supplement thereto, or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information so furnished in writing by such holder; provided,
that the obligation to indemnify will be individual to each holder and will be
limited to the proceeds received by such holder from the sale of Registrable
Shares pursuant to the registration statement. In connection with an
underwritten offering, each such holder will indemnify the underwriter(s),
its/their officers and directors and each Person who controls (within the
meaning of the Securities Act) the underwriter(s) at least to the same extent as
provided above with respect to the indemnification of the Company.
SECTION 5.3 ASSUMPTION OF DEFENSE BY INDEMNIFYING PARTY. Any Person
entitled to indemnification hereunder will: (a) give prompt written notice to
the indemnifying party of any claim with respect to which it seeks
indemnification and (b) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such claim, permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party. In
no event will the indemnifying party be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
will not be withheld unreasonably). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
SECTION 5.4 BINDING EFFECT. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling person of such indemnified party and will survive the transfer of
securities.
SECTION 5.5 CONTRIBUTION. (a) If the indemnification provided for in
SECTION 5.1 or 5.2 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any losses, claims, damages,
liabilities and expenses, then the indemnifying party, in lieu of indemnifying
the indemnified party, shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statement or omission that resulted in such losses,
claims, damages, liabilities or expenses as well as any other relevant
<PAGE> 8
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether such statement or omission relate
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(b) Notwithstanding CLAUSE (a), the amount any shareholder(s) shall be
obligated to contribute pursuant to CLAUSE (a) shall be limited to the proceeds
to such shareholder(s) of the Registrable Shares sold pursuant to the
registration statement that gives rise to the obligation to contribute (less the
amount of any monies that the shareholder(s) otherwise has/have been required to
pay in respect of such losses, claims, damages, liabilities or expenses or any
substantially similar losses, claims, damages, liabilities or expenses arising
from the sale of such Registrable Shares).
SECTION 5.6 SURVIVAL OF INDEMNITY. The indemnification provided by
ARTICLE V shall be a continuing right to indemnification and shall survive the
registration and sale of any Registrable Shares by any Person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
ARTICLE VI
PARTICIPATION IN UNDERWRITTEN REGISTRATION
No Person may participate in any registration hereunder that is
underwritten unless such Person: (a) agrees to sell its securities on the basis
provided in any underwriting arrangements approved by the Person(s) entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NO INCONSISTENT AGREEMENTS. The Company hereafter will not
enter into any agreement with respect to its securities that violates the rights
granted to the holders of Registrable Shares in this Agreement.
SECTION 7.2 REMEDIES. Any Person having rights under any provision of
this Agreement will be entitled to enforce its rights specifically to recover
damages caused by reason of any breach of this Agreement and to exercise all
other rights granted by law.
SECTION 7.3 EXPIRATION. Except as specifically otherwise provided
herein, this
<PAGE> 9
Agreement shall terminate on the earlier to occur of: (a) such time as all
Registrable Shares have ceased to be Registrable Shares hereunder and (b) such
time as the holders of Registrable Shares own, in the aggregate, one percent or
less of the total outstanding shares of Common Stock.
SECTION 7.4 AMENDMENTS AND WAIVERS. Except as specifically otherwise
provided herein, this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of a majority of the then outstanding
Registrable Shares.
SECTION 7.5 NOT BINDING ON SUCCESSORS AND ASSIGNS. The Purchaser shall
have the right to transfer to a wholly-owned subsidiary the Registrable Shares
and its rights and obligations under this Agreement. Except as set forth in the
previous sentence, the parties shall not assign their rights and obligations, in
whole or in part, whether by operation of law or otherwise, without the prior
written consent of the other party hereto.
SECTION 7.6 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, that provision will be
ineffective only to the extent of the prohibition or invalidity, without
invalidating the remainder of this Agreement.
SECTION 7.7 COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, and all of which taken together will constitute one and the
same Agreement.
SECTION 7.8 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are included for convenience only and do not constitute a part of this
Agreement.
SECTION 7.9 GOVERNING LAW. The laws of the State of Delaware will
govern the construction, validity and interpretation of this Agreement without
regard to any choice of law or conflict of law provision or rule.
SECTION 7.10 NOTICES. All communications, notices and consents provided
for in this Agreement shall be in writing and be deemed given (a) on delivery if
given in person, (b) on the date of transmission if sent by telex, facsimile or
other means of wire transmission (receipt confirmed), (c) one (1) day after
being delivered to a nationally recognized overnight courier or (d) four (4)
business days after being deposited in the United States mails, with proper
postage and documentation, for first-class registered or certified mail,
prepaid.
Notices shall be addressed as follows:
If to Investor:
Prior to June 1, 1999 After June 1, 1999
W.W. Grainger, Inc. W.W. Grainger, Inc.
455 Knightsbridge Parkway 100 Grainier Parkway
Lincolnshire, Illinois 60069 Lake Forest, Illinois 60045
Attn: Secretary Attn: Secretary
<PAGE> 10
If to the Company, to:
Project Software & Development, Inc
100 Crosby Drive
Bedford, Massachusetts 01730
Attn: Chief Financial Officer
provided, that if any party shall have designated a different address by notice
to the others, then to the last address so designated.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
PROJECT SOFTWARE & DEVELOPMENT, INC
By: /s/ Norman E. Drapeau
-------------------------------------
Name: Norman E. Drapeau
Its: President and CEO
W.W. GRAINGER, INC.
By: /s/ John A. Schweig
-------------------------------------
Name: John A. Schweig
Its: Senior Vice-President
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
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<CASH> 50,070
<SECURITIES> 27,137
<RECEIVABLES> 41,185
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<PP&E> 20,661
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<TOTAL-ASSETS> 147,991
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0
0
<COMMON> 106
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<TOTAL-LIABILITY-AND-EQUITY> 147,991
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