-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VqXO4s+VghAgPy9jjry0c4dQ20KakMipqJ9nlhchZuWBnCP6H5FYxxsoP6UIFLMx y97jJdVvdcLQvhQc2girKw== 0000950135-01-503962.txt : 20020413 0000950135-01-503962.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950135-01-503962 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFINIUM SOFTWARE INC CENTRAL INDEX KEY: 0001002044 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 042734036 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14855 FILM NUMBER: 1821786 BUSINESS ADDRESS: STREET 1: 25 COMMUNICATIONS WAY STREET 2: DRAWER 6000 CITY: HYANNIS STATE: MA ZIP: 02601 BUSINESS PHONE: 5087782000 FORMER COMPANY: FORMER CONFORMED NAME: SOFTWARE 2000 INC /MA/ DATE OF NAME CHANGE: 19960322 10-K 1 b41247ise10-k.txt INFINIUM SOFTWARE, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) of the securities exchange act of 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27030 INFINIUM SOFTWARE, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2734036 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 25 COMMUNICATIONS WAY, 02601 HYANNIS, MA (Zip Code) (Address of principal executive office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 778-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $0.01 (Title of class) --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant based upon the closing price of such stock as reported on the Nasdaq Small Cap Market on December 12, 2001, was $17,704,334. As of December 12, 2001, 13,514,759 shares of the registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Specifically identified information in the registrant's definitive proxy statement for its Annual Meeting of Stockholders which is currently expected to be held on February 8, 2002, to be filed pursuant to Regulation 14A is incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART 1 ITEM 1. BUSINESS All statements contained in this Form 10-K that are not historical facts, including but not limited to, statements regarding anticipated future capital requirements, the Company's future development plans, the Company's ability to obtain debt, equity or other financing, and the Company's ability to generate cash from operations, are based on current expectations. These statements are forward looking in nature and involve a number of risks and uncertainties, as more fully described herein. These statements are made pursuant to the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those described in the forward looking statements. OVERVIEW Infinium Software, Inc. (the Company or Infinium) develops, markets, implements and maintains enterprise-level business software applications, which are optimized for the IBM eServer iSeries (formerly the IBM AS/400), for organizations with revenues generally in the range of $25 million to $2 billion. These applications automate the human resources management, payroll, financial management, customer relationship management and materials management functions of organizations in a variety of industries worldwide including: hospitality and gaming, manufacturing, healthcare, retail, financial services, transportation and distribution. The Company also offers a comprehensive software solution designed exclusively for the unique requirements of process manufacturers. In addition to the applications optimized for the IBM platform, the Company also offers human resources and payroll software for the Microsoft Windows NT platform through its AdvaNTage Business Unit. The Company's IBM and NT software can both be deployed over intranets and the Internet. During fiscal year 2001, under the leadership of a new Chief Executive Officer and President hired in February 2001, the Company reassessed its business and established short term goals for fiscal 2001, which included stabilizing the Company, focusing on its core competencies, improving the profitability of the Company and preserving the Company's cash. As a part of these efforts, the Company significantly reduced the Company's costs in the third and fourth quarters of fiscal 2001. The Company's revenue is primarily derived from two sources: software license fees and services revenue. Software license fees include revenue from non-cancelable software license agreements entered into between the Company and its customers with respect to both the Company's products and third party products marketed and/or distributed by the Company. The Company's service revenue is comprised of software maintenance fees, fees for consulting and training services and fees for the Application Services Provider business (the ASP). Revenues from the Company's ASP business consist of monthly fees from ongoing services, including hosting, and are recognized daily as earned over the contract term, which is typically three years. The monthly fee for application services is typically fixed for the life of the contract, but subject to increases in the event a customer requires additional applications, increases its number of users or increases frequency of use. In September 2001, the Company decided to discontinue its ASP operations because it did not present an opportunity for timely profitability. As a result, the aforementioned revenues are incorporated within the loss from operations of the ASP segment in the accompanying financials. 1 SOFTWARE SOLUTIONS IBM ISERIES SOFTWARE AND MODULES: HUMAN RESOURCES/PAYROLL Human Resources Payroll Training Administration Flexible Benefits Infinium Benefits Self-service Infinium Manager Self-service Infinium Employee Self-service Infinium HR Self-service CUSTOMER RELATIONSHIP MANAGEMENT Sales Force Automation Marketing Automation Customer Service and Support Automation Analytics and Reporting MATERIALS MANAGEMENT Purchase Management Inventory Control Electronic Exchange Infinium Purchase and Order Self-service FINANCIAL MANAGEMENT General Ledger Payables Ledger Accounts Receivable Fixed Assets Purchase Management Payables Exchange Currency Management Project Accounting Infinium Invoice Matching Self-service Global Taxation Income Reporting PROCESS MANUFACTURING Manufacturing Control Formula Management Advanced Planning Regulatory Management Laboratory Analysis Order Processing Infinium's IBM e-Server i-Series solutions are integrated to provide a comprehensive end-to-end solution for its customers. The Company's Infinium Human Resources and Financial Management products provide icon-based user access to the underlying accounting, statistical and performance data through graphical "drag and drop" operations. Infinium Human Resources is a Web-integrated solution with e-business capabilities, such as manager and employee self-service, compensation and benefits management, employee training and career-path tracking, workforce management and line-manager empowerment. Infinium Financial Management is designed with strong internal controls and Web-integrated capabilities include reporting and analysis and self-service options. Infinium Customer Relationship Management is a fully-integrated, highly flexible, Web-based solution that supports business relationship management, sales and marketing, and support services with a single, central market database. Infinium Customer Relationship Management offers personal digital assistant capabilities, Web-based information exchange, fast implementation, and zero-maintenance desktop functionality. The Infinium Materials Management products include requisitioning, on-line approvals, receiving, and automatic sourcing and integrate closely with the Financial Management product line. The Infinium Materials Management products are often considered an extension of the core financial applications. The Process Manufacturing products cover a full range of formula-based process manufacturing operations and are fully integrated with the Company's Financial Management product line. MICROSOFT WINDOWS NT SOFTWARE: AdvaNTage Human Resources AdvaNTage Payroll AdvaNTage Employee Self Service AdvaNTage e-Resources 2 The Infinium AdvaNTage Human Resources system is fully integrated with Infinium AdvaNTage Payroll and provides a complete Human Resources Management tool and an Applicant Tracking Module. Employee Self Service is a Web-enabled solution that plugs into the AdvaNTage Human Resources Management System. Infinium eResources provides a set of Web native solutions that tracks past, present, and future information about an organization's workforce. CUSTOMER SUPPORT AND SOFTWARE MAINTENANCE The Company believes that providing a high level of support to its customers is a critical requirement for customer satisfaction and the long-term success of the Company. The Company believes that it has established a strong history of responsiveness to customer requirements and a high level of support, which has resulted in a loyal customer base. Infinium's primary customer support center is located at the Company's headquarters in Hyannis, Massachusetts. The Company also maintains support operations in Bend, Oregon, and in its United Kingdom, and Holland offices, servicing customers outside North America. Infinium also supports its customers in markets where it does not have a direct presence, through authorized distributors. In addition to telephone support, the Company offers an electronic support capability, called "Web Link," which is accessible over the Internet. It provides customers access to software release information, software bulletins and updates, tips and techniques information, and ordinary customer support dialogues, 24 hours per day, seven days per week. The Company provides its software updates, enhancements and customer support services under an annual maintenance arrangement offered to its customers. Initial maintenance fees are typically based on a percentage of the price of the licensed software. CONSULTING AND EDUCATION SERVICES Infinium's consulting services organization provides the Company's customers with fee-based services, including software implementation assistance, project management, software extension or customization, integration with existing customer software, and similar services. The Company also trains and certifies third-party organizations, such as consulting firms and system integrators, to complement the Company's consulting services operations. The Company offers a comprehensive series of fee-based training courses to its customers. Courses can be taken at the Company's headquarters in Hyannis, Massachusetts, at regional training centers, at a customer's site, and over the Internet. CUSTOMERS The Company's software solutions are used by approximately 1,800 customers worldwide. No single customer accounted for 10 percent or more of revenue in fiscal years 1999, 2000, or 2001. SALES AND MARKETING The Company offers its software and services through direct sales and business partner channels throughout the world. Regional sales and consulting services offices are located in the following metropolitan areas: Atlanta, Georgia; Las Vegas, Nevada; Chicago, Illinois; Los Angeles, California; Bend, Oregon; London, United Kingdom; Toronto, Canada; and Gouda, Holland. In addition, the Company has authorized resellers that license Infinium software directly to customers. The Company also has an inside sales operation that directs its efforts at the Company's existing customer base. The Company conducts comprehensive marketing programs that include advertising, direct mail, telemarketing, seminars, public relations, trade shows, customer relations and investor relations. 3 SOFTWARE DEVELOPMENT The Company devotes substantial resources to research and development in order to maintain and enhance the competitiveness of its software. The Company maintains multiple research and development operations, located in the following metropolitan areas: Hyannis, Massachusetts; Bend, Oregon; London, United Kingdom; and Gouda, Holland. In addition, the Company uses outsourcing relationships to supplement its internal development resources. ALLIANCE PROGRAM The Company has a comprehensive Alliance Program with consulting, sales, software, and platform partners supporting the Company's software throughout the world. Through this program, the Company seeks to expand its sales channels as well as technology, interoperability and support. The Infinium Alliance Program consists of four categories of partners: Consulting Alliance Partners, Sales Alliance Partners, Software Alliance Partners, and Platform Alliance Partners. The Company is actively seeking to expand its Alliance Program in every category. Alliance members are supported with joint marketing and sales initiatives, trade show opportunities, as well as technology development, training and integration resources. COMPETITION The enterprise business software solutions market is highly competitive and rapidly changing. A number of companies offer software similar to the Company's software and target the same customers as the Company. In addition, a number of companies are planning to offer products over the Internet competitive to the Company's products. The Company believes its ability to compete depends upon many factors within and outside its control, including the timely development and introduction of new software and software enhancements, software functionality, performance, price, reliability, customer service and support, sales and marketing efforts and software distribution. The Company believes that it competes favorably on the basis of each of these factors. The Company's primary competitors are presently J.D. Edwards & Company and Lawson Software. The Company believes, however, that competition in its industry is undergoing rapid change and that the barriers to competition between market segments that have previously existed are decreasing. Due to the relatively low barriers to entry in the software market, the Company expects additional competition from these and other emerging companies. Many of the Company's existing and potential competitors are substantially larger than the Company and have significantly greater financial, technical and marketing resources and have established extensive direct and indirect channels of distribution. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their software than the Company. The Company also expects that competition will increase as a result of software industry consolidation. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressure will not have a material adverse effect on the Company's business, operating results and financial condition. INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES The Company regards certain features of its internal operations, software and documentation as confidential and proprietary, and relies on a combination of contract, copyright, trademark, trade secret and patent laws and other measures to protect its proprietary intellectual property. The Company has filed a patent on certain technology. The Company has no registered patents, and existing copyright laws afford the Company only limited protection. The Company believes that, because of the rapid rate of technological change in the software market, trade secret and copyright protections are less significant than factors such as 4 the knowledge, ability and experience of the Company's employees, frequent software enhancements and the timeliness and quality of support services. The Company provides its software to customers under non-exclusive, non-transferable licenses. The Company generally licenses its software solely for the customer's internal operations and only on designated computers. In certain circumstances, the Company makes available enterprise-wide licenses. The Company provides source code to its customers for certain software and has escrowed its source code for the benefit of all customers. The provision of source code may increase the likelihood of misappropriation or other misuse of the Company's intellectual property. The Company licenses software from third-parties for use with its software. The Company believes that no such license agreement to which it is presently a party is material and that, if any such license agreement were to terminate for any reason, the Company would be able to obtain a license or otherwise acquire other comparable technology or software on terms that would not be materially adverse to the Company. EMPLOYEES As of September 30, 2001, the Company had 344 full-time-equivalent employees, including 75 in sales and marketing, 86 in software development, 129 in customer support and field services and 54 in administration. The Company's success will depend, in large part, upon its ability to continue to attract and retain qualified employees. None of the Company's employees are represented by a labor union or are subject to a collective bargaining agreement. The Company believes that its relations with its employees are good. ITEM 2. PROPERTIES The Company is headquartered in Hyannis, Massachusetts, where it leases an aggregate of 65,000 square feet of space. Administrative, marketing, product development and customer support operations are located in this Hyannis space. The Company's obligation to lease 65,000 square feet of space in Marlborough, Massachusetts for its discontinued Application Services Provider operations will expire on March 31, 2002 as agreed upon September 26, 2001. The Company leases 12,360 square feet of space in Lexington, Massachusetts, however; the Company is actively attempting to sub-lease the entire square footage of this space. The Company leases approximately 13,000 square feet of space in the London, United Kingdom area for product development, sales and consulting services purposes; 6,150 square feet of the space has been sublet to another company and the Company is actively attempting to sub-lease the remaining space and move to a smaller facility. The Company leases a 6,400 square foot office in the Netherlands for sales, marketing, development and consulting services purposes. The Company leases space in Malaysia for sales, marketing and development purposes. In addition, the Company leases space predominately for use by field operations located in the following metropolitan areas: Atlanta, Georgia; Chicago, Illinois; Los Angeles, California; Las Vegas, Nevada; and Toronto, Canada; the Company is actively attempting to sub-lease portions of its Atlanta, Chicago and Los Angeles offices. Office facilities are also being leased for senior management's use in Middleburg, Virginia. The Infinium AdvaNTage Business Unit located in Bend, Oregon, leases 16,000 square feet of space for support, field operations, training, marketing, and administration for the Company's Infinium AdvaNTage software. The Company believes that its existing facilities are more than adequate to meet current needs. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company believes that it is not a party to any material legal proceedings which, individually or in the aggregate, would have a material adverse effect on the Company's results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the fourth quarter of the fiscal year ended September 30, 2001, through the solicitation of proxies or otherwise. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock formerly traded on the Nasdaq National Market, is now traded on the Nasdaq Small Cap Market under the symbol "INFM." Public trading of the common stock commenced on November 17, 1995, on the Nasdaq National Market under the symbol "SFWR" until February 18, 1997, when the Company changed the corporate name to Infinium Software, Inc. Prior to that time, there was no public market for the Company's common stock. The following table sets forth the high and low closing prices, as reported by Nasdaq, for the periods indicated.
HIGH LOW ------- ------- FISCAL 2001 First Quarter............................................. $ 3.125 $1.1875 Second Quarter............................................ 2.4375 1.2812 Third Quarter............................................. 1.500 0.950 Fourth Quarter............................................ 1.150 0.630 FISCAL 2000 First Quarter............................................. $7.0625 $4.0625 Second Quarter............................................ 8.000 4.9375 Third Quarter............................................. 6.625 3.000 Fourth Quarter............................................ 4.250 2.250 FISCAL 1999 First Quarter............................................. $ 9.000 $ 5.063 Second Quarter............................................ 6.938 3.813 Third Quarter............................................. 6.125 4.063 Fourth Quarter............................................ 5.813 4.281
On December 12, 2001, there were approximately 740 holders of record. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain future earnings to fund the development and growth of its business. 6 ITEM 6. SELECTED FINANCIAL DATA Certain prior year amounts have been reclassified to conform with current year's presentation in the following information. CONSOLIDATED STATEMENT OF OPERATIONS DATA:
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue: Software license fees.................. $ 10,363 $ 20,473 $ 32,437 $ 40,704 $29,781 Services revenue....................... 63,707 72,261 89,568 73,490 56,861 -------- -------- -------- -------- ------- Total revenue....................... 74,070 92,734 122,005 114,194 86,642 -------- -------- -------- -------- ------- Operating costs and expenses: Cost of software license fees(1),(6),(7)..................... 8,157 7,101 14,518 7,210 5,070 Cost of services(1).................... 19,304 31,563 40,389 32,330 22,400 Research and development(1)............ 16,165 21,296 19,140 19,071 16,614 Sales and marketing.................... 27,182 36,102 40,135 36,632 30,449 General and administrative(1),(6)...... 16,431 15,620 14,514 9,351 7,336 Write-off of in-process research and development acquired(2)............. -- -- -- 11,196 6,846 -------- -------- -------- -------- ------- Total operating costs and expenses.......................... 87,239 111,682 128,696 115,790 88,715 -------- -------- -------- -------- ------- Loss from operations..................... (13,169) (18,948) (6,691) (1,596) (2,073) Other income, net(3)..................... 22 6,104 2,633 1,744 1,923 -------- -------- -------- -------- ------- Income (loss) from continuing operations before provision for (benefit from) income taxes........................... (13,147) (12,844) (4,058) 148 (150) Provision for (benefit from) income taxes(3),(8)........................... (2,284) 6,860 (1,698) 47 (263) -------- -------- -------- -------- ------- Income (loss) from continuing operations............................. (10,863) (19,704) (2,360) 101 113 Discontinued operations: Loss from operations of ASP segment(4).......................... (11,658) (8,112) -- -- -- Loss from disposal of ASP segment(5)... (1,811) -- -- -- -- -------- -------- -------- -------- ------- Net loss:................................ $(24,332) $(27,816) $ (2,360) $ 101 $ 113 ======== ======== ======== ======== ======= Earnings (loss) per share: Basic earnings (loss) per share from continuing operations............... $ (0.84) $ (1.56) $ (0.19) $ 0.01 $ 0.01 ======== ======== ======== ======== ======= Basic and diluted loss per share from ASP segment......................... $ (1.04) $ (0.64) $ -- $ -- $ -- ======== ======== ======== ======== ======= Basic and diluted loss per share, net................................. $ (1.88) $ (2.20) $ (0.19) $ 0.01 $ 0.01 ======== ======== ======== ======== ======= Weighted average shares outstanding -- basic............................... 12,941 12,668 12,421 12,399 11,777 ======== ======== ======== ======== ======= Weighted average shares outstanding -- diluted............................. 12,941 12,668 12,421 13,808 12,539 ======== ======== ======== ======== =======
7 - --------------- (1) In fiscal year 1999, the Company incurred expenses of $9.5 million as a result of costs associated with the write-off of discontinued product lines. Of this amount, $6.3 million is included in cost of software license fees, and $3.2 million is included in general and administrative costs (See Note 10 to the consolidated financial statements). In fiscal year 2000, the Company realized operating losses from its discontinued product lines of $5.7 million. Operating expenses of $6.2 million were incurred to provide maintenance and support transition for customers to alternative software platforms and to resolve disputes. Expenses for the discontinued lines recorded in cost of service, research and development, and general and administrative were $1.9 million, $2.1 million, and $2.2 million, respectively. (2) In connection with the acquisition of Time Open Systems Limited in 1997 and Cort Directions, Inc. in 1998, $6.9 million and $7.8 million, respectively, allocated to in-process research and development had not reached technological feasibility and was charged to operations at the acquisition date. Also in 1998, the Company acquired software code developed by a third-party for $3.4 million and determined that it had not reached technological feasibility. Accordingly, $3.4 million was written-off at the acquisition date, aggregating a write-off of $11.2 million of in-process research and development acquired in 1998. (3) During the fourth quarter of fiscal year 2000, the Company established a valuation allowance for its deferred tax asset balances, which resulted in a fourth quarter charge of $14.0 million (See Note 15 to the consolidated financial statements). The Company also received the benefit of a $4.9 million legal settlement associated with the defense of its intellectual property (See Note 12 to the consolidated financial statements). (4) Included in loss from operations of ASP segment is a $6.1 million charge for the write-off of fixed asset balances [(primarily leasehold improvements) (See Note 11 to the consolidated financial statements)]. (5) The Company discontinued its ASP business unit requiring the recognition of a $1.8 million loss on its disposal (See Note 11 to the consolidated financial statements). (6) During fiscal year 2001, the Company wrote down $4.7 million of impaired long-lived assets associated with the acquisition of Dexton, acquired in January 2000, which was comprised of $721 thousand of goodwill, $2.4 million of intangibles, and $1.6 million of acquired technology. Additionally, $525 thousand and $347 thousand of goodwill associated with the acquisitions of iT-Soft in November 1999 and Cort Directions, Inc. in June 1998, respectively, were written-off. Based on the declining historical and forecasted operating results of Dexton, iT-Soft, and Cort the estimated value of these assets to the Company had decreased and were written down to net realizable value by the Company. All of the above charges have been recorded in general and administrative expenses for fiscal 2001, with the exception of acquired technology, which has been recorded in cost of software license fees (See Note 7 to the consolidated financial statements). (7) During fiscal year 2001, the Company determined that because of a declining market for certain of its products and faster production of product updates, capitalized software development costs on the balance sheet would be amortized over 18 months as opposed to the three-year life previously used. This resulted in additional amortization expenses of $2.7 million during fiscal year 2001 (See Note 8 to the consolidated financial statements). (8) During fiscal year 2001, the Company recorded a benefit of $2.3 million, primarily as a result of the favorable resolution of potential tax liabilities. 8 CONSOLIDATED BALANCE SHEET DATA:
SEPTEMBER 30, ------------------------------------------------- 2001 2000 1999 1998 1997 -------- ------- ------- -------- ------- (IN THOUSANDS) Cash, cash equivalents, and marketable securities............................... $ 15,286 $20,738 $47,212 $ 46,293 $48,319 Total assets............................... 35,297 71,249 93,881 107,982 92,815 Deferred revenue........................... 28,988 36,654 37,807 42,475 36,702 Other long-term liabilities................ 524 1,291 343 -- -- Total liabilities.......................... 47,977 59,586 58,538 68,351 54,080 Stockholders' equity (deficit)............. (12,680) 11,663 35,343 39,631 38,735
9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All statements contained herein that are not historical facts, including but not limited to statements regarding anticipated future revenue and expense levels and capital requirements, the Company's future product development and marketing plans, the Company's ability to generate cash from operations, and the Company's ability to attract and retain employees, are based on current expectations. These statements are forward-looking in nature, involve a number of risks and uncertainties, as more fully described under "Factors Affecting Future Performance," and are made pursuant to the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those described in the forward-looking statements. OVERVIEW Infinium Software, Inc. ("Infinium" or "the Company") develops, markets and supports enterprise-level business software applications and provides software application services. Infinium offers Web-and server-based financial, human resources, supply management, process manufacturing, business analytics and customer relationship management solutions, services, support and deployment options to its customers. During fiscal year 2001, under the leadership of a new Chief Executive Officer and President hired in February 2001, the Company reassessed its business and established short term goals for fiscal 2001, which included stabilizing the Company, focusing on its core competencies, improving the profitability of the Company and preserving the Company's cash. As a part of these efforts, the Company dramatically reduced the Company's costs in the third and fourth quarters of fiscal 2001. During the third quarter, the Company recorded $11.8 million in one-time charges associated with headcount reductions, facilities consolidations, write-offs of certain fixed assets, goodwill and intangible assets. The headcount reductions included 22 percent of the Company's workforce. During the fourth quarter, the Company decided to discontinue its Application Service Provider ("ASP") business and recorded $7.9 million in charges associated with fixed asset impairment and the costs of disposing this segment. As a result, the accompanying financial statements have been adjusted to reflect the ASP business as a discontinued operation. Also during the fourth quarter, the Company recorded a charge of $1.2 million associated with the restructuring of its AdvaNTage (also known as "Cort") Business Unit, including headcount reductions, and write-offs of goodwill and intangibles. The Company recognizes software license fee revenues in accordance with the provisions of AICPA Statement of Position 97-2, Software Revenue Recognition, AICPA Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions (SOP 98-9) and their related interpretations. Revenue from software license fees is recognized when there is evidence of an arrangement, the product has been delivered, fees are fixed or determinable, and collection of the related receivable is deemed probable. Revenues from sales of third party products are recorded net of royalties, in accordance with Emerging Issue Task Force 99-19, Reporting Revenue Gross as a Principle versus Net as an Agent. Generally, the Company's software products do not require significant modification or customization. Installation of the products is normally routine and is not essential to the functionality of the product. The Companies sales frequently include maintenance contracts and professional services with the sale of its software licenses. The Company has established vendor-specific objective evidence of fair value (VSOE) for its maintenance contracts and professional services, which is determined based upon the prices charged to customers when these elements are sold separately. Maintenance revenues, including those sold with the initial license fee, are deferred based on VSOE, typically determined by the renewal rate of the annual maintenance contract, and recognized ratably over the maintenance contract period. Consulting and training service revenues, including those sold with license fees, are recognized as the services are performed based on their established VSOE. The amount of revenue allocated to the licenses sold with services and/or maintenance is determined using the "residual method" of accounting. Under the residual method, the total value of the arrangement is allocated first to the undelivered elements based on their VSOE with the remainder being allocated to license fees. Revenues from the Company's Application Services Provider business consist of monthly fees from ongoing services, including hosting, and are recognized daily as earned over the contract term, which is 10 typically three years. The monthly fee for application services is typically fixed for the life of the contract, but subject to increases in the event a customer requires additional applications, increases its number of users or increases frequency of use. The Company recognizes set-up fees for these arrangements over the expected life of the customer relationship. Recognition of revenue related to these arrangements commences on the date that the customer is able to access and utilize the features and functionality of the applications as intended. In September 2001, the Company decided to discontinue its ASP operations because it did not present an opportunity for timely profitability. As a result, the aforementioned revenues are incorporated within the loss from operations of the ASP segment in the accompanying financials. YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO YEAR ENDED SEPTEMBER 30, 2000 REVENUE. Total revenue, exclusive of revenue associated with discontinued operations, decreased 20 percent, from $92.7 million for the year ended September 30, 2000 to $74.1 million for the year ended September 30, 2001. The decrease was due to the reductions in the Company's consulting services and software license fees. Revenue from continuing operations in North America (United States and Canada) decreased 21 percent, from $84.6 million for the year ended September 30, 2000 to $67.0 million for the year ended September 30, 2001. This is representative of 91 percent of total revenue for both fiscal 2000 and fiscal 2001. EMEA (Europe, Middle East and Africa) revenue decreased 22 percent from $7.2 million for the year ended September 30, 2000 to $5.6 million for the year ended September 30, 2001, which was 8 percent of total revenue for both fiscal 2000 and 2001. Other international regions, including Asia Pacific and Latin America, contributed approximately 1 percent of total revenue for both fiscal 2000 and fiscal 2001. Software license fee revenue decreased 49 percent, from $20.5 million for the year ended September 30, 2000 to $10.4 million for the year ended September 30, 2001. The Company believes that the decrease was primarily due to the slowdown in technology spending, further complicated by restructuring within the Company. Service revenue, exclusive of revenue associated with discontinued operations, decreased 12 percent, from $72.3 million for the year ended September 30, 2000 to $63.7 million for the year ended September 30, 2001. The decrease was primarily attributable to lower software license fee revenue. The following table summarizes the composition and decrease in the Company's service revenue:
FISCAL YEAR ENDED % OF $ SEPTEMBER 30, (DECREASE) --------------------- ------------- 2001 2000 2000 - 2001 --------- --------- ------------- (IN THOUSANDS EXCEPT PERCENTAGE DATA) Software maintenance revenue.......................... $42,783 $42,836 (--)% Consulting services revenue........................... 20,924 29,425 (29)% ------- ------- Total service revenue................................. $63,707 $72,261 (12)% ======= =======
COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists primarily of amortization expenses related to capitalized software development costs, royalties on the sale of third-party products and the cost of product media, manuals and shipping. Cost of software license fees increased from $7.1 million or 35 percent of software license fees in fiscal 2000, to $8.2 million, or 79 percent of license fees in fiscal 2001. This increase in dollar amount is primarily due to charges of $2.7 million associated with the change in the estimated life of capitalized software and $1.6 million associated with the write-off of purchased software. Excluding these charges, cost of software license fees decreased 46 percent and approximates the reduction in software license fees. COST OF SERVICES. Cost of services consists of costs to provide support, implementation, consulting and training services to licensees. Cost of services, exclusive of costs associated with discontinued operations in fiscal 2001 and product lines discontinued in fiscal 2000 ($1.9 million), decreased 35 percent from $29.7 million for the year ended September 30, 2000 to $19.3 million for the year ended September 30, 2001. Cost of services as a percentage of service revenue decreased from 41 percent for the year ended 11 September 30, 2000 to 30 percent for the year ended September 30, 2001. The decrease is due to lower third-party consulting expenses and lower internal consulting expenses associated with reduced headcount. RESEARCH AND DEVELOPMENT. Research and development expenses consists primarily of engineering personnel costs, contractor costs, and related facilities and computers and communications overhead, reduced by capitalized software development costs and research funding. The following table sets forth, for the periods indicated, the relationship between the Company's research and development expenses as recorded on its consolidated statements of operations and its total research and development spending:
FISCAL YEAR ENDED SEPTEMBER 30, 2001 2000 ------- ------- (IN THOUSANDS) Research and development expenses........................... $16,165 $21,296 Capitalized software development costs...................... 2,353 1,557 ------- ------- Research and development spending........................... $18,518 $22,853 ======= =======
Research and development expenses, exclusive of costs associated with discontinued operations, was $21.3 million and $16.2 million for the years ended September 30, 2000 and 2001, respectively. Research and development expenses as a percentage of total revenue was 23 percent for the year ended September 30, 2000 and 22 percent for the year ended September 30, 2001. The Company capitalized $1.6 million for the year ended September 30, 2000 and $2.4 million for the year ended September 30, 2001. Additionally, research and development spending decreased 19 percent from $22.9 million for the year ended September 30, 2000 to $18.5 million for the year ended September 30, 2001. Reductions are primarily associated with reduced headcount. The Company continues to make investments in research and development. SALES AND MARKETING. Sales and marketing expenses consists primarily of salaries, commissions, travel, promotional expenses, facilities, and computers and communications overhead costs associated with the Company's sales and marketing efforts. Sales and marketing expenses, exclusive of expenses associated with discontinued operations, decreased 25 percent from $36.1 million for the year ended September 30, 2000 to $27.2 million for the year ended September 30, 2001. Sales and marketing expenses as a percentage of total revenue decreased from 39 percent for the year ended September 30, 2000 to 37 percent for the year ended September 30, 2001. The decrease in expenses as both a dollar amount and percentage was primarily due to lower sales costs from headcount reductions as well as lower marketing costs as a result of the company-wide emphasis on cost reduction in fiscal year 2001. GENERAL AND ADMINISTRATIVE. General and administrative expenses consists primarily of compensation for executive and administrative personnel, associated facilities, computers and communications overhead, provision for doubtful accounts, amortization of intangible assets, insurance, and outside professional fees. General and administrative expenses, exclusive of expenses associated with discontinued operations, increased 5 percent, from $15.6 million for the year ended September 30, 2000 to $16.4 million for the year ended September 30, 2001. General and administrative expenses as a percentage of total revenue increased from 17 percent for the year ended September 30, 2000 to 22 percent for the year ended September 30, 2001. The increase in general and administrative expenses was primarily due to one-time charges of $6.5 million comprised of the following: $3.9 million associated with the write-off of goodwill and intangibles, $1.6 million associated with the write-off of fixed assets, and lease obligations and $1.0 million associated with the Company's reduction in force and executive terminations. Non-recurring expenses included in general and administrative expenses amounted to $2.2 million during fiscal year 2000. Excluding these one-time charges associated with each fiscal year, general and administrative expenses decreased 26 percent from $13.4 million for the year ended September 30, 2000 to $9.9 million for the year ended September 30, 2001. The decrease is due to cost savings associated with the Company's reduced headcount and overall cost-cutting measures. Excluding these charges, general and administrative expenses as a percentage of total revenue decreased from 14 percent for the year ended September 30, 2000, to 13 percent for the year ended September 30, 2001. As a result of the write-off of goodwill, the Company expects lower future general and administrative expenses. 12 OTHER INCOME, NET. Other income, net consists of interest income, interest expenses, foreign currency exchange gains and losses, marketable equity securities gains and losses and a legal settlement. During the fourth quarter of fiscal 2000 the Company recorded a $4.9 million gain associated with a legal settlement in defense of the Company's intellectual property. Other income, net decreased from $6.1 million for the year ended September 30, 2000 to $22,000 for the year ended September 30, 2001. The decrease was primarily attributed to the settlement noted above, lower interest income due to lower cash, lower rates of return available in the market, and marketable securities balances available for investment and foreign exchange losses. Additionally, the Company recorded a charge of $331 thousand to reflect the other than temporary decline in fair value of one of these equity investments below its initial cost basis. PROVISION FOR (BENEFIT FROM) INCOME TAXES. The provision for (benefit from) federal, state and foreign income taxes was $6.9 million and ($2.3) million for the years ended September 30, 2000 and 2001, respectively. The tax benefit recognized for 2001 was primarily a result of the favorable resolution of potential tax liabilities and the release of reserves as a result of increased net operating losses. During fiscal year 2000, the Company established a valuation allowance for its deferred tax assets which resulted in a $14.0 million charge and was primarily responsible for the provision (See Notes 2 and 15 to the consolidated financial statements). DISCONTINUED APPLICATION SERVICE PROVIDER BUSINESS. In the fourth quarter of fiscal year 2001, the Company decided to discontinue its ASP business unit. The Company recorded a charge of $1.8 million associated with the disposal of the ASP segment. Additionally, the Company realized operating losses from its discontinued ASP business of $8.1 million and $11.7 million for the years ended September 30, 2000 and 2001, respectively. Included in the loss from operations of the discontinued segment is a $6.1 million charge for the write-off of unrecoverable fixed asset balances. YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO YEAR ENDED SEPTEMBER 30, 1999 REVENUE. Total revenue, exclusive of revenue associated with discontinued operations, decreased 24 percent, from $122.0 million for the year ended September 30, 1999 to $92.7 million for the year ended September 30, 2000. The decrease was due to the reductions in the Company's consulting services and software license fees. Revenue from continuing operations in North America (United States and Canada) decreased 26 percent, from $113.5 million for the year ended September 30, 1999 to $84.6 million for the year ended September 30, 2000. This is representative of 93 percent and 91 percent of total revenue for fiscal 1999 and fiscal 2000, respectively. EMEA (Europe, Middle East and Africa) revenue decreased 12 percent from $8.2 million for the year ended September 30, 1999 to $7.2 million for the year ended September 30, 2000, which was 7 percent and 8 percent of total revenue for fiscal 1999 and 2000, respectively. Other international regions, including Asia Pacific and Latin America, contributed approximately 1 percent of total revenue for both fiscal 1999 and 2000. Software license fee revenue decreased 37 percent, from $32.4 million for the year ended September 30, 1999 to $20.5 million for the year ended September 30, 2000. The Company believes that the decrease was primarily due to the elimination of revenues related to discontinued products, potential customers deciding to postpone software acquisitions to focus on their Year 2000 compliance issues in the first quarter of fiscal 2000 and the subsequent slow recovery in the market for the licensing of back office applications. Service revenue, exclusive of revenue associated with discontinued operations, decreased 19 percent, from $89.6 million for the year ended September 30, 1999 to $72.3 million for the year ended September 30, 2000. The decrease was primarily attributable to lower software license fee revenue and elimination of Year 2000 13 consulting services after the first quarter of 2000. The following table summarizes the composition and decrease in the Company's service revenue:
% OF $ FISCAL YEAR ENDED INCREASE SEPTEMBER 30, (DECREASE) --------------------- ------------- 2000 1999 1999 - 2000 --------- --------- ------------- (IN THOUSANDS EXCEPT PERCENTAGE DATA) Software maintenance revenue.......................... $42,836 $42,153 2% Consulting services revenue........................... 29,425 47,415 (38)% ------- ------- --- Total service revenue............................... $72,261 $89,568 (19)% ======= ======= ===
COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists primarily of amortization expenses related to capitalized software development costs, royalties on the sale of third-party products and the cost of product media, manuals and shipping. Cost of license fees decreased from $14.5 million or 45 percent of software license fees in fiscal 1999, to $7.1 million, or 35 percent of license fees in fiscal 2000. Excluding the 1999 charges related to product discontinuance of $6.3 million (which includes $5.6 million related to the write-off of capitalized purchased software and $700 thousand related to the write-off of prepaid royalties for third-party products sold with the discontinued product line), cost of software license fees decreased 13 percent from $8.2 million for the year ended September 30, 1999 to $7.1 million for the year ended September 30, 2000. Exclusive of the changes related to product discontinuances in fiscal 1999, cost of software license fees as a percentage of software license fee revenue increased from 25 percent for the year ended September 30, 1999 to 35 percent for the year ended September 30, 2000. The decrease of such costs resulted primarily from the elimination of amortization of capitalized software costs related to a discontinued product during fiscal 1999. The increase as a percentage of license fee revenues was due to a decrease in software license fees and an increase in third-party royalty fees. COST OF SERVICES. Cost of services consists of costs to provide support, implementation, consulting and training services to licensees. Cost of services, exclusive of cost associated with discontinued operations, decreased 22 percent from $40.4 million for the year ended September 30, 1999 to $31.6 million for the year ended September 30, 2000. Cost of services as a percentage of service revenue decreased from 45 percent for the year ended September 30, 1999 to 44 percent for the year ended September 30, 2000. The decrease is primarily due to lower third-party consulting fees. RESEARCH AND DEVELOPMENT. Research and development expenses consists primarily of engineering personnel costs, contractor costs, and related facilities and computers and communications overhead, reduced by capitalized software development costs and research funding. The following table sets forth, for the periods indicated, the relationship between the Company's research and development expenses as recorded on its consolidated statements of operations and its total research and development spending:
FISCAL YEAR ENDED SEPTEMBER 30, ----------------- 2000 1999 ------- ------- (IN THOUSANDS) Research and development expenses........................... $21,296 $19,140 Capitalized software development costs...................... 1,557 5,793 ------- ------- Research and development spending........................... $22,853 $24,933 ======= =======
Research and development expenses, exclusive of expenses associated with discontinued operations, was $19.1 million and $21.3 million for the years ended September 30, 1999 and 2000, respectively. Research and development expenses as a percentage of total revenue was 16 percent for the year ended September 30, 1999 and 23 percent for the year ended September 30, 2000. The Company capitalized $5.8 million for the year ended September 30, 1999 and $1.6 million for the year ended September 30, 2000. Additionally, research and development spending decreased 8 percent from $24.9 million for the year ended September 30, 1999 to $22.9 million for the year ended September 30, 2000. For the year ended September 30, 2000, research and 14 development expenses associated with discontinued product lines was $2.1 million. The Company continues to make significant investments in research and development. The Company believes that development spending is critical to building long-term product and technology advantages in the market. SALES AND MARKETING. Sales and marketing expenses consists primarily of salaries, commissions, travel, promotional expenses, facilities, and computers and communications overhead costs. Sales and marketing expenses, exclusive of expenses associated with discontinued operations, decreased 10 percent from $40.1 million for the year ended September 30, 1999 to $36.1 million for the year ended September 30, 2000. Sales and marketing expenses as a percentage of total revenue increased from 33 percent for the year ended September 30, 1999 to 39 percent for the year ended September 30, 2000. The decrease expense was primarily due to reduced commissions resulting from lower sales levels. These costs were partially offset by increased investments in the Company's corporate image and brand awareness marketing which resulted in the increase as a percentage of overall revenue. GENERAL AND ADMINISTRATIVE. General and administrative expenses consists primarily of compensation for executive and administrative personnel, associated facilities, computers and communications overhead, provision for doubtful accounts, amortization of intangible assets, insurance, outside professional fees, and a portion of the expenses incurred related to the Company's discontinued product lines. General and administrative expenses, exclusive of expenses associated with discontinued operations, increased 8 percent, from $14.5 million for the year ended September 30, 1999 to $15.6 million for the year ended September 30, 2000. General and administrative expenses as a percentage of total revenue increased from 12 percent for the year ended September 30, 1999 to 17 percent for the year ended September 30, 2000. The increase in general and administrative expenses was primarily due to costs associated with the Company's increasing focus on its new customer relationship management line of business, as well as the expenses incurred in connection with the discontinued product lines. In addition, during the third quarter of fiscal 2000, general and administrative expenses included costs associated with employee attendance at Infinium World, the Company's annual customer conference. WRITE-OFF OF DISCONTINUED PRODUCT LINES. In the fourth quarter of fiscal year 1999, the Company decided to discontinue new release development of Infinium Financials and Infinium Human Resources for Microsoft Windows NT. The Company had agreed to provide maintenance and consulting services for existing customers until November 2000. Of the $9.5 million of estimated costs related to these actions, $2.3 million is related to impaired receivables, $5.6 million relates to the write-off of capitalized and purchased software, $900 thousand is related to the write-off of goodwill associated with the Company's acquisition of Time Open Systems Limited, and $700 thousand is related to the write-off of prepaid royalties for third-party products sold with the discontinued product lines. In fiscal year 2000, the Company realized operating losses from its discontinued product line of $5.7 million. Operating expenses of $6.2 million was incurred to provide maintenance and support, to transition customers to alternative software platforms and to resolve disputes. Expenses recorded in cost of service, research and development, and general and administrative were $1.9 million, $2.1 million, and $2.2 million, respectively. OTHER INCOME, NET. Other income, net consists of interest income, interest expense, foreign exchange gains and losses, marketable equity securities gains and losses and a legal settlement. During the fourth quarter of fiscal 2000 the Company recorded a $4.9 million gain associated with a legal settlement in defense of the Company's intellectual property. Other income, net increased 132 percent from $2.6 million for the year ended September 30, 1999 to $6.1 million for the year ended September 30, 2000. The increase was primarily attributed to the settlement noted above. PROVISION FOR (BENEFIT FROM) INCOME TAXES. The provision for (benefit from) federal, state and foreign income taxes was ($1.7) million and $6.9 million for the years ended September 30, 1999 and 2000, respectively. The tax benefit realized during fiscal year 1999 was attributed to the charge to operations of $9.5 million for the write-off of discontinued product lines. The effective tax rate was (42 percent) for the year ended September 30, 1999 and 33 percent for the year ended September 30, 2000. During the fourth quarter 15 the Company established a valuation allowance for its deferred tax assets which resulted in a $14.0 million charge (See Notes 2 and 15 to the consolidated financial statements). DISCONTINUED ASP BUSINESS. The results of operations for the discontinued ASP business for fiscal year 2000 have been stated separately on the consolidated statement of operations for comparative purposes. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2001, the Company had cash, cash equivalents, and marketable securities of $15.3 million, resulting from a net use of cash, cash equivalents, and marketable securities of $5.5 million during fiscal year 2001. Operating activities consumed $1.7 million and included $5.8 million used in discontinued operations. The net loss, which includes an $11.7 million operating loss associated with the ASP business unit, and a $1.8 million estimated loss from the disposal of the discontinued operations, totaled $24.3 million. Investing activities consumed $2.9 million and included $2.3 million used to fund capitalized software, and $700 thousand used to fund purchases of property, computers and equipment. Financing activities consumed $61 thousand. Proceeds from the exercise of stock options and the employee stock purchase plan provided $104 thousand, offset by $143 thousand of payments on capital lease obligations and $22 thousand paid to purchase treasury stock. In October 2001 the Company entered into a line of credit with a financial institution under which it can borrow up to $3.0 million, based on certain asset-based balances. The agreement, which extends to December 31, 2002, contains certain financial covenants including a prohibition against the payment of dividends, as well as, minimum net deficit targets ranging from $19 million in 2001 to $10 million in May 2002. The Company has not borrowed under this line of credit. The interest rate on any funds that are borrowed would be at prime plus 1 percent. Days sales outstanding ("DSO") decreased to 36 days at September 30, 2001, compared to 58 days at September 30, 2000. The Company calculates DSO by dividing the ending accounts receivable balance, net of allowance for doubtful accounts, by the annualized revenue for the most recent fiscal quarter, multiplied by 360. The Company believes that this method of deriving DSO is indicative of actual results due to the cyclical nature of software license and service transactions, which are often consummated near the end of the quarter, as well as the fluctuation of transactions from one quarter to the next. The Company's accounts receivable balance at September 30, 2001, net of the allowance for doubtful accounts, was $6.8 million. This compares with $16.2 million as of September 30, 2000. Deferred revenue decreased $7.7 million, from $36.7 million at September 30, 2000, to $29.0 million at September 30, 2001. The decrease in deferred revenue primarily resulted from a decrease in the deferred consulting services component of revenue. The Company has incurred net operating losses in each of the last three fiscal years ended September 2001, 2000 and 1999, and generated a negative cash flow from operations in each of the last two years. In addition, software license fee sales and services revenues have decreased in each of the last three fiscal years. As of September 30, 2001, the Company had a working capital deficit of $21.2 million and a retained deficit of $12.7 million. Included in the working capital deficit is $27.6 million of deferred revenue. During fiscal year 2001, under the leadership of a new Chief Executive Officer and President hired in February 2001, the Company reassessed its business and established short term goals for fiscal 2001, which included stabilizing the Company, focusing on its core competencies, improving the profitability of the Company and preserving the Company's cash. As a part of these efforts, the Company significantly reduced the Company's costs in the third and fourth quarters of fiscal 2001. As part of its cost reduction efforts, in September 2001, due to continued historical operating losses from its Application Service Provider ("ASP") business segment and because the ASP did not present an opportunity for timely profitability, the Company's management decided to discontinue the ASP by phasing out of the business segment over a period of six months. As a result, this business segment is classified as a discontinued operation in the consolidated statement of operations. During fiscal 2001, the Company also reduced its headcount by 36 percent. The Company believes that it has sufficient cash, cash equivalents and marketable securities on hand to fund its operations through at least fiscal 2002. 16 While operating activities may provide cash in certain periods, to the extent the Company anticipates growth in the future, the Company anticipates that its operating and investing activities may use cash, and, consequently, such growth may require the Company to obtain additional sources of financing. The Company's working capital and other capital requirements may change because of unanticipated changes in business conditions or delays in market acceptance of new products. Other considerations such as further expansion of operations or research and development activities, competitive and technological developments, and possible future acquisitions of businesses and/or product rights may also affect the Company's capital requirements. There is no assurance that the Company will be able to raise sufficient debt or equity capital on terms that it considers acceptable, if at all. Accordingly, there can be no assurance that the Company may not experience liquidity problems as a result or because of adverse market conditions or other unfavorable events. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), Business Combinations. SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company adopted SFAS No. 141 which would apply to any future acquisitions entered into by the Company. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and other intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually. In addition, the standard includes provisions for the reclassification of certain existing intangibles as goodwill and reassessment of the useful lives of existing intangibles. The Company plans to adopt SFAS No. 142 in the first quarter of fiscal year 2002 and does not anticipate that the adoption of this standard will have a material impact on its financial statements as the Company has no goodwill or intangible assets related to prior acquisitions. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supercedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and provides for a single accounting model for long-lived assets to be disposed of. This statement is effective for fiscal years beginning after December 15, 2001. The Company anticipates that the adoption of SFAS 144 will not have a significant effect on its financial position or its results of operations. FACTORS AFFECTING FUTURE PERFORMANCE PRODUCT CONCENTRATION. As the Company's primary current source of revenue comes from customers using IBM midrange computers, future revenue from licenses of present products and sales of services and recurring maintenance revenue are therefore dependent on continued widespread use of the IBM eServer iSeries (formerly the IBM AS/400) and the continued support of such computers by IBM. In addition, because the Company's current IBM eServer iSeries (formerly the IBM AS/400) product line requires the use of related operating systems, the Company may be required to adapt its products to any changes made in such operating systems in the future. The Company's inability to adapt to future changes in the operating systems, or delays in doing so, could have a material adverse effect on the Company's business, operating results, and financial condition. RAPID TECHNOLOGICAL CHANGE AND EVOLVING MARKET. The business applications software market is characterized by rapid technological change, frequent new product introductions, evolving industry standards, and changes in customer demands. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. The Company's success will depend in part on its ability to enhance products and services to meet changing customer requirements. There can be no assurance that the Company will be successful in developing and marketing product enhancements or new products that respond to technological change or evolving industry standards; that the Company will not experience 17 difficulties that could delay or prevent the successful development, introduction, and marketing of these products and enhancements; or that any new products or product enhancements it may introduce will achieve market acceptance. In addition, there can be no assurance that the Company will not encounter product development delays in the future or that, despite testing by the Company, errors will not be found in new products or product enhancements after commencement of commercial shipments, resulting in loss of market share, delay in market acceptance, or warranty claims that could have a material adverse effect upon the Company's business, operating results, and financial condition. The Company is continuing to develop software applications to operate over the Internet and within corporate intranets. The Company's development and implementation of versions of its business software applications to operate in this manner involves more intense competition from a larger number of competitors. The adoption of Internet-based software applications could be limited by concerns over transaction security and user privacy, the performance of the Internet, and potential customers not seeing the value of these solutions. COMPETITION. The business applications software market is highly competitive and rapidly changing. A number of companies offer products similar to the Company's products and target the same customers as the Company. In addition, a number of companies are planning to offer products over the Internet competitive to the Company's products. The Company believes its ability to compete depends upon many factors within and outside its control, including the timely development and production of new products and product enhancements, product functionality, performance, price, reliability, customer service and support, sales and marketing efforts, and product distribution. The Company believes that competition in its industry is undergoing rapid change and that the barriers to competition between market segments that have previously existed are decreasing. Due to the relatively low barriers to entry in the software market, the Company expects additional competition from other established and emerging companies in the client/server business applications software market as well as from companies in the expanding Internet business applications market that the Company has entered. Increased competition may result in price reductions, reduced gross margins, and loss of market share, any of which would have a material adverse effect on the Company's business, operating results, and financial condition. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on the Company's business, operating results, and financial condition. POTENTIAL FLUCTUATION OF QUARTERLY RESULTS. The Company's quarterly revenue and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Such fluctuations may result in volatility in the price of the Company's common stock. Quarterly revenue and operating results may fluctuate as a result of a variety of factors, including the Company's lengthy sales cycle, the proportion of revenue attributable to license fees versus services revenue, changes in the level of operating expenses, demand for the Company's products, the introduction of new products and product enhancements by the Company or its competitors, changes in customer budgets, competitive conditions in the industry, and general economic conditions. Further, the purchase of the Company's products often involves a significant commitment of capital by its customers with the attendant delays frequently associated with large capital expenditures and authorization procedures within an organization. For these and other reasons, the sales cycles for the Company's products are typically lengthy and subject to a number of significant risks over which the Company has little or no control. The Company historically has operated with little software license backlog because its software products are generally shipped as orders are received. The Company has often recognized a substantial portion of its revenue in the last month of the quarter and often in the last week of that month. As a result, license fees in any quarter are substantially dependent on orders booked and shipped in the last month or last week of that quarter. Accordingly, a small variation in the timing of recognition of revenue for specific transactions would adversely and disproportionately affect the Company's operating results for a quarter because the Company establishes its expenditure levels on the basis of its expected future revenue and only a small portion of the Company's expense varies with its revenue. The Company believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as indicative of future performance. Due to the foregoing factors and other factors set forth in this Form 10-K, it is likely that in some future quarter the Company's operating results will be below the expectations of the Company and public market 18 analysts and investors. In such event, the price of the Company's common stock would likely be materially adversely affected. SEASONALITY. The Company's business has experienced and is expected to continue to experience significant seasonality. In recent years, the Company has had greater demand for its products in its fourth fiscal quarter and has experienced lower revenue in its succeeding first and second fiscal quarters. The fluctuations are caused primarily by customer purchasing patterns and the Company's sales recognition programs, which reward and recognize sales personnel on the basis of achievement of annual performance quotas. DISCONTINUED PRODUCTS AND SEGMENT. In fiscal year 1999, the Company decided to discontinue new release development of Infinium Financials for Microsoft Windows NT and Infinium Human Resources for Microsoft Windows NT, in order to focus additional resources towards deploying its other financial and human resource systems over the Internet and expanding the breadth of its product lines. Additionally, in September 2001, the Company decided to discontinue its ASP segment because it did not present an opportunity for timely profitability and was therefore determined to no longer be aligned with the Company's strategic direction. The Company has worked with the customers of the discontinued products and segment to provide various alternative solutions, including migration to the Company's other financial and human resources applications and identifying partners to continue to provide new release development of the discontinued products and transitioning ASP customers to internal processing or other ASP providers. However, there can be no assurance that the Company will not continue to encounter customer litigation resulting from these discontinuances that could have a material adverse effect upon the Company's financial condition. The Company is continuing to develop its financial and human resources systems for the IBM eServer iSeries (formerly the IBM AS/400) and the AdvaNTage Human Resources, Payroll and e-Resources systems for Microsoft Windows NT, which it acquired from Cort. INTERNATIONAL OPERATIONS. Revenue from customers outside North America represented 7 percent, 9 percent, and 9 percent of the Company's total revenue in fiscal 1999, 2000, and 2001, respectively. The Company believes that its revenue and future operating results will depend, in part, on its ability to increase sales in international markets. There can be no assurance that the Company will be able to maintain or increase its current level of international revenue. Risks inherent in the Company's international business activities generally include unexpected changes in regulatory requirements, tariffs, and other trade barriers, costs, and difficulties of localizing products for foreign countries, lack of acceptance of localized products in foreign countries, longer accounts receivable payment cycles, difficulties in managing international operations, potentially adverse tax consequences, including restrictions on the repatriation of earnings, the burdens of complying with a wide variety of foreign laws, and economic instability. There can be no assurance that such factors would not have a material adverse effect on the Company's future international revenue and, consequently, on the Company's business, operating results, and financial condition. OPERATING LOSSES. The Company experienced net losses of $24.3 million, $27.8 million and $2.4 million for the fiscal years ended September 30, 2001, 2000 and 1999, respectively. The Company expects, through its recent cost cutting measures, to improve its earnings results in the future. If the Company does achieve profitability, it may not be able to sustain or increase profitability on a long term basis. CHANGES IN MANAGEMENT. During the past year, the Company's management team has experienced significant change. In February 2001, James McGowan was elected by the Board of Directors as the Company's Chief Executive Officer, President and a member of the Board of Directors. In addition, several of the Company's senior executives have ceased to serve in that capacity and there have been other changes in senior management in the Company. Such changes can cause disruption in the Company's operations and results. Additionally, due to the competitive nature of the industry, the Company may not be able to retain its existing management and may be unable to hire qualified individuals to fill open positions on terms acceptable to the Company. CHANGE IN STOCK LISTING. The Company's common stock had been traded on the Nasdaq National Market but, because of a determination by the Nasdaq National Market that the Company no longer continued to meet all the requirements for continued listing on the Nasdaq National Market, its stock is now 19 traded on the Nasdaq Small Cap Market. This change in listing may have had, and may continue to have, a negative impact on the value of the Company's common stock, because stocks trading on the Nasdaq Small Cap Market are typically less liquid than those traded on the Nasdaq National Market. In addition, in the future, Nasdaq may determine that the Company no longer continues to meet all of the requirements for continued listing on the Nasdaq Small Cap Market. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Company's market risk involves forward looking statements. Actual results could differ materially from those discussed in the forward looking statements. The Company is exposed to market risk related to changes in interest rates and foreign currency exchange rates. The Company does not use derivative financial instruments for speculative or trading purposes. INTEREST RATE RISK The Company is exposed to market risk from changes in interest rates primarily through its investing and borrowing activities. In addition, the Company's ability to finance future acquisition transactions may be impacted if the Company is unable to obtain appropriate financing at acceptable rates. The Company's investing strategy to manage interest rate exposure is to invest in short-term, highly liquid investments. The Company maintains a portfolio of highly liquid cash equivalents and short-term investments (primarily in high-grade municipal notes). At September 30, 2001, the fair value of the Company's short-term investments approximated market value. FOREIGN CURRENCY RISK The Company faces exposure to movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not use derivative financial instruments to hedge foreign currency exposures or for trading. Historically, the Company's primary exposures have been related to the operations of its foreign subsidiaries. In fiscal 2001, the net impact of foreign currency changes was $278 thousand. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This item may be found under Item 14(a) (1) and (2) below on Page 21 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants on accounting or financial disclosure matters. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item with respect to the Directors of the Company is hereby incorporated by reference to the information contained under the heading "Election of Directors" in the Company's definitive proxy statement of the Company's 2001 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year (the "Definitive Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information required by this item is hereby incorporated by reference to the information under the heading "Executive Compensation" in the Definitive Proxy Statement. 20 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is hereby incorporated by reference to the information contained under the heading "Stock Ownership of Certain Beneficial Owners and Management" in the Definitive Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is hereby incorporated by reference to the information contained under the heading "Certain Relationships and Related Transactions" in the Definitive Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Schedule and Exhibits The financial statements, schedule and exhibits listed below are included in or incorporated by reference as part of this Report: 1. Financial Statements
PAGE ---- Report of Independent Accountants........................... F-1 Consolidated balance sheet at September 30, 2001 and 2000... F-2 Consolidated statement of operations for the years ended September 30, 2001, 2000, and 1999........................ F-3 Consolidated statement of stockholders' equity (deficit) for the years ended September 30, 2001, 2000, and 1999........ F-4 Consolidated statement of cash flows for the years ended September 30, 2001, 2000, and 1999........................ F-5 Notes to consolidated financial statements.................. F-6
2. Schedule The following Financial Statement Schedule of the Company is filed as part of this Report:
PAGE ---- Schedule II Valuation and Qualifying Accounts............... F-29
Schedules not listed above have been omitted because they are not applicable, not required, or the information required to be set forth therein is included in the consolidated financial statements or the notes thereto. 3. Exhibits See attached Index to Exhibits on page 23. (b) Reports on Form 8-K On July 13, 2001, the Company filed Form 8-K in connection with the Company's movement from the NASDAQ National Market to the NASDAQ Smallcap Market. (c) The Company hereby files as part of this Annual Report on Form 10-K the Exhibits listed in the attached Exhibit Index. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this th day of December 2001. INFINIUM SOFTWARE, INC. By:/s/ WILLIAM B. GERRAUGHTY, JR. ------------------------------------ Senior Vice President and Chief Financial Officer We, the undersigned officers and directors of Infinium Software, Inc., hereby severally constitute and appoint James E. McGowan and William B. Gerraughty, Jr., and each of them singly, our true and lawful attorneys, with full power to them, and each of them singly, to sign for us in our names in the capacities to do all things in our names and on behalf in such capacities to enable Infinium Software, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES E. MCGOWAN Chief Executive Officer And December 21, 2001 ------------------------------------------------ Director James E. McGowan /s/ WILLIAM B. GERRAUGHTY, JR. Senior Vice President And Chief December 21, 2001 ------------------------------------------------ Financial Officer William B. Gerraughty, Jr. /s/ ROBERT A. PEMBERTON Chairman of the Board December 21, 2001 ------------------------------------------------ Robert A. Pemberton /s/ MANUEL CORREIA Director December 21, 2001 ------------------------------------------------ Manuel Correia /s/ MICHAEL A. CUSUMANO Director December 21, 2001 ------------------------------------------------ Michael A. Cusumano /s/ FRED LUCONI Director December 21, 2001 ------------------------------------------------ Fred Luconi /s/ ROLAND D. PAMPEL Director December 21, 2001 ------------------------------------------------ Roland D. Pampel /s/ ROBERT P. SCHECHTER Director December 21, 2001 ------------------------------------------------ Robert P. Schechter
22 INFINIUM SOFTWARE, INC. INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 -- Articles of Organization of the Registrant, as amended, are incorporated herein by reference to Exhibit 3.1 to the Registrant's Form 10-K for the annual period ended September 30, 1999. 3.2 -- By-Laws of the Registrant, as amended, are incorporated herein by reference to Exhibit 3(I) to the Registrant's Form 10-Q for the quarterly period ended March 31, 1997. 4.1 -- Shareholder Rights Agreement dated as of February 5, 1999 is incorporated herein by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A , filed on February 23, 1999, File No. 001-14855. 10.1 -- Loan and Security Agreement, dated October 26, 2001, between Silicon Valley Bank and Infinium Software, Inc. 10.2* -- 1989 Stock Option Plan, as amended as of October 1, 1994 is incorporated herein by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-97866). 10.3* -- 1995 Stock Plan is incorporated herein by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-97866). 10.4* -- 1995 Employee Stock Purchase Plan is incorporated herein by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-97866). 10.5* -- 1995 Non-Employee Director Stock Option Plan is incorporated herein by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-97866). 10.6 -- Lease dated March 31, 1995 between the Registrant and Independence Park Associates Realty Trust as of August 1995 is incorporated herein by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-97866). 10.7* -- Form of Senior Management Plan. 10.8* -- Executive Severance Plan, is incorporated herein by reference to Exhibit 10.8 to the Registrant's Form 10-K for the annual period ended September 30, 1999 10.9* -- Form of 1995 Stock Plan Option Agreement is incorporated herein by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-97866). 10.10* -- Register of Amendments, Subsections 3.1 and 7.3.4, 1989 Stock Option Plan is incorporated herein by reference to Exhibit 10.17 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-97866). 10.11* -- Register of Amendments, Article 5, 1995 Employee Stock Purchase Plan is incorporated herein by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-97866). 10.12* -- Form of Restricted Stock Agreement. 10.13* -- Stock Option Agreement for Former Chief Operating Officer is incorporated herein by reference to Exhibit 10.13 to the Registrant's Form 10-K for the annual period ended September 30, 2000. 10.14* -- Employment Agreement for Chief Executive Officer is incorporated herein by reference to Exhibit 10.13 to the Registrant's Form 10-Q for the quarterly period ended March 31, 2001. 10.15* -- Executive Severance Plan for new executives 10.16* -- Form of 1995 Stock Plan Option Agreement 21.1 -- Schedule of Subsidiaries of the Registrant 23.1 -- Consent of PricewaterhouseCoopers LLP
- --------------- * Indicates a management contract or any compensatory plan, contract or arrangement required to be filed as an exhibit to Item 14(c). 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Infinium Software, Inc.: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 21 present fairly, in all material respects, the financial position of Infinium Software, Inc. and its subsidiaries at September 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 21 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts October 26, 2001 F-1 INFINIUM SOFTWARE, INC. CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, ------------------------- 2001 2000 ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 13,210 $ 17,665 Marketable securities at fair market value................ 2,076 3,073 Accounts receivable, less allowance for doubtful accounts of $1,876 and $3,455 at September 30, 2001 and 2000, respectively........................................... 6,841 16,218 Prepaid expenses and other current assets................. 2,499 4,465 Net current assets of discontinued operations............. 233 -- -------- -------- Total current assets................................... 24,859 41,421 -------- -------- Property and equipment, net................................. 6,958 16,574 Capitalized software development costs, net................. 1,122 5,569 Goodwill and other intangible assets, net................... -- 5,327 Other assets................................................ 2,358 2,358 -------- -------- Total assets........................................... $ 35,297 $ 71,249 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.......................................... $ 4,345 $ 6,836 Accrued expenses.......................................... 13,599 14,293 Income taxes payable...................................... 282 441 Lease obligations, short-term portion..................... 239 71 Deferred revenue.......................................... 27,588 35,273 -------- -------- Total current liabilities.............................. 46,053 56,914 -------- -------- Lease obligations, long-term portion........................ 524 291 Deferred revenue............................................ 1,400 1,381 Other long-term liabilities (Note 6)........................ -- 1,000 -------- -------- Total liabilities...................................... 47,977 59,586 -------- -------- Commitments and contingencies (Note 20) Common stock, $0.01 par value; authorized 40,000 shares, issued 13,365 and 12,927 shares at September 30, 2001 and 2000, respectively........................................ 134 129 Additional paid-in capital.................................. 38,936 38,327 Deferred stock-based compensation........................... (297) -- Accumulated deficit......................................... (51,362) (26,876) Accumulated other comprehensive income (loss)............... (69) 293 -------- -------- (12,658) 11,873 Less: Treasury stock at cost, 171 and 43 shares at September 30, 2001 and 2000, respectively........................... (22) (210) -------- -------- Total stockholders' equity (deficit)................... (12,680) 11,663 -------- -------- Total liabilities and stockholders' equity (deficit)... $ 35,297 $ 71,249 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-2 INFINIUM SOFTWARE, INC. CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------------- 2001 2000 1999 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue: Software license fees..................................... $ 10,363 $ 20,473 $ 32,437 Services revenue.......................................... 63,707 72,261 89,568 -------- -------- -------- Total revenue.......................................... 74,070 92,734 122,005 -------- -------- -------- Operating costs and expenses: Cost of software license fees............................. 8,157 7,101 14,518 Cost of services.......................................... 19,304 31,563 40,389 Research and development.................................. 16,165 21,296 19,140 Sales and marketing....................................... 27,182 36,102 40,135 General and administrative................................ 16,431 15,620 14,514 -------- -------- -------- Total operating costs and expenses..................... 87,239 111,682 128,696 -------- -------- -------- Loss from operations........................................ (13,169) (18,948) (6,691) Other income, net........................................... 22 6,104 2,633 -------- -------- -------- Loss from continuing operations before provision for (benefit from) income taxes............................... (13,147) (12,844) (4,058) Provision for (benefit from) income taxes................... (2,284) 6,860 (1,698) -------- -------- -------- Net loss from continuing operations......................... (10,863) (19,704) (2,360) Discontinued operations: Loss from operations of ASP segment......................... (11,658) (8,112) -- Loss from disposal of ASP segment........................... (1,811) -- -- -------- -------- -------- Net loss.................................................... $(24,332) $(27,816) $ (2,360) ======== ======== ======== Loss per share data: Basic and diluted loss per share from continuing operations............................................. $ (0.84) $ (1.56) $ (0.19) ======== ======== ======== Basic and diluted loss per share from ASP segment......... $ (1.04) $ (0.64) $ -- ======== ======== ======== Basic and diluted loss per share, net..................... $ (1.88) $ (2.20) $ (0.19) ======== ======== ======== Weighted average shares outstanding -- basic and diluted................................................ 12,941 12,668 12,421 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-3 INFINIUM SOFTWARE, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
RETAINED ACCUMULATED COMMON ADDITIONAL DEFERRED EARNINGS OTHER TREASURY SHARES COMMON PAID-IN STOCK (ACCUMULATED COMPREHENSIVE STOCK ISSUED STOCK CAPITAL COMPENSATION DEFICIT) INCOME (LOSS) AT COST ------ ------ ---------- ------------ ------------ ------------- -------- (IN THOUSANDS) Balance at September 30, 1998...... 12,607 $126 $36,644 $ -- $ 4,473 $(319) $(1,293) ------ ---- ------- ----- -------- ----- ------- Income tax provision from exercise of stock options.................. (338) Purchase of treasury stock at cost.............................. (2,968) Treasury stock reissued upon exercise of stock options and employee stock purchase plan...... (925) 2,241 Comprehensive loss: Net loss for the year............. (2,360) Unrealized gain on marketable equity securities............... 74 Cumulative translation adjustment...................... (12) Comprehensive loss.............. ------ ---- ------- ----- -------- ----- ------- Balance at September 30, 1999...... 12,607 126 36,306 -- 1,188 (257) (2,020) ------ ---- ------- ----- -------- ----- ------- Stock issued in connection with Dexton acquisition................ 320 3 1,837 Treasury stock reissued upon exercise of stock options and employee stock purchase plan...... 184 (248) 1,810 Comprehensive loss: Net loss for the year............. (27,816) Unrealized gain on marketable equity securities............... 525 Cumulative translation adjustment...................... 25 Comprehensive loss.............. ------ ---- ------- ----- -------- ----- ------- Balance at September 30, 2000...... 12,927 129 38,327 -- (26,876) 293 (210) ------ ---- ------- ----- -------- ----- ------- Issuance of restricted stock....... 430 4 855 (859) Executive option compensation...... 62 (62) New shares issued for employee stock purchase plan............... 8 1 11 Treasury stock reissued for employee stock purchase plan...... 36 (154) 210 Purchase of treasury stock at cost.............................. (22) Amortization of deferred stock compensation...................... 269 Cancellation of restricted stock... (355) 355 Comprehensive loss: Net loss for the year............. (24,332) Unrealized loss on marketable equity securities............... (571) Cumulative translation adjustment...................... 209 Comprehensive loss.............. ------ ---- ------- ----- -------- ----- ------- Balance at September 30, 2001...... 13,365 $134 $38,936 $(297) $(51,362) $ (69) $ (22) ====== ==== ======= ===== ======== ===== ======= TOTAL STOCKHOLDERS' EQUITY COMPREHENSIVE (DEFICIT) (LOSS) ------------- ------------- (IN THOUSANDS) Balance at September 30, 1998...... $ 39,631 -------- Income tax provision from exercise of stock options.................. (338) Purchase of treasury stock at cost.............................. (2,968) Treasury stock reissued upon exercise of stock options and employee stock purchase plan...... 1,316 Comprehensive loss: Net loss for the year............. (2,360) $ (2,360) Unrealized gain on marketable equity securities............... 74 74 Cumulative translation adjustment...................... (12) (12) -------- Comprehensive loss.............. $ (2,298) -------- ======== Balance at September 30, 1999...... 35,343 -------- Stock issued in connection with Dexton acquisition................ 1,840 Treasury stock reissued upon exercise of stock options and employee stock purchase plan...... 1,746 Comprehensive loss: Net loss for the year............. (27,816) $(27,816) Unrealized gain on marketable equity securities............... 525 525 Cumulative translation adjustment...................... 25 25 -------- Comprehensive loss.............. $(27,266) -------- ======== Balance at September 30, 2000...... 11,663 -------- Issuance of restricted stock....... Executive option compensation...... New shares issued for employee stock purchase plan............... 12 Treasury stock reissued for employee stock purchase plan...... 92 Purchase of treasury stock at cost.............................. (22) Amortization of deferred stock compensation...................... 269 Cancellation of restricted stock... Comprehensive loss: Net loss for the year............. (24,332) $(24,332) Unrealized loss on marketable equity securities............... (571) (571) Cumulative translation adjustment...................... 209 209 -------- Comprehensive loss.............. $(24,694) -------- ======== Balance at September 30, 2001...... $(12,680) ========
The accompanying notes are an integral part of the consolidated financial statements. F-4 INFINIUM SOFTWARE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------- 2001 2000 1999 --------- --------- --------- (IN THOUSANDS) Cash flows from operating activities: Net loss.................................................. $(24,332) $(27,816) $ (2,360) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Loss from discontinued operations....................... 11,658 8,112 Loss on disposal of discontinued operations............. 1,811 -- -- Depreciation and amortization........................... 11,123 8,680 15,138 Write-down of goodwill and intangibles.................. 3,937 -- -- Loss on disposal of fixed assets........................ 546 -- -- Write-down of marketable securities..................... 331 Non-cash compensation................................... 270 -- -- Allowance for doubtful accounts......................... (1,578) (774) 2,679 Deferred income taxes................................... -- 7,295 (1,287) Changes in operating assets and liabilities, net of effects from corporate acquisitions: Accounts receivable................................... 10,602 1,907 8,181 Prepaid expenses and other current assets............. 1,955 (325) 1,941 Other assets.......................................... -- (163) 969 Accounts payable...................................... (2,473) (1,233) (360) Accrued expenses...................................... (2,360) 1,519 (2,834) Income taxes payable.................................. (149) (315) (2,525) Deferred revenue...................................... (7,204) (1,574) (4,644) -------- -------- -------- Net cash provided by (used in) continuing operations:... 4,137 (4,687) 14,898 Net cash used in discontinued operations:............... (5,836) (14,886) -------- -------- -------- Net cash provided by (used in) operating activities:.... (1,699) (19,573) 14,898 -------- -------- -------- Cash flows from investing activities: Purchase of marketable securities......................... (4,123) (4,148) (20,714) Sale of marketable securities............................. 4,219 25,713 30,186 Purchase of property and equipment........................ (658) (2,877) (6,473) Capitalization of internal software development costs..... (2,353) (1,557) (5,843) Corporate acquisitions, net of cash acquired (Note 6)..... -- (4,575) -- -------- -------- -------- Net cash provided by (used in) investing activities..... (2,915) 12,556 (2,844) -------- -------- -------- Cash flows from financing activities: Proceeds from the exercise of stock options and employee stock purchase plan..................................... 104 1,746 1,316 Payments on capital lease obligations..................... (143) -- -- Purchase of treasury stock................................ (22) -- (2,968) -------- -------- -------- Net cash (used in) provided by financing activities..... (61) 1,746 (1,652) -------- -------- -------- Effect of foreign exchange rate on cash..................... 220 (163) (11) Net increase (decrease) in cash and cash equivalents........ (4,455) (5,434) 10,391 -------- -------- -------- Cash and cash equivalents, beginning of year................ 17,665 23,099 12,708 Cash and cash equivalents, end of year...................... $ 13,210 $ 17,665 $ 23,099 ======== ======== ======== Supplemental cash flow information: Cash paid during the year for: Interest................................................ $ 117 $ 25 $ -- Income taxes paid (refunded), net of refunds received... $ (2,089) $ (785) $ 2,209 Supplemental disclosure of non-cash investing and financing activities: Equipment purchased under capital leases.................. $ 338 $ -- $ 452 Common stock issued in acquisition........................ $ -- $ 1,840 $ -- Note payable incurred in acquisition...................... $ -- $ 1,500 $ -- Issuance of restricted stock.............................. $ 859 $ -- $ --
The accompanying notes are an integral part of the consolidated financial statements. F-5 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY Founded in 1981, Infinium (Infinium or the Company) develops, markets, and supports enterprise-level business software applications. The Company's software products automate the financial management, human resource management, and materials management functions of organizations in a broad range of industries worldwide. The Company also offers a specialized manufacturing system designed to manage process-manufacturing operations. The Company offers products that are designed for IBM eServer iSeries (formerly the IBM AS/ 400) computers and the AdvaNTage Human Resources and Payroll products for the Microsoft Windows NT operating system. The Company's products can be deployed in a number of different networking environments, including local area networks, wide area networks, intranets, and the Internet. The Company has incurred net operating losses in each of the last three fiscal years ended September 2001, 2000 and 1999, and generated a negative cash flow from operations in each of the last two years. In addition, software license fee sales and services revenues have decreased in each of the last three fiscal years. As of September 30, 2001, the Company had a working capital deficit of $21.2 million and a retained deficit of $12.7 million. Included in the working capital deficit is $27.6 million of deferred revenue. During fiscal year 2001, under the leadership of a new Chief Executive Officer and President hired in February 2001, the Company reassessed its business and established short term goals for fiscal 2001, which included stabilizing the Company, focusing on its core competencies, improving the profitability of the Company and preserving the Company's cash. As a part of these efforts, the Company significantly reduced the Company's costs in the third and fourth quarters of fiscal 2001. As part of its cost reduction efforts, in September 2001, due to continued historical operating losses from its Application Service Provider ("ASP") business segment and because the ASP did not present an opportunity for timely profitability, the Company's management decided to discontinue the ASP by phasing out of the business segment over a period of six months. As a result, this business segment is classified as a discontinued operation in the consolidated statement of operations. During fiscal 2001, the Company also reduced its headcount by 36 percent. The Company believes that it has sufficient cash, cash equivalents and marketable securities on hand to fund its operations through at least fiscal 2002. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned domestic and foreign subsidiaries. All inter-company transactions and balances have been eliminated from the consolidated financial statements. Certain prior year amounts have been reclassified to conform with current year presentation. The Company's fiscal year end is September 30. References to 2001, 2000, and 1999 refer to the fiscal year ended September 30, unless otherwise noted. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. These estimates include assessing the collectibility of accounts receivable, the realization of deferred tax assets and useful lives for amortization periods of tangible and intangible assets, among others. The markets for the Company's products are characterized by intense competition, rapid technological development and frequent product introduction, all of which could impact the future realizability of the Company's assets. Actual results could differ from these estimates. F-6 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REVENUE RECOGNITION The Company recognizes software license fee revenues in accordance with the provisions of AICPA Statement of Position 97-2, Software Revenue Recognition, AICPA Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions (SOP 98-9) and their related interpretations. Revenue from software license fees is recognized when there is evidence of an arrangement, the product has been delivered, fees are fixed or determinable, and collection of the related receivable is deemed probable. Revenues from sales of third party products are recorded net of royalties, in accordance with Emerging Issue Task Force 99-19, Reporting Revenue Gross as a Principle versus Net as an Agent. Generally, the Company's software products do not require significant modification or customization. Installation of the products is normally routine and is not essential to the functionality of the product. The Companies sales frequently include maintenance contracts and professional services with the sale of its software licenses. The Company has established vendor-specific objective evidence of fair value (VSOE) for its maintenance contracts and professional services, which is determined based upon the prices charged to customers when these elements are sold separately. Maintenance revenues, including those sold with the initial license fee, are deferred based on VSOE, typically determined by the renewal rate of the annual maintenance contract, and recognized ratably over the maintenance contract period. Consulting and training service revenues, including those sold with license fees, are recognized as the services are performed based on their established VSOE. The amount of revenue allocated to the licenses sold with services and/or maintenance is determined using the "residual method" of accounting. Under the residual method, the total value of the arrangement is allocated first to the undelivered elements based on their VSOE with the remainder being allocated to license fees. Revenues from the Company's Application Services Provider business consist of monthly fees from ongoing services, including hosting, and are recognized daily as earned over the contract term, typically three years. The monthly fee for application services is typically fixed for the life of the contract, but subject to increases in the event a customer requires additional applications, increases its number of users or increases frequency of use. The Company recognizes set-up fees for these arrangements over the expected life of the customer relationship. Recognition of revenue related to these arrangements commences on the date that the customer is able to access and utilize the features and functionality of the applications as intended. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES The Company invests its excess cash primarily in securities of government agencies, high-grade commercial paper, and mutual funds that invest primarily in the securities of government agencies. These investments are subject to minimal credit and market risk. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Marketable securities include equity investments and securities purchased with an original maturity of greater than three months. The Company accounts for its investments under the provisions of Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 115 requires that, except for debt securities classified as held-to-maturity, investments in debt and equity securities should be reported at fair value. At September 30, 2001 and 2000, all of the Company's investments are classified as available-for-sale. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Property and equipment held under capital leases, which involve a transfer of ownership, are amortized over the estimated useful life of the asset. Other property and equipment held under leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the F-7 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accounts and any resulting gain or loss is credited or charged to income. Repairs and maintenance costs are expensed as incurred. GOODWILL AND LONG-LIVED ASSETS Goodwill is the excess of the purchase price over the fair value of net assets acquired. Goodwill is amortized on a straight-line basis over the periods benefited, typically two to five years. The Company evaluates the possible impairment of goodwill and long-lived assets, including intangible assets, whenever events or circumstances indicate the carrying value of the asset may not be recoverable. In reviewing for impairment, the Company compares the carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. An impairment loss, equal to the difference between the assets' fair value and their carrying value, is recognized when the estimated future cash flows are less than their carrying amount. CONCENTRATION OF CREDIT RISK Financial instruments that potentially expose the Company to concentrations of credit risk include accounts receivable. To minimize this risk, the Company generally requires a cash deposit upon contract signing. In addition, the Company maintains reserves for potential credit losses. Such losses, in the aggregate, have not exceeded management expectations. At times, the Company may maintain cash balances in excess of federally insured limits. RESEARCH AND DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS Research and development expenses, other than certain software development costs, are charged to expense as incurred. In accordance with the provisions of Statement of Financial Accounting Standards No. 86 ("SFAS No. 86"), Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, the Company capitalizes certain software development costs upon technological feasibility. Amortization of capitalized software development costs is provided upon commercial release of the products at the greater of the ratio of current product revenue to the total of current and anticipated product revenue or on a straight-line basis over the estimated economic life of the software, which the Company has determined to be 18 to 36 months (See Note 8). Costs of software applications developed or obtained for internal use that are incurred during the applications' development stage are capitalized in accordance with AICPA Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Such costs eligible for capitalization have not been significant to date. FOREIGN CURRENCY TRANSLATION Balance sheet accounts of the Company's foreign operations are translated from foreign currencies into U.S. dollars at period-end exchange rates while income and expenses are translated using average rates during the year. Translation gains or losses related to net assets located outside of the United States of America are shown as a component of accumulated other comprehensive loss in stockholders equity (deficit). Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's functional currency) are reflected in other income, net in the consolidated statement of operations. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted statutory tax rates in effect in the year in which the differences are expected to reverse. A deferred tax asset is established for the expected future benefit of net operating loss and credit carry-forwards. Under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes, the Company cannot recognize a deferred tax asset for the future benefit of its net operating losses, F-8 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) tax credits and temporary differences unless the Company can establish that it is "more likely than not" that the deferred tax asset would be realized. Due to the Company's recent history of net losses, the Company has not recognized a tax asset and has recorded a full valuation allowance against its otherwise recognizable deferred tax asset, in accordance with SFAS No. 109. LOSS PER SHARE Basic earnings loss per share is determined by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is determined by dividing net loss applicable to common stockholders by the weighted average number of common shares and common share equivalents outstanding during the period. Common share equivalents result from the assumed exercise of outstanding stock options, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method. Common share equivalents are included in the calculation of loss per share only when dilutive. Options to purchase 2.5 million, 2.6 million, and 3.3 million shares at September 2001, 2000, and 1999, respectively, have been excluded from the calculation of diluted loss per share, as their effect would have been anti-dilutive. The computation of basic and diluted loss per share for the years ended September 30, 2001, 2001, and 1999 is as follows:
FISCAL YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------------------- 2001 2000 1999 ----------------------------- ----------------------------- ---------------------------- (LOSS) SHARES PER SHARE (LOSS) SHARES PER SHARE (LOSS) SHARES PER SHARE -------- ------ --------- -------- ------ --------- ------- ------ --------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Basic loss per share: Loss available to common stockholders............... $(24,332) 12,941 $(1.88) $(27,816) 12,668 $(2.20) $(2,360) 12,421 $(0.19) Effect of dilutive securities: Stock options................ -- -- -- -- -- -- -- -- -- -------- ------ ------ -------- ------ ------ ------- ------ ------ Diluted loss per share: Loss available to common stockholders............... $(24,332) 12,941 $(1.88) $(27,816) 12,668 $(2.20) $(2,360) 12,421 $(0.19) ======== ====== ====== ======== ====== ====== ======= ====== ======
STOCK COMPENSATION The Company's employee stock plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, which includes FIN 44, Accounting for Certain Transactions an Interpretation of APB Opinion No. 25. In October 1996, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation. (See Note 16.) COMPREHENSIVE INCOME Comprehensive income for the Company includes net income, the effects of currency translation, which are charged or credited to the cumulative translation adjustment account within stockholders' equity, and the unrealized gain (loss) on investments available-for-sale, which is recorded within stockholders' equity. Comprehensive income for all periods presented is included in the consolidated statement of stockholders' equity. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), Business Combinations. SFAS No. 141 requires the use of the purchase method of accounting for all business F-9 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company has adopted SFAS No. 141 which would apply to any future acquisitions entered into by the Company. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and other intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually. In addition, the standard includes provisions for the reclassification of certain existing intangibles as goodwill and reassessment of the useful lives of existing intangibles. The Company plans to adopt SFAS No. 142 in the first quarter of fiscal year 2002 and does not anticipate that the adoption of this standard will have a material impact on its financial statements as the Company has no goodwill or intangible assets related to prior acquisitions. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supercedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and provides for a single accounting model for long-lived assets to be disposed of. This statement is effective for fiscal years beginning after December 15, 2001. The Company anticipates that the adoption of SFAS 144 will not have a significant effect on its financial position or its results of operations. 3. CASH EQUIVALENTS AND MARKETABLE SECURITIES Following is a summary of the fair market value of available-for-sale securities, by balance sheet classification, as of September 30, 2001 and 2000:
SEPTEMBER 30, ----------------- 2001 2000 ------- ------- (IN THOUSANDS) Cash equivalents: State government obligations.............................. $ 5,326 $ 3,804 Money market funds........................................ 3,166 5,228 Marketable securities: State government obligations.............................. 1,905 1,998 Corporate debt obligations/securities..................... 171 1,075 ------- ------- $10,568 $12,105 ======= =======
Cash equivalents and marketable securities are carried at fair market value, which approximates amortized cost. The contractual maturities of all available-for-sale securities classified as cash equivalents are less than three months. A majority of the available-for-sale securities classified as marketable securities have contractual maturities of less than one year. All of the Company's marketable securities are classified as current at September 30, 2001, and 2000 as these funds are highly liquid and are available to meet working capital needs and to fund current operations. The Company also holds investments in equity securities that are marked to market value in accordance with FAS 115. Gross unrealized gains in these equity securities were $599 thousand and $28 thousand as of September 30, 2001 and 2000, respectively. The Company periodically evaluates the carrying value of its investments for other than temporary impairment. During fiscal year 2001, the Company recorded a charge of $331 thousand to reflect the other than temporary decline in fair value of one of these equity investments below its initial cost basis. The investee company for which the impairment charge was recorded has experienced a significant decline in operating and financial results during the past year, in comparison to the results forecasted at the time this investment was purchased by the Company. This charge is included in the condensed consolidated statement of operations classification other income, net. It is reasonably possible that the Company may incur additional impairment charges for this investment in future reporting periods. F-10 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. BALANCE SHEET COMPONENTS Prepaid expenses and other current assets consist of the following:
SEPTEMBER 30, --------------- 2001 2000 ------ ------ (IN THOUSANDS) Prepaid rents and insurance................................. $1,080 $ 853 Prepaid commissions and royalties........................... 742 1,171 Non-trade receivables....................................... 401 1,427 Other prepaid expenses and current assets................... 276 1,014 ------ ------ $2,499 $4,465 ====== ======
Property and equipment, net consists of the following:
SEPTEMBER 30, ------------------- USEFUL LIFE 2001 2000 ------------ -------- -------- (IN THOUSANDS) Computer equipment...................................... 2 to 5 years $ 18,913 $ 20,554 Furniture and fixtures.................................. 5 years 3,594 3,831 Leasehold improvements.................................. Lease term 4,615 10,197 Land.................................................... 287 287 -------- -------- 27,409 34,869 Less accumulated depreciation and amortization (20,451) (18,295) -------- -------- $ 6,958 $ 16,574 ======== ========
During fiscal year 2001, the Company's discontinued ASP segment recorded a $6.1 million fixed asset write-off. This write-off, largely associated with leasehold improvements, determined to be unrecoverable in September 2001 in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121). Depreciation expense of property, plant, and equipment for the years ended September 30, 2001, 2000 and 1999 amounted to $4.1 million, $4.2 million, and $3.6 million, respectively. Depreciation expense related to the Company's discontinued ASP segment were $994 thousand and $264 thousand for fiscal years 2001 and 2000, respectively. Capitalized software development costs, net consist of the following:
SEPTEMBER 30, ------------------- 2001 2000 -------- -------- (IN THOUSANDS) Internal development costs.................................. $ 27,537 $ 25,184 Purchased from third parties................................ 3,865 3,865 -------- -------- 31,402 29,049 Less accumulated amortization............................... (30,280) (23,480) -------- -------- $ 1,122 $ 5,569 ======== ========
During fiscal year 2000, the Company acquired Dexton Information Systems, B.V. (Dexton), which resulted in the capitalization of $2.1 million of software. F-11 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amortization expense of capitalized software development costs for the years ended September 30, 2001, 2000, and 1999 amounted to $6.8 million, $3.6 million, and $4.5 million, respectively. Included in software amortization costs for fiscal year 2001 is the write-off of $1.6 million of Dexton acquired technology and $2.7 million of charges associated with a change in the Company's estimated useful life of capitalized software (See Note 8). During the year ended September 30, 1999, the Company wrote off $5.6 million in capitalized development costs and purchased software related to the discontinued product lines discussed in Note 10. Goodwill and other intangible assets, net consist of the following:
SEPTEMBER 30, PERIOD OF ----------------- AMORTIZATION 2001 2000 ------------ ------- ------- (IN THOUSANDS) Goodwill 5 years..... $ 5,237 $ 5,237 Workforce in place........................................ 2 to 5 years 802 802 Customer Base............................................. 5 years 716 716 ------- ------- 6,755 6,755 Less accumulated amortization............................. (6,755) (1,428) ------- ------- $ -- $ 5,327 ======= =======
During the year ended September 30, 2001, the Company recognized impairment of its goodwill and intangible assets as discussed in Note 7. During the year ended September 30, 2000, the Company recorded $5.0 million and $766 thousand of goodwill and intangibles associated with its acquisitions of Dexton and iT-Soft (M.) Sdn. Bhd. (iT-Soft). During the year ended September 30, 1999, the Company wrote off $853 thousand in goodwill and workforce in place related to the discontinued product lines discussed in Note 10. Accrued expenses consist of the following:
SEPTEMBER 30, ----------------- 2001 2000 ------- ------- (IN THOUSANDS) Employee compensation and benefits.......................... $ 3,564 $ 4,877 Accrued royalties........................................... 462 470 Accrued professional fees................................... 587 1,349 Dexton acquisition payable.................................. 1,000 500 Other....................................................... 7,986 7,097 ------- ------- $13,599 $14,293 ======= =======
F-12 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. OTHER INCOME, NET Other income, net consists of the following:
FISCAL YEAR ENDED SEPTEMBER 30, ----------------------- 2001 2000 1999 ----- ------ ------ (IN THOUSANDS) Interest income............................................. $ 748 $1,233 $1,445 Interest expense............................................ (117) (25) -- Gain on marketable equity securities........................ -- -- 1,188 Write down of marketable equity security to market value.... (331) -- -- Foreign exchange loss....................................... (278) 26 -- Legal settlement............................................ -- 4,870 -- ----- ------ ------ $ 22 $6,104 $2,633 ===== ====== ======
6. ACQUISITIONS On January 13, 2000, the Company acquired all of the outstanding capital stock of Dexton, a privately held supplier of Web-based customer relationship management solutions located in the Netherlands. The operating results of this acquired business have been included in the consolidated statement of operations from the date of acquisition. The purchase price of $7.6 million was comprised of $3.5 million in cash, a $500 thousand payment made in January in 2001, and a $1.0 million payment due in January 2002, the issuance of 320 thousand shares of Infinium common stock and acquisition expenses of $749 thousand. The acquisition was accounted for as a purchase, consequently, the purchase price was allocated to the acquired assets and assumed liabilities, based on their fair value at the date of acquisition, as follows:
(IN THOUSANDS) -------------- Net tangible assets acquired................................ $ 460 Intangible assets acquired: Customer base............................................. 716 Workforce................................................. 802 Current technology........................................ 2,162 Goodwill.................................................. 3,449 ------ Total.................................................. $7,589 ======
On November 29, 1999, the Company acquired substantially all of the assets and liabilities of iT-Soft, a privately held value-added reseller of Infinium solutions located in Malaysia. The operating results of this acquired business have been included in the consolidated statement of operations from the date of acquisition. The transaction was consummated for $650 thousand in cash which was paid during the quarter ended December 31, 1999 and $84 thousand in acquisition expenses. The difference of $766 thousand between the purchase price and the net book value of the acquired assets and liabilities was allocated to goodwill. The acquisitions of Dexton and iT-Soft were accounted for as purchases. Accordingly, the results of operations of Dexton and iT-Soft and the fair market values of the acquired assets and assumed liabilities are included in the Company's financial statements as of their respective acquisition dates. The acquisitions were immaterial for purposes of pro forma financial statement presentation. F-13 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews long-lived assets, including goodwill, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. If an impairment is indicated, the asset is written down to its estimated fair value. During fiscal year 2001, the Company wrote down $4.7 million of impaired long-lived assets associated with the acquisition of Dexton, which was comprised of $721 thousand of goodwill, $2.4 million of intangibles, and $1.6 million of acquired technology. Additionally, $525 thousand and $347 thousand of goodwill associated with the acquisition of iT-Soft and Cort Directions, Inc., respectively, were written off. Based on the declining historical and forecasted operating results of Dexton, iT-Soft, and Cort, the estimated value of these assets to the Company has decreased. Based on the Company's expectation of future undiscounted net cash flows, these assets have been written down to their net realizable value. All of the above charges have been recorded in general and administrative expenses, with the exception of acquired technology, which has been recorded in cost of software license fees. 8. CHANGE IN ESTIMATED USEFUL LIFE OF CAPITALIZED SOFTWARE At the beginning of the third quarter of fiscal year 2001, the Company determined that, because of a declining sales environment for certain of its products and faster production of product updates, certain capitalized software development costs on the balance sheet as of April 1, 2001 should be amortized prospectively over 18 months as opposed to the three-year life previously used. This resulted in additional amortization expense of $2.3 million for the year ended September 30, 2001. At the beginning of the fourth quarter, due to similar circumstances, the Company determined that certain other capitalized software development costs on the balance sheet as of July 1, 2001 should also be amortized prospectively over 18 months as opposed to the three-year life previously used. This resulted in additional amortization expense of $416 thousand for the year ended September 30, 2001. 9. RESTRUCTURING AND OTHER SPECIAL ITEMS During fiscal 2001, the Company executed a plan to reduce its workforce as part of a continued company-wide cost-cutting effort. As a result of this action, 136 employees were involuntary terminated, representing 28 percent of the Company's workforce. Severance costs and related employee termination benefit costs of $2.2 million associated with these terminations have been recorded as a restructuring charge in fiscal year 2001. During fiscal year 2000, the Company recorded $1.9 million of expenses related to an 18 percent reduction in its workforce. These costs, which will be paid out through the second quarter of fiscal 2002, have been included in the Company's consolidated statement of operations as follows, based on employee function:
2001 2000 ------ ------ (IN THOUSANDS) Cost of service and license fees............................ 428 539 Research and development.................................... 663 563 Sales and marketing......................................... 659 558 General and administrative.................................. 462 199 ------ ------ $2,212 $1,859 ====== ======
As of September 30, 2001 and 2000, the Company had accrued liability balances of $970 thousand, and $579 thousand, respectively, relating to these severance costs. In addition to the above amounts, the Company recorded severance and benefits costs of $1.1 million associated with the termination of four executives of the Company. Of this total charge, $546 thousand was recorded as sales and marketing expenses and $527 thousand was recorded as general and administrative expenses in the Company's consolidated statement of operations. As of September 30, 2001, $405 thousand had been paid out to the F-14 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) former executives, leaving an accrued liability balance of $668 thousand. The remaining balance will be paid out through the end of fiscal year 2002. As part of the restructuring plan, the Company consolidated certain facilities. This consolidation led to the write-off of fixed assets in the amount of $546 thousand and the establishment of additional reserves for future lease obligation payments totaling $841 thousand. These charges have been recorded in general and administrative expenses. As of September 30, 2001, the Company had accrued liabilities of $612 thousand associated with the consolidation of these facilities. Additionally, $177 thousand was recorded for non-facilities leases and other administrative costs associated with the restructuring. 10. DISCONTINUED PRODUCT LINES In September 1999, the Company decided to discontinue new release development of Infinium Financials for Microsoft Windows NT and Infinium Human Resources for Microsoft Windows NT. The Company provided maintenance and consulting services for existing customers until November 2000. Of the $9.5 million estimated costs related to these actions, $6.3 million, including $5.6 million related to the write-off of capitalized and purchased software due to unamortized capitalized costs exceeding the net realizable value of those assets and $727 thousand related to the write-off of prepaid royalties for third-party products sold with the discontinued product lines, is included in cost of software license fees. The remaining $3.2 million, including $2.3 million related to impaired receivables and $853 thousand related to the write-off of goodwill associated with the Company's acquisition of Time, is included in general and administrative expenses. The Company will continue to develop new releases and provide maintenance and consulting services for its AdvaNTage Payroll and Human Resources products for Microsoft Windows NT. In fiscal year 2000, the Company realized operating losses from its discontinued product line of $5.7 million. Operating expenses of $6.2 million was incurred to provide maintenance and support transition for customers to alternative software platforms and resolve disputes. Expenses for the discontinued lines recorded in cost of service, research and development, and general and administrative were $1.9 million, $2.1 million, and $2.2 million, respectively. 11. DISCONTINUED OPERATIONS In September 2001, due to continued historical operating losses from its Application Service Provider ("ASP") business segment and the industry outlook for the ASP business generally, the Company's management decided to discontinue ASP by phasing out of the business segment over a period of six months. As a result, this business segment is classified as a discontinued operation in the consolidated statement of operations. Revenues from the Company's ASP business consist of monthly fees from ongoing services, including hosting, and are recognized daily as earned over the contract term, typically three years. Revenues attributable to the ASP business segment were $2.2 million and $321 thousand for fiscal year 2001 and 2000, respectively. The remaining net assets related to the ASP segment consist of accounts receivable from customers and current deferred revenue balances. In connection with the discontinuance of ASP, the Company wrote off $6.1 million of leasehold improvements and computers and equipment associated with the ASP business, determined to be unrecoverable in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121). This charge has been classified within loss from operations of ASP segment in the consolidated statement of operations for fiscal year 2001. 12. LEGAL SETTLEMENTS During the fourth fiscal quarter of 2000, the Company received the benefit of a $4.9 million legal settlement associated with the defense of its intellectual property. The benefit is recorded in other income. During fiscal 2000, the Company settled disputes associated with its discontinued product line. These amounts are included in general F-15 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and administrative expenses. During the second fiscal quarter of 1999, the Company settled a dispute with a former business partner for $350 thousand. The payment is classified within general and administrative expenses. 13. GAIN ON INVESTMENT IN CONDUIT SOFTWARE, INC. During the third quarter of 1998, the Company made a $750 thousand equity investment in Conduit Software, Inc. ("Conduit"), a developer of employee self-service software. During the third quarter of 1999, Conduit was acquired in a stock for stock transaction by ProBusiness Services, Inc. ("ProBusiness"), and the Company was granted ProBusiness shares in exchange for its Conduit shares. Subsequently, during fiscal 1999, the Company sold 90 percent of its ProBusiness stock for $1.9 million. This resulted in a realized gain of $1.2 million that is included in other income. The remaining 10 percent of the stock is included in marketable securities at fair market value, and an unrealized gain on marketable equity securities of $28 thousand, related to the remaining 10 percent of the stock, is included in stockholders' equity. 14. LINE OF CREDIT In October 2001, the Company entered into a line of credit with a financial institution under which it can borrow up to $3 million, based on certain asset-based balances. The agreement, which extends to December 31, 2002, contains certain financial covenants including a prohibition against the payment of dividends as well as minimum net deficit targets ranging from $19 million in 2001 to $10 million in May 2002. The Company has not borrowed under this line of credit. The interest rate on any funds that are borrowed would be at prime plus 1 percent. 15. INCOME TAXES The components of the provision for (benefit from) income taxes are as follows:
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------- 2001 2000 1999 --------- --------- --------- (IN THOUSANDS) Current: Federal................................................... $(2,155) $(1,169) $ (719) State..................................................... -- 67 55 Foreign................................................... (129) (135) 394 ------- ------- ------- Total current.......................................... (2,284) (1,237) (270) ------- ------- ------- Deferred: Federal................................................... -- 7,499 (1,253) State..................................................... -- 370 (175) Foreign................................................... -- 228 -- ------- ------- ------- Total deferred......................................... -- 8,097 (1,428) ------- ------- ------- $(2,284) $ 6,860 $(1,698) ======= ======= =======
F-16 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The income tax provision (benefit) differs from an amount computed by applying the U.S. statutory federal income tax rate to pretax income as follows:
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------- 2001 2000 1999 --------- --------- --------- (IN THOUSANDS) Statutory federal income tax................................ $(9,049) $(7,125) $(1,379) State income taxes.......................................... (397) (225) (79) Research and development credits............................ -- -- -- Foreign tax rate differential............................... 76 139 Decrease in reserves........................................ (2,284) -- -- Other....................................................... (1,123) 115 (379) Increase in valuation allowance............................. 10,569 14,019 -- ------- ------- ------- $(2,284) $ 6,860 $(1,698) ======= ======= =======
Deferred tax assets and liabilities are composed of the following:
FISCAL YEAR ENDED SEPTEMBER 30, ------------------- 2001 2000 -------- -------- (IN THOUSANDS) Deferred tax assets: Net operating loss and tax credit carryforwards........... $ 19,700 $ 6,789 Intangible assets......................................... 1,705 4,168 Deferred revenue.......................................... 1,676 2,781 1,961 Accrued expenses and reserves not currently deductible.... 265 2,151 Other..................................................... -- 172 -------- -------- Total deferred tax assets.............................. 25,307 16,061 -------- -------- Deferred tax liabilities: Prepaid expenses deducted currently....................... 372 550 Capitalized software development costs.................... 347 1,076 Other..................................................... -- 416 -------- -------- Total deferred tax liabilities......................... 719 2,042 -------- -------- Total....................................................... 24,588 14,019 Less -- Valuation allowance................................. (24,588) (14,019) -------- -------- $ -- $ -- ======== ========
Under SFAS No. 109, the Company cannot recognize a deferred tax asset for the future benefit of its net operating losses, tax credits and temporary differences unless the Company can establish that it is more likely than not that the deferred tax asset would be realized. Due to the Company's recent history of net losses, the Company is precluded from recording a tax asset and has recorded a full valuation allowance against its otherwise recognizable deferred tax asset, in accordance with SFAS No. 109. During fiscal year 2001, the Company recorded a benefit of $2.3 million, primarily as a result of the favorable resolution of potential tax liabilities and a decrease of reserves as a result of increased net operating losses. F-17 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As of September 30, 2001, the Company had net operating loss and tax credit carryforwards of approximately $48.4 million and $2.3 million, respectively, which expire at various dates through 2020. Ownership changes, as defined in the Internal Revenue Code, may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income or tax liability. The amount of the annual limitation is determined in accordance with Section 382 of the Internal Revenue Code. Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries because those earnings are intended to be permanently reinvested. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon the remittance of dividends. It is not practical to estimate the amount of additional tax that might be payable on the foreign earnings. Upon remittance, certain foreign countries impose withholding taxes that are then available, subject to certain limitations, for use against the Company's U.S. tax liability. The amount of withholding tax that would be payable upon remittance of the entire amount of undistributed earnings would not be material. 16. STOCKHOLDERS' EQUITY STOCK OPTIONS In October 1995, the Board of Directors approved the 1995 Stock Plan ("the 1995 Plan"), which provides for the issuance of up to 3.5 million shares of common stock pursuant to the grant of qualified and non-qualified stock options, stock awards or purchase rights to employees, consultants, directors, and officers of the Company. Additionally, in February 1999, the Company amended the 1995 Plan to provide for the issuance of an additional 1.0 million shares of common stock. The options generally vest over a four-year period and have a term of 10 years. The Compensation Committee is composed of members of the Company's Board of Directors. The option price is set at the fair market value of the Company's stock on the date of the option grant, as determined by the Compensation Committee. The Company also has a 1989 Incentive Stock Option Plan ("the 1989 Plan") and a 1984 Incentive Stock Option Plan ("the 1984 Plan"), which authorized options for 2.8 million and 1.4 million shares of common stock, respectively, under terms similar to those described in the preceding paragraph. In conjunction with the approval of the 1995 Plan, the Board of Directors formally terminated the 1989 Plan, and as such no future grants will be made under this Plan. Authority to grant additional options under the 1984 Plan has expired. In October 1995, the Board of Directors approved the 1995 Non-Employee Director Stock Option Plan ("the Director Plan") under which options to purchase a maximum of 210 thousand shares of the Company's common stock may be granted to non-employee directors. Under the Director Plan, each non-employee director will be granted an option to purchase 28 thousand shares of common stock upon first joining the Board of Directors and 4.0 thousand shares at each successive annual meeting of stockholders, beginning at the Company's annual meeting of stockholders for the fiscal year ended September 30, 1996, at an exercise price per share equal to the then fair market value per common share. Options granted under the Director Plan become exercisable in four equal annual installments commencing one year after the date of grant provided that the optionee then remains a director or consultant. The term of each option granted under the Director Plan will be for a period of ten years from the date of the grant. At September 30, 2001, the Company had 1.7 million shares of its common stock available for future grant and had reserved 2.5 million shares of its common stock for issuance upon exercise of outstanding stock options under the Plans. F-18 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Transactions under the 1984, 1989, 1995, and the Director Plans during the years ended September 30, 2001, 2000, and 1999 are summarized as follows:
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------------------------------------------------- 2001 2000 1999 ----------------------- ----------------------- ----------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------------- ------ -------------- ------ -------------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Outstanding at beginning of period.......................... 2,581 $6.19 3,264 $7.57 2,926 $8.28 Granted......................... 1,766 1.56 1,324 4.85 1,183 5.64 Exercised....................... -- -- (266) 5.10 (189) 4.06 Cancelled....................... (1,859) 5.75 (1,741) 7.93 (656) 8.27 ------ ------ ----- Outstanding at end of period...... 2,488 3.23 2,581 6.19 3,264 7.57 ====== ====== ===== Options exercisable at end of period.......................... 731 6.01 1,400 6.78 1,792 7.79 Weighted average fair value of options granted during the period.......................... $0.99 $3.24 $3.62
All options were granted at fair market value in fiscal years 2001, 2000, and 1999 except as noted below: Executive Compensation: On October 4, 2000, the Company issued 200 thousand options to purchase the Company's common stock to an executive of the Company at a price of $2.25 per share. The difference between the market value and the exercise price of the options is recorded as deferred stock-based compensation in the stockholders' equity (deficit) section of the balance sheet. Compensation expense is recorded over the vesting period of the options. Upon termination of the executive's employment during fiscal year 2001, the remaining outstanding options vested immediately, in accordance with the terms of the executive's original employment agreement. As a result, the remainder of the deferred stock-based compensation was expensed immediately. The following table summarizes the employee and director stock options outstanding at September 30, 2001:
FISCAL YEAR ENDED SEPTEMBER 30, 2001 ------------------------------------------------------------------------------ OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED RANGE OF SHARES CONTRACTUAL LIFE AVERAGE SHARES AVERAGE EXERCISE PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ---------------- -------------- ----------- -------------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) $ 0.68-$ 4.24 1,806 7.66 $ 1.91 233 $ 3.85 4.25- 6.49 533 6.92 5.49 358 5.52 6.50- 9.99 63 5.53 7.07 58 7.12 10.00- 14.99 33 4.34 11.16 33 11.16 $15.00-$16.13 53 6.14 16.03 49 16.02 ----- --- 2,488 731 ===== ===
F-19 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FAIR VALUE DISCLOSURES Had compensation cost for the Company's option plans, employee stock purchase plan and restricted stock plan been determined based on the fair value at the grant dates, as prescribed in SFAS No. 123, the Company's net loss and net loss per share would have been as follows:
FISCAL YEAR ENDED SEPTEMBER 30, -------------------------------- 2001 2000 1999 --------- --------- -------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Net loss: As reported.............................................. $(24,332) $(27,816) $(2,360) Pro forma................................................ (24,879) (30,295) (6,014) Basic loss per share: As reported.............................................. $ (1.88) $ (2.20) $ (0.19) Pro forma................................................ (1.92) (2.39) (0.48) Diluted loss per share: As reported.............................................. $ (1.88) $ (2.20) $ (0.19) Pro forma................................................ (1.92) (2.39) (0.48)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes method with the following assumptions used for grants during the applicable period: dividend yield of 0.0 percent for all periods; risk-free interest rates (weighted average) 4.66 percent, 6.37 percent, and 5.00 percent for options granted during the year ended September 30, 1999, 2000, and 2001, respectively; weighted average expected option term of five years for all periods; and volatilities of 75 percent for the year ended September 30, 1999, 77 percent for the year ended September 30, 2000, and 80 percent for the year ended September 30, 2001. The fair value of shares purchased under the Employee Stock Purchase Plan is based on the number of shares purchased and the pre-discounted purchase price. The fair value of options cancelled in connection with the issuance of restricted stock were valued at the time of cancellation using an expected option life of 1.75 years for vested options and 2 years for unvested options. 1995 EMPLOYEE STOCK PURCHASE PLAN On October 2, 1995, the Board of Directors approved the 1995 Employee Stock Purchase Plan (the Purchase Plan), which enables eligible employees to purchase shares of the Company's common stock. The Purchase Plan is administered by the Compensation Committee of the Board of Directors. Under the Purchase Plan, eligible employees may purchase common shares during six-month payment periods. The exercise price per share is 85 percent of the lesser of the market price per share on the first or last business day of the six-month period. The maximum number of shares of common stock that an employee may purchase in any six-month period is 500 shares. An employee's rights under the Purchase Plan terminate upon voluntary withdrawal from the plan at any time or upon termination of employment. The Company has reserved 1.4 million shares of common stock for issuance under the Purchase Plan. The first period commenced on November 17, 1995 (the effective date of the Company's initial public offering) and ended on June 30, 1996. Employees purchased 48 thousand shares of stock at $9.35 per share. In subsequent six-month periods, employees purchased 40 thousand shares of stock at $7.12 per share, 33 thousand shares of stock at $7.44 per share, 39 thousand shares of stock at $8.29 per share, 32 thousand shares of stock at $11.79 per share, 58 thousand shares of stock at $5.31 per share, 55 thousand shares of stock at $4.46 per share, 48 thousand shares of stock at $4.41 per share, 52 thousand shares of stock at $3.40 per share, 50 thousand shares of stock at $1.33 per share, and 39 thousand shares of stock at $0.96 per share. F-20 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK REPURCHASE PROGRAM In February 1998, the Company announced a stock repurchase program for up to $6.0 million of common stock to use to meet requirements of its employee stock option and stock purchase plans. No minimum number or value of shares to be repurchased was fixed nor was a time limit set for the duration of the program. The Company repurchased 191 thousand shares at an aggregate cost of $2.9 million and reissued 102 thousand shares during the year ended September 30, 1998. The Company repurchased 622 thousand shares at an aggregate cost of $3.0 million for the year ended September 30, 1999, and reissued 301 thousand shares during that same 12-month period. On October 29, 1999, the Company's Board of Directors approved a new stock repurchase program (the "1999 Program") authorizing the Company to repurchase an additional $10 million of common stock to use to meet requirements of its employee stock option and stock purchase plan. No minimum number or value of shares to be repurchased has been fixed for the new program nor has a time limit as to the duration of the program been established. During fiscal 2000, the Company did not repurchase any shares of common stock under the 1999 Program. During fiscal 2001, the Company repurchased 210 thousand shares of common stock for an aggregate repurchase price of $22 thousand and reissued 82 thousand shares. In addition, during fiscal 2001, the Company issued 430 thousand shares of restricted common stock, 192 thousand shares of which were from repurchases in fiscal 2001 of unvested restricted common stock from departed employees (at a repurchase price of $0.01 per share). ISSUANCE OF RESTRICTED STOCK On January 10, 2001, the Company instituted a Stock Option Exchange Program (the Program). Under the provisions of the Program, employees were allowed to exchange any of their stock options for shares of restricted stock on January 31, 2001, in general, at a rate of three options for each share of restricted stock. At January 31, 2001, the Company issued approximately 179,000 shares and cancelled approximately 537,000 options. At the close of business on January 31, 2001, the share price of the Company's stock was $2.13 per share. On February 9, 2001, additional restricted stock grants of 225,000 shares were awarded to executive management and an additional 16,000 and 10,000 restricted stock grants were awarded to other employees on January 22, 2001 and March 12, 2001, respectively. The fair market value of the Company's stock was $1.50 per share at the close of business on January 22, 2001 and $1.94 and $1.75 per share at the close of business on February 9, 2001 and March 12, 2001, respectively. The cost of the Program was $382 thousand, and the cost of the additional restricted stock grants was $436 thousand for the awards to executive management and $42 thousand for the awards to other employees. The combined cost of these events approximates $860 thousand, which will be amortized over the vesting period of the restricted stock grants, which range from 21 to 24 months. During the year ended September 30, 2001, the Company recognized $108 thousand in expenses for the Program, $72 thousand in expenses for executive management, and $26 thousand for the grants to other employees. 17. RETIREMENT SAVINGS PLAN The Company has a savings and profit sharing plan covering all eligible employees, which is qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. The Company may, at its option, provide matching contributions of up to 50 percent of each participating employee's contributions to the plan, subject to a maximum of up to 3 percent of compensation. Total contributions by the Company to the plan for the years ended September 30, 2001, 2000, and 1999 were $413 thousand, $794 thousand, and $843 thousand, respectively. In June 1996, a Group Personal Pension Plan was established for eligible employees in the United Kingdom, allowing employees to contribute a percentage of their salaries into a personal retirement savings plan. Company contributions to individual plans aggregated $83 thousand, $135 thousand, and $157 thousand for the years ended September 30, 2001, 2000, and 1999, respectively. A Registered Retirement Savings Plan was established in August 1997, allowing eligible employees in Canada to contribute a percentage of their compensation into a retirement savings plan. Total contributions by the Company F-21 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to this plan for the years ended September 30, 2001, 2000, and 1999 were $21 thousand, $28 thousand, and $33 thousand, respectively. Contributions for retirement savings plans associated with the Company's entities in Malaysia and the Netherlands were $53 thousand and $51 thousand, respectively, in fiscal year 2001 and $32 thousand and $8 thousand, respectively, in fiscal year 2000. 18. SEGMENT INFORMATION AND GEOGRAPHIC AREAS Effective October 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS No. 131), Disclosures About Segments of an Enterprise and Related Information. SFAS No. 131 superseded Statement of Financial Accounting Standards No. 14 ("SFAS No. 14"), Financial Reporting for Segments of a Business Enterprise. SFAS No. 131 establishes standards for disclosures about operating segments, products and services, geographic areas, and major customers. The Company has determined that its reportable business segments are North American Operations (all operations in the United States and Canada, including Infinium, the Cort Payroll Unit and ASP) and International Operations. The Company offers enterprise-level business software applications designed to automate back-office and certain front-office operations of its customers. The Company's products can function as stand-alone applications or as integrated suites of applications and may be integrated with products from other vendors. The Company's products are designed to provide users significant functionality as well as the flexibility and ease of use of network-centric computing, while retaining low cost of ownership. In the fourth quarter of fiscal year 2001, the Company decided to discontinue its ASP business unit. The Company recorded a charge of $1.8 million associated with the disposal of the ASP segment. Additionally, the Company realized operating losses from its discontinued ASP business of $8.2 million and $11.7 million for the year's ended September 30, 2000 and 2001, respectively. Included in the loss from operations of the discontinued segment is a $6.1 million charge for the write-off of fixed asset balances. The Company offers through its AdvaNTage Business Unit a comprehensive human resources management system (HRMS) developed for Microsoft's Windows NT operating system called Infinium AdvaNTage HRMS, and Employee Self Service system and a Web-native enterprise resource management portal called Infinium AdvaNTage e-Resources. The HRMS product suite includes two applications, a payroll and a human resources information system. The Infinium AdvaNTage Payroll system is designed to easily manage the most complex payroll requirements. The Infinium AdvaNTage HRMS system is designed to be a proactive personnel, benefits, and applicant management tool. The Infinium AdvaNTage e-Resources system is designed to provide a centrally managed business intelligence, recruitment, self service and fully functional human resources solution, delivered over the internet and through a browser. The Infinium AdvaNTage HRMS, Payroll, Employee Self Service and e-Resources systems can be utilized either as separate applications or as an integrated suite. The systems utilize Microsoft SQL server database management systems. F-22 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents a summary of operating information and certain year-end balance sheet information by business segment for the years ended September 30, 2001, 2000, and 1999:
FISCAL YEAR ENDED SEPTEMBER 30, --------------------------------- 2001 2000 1999 --------- --------- --------- (IN THOUSANDS) Revenue: North American operations: Infinium................................................ $ 62,332 $ 79,228 $107,814 Cort payroll unit....................................... 4,717 5,384 5,677 ASP..................................................... 2,231 321 -- -------- -------- -------- Total North American Operations......................... 69,280 84,933 113,491 International operations................................ 7,021 8,122 8,514 -------- -------- -------- Consolidated............................................ 76,301 93,055 122,005 Less discontinued operations............................ (2,231) (321) -- -------- -------- -------- Consolidated continuing operations...................... $ 74,070 $ 92,734 $122,005 ======== ======== ======== Operating loss: North American operations: Infinium................................................ $ (7,639) $(11,840) $ (2,505) Cort payroll unit....................................... (1,729) (1,140) (637) ASP..................................................... (11,658) (8,112) -- -------- -------- -------- Total North American Operations......................... (21,026) (21,092) (3,142) International operations................................ (3,801) (5,968) (3,549) -------- -------- -------- Consolidated............................................ (24,827) (27,060) (6,691) Less discontinued operations............................ 11,658 8,112 0 -------- -------- -------- Consolidated continuing operations...................... $(13,169) $(18,948) $ (6,691) ======== ======== ======== Identifiable Assets: North American operations: Infinium................................................ $ 31,794 $ 57,519 $ 87,015 Cort payroll unit....................................... 435 1,902 1,798 ASP-Discontinued Operations............................. 233 7,211 -- -------- -------- -------- Total North American Operations......................... 32,462 66,632 88,813 International operations................................ 2,835 4,617 5,068 -------- -------- -------- Consolidated............................................ $ 35,297 $ 71,249 $ 93,881 ======== ======== ========
Geographically, revenues are reflected in the geographic areas from which the sales are made. Fiscal years 2001 and 2000 revenues from discontinued operations of $2.2 million and $321 thousand, respectively, are included in F-23 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) United States balances. Information related to the Company's revenues from unaffiliated customers in different geographical areas is as follows:
FISCAL YEAR ENDED SEPTEMBER 30, ------------------------------- 2001 2000 1999 -------- -------- --------- (IN THOUSANDS) Revenues United States............................................. $67,690 $82,422 $109,060 United Kingdom............................................ 4,096 5,723 7,749 Canada.................................................... 1,589 2,510 4,431 Other..................................................... 2,926 2,400 765 ------- ------- -------- Consolidated.............................................. $76,301 $93,055 $122,005 ======= ======= ========
Information related to the Company's long-lived assets by geographical area is as follows:
SEPTEMBER 30, --------------------------- 2001 2000 1999 ------- ------- ------- (IN THOUSANDS) Long-lived assets United States............................................. $10,241 $28,772 $18,544 United Kingdom............................................ 61 133 286 Canada.................................................... 76 73 62 Other..................................................... 60 850 58 ------- ------- ------- Consolidated.............................................. $10,438 $29,828 $18,950 ======= ======= =======
No single customer accounted for more than 10 percent of the Company's consolidated revenues for the years ended September 30, 2001, 2000, and 1999. 19. RELATED PARTY TRANSACTIONS LIFE INSURANCE TRUSTS One current principal stockholder and two former principal stockholders of the Company have split-dollar life insurance policies (the Policies). The Policies are owned by various trusts. The trusts have executed Collateral Assignment Agreements for the benefit of the Company. Under the Collateral Assignment Agreements, the Company originally paid the annual premiums under the Policies. Effective October 1, 1996, the Collateral Assignment Agreements for the two former principal stockholders were amended so that the trusts (rather than the Company) were obligated from that date to make all premium payments under the Policies. In March 1998, the Company paid the last premium payments required under the current principal stockholder's Policies to make them self-funding as of that date. The Company has made no premium payments under the Policies for the years ended September 30, 2001, 2000, and 1999, respectively. The premium payments made under the Policies were recorded as advances to the trusts and are secured by the cash surrender value of related insurance policies. Cash advances in excess of the cash surrender value of the related insurance policies were expensed when advanced. Total advances due from the trusts amounted to $2.1 million at September 30, 2001 and are included in other assets on the consolidated balance sheet. The Collateral Assignment Agreements can be terminated (i) by the applicable trust on 30 days' written notice to the Company, (ii) upon the failure of the applicable trust to make annual premium payments, (iii) at the applicable trust's election to receive a release of the assignment of the Policies from the Company, or (iv) by the Company if the cash surrender value declines and the Company is not willing to accept substitute collateral. Upon termination of the Collateral Assignment Agreement, the trust must immediately repay to the Company the amounts of premium advances made by the Company. If a Collateral Assignment Agreement is F-24 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) not terminated and the principal stockholder dies, the death benefits will be paid first to the Company to the extent of the advances. OTHER During fiscal year 2000, the Company entered into a consulting agreement with Wianno Ventures which is controlled by a relative of an executive officer of the Company. The Company incurred and paid $122 thousand in fees for services rendered. Management believes the services rendered and fees incurred are based on terms and conditions which occur during the normal course of business. 20. COMMITMENTS AND CONTINGENCIES LEASES The Company has several operating lease agreements primarily involving real estate and computers and equipment. The Company also has a capital lease involving computer equipment. These leases are non-cancelable and expire on various dates through 2002 except for the Company's Lexington, Massachusetts, facility lease, which expires in 2003; Hyannis, Massachusetts, facility lease, which expires in 2005; Alpharetta, Georgia, facility lease, which expires in 2003; London, England, facility lease, which expires in 2014;; Lisle, Illinois, facility lease, which expires in 2005; Las Vegas, Nevada, facility lease, which expires in 2004; Irvine, California, facility lease, which expires in 2005; Markham, Ontario facility lease which expires in 2006; and a computer equipment lease that expires in 2005. The following is a schedule by year of future minimum lease payments under capital and operating leases, together with the present value of the net minimum lease payments as of September 30, 2001:
CAPITAL OPERATING FISCAL YEAR LEASES LEASES - ----------- ------- --------- (IN THOUSANDS) 2002........................................................ $ 372 $ 4,032 2003........................................................ 325 2,844 2004........................................................ 231 2,164 2005........................................................ 152 1,357 2006........................................................ 474 Thereafter.................................................. 0 3,478 ------ ------- Total future minimum lease payments......................... $1,080 $14,349 Less amount representing interest........................... (317) ------ Present value of net minimum lease payments................. 763 Less current maturities of capital lease obligations........ (239) ------ Capital lease obligations, less current portion............. $ 524 ======
Total rent expense for operating leases was $5.8 million, $5.7 million, and $5.0 million for the years ended September 30, 2001, 2000, and 1999, respectively. Total interest paid for capital leases was $117 thousand and $25 thousand for fiscal year 2001 and 2000, respectively. Accumulated amortization related to equipment leased under capital leases was $294 thousand as of September 30, 2001. LEGAL MATTERS From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business; including, litigation related to the discontinuance of its NT product lines. The Company F-25 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) believes that it is not a party to any legal proceedings which individually or in the aggregate, would have a material adverse effect on the Company's results of operations or financial position. 21. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth the unaudited quarterly statement of operations data for each of the eight quarters in the period ended September 30, 2001. In the opinion of management, the unaudited financial results include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our results of operations for those periods and have been prepared on the same basis as the audited consolidated financial statements. The "as adjusted" column reflects the discontinuance of the Company's ASP business segment (See Note 11). The results of operations for any quarter are not necessarily indicative of the results of operations for any future period.
Q1'00 Q2'00 Q3'00 Q4'00 Q1'00 AS Q2'00 AS Q3'00 AS Q4'00 AS AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED REPORTED -------- ---------- -------- ---------- -------- ---------- -------- ---------- ($000'S, EXCEPT PER SHARE DATA) Revenue: Software license fees.......... 3,758 3,758 4,552 4,552 5,132 5,132 7,031 7,031 Service revenue................ 19,763 19,763 18,034 18,034 16,759 16,780 17,705 18,005 ------- ------ ------ ------ ------ ------- ------- ------- Total Revenue.................... 23,521 23,521 22,586 22,586 21,891 21,912 24,736 25,036 ------- ------ ------ ------ ------ ------- ------- ------- Operating costs and expenses: Cost of software license fees......................... 1,561 1,561 1,574 1,574 1,752 1,752 2,214 2,214 Cost of services............... 8,662 8,731 8,745 9,123 7,764 8,267 6,392 7,707 Research & development......... 5,017 5,017 4,629 4,629 6,139 6,139 5,511 5,567 Sales & marketing.............. 8,317 8,317 9,036 9,236 9,937 13,620 8,812 9,637 General & administrative....... 2,705 2,705 3,006 3,125 4,340 4,842 5,569 6,352 ------- ------ ------ ------ ------ ------- ------- ------- Total operating costs and expenses....................... 26,262 26,331 26,990 27,687 29,932 34,620 28,498 31,477 ------- ------ ------ ------ ------ ------- ------- ------- Income (loss) from operations.... (2,741) (2,810) (4,404) (5,101) (8,041) (12,708) (3,762) (6,441) Other income, net................ 404 404 374 374 295 295 5,031 5,031 ------- ------ ------ ------ ------ ------- ------- ------- Income (loss) from continuing operations before provisions for (benefit from) taxes....... (2,337) (2,406) (4,030) (4,727) (7,746) (12,413) 1,269 (1,410) Provision for(benefit from) income taxes................... (891) (891) (1,534) (1,534) (4,215) (4,215) 13,500 13,500 ------- ------ ------ ------ ------ ------- ------- ------- Income (loss) from continuing operations..................... (1,446) (1,515) (2,496) (3,193) (3,531) (8,198) (12,231) (14,910) Discontinued operations: Loss from operations of ASP segment...................... 69 0 697 0 4,667 0 2,679 0 Loss from disposal of ASP segment...................... ------- ------ ------ ------ ------ ------- ------- ------- Net Loss......................... (1,515) (1,515) (3,193) (3,193) (8,198) (8,198) (14,910) (14,910) ======= ====== ====== ====== ====== ======= ======= =======
F-26 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Q1'00 Q2'00 Q3'00 Q4'00 Q1'00 AS Q2'00 AS Q3'00 AS Q4'00 AS AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED REPORTED -------- ---------- -------- ---------- -------- ---------- -------- ---------- ($000'S, EXCEPT PER SHARE DATA) Earnings Per Share: Basic Earnings (Loss) per share from continuing operations... $ (0.11) $(0.12) $(0.20) $(0.25) $(0.28) $ (0.64) $ (0.95) $ (1.16) ======= ====== ====== ====== ====== ======= ======= ======= Basic (Loss) per share from ASP segment...................... $ (0.01) $(0.00) $(0.05) $(0.00) $(0.36) $ (0.00) $ (0.21) $ (0.00) ======= ====== ====== ====== ====== ======= ======= ======= Basic and diluted (Loss) per share, net................... $ (0.12) $(0.12) $(0.25) $(0.25) $(0.64) $ (0.64) $ (1.16) $ (1.16) ======= ====== ====== ====== ====== ======= ======= ======= Weighted average shares outstanding -- basic......... 12,242 12,242 12,709 12,709 12,838 12,838 12,884 12,884 ======= ====== ====== ====== ====== ======= ======= ======= Weighted average shares outstanding -- diluted....... 12,242 12,242 12,709 12,709 12,838 12,838 12,884 12,884 ======= ====== ====== ====== ====== ======= ======= =======
Q1'01 Q2'01 Q3'01 Q4'01 Q1'01 AS Q2'01 AS Q3'01 AS Q4'01 AS AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED REPORTED -------- ---------- -------- ---------- -------- ---------- -------- ---------- ($000'S, EXCEPT PER SHARE DATA) Revenue: Software license fees.......... 3,767 3,767 3,010 3,010 1,319 1,319 2,267 2,267 Service revenue................ 18,229 18,637 15,902 16,510 14,601 15,403 14,975 14,975 ------- ------- ------- ------- ------- -------- ------- ------- Total Revenue.................... 21,996 22,404 18,912 19,520 15,920 16,722 17,242 17,242 ------- ------- ------- ------- ------- -------- ------- ------- Operating costs and expenses: Cost of software license fees......................... 1,416 1,416 1,231 1,231 4,782 4,782 728 728 Cost of services............... 5,474 7,115 5,218 6,808 4,975 6,437 3,637 3,637 Research & development......... 3,918 3,918 3,948 3,948 4,689 4,689 3,610 3,610 Sales & marketing.............. 8,017 8,552 7,178 7,632 6,992 7,291 4,995 4,995 General & administrative....... 2,380 2,538 2,921 2,921 8,161 8,268 2,969 2,969 ------- ------- ------- ------- ------- -------- ------- ------- Total operating costs and expenses....................... 21,205 23,539 20,496 22,540 29,599 31,467 15,939 15,939 ------- ------- ------- ------- ------- -------- ------- ------- Income (loss) from operations.... 791 (1,135) (1,584) (3,020) (13,679) (14,745) 1,303 1,303 Other income, net................ 230 230 80 80 (12) (12) (276) (276) ------- ------- ------- ------- ------- -------- ------- ------- Income (loss) from continuing operations before provision for (benefit from) taxes........... 1,021 (905) (1,504) (2,940) (13,691) (14,757) 1,027 1,027 Provision for(benefit from) income taxes................... 0 0 0 0 (817) (817) (1,467) (1,467) ------- ------- ------- ------- ------- -------- ------- ------- Income (loss) from continuing operations..................... 1,021 (905) (1,504) (2,940) (12,874) (13,940) 2,494 2,494 Discontinued operations: Loss from operations of ASP segment........................ 1,926 0 1,436 0 1,066 0 7,230 7,230 Loss from disposal of ASP segment........................ 1,811 1,811 ------- ------- ------- ------- ------- -------- ------- ------- Net Loss......................... (905) (905) (2,940) (2,940) (13,940) (13,940) (6,547) (6,547) ======= ======= ======= ======= ======= ======== ======= =======
F-27 INFINIUM SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Q1'01 Q2'01 Q3'01 Q4'01 Q1'01 AS Q2'01 AS Q3'01 AS Q4'01 AS AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED REPORTED -------- ---------- -------- ---------- -------- ---------- -------- ---------- ($000'S, EXCEPT PER SHARE DATA) Earnings Per Share: Basic Earnings (Loss) per share from continuing operations... $ 0.08 $ (0.07) $ (0.12) $ (0.23) $ (1.00) $ (1.08) $ 0.19 $ 0.19 ======= ======= ======= ======= ======= ======== ======= ======= Basic (Loss) per share from ASP segment...................... $ (0.15) $ 0.00 $ (0.11) $ 0.00 $ (0.08) $ 0.00 $ (0.70) $ (0.70) ======= ======= ======= ======= ======= ======== ======= ======= Basic and diluted (Loss) per share, net................... $ (0.07) $ (0.07) $ (0.23) $ (0.23) $ (1.08) $ (1.08) $ (0.51) $ (0.51) ======= ======= ======= ======= ======= ======== ======= ======= Weighted average shares outstanding -- basic......... 12,884 12,884 12,920 12,920 12,950 12,950 13,002 13,002 ======= ======= ======= ======= ======= ======== ======= ======= Weighted average shares outstanding -- diluted....... 12,884 12,884 12,920 12,920 12,950 12,950 13,004 13,004 ======= ======= ======= ======= ======= ======== ======= =======
F-28 SCHEDULE II INFINIUM SOFTWARE, INC. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - -------- --------- ----------------------- ---------- -------- -------- CHARGED TO CHARGED TO DESCRIPTION BEGINNING EXPENSE OTHER DEDUCTIONS OTHER ENDING - ----------- --------- ---------- ---------- ---------- -------- -------- FISCAL YEAR 2001 Allowance for Doubtful Accounts.... $ 3,455 $ 217 $ -- $(1,796) $-- $ 1,876 Tax Valuation Allowance............ 14,019 -- 10,569 -- -- 24,588 FISCAL YEAR 2000 Allowance for Doubtful Accounts.... 4,229 126 -- (949) 49 3,455 Tax Valuation Allowance............ -- -- 14,019 -- -- 14,019 FISCAL YEAR 1999 Allowance for Doubtful Accounts.... $ 1,650 $2,679 $ -- $ (100) $-- $ 4,229
F-29 EX-10.1 3 b41247isex10-1.txt LOAN AND SECURITY AGREEMENT EXHIBIT 10.1 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT BORROWER: INFINIUM SOFTWARE, INC. ADDRESS: 25 COMMUNICATIONS WAY HYANNIS, MASSACHUSETTS 02601 DATE: OCTOBER 26, 2001 THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK, a California-chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 ("Silicon") and the borrower named above (the "Borrower"), with offices located at the above address ("Borrower's Address"). The Schedule and Exhibits to this Agreement (the "Schedule" and the "Exhibits," respectively) shall for all purposes be deemed to be part of this Agreement, and the same are integral parts of this Agreement. (Definitions of certain terms used in this Agreement are set forth in Section 8 below.) 1. LOANS. 1.1 LOANS. Silicon will make loans to Borrower (the "Loans") up to the amounts (the "Credit Limit") shown on the Schedule, provided no Default or Event of Default has occurred and is continuing, and subject to deduction of any Reserves for accrued interest and such other Reserves as Silicon reasonably deems proper from time to time. 1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement. Interest shall be payable monthly, on the last day of the month. Interest may, in Silicon's discretion, be charged to Borrower's loan account, and the same shall thereafter bear interest at the same rate as the other Loans. Silicon may, in its discretion, charge interest to Borrower's Deposit Accounts maintained with Silicon. 1.3 OVERADVANCES. If at any time or for any reason the total of all outstanding Loans and all other Obligations exceeds the Credit Limit (an "Overadvance"), Borrower shall immediately pay the amount of the excess to Silicon, upon written notice or demand. Without limiting Borrower's obligation to repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount of any Overadvance (by way of clarification the amount in excess of the Credit Limit), on demand, at a rate equal to the interest rate which would otherwise be applicable to the Overadvance, plus an additional two percent (2%) per annum. 1.4 FEES. Borrower shall pay Silicon the fees shown on the Schedule, which are in addition to all interest and other sums payable to Silicon and are not refundable. 1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its commercially reasonable discretion and in good faith, issue or arrange for the issuance of letters of credit for the account of Borrower, in each case in form and substance satisfactory to Silicon in its commercially reasonable discretion (collectively, "Letters of Credit"). The aggregate face amount of all outstanding Letters of Credit from time to time (plus all Silicon exposure under any foreign exchange contracts) shall not exceed the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be reserved against Loans which would otherwise be available hereunder. Borrower shall pay SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- all bank charges (including charges of Silicon) for the issuance of Letters of Credit, together with such additional fee as Silicon's letter of credit department shall charge in connection with the issuance of the Letters of Credit, which such fees shall not exceed Silicon's then standard fees for letters of credit. Any payment by Silicon under or in connection with a Letter of Credit shall constitute a Loan hereunder on the date such payment is made. Unless otherwise agreed by the parties in writing, each Letter of Credit shall have an expiry date no later than thirty days prior to the Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon harmless from any loss, cost, expense, or liability, including payments made by Silicon, reasonable expenses, and reasonable attorneys' fees incurred by Silicon arising out of or in connection with any Letters of Credit, except to the extent such loss, cost, expense or liability is due to the gross negligence or willful misconduct of Silicon. Borrower agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Silicon and opened for Borrower's account or by Silicon's interpretations of any Letter of Credit issued by Silicon for Borrower's account, and Borrower understands and agrees that Silicon shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower's instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto, except to the extent due to the gross negligence or willful misconduct of Silicon. Borrower understands that Letters of Credit may require Silicon to indemnify the issuing bank for certain costs or liabilities arising out of claims by Borrower against such issuing bank, except to the extent due to the gross negligence or willful misconduct of Silicon. Borrower hereby agrees to indemnify and hold Silicon harmless with respect to any loss, cost, expense, or liability incurred by Silicon under any Letter of Credit as a result of Silicon's indemnification of any such issuing bank. The provisions of this Loan Agreement, as it pertains to Letters of Credit, and any other present or future documents or agreements between Borrower and Silicon relating to Letters of Credit are cumulative, provided that to the extent of any inconsistency between this Loan Agreement and a letter of credit application, the terms of this Loan Agreement shall control. 2. SECURITY INTEREST. 2.1 SECURITY INTEREST. To secure the payment and performance of all of the Obligations when due, and the performance of each of the Borrower's duties under this Agreement and all documents executed in connection herewith, Borrower hereby grants to Silicon a continuing security interest in all of Borrower's interest in the following, whether now owned or hereafter acquired, and wherever located: All Inventory, Equipment, Receivables, and General Intangibles, including, without limitation, all of Borrower's Intellectual Property, all of Borrower's Deposit Accounts, Investment Property, and all money, and all property now or at any time in the future in Silicon's possession (including claims and credit balances), and all proceeds (including proceeds of any insurance policies, except in such circumstances where the Borrower receives the proceeds on behalf of, or for the benefit of, a third party (other than Silicon) proceeds of proceeds and claims against third parties), all products and all books and records related to any of the foregoing (all of the foregoing, together with all other property in which Silicon may now or in the future be granted a lien or security interest, is referred to herein, collectively, as the "Collateral"). The security interest granted herein shall be a first priority security interest in the Collateral. Silicon may, while an Event of Default exists, place a "hold" on any Deposit Account pledged as collateral. 2.2 CONCERNING REVISED ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE. In anticipation of the possible application, in one or more jurisdictions to the transactions contemplated hereby, of the revised Article 9 of the Uniform Commercial Code in the form or substantially in the form approved by the American Law Institute and the National Conference of Commissioners on Uniform State Law and contained in the 1999 Official Text of the Uniform Commercial Code ("Revised Article 9"), it is hereby agreed that applying the law of any jurisdiction in which Revised Article 9 is in effect, the Collateral is all assets of the Borrower, whether or not within the scope of Revised Article 9. The Collateral shall include, without limitation, the following categories of assets as defined in Revised Article 9: goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents, accounts (including health-care-insurance receivables, and license fees), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, general intangibles (including payment intangibles and software), supporting obligations and any and all proceeds of any thereof, wherever located, whether now owned or hereafter acquired. If the Borrower shall at any time, whether or not 2 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- Revised Article 9 is in effect in any particular jurisdiction, acquire a commercial tort claim with an anticipated value in excess of $250,000.00, as defined in Revised Article 9, the Borrower shall promptly notify Silicon in a writing signed by the Borrower of the brief details thereof and grant to Silicon in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Silicon. 2.3 EXCLUDED COLLATERAL. Notwithstanding the foregoing provisions of this Section 2, such grant of a security interest shall not extend to, and the term "Collateral" shall not include any contract, license, lease or other agreement to which the Borrower is party as licensee, lessee or otherwise, to the extent that (i) such contract, license or agreement is not assignable or capable of being encumbered as a matter of law or under the terms of such contract, license, lease or other agreement (but solely to the extent that any such restriction shall be enforceable under applicable law), without the consent of the licensor or lessor thereof or other applicable party thereto and (ii) such consent has not been obtained; provided, however, that the foregoing grant of security interest shall extend to, and the term "Collateral" shall include (A) any and all proceeds of such contracts, licenses, leases and other agreements to the extent that the assignment or encumbering of such proceeds is not so restricted and (B) upon any licensor, lessor or other applicable party consent with respect to any such otherwise excluded contract, license, lease or other agreement being obtained, thereafter such contract, license, lease or other agreement, as the case may be, as well as any and all proceeds thereof that might have theretofore have been excluded from such grant of a security interest and the term "Collateral". Further, the term "Collateral" shall not include the assets of Borrower's subsidiary, Cort Directions, Inc., or any stock of Cort Directions, Inc. owned by Borrower, all as more fully described in Section 5.5 of this Loan Agreement. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. In order to induce Silicon to enter into this Agreement and to make Loans, Borrower represents and warrants to Silicon as follows, and that Borrower will at all times comply with all of the following covenants: 3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a material adverse effect on Borrower. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors' rights generally), (iii) do not violate Borrower's articles or certificate of incorporation, Borrower's by-laws, or to the extent it would have a material adverse effect on the Borrower, any law or any material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any material agreement or instrument which is binding upon Borrower or its property. 3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the heading to this Agreement is its correct name. Listed on the Schedule are all prior names of Borrower and all of Borrower's present and prior trade names used in the last five years. Borrower shall give Silicon 30 days' prior written notice before changing its name or doing any material amount of business under any other name. Borrower has complied, and will in the future comply in all material respects, with all laws relating to the conduct of business under a fictitious business name. 3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral in excess of $20,000.00 per location is located only at the locations set forth on the Schedule. Borrower will give Silicon at least 30 days prior written notice before opening any additional place of business, changing its chief executive office, changing its state of formation or moving any of the Collateral to a location other than Borrower's Address or 3 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- one of the locations set forth on the Schedule, or such other location for which Borrower has furnished notice to Silicon, other than Collateral that is in transit or temporarily removed from such locations. 3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment and Real Property which are leased by Borrower. Items which are leased are not owned by Borrower and therefore are not Collateral. The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens. Silicon now has, and will continue to have, a first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend Silicon and the Collateral against all material claims of others. None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture. Borrower will not become a lessee under any new real property lease pursuant to which the lessor may obtain any rights in any of the Collateral (except as may constitute Permitted Liens) and no such lease shall in the future, prohibit, restrain, or impair Borrower's right to remove its books and records from the leased premises. Whenever any Collateral is located upon premises in which any third party has an interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever requested by Silicon, use its reasonable efforts to cause such third party to execute and deliver to Silicon, in form reasonably acceptable to Silicon, such waivers and subordinations as Silicon shall specify, so as to ensure that Silicon's rights in the Collateral are, and will continue to be, superior to the rights of any such third party. Borrower will keep in full force and effect, and will comply in all material respects with all the terms of, any lease of real property where any of the Collateral now or in the future may be located. 3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good working condition, ordinary wear and tear excepted, and Borrower will not use the Collateral for any unlawful purpose. Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral. 3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's Address complete and accurate books and records, comprising an accounting system in accordance with generally accepted accounting principles. 3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with generally accepted accounting principles, except for footnotes and year end adjustments, and now and in the future will completely and accurately reflect the financial condition of Borrower, at the times and for the periods therein stated. Between the last date covered by any such statement provided to Silicon and the date hereof, there has been no material adverse change in the financial condition or business of Borrower. Borrower is now and will continue to be solvent, which shall be defined as the ability of the Borrower to pay its financial obligations in the normal course of business as they become due. 3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely filed, and will timely file, all tax returns and reports required by foreign, federal, state and local law, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower may, however, defer payment of any contested taxes, or the filing of any tax returns or reports, provided that Borrower (i) in good faith contests Borrower's obligation to pay the taxes by appropriate process promptly and diligently instituted and conducted, (ii) notifies Silicon in writing of the commencement of, and any material development in, the process, and takes such reserves as may be required by Silicon and/or GAAP. Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could reasonably be expected to result in additional taxes becoming due and payable by Borrower. Borrower has paid, and shall continue to pay all lawfully required amounts with respect to all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any material liability of Borrower, including any material liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. 4 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- 3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all material respects, with all provisions of all material foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, and all environmental matters. 3.10 LITIGATION. Except as disclosed in the Schedule or otherwise previously disclosed to Silicon in writing, there is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrower's knowledge) threatened by or against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which may reasonably be expected to result, either separately or in the aggregate, in any material adverse change in the financial condition or business of Borrower, or in any material impairment in the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted. Borrower will promptly inform Silicon in writing of any claim, proceeding, litigation or investigation in the future instituted by or against Borrower involving any single claim of $200,000 or more, or involving $500,000 or more in the aggregate. 3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for working capital purposes. Borrower is not purchasing or carrying any "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any "margin stock" or to extend credit to others for the purpose of purchasing or carrying any "margin stock." 4. RECEIVABLES. 4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants to Silicon as follows: Each Receivable with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, (i) except with respect to any Receivable relating to maintenance revenues or for which Borrower bills in advance, represent an undisputed bona fide existing obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services in the ordinary course of Borrower's business, and (ii) meet the Minimum Eligibility Requirements set forth in Section 8 below. 4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower represents and warrants to Silicon as follows: All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Receivables are and shall be true and correct in all material respects and all such invoices, instruments and other documents and all of Borrower's books and records are and shall be genuine and in all material respects what they purport to be, and all signatories and endorsers have the capacity to contract. All sales and other transactions underlying or giving rise to each Receivable shall comply in all material respects with all applicable laws and governmental rules and regulations. All signatures and endorsements on all documents, instruments, and agreements relating to all Receivables are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms. 4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to Silicon transaction reports and loan requests and schedules of all Receivables, and schedules of collections, all on Silicon's standard forms, which hall conform to generally accepted standards in the banking industry; provided, however, that Borrower's failure to execute and deliver the same shall not affect or limit Silicon's security interest and other rights in all of Borrower's Receivables, nor shall Silicon's failure to advance or lend against a specific Receivable affect or limit Silicon's security interest and other rights therein. The Borrower shall furnish Silicon with its initial loan request thirty (30) days prior to the requested funding date, and one (1) business day prior to each subsequent requested funding date. Together with each such loan request, or later if requested by Silicon, Borrower shall furnish Silicon with copies (or, at Silicon's request, originals) of all contracts, orders, invoices, and other similar documents, as requested by Silicon, for any goods the sale or disposition of which gave rise to such Receivables, and Borrower warrants the genuineness of all of the foregoing. Borrower shall also furnish to Silicon an aged accounts receivable trial balance in such form and at such intervals as set forth in the Schedule. In addition, Borrower shall deliver to Silicon the originals of all instruments, chattel paper, security agreements, guarantees and other documents and 5 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- property evidencing or securing any Receivables, immediately upon receipt thereof and in the same form as received, with all necessary endorsements, all of which shall be with recourse. Borrower shall also provide Silicon with copies of all credit memos, upon Silicon's request. 4.4 COLLECTION OF RECEIVABLES. Borrower shall cause the Account Debtors to remit all Receivables to Silicon and Silicon shall hold all payments on, and proceeds of, Receivables in a lockbox account, or such other "blocked account" as Silicon may specify, pursuant to a blocked account agreement in such form as Silicon may specify. All such payments on, and proceeds of, Receivables shall be applied to the Obligations in such order as Silicon shall determine. Silicon or its designee may, at any time reasonably necessary to enforce and/or preserve Silicon's security in the Receivables, notify Account Debtors that the Receivables have been assigned to Silicon. 4.5. REMITTANCE OF PROCEEDS. At any time there are any borrowings outstanding under this Loan Agreement, all proceeds arising from the disposition of any Collateral (other than Collateral comprised of Investment Property held by a third party, provided that such Investment Property is subject to an Account Control Agreement in form and substance reasonably satisfactory to Silicon) shall be delivered, in kind, by Borrower to Silicon in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations in such order as Silicon shall determine; provided that, if no Default or Event of Default has occurred, Borrower shall not be obligated to remit to Silicon the proceeds of the sale of worn out or obsolete equipment disposed of by Borrower in good faith in an arm's length transaction for an aggregate sale price of $50,000 or less (for all such transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower's other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Silicon. Nothing in this Section 4.5 limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement. 4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or claims in excess of $150,000.00 relating to Receivables. Borrower shall not forgive (completely or partially), compromise or settle any Receivable for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm's length transactions, which are reported to Silicon on the regular reports provided to Silicon; (ii) no Default or Event of Default has occurred and is continuing; and (iii) taking into account all such discounts settlements and forgiveness, the total outstanding Loans will not exceed the Credit Limit. Silicon may, at any time after the occurrence of and during the continuance of an Event of Default, settle or adjust disputes or claims directly with Account Debtors for amounts and upon terms which Silicon considers advisable in its reasonable credit judgment and, in all cases, Silicon shall credit Borrower's Loan account with only the net amounts received by Silicon in payment of any Receivables. 4.7 RETURNS. Provided no Event of Default has occurred and is continuing, and further provided that Borrower does not, in good faith, dispute the return, if any Account Debtor returns any Inventory to Borrower in the ordinary course of its business, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount (sending a copy to Silicon in accordance herewith). In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall (i) hold the returned Inventory in trust for Silicon, (ii) segregate all returned Inventory from all of Borrower's other property, and (iii) immediately notify Silicon of the return of any Inventory with a value in excess of $50,000.00, specifying the reason for such return, the location and condition of the returned Inventory. 4.8 VERIFICATION. Silicon may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Receivables, by means of mail, telephone or otherwise, either in the name of Borrower or Silicon or such other name as Silicon may choose. 4.9 NO LIABILITY. Silicon shall not under any circumstances be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to a Receivable, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, 6 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- collection or failure to collect any Receivable, or for settling any Receivable in good faith for less than the full amount thereof, nor shall Silicon be deemed to be responsible for any of Borrower's obligations under any contract or agreement giving rise to a Receivable. Nothing herein shall, however, relieve Silicon from liability for its own gross negligence or willful misconduct. 5. ADDITIONAL DUTIES OF THE BORROWER. 5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with the financial and other covenants set forth in the Schedule. 5.2 INSURANCE. Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in the form and amounts as set forth in the certificate of insurance attached hereto, and Borrower shall provide evidence of such insurance to Silicon, so that Silicon is reasonably satisfied that such insurance is, at all times, in full force and effect. All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction of the Obligations as Silicon shall determine in its sole discretion, except that, provided no Default or Event of Default has occurred and is continuing, Silicon shall release to Borrower insurance proceeds with respect to Equipment totaling less than $100,000, which, if paid with respect to the loss or damage of equipment, shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid. Silicon may require reasonable assurance that the insurance proceeds so released will be so used. If Borrower fails to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at Borrower's expense. Notwithstanding anything in this Loan Agreement to the contrary, nothing herein shall be construed to prohibit the payment of insurance proceeds received by the Borrower on behalf of, or for the benefit of, a third party, to such third party. 5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the written reports set forth in the Schedule. 5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one Business Day's prior notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records. Silicon shall keep confidential all information obtained in any such inspection or audit using the same degree of care Silicon uses to protect and keep confidential its own confidential information, but Silicon shall have the right to disclose any such information to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process. The foregoing inspections and audits shall be at Borrower's expense and the charge therefor shall be $600 per person per day (or such higher amount as shall represent Silicon's then current standard charge for the same), plus reasonable out of pocket expenses. Borrower will not enter into any agreement with any accounting firm, service bureau or third party to store Borrower's books or records at any location other than Borrower's Address, without first obtaining Silicon's written consent (which consent shall not be unreasonably withheld), which may be conditioned upon such accounting firm, service bureau or other third party agreeing to give Silicon the same rights with respect to access to books and records and related rights as Silicon has under this Loan Agreement, provided that such third party agrees to be bound by the confidentiality provision in Section 10 of this Loan Agreement. Borrower waives the benefit of any accountant-client privilege. 5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Borrower shall not, without Silicon's prior written consent, do any of the following: (i) merge or consolidate with another corporation or entity; (ii) acquire any assets, except in the ordinary course of business; (iii) enter into any other transaction outside the ordinary course of business; (iv) sell or transfer any Collateral, except for the sale of finished Inventory and the license of intellectual property rights in Borrower's intellectual property in the ordinary course of Borrower's business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of business; (v) store any Inventory or other Collateral with any warehouseman or other third party unless Borrower has used commercially reasonable efforts to obtain a waiver of lien; (vi) sell any Inventory on a sale-or-return, guaranteed sale, 7 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- consignment, or other contingent basis; (vii) make any loans of any money or other assets, except for (a) additional loans to foreign subsidiary companies in an amount not to exceed $800,000.00 in the aggregate outstanding at any time, or (b) additional loans to Cort Directions, Inc. a/k/a Infinium Advantage Business Unit (hereinafter referred to as "Cort") in an amount not to exceed $200,000.00 in the aggregate outstanding at any time; or (c) loans to employees in an amount not to exceed $100,000.00 in the aggregate outstanding at any time; (viii) incur any debts outside the ordinary course of business, except to subsidiary companies in an amount not to exceed $500,000.00 in the aggregate outstanding at any time; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity, except on behalf of subsidiary companies up to $100,000.00 in the aggregate; (x) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock, except up to 300,000 shares after the date hereof (not to exceed $200,000.00) in the aggregate with respect to stock options for employees; (xii) make any change in Borrower's capital structure which would have a material adverse effect on Borrower or on the prospect of repayment of the Obligations; or (xiv) dissolve or elect to dissolve. Transactions permitted by the foregoing provisions of this Section 5.5 are only permitted if no Default or Event of Default would occur as a result of such transaction. Notwithstanding anything herein or elsewhere to the contrary, the parties agree: (1) the assets of whatever nature residing with Cort as reflected in the books and records of Borrower are hereby excluded as Collateral and shall not be included as Eligible Receivables; (2) the covenants and other terms and conditions under this Loan Agreement shall not apply to the activities, business interests and assets of Cort; (3) nothing in this Loan Agreement shall be construed to restrict, prohibit or otherwise limit Borrower's ability to sell Cort in whole or in part whether by sale of all or substantially all of Cort's assets, by the sale of all or a majority of the stock in Cort, or by such other means as Borrower and purchaser of Cort may agree; and (4) the stock of Cort owned by Borrower shall not be "Collateral" hereunder. 5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or in any manner relating to Borrower, Borrower shall, without expense to Silicon, make available Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Silicon may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding, provided such shall be during ordinary business hours and not interfere with Borrower's business. 5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by Silicon, to execute all documents and take all actions, as are reasonably necessary in order to perfect and maintain Silicon's perfected security interest in the Collateral, and in order to fully consummate the transactions contemplated by this Agreement. 6. TERM. 6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"); provided that the Maturity Date may be extended upon written agreement of the parties hereto. 6.2 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Without limiting the generality of the foregoing, if on the Maturity Date, or on any earlier effective date of termination, there are any outstanding Letters of Credit issued by Silicon or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to Silicon cash collateral in an amount equal to the face amount of all such Letters of Credit plus all interest, fees and cost due or to become due in connection therewith, to secure all of the Obligations relating to said Letters of Credit, pursuant to Silicon's then standard form cash pledge agreement. Notwithstanding any termination of this Agreement, all of Silicon's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are subject to the commercially reasonable discretion of Silicon to the extent provided in this Agreement, Silicon may, in its sole discretion, refuse to make any further Loans after termination of this 8 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- Agreement. No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations and the termination of the availability of any further Loans, Silicon shall promptly deliver to Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate Silicon's security interests. 7. EVENTS OF DEFAULT AND REMEDIES. 7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and Borrower shall give Silicon immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to Silicon by Borrower or any of Borrower's officers, or authorized employees as set forth in Schedule 7.1A attached hereto and made a part hereof, now or in the future, shall be untrue or misleading in a material respect; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation or other indebtedness to Silicon under this Loan Agreement; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit and are not promptly reduced in accordance with Section 1.3; or (d) Borrower shall fail to comply with any of the financial covenants set forth in the Schedule or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured; or (e) Borrower shall fail to perform any other non-monetary Obligation, which failure is not cured within 5 Business Days after written notice from Silicon; or (f) (i) any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) with respect to an amount in excess of $100,000.00 is made on all or any part of the Collateral , or (ii) the service of process upon Silicon seeking to attach by trustee, mesne, or other process, any of the Borrower's funds on deposit with , or assets of the Borrower in the possession of, Silicon with a value in excess of $50,000.00; or (g) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has or may reasonably be expected to have a material adverse effect on Borrower's business or financial condition; or (i) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (j) the commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 45 days after the date commenced; or (k) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (l) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (m) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations, pursuant to a written subordination agreement, other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (n) there shall be a change in the record or beneficial ownership of an aggregate of more than 50% of the outstanding shares of stock of Borrower (except for estate planning and related vehicles and transfer of ownership), in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof, without the prior written consent of Silicon; or (o) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its material property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p) there shall be (i) a material impairment in the perfection or priority of Silicon's security interest in the Collateral or in the value of such Collateral; (ii) a material adverse change in the business, operations, or condition (financial or otherwise) of the Borrower; (iii) a material impairment of the prospect of 9 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- repayment of any portion of the Obligations; or (q) an Event of Default under the IP Security Agreement executed in connection with this Agreement shall occur. 7.2 REMEDIES. Upon the occurrence and during the continuing of any Event of Default, and at any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Silicon without judicial process to enter onto any of Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as it is reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possession of any of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and Borrower, and to remove the Collateral to such locations as Silicon may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. Silicon shall have the right to conduct such disposition on Borrower's premises without charge, for such time or times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and the Collateral need not be located at the place of disposition. Silicon may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Receivables and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower's name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicon's sole discretion, to grant extensions of time to pay, compromise claims and settle Receivables and the like for less than face value; (h) Offset against any sums in any of Borrower's general, special or other Deposit Accounts with Silicon; and (i) Demand and receive possession of any of Borrower's federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Without limiting any of Silicon's rights and remedies, from and after the occurrence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent (4%) per annum. All exercise of remedies by or on behalf of Silicon shall be done in a commercially reasonable manner. 7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Silicon agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable: (i) Notice of the sale is given to Borrower at least ten days prior to the sale, and, in the case of a public sale, notice of the sale is published at least ten days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale describes the 10 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- collateral in general, non-specific terms; (iii) The sale is conducted at a place reasonably designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash or by cashier's check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same. Silicon shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable. 7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of any Event of Default, without limiting Silicon's other rights and remedies, Borrower grants to Silicon an irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower's expense, to do any or all of the following, in Borrower's name or otherwise, but Silicon agrees to exercise the following powers in a commercially reasonable manner: (a) Execute on behalf of Borrower any documents that Silicon may, in its sole discretion, deem advisable in order to perfect and maintain Silicon's security interest in the Collateral, or in order to exercise a right of Borrower or Silicon, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of Borrower any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute on behalf of Borrower, any invoices relating to any Receivable, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Silicon's possession; (e) Endorse all checks and other forms of remittances received by Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle Receivables and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of Borrower's taxes or to secure the release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Silicon the same rights of access and other rights with respect thereto as Silicon has under this Agreement; and (k) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other present or future agreements. Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. In no event shall Silicon's rights under the foregoing power of attorney or any of Silicon's other rights under this Agreement be deemed to indicate that Silicon is in control of the business, management or properties of Borrower. 7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale of the Collateral shall be applied by Silicon first to the reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Silicon shall have the option, exercisable at any time, in its sole discretion, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor. 7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured party under the Massachusetts Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Silicon and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise 11 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- or partial exercise by Silicon of one or more of its rights or remedies shall not be deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Silicon to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed. 8. DEFINITIONS. As used in this Agreement, the following terms have the following meanings: "ACCOUNT DEBTOR" means the obligor on a Receivable. "AFFILIATE" means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person. "BUSINESS DAY" means a day on which Silicon is open for business in Massachusetts. "CODE" means the Uniform Commercial Code as adopted and in effect in the Commonwealth of Massachusetts from time to time. "COLLATERAL" has the meaning set forth in Section 2.1 above. "DEFAULT" means any event which with notice or passage of time or both, would constitute an Event of Default. "DEPOSIT ACCOUNT" has the meaning set forth in the Code. "ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of Borrower's business from the sale of goods or rendition of services, which Silicon, in its commercially reasonably judgment, shall deem eligible for borrowing, based on such considerations as Silicon may from time to time deem appropriate. Without limiting the fact that the determination of which Receivables are eligible for borrowing is a matter of Silicon's discretion, the following (the "MINIMUM ELIGIBILITY REQUIREMENTS") are the minimum requirements for a Receivable to be an Eligible Receivable: (i) the Receivable must not be outstanding for more than 90 days from its invoice date, (ii) the Receivable must not be subject to any contingencies (including Receivables arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional, except as may otherwise be acceptable to Silicon in its commercially reasonable discretion), (iii) the Receivable must not the subject of a dispute (whether or not relating to the particular Receivable) and then shall be excluded only to the extent of such dispute, (iv) the Receivable must not be owing from an Affiliate of Borrower, (v) the Receivable must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not reasonably acceptable to Silicon, or which, fails or goes out of a material portion of its business, (vi) the Receivable must not be owing from the United States or any department, agency or instrumentality thereof (unless there has been compliance, to Silicon's satisfaction, with the United States Assignment of Claims Act), (vii) the Receivable must not be owing from an Account Debtor located outside the United States (unless pre-approved by Silicon in its discretion in writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to Silicon), and (viii) the Receivable must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise, but shall only be excluded up to the extent of the amount of such purchase. Receivables owing from one Account Debtor will not be deemed Eligible Receivables to the extent they exceed 25% of the total Receivables outstanding. In addition, if more than 50% of the Receivables owing from an Account Debtor are outstanding more than 90 days from their invoice date (without regard to unapplied credits), then all Receivables owing from that Account Debtor will be deemed ineligible for borrowing. In addition, Eligible Receivables will be further reduced by the Borrower's "gross-down" reserves, as adjusted monthly and as reflected on the Borrower's balance sheets. Silicon may, from 12 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- time to time, in its discretion, revise the Minimum Eligibility Requirements, upon 5 days prior written notice to the Borrower. "EQUIPMENT" means all of Borrower's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Borrower's operations or owned by Borrower and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this Agreement. "GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now owned or hereafter created or acquired by Borrower, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Borrower against Silicon, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Borrower, all rights to indemnification and all other intangible property of every kind and nature (other than Receivables). "INVENTORY" means all of Borrower's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Borrower's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "INVESTMENT PROPERTY" has the meaning set forth in the Code. "OBLIGATIONS" means all present and future Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Silicon in connection with this Agreement, however evidenced, including, without limitation, the Borrower's obligations pursuant to the IP Security Agreement, whether arising from an extension of credit, opening of a letter of credit, banker's acceptance, foreign exchange contracts, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Silicon in Borrower's debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, reasonable attorney's fees, expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement. "PERMITTED LIENS" means the following: (i) purchase money security interests or security interests arising in connection with the capitalized leases, in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes not yet payable and which are not the subject of collection action; (iv) additional security interests and liens consented to in writing by Silicon, which consent shall not be unreasonably withheld; (v) security interests being terminated substantially concurrently with this Agreement; (vi) liens of materialmen, mechanics, landlords, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent or which are being contested in good faith; (vii) liens incurred in connection 13 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (i) or (ii) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; and (viii)Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods. Silicon will have the right to require, as a condition to its consent under subsection (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on Silicon's then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Silicon, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. "PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity. "RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Borrower, all guaranties and other security therefor, all merchandise returned to or repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. "RESERVES" means, as of any date of determination, such amounts as Silicon may from time to time establish and revise in good faith reducing the amount of Loans, Letters of Credit and other financial accommodations which would otherwise be available to Borrower under the lending formula(s) provided in the Schedule: (a) to reflect events, conditions, contingencies or risks which, as determined by Silicon in good faith, do or may affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Receivables), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of Silicon in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Silicon's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any guarantor to Silicon is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Silicon determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default. OTHER TERMS. All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with generally accepted accounting principles, consistently applied. All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein. 9. GENERAL PROVISIONS. 9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all checks, and other items of payment received by Silicon (including proceeds of Receivables and payment of the Obligations in full) shall be deemed applied by Silicon on account of the Obligations three Business Days after receipt by Silicon of immediately available funds (except that wired funds will be applied within one Business Day from receipt thereof), and, for purposes of the foregoing, any such funds received after 12:00 Noon on any day shall be deemed received on the next Business Day. Silicon may charge Borrower's loan account for the amount of any item of payment which is returned to Silicon unpaid. 9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may be applied, and in Silicon's sole discretion reversed and re-applied, to the Obligations, in such order and manner as Silicon shall determine in its sole discretion, unless directed by Borrower prior to an Event of Default. 14 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- 9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that Borrower pay monetary Obligations in cash to Silicon, or charge them to Borrower's Loan account, in which event they will bear interest at the same rate applicable to the Loans. Silicon may also, in its discretion, charge any monetary Obligations to Borrower's Deposit Accounts maintained with Silicon. 9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement. Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Silicon), unless Borrower notifies Silicon in writing to the contrary within sixty days after each account is received by Borrower, describing the nature of any alleged errors or admissions. 9.5 NOTICES. All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. Notices to Silicon shall be directed to the Commercial Finance Division, to the attention of the Division Manager or the Division Credit Manager. Notices to Borrower shall be directed to its Chief Financial Officer with a copy to its General Counsel. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid. 9.6 SEVERABILITY. Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect. 9.7 INTEGRATION. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith. 9.8 WAIVERS. The failure of Silicon at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and Silicon shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement now or in the future executed by Borrower and delivered to Silicon shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an authorized officer of Silicon and delivered to Borrower. Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Silicon on which Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement. 9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Silicon, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon, but nothing herein shall relieve Silicon from liability for its own gross negligence or willful misconduct. 15 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- 9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Silicon. 9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of each and every obligation under this Agreement. 9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all reasonable attorneys' fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys' fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower's books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicon's security interest in, the Collateral; and otherwise represent Silicon in any litigation relating to Borrower. In satisfying Borrower's obligation hereunder to reimburse Silicon for attorneys fees, Borrower may, for convenience, issue checks directly to Silicon's attorneys, Riemer & Braunstein, LLP, but Borrower acknowledges and agrees that Riemer & Braunstein, LLP is representing only Silicon and not Borrower in connection with this Agreement. If either Silicon or Borrower files any lawsuit against the other predicated on a breach of this Agreement, Silicon shall be entitled to recover its reasonable costs and attorneys' fees, including (but not LIMITED to) reasonable attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. All attorneys' fees and costs to which Silicon may be entitled pursuant to this Section 9.12 shall immediately become part of Borrower's Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. 9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Silicon; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Silicon, and any prohibited assignment shall be void. No consent by Silicon to any assignment shall release Borrower from its liability for the Obligations. 9.14 RIGHT OF SET-OFF. Borrower and any guarantor hereby grant to Silicon, a lien, security interest and right of setoff as security for all Obligations to Silicon, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Silicon or any entity under the control of Silicon Valley Bank or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Silicon may set off the same or any part thereof and apply the same to any liability or obligation of Borrower and any guarantor even though unmatured and regardless of the adequacy of any other collateral securing the loan. ANY AND ALL RIGHTS TO REQUIRE SILICON TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 9.15. JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower. 9.16 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against Silicon, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other present or future document or agreement, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be 16 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- done by Silicon, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one year after the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, or if later, upon Borrower obtaining knowledge of the existence of such claim. Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Silicon in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other present or future agreement. 9.17 SECTION HEADINGS; CONSTRUCTION. Section headings are only used in this Agreement for convenience. Borrower and Silicon acknowledge that the headings may not describe completely the subject matter of the applicable section, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. The term "including", whenever used in this Agreement, shall mean "including (but not limited to)". This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or Borrower under any rule of construction or otherwise. 9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and Borrower shall be governed by the laws of the Commonwealth of Massachusetts. As a material part of the consideration to Silicon to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Silicon's option, be litigated in state or federal courts located within Massachusetts; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding, provided, however, that if for any reason Silicon cannot avail itself of such courts in the Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa Clara, California. 9.19 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. 10. CONFIDENTIALITY In handling any confidential information, Silicon shall exercise the same degree of care that it exercises for its own proprietary and confidential information, but disclosure of information may be made: (i) to Silicon 's subsidiaries or affiliates in connection with their present or prospective business relations with Borrower, provided such subsidiaries and/or affiliates agree to bound by confidentiality provisions no less restrictive than those in this Agreement; (ii) to prospective transferees or purchasers of any interest in the Loans, provided such transferees and purchasers agree in writing to be bound by confidentiality provisions no less restrictive than those in this Agreement; (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Silicon 's examination or audit, provided the recipient of the information agrees to be bound by confidentiality provisions no less restrictive than those in this Agreement; and (v) as Silicon considers appropriate in exercising remedies under this Agreement, provided Silicon notifies Borrower prior to any such disclosure. Confidential information does not include information that either: (a) is in the public domain or in Silicon 's possession when disclosed to Silicon , or becomes part of the public domain after disclosure to Silicon other than due to Silicon's breach of its confidentiality obligations hereunder; or (b) is disclosed to Silicon by a third party, if Silicon reasonably does not know that the third party is prohibited from disclosing the information. 17 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first above written. BORROWER: INFINIUM SOFTWARE, INC. BY: _____________________________________ TITLE: __________________________________ SILICON: SILICON VALLEY BANK, D/B/A SILICON VALLEY EAST BY: _____________________________________ TITLE: __________________________________ 18 SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT BORROWER: INFINIUM SOFTWARE, INC. ADDRESS: 25 COMMUNICATIONS WAY HYANNIS, MASSACHUSETTS 02601 DATE: OCTOBER 26, 2001 This Schedule forms an integral part of the Loan and Security Agreement between Silicon Valley Bank and the above-borrower of even date. ================================================================================ 1. CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of (A) or (B), below: ================================================================================ (A) ============================================================== (i) $3,000,000 at any one time outstanding (the "Maximum Credit Limit"); MINUS ================================================================================ ============================================================== (ii) the aggregate amounts then undrawn on all outstanding letters of credit or foreign exchange contracts issued or incurred, or caused to be issued or incurred by Silicon for the account and/or benefit of the Borrower. ================================================================================ (B) ============================================================== (i) 65% of the amount of Borrower's Eligible Receivables (as defined in Section 8 above); MINUS ================================================================================ ============================================================== (ii) the aggregate amounts then undrawn on all outstanding letters of credit or foreign exchange contracts, issued or incurred, or caused to be issued or incurred by Silicon for the account and/or benefit of the Borrower. ================================================================================ LETTER OF CREDIT/FOREIGN EXCHANGE CONTRACT SUBLIMIT (Section 1.5): $500,000 2. INTEREST. INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from time to time, plus 1.00% per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. "Prime Rate" means the rate announced from time to time by Silicon as its "prime rate;" it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. MINIMUM MONTHLY INTEREST (Section 1.2): N/A. 1 SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- ================================================================================ 3. FEES (Section 1.4): Loan Fee: $30,000.00, with $15,000.00 payable (and having been received) upon execution of the Loan Commitment between Silicon and the Borrower and remaining $15,000.00 payable upon the execution of this Agreement. Prepayment Fee: If the Obligations are voluntarily or involuntarily (in the event of bankruptcy) prepaid or if this Agreement is otherwise terminated prior to its maturity, the Borrower shall pay to Silicon a termination fee in the amount equal to 1% of the Maximum Credit Limit then in effect, provided that no such termination fee shall be charged if the credit facility hereunder is replaced or transferred to another division of Silicon. The termination fee shall be due and payable upon prepayment by the Borrower in the case of voluntary prepayments or upon demand by Silicon in the event of applicable involuntary prepayment, and if not paid immediately shall bear interest at a rate equal to the highest rate applicable to any of the Obligations. ================================================================================ 4. MATURITY DATE (Section 6.1): December 31, 2002 ================================================================================ 5. FINANCIAL COVENANTS (Section 5.1): Borrower shall comply with each of the following covenant(s). Compliance shall be determined as of the end of each month, except as otherwise specifically provided below: a. TANGIBLE NET WORTH: Borrower shall maintain a deficit Tangible Net Worth of not a greater deficit than the sum of (i) plus (ii) below: ======================================================================= (i) (a) ($19,000,000) from the date of this Agreement until and including November 30, 2001; ================================================================================ (b) ($16,500,000) from December 1, 2001 until and including February 28, 2002; (c) ($13,750,000) from March 1, 2002 until and including May 30, 2002; and (d) ($10,000,000) thereafter ======================================================================= (ii) 80% of all consideration received after the date hereof for equity securities and subordinated debt of the Borrower which is subordinated by written agreement to the Obligations hereunder. ================================================================================ In no event shall the amount of this Minimum Tangible Net Worth covenant be decreased. ======================================================================= b. COMPENSATING BALANCES. ================================================================================ Borrower shall maintain at least $1,000,000.00 in cash on deposit (non-interest bearing) with Silicon at all times during the term of this Agreement DEFINITIONS. For purposes of the foregoing financial covenants, the following term shall have the following meaning: 2 SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- ================================================================================ "Liabilities" shall have the meaning ascribed thereto by generally accepted accounting principles. "Tangible Net Worth" shall mean the excess of total assets of the Borrower over total liabilities of the Borrower, determined in accordance with generally accepted accounting principles, with the following adjustments: (A) there shall be excluded from assets: (i) notes, accounts receivable and other obligations owing to the Borrower from its officers or other Affiliates, and (ii) all assets which would be classified as intangible assets under generally accepted accounting principles, including without limitation goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises (B) there shall be excluded from liabilities: all indebtedness which is subordinated to the Obligations under a subordination agreement in form specified by Silicon or by language in the instrument evidencing the indebtedness which is acceptable to Silicon in its discretion. ================================================================================ 6. REPORTING. (Section 5.3): Borrower shall provide Silicon with the following: 1. Monthly, and upon each loan request, transaction reports and borrowing base certificates in the form of Exhibit 5.3.1 attached hereto. Subsequent to the initial loan requests, weekly reports shall be required hereunder unless otherwise agreed to between the parties hereto. 2. Monthly Receivable agings, aged by invoice date, and receivable reconciliations, within fifteen days after the end of each month. 3. Monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, within fifteen days after the end of each month. 4. Monthly unaudited financial statements, as soon as available, and in any event within thirty days after the end of each month. 5. Monthly Compliance Certificates, within thirty days after the end of each month, in such form as Silicon shall reasonably specify, signed by the Chief Financial Officer of Borrower, certifying that as of the end of such month there exists no Event of Default under this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Silicon shall reasonably request, including, without limitation, a statement that at the end of such month there were no held checks. 6. Quarterly unaudited financial statements, as soon as available, and in any event within forty-five days after the end of each fiscal quarter of Borrower. 7. Annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower within thirty days prior to the end of each fiscal year of Borrower. 3 SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- 8. Annual financial statements, as soon as available, and in any event within 120 days following the end of Borrower's fiscal year, certified by independent certified public accountants acceptable to Silicon. 9. Such additional reports and information as Silicon may from time to time reasonably specify. ================================================================================ 7. BORROWER INFORMATION: PRIOR NAMES OF BORROWER (Section 3.2): See Perfection Certificate of even date PRIOR TRADE NAMES OF BORROWER (Section 3.2): See Perfection Certificate of even date EXISTING TRADE NAMES OF BORROWER (Section 3.2): See Perfection Certificate of even date OTHER LOCATIONS AND ADDRESSES (Section 3.3): See Perfection Certificate of even date MATERIAL ADVERSE LITIGATION (Section 3.10): See attached Schedule 3.10 ================================================================================ 8. OTHER COVENANTS (Section 5.1): Borrower shall at all times comply with all of the following additional covenants: (1) BANKING RELATIONSHIP. In order for Silicon to properly monitor its loan arrangement with the Borrower, Borrower shall at all times maintain its primary operating accounts with Silicon. (2) SUBORDINATION OF INSIDE DEBT. All loans of the Borrower after June 30, 2001 from its officers, directors and shareholders ("Inside Debt") shall, at all times, be subordinated to the Obligations pursuant to a subordination agreement on Silicon's standard form. Borrower represents and warrants that there is no Inside Debt incurred after June 30, 2001presently outstanding, except for the following: NONE. Prior to incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside Debt will be owed to execute and deliver to Silicon a subordination agreement on Silicon's standard form. (3) SUBORDINATION AGREEMENTS. Borrower warrants and represents that there is no presently outstanding loans from any third party incurred after June 30, 2001 and Borrower further agrees that prior to incurring any loans in the future, Borrower shall concurrently cause any such creditor to execute and deliver a Subordination Agreement in such form as Silicon shall specify, subordinating to the Obligations the indebtedness of Borrower to such creditor. (4) INTELLECTUAL PROPERTY SECURITY AGREEMENT. As a condition precedent to the effectiveness of this Agreement, Borrower shall have executed and delivered an Intellectual Property Security Agreement (the "IP Security Agreement"), substantially in the form attached hereto as Exhibit B. 4 SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- 5 SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- BORROWER: SILICON: INFINIUM SOFTWARE, INC. SILICON VALLEY BANK, d/b/a By: ___________________________ By: ________________________________ Title: ________________________ Title: _____________________________ 6 EX-10.7 4 b41247isex10-7.txt FORM OF SENIOR MANAGEMENT PLAN - -------------------------------------------------------------------------------- INFINIUM SOFTWARE, INC. FISCAL 2002 SENIOR MANAGEMENT BONUS PLAN - -------------------------------------------------------------------------------- INTRODUCTION The purpose of this document is to outline the criteria that will be used to determine the bonus plan for each member of the Infinium senior management team. The Fiscal 2002 Senior Management Bonus Plan (the "Plan") is intended to motivate each participant to meet and exceed the Company's goals and objectives for Fiscal 2002. The Plan is focussed on rewarding Senior Management primarily for meeting and exceeding the Company financial goals, rather than individual goals. The Company's key financial goals are profitability, growth and cash management. ELIGIBILITY To be eligible to participate in the Plan, employees must hold a senior management position (the President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Executive Directors, Directors and others as named by the Bonus Plan Committee). Occasionally, employees who would not otherwise be eligible to participate in the Plan may be included if, as determined by the Bonus Plan Committee, their position has a significant, critical and direct impact on the achievement of the Company's objectives for a particular year. Final determination as to Plan eligibility rests with the CEO. Employees who are eligible for or currently participating in revenue-based incentive or commission plans are not eligible to participate in this Plan. Employees who are hired, promoted or transferred into a position that is eligible for bonus under this Plan on or after October 1, 2001 but before July 1, 2002 will be eligible for a pro-rated bonus covering the period from their start date in the new position through September 30, 2002. Employees who are hired, promoted or transferred into a position that is eligible for bonus on or after July 1, 2002 will be eligible to participate in the bonus plan for the next fiscal year. An employee who satisfies the above requirements for eligibility must also be an active employee on Infinium's payroll through March 31, 2002 to receive a first half bonus and through September 30, 2002 to receive a second half bonus. An employee who is laid off by the Company, retires, becomes permanently disabled or dies prior to March 31, 2002 may qualify for a prorated bonus for the first half at the discretion of the Bonus Plan Committee. An employee who is laid off by the Company, retires, becomes permanently disabled or dies after March 31, 2002 prior to September 30, 2002 may qualify for a prorated bonus for the second half at the discretion of the Bonus Plan Committee. PLAN STRUCTURE A target bonus dollar amount has been determined for each participant based on a percentage of the participant's base salary at October 1, 2001. Except for the Senior Vice President of Sales and Marketing, achievement of the target dollar amount is contingent upon meeting the specific objectives associated with the two components of the Plan: the Company's Financial Performance and Key Individual Objectives. A Bonus Plan Worksheet is prepared for each participant in the Plan and accompanies this Plan document. PLAN COMPONENTS % OF TARGET BONUS Company Financial Performance 75% Key Individual Objectives 25% ------------------------ 100% Infinium Senior Management Bonus Plan 2002 Page 1 of 3 For certain executives (ie, the Senior Vice President of Sales and Marketing), the basis of the bonus may be different, as set out in the executive's bonus worksheet. Except for the commission portion of the plan for the Senior Vice President of Sales and Marketing, within each section of the Plan, each objective is weighted and assigned a multiplier as follows: ACHIEVEMENT LEVEL % OF OBJ. PAID ----------------- -------------- Minimum = 75% Satisfactory = 100% Outstanding = 150% Bonuses will not be paid for achievement under the minimum levels. Each objective will be assessed independently. Interpolation will be used for achievement between levels. For outstanding achievement, additional bonus amounts may be awarded at the discretion of the CEO and the Board of Directors. THE PLAN CYCLE The Plan follows the Company's fiscal year cycle, which begins with the determination of annual objectives and financial targets based on the strategic plan and established during the budget planning process. These are incorporated into the Company Financial Performance Objective portion of the Plan. All participants in the Plan will be measured on the Financial Performance Objectives set out in the attached Bonus Plan Worksheet. The next step is for the participant and his or her manager to agree upon a maximum of three key individual objectives within two weeks of receiving the Plan. Individual objectives are key, measurable objectives that will most affect the Company's ability to achieve its overall objectives and financial targets. The CEO or senior functional executive may assign one additional objective. Each key individual objective is to be assigned a weight and should related to the participant's 2002 business plan. An updated Plan for each participant, with a completed Bonus Plan Worksheet, is to be returned to the Vice President of Human Resources. At the end of the year, the participant's manager will meet with the participant to review individual performance against individual objectives. The participant's manager will recommend to the Bonus Committee the percentage of individual achievement against individual objectives. The Bonus Committee will finally determine the percentage of bonus to be paid to each participant based on the Company's achievement of its financial objectives and the individual's achievement of his or her individual objectives. Bonus payments are generally awarded after financial results for the period are available, but not later than sixty (60) days after the close of the financial period. Infinium Senior Management Bonus Plan 2002 Page 2 of 3 ADMINISTRATION The Plan is administered by the Bonus Plan Committee, consisting of the President, Chief Financial Officer and Chief Administrative Officer, is responsible for the administration of the Plan. The responsibilities of the Committee include: - - determining bonus plan eligibility, - - establishing target bonuses and the bonus pool, - - defining Company financial objectives, - - having the plan reviewed with each participant, - - assessing performance against Company and individual objectives at year end, - - calculating bonus awards and - - arranging for the payment of bonuses earned upon issuance of the audited financial results. The Plan is funded by Infinium Software, Inc., which accrues money for plan payments. CHANGES TO THE PLAN The Plan may be altered or discontinued at any time during the Plan year at the discretion of the CEO or the Board of Directors. Participation in or eligibility for participation in the Plan does not constitute or infer an employment contract and specifically is not a guarantee of employment or of continued eligibility for or participation in the Plan. ATTACHMENT: Senior Management Bonus Plan Worksheet Infinium Senior Management Bonus Plan 2002 Page 3 of 3 Infinium Senior Managment Bonus Plan Worksheet ---------------- EMPLOYEE NAME Base Salary ----------------- ---------------- TITLE Target Bonus % % ----------------- --------------- MANAGER Bonus at 100% of target ----------------- --------------- For period from: 1-Oct-01 to: 30-Sep-02 ---------- ----------------- This worksheet provides a listing of the overall corporate objectives and your individual objectives for the bonus period. - -------------------------------------------------------------------------------- OBJECTIVES - -------------------------------------------------------------------------------- ================================================================================ FIRST HALF CORPORATE 37.5% MINIMUM TARGET OUTSTANDING 75% 100% 150% REVENUE 15.0% Bonus potential OPERATING MARGIN 12.0% Bonus potential CASH 10.5% Bonus potential -------- -------- ================================================================================ FIRST HALF INDIVIDUAL 12.5% MINIMUM TARGET OUTSTANDING 75% 100% 150% MBO 1 5.00% #VALUE! #VALUE! #VALUE! [description] MBO 2 5.00% #VALUE! #VALUE! #VALUE! [description] MBO 3 2.50% #VALUE! #VALUE! #VALUE! [description] ------------ #VALUE! ------------ ------------ FIRST HALF BONUS AT 100% TARGET #VALUE!GET ------------ Infinium Senior Managment Bonus Plan Worksheet ================================================================================ SECOND HALF CORPORATE 37.5% MINIMUM TARGET OUTSTANDING 75% 100% 150% REVENUE 15.0% Bonus potential OPERATING MARGIN 12.0% Bonus potential CASH 10.5% Bonus potential ----------- ----------- ================================================================================ SECOND HALF INDIVIDUAL 12.5% MINIMUM TARGET OUTSTANDING 75% 100% 150% MBOS TO BE DETERMINED 12.50% ------------- SECOND HALF BONUS AT 100% TARGET ------------- The attached plan document describes the bonus plan in detail, including eligibility requirements and payout timing. The Company may amend or cancel any of its bonus plans at its discretion with or without notice. All employment at Infinium is "at-will" in that either the Company or the employee may end the employment relationship at any time with or without cause. Participation in the bonus plan is not a guarantee of continued employment or of employment for a specific term. By signing below, you acknowledge that you have received a copy of the plan and of this worksheet. - ------------------------------------ ------------------------------- Employee signature Date Original to HR; 1 copy to employee; 1 copy to manager. EX-10.12 5 b41247isex10-12.txt RESTRICTED STOCK AGREEMENT EXHIBIT 10.12 [LANGUAGE IN BRACKETS MAY VARY BETWEEN AGREEMENTS] INFINIUM SOFTWARE, INC. Restricted Stock Agreement GRANTED UNDER 1995 STOCK PLAN AGREEMENT made this ___ day of __________, ____, between Infinium Software, Inc., a Massachusetts corporation (the "Company"), and ________ (the "Participant") with a residence address of ________________________. For valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows: 1. PURCHASE OF SHARES. The Company hereby grants to the Participant, subject to the terms and conditions set forth in this Agreement and in the Company's 1995 Stock Plan (the "Plan"), ________ shares (the "Shares") of common stock, $.01 par value, of the Company ("Common Stock"). The Participant agrees that the Shares shall be subject to the purchase option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. The Shares shall be issued to the Participant, but no Shares shall be delivered to the Participant until such Shares cease to be "Unvested Shares" (as defined in Section 2, below). The Participant agrees that Unvested Shares may be uncertificated and whether or not certificated shall be held by Boston Equiserve, the Company's transfer agent (the "Transfer Agent") until they cease to be Unvested Shares. The Participant hereby waives any right to receive certificates representing Shares until such Shares cease to be Unvested Shares. 2. PURCHASE OPTION. (a) [Except as provided in the next sentence,] in the event that the Participant ceases to be employed by the Company for any reason or no reason, with or without cause, prior to [January 31, 2003], the Company shall have the right and option (the "Purchase Option") to purchase from the Participant, for a sum of $.01 per share (the "Option Price"), some or all of the Unvested Shares (as defined below). [Upon (i) the termination by the Company of the Participant's employment, not for "cause" (as defined in the Participant's Executive Severance Plan with the Company effective July 15, 1999), and subject to the execution by the Participant of a one year Non-Competition Agreement as required by the Executive Severance Agreement or (ii) the occurrence of a Change in Control (as defined in the Executive Severance Agreement), then, all of the Participant's Shares will become immediately vested. - THIS PROVISION ONLY FOR MONK] "Unvested Shares" means the total number of Shares multiplied by the Applicable Percentage at the time the Purchase Option becomes exercisable by the Company. The "Applicable Percentage" shall be (i) 100% through [July 30, 2001], (ii) [75%] from [July 31, 2001 through January 30, 2002], (iii) [50%] from [January 31, 2002 through July 30, 2002], (iii) [25%] from [July 31, 2002, through January 30, 2003] and (iv) zero on or after [January 31, 2003]. (b) In the event that the Participant's employment with the Company is terminated by reason of death or disability, the Participant shall be deemed for purposes of Sections 2 and 3 to have terminated employment on the first anniversary of the date his employment actually terminated. For this purpose, "disability" shall mean the inability of the Participant, due to a medical reason, to carry out his duties as an employee of the Company for a period of six consecutive months. (c) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. EXERCISE OF PURCHASE OPTION AND CLOSING. (a) The Company may exercise the Purchase Option by delivering or mailing to the Participant (or his estate) and the Transfer Agent, within 90 days after the termination of the employment of the Participant with the Company, a written notice of exercise of the Purchase Option. Such notice shall specify the number of Shares to be purchased. If and to the extent the Purchase Option is not so exercised by the giving of such a notice within such 90-day period, the Purchase Option shall automatically expire and terminate effective upon the expiration of such 90-day period. (b) Within 10 days after delivery to the Participant and the Transfer Agent of the Company's notice of the exercise of the Purchase Option pursuant to subsection (a) above, the Transfer Agent shall deliver to the Company at its principal offices any certificate or certificates representing the Shares which the Company has elected to purchase in accordance with the terms of this Agreement, , all in form suitable for the transfer of such Shares to the Company. Promptly following its receipt of satisfactory transfer documents, the Company shall pay to the Participant the aggregate Option Price for such Shares (provided that any delay in making such payment shall not invalidate the Company's exercise of the Purchase Option with respect to such Shares). (c) After the time at which any Shares are required to be delivered to the Company pursuant to subsection (b) above, the Company shall not pay any dividend to the Participant on account of such Shares or permit the Participant to exercise any of the privileges or rights of a stockholder with respect to such Shares, but shall, in so far as permitted by law, treat the Company as the owner of such Shares. (d) The Option Price may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of the Participant to the Company or in cash (by check) or both. (e) The Company shall not purchase any fraction of a Share upon exercise of the Purchase Option, and any fraction of a Share resulting from a computation made pursuant to Section 2 of this Agreement shall be rounded to the nearest whole Share (with any one-half Share being rounded upward). (f) The Company may assign its Purchase Option to one or more persons or entities. 4. RESTRICTIONS ON TRANSFER. The Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise any Shares, or any interest therein, that are subject to the Purchase Option. 5. RESTRICTIVE LEGENDS. All certificates representing Shares shall have affixed thereto legends in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: "The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his predecessor in interest), and such Agreement is available for inspection without charge at the office of the Clerk of the corporation." 6. PROVISIONS OF THE PLAN. This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this Agreement. 7. WITHHOLDING TAXES; SECTION 83(b) ELECTION. (a) The Participant acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Participant or the lapse of the Purchase Option. (b) The Participant acknowledges that the Participant (and not the Company) shall be responsible for the Participant's own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Participant acknowledges that he or she has been informed of the availability of making an election in accordance with Section 83(b) of the Internal Revenue Code; that such election must be filed with the Internal Revenue Service within 30 days of the transfer of shares to the Participant; and that the Participant is solely responsible for making such election. 8. NO RIGHTS TO EMPLOYMENT. The Participant acknowledges and agrees that the vesting of the Shares pursuant to Section 2 hereof is earned only by continuing service as an employee at the will of the Company (not through the act of being hired or being granted shares hereunder). The Participant further acknowledges and agrees that the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued engagement as an employee or consultant for the vesting period, for any period, or at all. 9. SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 10. WAIVER. Any provision for the benefit of the Company contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. 11. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the Company and the Participant and their respective heirs, executors, administrators, legal representatives, successors and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 12. NOTICE. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or five days after deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party hereto at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 12. 13. PRONOUNS. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. 14. ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire agreement between the parties, and supersedes all prior agreements and understandings, relating to the subject matter of this Agreement. 15. AMENDMENT. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Participant. 16. GOVERNING LAW. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the Commonwealth of Massachusetts without regard to any applicable conflicts of laws. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. INFINIUM SOFTWARE, INC. By:_______________________________ ____________________________________ President EX-10.15 6 b41247isex10-15.txt EXECUTIVE SERVERANCE PLAN EXHIBIT 10.15 NAME: __________________ EXECUTIVE SEVERANCE PLAN COMPANY: INFINIUM SOFTWARE, INC. EFFECTIVE AS OF: ______________________ EXECUTIVE'S PRINCIPAL TITLES: ______________________ If the Executive's employment with the Company is terminated by the Company, not for "cause", and the Executive executes a one year Non-Competition Agreement and Release in form satisfactory to the Company, (a) the Company will continue to pay to the Executive, for the twelve month period beginning on the termination date, his or her ANNUAL BASE SALARY (as such term is defined in the Executive Compensation Plan executed by the Company and the Executive) for the Fiscal Year in which the termination date occurs and (b) the Executive will be entitled to continue to participate in all of the Company's employee benefits programs (except to the extent prohibited by the plans) for the twelve month period beginning on the termination date. This paragraph shall apply if a Change in Control (as defined in the attached Appendix to this Plan) occurs. All of the Executive's unvested stock options shall vest immediately upon the occurrence of a Change in Control. In the event of a Change of Control, if the Executive is terminated not for "cause," (a) the Company will continue to pay to the Executive, for the twelve month period beginning on the termination date, his or her ANNUAL BASE SALARY and TARGET EXECUTIVE BONUS (as such term is defined in the Executive Compensation Plan executed by the Company and the Executive) for the Fiscal Year in which the termination date occurs and (b) the Executive will be entitled to continue to participate in all of the Company's employee benefits programs (except to the extent prohibited by the plans) for the twelve month period beginning on the termination date. If the Executive is not offered a position which is comparable both in level and total compensation to the position he or she occupied immediately before the Change in Control, he or she shall be deemed to have been terminated not for "cause" and the provisions of the preceding sentence shall apply. For purposes of this agreement, "cause" is defined as follows: substantial and continued failure to perform job duties; disloyalty, gross negligence, or breach of fiduciary duty to the Company; commission of fraud, embezzlement, dishonesty or deliberate disregard of the Company's rules or policies; unauthorized disclosure of a trade secret or confidential business information; use of any illicit drug or the abuse of any drug, alcohol or medication which adversely affects the Executive's performance; or conviction of a felony offense. Executive For: INFINIUM SOFTWARE, INC. Signature: _________________________ Signature: _________________________ President Date: ______________________________ Date: ______________________________ Appendix A to Executive Severance Plan A "Change in Control" shall mean: (1) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, HOWEVER, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control Event: (A) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (C) any acquisition by any corporation pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection (iii) of this definition; or (2) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (x) who was a member of the Board on the date this Severance Agreement was signed or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; PROVIDED, HOWEVER, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (3) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination). EX-10.16 7 b41247isex10-16.txt FORM OF 1995 STOCK OPTION AGREEMENT EXHIBIT 10.16 [language in brackets subject to variation between agreements (isotbvex95 - rev. 4/01) STOCK OPTION AGREEMENT Agreement (the "Option Agreement") dated this _________________________ (the "Date of Grant"), between Infinium Software, Inc., a Massachusetts corporation (the "Company"), and __________ (the "Participant"), Social Security No. ________ an employee of the Company with a residence address at ___________. 1. GRANT OF OPTION. The Company hereby grants to the Participant an option to purchase, in whole or in part and from time to time, on the terms herein provided, a total of ______________ shares of common stock of the Company ("Common Stock") at $_____ per share, which is not less than the fair market value of the Common Stock on the date hereof. This option is granted pursuant to and subject to the provisions of the Company's 1995 Stock Plan, as amended (the "Plan") attached hereto as Exhibit A. Capitalized terms used herein but not defined herein have the meanings given them in the Plan. 2. TIME LIMITS. Except as otherwise provided in this Section, in Section 6 hereof (relating to the death of the Participant), in Section 7 hereof (relating to the disability of the Participant) and in Section 8 hereof (relating to other termination of employment of the Participant), and subject to the provisions of subparagraph C of paragraph 8 of the Plan (relating to the minimum number of shares exercisable at any one time), this option shall be exercisable as follows: - One third (1/3) of the shares shall vest on __________________ , which is one year following the date of this option, and - The remaining shares shall vest on a monthly pro-rata basis during the period from ________________ through ______________________. This option may not be exercised to any extent after the expiration of seven years from the Date of Grant. 3. EXERCISE OF OPTION. This option (or any part or installment hereof) shall be exercised by giving written notice to the Company at its principal office address, or to such transfer agent as the Company shall designate. Such notice shall identify the option agreement under which the option is being exercised and specify the number of shares as to which the option is being exercised, accompanied by full payment of the purchase price therefor. It is intended that this option shall be an incentive stock option ("ISO") as defined in Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), to the extent permitted by the Code. However, to the extent that the Participant may accrue the right to exercise options which are intended to be ISOs as defined in the Code (whether pursuant to this Option Agreement or pursuant to any other stock option agreement between the Participant and the Company or any Related Corporation) in any calendar year with an aggregate fair market value in excess of $100,000 (determined as of the option grant date), such options in excess of the $100,000 limitation shall be treated as nonqualified stock options not subject to the provisions of Section 422 of the Code. 4. PAYMENT FOR AND DELIVERY OF STOCK. The shares of Common Stock purchased upon any exercise of this option shall be paid for in full at the time of such exercise. The option price may be paid either (a) in United States dollars in cash or by check, (b) through delivery of shares of Common Stock having a fair market value equal as of the date of the exercise equal to the cash exercise price of the option, (c) consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the Participant's direction at the time of exercise, or (d) at the discretion of the Committee, by any combination of (a), (b) and (c) above. If the price is paid in whole or in part in Common Stock, such Common Stock shall be valued at the fair market value at the time of exercise, as determined by the Committee, in determining the extent to which the option price has been paid in Common Stock. 5. NON-TRANSFERABILITY OF OPTION. This option may not be transferred by the Participant otherwise than by will, by the laws of descent and distribution or, in the case of Non-Qualified Options only, pursuant to a valid domestic relations order. Except as set forth in the previous sentence, during the lifetime of the Participant this option may be exercised only by him or her. 6. DEATH. If the Participant ceases to be employed by the Company and all Related Corporations by reason of his or her death, then, effective on such date, all of the Participant's unvested stock options in the Company will become immediately vested and this option may be exercised by the estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, until the earlier of (i) the specified expiration date of the ISO or (ii) 180 days from the date of the Participant's death. 7. DISABILITY. If the Participant ceases to be employed by the Company and all Related Corporations by reason of his or her disability, the Participant shall have the right to exercise any ISO held by him or her hereunder on the date of termination of employment, for the number of shares for which he or she could have exercised it on that date, until the earlier of (i) the specified expiration date of the ISO or (ii) 180 days from the date of the termination of the Participant's employment. For the purposes of this Agreement, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e) of the Code. 8. TERMINATION OF EMPLOYMENT. (a) [Except as provided in the Participant's Executive Severance Agreement, if] the Participant ceases to be employed by the Company and all Related Corporations other than by reason of death, disability as defined above or cause, no further installments of his or her stock options shall become exercisable, and his or her options shall terminate on the earlier of (i) ninety (90) days after the date of termination of employment or (ii) seven years from the Date of Grant. (b) If the Participant is terminated for cause by the Company, this option may be exercised following such termination of employment only to the extent, if any, approved by the Committee. Transfer from the employ of the Company to the employ of a Related Corporation, from the employ of a Related Corporation to the employ of the Company, or from the employ of one Related Corporation to the employ of another Related Corporation, or a leave of absence granted by the Company or a Related Corporation as set forth in the Plan shall not be deemed a termination of employment for purposes of this option. 9. CHANGES IN STOCK. [Except as provided in the Participant's Executive Severance Agreement, in] the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Common Stock, the Committee shall make appropriate adjustments in (i) the number and kind of shares of stock remaining subject to the option at the time of such change and (ii) the option price. The Committee's determination shall be binding on all persons concerned. If the Company is to be consolidated with or acquired by another entity in a merger or other reorganization in which the holders of the outstanding voting stock of the Company immediately preceding the consummation of such event, shall, immediately following such event, hold, as a group, less than a majority of the voting securities of the surviving or successor entity, or in the event of a sale of all or substantially all of the Company's assets or otherwise (each, an "Acquisition"), the Committee or the board of directors of an entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to the option, either (i) make appropriate provision for the continuation of the option by substituting on an equitable basis for the shares then subject to the option either (a) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition, (b) shares of stock of the surviving or successor corporation or (c) such other securities as the Successor Board deems appropriate, the fair market value of which shall not materially exceed the fair market value of the shares of Common Stock subject to the option immediately preceding the Acquisition; or (ii) upon written notice to the Participant, provided that the options shall be exercised, to the extent then exercisable or to be exercisable as a result of the Acquisition, within a specified number of days of the date of such notice, at the end of which period the option shall terminate; or (iii) terminate the option in exchange for a cash payment equal to the excess of the Fair Market Value of the shares subject to the option (to the extent then exercisable or to be exercisable as a result of the Acquisition) over the exercise price thereof. 10. RESERVATION OF SHARES. The Company shall at all times during the term of the option granted hereby reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of the option granted hereby. 11. RESTRICTIONS ON DISPOSITION. All shares acquired by the Participant pursuant to the option granted hereby shall be subject to all restrictions set forth in the Company's by-laws and in any applicable agreements between or among the Participant, other shareholders and/or the Company. In addition, the Participant hereby agrees that all shares acquired pursuant to the option granted hereby, regardless of when acquired, may not be pledged, sold, assigned or in any other manner transferred, except with the prior written consent of the Company (such consent being in the sole discretion of the Company), and shall continue to be held by the Participant, or, in the case of the Participant's death, by his executor or administrator or the person or persons to whom the option or the shares acquired pursuant to the option was/were transferred by will or the applicable laws of descent and distribution, for a minimum period extending until the earlier to occur of (a) the end of the six month period succeeding the completion of an initial public offering of securities of the Company or (b) the end of the two year period succeeding the later to occur of (i) the date of Participant's termination of employment with the Company or any of its subsidiaries or affiliates or (ii) the date on which such shares are acquired pursuant to this option. In addition, the Participant acknowledges his understanding that he will be disqualified under Section 422 of the Code from receiving the favorable federal income tax treatment otherwise available with respect to the exercise of an Incentive Stock Option if he makes a Disqualifying Disposition of any Common Stock received by exercising this option. The Participant hereby agrees to notify the Company in writing within one month after he makes a Disqualifying Disposition of any Common Stock received pursuant to the exercise of this option. "Disqualifying Disposition" means any disposition (including any sale) of such stock prior to the Participant's death before the later of (a) two years after the Participant was granted this option under which he acquired such stock, or (b) one year after the Participant acquired such stock by exercising this option. 12. NO RIGHT TO EMPLOYMENT. The grant of this option does not confer upon the Participant any right to continued employment with the Company, nor does it interfere in any way with the right of the Company to terminate the employment of the Participant at any time. 13. COMMUNICATIONS. Any communication or notice required or permitted to be given under this Agreement shall be delivered in hand, if to the Company, to its Secretary at 25 Communications Way, Independence Park, Hyannis, MA 02601, and, if to the Participant, at the address set forth on the first page of this Agreement or such other address, in each case, as the addressee shall last have furnished to the communicating party. 14. MISCELLANEOUS. This option granted hereunder (a) is intended to satisfy the requirements of Section 422 of the Code and the authorities promulgated thereunder and shall be construed accordingly, and (b) shall be construed under and governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, Infinium Software, Inc. has caused this Agreement to be executed by its duly authorized officer and the Participant has hereunto set his or her hand, both as of the Date of Grant set forth above. INFINIUM SOFTWARE, INC. PARTICIPANT BY: ____________________________ ___________________________________ Title: _________________________ Print Name: _______________________ EX-21.1 8 b41247isex21-1.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SUBSIDIARIES
NAME OF SUBSIDIARY JURISDICTION OF ORGANIZATION - ------------------ ---------------------------- Infinium Software, Inc. Massachusetts, United States Infinium Software Limited Buckinghamshire, United Kingdom Infinium International, Inc. United States Virgin Islands Domain Software, B.V. Amsterdam, The Netherlands Infinium Software Europe, Inc. Massachusetts, United States Infinium Corp. Massachusetts, United States Infinium Software Asia/Pacific, Inc. Massachusetts, United States Infinium Open Systems Limited Buckinghamshire, United Kingdom Infinium Holdings Limited Buckinghamshire, United Kingdom Infinium Software PTY Limited Republic of South Africa Cort Directions, Inc. (d/b/a Infinium Software, Oregon, United States Inc. Cort Payroll Unit) Infinium B.V. Amsterdam, The Netherlands Dexton Information Systems Limited Buckinghamshire, United Kingdom Infinium N.V. Belgium Infinium ASP, Inc. Delaware, United States
EX-23.1 9 b41247isex23-1.txt CONSENT OF PRICEWATERHOUSE COOPERS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-05439) of Infinium Software, Inc. of our report dated October 26, 2001 relating to the financial statements and financial statement schedule, which appear in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts December 21, 2001 -----END PRIVACY-ENHANCED MESSAGE-----