e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended February 28, 2007
OR
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o |
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Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 |
Commission File Number: 0-19417
PROGRESS SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
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MASSACHUSETTS
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04-2746201 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
14 Oak Park
Bedford, Massachusetts 01730
(Address of principal executive offices)(Zip code)
Telephone Number: (781) 280-4000
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of March 30, 2007, there were 41,022,000 shares of the registrants common stock, $.01 par value
per share, outstanding.
PROGRESS SOFTWARE CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2007
INDEX
2
PART 1. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
(In thousands)
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February 28, |
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November 30, |
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2007 |
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2006 |
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Assets |
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Current assets: |
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Cash and equivalents |
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$ |
56,445 |
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$ |
46,449 |
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Short-term investments |
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177,375 |
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194,866 |
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Total cash and short-term investments |
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233,820 |
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241,315 |
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Accounts receivable, net |
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91,663 |
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82,762 |
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Other current assets |
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16,351 |
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17,943 |
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Deferred income taxes |
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19,280 |
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18,119 |
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Total current assets |
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361,114 |
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360,139 |
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Property and equipment, net |
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61,215 |
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57,585 |
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Acquired intangible assets, net |
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70,578 |
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75,069 |
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Goodwill |
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157,343 |
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157,858 |
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Deferred income taxes |
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14,263 |
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14,153 |
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Other assets |
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4,770 |
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5,435 |
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Total |
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$ |
669,283 |
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$ |
670,239 |
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Current portion, long-term debt |
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$ |
287 |
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$ |
281 |
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Accounts payable |
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13,994 |
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15,034 |
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Accrued compensation and related taxes |
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29,561 |
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48,398 |
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Income taxes payable |
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8,159 |
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6,316 |
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Other accrued liabilities |
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21,972 |
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23,166 |
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Short-term deferred revenue |
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136,758 |
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120,974 |
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Total current liabilities |
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210,731 |
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214,169 |
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Long-term debt, less current portion |
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1,583 |
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1,657 |
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Long-term deferred revenue |
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9,179 |
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6,355 |
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Other non-current liabilities |
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3,778 |
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3,494 |
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Commitments and contingencies |
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Shareholders equity: |
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Common stock and additional paid-in capital; authorized, 100,000
shares; issued and outstanding, 40,866 shares in 2007
and 41,177 shares in 2006 |
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196,279 |
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197,748 |
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Retained earnings, including accumulated other
comprehensive gains of $921 in 2007 and $1,106 in 2006 |
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247,733 |
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246,816 |
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Total shareholders equity |
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444,012 |
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444,564 |
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Total |
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$ |
669,283 |
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$ |
670,239 |
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See notes to unaudited condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
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Three Months Ended Feb. 28, |
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2007 |
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2006 |
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Revenue: |
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Software licenses |
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$ |
44,729 |
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$ |
42,780 |
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Maintenance and services |
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70,500 |
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61,141 |
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Total revenue |
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115,229 |
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103,921 |
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Costs of revenue: |
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Cost of software licenses |
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1,672 |
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2,210 |
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Cost of maintenance and services |
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16,262 |
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14,231 |
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Amortization of acquired intangibles for
purchased technology |
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2,491 |
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1,524 |
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Total costs of revenue |
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20,425 |
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17,965 |
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Gross profit |
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94,804 |
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85,956 |
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Operating expenses: |
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Sales and marketing |
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44,645 |
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42,644 |
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Product development |
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20,795 |
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18,927 |
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General and administrative |
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15,031 |
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13,198 |
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Amortization of other acquired intangibles |
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1,980 |
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1,383 |
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Acquisition-related expenses |
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1,534 |
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Total operating expenses |
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82,451 |
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77,686 |
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Income from operations |
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12,353 |
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8,270 |
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Other income (expense): |
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Interest income and other |
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1,918 |
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1,795 |
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Foreign currency loss |
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(828 |
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(1,098 |
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Total other income, net |
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1,090 |
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697 |
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Income before provision for income taxes |
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13,443 |
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8,967 |
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Provision for income taxes |
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4,705 |
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3,058 |
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Net income |
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$ |
8,738 |
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$ |
5,909 |
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Earnings per share: |
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Basic |
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$ |
0.21 |
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$ |
0.15 |
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Diluted |
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$ |
0.20 |
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$ |
0.14 |
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Weighted average shares outstanding: |
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Basic |
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41,069 |
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40,499 |
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Diluted |
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43,437 |
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43,057 |
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See notes to unaudited condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
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Three Months Ended Feb. 28, |
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2007 |
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2006 |
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Cash flows from operating activities: |
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Net income |
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$ |
8,738 |
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$ |
5,909 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization of property and equipment |
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2,492 |
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2,084 |
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Amortization of capitalized software costs |
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44 |
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44 |
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Amortization of acquired intangible assets |
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4,471 |
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2,907 |
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Stock-based compensation |
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4,877 |
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5,943 |
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Deferred income taxes |
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(1,151 |
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(1,136 |
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Tax benefit from stock options |
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77 |
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504 |
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In-process research and development |
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900 |
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Changes in operating assets and liabilities, net of effects
from acquisitions: |
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Accounts receivable, net |
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(8,970 |
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(5,285 |
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Other current assets |
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2,047 |
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(3,677 |
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Accounts payable and accrued expenses |
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(20,781 |
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(19,930 |
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Income taxes payable |
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1,880 |
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985 |
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Deferred revenue |
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18,526 |
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16,553 |
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Net cash provided by operating activities |
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12,250 |
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5,801 |
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Cash flows from investing activities: |
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Purchases of investments available for sale |
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(43,050 |
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(86,961 |
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Sales and maturities of investments available for sale |
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60,541 |
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159,460 |
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Purchases of property and equipment |
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(6,103 |
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(4,878 |
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Acquisitions, net of cash acquired |
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(62,033 |
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Increase in other non-current assets |
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200 |
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26 |
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Net cash provided by investing activities |
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11,588 |
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5,614 |
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Cash flows from financing activities: |
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Issuance of common stock |
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5,681 |
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4,166 |
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Excess tax benefit from stock options |
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233 |
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374 |
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Payment of long-term debt |
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(65 |
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(65 |
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Repurchase of common stock |
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(19,238 |
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(3,361 |
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Net cash (used for) provided by financing activities |
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(13,389 |
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1,114 |
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Effect of exchange rate changes on cash |
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(453 |
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659 |
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Net increase in cash and equivalents |
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9,996 |
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13,188 |
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Cash and equivalents, beginning of period |
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46,449 |
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40,398 |
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Cash and equivalents, end of period |
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$ |
56,445 |
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$ |
53,586 |
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See notes to unaudited condensed consolidated financial statements.
5
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1: Basis of Presentation
We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim
financial reporting. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete
financial statements and should be read in conjunction with the audited financial statements
included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2006.
In the opinion of management, we have prepared the accompanying unaudited condensed consolidated
financial statements on the same basis as the audited financial statements, and these financial
statements include all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results of the interim periods presented. The operating results for the
interim periods presented are not necessarily indicative of the results expected for the full
fiscal year.
Note 2: Revenue Recognition
We recognize revenue when earned. We recognize software license revenue upon shipment of the
product or, if delivered electronically, when the customer has the right to access the software,
provided that the license fee is fixed or determinable, persuasive evidence of an arrangement
exists and collection is probable. We do not consider software license arrangements with payment
terms greater than ninety days beyond our standard payment terms to be fixed and determinable and
therefore such software license fees are recognized upon due date. We do not license our software
with a right of return and generally do not license our software with conditions of acceptance. If
an arrangement does contain conditions of acceptance, we defer recognition of the revenue until the
acceptance criteria are met or the period of acceptance has passed. We generally recognize revenue
for products distributed through application partners and distributors when sold through to the
end-user.
We generally sell our software licenses with maintenance services and, in some cases, also with
consulting services. For the undelivered elements, we determine vendor-specific objective evidence
(VSOE) of fair value to be the price charged when the undelivered element is sold separately. We
determine VSOE for maintenance sold in connection with a software license based on the amount that
will be separately charged for the maintenance renewal period. We determine VSOE for consulting
services by reference to the amount charged for similar engagements when a software license sale is
not involved.
We generally recognize revenue from software licenses sold together with maintenance and/or
consulting services upon shipment using the residual method, provided that the above criteria have
been met. If VSOE of fair value for the undelivered elements cannot be established, we defer all
revenue from the arrangement until the earlier of the point at which such sufficient VSOE does
exist or all elements of the arrangement have been delivered, or if the only undelivered element is
maintenance, then we recognize the entire fee ratably. If payment of the software license fees is
dependent upon the performance of consulting services or the consulting services are essential to
the functionality of the licensed software, then we recognize both the software license and
consulting fees using the percentage of completion method.
We recognize maintenance revenue ratably over the term of the applicable agreement. We generally
recognize revenue from services, primarily consulting and customer education, as the related
services are performed.
6
Note 3: Earnings Per Share
We calculate basic earnings per share using the weighted average number of common shares
outstanding. We compute diluted earnings per share on the basis of the weighted average number of
common shares outstanding plus the effects of outstanding stock options using the treasury stock
method. The following table provides the calculation of basic and diluted earnings per share on an
interim basis:
(In thousands, except per share data)
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Three Months Ended Feb. 28, |
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2007 |
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2006 |
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Net income |
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$ |
8,738 |
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$ |
5,909 |
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Weighted average shares outstanding |
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41,069 |
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40,499 |
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Dilutive impact from outstanding stock options |
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2,368 |
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2,558 |
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Diluted weighted average shares outstanding |
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43,437 |
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43,057 |
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Earnings per share: |
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Basic |
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$ |
0.21 |
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$ |
0.15 |
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Diluted |
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$ |
0.20 |
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$ |
0.14 |
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Stock options to purchase approximately 2,965,000 shares and 1,669,000 shares of common stock were
excluded from the calculation of diluted earnings per share in the first quarter of fiscal years
2007 and 2006, respectively, because these options were anti-dilutive.
Note 4: Stock-based Compensation
We account for stock-based compensation expense in accordance with Statement of Financial
Accounting Standards (SFAS) No. 123(R), Share-Based Payment (SFAS 123R). Under SFAS 123R,
stock-based compensation expense reflects the fair value of stock-based awards measured at the
grant date, is recognized over the relevant service period, and is adjusted each period for
anticipated forfeitures. We estimate the fair value of each stock-based award on the date of grant
using the Black-Scholes option valuation model. The Black-Scholes option valuation model
incorporates assumptions as to stock price volatility, the expected life of options, a risk-free
interest rate and dividend yield.
The following table provides the classification of stock-based compensation as reflected in our
consolidated statements of operations:
(In thousands)
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Three Months Ended Feb. 28, |
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2007 |
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2006 |
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Cost of software licenses |
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$ |
30 |
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$ |
40 |
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Cost of maintenance and services |
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347 |
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450 |
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Sales and marketing |
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1,796 |
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2,224 |
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Product development |
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1,119 |
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1,354 |
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General and administrative |
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1,585 |
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|
1,875 |
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Total stock-based compensation expense |
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$ |
4,877 |
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$ |
5,943 |
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Note 5: Income Taxes
We provide for income taxes during interim periods based on the estimated effective tax rate for
the full fiscal year. We record cumulative adjustments to the tax provision in an interim period in
which a change in the estimated annual effective rate is determined. We record valuation
allowances to reduce deferred tax assets to the amount that is more likely than not to be realized.
We have not provided for U.S. income taxes on the undistributed earnings of
7
non-U.S. subsidiaries, as these earnings have been permanently reinvested or would be principally
offset by foreign tax credits.
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial
statements in accordance with Statement 109 and prescribes a recognition threshold and measurement
attribute for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 is effective for fiscal years beginning after December 15, 2006, with early adoption
permitted. We are currently evaluating the impact that the adoption of FIN 48 will have on our
consolidated financial statements.
Note 6: Comprehensive Income
The components of comprehensive income include net income, foreign currency translation
adjustments, unrealized gains and losses on foreign exchange hedging contracts and unrealized gains
and losses on investments. The following table provides the calculation of comprehensive income on
an interim basis:
(In thousands)
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Three Months Ended Feb. 28, |
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2007 |
|
|
2006 |
|
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Net income, as reported |
|
$ |
8,738 |
|
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$ |
5,909 |
|
Foreign currency translation adjustments, net of tax |
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(168 |
) |
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359 |
|
Unrealized (losses) gains on investments, net of tax |
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(17 |
) |
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|
27 |
|
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Total comprehensive income |
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$ |
8,553 |
|
|
$ |
6,295 |
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|
Note 7: Shareholders Equity
Common Stock Repurchases
In September 2006, the Board of Directors authorized, for the period from October 1, 2006 through
September 30, 2007, the purchase of up to 10,000,000 shares of our common stock, at such times that
management deems such purchases to be an effective use of cash. We purchased and retired
approximately 695,000 shares of our common stock for $19.2 million in the first three months of
fiscal 2007 as compared to approximately 119,000 shares of our common stock for $3.4 million in the
first three months of fiscal 2006.
Tender Offer Disclosure
We recently determined that the exercise price of some of our stock options from previous years
were less than the fair market value of our common stock on the date of grant. Options determined
to have been granted with an exercise price below the fair market value of our common stock on the
actual grant date and vesting subsequent to December 2004 result in nonqualified deferred
compensation for purposes of Section 409A of the Internal Revenue Code, and holders are subject to
an excise tax on the value of the options in the year in which they vest. We have determined that
options to purchase approximately 2.8 million shares of our common stock held by current and former
employees may be subject to adverse tax consequences under Section 409A.
In order to mitigate the unfavorable personal tax consequences under Section 409A, we offered
holders of these options the opportunity to amend their affected options. Specifically, on December
22, 2006, we commenced a tender offer in which we offered to amend the affected options to increase
the exercise price to the fair market value of our common stock on the revised grant date, and to
give the option holders (excluding certain executive officers and employees) a cash payment, to be
paid in increments on certain dates in fiscal years 2008 through 2010, for the increase in the
exercise price. The tender offer is expected to be completed in April 2007.
8
We also entered into option amendment agreements containing similar terms with a limited number of
individuals for whom the deadline for such an amendment was December 31, 2006. In the first
quarter of fiscal year 2006, we accounted for the impact of these option amendment agreements as a
stock option modification under SFAS 123R. We will recognize additional stock-based compensation
expense, with a corresponding offset to additional paid-in capital, over the vesting period of the
modified options. We recorded a liability of approximately $0.7 million for the present value of
the expected cash payments associated with the option amendment agreements, with a corresponding
reduction in additional paid-in capital. We will recognize interest expense through the period up
to each payment date.
Note 8: Goodwill
Goodwill is the amount by which the cost of acquired net assets in a business acquisition exceeded
the fair value of net identifiable assets on the date of purchase. For purposes of the annual
impairment test, we assigned goodwill of $11.6 million to the operating divisions comprising the
OpenEdge operating segment, $56.8 million to the operating divisions comprising the Enterprise
Infrastructure reporting segment and $88.9 million to the reporting unit comprising the DataDirect
reporting segment.
During the first quarter of fiscal 2007, we completed our annual testing for impairment of goodwill
and, based on those tests, concluded that no impairment of goodwill existed as of December 15,
2006, the goodwill impairment measurement date for fiscal 2007. The decrease in goodwill from the
end of fiscal 2006 was primarily related to changes to the preliminary allocation of the purchase
price from previous acquisitions.
Note 9: Segment Information
At the end of fiscal 2006, we reorganized our business into five operating units. Our principal
operating unit conducts business as the OpenEdge Division. The OpenEdge Division (OED) provides the
Progress® OpenEdge platform, a set of development and deployment technologies, including the
OpenEdge RDBMS, one of the leading embedded databases, for building business applications. Another
significant operating unit, the Enterprise Infrastructure Division (EID), is responsible for the
development, marketing and sales of our Sonic, Actional, DataXtend and ObjectStore product lines.
The third significant operating unit, DataDirect Technologies, provides standards-based data
connectivity software. Our other two operating units are the Apama Division and the EasyAsk
Division.
Segment information is presented in accordance with SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This standard is based on a management approach, which
requires segmentation based upon our internal organization and disclosure of revenue and operating
income based upon internal accounting methods. Our chief decision maker is our Chief Executive
Officer.
Based upon the aggregation criteria for segment reporting, we have three reportable segments: the
OpenEdge segment, which includes the OED and EasyAsk Division, the Enterprise Infrastructure
segment, which includes the EID and Apama Division, and the DataDirect segment. We do not manage
our assets, capital expenditures, interest income or provision for income taxes by segment. We
manage such items on a company basis.
At the end of fiscal 2006, we changed the composition of our reporting segments from previous
disclosures. We restated the fiscal 2006 segment disclosure to conform to the current
presentation.
9
The following table provides revenue and income from operations from our reportable segments on an
interim basis:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
|
2007 |
|
|
2006 |
|
|
Revenue: |
|
|
|
|
|
|
|
|
OpenEdge segment |
|
$ |
87,254 |
|
|
$ |
79,989 |
|
Enterprise Infrastructure segment |
|
|
13,535 |
|
|
|
13,847 |
|
DataDirect segment |
|
|
16,305 |
|
|
|
11,905 |
|
Reconciling items |
|
|
(1,865 |
) |
|
|
(1,820 |
) |
|
Total |
|
$ |
115,229 |
|
|
$ |
103,921 |
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
OpenEdge segment |
|
$ |
31,245 |
|
|
$ |
27,695 |
|
Enterprise Infrastructure segment |
|
|
(6,628 |
) |
|
|
(6,805 |
) |
DataDirect segment |
|
|
1,455 |
|
|
|
783 |
|
Reconciling items |
|
|
(13,719 |
) |
|
|
(13,403 |
) |
|
Total |
|
$ |
12,353 |
|
|
$ |
8,270 |
|
|
The reconciling items within revenue primarily represent intersegment sales, which are accounted
for as if sold under an equivalent arms-length basis arrangement, generated by the Enterprise
Infrastructure segment. Amounts included under reconciling items within income from operations
represent amortization of acquired intangibles, stock-based compensation, acquisition-related
expenses and certain unallocated administrative expenses.
Total revenue by significant product line, regardless of which segment generated the revenue, is as
follows:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
|
2007 |
|
|
2006 |
|
|
DataDirect |
|
$ |
16,305 |
|
|
$ |
11,905 |
|
Enterprise Infrastructure |
|
|
17,122 |
|
|
|
16,056 |
|
Progress OpenEdge and other |
|
|
81,802 |
|
|
|
75,960 |
|
|
Total |
|
$ |
115,229 |
|
|
$ |
103,921 |
|
|
Note 10: Contingencies
On June 23, 2006, we received written notice that the Enforcement Staff in the Boston,
Massachusetts office of the SEC had begun an informal inquiry into our option-granting practices
during the period December 1, 1995 through November 30, 2002. On December 19, 2006, the SEC
informed us that it had issued a formal order of investigation into our option-granting practices
during the period December 1, 1995 through the present. We are unable to predict with certainty
what consequences may arise from the SEC investigation. We have already incurred, and expect to
continue to incur, significant legal expenses arising from the investigation. The investigation
could also divert the attention of our management and harm our business. If the SEC institutes
legal action, we could face significant fines and penalties and be required to take remedial
actions determined by the SEC or a court. Although we have filed certain restated financial
statements that we believe correct the accounting errors arising from our past option-granting
practices, the filing of those financial statements did not resolve the pending SEC inquiry. The
SEC has not indicated to us whether it has reviewed our restated financial statements, and any SEC
review could lead to further restatements or other modifications of our financial statements.
On August 17, 2006, a derivative complaint styled Arkansas Teacher Retirement System, Derivatively
on Behalf of Progress Software Corporation, v. Joseph Alsop et al, Civ. Act. No. 06-CA-11459 RCL
was filed in the United States District Court for the District of Massachusetts by a party
identifying itself as one of our shareholders purporting to act on our behalf against our directors
and certain of our present and former officers. We are also named as a nominal defendant. The
complaint alleges violations of Section 10(b) of the Securities Exchange Act of
10
1934 and Rule 10b-5, breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty and
unjust enrichment arising from the allegedly improper backdating of certain stock option grants.
The complaint seeks monetary damages, restitution, disgorgement, rescission of stock options,
punitive damages and other relief. On January 23, 2007, we moved to dismiss the Arkansas Teacher
Retirement System complaint on the grounds that the Plaintiff failed to make a proper pre-filing
demand upon our Board of Directors. This motion is pending.
On January 16, 2007, another party identifying itself as one of our shareholders purporting to act
on our behalf filed a derivative complaint styled Acuna, Derivatively on Behalf of Progress
Software Corporation v. Joseph Alsop et al., Civ. Act. No. 07-0157 against our directors and
certain of our present and former officers in Massachusetts Superior Court. We are named as a
nominal defendant in this action as well. The complaint alleges breaches of fiduciary duty, aiding
and abetting breaches of fiduciary duty and unjust enrichment arising from the allegedly improper
backdating of certain stock option grants. The complaint seeks monetary damages and disgorgement,
among other forms of relief. A Special Litigation Committee formed by our board of directors to
investigate and determine the Companys response to the complaint has moved to stay the action,
while the investigation is ongoing.
Further, on March 28, 2007, an additional party identifying itself as one of our shareholders
purporting to act on our behalf filed a derivative complaint styled White, Derivatively on Behalf
Of Nominal Defendant Progress v. Progress Software Corporation et al., Civ 07-01172. This
complaint involves substantially the same defendants, allegations and demands for relief as the
Acuna complaint described above.
The ultimate outcome of any of these matters could have a material adverse effect on our results of
operations. These matters could divert the attention of our management and harm our business. In
addition, we have incurred, and expect to incur legal expenses arising from these matters, which
may be significant, including the advancement of legal expenses to our directors and officers. We
have certain indemnification obligations to our directors and officers, and the outcome of
derivative or any other litigation may require that we indemnify some or all of our directors and
officers for expenses they may incur in defending the litigation and other losses.
We are subject to various other legal proceedings and claims, either asserted or unasserted, which
arise in the ordinary course of business. While the outcome of these other claims cannot be
predicted with certainty, management does not believe that the outcome of any of these other legal
matters will have a material adverse effect on our consolidated financial position or results of
operations.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions
regarding forward-looking statements. This Form 10-Q, and other information provided by us or
statements made by our directors, officers or employees from time to time, may contain
forward-looking statements and information, which involve risks and uncertainties. Actual future
results may differ materially. Statements indicating that we expect, estimate, believe, are
planning or plan to are forward-looking, as are other statements concerning future financial
results, product offerings or other events that have not yet occurred. There are several important
factors that could cause actual results or events to differ materially from those anticipated by
the forward-looking statements. Such factors include those described in Part II, Item 1A of this
Form 10-Q under the heading Risk Factors. Although we have sought to identify the most
significant risks to our business, we cannot predict whether, or to what extent, any of such risks
may be realized. We also cannot assure you that we have identified all possible issues which we
might face. We undertake no obligation to update any forward-looking statements that we make.
Overview
We develop, market and distribute software to simplify and accelerate the development, deployment,
integration and management of business applications. Our mission is to deliver software products
and services that empower partners and customers to improve their development, deployment,
integration and management of quality applications worldwide. Our products include development
tools, databases, application servers, messaging servers, application management tools, data
connectivity products and integration products that enable the highly distributed
11
deployment of responsive applications across internal networks, the Internet and
occasionally-connected users. Through our various operating units, we market our products globally
to a broad range of organizations in manufacturing, distribution, finance, retail, healthcare,
telecommunications, government and many other fields.
We derive a significant portion of our revenue from international operations. In the first half of
fiscal 2006, the strengthening of the U.S. dollar against most major currencies, primarily the euro
and the British pound, negatively affected the translation of our results into U.S. dollars. In
the second half of fiscal 2006 and the first quarter of fiscal 2007, the weakening of the U.S.
dollar against most major currencies, primarily the euro and the British pound, positively affected
the translation of our results into U.S. dollars.
Critical Accounting Policies
Our managements discussion and analysis of financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. We make estimates and assumptions
in the preparation of our consolidated financial statements that affect the reported amounts of
assets and liabilities, revenue and expenses and related disclosures of contingent assets and
liabilities. We base our estimates on historical experience and various other assumptions that we
believe to be reasonable under the circumstances. However, actual results may differ from these
estimates.
We have identified the following critical accounting policies that require the use of significant
judgments and estimates in the preparation of our consolidated financial statements. This listing
is not a comprehensive list of all of our accounting policies. For further information regarding
the application of these and other accounting policies, see Note 1 in the Notes to Consolidated
Financial Statements in Item 8 of our Annual Report on Form 10-K for the year ended November 30,
2006, as well as the notes to our Consolidated Financial Statements included in Item 1 of this Form
10-Q.
Revenue Recognition Our revenue recognition policy is significant because revenue is a key
component affecting results of operations. In determining when to recognize revenue from a
customer arrangement, we are often required to exercise judgment regarding the application of our
accounting policies to a particular arrangement. For example, judgment is required in determining
whether a customer arrangement has multiple elements. When such a situation exists, judgment is
also involved in determining whether vendor-specific objective evidence (VSOE) of fair value for
the undelivered elements exists. While we follow specific and detailed rules and guidelines
related to revenue recognition, we make and use significant management judgments and estimates in
connection with the revenue recognized in any reporting period, particularly in the areas described
above, as well as collectibility. If management made different estimates or judgments, material
differences in the timing of the recognition of revenue could occur.
Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of customers to make required payments. We establish this
allowance using estimates that we make based on factors such as the composition of the accounts
receivable aging, historical bad debts, changes in payment patterns, changes to customer
creditworthiness and current economic trends. If we used different estimates, or if the financial
condition of customers were to deteriorate, resulting in an impairment of their ability to make
payments, we would require additional provisions for doubtful accounts that would increase bad debt
expense.
12
Goodwill and Intangible Assets We have goodwill and net intangible assets of approximately $228
million at February 28, 2007. We assess the impairment of goodwill and identifiable intangible
assets on an annual basis and whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. We would record an impairment charge if such an
assessment were to indicate that the fair value of such assets was less than the carrying value.
Judgment is required in determining whether an event has occurred that may impair the value of
goodwill or identifiable intangible assets. Factors that could indicate that an impairment may
exist include significant underperformance relative to plan or long-term projections, changes in
business strategy, significant negative industry or economic trends or a significant decline in our
stock price or in the value of one of our reporting units for a sustained period of time. We
utilize cash flow models to determine the fair value of our reporting units. We must make
assumptions about future cash flows, future operating plans, discount rates and other factors in
our models. Different assumptions and judgment determinations could yield different conclusions
that would result in an impairment charge to income in the period that such change or determination
was made.
Income Tax Accounting We have a net deferred tax asset of approximately $30 million at February
28, 2007. We record valuation allowances to reduce deferred tax assets to the amount that is more
likely than not to be realized. We consider scheduled reversals of temporary differences,
projected future taxable income, ongoing tax planning strategies and other matters in assessing the
need for and the amount of a valuation allowance. If we were to change our assumptions or otherwise
determine that we were unable to realize all or part of our net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to income in the period that such change
or determination was made. On a quarterly basis we provide for income taxes based on the estimated
effective tax rate for the full fiscal year.
Stock-Based Compensation We account for stock-based compensation expense in accordance with SFAS
123R. Under SFAS 123R, stock-based compensation expense reflects the fair value of stock-based
awards measured at the grant date, is recognized over the relevant service period, and is adjusted
each period for anticipated forfeitures. We estimate the fair value of each stock-based award on
the date of grant using the Black-Scholes option valuation model. The Black-Scholes option
valuation model incorporates assumptions as to stock price volatility, the expected life of
options, a risk-free interest rate and dividend yield. Many of these assumptions are highly
subjective and require the exercise of management judgment. Our management must also apply
judgment in developing an estimate of awards that may be forfeited. If our actual experience
differs significantly from our estimates and we choose to employ different assumptions in the
future, the stock-based compensation expense that we record in future periods may differ materially
from that recorded in the current period.
13
Results of Operations
The following table provides certain income and expense items as a percentage of total revenue, and
the percentage change in dollar amounts of such items compared with the corresponding period in the
previous fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total Revenue |
|
|
Period-to-Period Change |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
Three Months Ended Feb. 28, |
|
Compared |
|
|
|
2007 |
|
|
2006 |
|
|
to 2006 |
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
|
39 |
% |
|
|
41 |
% |
|
|
5 |
% |
Maintenance and services |
|
|
61 |
|
|
|
59 |
|
|
|
15 |
|
|
Total revenue |
|
|
100 |
|
|
|
100 |
|
|
|
11 |
|
|
Costs of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses |
|
|
1 |
|
|
|
2 |
|
|
|
(24 |
) |
Cost of maintenance and services |
|
|
14 |
|
|
|
14 |
|
|
|
14 |
|
Amortization of acquired intangibles for
purchased technology |
|
|
2 |
|
|
|
1 |
|
|
|
63 |
|
|
Total costs of revenue |
|
|
17 |
|
|
|
17 |
|
|
|
14 |
|
|
Gross profit |
|
|
83 |
|
|
|
83 |
|
|
|
10 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
39 |
|
|
|
41 |
|
|
|
5 |
|
Product development |
|
|
18 |
|
|
|
18 |
|
|
|
10 |
|
General and administrative |
|
|
13 |
|
|
|
13 |
|
|
|
14 |
|
Amortization of other acquired intangibles |
|
|
2 |
|
|
|
1 |
|
|
|
43 |
|
Acquisition-related expenses |
|
|
|
|
|
|
2 |
|
|
|
(100 |
) |
|
Total operating expenses |
|
|
72 |
|
|
|
75 |
|
|
|
6 |
|
|
Income from operations |
|
|
11 |
|
|
|
8 |
|
|
|
49 |
|
Other (expense) income, net |
|
|
1 |
|
|
|
1 |
|
|
|
56 |
|
|
Income before provision for income taxes |
|
|
12 |
|
|
|
9 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
4 |
|
|
|
3 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
8 |
% |
|
|
6 |
% |
|
|
48 |
% |
|
Revenue. Our total revenue increased 11% from $103.9 million in the first quarter of fiscal 2006
to $115.2 million in the first quarter of fiscal 2007. Total revenue would have increased by 6% if
exchange rates had been constant in the first quarter of fiscal 2007 as compared to exchange rates
in effect in the first quarter of fiscal 2006. In addition to the positive effect of changes in
exchange rates, each of our major product lines experienced growth in the first quarter of fiscal
2007.
Revenue from our Progress OpenEdge product line increased from $76.0 million in the first quarter
of fiscal 2006 to $81.8 million in the first quarter of fiscal 2007. Revenue derived from our
Enterprise Infrastructure product line increased 7% from $16.1 million in the first quarter of
fiscal 2006 to $17.1 million in the first quarter of fiscal 2007. Revenue from our DataDirect
product line increased 37% from $11.9 million in the first quarter of fiscal 2006 to $16.3 million
in the first quarter of fiscal 2007. Approximately half of the increase in the DataDirect product
line was attributable to Shadow products which were acquired as part of the NEON acquisition in the
latter part of the first quarter of fiscal 2006.
Software license revenue increased 5% from $42.8 million in the first quarter of fiscal 2006 to
$44.7 million in the first quarter of fiscal 2007. Software license revenue would have been flat
if exchange rates had been constant in the first quarter of fiscal 2007 as compared to exchange
rates in effect in the first quarter of fiscal 2006. The DataDirect and the Enterprise
Infrastructure product lines accounted for 39% of software license revenue in each of the first
14
quarters of fiscal 2007 and fiscal 2006. Software license revenue from direct end users increased
in the first quarter of fiscal 2007 as compared to the first quarter of fiscal 2006. Software
license revenue from the Progress OpenEdge product set increased year over year, primarily within
the development and the database products.
Maintenance and services revenue increased 15% from $61.1 million in the first quarter of fiscal
2006 to $70.5 million in the first quarter of fiscal 2007. The increase in maintenance and services
revenue was primarily the result of growth in our installed customer base, renewal of maintenance
agreements and greater professional services revenue. Maintenance revenue increased 12% and
professional services revenue increased 33% in the first quarter of fiscal 2007 as compared to the
first quarter of fiscal 2006. Maintenance and services revenue would have increased by 10% if
exchange rates had been constant in the first quarter of fiscal 2007 as compared to exchange rates
in effect in the first quarter of fiscal 2006.
Total revenue generated in markets outside North America increased 13% from $57.5 million in the
first quarter of fiscal 2006 to $65.0 million in the first quarter of fiscal 2007 and represented
55% of total revenue in the first quarter of fiscal 2006 and 56% of total revenue in the first
quarter of fiscal 2007. Revenue from the Europe, Middle East and Africa region (EMEA), and the
Asia Pacific region increased in fiscal 2007 as compared to fiscal 2006, while the Latin America
region was essentially flat. Total revenue generated in markets outside North America would have
represented 54% of total revenue if exchange rates had been constant in the first quarter of fiscal
2007 as compared to the exchange rates in effect in the first quarter of fiscal 2006.
Cost of Software Licenses. Cost of software licenses consists primarily of costs of product
media, documentation, duplication, packaging, electronic software distribution, royalties and
amortization of capitalized software costs. Cost of software licenses decreased 24% from $2.2
million in the first quarter of fiscal 2006 to $1.7 million in the first quarter of fiscal 2007,
and decreased as a percentage of software license revenue from 5% to 4%. The dollar decrease for
the first quarter was primarily due to lower royalty expense for products and technologies licensed
or resold from third parties. Cost of software licenses as a percentage of software license
revenue varies from period to period depending upon the relative product mix.
Cost of Maintenance and Services. Cost of maintenance and services consists primarily of costs of
providing customer technical support, education and consulting. Cost of maintenance and services
increased 14% from $14.2 million in the first quarter of fiscal 2006 to $16.3 million in the first
quarter of fiscal 2007, and remained the same as a percentage of maintenance and services revenue
at 23%. The total dollar amount in fiscal 2007 increased due to higher usage of third-party
contractors for service engagements. Our technical support, education and consulting headcount
decreased by 11% from the end of the first quarter of fiscal 2006 to the end of the first quarter
of fiscal 2007.
Amortization of Acquired Intangibles for Purchased Technology. Amortization of acquired
intangibles for purchased technology primarily represents the amortization of the value assigned to
technology-related intangible assets obtained in business combinations. Amortization of acquired
intangibles for purchased technology increased from $1.5 million in the first quarter of fiscal
2006 to $2.5 million in the first quarter of fiscal 2007. The increase was due to amortization
expense associated with the acquisitions of NEON, Actional, Pantero and OpenAccess in fiscal 2006.
Gross Profit. Our gross profit increased 10% from $86.0 million in the first quarter of fiscal
2006 to $94.8 million in the first quarter of fiscal 2007. The gross profit percentage remained
the same at 83% of total revenue in each of the first quarters of fiscal 2007 and fiscal 2006.
Sales and Marketing. Sales and marketing expenses increased 5% from $42.6 million in the first
quarter of fiscal 2006 to $44.6 million in the first quarter of fiscal 2007, and decreased as a
percentage of total revenue from 41% to 39%. The increase in sales and marketing expenses was due
to higher average selling costs, partially offset by a decrease in marketing program expenses. Our
sales and marketing headcount decreased by 3% from the end of the first quarter of fiscal 2006 to
the end of the first quarter of fiscal 2007.
Product Development. Product development expenses increased 10% from $18.9 million in the first
quarter of fiscal 2006 to $20.8 million in the first quarter of fiscal 2007, and remained the same
as a percentage of revenue at 18%. The dollar increase was primarily due to expenses related to
the development teams associated with the acquisitions
15
of NEON and Actional which occurred at the
end of the first quarter of fiscal 2006. Our product development headcount remained the same from
the end of the first quarter of fiscal 2006 to the end of the first quarter of fiscal 2007.
General and Administrative. General and administrative expenses include the costs of our finance,
human resources, legal, information systems and administrative departments. General and
administrative expenses increased 14% from $13.2 million in the first quarter of fiscal 2006 to
$15.0 million in the first quarter of fiscal 2007, and remained the same as a percentage of revenue
at 13%. The dollar increase was primarily due to professional services fees related to the stock
option review of $1.7 million in the first quarter of fiscal 2007. Our administrative headcount
decreased 6% from the end of the first quarter of fiscal 2006 to the end of the first quarter of
fiscal 2007.
Amortization of Other Acquired Intangibles. Amortization of other acquired intangibles primarily
represents the amortization of value assigned to non-technology-related intangible assets obtained
in business combinations. Amortization of other acquired intangibles increased from $1.4 million
in the first quarter of fiscal 2006 to $2.0 million in the first quarter of fiscal 2007. The
increase was due to amortization expense associated with the acquisitions of NEON and Actional in
the first quarter of fiscal 2006.
Acquisition-Related Expenses. Acquisition-related expenses for the first three months of fiscal
2006 include $0.6 million of expenses for retention bonuses to Apama and EasyAsk employees who
joined us in fiscal 2005 and $0.9 million of in-process research and development from the
acquisition of NEON, which was expensed when the acquisition was consummated because the
technological feasibility of several products under development at the time of the acquisition had
not been achieved and no alternate future uses had been established. Research and development
costs to bring the acquired products to technological feasibility are not expected to have a
material impact on our future results of operations or cash flows. The value of in-process
research and development was determined based on an appraisal from an independent third party.
Income From Operations. Income from operations increased 49% from $8.3 million in the first
quarter of fiscal 2006 to $12.4 million in the first quarter of fiscal 2007 and increased as a
percentage of total revenue from 8% in the first quarter of fiscal 2006 to 11% in the first quarter
of fiscal 2007.
Income
from operations increased from $27.7 million in the first quarter of fiscal 2006 to
$31.2 million in the first quarter of fiscal 2007 in our OpenEdge segment, which primarily includes
OED and the EasyAsk Division. Losses from operations decreased from $6.8 million in the first
quarter of fiscal 2006 to $6.6 million in the first quarter of fiscal 2007 in our Enterprise
Infrastructure segment. Income from operations increased from $0.8 million in the first quarter of
fiscal 2006 to $1.5 million in the first quarter of fiscal 2007 in our DataDirect segment. See Note
9 to the accompanying condensed consolidated financial statements for a reconciliation of income
from operations for each segment to consolidated income from operations.
Other Income. Other income increased 56% from $0.7 million in the first quarter of fiscal 2006 to
$1.1 million in the first quarter of fiscal 2007. The increase was primarily due to an increase in
interest income resulting from slightly higher interest rates, higher average cash and short-term
investment balances and lower foreign exchange losses.
Provision for Income Taxes. Our effective tax rate was 35% in the first quarter of fiscal 2007 as
compared to 34% in the first quarter of fiscal 2006. The increase in our effective tax rate was
due to the loss of the ETI benefit, which was phased out as of December 31, 2006 (approximately
3%), partially offset by research and development credits. We estimate that our effective tax rate
will be approximately 35% for all of fiscal 2007.
Liquidity and Capital Resources
At the end of the first quarter of fiscal 2007, our cash and short-term investments totaled $233.8
million. The decrease of $7.5 million since the end of fiscal 2006 resulted primarily from common
stock repurchases partially offset by an increase in cash generated from operations.
16
We generated $12.3 million in cash from operations in the first three months of fiscal 2007 as
compared to $5.8 million in the first three months of fiscal 2006. The increase in cash generated
from operations in the first quarter of fiscal 2007 over the first quarter of fiscal 2006 was
primarily due to increased profitability and a lower reduction from working capital uses.
A summary of our cash flows from operations for the first quarters of fiscal years 2007 and 2006 is
as follows:
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
|
|
2007 |
|
|
2006 |
|
|
Net income |
|
$ |
8,738 |
|
|
$ |
5,909 |
|
Depreciation, amortization and other noncash charges |
|
|
12,022 |
|
|
|
11,878 |
|
Tax benefit from stock plans |
|
|
77 |
|
|
|
504 |
|
Changes in operating assets and liabilities |
|
|
(8,587 |
) |
|
|
(12,490 |
) |
|
Total |
|
$ |
12,250 |
|
|
$ |
5,801 |
|
|
Accounts receivable increased by $8.9 million from the end of fiscal 2006. Accounts receivable
days sales outstanding, or DSO, increased by 11 days to 72 days at the end of the first quarter of
fiscal 2007 as compared to 61 days at the end of fiscal 2006 and increased by 5 days from 67 days
at the end of the first quarter of fiscal 2006. The increase in DSO is primarily related to the
impact of maintenance renewal billings, as the first quarter of each fiscal year typically has the
highest portion of such billings relative to the full year and to the impact of assuming opening
accounts receivable balances from recent acquisitions. We target a DSO range of 60 to 80 days.
We purchased property and equipment totaling $6.1 million in the first three months of fiscal 2007
as compared to $4.9 million in the first three months of fiscal 2006. The purchases consisted
primarily of computer equipment and software and building and leasehold improvements. The increase
primarily related to costs associated with our ongoing ERP implementation.
In September 2006, the Board of Directors authorized, for the period from October 1, 2006 through
September 30, 2007, the purchase of up to 10,000,000 shares of our common stock, at such times that
we deem such purchases to be an effective use of cash. We purchased and retired approximately
695,000 shares of our common stock for $19.2 million in the first three months of fiscal 2007 as
compared to approximately 119,000 shares of our common stock for $3.4 million in the first three
months of fiscal 2006.
We received $5.7 million in the first three months of fiscal 2007 from the exercise of stock
options and the issuance of ESPP shares as compared to $4.2 million in the first three months of
fiscal 2006.
We believe that existing cash balances together with funds generated from operations will be
sufficient to finance our operations and meet our foreseeable cash requirements (including planned
capital expenditures, lease commitments, debt payments, potential cash acquisitions and other
long-term obligations) through at least the next twelve months.
Revenue Backlog Our aggregate revenue backlog at February 28, 2007 was approximately $171 million
of which $146 million was included on our balance sheet as deferred revenue, primarily related to
unexpired maintenance and support contracts. At February 28, 2007, the remaining amount of backlog
of approximately $25 million was composed of multi-year licensing arrangements of approximately $23
million and open software license orders received but not shipped of approximately $2 million. Our
backlog of orders not included on the balance sheet is not subject to our normal accounting
controls for information that is either reported in or derived from our basic financial statements.
Our aggregate revenue backlog at February 28, 2006 was approximately $148 million of which
$131 million was included on our balance sheet as deferred revenue, primarily related to unexpired
maintenance and support contracts. At February 28, 2006, the remaining amount of backlog of
approximately $17 million was composed of multi-year licensing arrangements of approximately $15
million and open software license orders received but not shipped of approximately $2 million.
17
We typically fulfill most of our software license orders within 30 days of acceptance of a purchase
order. Assuming all other revenue recognition criteria have been met, we recognize software
license revenue upon shipment of the product, or if delivered electronically, when the customer has
the right to access the software. Because there are many elements governing when revenue is
recognized, including when orders are shipped, credit approval,
completion of internal control processes over revenue recognition and other factors, management has
some control in determining the period in which certain revenue is recognized. We frequently have
open software license orders at the end of the quarter which have not shipped or have otherwise not
met all the required criteria for revenue recognition. Although the amount of open software license
orders may vary at any time, we generally do not believe that the amount, if any, of such software
license orders at the end of a particular quarter is a reliable indicator of future performance.
In addition, there is no industry standard for the definition of backlog and there may be an
element of estimation in determining the amount. As such, direct comparisons with other companies
may be difficult or potentially misleading.
Guarantees and Indemnification Obligations
We include standard intellectual property indemnification provisions in our licensing agreements in
the ordinary course of business. Pursuant to our product license agreements, we will indemnify,
hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the
indemnified party, generally business partners or customers, in connection with certain patent,
copyright or other intellectual property infringement claims by third parties with respect to our
products. Other agreements with our customers provide indemnification for claims relating to
property damage or personal injury resulting from the performance of services by us or our
subcontractors. Historically, our costs to defend lawsuits or settle claims relating to such
indemnity agreements have been insignificant. Accordingly, the estimated fair value of these
indemnification provisions is immaterial.
Legal and Other Regulatory Matters
On June 23, 2006, we received written notice that the Enforcement Staff in the Boston,
Massachusetts office of the SEC had begun an informal inquiry into our option-granting practices
during the period December 1, 1995 through November 30, 2002. On December 19, 2006, the SEC
informed us that it had issued a formal order of investigation into our option-granting practices
during the period December 1, 1995 through the present. We are unable to predict with certainty
what consequences may arise from the SEC investigation. We have already incurred, and expect to
continue to incur, significant legal expenses arising from the investigation. The investigation
could also divert the attention of our management and harm our business. If the SEC institutes
legal action, we could face significant fines and penalties and be required to take remedial
actions determined by the SEC or a court. Although we have filed certain restated financial
statements that we believe correct the accounting errors arising from our past option-granting
practices, the filing of those financial statements did not resolve the pending SEC inquiry. The
SEC has not indicated to us whether it has reviewed our restated financial statements, and any SEC
review could lead to further restatements or other modifications of our financial statements.
On August 17, 2006, a derivative complaint styled Arkansas Teacher Retirement System, Derivatively
on Behalf of Progress Software Corporation, v. Joseph Alsop et al, Civ. Act. No. 06-CA-11459 RCL
was filed in the United States District Court for the District of Massachusetts by a party
identifying itself as one of our shareholders purporting to act on our behalf against our directors
and certain of our present and former officers. We are also named as a nominal defendant. The
complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5, breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty and unjust
enrichment arising from the allegedly improper backdating of certain stock option grants. The
complaint seeks monetary damages, restitution, disgorgement, rescission of stock options, punitive
damages and other relief. On January 23, 2007, we moved to dismiss the Arkansas Teacher Retirement
System complaint on the grounds that the Plaintiff failed to make a proper pre-filing demand upon
our Board of Directors. This motion is pending.
On January 16, 2007, another party identifying itself as one of our shareholders purporting to act
on our behalf filed a derivative complaint styled Acuna, Derivatively on Behalf of Progress
Software Corporation v. Joseph Alsop et al., Civ. Act. No. 07-0157 against our directors and
certain of our present and former officers in Massachusetts Superior Court. We are named as a
nominal defendant in this action as well. The complaint alleges breaches of fiduciary duty, aiding
and abetting breaches of fiduciary duty and unjust enrichment arising from the allegedly improper
backdating of certain stock option grants. The complaint seeks monetary damages and disgorgement,
18
among other forms of relief. A Special Litigation Committee formed by our board of directors to
investigate and determine the Companys response to the complaint has moved to stay the action,
while the investigation is ongoing.
Further, on March 28, 2007, an additional party identifying itself as one of our shareholders
purporting to act on our behalf filed a derivative complaint styled White, Derivatively on Behalf
Of Nominal Defendant Progress v. Progress Software Corporation et al., Civ 07-01172. This
complaint involves substantially the same defendants, allegations and demands for relief as the
Acuna complaint described above.
The ultimate outcome of any of these matters could have a material adverse effect on our results of
operations. These matters could divert the attention of our management and harm our business. In
addition, we have incurred, and expect to incur legal expenses arising from these matters, which
may be significant, including the advancement of legal expenses to our directors and officers. We
have certain indemnification obligations to our directors and officers, and the outcome of
derivative or any other litigation may require that we indemnify some or all of our directors and
officers for expenses they may incur in defending the litigation and other losses.
We are subject to various other legal proceedings and claims, either asserted or unasserted, which
arise in the ordinary course of business. While the outcome of these other claims cannot be
predicted with certainty, management does not believe that the outcome of any of these other legal
matters will have a material adverse effect on our consolidated financial position or results of
operations.
Off-Balance Sheet Arrangements
Our only significant off-balance sheet commitments relate to operating lease obligations. We have
no off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K. Future
annual minimum rental lease payments are detailed in Note 10 of the Notes to Consolidated Financial
Statements in our Annual Report on Form 10-K for the year ended November 30, 2006.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial
statements in accordance with Statement 109 and prescribes a recognition threshold and measurement
attribute for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 is effective for fiscal years beginning after December 15, 2006, with early adoption
permitted. We will adopt FIN 48 on December 1, 2007. We are currently evaluating the impact that
the adoption of FIN 48 will have on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value and expands fair value
measurement disclosures. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. We are currently evaluating whether adoption of SFAS 157 will
have an impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 provides a Fair Value Option under which a company
may irrevocably elect fair value as the initial and subsequent measurement attribute for certain
financial assets and liabilities. This Fair Value Option will be available on a
contract-by-contract basis with changes in fair value recognized in earnings as those changes
occur. The effective date for SFAS 159 is the beginning of each reporting entitys first fiscal
year end that begins after November 15, 2007. SFAS 159 also allows an entity to early adopt the
statement as of the beginning of an entitys fiscal year that begins after the issuance of SFAS
159, provided that the entity also adopts the requirement of SFAS No. 157. We are currently
evaluating whether adoption of SFAS 159 will have an impact on our consolidated financial
statements.
19
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including changes in interest rates affecting the
return on our investments and foreign currency fluctuations. We have established policies and
procedures to manage our exposure to fluctuations in interest rates and foreign currency exchange
rates.
Exposure to market risk for changes in interest rates relates to our investment portfolio. We have
not used derivative financial instruments in our investment portfolio. We seek to place our
investments with high-quality issuers and have policies limiting, among other things, the amount of
credit exposure to any one issuer. We seek to limit default risk by purchasing only
investment-grade securities. Our investments have an average remaining maturity of less than two
years and are primarily fixed-rate instruments. In addition, we have classified all or our debt
securities as available for sale. This classification reduces the income statement exposure to
interest rate risk if such investments are held until their maturity date. Based on a hypothetical
10% adverse movement in interest rates, the potential losses in future earnings, fair value of
risk-sensitive instruments and cash flows are immaterial.
We enter into foreign exchange option and forward contracts to hedge certain transactions of
selected foreign currencies (mainly in Europe and Asia Pacific) against fluctuations in exchange
rates. We have not entered into foreign exchange option and forward contracts for speculative or
trading purposes. We recognize market value increases and decreases on the foreign exchange option
and forward contracts in income each period. We operate in certain countries where there are
limited forward currency exchange markets and thus we have unhedged transaction exposures in these
currencies. There were approximately $111.1 million of outstanding foreign exchange option
contracts at February 28, 2007. Major U.S. multinational banks are counterparties to the option
contracts. We also hedge net intercompany balances. We generally do not hedge the net assets of
our international subsidiaries. The foreign exchange exposure from a 10% movement of currency
exchange rates would have a material impact on our revenue and net income. Based on a hypothetical
10% adverse movement in all foreign currency exchange rates, our revenue would be adversely
affected by approximately 6% and our net income would be adversely affected by approximately 20%
(excluding any offsetting positive impact from our ongoing hedging programs), although the actual
effects may differ materially from the hypothetical analysis.
The table below details outstanding forward contracts, which mature in ninety days or less, at
February 28, 2007 where the notional amount is determined using contract exchange rates:
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
|
Exchange |
|
|
Notional |
|
|
|
Foreign Currency |
|
|
U.S. Dollars |
|
|
Weighted |
|
|
|
For U.S. Dollars |
|
|
For Foreign Currency |
|
|
Average |
|
Functional Currency: |
|
(Notional Amount) |
|
|
(Notional Amount) |
|
|
Exchange Rate* |
|
|
Australian dollar |
|
|
|
|
|
$ |
3,811 |
|
|
|
1.26 |
|
Brazilian real |
|
$ |
1, 867 |
|
|
|
|
|
|
|
2.14 |
|
Euro |
|
|
|
|
|
|
34,656 |
|
|
|
0.75 |
|
Japanese yen |
|
|
3,895 |
|
|
|
|
|
|
|
118.09 |
|
South African rand |
|
|
193 |
|
|
|
|
|
|
|
7.26 |
|
U.K. pound |
|
|
|
|
|
|
25,518 |
|
|
|
0.51 |
|
|
|
|
$ |
5,955 |
|
|
$ |
63,985 |
|
|
|
|
|
|
|
|
|
* |
|
expressed as local currency unit per U.S. dollar |
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our management, including the chief
executive officer and the chief financial officer, carried out an evaluation of the effectiveness
of our disclosure controls and procedures as of the end of the period covered by this report.
Based on this evaluation, our chief executive officer and chief financial officer concluded that
our disclosure controls and procedures were effective to provide a reasonable level of assurance
that the information required to be disclosed in the reports filed or submitted by us under the
Securities Exchange Act of 1934 was recorded, processed, summarized and reported within the
requisite time periods.
20
(b) Changes in internal control over financial reporting. No changes in our internal control over
financial reporting occurred during the quarter ended February 28, 2007 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 23, 2006, we received written notice that the Enforcement Staff in the Boston,
Massachusetts office of the SEC had begun an informal inquiry into our option-granting practices
during the period December 1, 1995 through November 30, 2002. On December 19, 2006, the SEC
informed us that it had issued a formal order of investigation into our option-granting practices
during the period December 1, 1995 through the present. We are unable to predict with certainty
what consequences may arise from the SEC investigation. We have already incurred, and expect to
continue to incur, significant legal expenses arising from the investigation. The investigation
could also divert the attention of our management and harm our business. If the SEC institutes
legal action, we could face significant fines and penalties and be required to take remedial
actions determined by the SEC or a court. Although we have filed certain restated financial
statements that we believe correct the accounting errors arising from our past option-granting
practices, the filing of those financial statements did not resolve the pending SEC inquiry. The
SEC has not indicated to us whether it has reviewed our restated financial statements, and any SEC
review could lead to further restatements or other modifications of our financial statements.
On August 17, 2006, a derivative complaint styled Arkansas Teacher Retirement System, Derivatively
on Behalf of Progress Software Corporation, v. Joseph Alsop et al, Civ. Act. No. 06-CA-11459 RCL
was filed in the United States District Court for the District of Massachusetts by a party
identifying itself as one of our shareholders purporting to act on our behalf against our directors
and certain of our present and former officers. We are also named as a nominal defendant. The
complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5, breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty and unjust
enrichment arising from the allegedly improper backdating of certain stock option grants. The
complaint seeks monetary damages, restitution, disgorgement, rescission of stock options, punitive
damages and other relief. On January 23, 2007, we moved to dismiss the Arkansas Teacher Retirement
System complaint on the grounds that the Plaintiff failed to make a proper pre-filing demand upon
our Board of Directors. This motion is pending.
On January 16, 2007, another party identifying itself as one of our shareholders purporting to act
on our behalf filed a derivative complaint styled Acuna, Derivatively on Behalf of Progress
Software Corporation v. Joseph Alsop et al., Civ. Act. No. 07-0157 against our directors and
certain of our present and former officers in Massachusetts Superior Court. We are named as a
nominal defendant in this action as well. The complaint alleges breaches of fiduciary duty, aiding
and abetting breaches of fiduciary duty and unjust enrichment arising from the allegedly improper
backdating of certain stock option grants. The complaint seeks monetary damages and disgorgement,
among other forms of relief. A Special Litigation Committee formed by our board of directors to
investigate and determine the Companys response to the complaint has moved to stay the action,
while the investigation is ongoing.
Further, on March 28, 2007, an additional party identifying itself as one of our shareholders
purporting to act on our behalf filed a derivative complaint styled White, Derivatively on Behalf
Of Nominal Defendant Progress v. Progress Software Corporation et al., Civ 07-01172. This
complaint involves substantially the same defendants, allegations and demands for relief as the
Acuna complaint described above.
The ultimate outcome of any of these matters could have a material adverse effect on our results of
operations. These matters could divert the attention of our management and harm our business. In
addition, we have incurred, and expect to incur legal expenses arising from these matters, which
may be significant, including the advancement of legal expenses to our directors and officers. We
have certain indemnification obligations to our directors and officers, and the outcome of
derivative or any other litigation may require that we indemnify some or all of our directors and
officers for expenses they may incur in defending the litigation and other losses.
We are subject to various other legal proceedings and claims, either asserted or unasserted, which
arise in the ordinary course of business. While the outcome of these other claims cannot be
predicted with certainty,
21
management does not believe that the outcome of any of these other legal matters will have a
material adverse effect on our consolidated financial position or results of operations.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves certain risks and uncertainties, some of
which are beyond our control. The following discussion highlights some of these risks.
We face risks related to the restatement of our financial statements and the pending SEC inquiry
regarding our past practices with respect to stock options. On June 23, 2006, we received written
notice that the Enforcement Staff in the Boston, Massachusetts office of the SEC had begun an
informal inquiry into our option-granting practices during the period December 1, 1995 through
November 30, 2002. On December 19, 2006, the SEC informed us that it had issued a formal order of
investigation into our option-granting practices during the period December 1, 1995 through the
present. We are unable to predict with certainty what consequences may arise from the SEC
investigation. We have already incurred, and expect to continue to incur, significant legal
expenses arising from the investigation. The investigation could also divert the attention of our
management and harm our business. If the SEC institutes legal action, we could face significant
fines and penalties and be required to take remedial actions determined by the SEC or a court.
Although we have filed certain restated financial statements that we believe correct the accounting
errors arising from our past option-granting practices, the filing of those financial statements
did not resolve the pending SEC inquiry. The SEC has not indicated to us whether it has reviewed
our restated financial statements, and any SEC review could lead to further restatements or other
modifications of our financial statements.
We face litigation risks relating to our past practices with respect to stock options that could
have a material adverse effect on our business. On August 17, 2006, a derivative complaint styled
Arkansas Teacher Retirement System, Derivatively on Behalf of Progress Software Corporation, v.
Joseph Alsop et al, Civ. Act. No. 06-CA-11459 RCL was filed in the United States District Court for
the District of Massachusetts by a party identifying itself as one of our shareholders purporting
to act on our behalf against our directors and certain of our present and former officers. We are
also named as a nominal defendant. The complaint alleges violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5, breaches of fiduciary duty, aiding and abetting
breaches of fiduciary duty and unjust enrichment arising from the allegedly improper backdating of
certain stock option grants. The complaint seeks monetary damages, restitution, disgorgement,
rescission of stock options, punitive damages and other relief. On January 23, 2007, we moved to
dismiss the Arkansas Teacher Retirement System complaint on the grounds that the Plaintiff failed
to make a proper pre-filing demand upon our Board of Directors. This motion is pending.
On January 16, 2007, another party identifying itself as one of our shareholders purporting to act
on our behalf filed a derivative complaint styled Acuna, Derivatively on Behalf of Progress
Software Corporation v. Joseph Alsop et al., Civ. Act. No. 07-0157 against our directors and
certain of our present and former officers in Massachusetts Superior Court. We are named as a
nominal defendant in this action as well. The complaint alleges breaches of fiduciary duty, aiding
and abetting breaches of fiduciary duty and unjust enrichment arising from the allegedly improper
backdating of certain stock option grants. The complaint seeks monetary damages and disgorgement,
among other forms of relief. A Special Litigation Committee formed by our board of directors to
investigate and determine the Companys response to the complaint has moved to stay the action,
while the investigation is ongoing.
Further, on March 28, 2007, an additional party identifying itself as one of our shareholders
purporting to act on our behalf filed a derivative complaint styled White, Derivatively on Behalf
Of Nominal Defendant Progress v. Progress Software Corporation et al., Civ 07-01172. This
complaint involves substantially the same defendants, allegations and demands for relief as the
Acuna complaint described above.
The ultimate outcome of these complaints could have a material adverse effect on our results of
operations. We expect to incur additional legal expenses arising from the derivative actions, which
may be significant, including the advancement of legal expenses to our directors and officers in
connection with the derivative actions. This and any other litigation may divert the attention of
our management, which could impair our ability to operate our business. We have certain
indemnification obligations to our directors and officers, and the outcome of the derivative or any
22
other litigation may require that we indemnify some or all of our directors and officers for
expenses they may incur in defending the litigation and other losses.
We amended our Annual Report on Form 10-K for the year ended November 30, 2005 and included in that
filing, among other things, restated financial statements for the years ended November 30, 2005,
2004 and 2003 and restated selected financial data for each of the five years in the period
November 30, 2005. We similarly restated our quarterly reports on Form 10-Q for 2005 and the three
months ended February 28, 2006 to restate the financial statements in that filing. These
restatements may lead to new litigation, may strengthen and expand the claims in the pending
litigation, and may increase the cost of defending or resolving the current litigation.
Our revenue and quarterly results may fluctuate, which could adversely affect our stock price. We
have experienced, and may in the future experience, significant fluctuations in our quarterly
operating results that may be caused by many factors. These factors include:
|
|
|
changes in demand for our products; |
|
|
|
|
introduction, enhancement or announcement of products by us or our competitors; |
|
|
|
|
market acceptance of our new products; |
|
|
|
|
the growth rates of certain market segments in which we compete; |
|
|
|
|
size and timing of significant orders; |
|
|
|
|
budgeting cycles of customers; |
|
|
|
|
mix of distribution channels; |
|
|
|
|
mix of products and services sold; |
|
|
|
|
mix of international and North American revenues; |
|
|
|
|
fluctuations in currency exchange rates; |
|
|
|
|
changes in the level of operating expenses; |
|
|
|
|
the amount of our stock-based compensation; |
|
|
|
|
changes in our sales incentive plans; |
|
|
|
|
completion or announcement of acquisitions by us or competitors; |
|
|
|
|
customer order deferrals in anticipation of new products announced by us or our competitors; and |
|
|
|
|
general economic conditions in regions in which we conduct business. |
Revenue forecasting is uncertain, in large part, because we generally ship our products shortly
after receipt of orders. Most of our expenses are relatively fixed, including costs of personnel
and facilities, and are not easily reduced. Thus, an unexpected reduction in our revenue, or
failure to achieve the anticipated rate of growth, would have a material adverse effect on our
profitability. If our operating results do not meet our publicly stated guidance, if any, or the
expectations of investors, our stock price may decline.
Our international operations expose us to additional risks, and changes in global economic and
political conditions could adversely affect our international operations, our revenue and our net
income. We typically generate between 55% and 60% of our total revenue from sales outside North
America. Political instability, oil price shocks and armed conflict in various regions of the world
can lead to economic uncertainty and may adversely influence our business. If customers buying
patterns, such as decision-making processes, timing of expected deliveries and timing of new
projects, unfavorably change due to economic or political conditions, there will be a material
adverse effect on our business, financial condition and operating results. Other potential risks
inherent in our international business include:
|
|
|
longer payment cycles; |
|
|
|
|
greater difficulties in accounts receivable collection; |
|
|
|
|
unexpected changes in regulatory requirements; |
|
|
|
|
export restrictions, tariffs and other trade barriers; |
|
|
|
|
difficulties in staffing and managing foreign operations; |
|
|
|
|
political instability; |
|
|
|
|
reduced protection for intellectual property rights in some countries; |
|
|
|
|
seasonal reductions in business activity during the summer months in Europe and certain
other parts of the |
23
|
|
|
world; |
|
|
|
|
economic instability in emerging markets; and |
|
|
|
|
potentially adverse tax consequences. |
Any one or more of these factors could have a material adverse effect on our international
operations, and, consequently, on our business, financial condition and operating results.
Fluctuations in foreign currency exchange rates could continue to have an adverse impact on our
financial condition and results of operations. Because a majority of our total revenue is derived
from international operations that are primarily conducted in foreign currencies, changes in the
value of these foreign currencies relative to the U.S. dollar may adversely affect our results of
operations and financial position. We seek to reduce our exposure to fluctuations in foreign
currency exchange rates by entering into foreign exchange option and forward contracts to hedge
certain transactions of selected foreign currencies (mainly in Europe and Asia Pacific). Our
currency hedging transactions may not be effective in reducing any adverse impact of fluctuations
in foreign currency exchange rates. Further, if for any reason exchange or price controls or other
restrictions on the conversion of foreign currencies were imposed, our business could be adversely
affected.
Technology and customer requirements evolve rapidly in our industry, and if we do not continue to
develop new products and enhance our existing products in response to these changes, our business
could be harmed. Ongoing enhancements to our product sets will be required to enable us to
maintain our competitive position. We may not be successful in developing and marketing
enhancements to our products on a timely basis, and any enhancements we develop may not adequately
address the changing needs of the marketplace. Overlaying the risks associated with our existing
products and enhancements are ongoing technological developments and rapid changes in customer
requirements. Our future success will depend upon our ability to develop and introduce in a timely
manner new products that take advantage of technological advances and respond to new customer
requirements. The development of new products is increasingly complex and uncertain, which
increases the risk of delays. We may not be successful in developing new products incorporating
new technology on a timely basis, and any new products may not adequately address the changing
needs of the marketplace. Failure to develop new products and product enhancements that meet market
needs in a timely manner could have a material adverse effect on our business, financial condition
and operating results.
We are substantially dependent on our core product, Progress OpenEdge. We derive a significant
portion of our revenue from software license and maintenance revenue attributable to our core
product line, Progress OpenEdge, and other products that complement OpenEdge and are generally
licensed only in conjunction with OpenEdge. Accordingly, our future results depend on continued
market acceptance of OpenEdge, and any factor adversely affecting the market for OpenEdge could
have a material adverse effect on our business, financial condition and operating results.
Higher costs associated with some of our newer products could adversely affect our operating
margins. Some of our newer products, such as the Enterprise Infrastructure product sets, require a
higher level of development, distribution and support expenditures, on a percentage of revenue
basis, than the OpenEdge or DataDirect product lines. If revenue generated from these products
grows as a percentage of our total revenue and if the expenses associated with these products do
not decrease on a percentage of revenue basis, then our operating margins will be adversely
affected.
We may make acquisitions or investments in new businesses, products or technologies that involve
additional risks, which could disrupt our business or harm our financial condition or results of
operations. As part of our business strategy, we have made, and expect to continue to make,
acquisitions of businesses or investments in companies that offer complementary products, services
and technologies, such as the acquisitions of DataDirect and Persistence in fiscal 2004, Apama and
EasyAsk in fiscal 2005 and the acquisitions of Actional, NEON, Pantero and OpenAccess in fiscal
2006. These acquisitions involve a number of risks, including the risks of assimilating the
operations and personnel of acquired companies, realizing the value of the acquired assets relative
to the price paid, distraction of management from our ongoing businesses and potential product
disruptions associated with the sale of the acquired companys products. These factors could have
a material adverse effect on our business, financial condition and operating results. As in the
Actional acquisition, consideration paid for any future acquisitions could
24
include our stock. As a result, future acquisitions could cause dilution to existing shareholders
and to earnings per share.
We recognize a substantial portion of our revenue from sales made through third parties, including
our application partners and original equipment manufacturers (OEMs), and adverse developments in
the businesses of these third parties or in our relationships with them could harm our revenues and
results of operations. Our future results depend upon our continued successful distribution of our
products through our application partner and OEM channels. Application partners utilize our
technology to create their applications and resell our products along with their own applications.
OEMs embed our products within their software products or technology devices. The activities of
these third parties are not within our direct control. Our failure to manage our relationships with
these third parties effectively could impair the effectiveness of our sales, marketing and support
activities. A reduction in the sales efforts, technical capabilities or financial viability of
these parties, a misalignment of interest between us and them, or a termination of our relationship
with a major application partner or OEM could have a negative effect on our sales and financial
results. Any adverse effect on the application partners or OEMs businesses related to
competition, pricing and other factors could also have a material adverse effect on our business,
financial condition and operating results.
The segments of the software industry in which we participate are intensely competitive, and our
inability to compete effectively would harm our business. We experience significant competition
from a variety of sources with respect to the marketing and distribution of our products. Many of
our competitors have greater financial, marketing or technical resources than we do and may be able
to adapt more quickly to new or emerging technologies and changes in customer requirements or to
devote greater resources to the promotion and sale of their products than we can. Increased
competition could make it more difficult for us to maintain our market presence or lead to downward
pricing pressure. The marketplace for new products is intensely competitive and characterized by
low barriers to entry. As a result, new competitors possessing technological, marketing or other
competitive advantages may emerge and rapidly acquire market share.
In addition, current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties, thereby increasing their ability
to deliver products that better address the needs of our prospective customers. Current and
potential competitors also may be more successful than we are in having their products or
technologies widely accepted. We may be unable to compete successfully against current and future
competitors, and our failure to do so could have a material adverse effect on our business,
prospects, financial condition and operating results.
The market for enterprise integration and messaging products and services is rapidly evolving and
highly competitive, and failure of our SonicESB and other enterprise infrastructure products to
achieve and maintain market acceptance could harm our business. We are currently developing and
enhancing the Sonic product set and other related new products and services. The market for
enterprise application integration, Web services, messaging products and other Internet
business-to-business products is highly competitive. Many potential customers have made
significant investments in proprietary or internally developed systems and would incur significant
costs in switching to the Sonic product set or other third-party products. Global e-commerce and
online exchange of information on the Internet and other similar open wide area networks continue
to evolve. If our Sonic products are not successful in penetrating these evolving markets, our
results of operations will be adversely affected.
The market for enterprise software products and services in which our Apama division participates
is rapidly evolving and highly competitive, and failure of our Apama products to achieve and
maintain market acceptance could harm our business. We are currently developing and enhancing the
Apama product set and other related new products and services. The market for event processing
business-to-business products is highly competitive, and continues to evolve rapidly. If our Apama
products are not successful in penetrating these evolving markets, our results of operations will
be adversely affected.
We rely on the experience and expertise of our skilled employees, and must continue to attract and
retain qualified technical, marketing and managerial personnel in order to succeed. Our future
success will depend in a large part upon our ability to attract and retain highly skilled
technical, managerial and marketing personnel. There is significant competition for such personnel
in the software industry. We may not continue to be successful in
25
attracting and retaining the personnel we require to develop new and enhanced products and to
continue to grow and operate profitably.
Our success is dependent upon our proprietary software technology, and our inability to protect it
would harm our business. We rely principally on a combination of contract provisions and
copyright, trademark, patent and trade secret laws to protect our proprietary technology. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of
our products or to obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult. The steps we take to protect our proprietary rights may be
inadequate to prevent misappropriation of our technology; moreover, others could independently
develop similar technology.
We could be subject to claims that we infringe intellectual property rights of others, or incur
substantial cost in protecting our own technology, either of which could harm our business,
financial condition or results of operations. Litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets, to determine the validity and scope
of the proprietary rights of others, or to defend against claims of infringement. Third parties
could assert infringement claims in the future with respect to our products and technology, and
such claims might be successful. Such litigation could result in substantial costs and diversion
of resources, whether or not we ultimately prevail on the merits. Such litigation could also lead
to our being prohibited from selling one or more of our products, cause reluctance by potential
customers to purchase our products, or result in liability to our customers and could have a
material adverse effect on our business, financial condition and operating results.
The loss of technology licensed from third parties could adversely affect our ability to deliver
our products. We utilize certain technology that we license from third parties, including software
that is integrated with internally developed software and used in our products to perform key
functions. This technology, or functionally similar technology, may not continue to be available
on commercially reasonable terms in the future, or at all. The loss of any significant third-party
technology license could cause delays in our ability to deliver our products or services until
equivalent technology is developed internally or equivalent third-party technology, if available,
is identified, licensed and integrated.
Our common stock price may continue to be volatile, which could result in losses for investors.
The market price of our common stock, like that of other technology companies, is highly volatile
and is subject to wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by us or our competitors, changes in
financial estimates by securities analysts or other events or factors. Our stock price may also be
affected by broader market trends unrelated to our performance. As a result, purchasers of our
common stock may be unable at any given time to sell their shares at or above the price they paid
for them.
26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Items 2(a) and 2(b) are not applicable.
(c) Stock Repurchases
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
Shares That May |
|
|
|
Total Number |
|
|
Average |
|
|
As Part of Publicly |
|
|
Yet Be Purchased |
|
|
|
Of Shares |
|
|
Price Paid |
|
|
Announced Plans |
|
|
Under the Plans or |
|
Period: |
|
Purchased (1) |
|
|
Per Share |
|
|
Or Programs |
|
|
Programs (2) |
|
|
Dec. 1, 2006 Dec. 31, 2006 |
|
|
20 |
|
|
$ |
28.13 |
|
|
|
20 |
|
|
|
9,980 |
|
Jan. 1, 2007 Jan. 31, 2007 |
|
|
606 |
|
|
$ |
27.59 |
|
|
|
606 |
|
|
|
9,374 |
|
Feb. 1, 2007 Feb. 28, 2007 |
|
|
69 |
|
|
$ |
28.33 |
|
|
|
69 |
|
|
|
9,305 |
|
|
|
|
Total |
|
|
695 |
|
|
$ |
27.68 |
|
|
|
695 |
|
|
|
9,305 |
|
|
|
|
|
(1) |
|
All shares were purchased in open market transactions. |
|
(2) |
|
In September 2006, the Board of Directors authorized, for the period from October 1, 2006
through September 30, 2007, the purchase of up to 10,000,000 shares of our common stock. |
Item 6. Exhibits
The following exhibits are filed or furnished as part of this quarterly report on Form 10-Q:
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.1
|
|
Employee Retention and Motivation Agreement, amended and restated as of March 22,
2007, executed by Norman R. Robertson |
|
|
|
10.2
|
|
Employee Retention and Motivation Agreement, amended and restated as of March 22,
2007, executed by James D. Freedman |
|
|
|
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act Joseph W. Alsop |
|
|
|
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act Norman R. Robertson |
|
|
|
32.1
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act |
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
PROGRESS SOFTWARE CORPORATION
(Registrant)
|
|
|
|
|
|
|
|
Dated: April 9, 2007 |
/s/ Joseph W. Alsop
|
|
|
Joseph W. Alsop |
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Dated: April 9, 2007 |
/s/ Norman R. Robertson
|
|
|
Norman R. Robertson |
|
|
Senior Vice President, Finance and
Administration and Chief Financial
Officer (Principal Financial
Officer) |
|
|
|
|
|
Dated: April 9, 2007 |
/s/ David H. Benton, Jr.
|
|
|
David H. Benton, Jr. |
|
|
Vice President and Corporate Controller
(Principal Accounting Officer) |
|
|
28
EXHIBIT 10.1
EMPLOYEE RETENTION AND MOTIVATION AGREEMENT
(AMENDED AND RESTATED AS OF MARCH 22, 2007)
This agreement (the "Agreement") originally effective as of July 22, 1998
(the "Agreement Date") by and between Norman R. Robertson (the "Covered Person")
and Progress Software Corporation, a Massachusetts corporation (the "Company"),
is hereby amended and restated as of March 22, 2007, as follows:
R E C I T A L S
A. The Covered Person presently serves as an employee or officer of the
Company in a role that is important to the continued conduct of the Company's
business and operations.
B. The Board of Directors of the Company (the "Board") has determined that
it is in the best interest of the Company and its stockholders to assure that
the Company will have the continued dedication and objectivity of the Covered
Person, notwithstanding the possibility, threat or occurrence of a Change of
Control (as defined below) of the Company.
C. The Board believes that it is imperative to provide the Covered Person
with certain benefits following a Change of Control and certain severance
benefits upon the Covered Person's termination of employment following a Change
in Control and has previously entered into the Agreement with the Covered
Person.
D. The Board now believes that it is important to revise the benefit
provided by the Agreement in the event of a Change of Control.
E. The Covered Party accepts the revisions to the Agreement.
F. In order to accomplish the foregoing objectives, the parties desire the
Agreement to be amended and restated and superseded in its entirety.
G. Certain capitalized terms used in this Agreement are defined in Section
4 below.
In consideration of the mutual covenants herein contained and in
consideration of the continuing employment of the Covered Person by the Company,
the parties agree to amend and restate the Agreement as follows:
1. Term of Employment The Company and the Covered Person acknowledge that
the Covered Person's employment is at will, as defined under applicable law,
except as may otherwise be provided under the terms of any written employment
agreement between the Company and the Covered Person, that is signed on behalf
of the Company now or hereafter in effect. If the Covered Person's employment
terminates for any reason, the Covered Person shall not be entitled to any
payments, benefits, damages, awards or compensation (collectively, "recompense")
other than the maximum recompense as provided by one of the following: (i) this
Agreement, or (ii) any written employment agreement then in effect between the
Covered
Person and the Company, or (iii) the Company's existing severance guidelines and
benefit plans which are in effect at the time of termination, or (iv) applicable
statutory provisions. The provisions of this Agreement shall terminate upon the
earlier of (i) the date that all obligations of the parties hereunder have been
satisfied, or (ii) 30 September 2008; provided, however, that the term of the
provisions of this Agreement may be extended by written resolutions adopted by
the Board. A termination of the provisions of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of termination of employment occurring prior to the
termination of the provisions of this Agreement.
2. Benefits Immediately Following Change of Control
(a) Treatment of Outstanding Options and Restricted Equity Effective
immediately upon a Change of Control, unless the outstanding stock options and
shares of restricted equity held by the Covered Person under the Company's stock
option plans on the date of the Change of Control are continued by the Company
or assumed by its successor entity, all outstanding stock options held by the
Covered Person shall accelerate and become fully exercisable, and all shares of
restricted equity held by the Covered Person shall become nonforfeitable and all
restrictions shall lapse. If such outstanding options and shares of restricted
equity held by the Covered Person are continued by the Company or assumed by its
successor entity, then vesting shall continue in its usual course.
(b) Payment of Management Bonus Effective immediately upon a Change
of Control, the Covered Person's annual management bonus shall be fixed at the
Covered Person's target bonus level as in effect immediately prior to the Change
of Control and the Covered Person shall be paid a pro-rated portion of such
bonus, as of the date of the Change of Control. Any payment to which the Covered
Person is entitled pursuant to this section shall be paid in a lump sum within
thirty (30) days of the event requiring such payment.
3. Severance Benefits
(a) Termination Following a Change of Control If the Covered
Person's employment terminates after a Change of Control, then, subject to
Section 5 below, the Covered Person shall be entitled to receive severance
benefits as follows:
(i) Involuntary Termination If the Covered Person's employment
is terminated within twelve (12) months following a Change of Control as a
result of Involuntary Termination, then the Covered Person shall be entitled to
receive a lump sum severance payment in an amount equal to fifteen (15) months
of the Covered Person's annual Target Compensation; and in addition, for a
period of fifteen (15) months after such termination, the Company shall be
obligated to provide the Covered Person with benefits that are substantially
equivalent to the Covered Person's benefits (medical, dental, vision and life
insurance) that were in effect immediately prior to the Change of Control. In
addition, each outstanding stock option held by the Covered Person which had
been granted prior to the date of the Change of Control under the Company's
stock option plans shall accelerate and become fully exercisable and all shares
of restricted equity held by the Covered Person which had been granted prior to
the date of the Change of Control under the Company's stock option plans shall
become nonforfeitable and all
2
restrictions shall lapse. Any severance payments to which the Covered Person is
entitled pursuant to this section shall be paid in a lump sum within thirty (30)
days of the effective date of the Covered Person's termination. For purposes of
this Paragraph 3(a)(i), the term "Target Compensation" shall mean the highest
level of Target Compensation applicable to the Covered Person from the period of
time immediately prior to the Change of Control through the effective date of
the Covered Person's termination. With respect to any taxable income that the
Covered Person is deemed to have received for federal income tax purposes by
virtue of the Company providing continued employee benefits to the Covered
Person, the Company shall make a cash payment to the Covered Person such that
the net economic result to the Covered Person will be as if such benefits were
provided on a tax-free basis to the same extent as would have been applicable
had the Covered Person's employment not been terminated.
Anything in this Agreement to the contrary notwithstanding, if
at the time of the Covered Person's separation from service (within the meaning
of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"),
the Covered Person is considered a "specified employee" within the meaning of
Section 409A(a)(2)(B)(i) of the Code, and if any payment that the Covered Person
becomes entitled to under this Agreement is considered deferred compensation
subject to interest and additional tax imposed pursuant to Section 409A(a) of
the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code,
then no such payment shall be payable prior to the date that is the earliest of
(A) six months after the Covered Person's date of termination, (B) the Covered
Person's death, or (C) such other date as will cause such payment not to be
subject to such interest and additional tax. The parties agree that this
Agreement may be amended, as reasonably requested by either party and as may be
necessary to comply fully with Section 409A of the Code and all related rules
and regulations in order to preserve the payments and benefits provided
hereunder without additional cost to either party.
(ii) Voluntary Resignation If the Covered Person's employment
terminates by reason of the Covered Person's voluntary resignation (and is not
an Involuntary Termination), then the Covered Person shall not be entitled to
receive any severance payments or other benefits except for such benefits (if
any) as may then be established under the Company's then existing severance
guidelines and benefit plans at the time of such termination.
(iii) Disability; Death If the Company terminates the Covered
Person's employment as a result of the Covered Person's Disability, or such
Covered Person's employment is terminated due to the death of the Covered
Person, then the Covered Person shall not be entitled to receive any severance
payments or other benefits except for those (if any) as may then be established
under the Company's then existing severance guidelines and benefit plans at the
time of such Disability or death.
(iv) Termination for Cause If the Company terminates the
Covered Person's employment for Cause, then the Covered Person shall not be
entitled to receive any severance payments or other benefits following the date
of such termination, and the Company shall have no obligation to provide for the
continuation of any health and medical benefit or life insurance plans existing
on the date of such termination, other than as required by law.
3
(b) Termination Other than in Connection with Change of Control If
the Covered Person's employment is terminated for any reason either prior to the
occurrence of a Change of Control or after the twelve (12) month period
following a Change of Control, then the Covered Person shall be entitled to
receive severance and any other benefits only as may then be established under
the Company's existing severance guidelines and benefit plans at the time of
such termination.
4. Definition of Terms The following terms referred to in this Agreement
shall have the following meanings:
(a) Change of Control "Change of Control" shall mean the occurrence
of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities, whether by tender offer, or otherwise; or
(ii) A change in the composition of the Board, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the Agreement Date, or (B) are elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the directors of the
Company as of the Agreement Date, at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
(iii) The consummation of a merger or consolidation of the
Company with any other entity, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately prior thereto
representing less than fifty percent (50%) of the total voting power represented
by the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; but the Company is clearly the
acquirer considering the totality of the circumstances, including such factors
as whether the president of the Company will continue as president of the
Company or the surviving entity, the majority of the directors of the Company or
the surviving entity will be Incumbent Directors, substantially all of the
executive officers of the Company will be retained, etc., all as determined
immediately prior to the consummation of the merger or consolidation by the
Incumbent Directors.
(iv) The liquidation of the Company; or the sale or
disposition by the Company of all or substantially all of the Company's assets.
4
(b) Involuntary Termination "Involuntary Termination" shall mean (i)
without the Covered Person's express written consent, the assignment to the
Covered Person of any duties or the significant reduction of the Covered
Person's duties, either of which is materially inconsistent with the Covered
Person's position with the Company and responsibilities in effect immediately
prior to such assignment, or the removal of the Covered Person from such
position and responsibilities, which is not effected for Disability or for
Cause; (ii) a material reduction by the Company in the base salary and/or bonus
of the Covered Person as in effect immediately prior to such reduction; (iii) a
material reduction by the Company in the kind or level of employee benefits to
which the Covered Person is entitled immediately prior to such reduction with
the result that the Covered Person's overall benefit package is significantly
reduced; (iv) the relocation of the Covered Person to a facility or a location
more than fifty (50) miles from the Covered Person's then present location,
without the Covered Person's express written consent; (v) any purported
termination of the Covered Person by the Company which is not effected for death
or Disability or for Cause, or any purported termination for Cause for which the
grounds relied upon are not valid; or (vi) the failure of the Company to obtain,
on or before the Change of Control, the assumption of the terms of this
Agreement by any successors contemplated in Section 7 below. An Involuntary
Termination shall be effective upon written notice by the Covered Person.
(c) Cause "Cause" shall mean (i) any act of personal dishonesty
taken by the Covered Person in connection with his or her responsibilities as an
employee and intended to result in substantial personal enrichment of the
Covered Person, (ii) the conviction of a felony, (iii) a willful act by the
Covered Person which constitutes gross misconduct and which is injurious to the
Company, and (iv) continued violations by the Covered Person of the Covered
Person's obligations as an employee of the Company which are demonstrably
willful and deliberate on the Covered Person's part after there has been
delivered to the Covered Person a written demand for performance from the
Company which describes the basis for the Company's belief that the Covered
Person has not substantially performed his or her duties.
(d) Disability "Disability" shall mean that the Covered Person has
been unable to perform his or her duties as an employee of the Company as the
result of incapacity due to physical or mental illness, and such inability, at
least twenty-six (26) weeks after its commencement, is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Covered Person or the Covered Person's legal representative
(such agreement as to acceptability not to be unreasonably withheld).
Termination resulting from Disability may only be effected after at least thirty
(30) days' written notice by the Company of its intention to terminate the
Covered Person's employment. In the event that the Covered Person resumes the
performance of substantially all of his or her duties as an employee of the
Company before termination of his or her employment becomes effective, the
notice of intent to terminate shall automatically be deemed to have been
revoked.
(e) Target Compensation "Target Compensation" shall mean the total
of all fixed and variable cash compensation due a Covered Person based upon one
hundred percent (100%) attainment of performance levels.
5. Limitation on Payments In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Covered
Person (i) constitute
5
"parachute payments" within the meaning of Section 280G of the Code and (ii) but
for this Section 5, would be subject to the excise tax imposed by Section 4999
of the Code (the "Excise Tax"), then the Covered Person's severance benefits
under Section 3(a)(i) shall be either
(i) delivered in full, or
(ii) delivered as to such lesser extent which would result in
no portion of such severance benefits subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by the
Covered Person on an after tax basis, of the greatest amount of severance
payments and benefits, notwithstanding that all or some portion of such
severance payments and benefits may be taxable under Section 4999 of the Code.
Unless the Company and the Covered Person otherwise agree in writing, any
determination required under this Section 5 shall be made in writing in good
faith by the accounting firm serving the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants") in
good faith consultation with the Covered Person. In the event of a reduction in
benefits hereunder, the Covered Person shall be given the choice of which
benefits to reduce. For purposes of making the calculations required by this
Section 5, the Accountants may make reasonable assumptions and approximations
concerning the application taxes and may rely on reasonable good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Covered Person shall furnish to the Accountants such
information and documents as the Accountants may reasonable request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.
6. Remedy If Covered Person's benefits are reduced to avoid the Excise Tax
pursuant to Section 5 hereof and notwithstanding such reduction, the IRS
determines that the Covered Person is liable for the Excise Tax as a result of
the receipt of severance benefits from the Company, then Covered Person shall be
obligated to pay to the Company (the "Repayment Obligation") an amount of money
equal to the "Repayment Amount." The Repayment Amount shall be the smallest such
amount, if any, as shall be required to be paid to the Company so that the
Covered Person's net proceeds with respect to his or her severance benefits
hereunder (after taking into account the payment of the Excise Tax imposed on
such benefits) shall be maximized. Notwithstanding the foregoing, the Repayment
Amount shall be zero if a Repayment Amount of more than zero would not eliminate
the Excise Tax. If the Excise Tax is not eliminated through the performance of
the Repayment Obligation, the Covered Person shall pay the Excise Tax. The
Repayment Obligation shall be discharged within thirty (30) days of either (i)
the Covered Person entering into a binding agreement with the IRS as to the
amount of Excise Tax liability, or (ii) a final determination by the IRS or a
court decision requiring the Covered Person to pay the Excise Tax from which no
appeal is available or is timely taken.
7. Successors
(a) Company's Successors Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) or to all
6
or substantially all of the Company's business and/or assets shall assume the
obligations under this Agreement and agree expressly to perform the obligations
under this Agreement in the same manner and to the same extent as the Company
would be required to perform such obligations in the absence of a succession.
For all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and delivers
the assumption agreement described in this subsection (a) which becomes bound by
the terms of this Agreement by operation of law.
(b) Covered Person's Successors The terms of this Agreement and all
rights of the Covered Person's hereunder shall inure to the benefit of, and be
enforceable by, the Covered Person's personal or legal representatives,
executors, administrators, successors, heirs, distributes, devisees and
legatees.
8. Notice
(a) General Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Covered Person,
mailed notices shall be addressed to him or her at the home address which he or
she most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its General Counsel.
(b) Notice of Termination by the Company Any termination by the
Company of the Covered Person's employment with the Company at any time
following a Change of Control shall be communicated by notice of termination to
the Covered Person at least five (5) days prior to the date of such termination,
given in accordance with Section 8(a) of this Agreement. Such notice shall
specify the termination date and whether the termination is considered by the
Company to be for Cause as defined in Section 4(c) in which case the Company
shall identify the specific subsection(s) of Section 4(c) asserted by the
Company as the basis for the termination and shall set forth in reasonable
detail the facts and circumstances relied upon by the Company in categorizing
the termination as for Cause.
(c) Notice by Covered Person of Involuntary Termination by the
Company In the event the Covered Person determines that an Involuntary
Termination has occurred at any time following a Change of Control, the Covered
Person shall give written notice that such Involuntary Termination has occurred
as set forth in this Section 8(c). Such notice shall be delivered by the Covered
Person to the Company in accordance with Section 8(a) of this Agreement within
ninety (90) days following the date on which such Involuntary Termination has
occurred (or, if such Involuntary Termination occurred as a result of more than
one event set forth in Section 4(b), within ninety (90) days following the
earliest of such events), shall indicate the specific provision or provisions in
this Agreement upon which the Covered Person relied to make such determination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such determination. The failure by the Covered Person to
include in the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Covered Person
hereunder or preclude the Covered Person from asserting such fact or
circumstance in enforcing his or her rights hereunder.
7
9. Miscellaneous Provisions
(a) No Duty to Mitigate The Covered Person shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Covered Person may receive from any other
source.
(b) Waiver No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed in writing
and signed by the Covered Person and by an authorized officer of the Company
(other than the Covered Person). No waiver by either party of any breach of, or
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision of the same
condition or provision at another time.
(c) Entire Agreement Except with respect to the terms of any written
employment agreement, if any, by and between the Company and the Covered Person
that is signed on behalf of the Company, no agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
(e) Severability The invalidity or enforceability of any provisions
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) Arbitration Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by final and binding
arbitration in Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. In the event the Covered
Person prevails in an action or proceeding brought to enforce the terms of this
Agreement or to enforce and collect on any non-de minimis judgment entered
pursuant to this Agreement, the Covered Person shall be entitled to recover all
costs and reasonable attorney's fees.
(g) No Assignment of Benefits The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (g) shall be
void.
(h) Employment Taxes Subject to Section 5, all payments made
pursuant to this Agreement will be subject to withholding of applicable income
and employment taxes.
(i) Assignment by Company The Company may assign its rights under
this Agreement to an affiliate and an affiliate may assign its rights under this
Agreement to another
8
affiliate of the Company or to the Company; provided, however, that no
assignment shall be made if the net worth of the assignee is less than the net
worth of the Company at the time of the assignment. In the case of any such
assignment, the term "Company" when used in a section of the Agreement shall
mean the corporation that actually employs the Covered Person.
(j) Counterparts This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the date first
above written.
Progress Software Corporation
By: /s/ Joseph W. Alsop By: /s/ Norman R. Robertson
----------------------------- -------------------------------
Authorized Officer Covered Person
9
EXHIBIT 10.2
EMPLOYEE RETENTION AND MOTIVATION AGREEMENT
(AMENDED AND RESTATED AS OF MARCH 22, 2007)
This agreement (the "Agreement") originally effective as of July 23, 1998
(the "Agreement Date") by and between James D. Freedman (the "Covered Person")
and Progress Software Corporation, a Massachusetts corporation (the "Company"),
is hereby amended and restated as of March 22, 2007, as follows:
R E C I T A L S
A. The Covered Person presently serves as an employee or officer of the
Company in a role that is important to the continued conduct of the Company's
business and operations.
B. The Board of Directors of the Company (the "Board") has determined that
it is in the best interest of the Company and its stockholders to assure that
the Company will have the continued dedication and objectivity of the Covered
Person, notwithstanding the possibility, threat or occurrence of a Change of
Control (as defined below) of the Company.
C. The Board believes that it is imperative to provide the Covered Person
with certain benefits following a Change of Control and certain severance
benefits upon the Covered Person's termination of employment following a Change
in Control and has previously entered into the Agreement with the Covered
Person.
D. The Board now believes that it is important to revise the benefit
provided by the Agreement in the event of a Change of Control.
E. The Covered Party accepts the revisions to the Agreement.
F. In order to accomplish the foregoing objectives, the parties desire the
Agreement to be amended and restated and superseded in its entirety.
G. Certain capitalized terms used in this Agreement are defined in Section
4 below.
In consideration of the mutual covenants herein contained and in
consideration of the continuing employment of the Covered Person by the Company,
the parties agree to amend and restate the Agreement as follows:
1. Term of Employment The Company and the Covered Person acknowledge that
the Covered Person's employment is at will, as defined under applicable law,
except as may otherwise be provided under the terms of any written employment
agreement between the Company and the Covered Person, that is signed on behalf
of the Company now or hereafter in effect. If the Covered Person's employment
terminates for any reason, the Covered Person shall not be entitled to any
payments, benefits, damages, awards or compensation (collectively, "recompense")
other than the maximum recompense as provided by one of the following: (i) this
Agreement, or (ii) any written employment agreement then in effect between the
Covered
Person and the Company, or (iii) the Company's existing severance guidelines and
benefit plans which are in effect at the time of termination, or (iv) applicable
statutory provisions. The provisions of this Agreement shall terminate upon the
earlier of (i) the date that all obligations of the parties hereunder have been
satisfied, or (ii) 30 September 2008; provided, however, that the term of the
provisions of this Agreement may be extended by written resolutions adopted by
the Board. A termination of the provisions of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of termination of employment occurring prior to the
termination of the provisions of this Agreement.
2. Benefits Immediately Following Change of Control
(a) Treatment of Outstanding Options and Restricted Equity Effective
immediately upon a Change of Control, unless the outstanding stock options and
shares of restricted equity held by the Covered Person under the Company's stock
option plans on the date of the Change of Control are continued by the Company
or assumed by its successor entity, all outstanding stock options held by the
Covered Person shall accelerate and become fully exercisable, and all shares of
restricted equity held by the Covered Person shall become nonforfeitable and all
restrictions shall lapse. If such outstanding options and shares of restricted
equity held by the Covered Person are continued by the Company or assumed by its
successor entity, then vesting shall continue in its usual course.
(b) Payment of Management Bonus Effective immediately upon a Change
of Control, the Covered Person's annual management bonus shall be fixed at the
Covered Person's target bonus level as in effect immediately prior to the Change
of Control and the Covered Person shall be paid a pro-rated portion of such
bonus, as of the date of the Change of Control. Any payment to which the Covered
Person is entitled pursuant to this section shall be paid in a lump sum within
thirty (30) days of the event requiring such payment.
3. Severance Benefits
(a) Termination Following a Change of Control If the Covered
Person's employment terminates after a Change of Control, then, subject to
Section 5 below, the Covered Person shall be entitled to receive severance
benefits as follows:
(i) Involuntary Termination If the Covered Person's employment
is terminated within twelve (12) months following a Change of Control as a
result of Involuntary Termination, then the Covered Person shall be entitled to
receive a lump sum severance payment in an amount equal to fifteen (15) months
of the Covered Person's annual Target Compensation; and in addition, for a
period of fifteen (15) months after such termination, the Company shall be
obligated to provide the Covered Person with benefits that are substantially
equivalent to the Covered Person's benefits (medical, dental, vision and life
insurance) that were in effect immediately prior to the Change of Control. In
addition, each outstanding stock option held by the Covered Person which had
been granted prior to the date of the Change of Control under the Company's
stock option plans shall accelerate and become fully exercisable and all shares
of restricted equity held by the Covered Person which had been granted prior to
the date of the Change of Control under the Company's stock option plans shall
become nonforfeitable and all
2
restrictions shall lapse. Any severance payments to which the Covered Person is
entitled pursuant to this section shall be paid in a lump sum within thirty (30)
days of the effective date of the Covered Person's termination. For purposes of
this Paragraph 3(a)(i), the term "Target Compensation" shall mean the highest
level of Target Compensation applicable to the Covered Person from the period of
time immediately prior to the Change of Control through the effective date of
the Covered Person's termination. With respect to any taxable income that the
Covered Person is deemed to have received for federal income tax purposes by
virtue of the Company providing continued employee benefits to the Covered
Person, the Company shall make a cash payment to the Covered Person such that
the net economic result to the Covered Person will be as if such benefits were
provided on a tax-free basis to the same extent as would have been applicable
had the Covered Person's employment not been terminated.
Anything in this Agreement to the contrary notwithstanding, if
at the time of the Covered Person's separation from service (within the meaning
of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"),
the Covered Person is considered a "specified employee" within the meaning of
Section 409A(a)(2)(B)(i) of the Code, and if any payment that the Covered Person
becomes entitled to under this Agreement is considered deferred compensation
subject to interest and additional tax imposed pursuant to Section 409A(a) of
the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code,
then no such payment shall be payable prior to the date that is the earliest of
(A) six months after the Covered Person's date of termination, (B) the Covered
Person's death, or (C) such other date as will cause such payment not to be
subject to such interest and additional tax. The parties agree that this
Agreement may be amended, as reasonably requested by either party and as may be
necessary to comply fully with Section 409A of the Code and all related rules
and regulations in order to preserve the payments and benefits provided
hereunder without additional cost to either party.
(ii) Voluntary Resignation If the Covered Person's employment
terminates by reason of the Covered Person's voluntary resignation (and is not
an Involuntary Termination), then the Covered Person shall not be entitled to
receive any severance payments or other benefits except for such benefits (if
any) as may then be established under the Company's then existing severance
guidelines and benefit plans at the time of such termination.
(iii) Disability; Death If the Company terminates the Covered
Person's employment as a result of the Covered Person's Disability, or such
Covered Person's employment is terminated due to the death of the Covered
Person, then the Covered Person shall not be entitled to receive any severance
payments or other benefits except for those (if any) as may then be established
under the Company's then existing severance guidelines and benefit plans at the
time of such Disability or death.
(iv) Termination for Cause If the Company terminates the
Covered Person's employment for Cause, then the Covered Person shall not be
entitled to receive any severance payments or other benefits following the date
of such termination, and the Company shall have no obligation to provide for the
continuation of any health and medical benefit or life insurance plans existing
on the date of such termination, other than as required by law.
3
(b) Termination Other than in Connection with Change of Control If
the Covered Person's employment is terminated for any reason either prior to the
occurrence of a Change of Control or after the twelve (12) month period
following a Change of Control, then the Covered Person shall be entitled to
receive severance and any other benefits only as may then be established under
the Company's existing severance guidelines and benefit plans at the time of
such termination.
4. Definition of Terms The following terms referred to in this Agreement
shall have the following meanings:
(a) Change of Control "Change of Control" shall mean the occurrence
of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities, whether by tender offer, or otherwise; or
(ii) A change in the composition of the Board, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the Agreement Date, or (B) are elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the directors of the
Company as of the Agreement Date, at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
(iii) The consummation of a merger or consolidation of the
Company with any other entity, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately prior thereto
representing less than fifty percent (50%) of the total voting power represented
by the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; but the Company is clearly the
acquirer considering the totality of the circumstances, including such factors
as whether the president of the Company will continue as president of the
Company or the surviving entity, the majority of the directors of the Company or
the surviving entity will be Incumbent Directors, substantially all of the
executive officers of the Company will be retained, etc., all as determined
immediately prior to the consummation of the merger or consolidation by the
Incumbent Directors.
(iv) The liquidation of the Company; or the sale or
disposition by the Company of all or substantially all of the Company's assets.
4
(b) Involuntary Termination "Involuntary Termination" shall mean (i)
without the Covered Person's express written consent, the assignment to the
Covered Person of any duties or the significant reduction of the Covered
Person's duties, either of which is materially inconsistent with the Covered
Person's position with the Company and responsibilities in effect immediately
prior to such assignment, or the removal of the Covered Person from such
position and responsibilities, which is not effected for Disability or for
Cause; (ii) a material reduction by the Company in the base salary and/or bonus
of the Covered Person as in effect immediately prior to such reduction; (iii) a
material reduction by the Company in the kind or level of employee benefits to
which the Covered Person is entitled immediately prior to such reduction with
the result that the Covered Person's overall benefit package is significantly
reduced; (iv) the relocation of the Covered Person to a facility or a location
more than fifty (50) miles from the Covered Person's then present location,
without the Covered Person's express written consent; (v) any purported
termination of the Covered Person by the Company which is not effected for death
or Disability or for Cause, or any purported termination for Cause for which the
grounds relied upon are not valid; or (vi) the failure of the Company to obtain,
on or before the Change of Control, the assumption of the terms of this
Agreement by any successors contemplated in Section 7 below. An Involuntary
Termination shall be effective upon written notice by the Covered Person.
(c) Cause "Cause" shall mean (i) any act of personal dishonesty
taken by the Covered Person in connection with his or her responsibilities as an
employee and intended to result in substantial personal enrichment of the
Covered Person, (ii) the conviction of a felony, (iii) a willful act by the
Covered Person which constitutes gross misconduct and which is injurious to the
Company, and (iv) continued violations by the Covered Person of the Covered
Person's obligations as an employee of the Company which are demonstrably
willful and deliberate on the Covered Person's part after there has been
delivered to the Covered Person a written demand for performance from the
Company which describes the basis for the Company's belief that the Covered
Person has not substantially performed his or her duties.
(d) Disability "Disability" shall mean that the Covered Person has
been unable to perform his or her duties as an employee of the Company as the
result of incapacity due to physical or mental illness, and such inability, at
least twenty-six (26) weeks after its commencement, is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Covered Person or the Covered Person's legal representative
(such agreement as to acceptability not to be unreasonably withheld).
Termination resulting from Disability may only be effected after at least thirty
(30) days' written notice by the Company of its intention to terminate the
Covered Person's employment. In the event that the Covered Person resumes the
performance of substantially all of his or her duties as an employee of the
Company before termination of his or her employment becomes effective, the
notice of intent to terminate shall automatically be deemed to have been
revoked.
(e) Target Compensation "Target Compensation" shall mean the total
of all fixed and variable cash compensation due a Covered Person based upon one
hundred percent (100%) attainment of performance levels.
5. Limitation on Payments In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Covered
Person (i) constitute
5
"parachute payments" within the meaning of Section 280G of the Code and (ii) but
for this Section 5, would be subject to the excise tax imposed by Section 4999
of the Code (the "Excise Tax"), then the Covered Person's severance benefits
under Section 3(a)(i) shall be either
(i) delivered in full, or
(ii) delivered as to such lesser extent which would result in
no portion of such severance benefits subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by the
Covered Person on an after tax basis, of the greatest amount of severance
payments and benefits, notwithstanding that all or some portion of such
severance payments and benefits may be taxable under Section 4999 of the Code.
Unless the Company and the Covered Person otherwise agree in writing, any
determination required under this Section 5 shall be made in writing in good
faith by the accounting firm serving the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants") in
good faith consultation with the Covered Person. In the event of a reduction in
benefits hereunder, the Covered Person shall be given the choice of which
benefits to reduce. For purposes of making the calculations required by this
Section 5, the Accountants may make reasonable assumptions and approximations
concerning the application taxes and may rely on reasonable good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Covered Person shall furnish to the Accountants such
information and documents as the Accountants may reasonable request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.
6. Remedy If Covered Person's benefits are reduced to avoid the Excise Tax
pursuant to Section 5 hereof and notwithstanding such reduction, the IRS
determines that the Covered Person is liable for the Excise Tax as a result of
the receipt of severance benefits from the Company, then Covered Person shall be
obligated to pay to the Company (the "Repayment Obligation") an amount of money
equal to the "Repayment Amount." The Repayment Amount shall be the smallest such
amount, if any, as shall be required to be paid to the Company so that the
Covered Person's net proceeds with respect to his or her severance benefits
hereunder (after taking into account the payment of the Excise Tax imposed on
such benefits) shall be maximized. Notwithstanding the foregoing, the Repayment
Amount shall be zero if a Repayment Amount of more than zero would not eliminate
the Excise Tax. If the Excise Tax is not eliminated through the performance of
the Repayment Obligation, the Covered Person shall pay the Excise Tax. The
Repayment Obligation shall be discharged within thirty (30) days of either (i)
the Covered Person entering into a binding agreement with the IRS as to the
amount of Excise Tax liability, or (ii) a final determination by the IRS or a
court decision requiring the Covered Person to pay the Excise Tax from which no
appeal is available or is timely taken.
7. Successors
(a) Company's Successors Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) or to all
6
or substantially all of the Company's business and/or assets shall assume the
obligations under this Agreement and agree expressly to perform the obligations
under this Agreement in the same manner and to the same extent as the Company
would be required to perform such obligations in the absence of a succession.
For all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and delivers
the assumption agreement described in this subsection (a) which becomes bound by
the terms of this Agreement by operation of law.
(b) Covered Person's Successors The terms of this Agreement and all
rights of the Covered Person's hereunder shall inure to the benefit of, and be
enforceable by, the Covered Person's personal or legal representatives,
executors, administrators, successors, heirs, distributes, devisees and
legatees.
8. Notice
(a) General Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Covered Person,
mailed notices shall be addressed to him or her at the home address which he or
she most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its General Counsel.
(b) Notice of Termination by the Company Any termination by the
Company of the Covered Person's employment with the Company at any time
following a Change of Control shall be communicated by notice of termination to
the Covered Person at least five (5) days prior to the date of such termination,
given in accordance with Section 8(a) of this Agreement. Such notice shall
specify the termination date and whether the termination is considered by the
Company to be for Cause as defined in Section 4(c) in which case the Company
shall identify the specific subsection(s) of Section 4(c) asserted by the
Company as the basis for the termination and shall set forth in reasonable
detail the facts and circumstances relied upon by the Company in categorizing
the termination as for Cause.
(c) Notice by Covered Person of Involuntary Termination by the
Company In the event the Covered Person determines that an Involuntary
Termination has occurred at any time following a Change of Control, the Covered
Person shall give written notice that such Involuntary Termination has occurred
as set forth in this Section 8(c). Such notice shall be delivered by the Covered
Person to the Company in accordance with Section 8(a) of this Agreement within
ninety (90) days following the date on which such Involuntary Termination has
occurred (or, if such Involuntary Termination occurred as a result of more than
one event set forth in Section 4(b), within ninety (90) days following the
earliest of such events), shall indicate the specific provision or provisions in
this Agreement upon which the Covered Person relied to make such determination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such determination. The failure by the Covered Person to
include in the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Covered Person
hereunder or preclude the Covered Person from asserting such fact or
circumstance in enforcing his or her rights hereunder.
7
9. Miscellaneous Provisions
(a) No Duty to Mitigate The Covered Person shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Covered Person may receive from any other
source.
(b) Waiver No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed in writing
and signed by the Covered Person and by an authorized officer of the Company
(other than the Covered Person). No waiver by either party of any breach of, or
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision of the same
condition or provision at another time.
(c) Entire Agreement Except with respect to the terms of any written
employment agreement, if any, by and between the Company and the Covered Person
that is signed on behalf of the Company, no agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
(e) Severability The invalidity or enforceability of any provisions
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) Arbitration Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by final and binding
arbitration in Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. In the event the Covered
Person prevails in an action or proceeding brought to enforce the terms of this
Agreement or to enforce and collect on any non-de minimis judgment entered
pursuant to this Agreement, the Covered Person shall be entitled to recover all
costs and reasonable attorney's fees.
(g) No Assignment of Benefits The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (g) shall be
void.
(h) Employment Taxes Subject to Section 5, all payments made
pursuant to this Agreement will be subject to withholding of applicable income
and employment taxes.
(i) Assignment by Company The Company may assign its rights under
this Agreement to an affiliate and an affiliate may assign its rights under this
Agreement to another
8
affiliate of the Company or to the Company; provided, however, that no
assignment shall be made if the net worth of the assignee is less than the net
worth of the Company at the time of the assignment. In the case of any such
assignment, the term "Company" when used in a section of the Agreement shall
mean the corporation that actually employs the Covered Person.
(j) Counterparts This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the date first
above written.
Progress Software Corporation
By: /s/ Norman R. Robertson By: /s/ James D. Freedman
------------------------------ ------------------------------
Authorized Officer Covered Person
9
exv31w1
Exhibit 31.1
CERTIFICATION
I, Joseph W. Alsop, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Progress Software Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure control and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: April 9, 2007
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/s/ JOSEPH W. ALSOP
Joseph W. Alsop
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Chief Executive Officer |
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(Principal Executive Officer) |
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exv31w2
Exhibit 31.2
CERTIFICATION
I, Norman R. Robertson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Progress Software Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure control and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: April 9, 2007
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/s/ NORMAN R. ROBERTSON
Norman R. Robertson
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Senior Vice President, Finance and |
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Administration and Chief Financial Officer |
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(Principal Financial Officer) |
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exv32w1
Exhibit 32.1
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Progress Software Corporation (the Company)
for the three months ended February 28, 2007, as filed with the Securities and Exchange Commission
on the date hereof (the Report), each of the undersigned, Joseph W. Alsop, Chief Executive Officer,
and Norman R. Robertson, Senior Vice President, Finance and Administration and Chief Financial
Officer, of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
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2. |
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The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
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/s/ JOSEPH W. ALSOP
Chief Executive Officer
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/s/ NORMAN R. ROBERTSON
Senior Vice President, Finance and
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Administration and Chief Financial |
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Officer |
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Date: April 9, 2007
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Date: April 9, 2007 |
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