United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-27138
CATALYST INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 39-1415889
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
8989 North Deerwood Drive, Milwaukee, WI 53223
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(Address of Principal Executive Offices) (Zip Code)
(414) 362-6800
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of May 11, 2001, 8,046,075 shares of the registrant's common stock were
outstanding.
CATALYST INTERNATIONAL, INC.
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2001
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets - March 31, 2001
and December 31, 2000 3
Consolidated Statements of Operations - Three months
ended March 31, 2001 and 2000 5
Consolidated Statements of Cash Flows - Three months
ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 14
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
March 31, Dec. 31,
2001 2000
----------- -----------
(unaudited)
Current Assets:
Cash and cash equivalents $ 14,355 $ 21,200
Accounts receivable 11,091 10,270
Revenues in excess of billings 111 270
Prepaid expenses 940 542
-------- --------
Total Current Assets 26,497 32,282
Equipment and Leasehold Improvements:
Computer hardware and software 6,614 8,002
Office equipment 2,354 2,467
Leasehold improvements 945 944
-------- --------
9,913 11,413
Less accumulated depreciation 6,248 6,850
-------- --------
Total Equipment and Leasehold Improvements 3,665 4,563
Capitalized software development costs, net of
accumulated amortization of $142 and $35 in
2001 and 2000, respectively 2,034 1,760
Covenant not to compete, net of accumulated
amortization of $30 in 2001 1,060 -
Licensed technology, net of accumulated
amortization of $250 in 2001 7,250 -
-------- --------
Total Assets $ 40,506 $ 38,605
======== ========
See accompanying notes
Note: The balance sheet at December 31, 2000 has been derived from the
audited balance sheet at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
CATALYST INTERNATIONAL, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
Liabilities and Stockholders' Equity
March 31, Dec. 31,
2001 2000
----------- -----------
(unaudited)
Current Liabilities:
Accounts payable $ 3,618 $ 3,306
Accrued liabilities 2,973 2,856
Deferred revenue 8,284 6,102
Current portion of long-term debt 220 246
-------- --------
Total Current Liabilities 15,095 12,510
Non-Current Liabilities:
Long-term debt 1,219 166
Deferred services and post-contract
customer support 2,557 85
Deferred rent 188 199
-------- --------
Total Non-Current Liabilities 3,964 450
-------- --------
Total Liabilities 19,059 12,960
Shareholders' Equity:
Preferred stock, $.01 par value; 2,000,000
shares authorized; none issued or outstanding - -
Common stock, $.10 par value;
25,000,000 shares authorized; shares issued:
9,205,943 in 2001 and 9,200,943 in 2000 921 920
Additional paid-in capital 43,679 43,666
Accumulated deficit (17,908) (13,696)
Treasury stock, at cost: 1,162,331 shares
of common stock in 2001 and 2000 (5,245) (5,245)
-------- --------
Total Shareholders' Equity 21,447 25,645
-------- --------
Total Liabilities and Shareholders' Equity $ 40,506 $ 38,605
======== ========
See accompanying notes
Note: The balance sheet at December 31, 2000 has been derived from the
audited balance sheet at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
CATALYST INTERNATIONAL, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three months ended
March 31,
2001 2000
----------- -----------
Revenues:
Software $ 1,049 $ 2,388
Services and post-contract customer support 5,907 6,223
Hardware 1,332 1,710
-------- --------
Total Revenues 8,288 10,321
Cost of Revenues:
Software 486 143
Services and post-contract customer support 4,297 4,245
Hardware 1,059 1,358
-------- --------
Total Cost of Revenues 5,842 5,746
Gross margin 2,446 4,575
Operating Expenses:
Product development 1,188 1,416
Sales and marketing 2,492 1,994
General and administrative 3,200 966
Total Operating Expenses 6,880 4,376
-------- --------
Income (Loss) from Operations (4,434) 199
Other income 222 65
-------- --------
Net Income (Loss) $ (4,212) $ 264
======== ========
Net Income (Loss) per Share:
Basic ($ 0.52) $ 0.03
Diluted ($ 0.52) $ 0.03
Shares used in computing net income
(loss) per share 8,040 8,555
See accompanying notes
CATALYST INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three months ended
March 31,
2001 2000
----------- -----------
Operating Activities:
Net income (loss) $ (4,212) $ 264
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 752 630
Loss on disposal of equipment 14 152
Changes in operating assets and liabilities:
Accounts receivable (821) 1,094
Prepaid expenses and other assets (398) (151)
Accounts payable 312 8
Accrued liabilities 117 22
Deferred revenue 4,813 1,092
Deferred rent (11) (14)
-------- --------
Total adjustments 4,778 2,833
-------- --------
Net cash provided by operating activities 566 3,097
Investing Activities:
Purchase of equipment and leasehold improvements (468) (437)
Capitalized software development costs (380) -
Proceeds from sale of equipment 69 1
Proceeds from sale of internal use software 917 -
Purchase of licensed technology (7,500) -
-------- --------
Net cash used in investing activities (7,362) (436)
Financing Activities:
Payments on long-term debt (63) (103)
Proceeds from exercise of stock options 14 331
-------- --------
Net cash provided by (used in) financing
activities (49) 228
-------- --------
Net increase (decrease) in cash and cash equivalents (6,845) 2,889
Cash and cash equivalents at the beginning of period 21,200 21,169
-------- --------
Cash and cash equivalents at the end of the period $ 14,355 $ 24,058
======== ========
Noncash Investing and Financing Activities:
During the first quarter of 2001, there was no new lease activity. During
the first quarter of 2000, we acquired $177 of computer hardware under
capital leases.
During the first quarter of 2001, we recorded $1,090 as an intangible asset
for a covenant not to compete and long-term liability for the future loan
payment and corresponding income taxes with respect to a loan guarantee to
the former chief executive officer.
See accompanying notes
CATALYST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for fiscal year end financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the financial
statements and footnotes thereto included in the Catalyst International, Inc.
Annual Report on Form 10-K for the year ended December 31, 2000.
2. Net Income (Loss) Per Share of Common Stock
Catalyst International, Inc. ("Catalyst" or "we" or "our") has presented net
income (loss) per share in accordance with Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." The following table sets
forth the computation of basic and diluted weighted average shares used in
the per share calculations. The numerator for the calculation of basic and
diluted earnings (loss) per share is net income (loss) in each period.
Three months ended
March 31,
2001 2000
----------- -----------
(in thousands)
DENOMINATOR
Denominator for basic earnings (loss) per share -
weighted average common shares 8,040 7,910
Effect of dilutive securities - stock options
and warrants - 645
----- -----
Denominator for diluted earnings (loss) per share 8,040 8,555
===== =====
3. Strategic Partnership and Joint Development Agreement
On February 5, 2001, Catalyst entered into an extended strategic partnership
and joint development agreement with Kewill Systems plc and Kewill E
Commerce, Inc. ("Kewill"). Under the terms of the agreement, we will market,
integrate and license the Kewill.Ship(TM) suite of shipping automation
applications and Kewill's e-fulfillment applications into the Catalyst
product suite. In addition, Kewill has acquired all of the rights to
Catalyst-Exchange.com technology to enhance its Kewill.Net(SM) offering. The
companies also agreed to a joint development of applications for Knowledge
Management and Vendor Quality Management.
4. Executive Separation Agreement
Effective March 14, 2001, Sean P. McGowan, Catalyst's president and chief
executive officer ("CEO"), resigned as an officer, director, and employee of
Catalyst. Pursuant to the terms of Mr. McGowan's
separation agreement, attached hereto as Exhibit 10.17, Mr. McGowan agreed
not to compete with Catalyst for a period of 18 months, after which time
Catalyst will pay his outstanding loan with Bank One, Milwaukee of $600,000
plus applicable income taxes not to exceed $490,000, provided that Mr.
McGowan does not violate his non-compete. We recorded this transaction as a
$1.1 million intangible asset and long term liability. The asset will be
amortized over the term of the agreement. In addition, Mr. McGowan received
a cash severance payment of approximately $481,000 under his separation
agreemetn and will receive a monthly cash payment to cover interest on his
loan, provided that he does not violate his non-compete.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains forward-looking statements that are subject
to risks and uncertainties that could cause actual results to differ
materially from those anticipated by such statements and are based on
information available at the time that they were made. These statements use
words such as "anticipate," "believe," "estimate," or "expect," or are
otherwise stated as our predictions for the future. These statements, as
with any predictions of the future, involve certain risks, uncertainties, and
other factors beyond our control. Our actual results may differ materially
from the results discussed in the forward-looking statements, and any such
differences could have a material negative impact on Catalyst's share price.
Factors that might cause such a difference include, but are not limited to, a
decrease in demand for our products, delays in the timely availability of new
features and releases of our products, a too-rapid increase in our level of
spending, actions taken by competitors, technological changes, those herein
identified, those discussed in Catalyst's Registration Statement on Form SB-2
filed with the SEC, and other factors identified from time to time as risks
in our reports filed with the SEC.
Total Revenues
Catalyst's revenues are derived from software licenses, services and post-
contract customer support ("PCS"), and hardware sales. Total revenues for
the first quarter of 2001 were $8.3 million, which represented a decrease of
19.7% compared to first quarter 2000 total revenues of $10.3 million. The
decrease in total revenues for the three-month period was due primarily to a
decrease in the number of new projects sold, due to the slowing U.S. economy
which has lengthened sales cycles.
International revenues were $1.5 million in the first quarter of 2001
compared to $1.6 million in the first quarter of 2000. International
revenues represented 18.6% of total revenues for the first quarter of 2001
compared to 15.8% in the same period of 2000. We believe that international
revenues may increase with additional sales and marketing activities.
Software
Software consists of revenues from software license agreements for Catalyst's
primary product, the Catalyst(R) Warehouse Management System ("Catalyst
WMS"), related add-on products, and relational database management systems.
The first quarter of 2001 software license fees of $1.0 million represented a
decrease of 56.1% compared to the first quarter of 2000 software license fees
of $2.4 million. This decrease was primarily attributable to the slowdown in
the U.S. economy.
Software revenues may fluctuate based upon the size of new or add-on license
agreements as well as progress toward completion for contracts that are
accounted for using contract accounting. Catalyst believes that software
revenues may increase due to enhanced worldwide sales and marketing efforts,
our strategic alliance with SAP America, Inc. and SAP AG, our strategic
partnership and joint development agreement with Kewill, the introduction of
new products, efforts to deliver standard packaged solutions that meet the
requirements of its vertical markets, and the maturation of our new sales
force.
Catalyst follows the software revenue recognition practices set forth in
Statement of Position (SOP) 97-2, "Software Revenue Recognition," issued by
the American Institute of Certified Public Accountants. For projects
requiring "significant" modifications to our products, we use contract
accounting procedures, based upon percentage of completion, to recognize
revenue, provided that such amounts are reasonably collectible. Revenue for
projects with few or no modifications are recognized upon reaching contract
milestones, to the extent that payment is fixed and determinable and
considered collectible.
Services and PCS
Services and PCS revenues are derived from software modifications,
professional services, and PCS agreements. Services and PCS revenues
decreased 5.1% to $5.9 million in the first quarter of 2001, from $6.2
million in the first quarter of 2000. The components of services and PCS
revenues as a percentage of total revenues in the first quarter of 2001 were
19.3% for software modifications, 27.1% for professional services, and 25.0%
for PCS agreements compared with 15.9%, 25.4%, and 19.0%, respectively, in
the first quarter of 2000. Services and PCS revenues decreased in the first
quarter of 2001 due to fewer new customer contracts signed in the third and
fourth quarters of 2000, which resulted in fewer projects requiring software
modifications and professional services.
Software modifications are determined during the customer's Conference Room
Pilot (CRP) and consist of changes to the software to facilitate specific
functionality desired by the customer. We believe that as the number of new
license agreements increases, future modification revenues as a percentage of
total revenues could decrease due to increased functionality of newer
releases of the Catalyst WMS; however, the relationship is dependent upon the
variety of modifications that the individual customer specifies.
Professional services revenues are derived from training, performance of the
CRP, technical services, project management, and implementation services.
Professional services revenues are generated based on the number of days of
work actually performed. We believe that future professional services
revenues could increase as new customer contracts are signed but should
remain relatively constant as a percentage of total revenues.
Customers typically enter into an agreement for PCS at the time they license
the Catalyst WMS and, once installed, pay for the first year of PCS in
advance. PCS revenues are recognized ratably over the term of the PCS
agreement. We believe that PCS revenues should increase as existing PCS
agreements are renewed and additional license agreements are sold but should
remain relatively constant as a percentage of total revenues.
Hardware
Hardware revenues consist primarily of computer hardware, radio frequency
equipment, and printers that Catalyst sold to its customers on behalf of
hardware and other equipment manufacturers. Hardware purchases by customers
may vary significantly from period to period and may depend on the customers'
own purchasing power. Hardware revenues decreased to $1.3 million in the
first quarter of 2001 from $1.7 million in the same period of 2000. The
decrease in hardware revenue was due to an overall decrease in sales to new
customers.
Cost of Software
Cost of software consists of the cost of related third-party software
licenses sold by Catalyst and the amortization of capitalized software costs
and intangible assets. In the first quarter of 2001, cost of
software increased to $486,000 compared to $143,000 in the same period of
2000 due to amortization of capitalized software costs and intangible assets.
We anticipate that the cost of software may increase in the future as a
percentage of total software revenues due to the amortization of capitalized
software costs and intangible assets. We expect that the cost of third-party
software licenses may remain relatively constant as a percentage of related
third-party software revenues.
Cost of Services and PCS
Cost of services and PCS consists primarily of personnel and related costs
for the performance of software modifications, professional services, and
PCS.
The cost of services and PCS increased slightly to $4.3 million in the first
quarter of 2001 from $4.2 million for the first quarter of 2000. The cost of
services and PCS increased due to increased personnel costs. As a percentage
of services and PCS revenues, the cost of services and PCS increased to 72.7%
of related revenues for the first quarter of 2001 from 68.2% for the first
quarter of 2000. We believe that the cost of services and PCS as a percentage
of related revenues will depend on the quantity and value of new contracts
signed in 2001.
Cost of Hardware
Cost of hardware consists primarily of the cost of computer hardware, radio
frequency equipment, and printers sold by Catalyst on behalf of the equipment
manufacturers. We do not inventory, service, or discount hardware items, but
make them available to customers who desire a turnkey solution. Cost of
hardware in the first quarter of 2001 was $1.1 million compared to $1.4
million in the first quarter of 2000. The decrease in cost for the first
quarter of 2001 was attributable to the decrease in sales of hardware. We
anticipate that cost of hardware, as a percentage of hardware revenues,
should remain relatively constant.
Product Development
Product development costs are expenses associated with research and
development, including costs of engineering personnel and related development
expenses such as software tools, training, and documentation. Product
development costs as a percentage of total revenues for the first quarter of
2001 increased to 14.3% from 13.7% in the first quarter of 2000. Product
development costs were $1.2 million in the first quarter of 2001, compared to
$1.4 million in the first quarter of 2000. Product development costs
decreased compared to the first quarter of 2000 due to the capitalization of
certain software costs. We believe that product development costs may
increase in the future as more resources are devoted to existing and
anticipated new product offerings.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries; commissions; and
marketing, promotional, and travel expenses paid to or on behalf of sales and
marketing personnel. Sales and marketing expenses as a percentage of total
revenues for the first quarter of 2001 increased to 30.1% from 19.3% in the
first quarter of 2000. The increase in sales and marketing expense for the
current quarter was due primarily to rebuilding the sales and marketing
teams, increased marketing activities, and an overall increase in personnel
in those departments.
Sales and marketing expenses increased to $2.5 million in the first quarter
of 2001 from $2.0 million in the first quarter of 2000. We believe that
sales and marketing expenses may increase in the future due to the
anticipated expansion of the sales and marketing teams.
General and Administrative
General and administrative expenses consist primarily of the salaries of
administrative, executive, finance, human resources, and quality assurance
personnel. Excluding separation costs for the former CEO of $451,000,
general and administrative expenses as a percentage of total revenues were
33.2% for the first quarter of 2001 and 9.4% for the first quarter of 2000.
General and administrative expenses increased to $2.8 million in the first
quarter of 2001 from $966,000 in the first quarter of 2000, excluding
separation costs for the former CEO. General and administrative expenses
increased due primarily to additional reserves for potential uncollectible
accounts receivable and other potential liabilities. We anticipate that
general and administrative expenses may decrease in the future as a percentage
of total revenues.
Other Income and Expense
Other income and expense consists primarily of interest income and interest
expense and does not have a material impact on operating results. We expect
that other income and expense may decrease in the future as interest income
decreases due to lower invested cash balances and an anticipated decline in
interest rates.
Income Tax Expense
No federal or state tax expense was recorded for the quarters ended March 31,
2001 and 2000 due to our federal and state net operating loss position. No
deferred tax expense was recorded in the quarters ended March 31, 2001 and
2000 as we continue to have a substantial net operating loss carryforward.
Catalyst recorded a valuation allowance to reserve for the net deferred tax
assets.
Liquidity and Capital Resources
Net cash provided by operating activities was $566,000 for the three months
ended March 31, 2001, compared to $3.1 million during the three months ended
March 31, 2000. The decrease was due primarily to the net loss of $4.2
million at March 31, 2001.
Cash used in investing activities was $7.4 million during the three months
ended March 31, 2001 compared to $436,000 during the three months ended March
31, 2000. The increase was due primarily to the purchase of licensed
technology, Kewill.Net and Kewill.Ship.
Net cash provided by (used in) financing activities was ($49,000) at March
31, 2001 and $228,000 at March 31, 2000. The decrease was due primarily to
lower proceeds on the exercise of stock options.
As of March 31, 2001, we had $14.4 million in cash and cash equivalents and
working capital of $11.4 million. Cash and cash equivalents consist
primarily of investments in money market funds and commercial paper. In
addition, we have a $5.0 million line of credit (the "Revolving Credit
Facility") with Bank One, Milwaukee, Wisconsin. The Revolving Credit
Facility bears interest at the prime rate or LIBOR, subject to terms and
conditions found in the Revolving Credit Facility agreement, and expires in
October 2001. As of March 31, 2001, there were no amounts outstanding under
the Revolving Credit Facility, nor have there been any borrowings on the
Revolving Credit Facility since it was established.
Accounts receivable was $11.1 million as of March 31, 2001. This compares to
$10.3 million at December 31, 2000. The increase from December 31, 2000 was
due to lengthened collection cycles. At March 31, 2001, we had a reserve for
doubtful accounts of $1.75 million and believe we have adequately provided
for any risks, with respect to our accounts receivable, known or anticipated
at this time.
Longer term cash requirements, other than normal operating expenses, are
anticipated for the development of new software products, enhancement of
existing products, and the financing of anticipated growth. We believe that
our existing cash, cash equivalents, and available line of credit, along with
anticipated cash generated from operations, should be sufficient to satisfy
our cash requirements for at least the next 12 months.
We have never paid cash dividends on our common stock. Our policy has been
to retain cash from operations to provide funds for the operation and
expansion of our business. Accordingly, we do not anticipate paying cash
dividends in the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Catalyst does not believe it has material exposure to market risk with
respect to any of its investments as we do not use market rate sensitive
instruments for trading or other purposes. For purposes of the Consolidated
Statements of Cash Flows, we consider all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents consist principally of investments in money market funds and
commercial paper. The cost of these securities, which are considered as
"available for sale" for financial reporting purposes, approximates fair
value at both March 31, 2001 and 2000. There were no realized gains or
losses in the periods ended March 31, 2001 or 2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 8, 1999, a former customer (the Claimant) instituted arbitration
proceedings against the Company with the American Arbitration Association in
Milwaukee, Wisconsin. The Claimant is seeking to revoke its acceptance of
our software product and alleges that we breached our warranty obligations.
The Claimant seeks relief in the form of monetary damages totaling
approximately $1.9 million. We believe that the allegations of the Claimant
are without merit and intend to vigorously defend against them. The potential
outcome of this legal proceeding cannot be determined at this time.
The Company is involved in other various unresolved legal actions in the
ordinary course of its business. Although it is not possible to predict with
certainty the outcome of these unresolved legal actions or the range of
possible loss or recovery, the Company believes these unresolved legal
actions will not have a material effect on its financial position or results
of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws (1)
10.1 1993 Stock Option Plan, as amended, of Catalyst USA, Inc.* (1)
Number Description
- ------ -----------
10.2 1997 Director Stock Option Plan of Catalyst International, Inc.* (2)
10.3 2001 Stock Option Plan of Catalyst International, Inc.* (3)
10.4 Letter Agreement with Douglas B. Coder dated October 23, 1998* (4)
10.5 Employment Agreement with James G. Stowers dated October 23, 1998, as
amended* (4)
10.6 Subscription Agreement among SAP America, Inc., SAP
Aktiengesellschaft and Catalyst International, Inc. dated August 31,
1999 (5)
10.7 Commercial Guaranty dated September 17, 1999 (4)
10.8 Letter Agreement with Douglas B. Coder dated December 3, 1999* (4)
10.9 Letter Agreement with James G. Stowers dated May 30, 2000* (4)
10.10 Letter Agreement with Richard L. Gimbel dated June 19, 2000* (4)
10.11 Letter Agreement with Michael D. Pridavka dated October 13, 2000* (4)
10.12 Letter Agreement with Lynne B. Briggs dated December 1, 2000* (4)
10.13 Letter Agreement with David L. Harney dated December 1, 2000** (4)
10.14 Letter Agreement with Douglas J. Kennedy dated December 1, 2000* (4)
10.15 Letter Agreement with Sarah M. Oberhofer dated December 1, 2000* (4)
10.16 Letter Agreement with Daniel A. Trew dated December 1, 2000* (4)
10.17 Severance Agreement, Non-Competition Agreement and Mutual Release
with Sean P. McGowan dated April 2, 2001*
----------
* Represents a management contract or compensation plan.
(1) Incorporated by reference to Registration Statement 33-97522C on
Form SB-2.
(2) Incorporated by reference to Exhibit 4.1 of Registration Statement
33-97522C on Form S-8 dated September 26, 1997.
(3) Incorporated by reference to Appendix B of Proxy Statement dated
March 26, 2001.
(4) Incorporated by reference to exhibits of Annual Report on Form 10-
K for the period ending December 31, 2000.
(5) Incorporated by reference to Exhibit 4 of Form 8-K dated September
20, 1999.
Pursuant to the requirements of Rule 14a-3(b)(10) of the Securities Act of
1934, as amended, Catalyst will, upon request and upon payment of a
reasonable fee not to exceed the rate at which such copies are available from
the Securities and Exchange Commission, furnish copies to its shareholders of
any Exhibits in the Exhibit Listing.
(b) Reports on Form 8-K
On March 21, 2001, Catalyst filed a Current Report on Form 8-K with respect
to Item 5, for a March 14, 2001 event.
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.
CATALYST INTERNATIONAL, INC.
Dated: May 15, 2001 By: /s/ Douglas B. Coder
--------------------------
Douglas B. Coder
Chairman of the Board
Signing on behalf of the registrant and as
principal executive officer.
Dated: May 15, 2001 By: /s/ Charles A. Behrens
--------------------------
Charles A. Behrens
Interim Chief Financial Officer
Signing on behalf of the registrant and as
principal financial officer.
EXHIBIT 10.17
April 2, 2001
VIA HAND DELIVERY
Mr. Sean P. McGowan
132N 9800W Hawthorne Road
Mequon, WI 53097
Re: Severance Agreement, Non-Competition Agreement and Mutual Release
Dear Mr. McGowan:
This will confirm our agreement concerning the end of your employment
for and the end of your service as an officer and director of Catalyst
International, Inc. (the "Company"). Your last day of employment with the
Company was March 14, 2001 (the "Separation Date"). Effective on the
Separation Date, you will be deemed to have resigned as an employee, officer
and director of the Company.
1. In consideration of your undertakings set forth in Paragraph 2, below,
including without limitation, the covenants in Paragraphs 2(E), 2(F), 2(G)
and 2(H), below, you will receive the following payments and benefits within
the applicable time periods set forth below, unless required by applicable
law to be provided earlier:
(A) Whether or not you sign this agreement, the Company will pay you your
base salary through the Separation Date and for all of your unused vacation
which has been accrued as of the Separation Date. Payments made under this
Paragraph 1(A) will be subject to normal deductions for income and payroll
taxes.
(B) Within five (5) business days following the expiration of the
Revocation Period described in Paragraph 3(E), below, the Company will pay
you $481,500 in a lump sum as severance pay. This severance payment
represents eighteen (18) months of your base salary and will be subject to
applicable withholding and employment taxes. You agree that for unemployment
compensation purposes, such payment will be allocated to the workweeks
between March 18, 2001 and September 14, 2002, and that you will be
ineligible for and will not seek unemployment compensation benefits during
that period.
(C) The Company will provide you and your family with the right to
participate, in the Company's group health insurance plan in accordance with
the mandates of the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"). Current COBRA coverage for you and your family costs a
total of $540.39 per month, and changes effective March 1 of each year. If
you elect COBRA coverage in a timely manner, sign and return this agreement
as
specified in Paragraph 3(A), below, and do not exercise your revocation
rights (described in Paragraph 3(E), below), the Company will pay for COBRA
coverage for you and your family until the earlier of (i) March 30, 2002 or
(ii) the date that you obtain other health insurance coverage. Furthermore,
within ten (10) calendar days of your obtaining other health insurance
coverage, you agree to inform the Company of such fact in writing.
(D) If you participated in the Company's 401(k) Plan (the "Plan"), you
will retain your vested rights as of the Separation Date in the Plan and are
eligible to receive all funds in your account under the terms of the Plan.
You will cease to have any right to make any further contributions under the
Plan, effective on the Separation Date.
(E) Within five (5) business days of the end of the Restricted Period (as
defined in Paragraph 2(E),below) and provided that you have not breached any
of your undertakings in Paragraphs 2(E), 2(F), 2(G) and 2(H), below, the
Company will make on your behalf, in consideration for your undertakings in
Paragraph 2, below, including your covenants in Paragraph 2(E), 2(F), 2(G)
and 2(H), below, a payment up to an amount not to exceed $600,000 equal in
amount to the outstanding principal amount then due under the promissory note
dated September 17, 1999 (the "Note") from you to Bank One, Wisconsin (the
"Bank"), which you represent is currently $600,000. Such payment shall be
made directly to Bank One in exchange for the receipt by the Company of the
cancelled Note and the cancellation of the Company's Guarantee of the Note
(the "Company Guaranty") and will be subject to any applicable withholding
and employment taxes. In addition, the following provisions will govern the
Note:
(i) So long as the Note is outstanding and provided that you have not
breached any of your undertakings in Paragraphs 2(E), 2(F), 2(G) and 2(H),
below, the Company will pay to you in consideration for your covenants in
Paragraphs 2(E), 2(F), 2(G) and 2(H), below, an amount not to exceed $4,000
per month, which you will use to pay the interest due on the Note. The
Company shall pay such amount via a direct deposit into an account in your
name at the Bank. The Company will report such payments as income to you and
such payments shall be subject to any applicable withholding and employment
taxes. The Bank will have the right to debit your account in the amount of
the interest due on the Note.
(ii) To the extent that you breach your obligations under Paragraphs
2(E), 2(F), 2(G), 2(H) or 2(K), and the Company is obligated to pay any
amounts under the Company Guaranty as a result of your failure to pay all
amounts due under the Note, you will personally reimburse the Company in full
for any and all such amounts and you agree that the
Company may exercise all remedies to enforce this obligation, including
without limitation, obtaining equitable relief. The Company's payment of the
Note under this Paragraph 1(E) shall not be deemed a payment under the
Company Guaranty.
(F) Within five (5) business days of the end of the Restricted Period and
provided that you have not breached any of your undertakings in Paragraphs
2(E), 2(F), 2(G) and 2(H), below, the Company will pay on your behalf to the
appropriate taxing authorities, in consideration for your covenants in
Paragraphs 2(E), 2(F), 2(G) and 2(H), below, an aggregate amount not to
exceed $490,000 which is intended to reimburse you for the federal and state
income taxes (including any FICA/self-employment taxes) incurred by you as a
result of the payments in Paragraph 1(E), above, and this Paragraph 1(F).
Such payment will be reported as income to you and will be subject to any
applicable withholding and employment taxes and will be calculated based upon
the highest applicable marginal tax rates applicable to you at the time of
such payment and will include additional federal income taxes incurred by you
pursuant to Section 68 of the Internal Revenue Code of 1986, as amended. In
other words, if your aggregate tax payments as a result of the payment in
Paragraph 1(E), above, and this Paragraph 1(F), are less than $490,000, then
the Company will pay on your behalf such lesser amount. If your aggregate
tax payments as a result of the payments in Paragraph 1(E), above, and this
Paragraph 1(F) exceed $490,000, the Company will pay on your behalf $490,000
and you will be responsible for any additional tax payment. The Company will
provide to you proof of payment to the appropriate taxing authorities under
this Paragraph 1(F).
(G) The Company hereby releases you from any claims arising out of or
related in any way to your employment by it and all other events, occurrences
and transactions through and including the date its representative signs this
agreement, other than claims which arise out of this agreement or your breach
thereof. This release of claims applies whether the claims are known,
unknown, anticipated or unanticipated by the Company. The Company further
waives its rights to any remedies or benefits related to the claims it
releases under this Paragraph 1(G).
2. Your Undertakings. In exchange for the benefits provided to you under
Paragraph 1, above, you agree as follows:
(A) You hereby, on behalf of yourself, and your heirs, successors and
assigns, release the Company and its past and present officers, directors,
stockholders and employees, from any claims arising through and including the
date you sign this agreement including, but not limited to, all claims
arising out of your employment with the Company and the termination of that
employment
relationship other than claims which arise out of this agreement or the
Company's breach thereof. This release of claims includes any claims,
whether they are presently known or unknown, or anticipated or unanticipated
by you. Your acceptance of this proposal also will release any and all
claims under the federal Age Discrimination in Employment Act. You should
not construe this reference to age discrimination claims as in any way
limiting the general and comprehensive nature of the release of claims
provided under this Paragraph 2(A). This release does not waive any vested
benefits under any Company retirement plan or benefits under the Wisconsin
Worker's Compensation Act. You agree to give up any benefit conferred on you
by any order or judgment issued in connection with any legal proceeding
against the Company regarding any claim released in this Paragraph 2(A).
(B) You agree to return to the Company all of its property and all of the
property of its present and former officers, directors, stockholders and
employees which you possess or over which you have direct or indirect
control, including, but not limited to, all monies, records, files, credit
cards, office keys, cellular telephones, computers and electronically encoded
information such as computer disks, etc., and all copies of such Company
property.
(C) You further agree that you will not disclose, directly or indirectly,
the existence or terms of our agreement concerning these matters to any
third-party; provided, however, that following your obtaining a promise of
confidentiality for the benefit of the Company from your tax preparer,
accountant, attorney and spouse, you may disclose the terms of this agreement
to such of these individuals who has made such a promise of confidentiality
and provided, further, that to the extent that the Company discloses any
terms or conditions hereof, you may disclose such terms and conditions. This
provision shall not prevent you from disclosing such matters in testifying in
any hearing, trial or other legal proceeding where you are required to do so.
(D) You hereby surrender to the Company all options held by you to
purchase shares of the Company's common stock, agree not to exercise any of
such options and waive all rights with respect thereto. You further agree
that all rights you have under any of the agreements governing such
surrendered options are hereby terminated.
(E) You hereby covenant and agree that during the period commencing on
the Separation Date and ending on the eighteen (18) month anniversary of the
Separation Date (the "Restricted Period"), you will not directly or
indirectly use or disclose any Confidential Information. For purposes
hereof, "Confidential Information" shall mean all non-Trade Secret
Information or proprietary information of the Company which has value to the
Company and which is not
known to the public or the Company's competitors, generally, including but
not limited to, new products, customer lists, pricing policies, employment
records and policies, operational methods, marketing plans and strategies,
product development techniques and plans, business acquisition plans, methods
of manufacture, technical processes, designs, inventions, research programs
and results, and source code. Furthermore, you will not directly or
indirectly use or disclose any Trade Secret or Trade Secret Information of
the Company unless such information ceases to be deemed a Trade Secret or
Trade Secret Information by means of one of the exceptions specified below.
For purposes hereof, the term "Trade Secret" or "Trade Secret Information"
shall have that meaning set forth under applicable law regarding trade
secrets and their protection. Trade Secret Information specifically includes
all Company-created computer source code and any Confidential Information
received from a third-party with whom the Company has a binding agreement
restricting disclosure of such Confidential Information. Notwithstanding the
foregoing, the terms Trade Secret Information and Confidential Information
shall not include, and the obligations set forth in this Paragraph 2(E) shall
not apply to, any information which (i) is or becomes generally available to
the public through no act or omission of you; (ii) is obtained by you in good
faith from a third-party who discloses such information to you on a
non-confidential basis without violating any obligation of confidentiality or
secrecy relating to the information disclosed; or (iii) is independently
developed by you outside of the scope of your employment with the Company
without use of Confidential Information, Trade Secrets or Trade Secret
Information.
(F) You further agree that during the Restricted Period, you will not
accept employment, in any managerial or decision-making capacity or in any
position involving the selling of products or services, with, or directly or
indirectly consult with or provide advice or assistance in the areas of
management, operations or sales to, any of the following companies, which you
and the Company agree compete with the Company: in the continents of North
America or Europe: EXE, Highjump, HK Systems, Inc., (also known as IRISTA),
Interbiz, LIS, Manhattan (including its Intrepa division), Marc, McHugh
Freeman, Optum, Provia, Retek, SAP, and Uniteq.
(G) You further agree that during the Restricted Period, you will not,
directly or indirectly, solicit business from any Restricted Customer (as
defined below) in any manner which competes with products or services offered
by the Company, or directly or indirectly divert or attempt to divert any
Restricted Customer's business from the Company. For purposes hereof, a
"Restricted Customer" is any individual or entity for whom or for which the
Company provided products or services during the twenty-four (24) months
preceding the Separation Date and with whom or with which you had direct
contact during the twenty-four (24) months preceding the Separation Date.
(H) You further agree that during the Restricted Period, you will not
directly or indirectly (i) encourage any employee of the Company to terminate
his or her employment with the Company or (ii) solicit such an individual for
employment outside of the Company.
(I) You hereby agree that the nature of the Company's business and the
nature and scope of the restrictions set forth in Paragraphs 2(E), 2(F), 2(G)
and 2(H), above, are appropriate, necessary and reasonable for the protection
of the Company's business, goodwill and property rights. You further
acknowledge and agree that the restrictions imposed therein will not prevent
you from earning a living. You further acknowledge and agree that the
Company may, at its sole discretion, disclose the covenants in Paragraphs
2(E), 2(F), 2(G) and 2(H), above, to any of your prospective or future
employers and may send, or otherwise make such provisions hereof known to,
any such prospective or future employers. You further agree that each of
your covenants in Paragraphs 2(E), 2(F), 2(G) and 2(H) is independent and
made separately and that the invalidity of any of such covenants shall not
affect the validity of any of the other covenants.
(J) You hereby further agree to submit your written resignation as a
director of the Company, effective on the Separation Date.
(K) You agree to continue to pay all interest due on the Note which is
not paid under Paragraph 1(E)(i), above, and to execute a Promissory Note
Modification Agreement, in the form attached hereto as Exhibit A.
3. Acceptance and Revocation Procedures. The Company wishes to ensure
that you voluntarily agree to the terms contained in this proposal and do so
only after you fully understand them. Accordingly, the following procedures
shall apply:
(A) You agree and acknowledge that you have read this agreement,
understand its contents, and may agree to the terms of this document by
signing and dating it and returning the signed and dated document to the
Company (addressed to Mr. Douglas B. Coder, Chairman, Catalyst International,
Inc., 8989 North Deerwood Drive, Milwaukee, Wisconsin 53223, and marked
"Personal and Confidential") so that it is received by the Company either by
hand delivery or United States certified mail on or before 5:00 p.m., Central
time, on the date which is twenty-one (21) days after you receive this
agreement. The sooner you sign and return this agreement, the sooner you
will receive the benefits described in Paragraph 1, above.
(B) You agree and acknowledge that you have been advised by the Company
to consult with an attorney prior to signing this agreement.
(C) You agree and acknowledge that this agreement provides you with
economic benefits from the Company which, in their totality, are greater than
those to which you otherwise would be entitled.
(D) You understand that this agreement, at Paragraph 2(A), above,
includes a final general release, including a release of all claims under the
Age Discrimination in Employment Act.
(E) You understand that you have seven (7) days after signing this
agreement within which to revoke your acceptance of it (the "Revocation
Period"). Such revocation will not be effective unless written notice of the
revocation is received by the Company either by hand delivery or United
States certified mail (addressed to Mr. Douglas B. Coder, Chairman, Catalyst
International, Inc., 8989 North Deerwood Drive, Milwaukee, Wisconsin 53223,
and marked "Personal and Confidential") by the tenth (10th) calendar day
following the date you signed this document.
(F) This document will not be binding or enforceable unless you have
signed and delivered this document as provided in Paragraph 3(A), above, and
have chosen not to exercise your revocation rights, as described in Paragraph
3(E), above. If you give timely notice of your intention to revoke your
acceptance of the terms set forth in this document, this agreement shall
become null and void, and all rights and claims of the parties which would
have existed, but for the acceptance of this document's terms, shall be
restored.
(G) You represent and warrant to the Company that, in the event you
choose to accept the terms of this proposal by signing this agreement, the
date and time appearing above your name on the last page of this document
shall be the actual date and time on which you have signed the agreement.
4. Miscellaneous. Should you accept the terms of the Company's proposal,
its terms will be governed by the following:
(A) This document constitutes the complete understanding between you and
the Company concerning all matters affecting your employment with the Company
and the termination thereof. If you accept this proposal, this document
supersedes all prior agreements, understandings and practices concerning such
matters, including, but not limited to, any Company personnel documents,
handbooks, policies and any prior customs or practices of the Company and
including, without limitation, the letter of October 23, 1998, between you
and the Company and the Non-Qualified Stock Option Agreements between you and
the Company dated December 6, 1996, March 12, 1997, March 12, 1997, April 28,
1997, April 9, 1998, December 3, 1999 and December 1, 2000, respectively.
(B) Nothing in the releases contained in this agreement should be
construed as an admission of wrongdoing or liability on the part of either
the Company or you. Both of us deny any liability to the other. Such
provisions are included merely to wrap up all loose ends between us.
(C) This document and its interpretation shall be governed and construed
in accordance with the laws of the State of Wisconsin and shall be binding
upon the parties hereto and their respective successors and assigns.
(D) In the event that you breach any provision of this agreement, you
agree that the Company may suspend all additional payments under this
agreement, recover any damages suffered as a result of such breach and
recover from you any reasonable attorneys' fees or costs it incurs as a
result of your breach. If you are successful in such action, then the
Company will pay to you any reasonable attorneys' fees or costs you incur in
a defense of such action or in enforcing your rights hereunder. In addition,
you agree that the Company may seek injunctive or other equitable relief as a
result of a breach by you of any provisions of this agreement, including
without limitation, the provisions of subparagraphs 2(E), 2(F), 2(G) and
2(H), above.
(E) If there is any dispute between you and the Company concerning the
terms and conditions of this agreement or any interpretation thereof, you and
the Company agree to submit such dispute to binding arbitration in accordance
with the American Arbitration Association Commercial Arbitration Rules.
Arbitration shall be held in Milwaukee, Wisconsin upon request of either
party in writing for arbitration in accordance with this Paragraph 4(E). The
arbitration shall be held in front of three (3) arbitrators and each of you
and the Company will have the right to appoint one (1) arbitrator. The two
(2) arbitrators so selected shall then select a third arbitrator and all
decisions thereafter shall be made by a majority of such three (3) selected
arbitrators. Unless otherwise agreed between you and the Company, discovery
shall be permitted in such arbitration provided that all discovery is
completed within ninety (90) days of the filing of the demand for
arbitration. Any award rendered in the arbitration shall be limited to those
remedies available to any court of competent jurisdiction. The award
rendered shall be final and binding upon the parties and judgment therein may
be entered in any court of competent jurisdiction. Nothing in this
subparagraph 4(E) shall prevent the Company from seeking injunctive or other
equitable relief from a court of competent jurisdiction to enforce a breach
by you of your covenants hereunder.
(F) Each of you and the Company will, during the Restricted Period,
refrain from making any statements which could reasonably be expected to
become public and to damage the reputation (financial or otherwise) of the
other.
(G) The Company may rely on the advice of its counsel and accountants as
to the appropriate tax treatment of the payments due to you hereunder.
If the foregoing is acceptable to you, please sign and date this
document below and return it as provided by its terms.
Very truly yours,
CATALYST INTERNATIONAL, INC.
By: /s/ Douglas B. Coder
---------------------------------
Douglas B. Coder, Chairman
I agree with and accept the terms
contained in this agreement and agree
to be bound by them.
Dated this 3rd day of April, 2001.
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Time: 3:30 Central
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/s/ Sean P. McGowan
- ---------------------------------
Sean P. McGowan