MDIS tries to defuse contract booby-trap

THE abrupt departure of Jerry Causley as chief executive of McDonnell Information Systems in August has triggered a booby-trap clause in a contract with the company's main software supplier.

If re-negotiations between the troubled computer services company and California-based Garg Data International fail, the British company will be forced to sell the exclusive rights to its new PRO-IV Financials package back to the developer for pounds 1, including VAT.

The revelation at the weekend is the latest piece of bad news to emerge from MDIS, which was floated last year at 260p and has since issued no less than three profit warnings that have taken the share price as low as 49p. The stock closed last week at 75.5p.

Mr Causley described PRO-IV Financials in the company's 1994 annual report as a comprehensive set of accounting systems that analyse complex management information.

Since it acquired the rights to the software package just under a year ago, MDIS has already grossed almost pounds 1m on two sales, to the Lincolnshire Police and MFI. But the contract gives GDI the right to buy back the exclusive world rights if Mr Causley "ceases for any reason to be the chief executive of MDIS".

A spokesman for the company at first agreed that the clause was odd, but Richard Barfield, its finance director, later insisted that it was not unusual.

Mr Barfield also complained about an article in the trade magazine Computing: The IT Weekly, which described the condition as a poison pill. He said the program was "not one of our major products".

The deal, an asset purchase agreement, was signed by Mr Causley and Chris Granville, president of Garg Data Systems, the precursor to GDI, on 27 October 1994, while Ian Hay Davidson, the chairman of MDIS, was too ill to oversee the company's activities. Although the contract was shown to the MDIS lawyers, no alarm bells were sounded.

Sushil Garg, founder of GDI, said from his home in Newport Beach, California that the clause was inserted as a way to paper over a disagreement about minimum royalty payments. Although he trusted Mr Causley, his long-time business associate, to promote the product aggressively, he feared that a future management might leave the program - which cost GDI millions of pounds to develop - on the shelf.

The contract gives GDI three months to exercise its option to re-purchase the software following notification of Mr Causley's resignation from his pounds 180,000-a-year job. However, both sides said negotiations were proceeding smoothly and that agreement was likely. GDI has several other contracts with MDIS, none of which have such clauses.

A settlement could create its own minefield, however. While Mr Garg would not say what was being discussed, he did point out that the alternative to the type of agreement he signed with Mr Causley would be one under which GDI was guaranteed minimum licence payments.