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 September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Transition period from ______ to ______
Commission File Number 0-27280
META Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0971675
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
208 Harbor Drive, Stamford, Connecticut 06912-0061
------------------------------------------------------------
(Address of principal executive offices, including Zip Code)
(203) 973-6700
--------------
(Registrant's telephone number, including area code)
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: The number of shares of the
issuer's Common Stock, $.01 par value per share, outstanding as of October 30,
1998 was 11,586,019.
Total Number of Pages: 51
Exhibit Index is on Page 20
<PAGE> 2
META Group, Inc.
INDEX
Page
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets:
September 30, 1998 (unaudited) and December 31, 1997 3
Statements of Income (unaudited):
Three months ended September 30, 1998 and 1997 4
Nine months ended September 30, 1998 and 1997
Statements of Cash Flows (unaudited):
Nine months ended September 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
META Group, Inc.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
- - --------------------------------------------------------------------------------
<S> <C> <C>
Assets 1998 1997
--------- ---------
Current assets: (unaudited)
Cash and cash equivalents $13,281 $12,910
Marketable securities 20,530 23,700
Accounts receivable, net 25,504 26,302
Other current assets 4,853 3,967
--------- ---------
Total current assets 64,168 66,879
Marketable securities 12,283 4,046
Furniture and equipment, net 3,684 2,765
Deferred tax asset 3,844 7,759
Other assets 10,005 8,004
-------- ---------
Total assets $93,984 $89,453
======== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 4,178 $ 4,917
Deferred revenues 27,021 29,136
--------- ---------
Total current liabilities 31,199 34,053
--------- ---------
Stockholders' equity:
Preferred stock -- --
Common stock 120 118
Paid-in capital 51,355 49,943
Retained earnings 11,630 5,659
Treasury stock, at cost (320) (320)
--------- ---------
Total stockholders' equity 62,785 55,400
--------- ---------
Total liabilities and stockholder's equity $93,984 $89,453
========= =========
See notes to financial statements.
</TABLE>
<PAGE> 4
META Group, Inc.
STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
------- ------- ------- -------
Revenues:
Continuous services $14,126 $10,713 $40,445 $29,731
Other, principally consulting and
publications 4,328 2,705 9,611 6,236
------- ------- -------- -------
Total revenues 18,454 13,418 50,056 35,967
------- ------- ------- -------
Operating expenses:
Cost of services and fulfillment 8,675 6,344 24,070 17,714
Selling and marketing 4,270 3,469 11,766 8,580
General and administrative 1,764 1,279 4,721 3,636
Depreciation and amortization 458 391 1,358 1,090
------- ------- ------- -------
Total operating expenses 15,167 11,483 41,915 31,020
------- ------- ------- -------
Operating income 3,287 1,935 8,141 4,947
Interest income 681 571 1,963 1,537
------- ------- ------- -------
Income before provision for income taxes 3,968 2,506 10,104 6,484
Provision for income taxes 1,612 936 4,133 2,609
------- ------- ------- -------
Net income $ 2,356 $ 1,570 $ 5,971 $ 3,875
======= ======= ======= =======
Net income per diluted common share $ .19 $ .13 $ .48 $ .33
======= ======= ======= =======
Weighted average number of diluted common
shares outstanding 12,717 12,081 12,539 11,905
======= ======= ======= =======
Net income per basic common share $ .21 $ .14 $ .53 $ .36
======= ======= ======= =======
Weighted average number of basic common
shares outstanding 11,350 11,043 11,254 10,735
======= ======= ======= =======
See notes to financial statements.
</TABLE>
<PAGE>5
META Group, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
- - --------------------------------------------------------------------------------
1998 1997
------- -------
<S> <C> <C>
Operating activities:
Net income $ 5,971 $ 3,875
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,358 1,090
Deferred income taxes 3,915 2,470
Changes in assets and liabilities:
Accounts receivable 798 933
Other current assets (886) (184)
Other assets (809) 13
Accounts payable and accrued expenses (739) (1,660)
Deferred revenues (2,115) (289)
------- -------
Net cash provided by operating activities 7,493 6,248
------- -------
Investing activities:
Capital expenditures (2,277) (1,558)
Investments in marketable securities (5,067) (9,557)
Investments and advances (1,192) (698)
------- -------
Net cash used in investing activities (8,536) (11,813)
------- -------
Financing activities:
Proceeds from exercise of stock options 1,246 292
Proceeds from employee stock purchase plan 168 148
------- -------
Net cash provided by financing activities 1,414 440
------- -------
Net increase (decrease) in cash and cash equivalents 371 (5,125)
Cash and cash equivalents, beginning of period 12,910 19,335
------- -------
Cash and cash equivalents, end of period $13,281 $14,210
======= =======
See notes to financial statements.
</TABLE>
<PAGE>6
META Group, Inc.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Interim Financial Statements
- - -------------------------------------
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Accordingly,
certain information and footnote disclosures required for complete financial
statements are not included herein. It is recommended that these financial
statements be read in conjunction with the financial statements and related
notes of META Group, Inc. (the "Company") as reported on the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of financial position, results of
operations and cash flows at the dates and for the periods presented have been
included. Results for interim periods are not necessarily indicative of results
for the entire year.
Note 2 - Income Taxes
- - ---------------------
During the quarter and nine months ended September 30, 1998, the Company
recorded a tax provision of $1.6 million and $4.1 million, respectively,
reflecting an effective tax rate of 41%. The Company was not required to pay
federal income tax due to the utilization of net operating loss carryforwards.
The total deferred tax asset, including the current portion (included in "Other
current assets"), decreased to $5.3 million at September 30, 1998 from $9.2
million at December 31, 1997 as the Company utilized its net operating loss
carryforwards to offset taxable income.
Note 3 - Stock Dividend
- - -----------------------
On April 27, 1998, the Company's Board of Directors authorized a
three-for-two stock split of the Company's common stock, which was effected in
the form of a 50% stock dividend paid on June 11, 1998 to shareholders of record
on May 22, 1998. All share and per share amounts have been retroactively
restated for all periods presented to reflect the stock split. Accordingly,
approximately $40,000 was transferred from paid-in capital to common stock.
Note 4 - Related Party Transaction
- - ----------------------------------
On July 31, 1998, the Board of Directors approved a Long-Term Incentive
Compensation Plan (the "Plan") with a significant retention feature for key
management employees. The Plan will be funded with potential returns from a
commitment by the Company to invest up to $4.0 million in a venture capital fund
managed by JMI Associates, which will co-invest with other JMI venture funds. In
addition, a JMI affiliate concurrently became a client of the Company. Harry
Gruner, a director of the Company, is a managing member of the general partner
of JMI Equity Fund III, L.P.
<PAGE> 7
Note 5 - Acquisition
- - ---------------------
During September 30, 1998, the Company made a $1.0 million minority
investment in Client/Server Labs, Inc., a supplier of performance and functional
testing services.
Note 6 - Subsequent Event - Acquisition
- - ---------------------------------------
On October 20, 1998, the Company completed the acquisition of all of the
outstanding capital stock of The Sentry Group, Inc. ("Sentry"), an IT
consulting company, for an initial payment of 195,066 shares of the Company's
common stock and a contingent payment of up to $7.0 million in common stock or
cash (at the Company's option) in the event certain financial targets are met by
Sentry in the 1999 calendar year. In addition, the Company issued to Sentry
stockholders warrants to purchase up to 200,000 shares of the Company's common
stock at $30.00 per share, 125,000 shares of which are currently exercisable and
75,000 shares of which are contingently exercisable upon Sentry achieving
certain financial targets in calendar year 1999. This acquisition will be
accounted for as a purchase.
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and other
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below under "Certain Factors That May Affect Future Results" and in the
Company's other filings with the Securities and Exchange Commission, principally
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Overview
META Group is an independent market assessment company providing
research and analysis of developments, trends and organizational issues relating
to the computer hardware, software, communications, and related information
technology ("IT") industries to IT users and vendors. IT user organizations
utilize META Group's research, analysis and recommendations to develop and
employ cost-effective strategies for selecting and implementing timely IT
solutions and for aligning these solutions with business priorities. IT vendors
use META Group's services for help in product positioning, marketing and market
planning, as well as for internal IT decision making.
Continuous Services revenues are derived from annually renewable
contracts, generally payable by clients in advance, and comprised approximately
77% and 80% of the Company's total revenues for the quarters ended September 30,
1998 and 1997, respectively. Billings attributable to the Company's Continuous
Services are largely recorded as deferred revenues and then recognized as earned
over the contract term. The Company's other revenues are derived from
non-renewable project consulting, benchmarking, conferences, speaker engagement
fees and publications. The Company's consulting clients typically consist of
Continuous Services clients seeking additional advice tailored to their
individual IT requirements.
One measure of the volume of the Company's business is its annualized
"Contract Value," which the Company calculates as the aggregate annualized value
of subscription revenue recognized from all Continuous Services contracts in
effect at a given point in time, without regard to the remaining duration of
such contracts. While Contract Value is not necessarily indicative of future
revenues, Contract Value has grown, sequentially and year-over-year, every
quarter since the Company's inception and increased 32% to $56.5 million at
September 30, 1998 from $42.9 million at September 30, 1997. At September 30,
1998, the Company had 3,740 Continuous Services subscribers in approximately
1,620 client organizations worldwide, as compared to 3,160 subscribers in 1,325
organizations at September 30, 1997.
Continuous Services revenues attributable to international clients are
billed and collected by the Company's international sales representative
organizations. The Company realizes revenues from the international sales
representative organizations at rates of 40% to 60% of amounts billed to those
clients.
The Company's operating expenses consist of cost of services and
fulfillment, selling and marketing expenses and general and administrative
expenses. Cost of services and fulfillment represents the costs associated with
production and delivery of the Company's products and services and includes the
costs of research, development and preparation of periodic reports, analyst
telephone consultations, executive briefings and conferences, publications,
consulting services, new product development, and all associated editorial and
<PAGE> 9
support services. Selling and marketing expenses include the costs of salaries,
commissions and related benefits for such personnel, travel and promotion.
General and administrative expenses include the costs of the finance and
accounting departments, legal, human resources, corporate IT and other
administrative functions of the Company.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
TOTAL REVENUES Total revenues increased 38% to $18.5 million in the quarter
ended September 30, 1998 from $13.4 million in the quarter ended September 30,
1997. Revenues from Continuous Services increased 32% to $14.1 million in the
quarter ended September 30, 1998 from $10.7 million in the quarter ended
September 30, 1997. The increases in revenues from Continuous Services were
primarily due to the launch of three new continuous services in early 1997 and
continued expansion of the Company's domestic sales force and international
business. The Company increased Contract Value 32% to $56.5 million at September
30, 1998 from $42.9 million at September 30, 1997. The Company grew its
subscriber client base 18% to 3,740 Continuous Service clients at September 30,
1998 from 3,160 clients at September 30, 1997.
Other revenues, consisting principally of revenues from consulting and
publications, increased 60% to $4.3 million in the quarter ended September 30,
1998 from $2.7 million in the quarter ended September 30, 1997, and increased as
a percentage of total revenues to 23% from 20%. The increase in Other Revenues
was primarily attributable to the increase in analyst consulting and speaking
fees, the expansion of META Group Consulting activities, and the growth of the
Company's publications division. The Company currently expects Other Revenues to
continue to grow at a faster rate than Continuous Services revenue, principally
due to a shift in market demand toward more targeted, focused and definitive
research, continued expansion of existing consulting practices, the hiring of
new consulting professionals, the Sentry acquisition, and the expected growth of
the publications business.
Continuous Services revenues attributable to international clients
increased 26% in the quarter ended September 30, 1998 from the quarter ended
September 30, 1997, and increased as a percentage of Continuous Services revenue
to 15% from 13%. The increase was due principally to continued expansion of the
Company's international business, the successful international launch of the
Enterprise Architecture Strategies ("EAS") service and, to a lesser extent, the
expansion in the total number of sales representative organizations. The Company
has independent sales representation in 36 countries as of September 30, 1998,
compared to 29 countries as of September 30, 1997. The Company expects that
international revenues will continue to account for a significant portion of its
total revenues.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased 37%
to $8.7 million in the quarter ended September 30, 1998 from $6.3 million in the
quarter ended September 30, 1997 principally due to increased staffing for
analyst, consultant and fulfillment positions and related compensation expense.
Cost of services and fulfillment remained constant as a percentage of total
revenues at 47%. While the Company anticipates continuing increases in the costs
of services and fulfillment, it expects that such expenses as a percentage of
sales will increase slightly.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased 23% to
$4.3 million in the quarter ended September 30, 1998 from $3.5 million in the
quarter ended September 30, 1997 and decreased as a percentage of total revenues
to 23% from 26%. The increase in expenses was principally due to increased
<PAGE> 10
sales-related compensation expense associated with domestic continuous service
revenues and the expansion of the direct marketing sales channel for
publications. The decrease in expense as a percentage of sales was principally
attributable to a decrease in the rate of domestic sales hiring, and a
decrease in marketing expenditures and costs relating to international market
development. While the Company anticipates continuing increases in the amount of
selling and marketing expenses, it expects that such expenses as a percentage of
total revenues will remain approximately the same.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 38% to $1.8 million in the quarter ended September 30, 1998 from $1.3
million in the quarter ended September 30, 1997 and remained constant as a
percentage of total revenues at 10%. The increase in expenses was principally
due to increased payroll, benefits, facility and recruiting costs, all
associated with increased headcount during the quarter. The Company anticipates
continuing increases over the prior year in the amount of general and
administrative expenses and expects such expenses as a percentage of total
revenues will remain approximately the same.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased
17% to $458,000 in the quarter ended September 30, 1998 from $391,000 in the
quarter ended September 30, 1997. The increase in depreciation and amortization
expense was principally due to purchases of computer equipment, leasehold
improvements, and office furniture required to support business growth.
INTEREST INCOME Interest income increased 19% to $681,000 in the quarter ended
September 30, 1998 from $571,000 in the quarter ended September 30, 1997 due to
an increase in the Company's cash and marketable securities balances, which
resulted from a positive cash flow from operations during 1997 and the first
nine months of 1998. In addition, the Company benefited from the reinvestment of
a portion of its cash into short-term, higher yield marketable securities. (See
"Liquidity and Capital Resources" )
PROVISION FOR INCOME TAXES Provision for income taxes of $1.6 million was
recorded for the quarter ended September 30, 1998, as compared to a provision of
$936,000 recorded for the quarter ended September 30, 1997, reflecting an
effective tax rate of 41% and 37%, respectively. During the third quarter
of 1997, the Company lowered its effective tax rate to reflect a shift in
business into states with lower income tax rates. The Company was not
required to pay federal income tax in either quarter due to the utilization of
net operating loss carryforwards. Total deferred tax asset, including the
current portion, decreased to $5.3 million at September 30, 1998 from $9.2
million at December 31, 1997 as a result of utilizing existing net operating
loss carryforwards to offset taxable income.
EARNINGS PER SHARE Diluted EPS increased to $.19 per common share for the third
quarter of 1998 as compared to $.13 for the third quarter of 1997 as a result of
increased net income. For the quarter ended September 30, 1998, the Company's
weighted average number of diluted common shares outstanding were approximately
12,717,000 shares.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
TOTAL REVENUES Total revenues increased 39% to $50.1 million in the nine months
ended September 30, 1998 from $36.0 million in the nine months ended September
30, 1997. Revenues from Continuous Services increased 36% to $40.4 million in
the nine months ended September 30, 1998 from $29.7 million in the nine months
ended September 30, 1997. The increases in total revenues and revenues from
Continuous Services were primarily due to the launch of three new continuous
services in early 1997, continued expansion of the Company's domestic sales
force and the growth in international Continuous Services.
<PAGE> 11
Other Revenues increased 54% to $9.6 million in the nine months ended
September 30, 1998 from $6.2 million in the nine months ended September 30,
1997, and increased as a percentage of total revenues to 19% from 17%. The
increase in Other Revenues was primarily attributable to an increase in analyst
consulting and speaking fees, the expansion of META Group Consulting activities,
and the growth of the company's publications.
Continuous Services Revenues attributable to international clients
increased 47% in the nine months ended September 30, 1998 from the nine months
ended September 30, 1997, and increased as a percentage of Continuous Services
revenues to 14% from 13%. The increase was due principally to continued
expansion of the Company's international business, the successful international
launch of the EAS service and the expansion in the total number of sales
representative organizations.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased 36%
to $24.1 million in the nine months ended September 30, 1998 from $17.7 million
in the nine months ended September 30, 1997 principally due to increased
staffing for analyst and fulfillment positions and related compensation expense.
Cost of services and fulfillment decreased as a percentage of total revenues to
48% from 49%, primarily due to lower relative payroll and related costs in the
fulfillment and events departments.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased 37% to
$11.8 million in the nine months ended September 30, 1998 from $8.6 million in
the nine months ended September 30, 1997 and remained constant as a percentage
of total revenues at 24%. The increase in expenses was principally due to
increased sales-related compensation expense associated with increased domestic
continuous services revenues and the expansion of the direct marketing sales
channel for publications, as well as increased international market development
and conference promotion expenses, offset in part by a decrease in domestic
marketing expenditures, particularly with respect to the marketing of the three
new Continuous Services launched in the first quarter of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 30% to $4.7 million in the nine months ended September 30, 1998 from
$3.6 million in the nine months ended September 30, 1997 and decreased as a
percentage of total revenues to 9% from 10%. The increase in expenses was
principally due to increased benefits costs, facilities expense, professional
development, recruiting and legal expenses.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased
25% to $1.4 million in the nine months ended September 30, 1998 from $1.1
million in the nine months ended September 30, 1997. The increase in
depreciation and amortization expense was principally due to purchases of
computer equipment and office furniture required to support business growth.
INTEREST INCOME Interest income increased 28% to $2.0 million in the nine months
ended September 30, 1998 from $1.5 million in the nine months ended September
30, 1997 due to an increase in the Company's cash and marketable securities
balances resulting from a positive cash flow from operations during 1997 and the
first nine months of 1998. In addition, the Company benefited from the
reinvestment of a portion of its cash into short-term, higher yield marketable
securities. (See "Liquidity and Capital Resources")
PROVISION FOR INCOME TAXES Provision for income taxes of $4.1 million was
recorded for the nine months ended September 30, 1998, as compared to a
provision of $2.6 million recorded for the nine months ended September 30, 1997,
<PAGE> 12
reflecting an effective tax rate of 41% and 40%, respectively. The Company was
not required to pay federal income tax in either period due to the utilization
of net operating loss carryforwards.
EARNINGS PER SHARE Diluted EPS increased to $.48 per common share for the first
nine months of 1998 as compared to $.33 for the first nine months of 1997 as a
result of increased net income. For the nine months ended September 30, 1998,
the Company's weighted average number of diluted common shares outstanding were
approximately 12,539,000 shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $7.5 million of cash from operations during the
nine months ended September 30, 1998, compared with $6.2 million of cash
generated from operations in the nine months ended September 30, 1997. The
increase in cash generated from operations in 1998 is primarily due to increased
net income and the collection of the December 31, 1997 accounts receivable,
partially offset by payment of 1997 annual employee bonuses in the first half of
1998.
The Company used $2.3 million of cash in the nine months ended
September 30, 1998, compared with $1.6 million in the nine months ended
September 30, 1997, for the purchase of furniture, equipment, computers and
related software for use by the Company's employees. The Company expects that
additional purchases of equipment will be made as the Company's employee base
continues to grow. As discussed below, the Company acquired Sentry on October
20, 1998, adding 28 new employees. In connection with the acquisition, the
Company consolidated its Waltham, MA office into the prior Sentry location in
Westborough, MA. The cost of the move did not have a significant effect on
results of operations for the current period. As of September 30, 1998, the
Company had no material commitments for capital expenditures; however, the
Company is currently planning a significant upgrade of internal systems within
the next twelve months. The total cash outlay for the project is not expected to
exceed $1.0 million.
The Company regularly invests excess funds in investment-grade,
short-term commercial paper, debt instruments, and money market funds. As these
investments generally have terms of less than three months, they are included
under the caption "Cash and cash equivalents" in the balance sheets.
In addition, the Company invests in other short-term (primarily less
than one-year maturity), high quality investment grade marketable debt
securities. Generally, these securities are purchased in denominations of
$1 million to $5 million and held to maturity.
On October 20, 1998, the Company completed the acquisition of all of
the outstanding capital stock of The Sentry Group, Inc.("Sentry")for an
initial payment of 195,066 shares of the Company's common stock and a contingent
payment of up to $7.0 million in common stock or cash (at the Company's option)
in the event certain financial targets are met by Sentry for the 1999 calendar
year. In addition, the Company issued to Sentry stockholders warrants to
purchase up to 200,000 shares of the Company's common stock at $30.00 per share,
125,000 shares of which are currently exercisable and 75,000 shares of which are
contingently exercisable upon Sentry achieving certain financial targets in
calander year 1999.
<PAGE> 13
During September, 1998, the Company made a $1.0 million minority
equity investment in Client/Server Labs, Inc., a supplier of performance and
functional IT testing services.
As of September 30, 1998, the Company had cash and cash equivalents of
$13.3 million, marketable securities of $32.8 million and working capital of
$33.0 million. The Company believes that existing cash balances and anticipated
cash flows from operations will be sufficient to meet its working capital and
capital expenditure requirements for the foreseeable future.
Year 2000 Readiness Disclosure
The following disclosure may be deemed "Year 2000 Readiness Disclosure" pursuant
to the Year 2000 Information and Readiness Disclosure Act.
State of Readiness
- - ------------------
During 1998, the Company commenced a program to review the Year 2000
compliance status of both the IT and non-IT software and systems used in its
internal business processes, to obtain appropriate assurances of compliance from
the manufacturers of these products, and to modify or replace all non-compliant
products.
The Company is currently making inquiries with critical third party
providers of intermediary products or services to determine the impact of
Year 2000 issues on their business and operations, and the resulting impact
on the business and operations of the Company. Certain of these systems
relate to the ability of the Company to transmit its products to its
customers via the internet and by CD-ROM, and are reliant on the compliance of
the third parties in order to operate past 1999. The Company has been advised by
the applicable third parties that the necessary modifications for the Year 2000
issue have been completed or will be completed by the end of 1999. In addition,
the Company believes that its internal systems are Year 2000 compliant to
interface with such third parties. However, the Company can offer no assurance
that its systems, to the extent they are reliant on third party systems, will be
operational on January 1, 2000.
The Company has contacted most of the suppliers of its other software and
systems to determine whether the products obtained by the Company are Year 2000
compliant and is currently reviewing other areas within its business and
operations which could be adversely affected by Year 2000 issues. Based on the
responses the Company has received from manufacturers and the internal
evaluation performed to date, the Company believes that it will be able to
upgrade or replace any critical Year 2000 deficient software or systems prior to
the end of 1999.
Among the systems being reviewed is the Company's current telephone system,
which is critical to the function of the business. The Company currently plans
to replace its existing telephone system during 1999. Also, in response to the
increase in clients and employees, and the need for improved information
management for customer service, the Company expects to complete
implementation of a new client information system during the first half of 1999.
In selecting the new client information system, Year 2000 compliance was one of
the criteria reviewed, and the Company has obtained a representation from the
vendor that the system is Year 2000 compliant.
Currently, the Company has not identified any internal non-IT systems that
are both critical to the business and would cause significant disruption of
business in the event of failure in the year 2000.
Costs to Address Year 2000 Issues
- - ---------------------------------
Based on the Company's internal evaluation performed to date on potential costs
for completing the evaluating, testing, modifying or replacing of any of its
internal IT or non-IT software or systems, the Company currently expects to
spend approximately $1.3 million (including $1.2 million of costs for replacing
the client information system and telephone system), of which the Company has
spent approximately $725,000 as of September 30, 1998. The Company will
fund all Year 2000 compliance costs from existing working capital.
<PAGE> 14
The potential costs associated with failure of the internet or other major
systems outside the Company's control (i.e., utilities, telephone service,
etc.), or of any significant non-IT systems, including increased costs of doing
business, inability to conduct business, potential loss of customers, and impact
of certain risk areas as discussed below, are unknown and cannot be estimated by
the Company.
Risks Associated with Year 2000 Issue
- - -------------------------------------
The primary risk to the Company in the event of non-compliance with Year
2000 issues is a disruption of customer fulfillment. As a significant portion of
the Company's clients chose to have the Company's products delivered via the
internet, failure of that system could prevent customers from accessing the
Company's products via the Company's internet site. Likewise, failure of the
telephone systems would prevent the Company from speaking with its customers
directly, which is an integral part of the Company's service and products. Also,
failure of the client information system would result in potential delays in
responding to customers' inquiries.
In addition to the risks to the Company's systems as they relate to
customer service, and discussed above, the Year 2000 Issue presents the
following business risks to the Company:
. Because the Company's business results from selling knowledge based
research on a wide variety of IT issues, the short term demand for certain
of the Company's products could potentially be hindered while customers and
potential customers focus immediate resources on fixing their own Year 2000
issues. Although the Company's products include advisory services on the
Year 2000 issue itself, and therefore could potentially increase business
for the Company, such impacts can not be estimated by the Company at this
time. As such, there remains a risk that a shift in the focus of customers'
and potential customers' discretionary IT spending could have a material
adverse effect on the Company's business, operating results and financial
condition.
. Part of the Company's services to its customers involves forming opinions
and making suggestions with regards to IT issues. As such, customers rely
on the Company for advice when making IT related decisions, which may
involve Year 2000 issues. Because of the overall risk of litigation
associated with the Year 2000 issue, there exists a risk that the Company
could face legal action from a customer or be named as a co-defendant in an
action by a third party against a customer. The likelihood of such action
occurring, and the potential related costs, cannot be estimated by the
Company at this time.
. Failure of certain systems of third parties due to Year 2000 issues could
potentially create the risk of impairment of certain assets of the Company.
In particular, the Company currently has over $32 million in marketable
securities, which are primarily invested in unsecured, short- term
investment grade, corporate debt instruments (commercialpaper). Financial
impairment to certain investees, or a collapse of the securities markets in
general, would potentially have a material adverse effect on the Company's
financial position. In addition, the Company currently has over $25 million
in accounts receivable from customers and international sales
representative organizations, as well as significant investments in other
companies. Financial impairment to certain of such companies due to Year
2000 issues could potentially have a material adverse effect on the
Company's financial position and results of operations. The likelihood of
such action occurring, and the potential related costs cannot be estimated
by the Company at this time.
Contingency Plans
- - -----------------
The Company has the following contingency plans in place in order to
protect customer service in the event of Year 2000 disruptions:
. The Company's research is available in written form as well as via the
internet and CD-ROM. In the event of disruption of the other forms
of delivery, the Company will deliver research in printed form to all
customers. The incremental cost of doing so would not be material to
the results of operations and is currently an option many customers
continue to use.
. In the event the Company is unable to replace the existing client
information system prior to the end of 1999, the Company intends to
upgrade the existing system be Year 2000 compliant prior to the end of
1999.
<PAGE> 15
. In the event the Company is unable to replace the existing phone system
prior to the end of 1999, the Company intends to upgrade the existing
system to be Year 2000 compliant prior to the end of 1999. The Company
does not currently have a contingency plan in the event of a failure
of long distance telephone service in general.
The Company does not currently have a contingency plan in place with regards to
the risk of asset impairment described above but will be reviewing investment
risk to include Year 2000 exposure as we approach the year 2000.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information
provided by the Company or statements made by its employees may contain
"forward-looking" information that involve risks and uncertainties. In
particular, statements contained in this Form 10-Q that are not historical facts
(including, but not limited to, statements concerning the timing and development
of existing consultanting practices and the publications business,
international revenues, anticipated costs of services and fulfillment and
operating expense levels, cost and expense levels relative to the Company's
total revenues, anticipated mix of revenues, the Company's working capital and
capital expenditure requirements, net operating loss carryforwards, the ability
of the Company's computer systems and applications to function properly beyond
1999, and planned capital expenditures) constitute forward-looking statements
and are made under the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results of operations and
financial condition have varied and may in the future vary significantly from
those stated in any forward-looking statements. Factors that may cause such
differences include, without limitation, the risks, uncertainties and other
information discussed below, as well as the accuracy of the Company's internal
estimates of revenue and operation expense levels. Each of these factors, and
others, are discussed from time to time in the filings made by the Company with
the Securities and Exchange Commission.
The Company's future operating results are subject to substantial risks
and uncertainties. The Company currently derives most of its revenues from
subscriptions to its Continuous Services. As a result, any decline in the
Company's ability to secure subscription renewals, and/or new subscriptions may
have a material adverse effect on the Company's results of operations. The
Company's ability to secure subscription renewals, at favorable average selling
prices, as well as to successfully market and sell its consulting services, is
dependent upon the Company's ability to deliver consistent, high-quality and
timely analysis and advice with respect to issues, developments and trends that
clients view as important. The Company's successful delivery of such analysis
and advice is, in turn, dependent upon many factors, including, among other
things: its ability to recruit and retain highly talented professionals in a
competitive job market, to understand and anticipate rapidly changing
technologies and market trends so as to keep its analysis focused on the
changing needs of its clients, and to deliver products and services of
sufficiently high quality and timeliness to withstand competition from
competitors which may have greater financial, information gathering and
marketing resources than the Company, and the ability of telephone systems and
the intent to function properly beyond 1999. The Company's ability to
market and sell its products and services could also be adversely affected by
the emergence of new competitors into one or more of the market segments
addressed by the Company's products and services, which could cause pricing
pressure and loss of market share. In addition, a significant portion of the
Company's revenues are attributable to international clients, which may be
adversely affected by factors including difficulties in developing and managing
relationships with independent international sales representative organizations,
reliance on sales entities which the Company does not control, greater
difficulty in maintaining direct client contact, fluctuations in exchange rates,
adverse political and economic conditions, tariffs and other trade barriers,
longer accounts receivable collection cycles and adverse tax consequences. The
Company's future financial results also depend in part on the development or
acquisition of new products and services, which may not successfully be achieved
<PAGE> 16
due to the inherent costs and risks associated with development, assimilation
and marketing of a new product or service, as well as the Company's limited
experience in introducing new products and services.
Furthermore, the Company's quarterly operating results may fluctuate
significantly due to various factors. Since a disproportionately large portion
of the Company's Continuous Services contracts expire in the fourth quarter of
each year, the Company incurs operating expenses in the fourth quarter at a
higher level than would otherwise be required by its sequential growth, and such
increased expenses are not normally offset immediately by higher revenues. In
addition, the Company's operating results may fluctuate as a result of a variety
of other factors, including the level and timing of renewals of subscriptions to
Continuous Services, the timing and development of existing consulting practices
and the publications business, the timing and amount of business generated by
the Company, the mix of domestic versus international business, the timing of
the development, introduction and marketing of new products and services, the
timing of the acquisition and integration into the Company of new business,
products and services, the timing of the hiring of research analysts and
consultants, the cost of addressing, or the failure to address, the ability
of the Company's computer systems and applications to function properly beyond
1999, changes in the spending patterns of the Company's target clients,
impairment of the Company's financial assets and the value of the Company's
strategic investments, risk of litigation assosicated with the Company's Year
2000 products and services, the Company's accounts receivable collection
experience, changes in market demand for IT research and analysis, and
competitive conditions in the industry. Due to these factors, the Company
believes period-to-period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as an indication of future
results of operations. The potential fluctuations in the Company's operating
results make it likely that, in some future quarter, the Company's operating
results will be below the expectations of securities analysts and investors,
which would have a material adverse effect on the price of the Company's Common
Stock.
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
As disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, in November, 1995, a complaint was filed in the
Bridgeport Judicial District of the Superior Court of Connecticut by a former
consultant to the Company naming the Company and its Chief Executive Officer as
defendants. On July 23, 1998, the Company and its Chief Executive Officer
reached a settlement with the former consultant in which the suit was dismissed
with prejudice. The settlement did not have a material effect on the financial
statements of the Company.
The Company and its subsidiary, Sentry, are party to certain other
legal proceedings. However, the Company believes that none of these proceedings
is likely to have a material adverse effect on the Company's business, results
of operations or financial condition.
Item 2. Changes in Securities and Use of Proceeds
------------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) On October 20, 1998, the Company acquired all of the
outstanding capital stock of Sentry, a Massachusetts
corporation. In exchange for all of the outstanding capital
stock of Sentry, the former stockholders of Sentry received
an initial payment of 195,066 shares of the Company's common
stock (the "Shares")and the right to receive a contingent
payment of up to $7.0 million in stock or cash (at the
Company's option) in the event certain financial targets are
met by Sentry in the 1999 fiscal year. In addition, the
Company issued to the former stockholders of Sentry warrants
(the "Warrants") to purchase up to 200,000 shares of the
Company's common stock at $30.00 per share, 125,000 shares of
which are currently exercisable and 75,000 shares of which are
contingent on Sentry achieving certain financial targets in
fiscal year 1999. The Shares and Warrants were issued in
reliance upon an exemption from the registration provisions
of the Securities Act of 1933, as amended (the "Act"), set
forth in Section 4(2) thereof and Rule 506 of Regulation D of
the General Rules and Regulations under the Act promulgated
by the Securities and Exchange Commission ("Regulation D").
The Company reasonably believes that there were less than
35 purchases of the Shares and the Warrants calculated in
accordance with Rules 501(e) and 502(a) of Regulation D. In
connection with the issuances of the Shares and Warrants, the
former stockholders of Sentry made certain representations
to the Company as to their investment intent and possessed
a sufficient level of sophistication and access to
information. The Shares and the Warrants are subject to
restrictions on transfer absent registration under the Act
or exemption therefrom.
(d) Not applicable.
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
Exhibit
Number Description
10.1 Form of META Group, Inc./JMI Long Term Incentive Compensation Plan
10.2 Form of Common Stock Purchase Warrant (Immediate Vesting) issued
to stockholders of The Sentry Group, Inc. on October 20, 1998
10.3 Form of Common Stock Purchase Warrant (Contingent Vesting) issued
to stockholders of The Sentry Group, Inc. on October 20, 1998
11.1 Statement re-computation of per-share earnings
21.1 List of subsidiaries
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
<PAGE> 19
SIGNATURE
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.
META Group, Inc.
Date: November 16, 1998 By:/s/ Bernard F. Denoyer
-------------------------------------
Bernard F. Denoyer
Senior Vice President, Finance, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
<PAGE> 20
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- - -----
10.1 Form of META Group, Inc./JMI Long Term Incentive
Compensation Plan 21
10.2 Form of Common Stock Purchase Warrant (Immediate Vesting)
issued to stockholders of The Sentry Group, Inc.
on October 20, 1998 29
10.3 Form of Common Stock Purchase Warrant (Contingent Vesting)
issued to stockholders of The Sentry Group, Inc. on
October 20, 1998 39
11.1 Statement re computation of per-share earnings 49
21.1 List of subsidiaries 50
27.1 Financial Data Schedule 51
- - ------------------
PAGE 21
EXHIBIT 10.1
META GROUP, INC./JMI
LONG TERM INCENTIVE COMPENSATION PLAN
THIS PLAN is made this _____ day of ______, 1998, by META Group, Inc.
(the "Company") for the benefit of Participants defined in this Plan.
W I T N E S S E T H:
WHEREAS, the Company desires to implement a long term incentive
compensation plan to provide incentive compensation to its key personnel;
WHEREAS, the Plan is designed to motivate key personnel by rewarding
performance based upon the profits and growth in value of the Company and to
create a long term financial incentive to retain key personnel as well as a
disincentive to join a competitor;
WHEREAS, no party to this Plan intends to create an arrangement taxable
as a partnership for federal income tax purposes between the Company and the
Participants and, accordingly, the Participants awarded Units pursuant to the
Plan recognize and agree that an exercise of Units under the Plan will result in
ordinary compensation income subject to the employment tax provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and that any payments by
the Company for vested Units hereunder will be subject to all applicable
federal, state and local withholding taxes; and
WHEREAS, the Company proposes to implement the incentive compensation
arrangements set forth above pursuant to the terms and conditions of this Plan;
NOW, THEREFORE, based upon the foregoing, the Company establishes the
following:
I. DEFINITIONS:
A. JMI III:
JMI III is the JMI Equity Side Fund, L.P., a Delaware limited
partnership.
B. JMI Funds:
JMI Funds are, collectively, JMI III and, if formed, JMI IV.
C. JMI IV:
JMI IV is the next fund to be established subsequent to JMI III.
D. Participant:
Participant or Participants are the initial Participants named
in Schedule A attached hereto as well as any additional
Participants permitted to participate in the Plan under Section
II.C.
<PAGE> 22
E. Participant Base Value:
Participant Base Value shall mean the Participant Unit Value of
the Participant's Units on the last day of the Plan Year prior
to the Plan Year in which the Company grants such Units to the
Participant, as determined under Section III.B.
F. Participant Unit Value:
The Participant Unit Value, at any time and for any Plan Year,
shall be equal to (i) all amounts received by the Company (in
its capacity as a partner) from the JMI Funds pursuant to the
terms of the documents governing the applicable JMI Fund, which
number shall be reduced by (ii) the sum of (x) all amounts
referred to in (i) which constitute return of capital previously
contributed by the Company (in its capacity as a partner) to the
JMI Funds, (y) an amount equal to the 6% Fixed Rate of Return
and (z) all amounts paid hereunder to any Participant pursuant
to Section V, which difference shall then be (iii) divided by a
number equal to one thousand (1,000) less the number of Units
with respect to which payment hereunder has been made pursuant
to Section V; provided that notwithstanding any other provision
hereof any amounts received by the Company (in its capacity as a
partner) from either of the JMI Funds shall be counted first
toward the 6% Fixed Rate of Return and then toward return of
capital contributions. The Board of Directors' determination of
the Participant Unit Value will be final, conclusive and will be
binding on the Participants hereunder.
G. Plan:
The Plan is the META Group, Inc./JMI Long Term Incentive
Compensation Plan established herein.
H. Plan Year:
The Plan Year is the period from January 1 through December 31,
except that the initial plan year shall begin on the date of the
commencement of JMI III (the "Commencement Date").
<PAGE> 23
I. 6% Fixed Rate of Return:
6% Fixed Rate of Return shall mean an amount which would be
equal, in the aggregate since the initial capital contribution
by the Company in either of the JMI Funds, to a 6% annual return
on all of the Company's paid-in and unreturned capital
contributions to the JMI Funds. For this purpose, (A) the 6%
return shall be cumulative but not compounded and (B) the base
for the computation (i.e., previously paid-in and unreturned
capital contributions) shall be adjusted to take into account
the time capital contributions were made and the time of prior
distributions constituting return of capital contributions.
J. Units:
Units are rights granted to Participants hereunder. The total
number of Units initially granted to the Participants named on
Schedule A shall be two hundred seventy (270).
II. THE PLAN:
A. Purpose:
The purpose of the Plan is to provide an economic incentive to
motivate, reward and retain key management personnel by granting
Units to Participants.
B. Effective Date:
The Plan shall have an effective date of the Commencement Date,
and the first Plan Year shall commence on the Commencement Date,
and shall end on December 31, 1998.
C. Participants:
The initial Participants are set forth on Schedule A attached
hereto, and their participation in the Plan shall begin
effective on the Commencement Date. Additional Participants may
be added to the Plan as determined by the Board of Directors of
the Company.
D. Administration:
The Plan shall be administered by the Board of Directors, or by
a committee appointed by the Board of Directors. References to
the Board of Directors in the Plan shall be deemed to include
references to the committee so appointed by the Board of
Directors. The Board of Directors shall have the exclusive
authority in its sole discretion to select the key employees to
be granted Units, to determine the number of Units to be granted
to each key employee so selected and to determine the time or
times such Units will be granted. The Board of Directors shall
have the exclusive authority to interpret the Plan, to adopt and
revise rules relating to the Plan and otherwise to make any
determinations it deems necessary or advisable for the
administration of the Plan. Any dispute or controversy arising
under or in connection with the interpretation or construction
of the Plan shall be resolved by the Board of Directors;
provided, however, that Participants granted Units hereunder
shall not be precluded from maintaining or continuing any
actions to preserve or protect the benefits granted to
Participants under the Plan. Any action or inaction by the Board
of Directors with respect to the Plan shall be final, conclusive
and binding on all parties with respect to all matters relating
to the Plan.
<PAGE> 24
III. GRANTS OF UNITS:
A. Grants of Units:
Units shall be granted to such key employees of the Company as
the Board of Directors shall determine. The maximum number of
Units to be granted under the Plan shall not exceed one thousand
(1,000). Each grant of Units under the Plan to a Participant,
the value of such Units as of the date of grant, as well as the
terms and conditions of such grant shall be communicated by the
Board of Directors in writing to the Participant within 30 days
after the date of grant. If any Units granted under the Plan
shall be forfeited or canceled, such Units may again be awarded
under the Plan.
B. Valuation of Units on Grant Date:
On the date of grant, the Participant Base Value of a
Participant's Units shall be determined by multiplying the
Participant Unit Value for the Plan Year immediately prior to
the Plan Year that includes the grant date by the number of
Units granted to such Participant; provided, however, that for
the first Plan Year hereunder, the Participant Unit Value shall
be the Participant Unit Value as of the Commencement Date.
C. Valuation of Units on Payment Date:
Upon any payment date, the value of a Participant's Units shall
be determined by multiplying the Participant Unit Value for the
Plan Year immediately preceding the Plan Year in which such date
occurs by the total number of Units then held by the
Participant.
IV. VESTING OF UNITS:
At the time of grant, the Board of Directors shall determine, in its
discretion, the vesting period for Units, and shall provide written notice of
the vesting period to Participants; provided however, that Units shall always
become vested upon the first to happen of any event listed immediately below:
A. the fifth anniversary of the date of grant;
B. the Participant's becoming Disabled (as defined in the last
sentence of this section);
C. the Participant's death; or
D. the later to occur of the termination or winding-up of JMI III
or, if formed, JMI IV pursuant to the respective terms of the
applicable document governing such JMI Fund.
Vesting rights shall accrue only for so long as a Participant is
continuously employed by the Company, unless granted a leave of
absence. For purposes of the Plan, a Participant will be considered
Disabled, if, in the determination of the Board of Directors, such
Participant is subject to a physical or mental condition which is
expected by the Board of Directors to render the Participant unable to
perform his or her usual duties for the Company for a continuous period
of at least 180 days.
V. PAYMENTS FOR VESTED UNITS:
A. Payments for Vested Units:
1. Except as provided in Section V.A.3 (relating to
termination for cause) below, Participants shall receive
payment for vested Units at the earlier of (a) at any time
after such Units have become vested provided that the
Participant has elected in writing to receive payment
therefor and such Participant is employed by the Company
on the date of such election or (b)upon the Participant's
termination of employment under the circumstances
<PAGE> 25
described in Section V.A.2 below. Notwithstanding the
foregoing, upon a Participant's death payment shall be
made to the Participant's personal representative.
2. If a Participant voluntarily terminates his or her
employment with the Company, or if such Participant's
employment is terminated by the Company without cause,
all of the unvested Units of such Participant shall be
immediately forfeited and the Participant shall only be
entitled to payments with respect to Units that are vested
on the date of termination. In connection with any such
termination and in accordance with Section V.B., the
Participant shall receive an amount equal to the value of
his or her vested Units (as provided in Section III),
reduced by the Participant Base Value of such Units.
3. All Units (whether vested or unvested) of any
Participant shall be immediately forfeited if the
Participant is terminated by the Company for "cause."
For purposes of the Plan, "cause" shall mean:
(a) a Participant's conviction of any criminal
violation involving dishonesty, fraud or breach of
trust; (b) a Participant's willful engagement in any
misconduct in the performance of his or her duties
that materially injures the Company; (c) a
Participant's performance of any act of dishonesty or
moral turpitude which, in the reasonable judgment of
the Board of Directors, has or would have a material
adverse impact on the Company; (d) any act or
omission by a Participant that causes a regulatory
body with jurisdiction over the Company to demand,
request or recommend that the Participant be
suspended or removed from any position in which the
Participant serves with the Company; or (e) a
Participant's willful and substantial nonperformance
of assigned duties.
The Board of Directors shall determine whether there
is "cause" for involuntarily terminating a
Participant and shall deliver a written notice of
that decision to the Participant. This decision may
or may not be consistent with the position taken by
the Company for other employment purposes.
B. Terms of Payment:
1. Payments for vested Units shall be made to a Participant,
or, in the case of death, to the Participant's personal
representative. Payments shall commence within 90 days
of the date of the events set forth in Sections V.A.2 and
shall be made, at the election of the Participant, eithe
(i) in cash in two equal payments the first of which
shall be made on a date specified by the Company within
the 90-day period referred to in this sentence and the
second of which shall be made on the first anniversary
date of the first payment or (ii) in cash in equal annual
installments over a period not to be less than two years
and not to exceed 5 years (such period to be in whole
years but to be otherwise designated by the Participant).
If the Participant elects to require the Company to make
installment payments over the 5 year (or shorter) period
set forth in the previous sentence, the outstanding
unpaid balance of the Participant's Units shall bear
interest at the 90 day Treasury Bill rate, as adjusted
as of the last day of the previous calendar quarter.
Any installment payments to a Participant shall reduce
the base amount on which such interest is calculated.
2. Notwithstanding anything in this Plan to the
contrary, the Company shall have the right to offset
any payments to a Participant under the Plan against
any liability which the Board of Directors determines
to be owing by the Participant to the Company.
<PAGE> 26
VI. MISCELLANEOUS:
A. Severability and Entire Plan:
Should one or more provisions or part of a provision contained
in this Plan be, for any reason, held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part
of a provision of this Plan. In addition, this Plan shall to
the fullest extent lawful, be reformed and construed as if
such invalid or illegal or unenforceable provision, or part of
a provision, had never been contained herein and such
provision or part reformed so that it would be valid, legal
and enforceable to the maximum extent possible. This document
constitutes the entire Plan. The Plan may only be modified,
altered, or amended solely by the Board of Directors and only
by a written instrument.
B. Plan Not a Contract of Employment:
Neither the creation of the Plan nor any amendment to it nor
the allocation of benefits herewith gives legal or equitable
right to any Participant against the Company or any affiliate,
their officers or employees, except as provided in the Plan.
Participation in the Plan does not give any Participant any
right to continued employment with the Company or interfere
with the Company's right to terminate a Participant's
employment at any time or for any reason. Participation in the
Plan shall not entitle any Participant to vote on any matter
concerning the operations of the Company. Participation in the
Plan shall not entitle any Participant to have his or her
Units credited or increased or otherwise benefited by cash
distributions or any other distributions made by the Company
to its stockholders.
C. Governing Law:
The Plan will be construed under and governed by the laws of
the State of Delaware, without reference to its conflict of
laws provisions.
D. Successors and Assigns:
This Plan shall be binding upon and enforceable against the
heirs, successors and assigns of each of the parties hereto.
E. Amendment or Termination of Plan:
The Board of Directors may alter or amend or terminate this
Plan at any time without obtaining the approval of any
Participant and in such event the Units will vest over time
and be payable in accordance with this Plan as so amended. No
Units may be granted after the date of termination of the
Plan. No amendment to or termination of the Plan may adversely
affect any Units granted to a Participant prior to the date of
such amendment or termination without the consent of such
adversely affected Participant.
F. Disputes:
All disputes concerning the operation and administration of
the Plan shall be resolved by the Board of Directors.
G. Withholding Taxes:
Participants, by accepting grants of Units thereunder, agree
that the Company may withhold from such Participants' wages or
other remuneration, including amounts to be paid to
<PAGE> 27
Participants under this Plan, all amounts of federal, state
and local income and employment taxes required to be withheld
in connection with the grant, exercise or vesting of Units
hereunder. At the Company's discretion, the amounts required
to be withheld by the Board of Directors may be withheld in
cash from wages or other remuneration paid to such
Participants, in kind from any other property paid or
distributed to such Participants, or otherwise. Participants
further agree that, if any such withholding is insufficient to
satisfy the Company's withholding obligations, Participants
will reimburse the Company on demand, in cash, for the amount
underwithheld.
H. Unfunded Arrangement:
The Plan shall at all times be entirely unfunded and no
provision shall at any time be made with respect to
segregating assets of the Company for payment of any benefits
hereunder. No Participant or other person shall have any
property interest in any specific assets of the Company by
reason of the right to receive a benefit under the Plan and
any such Participant or other person shall have only the
rights of a general unsecured creditor of the Company with
respect to any rights under the Plan. Nothing in this Plan
shall constitute the creation of a partnership, trust or
fiduciary relationship between the Company and the
Participants or any other persons. The Company shall not be
considered a partner or trustee by reason of the Plan.
I. Nontransferability:
Units granted under the Plan, and any rights and privileges
pertaining thereto, may not be transferred, assigned, pledged
or hypothecated in any manner, by operation of law or
otherwise, other than by will or by the laws of descent and
distribution, and shall not be subject to attachment,
execution or similar process. Any attempted transfer of Units
other than as provided herein shall be void.
J. Limitation on Liability:
The Board of Directors shall not be liable, responsible or
accountable in damages or otherwise to a Participant for any
action taken or omitted, provided, that the Board of
Directors' action or failure to act was in good faith and
within the scope of the authority conferred on the Board of
Directors by this Plan, the charter and by-laws of the
Company, or by any law.
[Remainder of this page left blank intentionally]
<PAGE> 28
SCHEDULE A
Participants Units
- - ------------ -----
Total Granted
PAGE 29
EXHIBIT 10.2
(Immediate Vesting - 125,000 Shares)
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM.
No. warrant Right to Purchase Shares Shares of Common Stock of
META Group, Inc.
(subject to adjustment as provided herein)
META GROUP, INC.
COMMON STOCK PURCHASE WARRANT
October 20, 1998
META Group, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received, Name, or its assigns, is entitled, subject
to the terms set forth below, to purchase from the Company from time to time
before 5:00 p.m., Stamford, Connecticut time, on October 20, 2002 (the
"Expiration Date"), up to Amount (Shares) fully paid and nonassessable shares of
Common Stock, par value $.01 per share, of the Company, at a purchase price of
$30.00 per share (such purchase price per share as adjusted from time to time as
herein provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
This Warrant is one of the Common Stock Purchase Warrants
(collectively, the "Warrants") evidencing the right to purchase shares of Common
Stock of the Company issued pursuant to a certain Agreement and Plan of Merger
(the "Merger Agreement") dated as of the date hereof, among the Company, The
Sentry Group, Inc. and MG Acquisition Corporation, a copy of which is on file at
the principal office of the Company and the holder of this Warrant shall be
entitled to all of the benefits of the Agreement, as provided therein. Unless
otherwise defined herein, capitalized terms used in this Warrant that are
defined in the Merger Agreement shall have the meanings assigned to them in the
Merger Agreement.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include META Group, Inc. and
any corporation which shall succeed or assume the obligations of META Group,
Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common
Stock, par value $.01 per share, as authorized on the date of the Agreement,
(ii) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even though
the right so to vote has been suspended by the happening of such a contingency)
and (iii) any other securities into which or for which any of the securities
described in (i) or (ii) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
<PAGE> 30
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holders of the Warrants at any time shall be
entitled to receive, or shall have received, on the exercise of the Warrants, in
lieu of or in addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
-------------------
1.1. Number of Shares Issuable upon Exercise. Subject to the
terms and conditions set forth in this Warrant, the holder hereof shall be
entitled to purchase through the Expiration Date set forth on the first page of
this Warrant, upon exercise of this Warrant in accordance with the terms of
subsections 1.2 or 1.3, or upon election of the net issue exercise option set
forth in subsection 1.4, up to the number of shares of Common Stock of the
Company set forth on the first page of this Warrant (as the same may be adjusted
pursuant to the terms hereof).
1.2. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company, in the amount obtained by multiplying the
number of shares of Common Stock for which this Warrant is then exercisable by
the Purchase Price then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part
by surrender of this Warrant in the manner and at the place provided in
subsection 1.2 except that the amount payable by the holder on such partial
exercise shall be the amount obtained by multiplying (a) the number of shares of
Common Stock designated by the holder in the subscription at the end hereof by
(b) the Purchase Price then in effect. On any such partial exercise the Company,
at its expense, will forthwith issue and deliver to, or upon the order of, the
holder hereof a new Warrant or Warrants of like tenor, in the name of the holder
hereof or as such holder (upon payment by such holder of any applicable
transfer, issuance or other tax) may request, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock for which such
Warrant or Warrants may still be exercised.
1.4. Net Issue Exercise. In lieu of exercising this Warrant
pursuant to subsection 1.2 or 1.3, the holder may elect to receive shares of
Common Stock equal to the value of this Warrant (or of any portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
such holder a number of shares of the Company's Common Stock computed using the
following formula:
X = Y(A-B)/A
where X = the number of shares of Common Stock to be issued to the
holder
Y = the number of shares of Common Stock purchasable under this
Warrant (in accordance with Section 1.1)
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation)
B = Warrant Purchase Price (as adjusted to the date of such
calculation).
For purposes of this subsection 1.4, fair market value of the Company's
Common Stock shall mean the average closing price of the Company's Common Stock
<PAGE> 31
for the ten (10) trading days ending on and including the second-to-last trading
day prior to the date of determination of fair market value, calculated on the
basis of the last reported sales price of the Company's Common Stock on the
Nasdaq National Market, or, if not so quoted, as quoted in another
over-the-counter quotation system or exchange on which the Company's Common
Stock is then listed. If the Common Stock is not traded over-the-counter on
Nasdaq or on another quotation system or exchange, the fair market value shall
be the price per share which the Company could obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares, as such price
shall be agreed by the Company and the holder hereof.
Any election pursuant to this Section 1.4 shall be deemed to be an
"exercise" hereunder for the purposes of this Warrant.
In the event of a dispute regarding this Warrant, the Company and the
holder hereof shall in good faith negotiate to settle such dispute. If no
resolution is reached within 30 days, either party may commence an arbitration
proceeding by submitting the dispute to arbitration. Any such arbitration shall
be before an arbitral tribunal composed of three arbitrators; one selected by
the Company, one selected by the holder hereof and one selected by mutual
agreement of the parties (the "Panel"). If the parties are unable to agree on
such third arbitrator, the arbitrator shall be selected by the American
Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules. The Panel will resolve the dispute in accordance with the
rules of the AAA. The venue for the arbitration shall be Stamford, Connecticut
or such other venue mutually agreed to by the Company and the holder hereof. The
Panel's award or order shall be final and binding on the Company and the holder
hereof and all costs of such proceeding shall be borne as specified in the award
or order.
1.5. Company Acknowledgment. The Company will, at the time of
the exercise of the Warrant, upon the request of the holder hereof acknowledge
in writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant and the Agreement. If the holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of the
Warrants pursuant to subsection 4.2, such bank or trust company shall have all
the powers and duties of a warrant agent appointed pursuant to Section 12 and
shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company
or such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 5 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer, issuance or other tax) may direct, a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (or Other Securities) to which such holder shall be
entitled on such exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash equal to such fraction multiplied by
the then current fair market value of one full share (calculated in accordance
with the definition set forth in Section 1.4), together with any other stock or
other securities and property (including cash, where applicable) to which such
holder is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, all holders of
Common Stock as a class (or Other Securities) shall have received, or (on or
after the record date fixed for the determination of shareholders eligible to
receive) shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
<PAGE> 32
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company and excluding Contingent
Consideration and Book Earnout Payments, if any), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in Section 5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise if on the date hereof he had been the
holder of record of the number of shares of Common Stock called for on the face
of this Warrant and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and all such other
or additional stock and other securities and property (including cash in the
cases referred to in subdivisions (b) and (c) of this Section 3) receivable by
him as aforesaid during such period, giving effect to all adjustments called for
during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
----------------------------------------------------------
4.1. Reorganization, Consolidation, Merger, etc. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, the holder of this Warrant, on the exercise hereof as provided in Section
1 at any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be, shall
receive, in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which such holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if such holder had so exercised this Warrant, immediately prior
thereto, all subject to further adjustment thereafter as provided in Sections 3
and 5.
4.2. Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of the Warrants after the
effective date of such dissolution pursuant to this Section 4 to a bank or trust
company having its principal office in Stamford, Connecticut (or another
location in Connecticut chosen by the Company), as trustee for the holder or
holders of the Warrants.
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 4, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant.
5. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (i) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, or (iii) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
<PAGE> 33
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The holder of this Warrant shall thereafter, on the exercise hereof as provided
in Section 1, be entitled to receive that number of shares of Common Stock
determined by multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this Section 5) be issuable on such
exercise by a fraction of which (i) the numerator is the Purchase Price which
would otherwise (but for the provisions of this subsection 5) be in effect, and
(ii) the denominator is the Purchase Price in effect on the date of such
exercise.
6. Adjustments. In each case of any adjustment or readjustment in the
shares of Common Stock (or Other Securities) issuable on the exercise of the
Warrants, the Company will compute such adjustment or readjustment in accordance
with the terms of the Warrants and shall notify the holder hereof of such
adjustment or readjustment. On the written request of any holder of a Warrant,
the Company shall provide such holder with a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant.
7. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
8. Reservation of Stock, etc. Issuable on Exercise of Warrants. Except
as otherwise contemplated by the Agreement, the Company will at all times
reserve and keep available, solely for issuance and delivery on the exercise of
the Warrants, all shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of the Warrants.
9. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
<PAGE> 34
holder of any applicable transfer, issuance or other tax) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so surrendered,
provided, however, that no Warrant issued in exchange for this Warrant shall be
exercisable for less than 50 shares of Common Stock.
10. Replacement of Warrants. On receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of any Warrant and, in the
case of any such loss, theft or destruction of any Warrant, on delivery of an
indemnity agreement or security satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
11. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in Stamford, Connecticut (or
another location in Connecticut chosen by the Company) for the purpose of
issuing Common Stock (or Other Securities) on the exercise of the Warrants
pursuant to Section 1, exchanging Warrants pursuant to Section 9, and replacing
Warrants pursuant to Section 10, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
12. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
13. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant may not be transferred without
the prior written consent of the Company;
(b) if consent to transfer is granted pursuant to subsection
13(a), this Warrant may be transferred by endorsement (by the holder hereof
executing the form of assignment at the end hereof) and delivery in the same
manner as in the case of a negotiable instrument transferable by endorsement and
delivery; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
(d) the holder hereof has no rights as a stockholder with
respect to this Warrant until such time as the holder hereof has exercised this
Warrant by delivery of the notice of exercise and has paid in full the Purchase
Price for the number of shares of Common Stock for which this Warrant is to be
so exercised.
14. Notices, etc. All notices and other communications under this
Warrant shall be in writing and shall, except as otherwise provided herein, be
deemed to have been duly given when (i) delivered by hand, (ii) sent by telex or
telecopier (with receipt confirmed), provided that a copy is mailed by certified
mail, return receipt requested, or (iii) when received by the addressee, if sent
by Express Mail, Federal Express or other express delivery service (receipt
requested), in each case, at the appropriate addresses, telex numbers and
telecopier numbers as may have been furnished to the Company in writing by such
holder or, until any such holder furnishes to the Company an address, telex
number or telecopier number, then to, and at the address, telex number or
telecopier number of, the last holder of this Warrant who has so furnished an
address to the Company.
15. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
<PAGE> 35
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
[Remainder of Page Intentionally Left Blank]
<PAGE> 36
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
META GROUP, INC.
By:_________________________
Name:
Title:
<PAGE> 37
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO META GROUP, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise
the Warrant for, and to purchase thereunder, ................ shares of Common
Stock of META Group, Inc. and herewith makes payment of $..............therefor
and requests that the certificates for such shares be issued in the name of, and
delivered to .............., whose address is .............. ..................
Payment for such shares of Common Stock takes the form of (check applicable box
or boxes):
( ) $___________ in lawful money of the United States, and/or
( ) the cancellation of such portion of the attached Warrant as is
exercisable for a total of _______ shares of Common Stock
(using a Fair Market Value of $_______ per share for purposes
of this calculation), pursuant to Section 1.4 hereof.
Dated: .................................
(Signature must conform to name
of holder as specified on the
face of the Warrant)
.................................
(Address)
<PAGE> 38
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto .................. the right represented by the within Warrant to purchase
................. shares of Common Stock of META Group, Inc. to which the within
Warrant relates, and appoints .......................... Attorney to transfer
such right on the books of META Group, Inc. with full power of substitution in
the premises.
Dated: ................................
(Signature must conform to name
of holder as specified on the
face of the Warrant)
...............................
(Address)
Signed in the presence of:
.............................
PAGE 39
EXHIBIT 10.3
(Contingent Vesting - 75,000 shares)
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM.
No. Warrant Right to Purchase Shares Shares of Common Stock of META Group, Inc.
(subject to adjustment as provided herein)
META GROUP, INC.
COMMON STOCK PURCHASE WARRANT
October 20, 1998
META Group, Inc., a Delaware corporation (the "Company"), hereby
certifies that, on or after the Vesting Date (as defined below) and only if the
Vesting Date occurs at all, for value received, Name, or its assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
from time to time before 5:00 p.m., Stamford, Connecticut time, on the date
which is the fourth anniversary of the Vesting Date, if such Vesting Date occurs
at all (the "Expiration Date"), up to Amount (Shares) fully paid and
nonassessable shares of Common Stock, par value $.01 per share, of the Company,
at a purchase price of $30.00 per share (such purchase price per share as
adjusted from time to time as herein provided is referred to herein as the
"Purchase Price"). The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein. This Warrant
shall only become exercisable if and when the Vesting Date occurs, if at all.
This Warrant is one of the Common Stock Purchase Warrants
(collectively, the "Warrants") evidencing the right to purchase shares of Common
Stock of the Company issued pursuant to a certain Agreement and Plan of Merger
(the "Merger Agreement") dated as of the date hereof, among the Company, The
Sentry Group, Inc. and MG Acquisition Corporation, a copy of which is on file at
the principal office of the Company and the holder of this Warrant shall be
entitled to all of the benefits of the Agreement, as provided therein. Unless
otherwise defined herein, capitalized terms used in this Warrant that are
defined in the Merger Agreement shall have the meanings assigned to them in the
Merger Agreement.
The obligations of the Company and the rights of the holder of this
Warrant shall expire, be of no further force or effect, and immediately
terminate and the Company shall have no obligation to issue shares of Common
Stock to the holder hereof at any time unless on the Vesting Date Contingent
Consideration is paid to the Former Sentry Holders pursuant to Section
2.3(e)(i)(A) of the Merger Agreement.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include META Group, Inc. and
any corporation which shall succeed or assume the obligations of META Group,
Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common
Stock, par value $.01 per share, as authorized on the date of the Agreement,
<PAGE> 40
(ii) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even though
the right so to vote has been suspended by the happening of such a contingency)
and (iii) any other securities into which or for which any of the securities
described in (i) or (ii) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holders of the Warrants at any time shall be
entitled to receive, or shall have received, on the exercise of the Warrants, in
lieu of or in addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to Section 5 or otherwise.
(d) The term "Vesting Date" shall mean the date, if such date
occurs at all, on which the Former Sentry Holders are paid Contingent
Consideration pursuant to Section 2.3(e)(i)(A) of the Merger Agreement.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. Subject to the
terms and conditions set forth in this Warrant, on or after the Vesting Date and
only if the Vesting Date occurs at all, the holder hereof shall be entitled to
purchase through the Expiration Date set forth on the first page of this
Warrant, upon exercise of this Warrant in accordance with the terms of
subsections 1.2 or 1.3, or upon election of the net issue exercise option set
forth in subsection 1.4, up to the number of shares of Common Stock of the
Company set forth on the first page of this Warrant (as the same may be adjusted
pursuant to the terms hereof).
1.2. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company, in the amount obtained by multiplying the
number of shares of Common Stock for which this Warrant is then exercisable by
the Purchase Price then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part
by surrender of this Warrant in the manner and at the place provided in
subsection 1.2 except that the amount payable by the holder on such partial
exercise shall be the amount obtained by multiplying (a) the number of shares of
Common Stock designated by the holder in the subscription at the end hereof by
(b) the Purchase Price then in effect. On any such partial exercise the Company,
at its expense, will forthwith issue and deliver to, or upon the order of, the
holder hereof a new Warrant or Warrants of like tenor, in the name of the holder
hereof or as such holder (upon payment by such holder of any applicable
transfer, issuance or other tax) may request, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock for which such
Warrant or Warrants may still be exercised.
1.4. Net Issue Exercise. In lieu of exercising this Warrant
pursuant to subsection 1.2 or 1.3, the holder may elect to receive shares of
Common Stock equal to the value of this Warrant (or of any portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
such holder a number of shares of the Company's Common Stock computed using the
following formula:
<PAGE> 41
X = Y(A-B)/A
where X = the number of shares of Common Stock to be issued to the
holder
Y = the number of shares of Common Stock purchasable under this
Warrant (in accordance with Section 1.1)
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation)
B = Warrant Purchase Price (as adjusted to the date of such
calculation).
For purposes of this subsection 1.4, fair market value of the Company's
Common Stock shall mean the average closing price of the Company's Common Stock
for the ten (10) trading days ending on and including the second-to-last trading
day prior to the date of determination of fair market value, calculated on the
basis of the last reported sales price of the Company's Common Stock on the
Nasdaq National Market, or, if not so quoted, as quoted in another
over-the-counter quotation system or exchange on which the Company's Common
Stock is then listed. If the Common Stock is not traded over-the-counter on
Nasdaq or on another quotation system or exchange, the fair market value shall
be the price per share which the Company could obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares, as such price
shall be agreed by the Company and the holder hereof.
Any election pursuant to this Section 1.4 shall be deemed to be an
"exercise" hereunder for the purposes of this Warrant.
In the event of a dispute regarding this Warrant, the Company and the
holder hereof shall in good faith negotiate to settle such dispute. If no
resolution is reached within 30 days, either party may commence an arbitration
proceeding by submitting the dispute to arbitration. Any such arbitration shall
be before an arbitral tribunal composed of three arbitrators; one selected by
the Company, one selected by the holder hereof and one selected by mutual
agreement of the parties (the "Panel"). If the parties are unable to agree on
such third arbitrator, the arbitrator shall be selected by the American
Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules. The Panel will resolve the dispute in accordance with the
rules of the AAA. The venue for the arbitration shall be Stamford, Connecticut
or such other venue mutually agreed to by the Company and the holder hereof. The
Panel's award or order shall be final and binding on the Company and the holder
hereof and all costs of such proceeding shall be borne as specified in the award
or order.
1.5. Company Acknowledgment. The Company will, at the time of
the exercise of the Warrant, upon the request of the holder hereof acknowledge
in writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant and the Agreement. If the holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of the
Warrants pursuant to subsection 4.2, such bank or trust company shall have all
the powers and duties of a warrant agent appointed pursuant to Section 12 and
shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company
or such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
<PAGE> 42
event within 5 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer, issuance or other tax) may direct, a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (or Other Securities) to which such holder shall be
entitled on such exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash equal to such fraction multiplied by
the then current fair market value of one full share (calculated in accordance
with the definition set forth in Section 1.4), together with any other stock or
other securities and property (including cash, where applicable) to which such
holder is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, all holders of
Common Stock as a class (or Other Securities) shall have received, or (on or
after the record date fixed for the determination of shareholders eligible to
receive) shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or
property (other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company and excluding Contingent
Consideration and Book Earnout Payments, if any), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in Section 5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise if on the date hereof he had been the
holder of record of the number of shares of Common Stock called for on the face
of this Warrant and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and all such other
or additional stock and other securities and property (including cash in the
cases referred to in subdivisions (b) and (c) of this Section 3) receivable by
him as aforesaid during such period, giving effect to all adjustments called for
during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, Consolidation, Merger, etc. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, the holder of this Warrant, on the exercise hereof as provided in Section
1 at any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be, shall
receive, in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which such holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if such holder had so exercised this Warrant, immediately prior
thereto, all subject to further adjustment thereafter as provided in Sections 3
and 5.
4.2. Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of the Warrants after the
effective date of such dissolution pursuant to this Section 4 to a bank or trust
company having its principal office in Stamford, Connecticut (or another
location in Connecticut chosen by the Company), as trustee for the holder or
holders of the Warrants.
<PAGE> 43
4.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 4, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant.
5. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (i) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, or (iii) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The holder of this Warrant shall thereafter, on the exercise hereof as provided
in Section 1, be entitled to receive that number of shares of Common Stock
determined by multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this Section 5) be issuable on such
exercise by a fraction of which (i) the numerator is the Purchase Price which
would otherwise (but for the provisions of this subsection 5) be in effect, and
(ii) the denominator is the Purchase Price in effect on the date of such
exercise.
6. Adjustments. In each case of any adjustment or readjustment in the
shares of Common Stock (or Other Securities) issuable on the exercise of the
Warrants, the Company will compute such adjustment or readjustment in accordance
with the terms of the Warrants and shall notify the holder hereof of such
adjustment or readjustment. On the written request of any holder of a Warrant,
the Company shall provide such holder with a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant.
7. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
<PAGE> 44
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
8. Reservation of Stock, etc. Issuable on Exercise of Warrants. Except
as otherwise contemplated by the Agreement, the Company will at all times
reserve and keep available, solely for issuance and delivery on the exercise of
the Warrants, all shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of the Warrants.
9. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer, issuance or other tax) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so surrendered,
provided, however, that no Warrant issued in exchange for this Warrant shall be
exercisable for less than 50 shares of Common Stock.
10. Replacement of Warrants. On receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of any Warrant and, in the
case of any such loss, theft or destruction of any Warrant, on delivery of an
indemnity agreement or security satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
11. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in Stamford, Connecticut (or
another location in Connecticut chosen by the Company) for the purpose of
issuing Common Stock (or Other Securities) on the exercise of the Warrants
pursuant to Section 1, exchanging Warrants pursuant to Section 9, and replacing
Warrants pursuant to Section 10, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
12. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
13. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant may not be transferred without
the prior written consent of the Company;
(b) if consent to transfer is granted pursuant to subsection
13(a), this Warrant may be transferred by endorsement (by the holder hereof
executing the form of assignment at the end hereof) and delivery in the same
manner as in the case of a negotiable instrument transferable by endorsement and
delivery; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
<PAGE> 45
(d) the holder hereof has no rights as a stockholder with
respect to this Warrant until such time as the holder hereof has exercised this
Warrant by delivery of the notice of exercise and has paid in full the Purchase
Price for the number of shares of Common Stock for which this Warrant is to be
so exercised.
14. Notices, etc. All notices and other communications under this
Warrant shall be in writing and shall, except as otherwise provided herein, be
deemed to have been duly given when (i) delivered by hand, (ii) sent by telex or
telecopier (with receipt confirmed), provided that a copy is mailed by certified
mail, return receipt requested, or (iii) when received by the addressee, if sent
by Express Mail, Federal Express or other express delivery service (receipt
requested), in each case, at the appropriate addresses, telex numbers and
telecopier numbers as may have been furnished to the Company in writing by such
holder or, until any such holder furnishes to the Company an address, telex
number or telecopier number, then to, and at the address, telex number or
telecopier number of, the last holder of this Warrant who has so furnished an
address to the Company.
15. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
(Remainder of Page Intentionally Left Blank)
<PAGE> 46
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
META GROUP, INC.
By:_________________________
Name:
Title:
<PAGE> 47
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO META GROUP, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Warrant for, and to purchase thereunder, ................
shares of Common Stock of META Group, Inc. and herewith makes payment of
$.............. therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to .............., whose address is
.............. .................... Payment for such shares of Common Stock
takes the form of (check applicable box or boxes):
( ) $___________ in lawful money of the United States, and/or
( ) the cancellation of such portion of the attached Warrant as is
exercisable for a total of _______ shares of Common Stock
(using a Fair Market Value of $_______ per share for purposes
of this calculation), pursuant to Section 1.4 hereof.
Dated: ............................................
(Signature must conform to name
of holder as specified on the
face of the Warrant)
...........................................
(Address)
<PAGE> 48
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto .................. the right represented by the within Warrant to purchase
................. shares of Common Stock of META Group, Inc. to which the within
Warrant relates, and appoints .......................... Attorney to transfer
such right on the books of META Group, Inc. with full power of substitution in
the premises.
Dated: ...........................................
(Signature must conform to name
of holder as specified on the
face of the Warrant)
...........................................
(Address)
Signed in the presence of:
.............................
PAGE 49
EXHIBIT 11.1
META Group, Inc.
EXHIBIT TO ANNUAL REPORT ON FORM 10-Q
Computation of Net Income Per Common Share
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
- - -------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
------------- -- -------------- --------------- -- ------------
<S> <C> <C> <C> <C>
Net income ...................................... $2,356,000 $1,570,000 $5,971,000 $3,875,000
========== ========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Common shares
outstanding during the period............... 11,350,373 11,043,309 11,254,253 10,734,708
Common share equivalents -- options
to purchase common shares................... 1,366,794 1,037,592 1,285,117 1,170,671
---------- --------- --------- ---------
Total 12,717,167 12,080,901 12,539,370 11,905,379
========== ========== ========== ==========
Net income per diluted common share............... $.19 $.13 $.48 $.33
==== ==== ==== ====
Net income per basic common share................. $.21 $.14 $.53 $.36
==== ==== ==== ====
</TABLE>
PAGE 50
EXHIBIT 21.1
Subsidiaries of META Group, Inc.
The Sentry Group, Inc. - incorporated in the Commonwealth of Massachusetts.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
PAGE 51
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 0 13,281
<SECURITIES> 0 20,530
<RECEIVABLES> 0 26,083
<ALLOWANCES> 0 (579)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 64,168
<PP&E> 0 7,176
<DEPRECIATION> 0 (3,492)
<TOTAL-ASSETS> 0 93,984
<CURRENT-LIABILITIES> 0 31,199
<BONDS> 0 0
0 0
0 0
<COMMON> 0 120
<OTHER-SE> 0 62,665
<TOTAL-LIABILITY-AND-EQUITY> 0 93,984
<SALES> 0 0
<TOTAL-REVENUES> 18,454 50,056
<CGS> 8,675 24,070
<TOTAL-COSTS> 8,675 24,070
<OTHER-EXPENSES> 6,492 17,845
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 3,968 10,104
<INCOME-TAX> (1,612) (4,133)
<INCOME-CONTINUING> 2,356 5,971
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,356 5,971
<EPS-PRIMARY> .21 .53
<EPS-DILUTED> .19 .48
</TABLE>
