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 June 30, 1999
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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
208 Harbor Drive, Stamford, Connecticut 06912-0061
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(Address of principal executive offices, including Zip Code)
(203) 973-6700
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(Registrant's telephone number, including area code)
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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 August 9,
1999 was 10,093,720.
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Total Number of Pages: 22
Exhibit Index is on Page 21
<PAGE>
META Group, Inc.
INDEX
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Page
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
June 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Income (unaudited):
Three and six months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited):
Six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
META Group, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
June 30, December 31,
Assets 1999 1998
----------- -----------
<S> <C> <C>
Current assets: (unaudited)
Cash and cash equivalents $ 2,583 $ 9,945
Marketable securities 7,187 21,031
Accounts receivable, net 34,377 35,306
Deferred commissions 1,950 1,436
Deferred tax asset 2,679 3,808
Other current assets 4,873 2,894
-------- --------
Total current assets 53,649 74,420
Marketable securities 11,408 15,850
Furniture and equipment, net 6,491 4,553
Deferred tax asset 256 792
Goodwill, net 5,630 5,528
Other assets 13,969 11,044
-------- ---------
Total assets $ 91,403 $112,187
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 147 $ 1,432
Deferred revenues 34,259 31,276
Accrued compensation 1,308 5,314
Other current liabilities 1,405 1,475
-------- ---------
Total current liabilities 37,119 39,497
-------- ----------
Stockholders' equity:
Preferred stock -- --
Common stock 107 123
Paid-in capital 37,044 58,443
Retained earnings 17,800 14,444
Accumulated other comprehensive loss (347) --
Treasury stock, at cost (320) (320)
-------- ---------
Total stockholders' equity 54,284 72,690
-------- ---------
Total liabilities and stockholders' equity $91,403 $112,187
======= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
META Group, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Continuous Advisory Services $16,848 $13,805 $32,656 $26,984
Project Consulting 5,251 1,705 8,121 2,781
Published Research 2,012 950 3,439 1,837
--------- --------- ---------- ---------
Total revenues 24,111 16,460 44,216 31,602
--------- --------- ---------- ---------
Operating expenses:
Cost of services and fulfillment 12,883 7,857 24,169 15,395
Selling and marketing 5,806 4,050 10,788 7,496
General and administrative 2,080 1,437 3,873 2,957
Depreciation and amortization 659 453 1,252 900
--------- --------- --------- ---------
Total operating expenses 21,428 13,797 40,082 26,748
--------- --------- --------- ----------
Operating income 2,683 2,663 4,134 4,854
Other income, primarily interest 791 677 1,563 1,282
--------- --------- --------- ---------
Income before provision for income taxes 3,474 3,340 5,697 6,136
Provision for income taxes 1,426 1,373 2,340 2,521
--------- --------- --------- ---------
Net income $2,048 $ 1,967 $3,357 $ 3,615
========= ========= ========= =========
Net income per diluted common share $ .18 $ .16 $ .28 $ .29
========= ========= ========= =========
Weighted average number of diluted common
shares outstanding 11,317 12,570 12,136 12,444
========= ========= ========= =========
Net income per basic common share $ .19 $ .17 $ .30 $ .32
========= ========= ========= =========
Weighted average number of basic common
shares outstanding 10,851 11,261 11,338 11,212
========= ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
META Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the six months ended
June 30,
- ------------------------------------------------------------------------------------------------------------------------
1999 1998
------- --------
<S> <C> <C>
Operating activities:
Net income $3,357 $3,615
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,252 900
Deferred income taxes 1,906 2,375
Changes in assets and liabilities:
Accounts receivable 929 3,740
Other current assets (2,246) (1,070)
Other assets (668) (587)
Accounts payable (1,313) (953)
Accrued expenses and other current liabilities (4,076) (1,806)
Deferred revenues 2,983 (1,210)
-------- -------
Net cash provided by operating activities 2,124 5,004
-------- -------
Investing activities:
Capital expenditures (3,074) (1,413)
Proceeds from sales/maturities of (investments in) marketable securities - net 17,437 (5,894)
Investments and advances (2,435) (569)
-------- -------
Net cash used in (provided by) investing activities 11,928 (7,876)
-------- ---------
Financing activities:
Proceeds from exercise of stock options 986 788
Proceeds from employee stock purchase plan 351 168
Reacquisition of shares (22,485) -
Reacquisition of shares - current stockholder (266) -
--------- --------
Net cash (used in) provided by financing activities (21,414) 956
--------- -------
Net decrease in cash and cash equivalents (7,362) (1,916)
Cash and cash equivalents, beginning of period 9,945 12,910
======== =======
Cash and cash equivalents, end of period $ 2,583 $10,994
======== =======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
META Group, Inc.
NOTES TO CONSOLIDATED 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, 1998. 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 six months ended June 30, 1999, the Company recorded
a tax provision of $1.4 million and $2.3 million, respectively, reflecting an
effective tax rate of 41%. The total deferred tax asset decreased to $2.9
million at June 30, 1999 from $4.6 million at December 31, 1998 as the Company
utilized its net operating loss carryforwards to offset taxable income. For the
six months ended June 30, 1999, the Company paid $275,200 for state income tax
liabilities, and $320,000 for federal alternative minimum tax liabilities.
Note 3 - Marketable Securities
- ------------------------------
During the six months ended June 30, 1999, the Company utilized
approximately $17.9 million (including interest earned in 1999) of its
marketable securities to finance its stock repurchase plan. Of the $17.9
million, $1.9 million came from proceeds of securities called by the issuer, $7
million from proceeds of securities that matured, and the remaining proceeds of
$9 million were from securities sold. There were no gains or losses recognized
on the sale of the investments during the three and six months ended June 30,
1999 as the sale prices approximated the carrying values at the dates of sale.
Of the $18.6 million of marketable securities on hand at June 30, 1999,
approximately $11.4 million represents long-term securities with maturity dates
ranging from 8 to 15 years. The Company's internal investment policy dictates
that a greater proportion of the securities held at any time have more current
maturities; consequently, it is no longer the Company's intention to hold such
securities to maturity. The Company reclassified its entire portfolio of
marketable securities from held-to-maturity to available-for-sale at June 30,
1999. Accordingly, such securities were marked-to-market, resulting in an
unrealized loss of $347,000, net of $241,000 of income tax benefits. The
unrealized loss is reflected as accumulated other comprehensive loss in
Stockholders' Equity and has no effect on net income for the three and six
months ended June 30, 1999.
Note 4 - Comprehensive Income
- -----------------------------
Total comprehensive income for the three and six months ended June 30,
1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $2,048 $1,967 $3,357 $3,615
Other comprehensive income, net of tax:
Unrealized loss on marketable securities (347) - (347) -
----------- ----------- ------------ -----------
Comprehensive Income $1,701 $1,967 $3,010 $3,615
========== =========== ============ ===========
</TABLE>
Note 5 - Segment Reporting
The Company operates in three business segments: Continuous Advisory
Services, Project Consulting and Published Research. The Company's reportable
segments are separately managed strategic business segments. Each operating
segment offers different products/services, and is sold via various
distribution channels. In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," ("SFAS 131.") Effective January 1, 1999, the Company
changed the way it reports revenues on its Consolidated Statements of Income to
be consistent with the direction of SFAS 131. Consequently, the Company now
reports separately the revenues earned from each of its three operating
segments, which is consistent with the way the Company manages its operations.
Previously, the Company reported revenues from two sources: Continuous Services
and Other, principally consulting and publications. The revenues for the three
and six months ended June 30, 1998 have been reclassified to conform to the 1999
presentation. SFAS 131 requires the Company to disclose selected segment
information on an interim basis consistent with the way management operates its
business. Revenue and operating income information for the three operating
segments is set forth below:
<TABLE>
<CAPTION>
Continuous
Advisory Services Project Published Research Consolidated
Consulting Total
Three months ended June 30, 1999
<S> <C> <C> <C> <C>
Revenues $16,848 $5,251 $2,012 $24,111
Operating Income 1,773 1,176 (266) 2,683
Three months ended June 30, 1998
Revenues $13,805 $1,705 $950 $16,460
Operating Income 1,959 864 (160) 2,663
Six months Ended June 30, 1999
Revenues $32,656 $8,121 $3,439 $44,216
Operating Income 4,300 385 (551) 4,134
Six Months Ended June 30, 1998
Revenues $26,984 $2,781 $1,837 $31,602
Operating Income 4,370 641 (157) 4,854
</TABLE>
Note 6 - Stock Repurchases
- --------------------------
On April 14, 1999, the Company's Board of Directors unanimously
authorized the repurchase of up to 1.2 million shares of its common stock in the
open market and in privately negotiated transactions from time to time,
depending on market conditions and other factors. On May 3, 1999, the Company
announced the expansion of the repurchase program to a total of 2.4 million
shares. During the period April 19, 1999 to June 15, 1999, 1,989,993 shares were
repurchased at an average price of $11.28 per share. All shares repurchased have
been retired to the status of authorized but unissued.
Additionally, in April 1999, the Company repurchased 2,389 shares of
its common stock and warrants to purchase 2,449 shares of its common stock from
a minoirity stockholder pursuant to the terms of a Settlement Agreement, dated
October 31, 1995, between the stockholder and Sentry. Such repurchase obligation
was assumed by the Company upon the aquisition of Sentry in October 1998. The
fair market value of the repurchased securities and all associated costs were
recovered from a purchase consideration escrow established for the satisfaction
of indemnification claims pursuant to the terms of the Agreement and Plan of
Merger between Sentry and the Company. Such recovery by the Company was in the
form of a release of 15,264 shares of the Company's common stock from the Sentry
purchase consideration escrow. Such released shares, and the aforementioned
repurchased shares, were retired to the status of authorized but unissued
<PAGE>
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, 1998.
Overview
META Group, Inc. ("META Group"), together with its subsidiary, The
Sentry Group, Inc. ("Sentry" and collectively, the "Company"), 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 and revenue enhancing
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.
The Company has three operating business segments: Continuous Advisory
Services, Project Consulting and Published Research. The Continuous Advisory
Services segment provides annually renewable subscription services focused on
specific areas of IT, IT issues related to a specific vertical market, or the
specific needs of those within the IT organization. The Project Consulting
segment provides strategic consulting engagements servicing clients' business
and technology issues. The Published Research segment provides publications
offering in-depth analysis of single business or IT issues.
Continuous Advisory Services subscriptions constituted approximately
70% and 84% of the Company's total revenues for the quarters ended June 30, 1999
and 1998, respectively. Billings attributable to the Company's Continuous
Advisory Services are initially recorded as deferred revenues and then
recognized pro rata over the contract term.
Continuous Advisory 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.
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 renewable revenues recognized from all 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 28% to $75.4 million at June 30, 1999 from $59 million
at June 30, 1998. At June 30, 1999, the Company had 4,400 Continuous Services
subscribers in approximately 1,900 client organizations worldwide, as compared
to 3,700 subscribers in 1,600 organizations at June 30, 1998.
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
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 JUNE 30, 1999 AND 1998
REVENUES Total revenues increased 46% to $24.1 million in the quarter ended June
30, 1999 from $16.5 million in the quarter ended June 30, 1998.
Revenues from Continuous Advisory Services, which generally are derived from
annually renewable contracts, payable by clients in advance, increased 22% to
$16.8 million in the quarter ended June 30, 1999 from $13.8 million in the
quarter ended June 30, 1998. The increase in revenues from Continuous Advisory
Services was due to growing international market acceptance of the Company's
Continuous Advisory Services, continued expansion of the Company's domestic
sales force resulting in an increased client subscriber base, an increase in
analyst briefings to existing clients, and increasing market acceptance of the
Company's INfusion products. Continuous Advisory Services revenues attributable
to international clients increased 49% in the quarter ended June 30, 1999 from
the quarter ended June 30, 1998, and increased as a percentage of Continuous
Advisory Services revenue to 18% from 15%. Such increase in Continuous Advisory
Services revenue attributable to international clients was due principally to
increased demand for the Company's Continuous Advisory Services and an increased
demand for the Company's PEMS service. The Company currently has sales
representation in 31 countries.
The Company increased Contract Value 28% to $75.4 million at June 30, 1999 from
$59 million at June 30, 1998. The Company grew its subscriber client base 19% to
4,400 Continuous Service clients at June 30, 1999 from 3,700 clients at June 30,
1998.
Project Consulting revenues, which result from strategic consulting engagements
servicing clients' business and technology issues, increased 208% to $5.3
million in the quarter ended June 30, 1999 from $1.7 million in the quarter
ended June 30, 1998, and increased as a percentage of total revenues to 22% from
10%. The significant increase was primarily due to incremental revenues from the
acquisition of Sentry in October 1998 as well as a shift in client demand
from Continuous Advisory Services towards more focused consulting services. The
Company's Project Consulting clients typically consist of Continuous Advisory
Services clients seeking additional advice tailored to their individual IT
requirements.
Published Research revenues, which result from the sale of publications offering
in-depth analysis of single business or IT issues, increased 112% to $2 million
in the quarter ended June 30, 1999 from $950,000 in the quarter ended June 30,
1998, and increased as a percentage of total revenues to 8% from 6%. The
increase was primarily due to an increase in sales of publications distributed
under the Company's agreements with CXP International, S.A. and Rubin Systems,
Inc. (a corporation wholly-owned by a director of the Company, Howard Rubin),
and increased revenues from the launch of new publications in 1999.
The Company currently expects Project Consulting and Published Research revenues
to continue to grow at a faster rate than Continuous Advisory Services due to
the Sentry acquisition, and as a result of a shift in business demand by clients
<PAGE>
from Continuous Advisory Services towards more focused, client specific
services.
Cost of Services and Fulfillment Cost of services and fulfillment increased 64%
to $12.9 million in the quarter ended June 30, 1999 from $7.9 million in the
quarter ended June 30, 1998 due to the Sentry acquisition and increased staffing
costs for analyst, consultant and fulfillment positions necessary to support the
Company's growth both domestically and internationally. The principal areas of
cost increases were compensation, and to a lesser extent, travel. Additionally,
royalty payments to third parties with whom the Company has distribution
agreements increased as a result of increased sales of the underlying services.
Cost of services and fulfillment increased as a percentage of total revenues to
53% from 48% in the quarter ended June 30, 1998 due to the continued hiring of
analysts and consultants. While the Company anticipates continuing increases in
the costs of services and fulfillment, it expects that such expenses will
decrease slightly as a percentage of total revenues during 1999.
Selling and Marketing Expenses Selling and marketing expenses increased 43% to
$5.8 million in the quarter ended June 30, 1999 from $4.1 million in the quarter
ended June 30, 1998 and decreased as a percentage of total revenues to 24% from
25%. The increase in Selling and Marketing expenses was principally due to
increased compensation and travel expenses associated with expanding the
Company's domestic Direct Sales force to support the increasing scope of its
product offerings. In addition, the Company incurred greater marketing expenses,
both domestically and internationally, in connection with the Company's
revenue growth. The Company continued the expansion of its Inside Sales channel,
which is a team of sales professionals that sell the Company's published
research by telephone. 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 decrease slightly during 1999.
General and Administrative Expenses General and administrative expenses
increased 45% to $2.1 million in the quarter ended June 30, 1999 from $1.4
million in the quarter ended June 30, 1998, and remained constant as a
percentage of total revenues at 9%. 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 to remain approximately the same as a
percentage of total revenues during 1999.
Depreciation and Amortization Depreciation and amortization expense increased
45% to $659,000 in the quarter ended June 30, 1999 from $453,000 in the quarter
ended June 30, 1998. 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 and the amortization of
goodwill from the Sentry acquisition consummated in October 1998.
OTHER INCOME Other income increased 17% to $791,000 in the quarter ended June
30, 1999 from $677,000 in the quarter ended June 30, 1998 due to $200,000 of
income recognized from the release of contingent consideration pursuant to an
asset purchase agreement in connection with the sale of certain assets by Sentry
in May 1998. Under the terms of the merger agreement pursuant to which the
Company acquired Sentry, all of the aforementioned consideration was released to
the Company in June of 1999 as the sole stockholder of Sentry. The former
stockholders of Sentry are entitled to such released contingent consideration
pursuant to such merger agreement. Additionally, during the quarter ended June
30, 1999, interest income from debt financings of investee companies increased.
These increases were partially offset by a decrease in interest income from the
Company's cash and marketable securities due to the decrease in such balances as
a result of the Company's stock repurchases.
PROVISION FOR INCOME TAXES Provision for income taxes of $1.4 million was
recorded for the quarter ended June 30, 1999, as compared to a provision of $1.4
million recorded for the quarter ended June 30, 1998, reflecting an effective
tax rate of 41%. The total deferred tax asset decreased to $2.9 million at June
30, 1999 from $4.6 million at December 31, 1998 as the Company utilized its net
operating loss carryforwards to offset taxable income. The Company currently
anticipates utilizing its remaining federal net operating loss carryforwards by
the end of 1999.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES Total revenues increased 40% to $44.2 million in the six months ended
June 30, 1999 from $31.6 million in the six months ended June 30, 1998.
Revenues from Continuous Advisory Services increased 21% to $32.7 million in the
six months ended June 30, 1999 from $27 million in the six months ended June 30,
1998. The increases in revenues from Continuous Advisory Services were primarily
due to the expansion of the Company's domestic sales force, growing
international market acceptance of the Company's Continuous Advisory Services
revenues, an increase in analyst briefings to existing clients, and the
introduction of the Company's INfusion products in the fourth quarter of 1998.
Continuous Advisory Services revenue growth, however, was lower than expected,
primarily as a result of a shift in client demand toward consulting services.
Continuous Advisory Services revenues attributable to international clients
increased 37% in the six months ended June 30, 1999 from the six months ended
June 30, 1998, and increased as a percentage of Continuous Services revenues to
17% from 15%.
Project Consulting revenues, which result from strategic consulting engagements
servicing clients' business and technology issues, increased 192% to $8.1
million in the six months ended June 30, 1999 from $2.8 million in the six
months ended June 30, 1998, and increased as a percentage of total revenues to
18% from 9%. The increase was principally due to the incremental revenues from
the acquisition of Sentry in October 1998, as well as a shift in client demand
from Continuous Advisory Services towards more focused consulting services, and
was partially offset by unexpected transitional issues with respect to the
integration commenced in the first quarter 1999 in connection with the Sentry
acquisition.
Published Research revenues, which result from the sale of publications offering
in-depth analysis of single business or IT issues, increased 87% to $3.4 million
in the six months ended June 30, 1999 from $1.8 million in the six months ended
June 30, 1998, and increased as a percentage of total revenues to 8% from 6%.
The increase was primarily due to an increase in sales of publications
distributed under the Company's agreements with CXP International, S.A. and
Rubin Systems, Inc. (a corporation wholly-owned by a director of the Company,
Howard Rubin), and the introduction of new products in 1999. The increase was
partially offset by publishing delays in the quarter ended March 31, 1999 with
respect to certain publications sold by the Company.
Cost of Services and Fulfillment Cost of services and fulfillment increased 57%
to $24.2 million in the six months ended June 30, 1999 from $15.4 million in the
six months ended June 30, 1998, and increased as a percentage of total revenues
to 55% from 49%. The increase was principally due to the Sentry acquisition and
increased staffing for analyst, consultant and fulfillment positions necessary
to support the Company's growth both domestically and internationally. The
principal areas of cost increases were compensation, and to a lesser extent,
travel. Additionally, royalty payments to third parties with whom the Company
has distribution agreements increased as a result of increased sales of the
underlying services.
Selling and Marketing Expenses Selling and marketing expenses increased 44% to
$10.8 million in the six months ended June 30, 1999 from $7.5 million in the six
months ended June 30, 1998 and remained approximately the same as a percentage
of total revenues at 24%. The increase in Selling and Marketing expenses was
principally due to increased compensation and travel expenses associated with
expanding the Company's domestic Direct Sales force. In addition, the Company
incurred greater marketing expenses, both domestically and internationally, in
connection with the Company's revenue growth. The Company continued the
expansion of its Inside Sales channel in connection with selling the Company's
published research.
General and Administrative Expenses General and administrative expenses
increased 31% to $3.9 million in the six months ended June 30, 1999 from $3
million in the six months ended June 30, 1998 and remained approximately the
same as a percentage of total revenues at 9%. The increase in expenses was
principally due to increased salary and benefit costs, facilities costs, and
recruitment costs, all associated with increased headcount and the Sentry
acquisition.
Depreciation and Amortization Depreciation and amortization expense increased
39% to $1.3 million in the six months ended June 30, 1999 from $900,000 in the
six months ended June 30, 1998. The increase in depreciation and amortization
expense was principally due to purchases of computer equipment and office
furniture required to support business growth and the amortization of goodwill
from the Sentry acquisition consummated in October 1998.
OTHER INCOME Other income increased 22% to $1.6 million in the six months ended
June 30, 1999 from $1.3 million in the six months ended June 30, 1998. The
increase was principally due to $200,000 of income recognized from the release
of contingent consideration pursuant to an asset purchase agreement in
connection with the sale of certain assets by Sentry in May 1998. Additionally,
in 1999 interest income from debt financings of investee companies increased.
These increases were partially offset by a decrease in interest income from the
Company's cash and marketable securities balances due to the decrease in such
balances as a result of the Company's stock repurchases.
PROVISION FOR INCOME TAXES Provision for income taxes of $2.3 million was
recorded for the six months ended June 30, 1999, as compared to a provision of
$2.5 million recorded for the six months ended June 30, 1998, reflecting an
effective tax rate of 41%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is cash from operating
activities which consists of net income adjusted for non-cash operating
activities and changes in current assets and liabilities. The Company generated
$2.1 million of cash from operating activities during the six months ended June
30, 1999, compared to $5 million in the same period of 1998. The decrease in
cash generated from operating activities was principally due to decreased cash
collections on outstanding accounts receivable, an increase in other current
assets as a result of increases in short-term advances made to investee
companies and prepaid income taxes, and increased employee bonuses in the first
half of 1999 versus the same period in 1998. Such decreases were partially
offset by an increase in deferred revenues during the first half of 1999 versus
the same period in 1998.
The Company used $3.1 million of cash in the six months ended June 30,
1999, compared to $1.4 million in the same period of 1998, for the purchase of
furniture, equipment, computers and related software for use by the Company's
employees. The increase is due primarily to greater headcount and the
implementation of a systems upgrade program discussed below. The Company expects
that additional purchases of equipment will be made as the Company's employee
base continues to grow. As of June 30, 1999, the Company had no material
commitments for capital expenditures. The Company, however, is currently
upgrading significant internal systems, including its client information system,
its telephone system, and accounting system, to support business growth. The
total cash outlay for the completion of the project in 1999 (excluding internal
resources) is expected to be less than $1 million.
On April 14, 1999, the Company's Board of Directors unanimously
authorized the repurchase of up to 1.2 million shares of its common stock in the
open market and in privately negotiated transactions from time to time,
depending on market conditions and other factors. On May 3, 1999, the Company
announced the expansion of the repurchase program to a total of 2.4 million
shares. During the period April 19, 1999 to June 15, 1999, 1,989,993 shares were
repurchased at an average price of $11.28 per share. All shares repurchased have
been retired to the status of authorized but unissued.
The Company financed all repurchases with its cash and marketable
securities balances.
In May 1999, the Company advanced $960,000 to Syndicated Research Group
("SRG") in exchange for a subordinated convertible promissory note. SRG is a
research and advisory services company focused on serving the heads of corporate
divisions.
On March 15, 1999, the Company entered into an agreement to advance
$2.7 million to META Security Group, Inc., an independent internet security
start-up consulting firm, in exchange for a secured convertible promissory note.
As of June 30, 1999, the Company had advanced $1.3 million which is included in
Other Assets on the consolidated balance sheet. On July 13, 1999, the Company
entered into an agreement to advance an additional $1,000,000 to META Security
Group, Inc., in exchange for a secured promissory note. The principal amount of
the note shall be advanced in installments, which may be made no more frequently
than on a monthly basis.
The foregoing investments were made in accordance with the Company's
strategy to invest in companies in parallel or synergistic industries and are
accounted for under the cost method.
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 longer term, callable, higher-yield
marketable debt securities. Generally, these securities are U.S. federal
government agency issues, purchased in denominations of $1 million to $7
million.
As of June 30, 1999, the Company had cash and cash equivalents of $2.6
million, marketable securities of $18.6 million and working capital of $16.5
million. The decrease in these assets from March 31, 1999 is primarily
attributable to the share repurchase program discussed above. 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 the first half of 1999, the Company continued its 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 made inquiries with its 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. These systems relate to the ability of the Company to transmit
its products to its customers via the internet, CD-ROM, and Lotus Notes, 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 substantially completed;
furthermore, the third parties continually assess their readiness and
communicate their findings to the Company. 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 its suppliers of its business critical 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 through July 1999, 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 reviewed was the Company's telephone system, which is critical
to the function of the business. The Company currently plans to complete the
implementation of a new telephone system by the end of the third quarter of
1999. Also, in response to the increase in clients and employees and the need
for improved information management for customer service, the Company
implemented 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 $2.5 million (including an estimated $2.4 million of costs
for replacing the client information system and telephone system), of which the
Company has spent approximately $2.0 million as of June 30, 1999. The Company
will fund all Year 2000 compliance costs from existing working capital.
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 choose to receive the Company's written deliverables via the
internet, failure of that system could prevent customers from accessing the
Company's written deliverables 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:
o 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. The Company, however, currently feels that
the risk of a shift in the focus of customers' and potential customers'
discretionary IT spending will not have a material adverse effect on
the Company's business, operating results and financial condition.
o 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.
o 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, as of June 30, 1999, the Company had over
$18 million in marketable securities, which are invested in unsecured,
short- term investment grade, corporate debt instruments (commercial
paper), and long-term U.S. federal government agency issues. 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, as of June 30, 1999,
the Company had over $34 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:
o The Company's research is available in written form as well as via the
internet, CD-ROM, and Lotus Notes. 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.
o In the event the Company is unable to replace the existing accounting
software 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.
o In the event the Company is unable to replace the existing telephone 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 the year 2000 approaches.
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
involving 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 revenue growth rate in its three operating segments
and in international revenues, anticipated costs of services and fulfillment,
selling and marketing and operation expense levels, cost and expense levels
relative to the Company's total revenues and anticipated mix of revenues, the
ability of the Company's computer systems and applications to function properly
beyond 1999, planned capital expenditures, the Company's working capital and
capital expenditure requirements, and net operating loss carryforwards)
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 Advisory Services. As a result, any decline in
the Company's ability to secure subscription renewals 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 Project Consulting services and Published
Research, 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: understand and
anticipate rapidly changing technologies and market trends so as to keep its
analysis focused on the changing needs of its clients, deliver products and
services of sufficiently high quality and timeliness to withstand competition
from competitors that may have greater financial, information gathering, and
marketing resources than the Company, and recruit and retain highly talented
professionals in a competitive job market. The loss of any of the Company's
senior management personnel, including Dale Kutnick (President, Chief Executive
Officer and Co-Research Director), could have a material adverse affect on the
Company. 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. The Company's
pricing strategy may limit the potential market for the Company's Continuous
Advisory Services. As a result, the Company may be required to reduce prices for
its Continuous Advisory Services or introduce new products with lower prices in
order to expand or maintain its 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 that 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 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. Because a disproportionately large portion
of the Company's Continuous Advisory 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 Advisory Services, the level and timing of
contracted Project Consulting Services, 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 integration of acquired businesses into the operations of the
Company (particularly the Sentry acquisition), the timing of the acquisition and
integration into the Company of new business, products, and services, the timing
of the delivery of published research sold by the Company, the timing of the
hiring of research analysts and consultants, changes in the spending patterns of
the Company's target clients, 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference should be made to the Company's annual report on Form 10-K for
the year ended December 31, 1998 for quantitative and qualitative disclosure of
the Company's market risk. There have been no material changes to the market
risk information included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
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, 1998, the Company is a party to certain legal proceedings
arising in the ordinary course of business. The Company, however, 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 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
On May 20, 1999, the Company held its Annual Meeting of Stockholders.
At such Annual Meeting the stockholders of the Company voted on the election of
two Class I Directors to serve for a three-year term and until their successors
have been duly elected and qualified. The number of votes cast for the
re-election of each of the Class I Directors listed below was as follows:
Nominees Number of Shares
- -------- -----------------
For Withhold Authority
--- ------------------
Dale Kutnick 10,568,865 261,926
Francis J. Saldutti 10,611,330 219,461
Each of Marc Butlein, Harry S. Gruner, Michael Simmons, George McNamee and
Howard Rubin continued as Directors of the Company after the Annual Meeting of
Stockholders. Mr. Butlein resigned from the Board of Directors effective May 31,
1999.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
---------
Exhibit
Number Description
------ -----------
10.1 Application Productivity Strategies Development and
Services Agreement between META Group, Inc., and
Rubin Systems Incorporated and Howard Rubin, dated
October 11, 1996 (the "Rubin Agreement") (with
certain confidential information omitted).
10.2 Addendum to Rubin Agreement dated October 21, 1997
(with certain confidential information omitted).
10.3 Addendum to Rubin Agreement dated June 30, 1998
(with certain confidential information omitted).
10.4 Addendum 3 to Rubin Agreement dated June 14, 1999
(with certain confidential information omitted).
11.1 Statement re-computation of per-share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
On April 15, 1999, the Company filed a Current Report on Form 8-K dated
April 14, 1999 announcing (i) the preliminary results for the fiscal quarter
ended March 31, 1999 and (ii) a stock repurchase program to purchase up to
1,200,000 shares of its Common Stock.
On May 4, 1999, the Company filed a Current Report on Form 8-K dated
May 3, 1999 announcing (i) the results for the fiscal quarter ended March 31,
1999 and (ii) an authorization to expand the Company's stock repurchase program
to a total of 2.4 million shares of its Common Stock from 1.2 million previously
authorized on April 14, 1999.
<PAGE>
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: August 16, 1999 By: /s/ Bernard F. Denoyer
--------------------------------------------
Bernard F. Denoyer
Senior Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C> <C>
10.1 Application Productivity Strategies Development and Services Agreement *
between META Group, Inc., and Rubin Systems Incorporated and Howard Rubin,
dated October 11, 1996 (the "Rubin Agreement") (with certain confidential
information omitted).
10.2 Addendum to Rubin Agreement dated October 21, 1997 (with certain confidential *
information omitted).
10.3 Addendum to Rubin Agreement dated June 30, 1998 (with certain confidential *
information omitted).
10.4 Addendum 3 to Rubin Agreement dated June 14, 1999 (with certain confidential *
information omitted).
11.1 Statement re computation of per-share earnings 22
27.1 Financial Data Schedule *
* Exhibit included in EDGAR filing with Securities and Exchange Commission.
------------------
</TABLE>
EXHIBIT 11.1
<TABLE>
META Group, Inc.
EXHIBIT TO QUARTERLY REPORT ON FORM 10-Q
Computation of Net Income Per Common Share
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
- --------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----------- ----------- ----------- -------------
Net Income......................................... $ 2,048,000 $ 1,967,000 $ 3,357,000 $ 3,615,000
=========== =========== =========== =============
Weighted average number of common and common equivalent shares outstanding:
Common shares
outstanding during the period ............. 10,850,788 11,261,272 11,337,887 11,211,746
Common share equivalents - options
to purchase common shares ................. 466,195 1,308,283 797,980 1,232,257
---------- ---------- ----------- -----------
Total .............................. 11,316,983 12,569,555 12,135,867 12,444,003
=========== =========== =========== ============
Net income per diluted common share ............... $.18 $.16 $.28 $.29
=========== =========== =========== ==============
Net income per basic common share ................. $.19 $.17 $.30 $.32
=========== =========== =========== =============
</TABLE>
10.1
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED
BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO
THE SECURITIES AND EXCHANGE COMMISSSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT
APPLICATION PRODUCTIVITY STRATEGIES
DEVELOPMENT AND SERVICES AGREEMENT
This Application Productivity Strategies Development and Services
Agreement ("Agreement") made and entered into this 11th day of October, 1996 by
and among META Group, Inc. ("META"), a Delaware corporation with offices at 208
Harbor Drive, Stamford, Connecticut, 06912 and Rubin Systems Incorporated
("RSI"), a New York corporation and Howard Rubin ("Principal"), both with
offices at 5 Winterbottom Lane, Pound Ridge, New York, 10576. RSI and Principal
are sometimes referred to herein collectively as "RSI".
W I T N E S S E T H:
--------------------
WHEREAS, RSI and Principal are in the business of and are experts in,
providing software programming productivity analysis and related services to
businesses, including information technology ("IT") vendors and users; and
WHEREAS, Principal is the controlling shareholder and President of RSI; and
WHEREAS, META and RSI wish to enter into an agreement under which RSI is to
develop for META certain products and perform certain services described below;
and
WHEREAS, META will provide certain services and distribution channels
described below; and
WHEREAS, RSI and META will jointly perform certain functions and produce
certain deliverables described below.
NOW, THEREFORE, in consideration of the premises and the terms hereinafter
set forth, the parties, intending to be legally bound, agree as follows:
1. Services. META hereby retains RSI to provide technical services for the
development, implementation and maintenance, on an exclusive basis, of META's
Application Productivity Strategies service ("APS") which shall include without
limitation the delivery to META for use by META's customers of those items
described in Exhibit 1 hereto. META's APS will include the provision of
research, information and consulting services for META customers on an annual
retainer basis. RSI shall provide to META such services through the services of
Principal and others acceptable to META. RSI acknowledges that META lacks
knowledge and expertise sufficient to perform such services for itself and that
META is and will be relying upon the knowledge and expertise of RSI therefor,
which RSI hereby warrants and represents are sufficient to develop and maintain
the APS as provided herein.
<PAGE> 2
2. Responsibilities of the Parties. Each of META and RSI shall provide
the deliverables and services described in Exhibit 1 annexed hereto in order to
maximize the profitability of the APS. The parties agree to use their
commercially reasonable best efforts to deliver those items set forth in Exhibit
1 in a timely and professional manner, pursuant to the Milestones and Timing
Schedule annexed hereto as Exhibit 2. Notwithstanding any language to the
contrary contained herein, META shall, in its sole and absolute discretion,
determine how, when, where and whether to market or sell the APS.
3. Documentation. RSI agrees that all documentation to be delivered to
META shall conform with generally accepted standards in the IT industry and be
acceptable to META in its sole and absolute discretion, which acceptance shall
be in writing.
4. Place of Performing Services. The services to be provided by RSI
hereunder shall be performed at RSI's offices or other mutually agreed upon
location. Except for reasonable expenses incurred by RSI arising out of META
requests for services beyond those set forth in Exhibit 1, META shall not be
liable for any travel, living or similar expenses incurred by RSI in connection
with the services to be performed hereunder unless otherwise agreed to in
writing by the parties.
5. Time for Performance of Services. Within ten (10) days after
execution of this Agreement by the parties, RSI shall commence services
hereunder; within ten (10) days thereafter the parties shall agree upon dates
for completion of all phases (set forth herein and on Exhibit 2) and shall
insert such dates on Exhibit 2 and initial each such date. RSI shall complete
all phases of the services to be provided hereunder by the dates to be so set
forth on Exhibit 2. If RSI does not complete a phase by the date for completion
for reasons beyond the control of RSI, it shall have, in the case of only the
first instance of any such failure, up to an additional thirty (30) days to
complete such phase (and the date of completion of such subsequent phase shall
be extended by any such additional time); if RSI fails to meet such extended
dates, META shall have the right, in its sole discretion, to terminate this
Agreement without further obligation or liability to RSI. If RSI does not
complete a phase by the date to be set forth on Exhibit 2 for reasons within the
control of RSI, META shall have the right, in its sole discretion, to terminate
this Agreement without further obligation or liability to RSI. If, within twenty
(20) days after date hereof, the parties do not agree upon dates for completion
of all phases and set forth same on Exhibit 2, META shall have the right, in its
sole discretion, to terminate this Agreement without further obligation or
liability to RSI.
6. Term; Termination. (a) Unless otherwise provided, this Agreement
shall be in effect for a period of five (5) years beginning on the date of
execution hereof; provided, however, that if not terminated pursuant to the
provisions of Section 6(b) hereof, upon expiration of the initial term or any
extension thereof, this Agreement shall be automatically renewed for successive
one (1) year terms unless terminated by either party for any reason or no reason
on at least ninety (90) days notice prior to the end of the initial term or any
renewal term.
(b) This Agreement may be unilaterally terminated as follows:
(i) A party (the "Terminating Party") shall have the
<PAGE> 3
right to terminate this Agreement due to the other
party's (the "Non-terminating Party") breach of any
obligation incurred hereunder, which breach has not
been cured by the Non-terminating Party thirty (30)
days following receipt by such Non-terminating Party
of written notice of such breach;
(ii) META shall be free to terminate this Agreement, upon
thirty (30) days notice to RSI, in the event the APS
products or services become the subject of a bona
fide infringement or similar claim;
(iii) META shall be free to terminate this Agreement, upon
fifteen (15) days written notice if RSI fails to
develop acceptable, commercially viable deliverables
within the dates set forth in Exhibit 2.
(c) Upon termination or expiration of this Agreement for any reason the
following will apply:
(i) Subject to Section 13, each party shall immediately
return to the other party all originals and copies in
its possession of all documents and other tangible
media containing, embodying or otherwise
incorporating the Disclosing Party's Confidential
Information (as such terms are defined in Section 11
hereof).
(ii) Subject to Section 13, each party shall cease all use
of the other party's Confidential Information.
(iii) Subject to Section 14, each party shall be free to
use the jointly developed Inventions (as such term is
defined in Section 13 hereof).
(iv) The parties shall continue to split reduced Royalties
on APS goods or services sold as described in Section
7 for the three (3) year period following termination
or expiration; provided however, that if this
Agreement is terminated by META pursuant to Section
6(b)(i), (ii) and/or (iii) hereof, or RSI terminates
this Agreement pursuant to Sections 6(a) or 18, all
Royalties payable to RSI shall immediately cease upon
the effective date of termination; provided further,
that if RSI terminates this Agreement pursuant to
Section 6(b)(i), (ii) and/or (iii) or META terminates
this Agreement pursuant to Sections 6(a) or 18, then
RSI's Royalty shall be * *
* for such
three (3) year period.
(v) Termination shall not affect any rights of clients to
use the APS goods or services previously sold.
(vi) Each party's obligations set forth in this Agreement
or any schedule or exhibit hereto shall cease except
for those obligations in Sections 11, 12, 13, 14, 15
and 17.
(vii) To the extent not earned, RSI shall immediately
return the Advance Royalty (as such term is defined
in Section 7(b).
<PAGE> 4
(d) Neither party will be liable to the other for damages of any kind,
including incidental or consequential damages, because of the termination of
this Agreement in accordance with its terms or the failure to renew this
Agreement for any subsequent period. Except as expressly provided in this
Agreement, RSI waives any right it may have to receive any compensation or
reparations on termination of this Agreement under any law or otherwise. No
party will be liable to the other because of termination of this Agreement for
reimbursement or damages for the loss of goodwill, prospective profits or
anticipated income, or on account of any expenditures or commitments made by
either party or for any other reason whatsoever based upon or arising out of
such termination.
7. Royalty Allocations; Royalty Advance. (a) During the term hereof,
META shall determine in its sole discretion the fees to be charged to end users
of the APS. For all amounts billed by META, net of all credits and adjustments,
in respect of sales of the APS during the term of this Agreement, the parties
shall each receive as their sole compensation under this Agreement a royalty
(the "Royalty") allocated and distributed in accordance with the following
percentages: * * *.
Royalties, if any, shall be distributed monthly, within sixty (60) days
of the end of each calendar month commencing with the first complete calendar
month following the launch of the APS. The above Royalty presumes that the APS
annual retainer services and benchmarking products and services are "bundled";
that is, they are marketed, sold and billed as a single item. To the extent META
determines to unbundle some or all of the APS products or services, the parties
shall negotiate in good faith a new Royalty allocation that takes into account
the relative contribution/burden of the party rendering the particular
portion(s) of the unbundled APS products and services.
(b) * *
*.
(c) Principal agrees that he will be available on a scheduled basis as
a consultant on additional consulting projects as requested by META from time to
time. Principal's current rate is * * for client-billable services. Principal's
rate is subject to annual review and increase based on the parties' mutual
agreement.
8. Equipment, Materials and Support. RSI agrees that all compensation
to be paid hereunder shall be inclusive of all equipment, materials, support
services and other expenses necessary or desirable in connection with the
services.
9. RSI Personnel; Proficiency. Principal will act as project manager
and be primarily responsible for performance of the services contemplated by
this Agreement. All personnel and any additional personnel who may be assigned
by RSI to perform services hereunder shall be subject to prior approval by META.
All such personnel shall be proficient in the services required of them and
shall be subject to removal from the assignment by META at any time in the sole
and absolute discretion of META.
10. RSI Personnel Conduct. In the event any RSI personnel providing
services to META conducts himself or herself in a disruptive or other fashion
unacceptable to META, META shall have the right, if RSI is unable to provide
alternative qualified personnel reasonably acceptable to META, to terminate this
Agreement. <PAGE> 5
11. Confidential Information. For purposes of this Agreement,
"Confidential Information" shall mean any information or material proprietary to
a party or its affiliates or designated as Confidential Information by a party
and not generally known by persons not employed or retained by such party (the
"Disclosing Party"), which the other party ("Receiving Party") or its officers,
directors, employees, contractors or other agents obtain knowledge of or access
to as a result of services to be provided hereunder or otherwise, including
without limitation information conceived, originated, discovered or developed in
whole or in part by any of such persons. Confidential Information includes, but
is not limited to, the following forms of information and other information of a
similar nature (whether or not reduced to writing): databases, discoveries,
inventions, ideas, concepts, designs, drawings, specifications, algorithms,
models, methods, techniques, computer flow charts and programs, improvements,
data, documentation, diagrams, research, developments, processes, procedures,
know-how, show-how, trade secrets, marketing techniques and materials, plans,
customer names, subscriber lists, files and other information or private matter
related to the Disclosing Party's sales, past and prospective customers,
including cost data, pricing, financial information, organization and charts,
employees or business. Confidential Information also includes any information
which the Disclosing Party treats, or agrees to treat, as proprietary or have
designated as Confidential Information.
12. Confidentiality. All Confidential Information that a Receiving
Party observes or comes into contact with shall be treated as strictly
confidential and held in trust solely for the benefit and use of the Disclosing
Party and shall not be directly or indirectly disclosed to any other person
without the prior written consent of the Disclosing Party. Prior to performing
any services hereunder or obtaining access to any Confidential Information, each
and every employee and agent of the Receiving Party shall execute multiple
copies of a confidentiality agreement in the form reasonably approved by both
parties and deliver executed copies of same to META and RSI. Each party shall
take reasonable steps and use best efforts to ensure compliance by its employees
and agents with such confidentiality agreement. Receiving Party and its
employees and agents shall turn over to the Disclosing Party all originals and
copies of materials containing Confidential Information in their possession,
custody or control upon request by the Disclosing Party or upon termination of
the Receiving Party's relationship with the Disclosing Party hereunder.
13. Inventions, Etc. (a) Any and all inventions, improvements,
discoveries or developments, including computer software, or other ideas
conceived, created, developed, made by any of RSI and its employees or agents in
whole or in part in connection with the services to be provided hereunder or the
APS that relate to META's APS business, or are made using any of META's
equipment, facilities, materials, labor, money, time or other resource or result
from any services performed hereunder (collectively, "Inventions," and singly,
an "Invention"), shall belong jointly to META and RSI and shall be treated as
Confidential Information hereunder. RSI agrees that it and its employees and
agents shall communicate promptly to META any and all Inventions. RSI hereby
assigns, transfers and gives to META an undivided one-half interest in and to
its entire right, title and interest in and to the Inventions, including all
rights therein arising under applicable copyright laws (including the exclusive
rights of reproduction, distribution, preparation of derivative works,
performance and display), all rights therein arising under applicable patent
laws (including all patents and patent applications therein), all so-called
moral rights (including the right to edit, modify, alter or destroy, combine the
<PAGE> 6
Inventions with other works or otherwise deal with Inventions), all other
exclusionary and/or proprietary rights, and any renewals and extensions
associated therewith, as each of the foregoing may be secured under the now or
hereafter in force and effect in the United States of America or any other
country or countries.
(b) Notwithstanding any language to the contrary contained in this
Agreement, upon termination of this Agreement by META pursuant to Section
6(b)(i), (ii) and/or (iii), or by RSI pursuant to Sections 6(b) or 18, META
shall have, and RSI hereby grants to META a perpetual, irrevocable right and
license to use, copy, distribute, license, sell and create derivative works of,
all of the data, databases, methods, methodologies, technologies included in
RSI's Confidential Information in consideration for META paying to RSI the
Royalty described in Section 6(c)(iv) above.
14. Covenant Not to Compete. (a) RSI agrees and covenants that neither
RSI nor its affiliates (including its Principal) shall, without the prior
written consent of META, directly or indirectly, anywhere within the United
States or any foreign country in which META does business for a period from the
date hereof until one (1) year following termination of this Agreement for any
reason: (1) team, acquire, finance, assist, support, or become associated as an
employee, distributor, representative, agent, partner, shareholder, coventurer,
landlord, supplier, consultant to or developer for, or otherwise, with a
business that directly competes with META, including any business which is
engaged in providing syndicated IT or retainer IT research, IT benchmarking or
IT outsourcing consulting, including without limitation, Gartner Group, GIGA
Group, Forrester Research, Compass, Technology Partners, Inc. (TPI) and
Technology & Business Integrators (TBI) (any such business is hereinafter
referred to as a "Competitive Business"); (2) for the purpose of conducting or
engaging in any Competitive Business, call upon, solicit, advise or otherwise
do, or attempt to do business with any suppliers, customers or accounts of META
or take away or interfere or attempt to interfere with any customer, trade,
business or patronage of META; or (3) interfere with or attempt to interfere
with or hire any officers, employees, representatives or agents of META, or any
of their subsidiaries of affiliates, or induce or attempt to induce any of them
to leave the employ of META or any of their subsidiaries or affiliates, or
violate the terms of their contract with any of them. META and RSI intend that
the covenants of this paragraph shall be deemed to be a series of separate
covenants, one for each county of each and every state, territory or
jurisdiction of the United States and one for each month of the period specified
above. If, in any judicial proceeding, a court shall refuse to enforce any of
such covenants, then such unenforceable covenants shall be deemed eliminated
from the provisions hereof for the purpose of such proceedings to the extent
necessary to permit the remaining separate covenants to be enforced in such
proceedings. Notwithstanding the foregoing, the following companies are excluded
from the definition of "Competitive Business": * * and nothing will preclude RSI
from engaging independently in the business of providing IT benchmarking or IT
outsourcing consulting or from engaging independently or with others in other
than a Competitive Business.
(b) RSI represents, warrants and covenants that RSI is subject to
service of process in the State of Connecticut and that RSI will remain so
subject so long as this Agreement is in effect. If for any reason RSI should not
be so subject, RSI hereby designates and appoints, without power or revocation,
the Secretary of the State of Connecticut as RSI's agent upon whom may be served
all process, pleadings, notices or other papers which may be served upon it as a
result of any of its obligations under this Agreement.
<PAGE> 7
(c) RSI agrees that the execution of this Agreement and performance of
its obligations hereunder shall be deemed to have a Connecticut situs, and RSI
shall be subject to the personal jurisdiction of the courts of the State of
Connecticut with respect to any action the META, its successors or assigns may
commence hereunder. Accordingly, RSI hereby specifically and irrevocably (a)
agrees that any suit, action or other legal proceedings arising out of this
Agreement may be brought in the courts of record of the State of Connecticut or
the courts of the United States located in such state; (b) consents to the
jurisdiction of each such court in any such suit, action or proceeding; and (c)
waives any objection which RSI may have to the laying of venue of any such suit,
action or proceeding in any of such courts. For such time as any obligation
under this Agreement or any liabilities remain outstanding, RSI's agent
designated in this paragraph shall accept and acknowledge service on RSI's
behalf of any and all process in any such suit, action or proceeding brought in
any such court. RSI agrees and consents that any such services of process upon
such agent and written notice of such service to RSI by registered mail shall be
valid personal service upon RSI and that any such service of process shall be of
the same force and validity as if service were made upon RSI according to the
laws governing the validity and requirements of such service in such state and
waives all claims of error by reason of any such service.
15. Injunctive Relief. Because of the unique nature of Confidential
Information and Inventions, each party understands and agrees that the other
party will suffer irreparable harm in the event any party breaches or otherwise
fails to comply with the provisions of this Agreement and that monetary damages
will be inadequate to compensate the nonbreaching party for any such breach.
Accordingly, each party agrees that the nonbreaching party will, in addition to
any other remedies available to them at law or in equity, be entitled to
preliminary and permanent injunctive relief to enforce this Agreement.
16. No Conflicting Obligations. RSI warrants and represents that it is
not now under obligation to any other person, and has no interest, that is
inconsistent or in conflict with this Agreement or would prevent, limit or
impair in any way the performance by RSI of any of the terms of this Agreement
or the services contemplated hereby. RSI further warrants and represents that it
has not brought to and will not bring or use in the performance of its services
hereunder any proprietary or confidential information (whether or not in
writing) of any other person or entity.
17. Indemnification. (a) RSI hereby agrees to indemnify and hold META
harmless from and against, and to reimburse META regarding, any and all claims,
obligations, liabilities, damages, losses, actions, suits, disbursements, costs
and expenses, including without limitation reasonable attorneys' and expert
witnesses' fees and expenses, suffered or incurred by META as a result of the
(i) willful misconduct, negligence, human error, act or omission of RSI or any
of its employees or agents in the performance or failure to perform the services
contemplated hereby, (ii) breach or inaccuracy of or in any statement,
representation or warranty of RSI contained in this Agreement or any schedule,
exhibit, document or other attachment delivered pursuant hereto or as part of
the services contemplated hereby, (iii) failure of RSI to perform any agreement
<PAGE> 8
or covenant required by this Agreement to be performed by RSI, and (iv) alleged
or actual infringement of any copyright, patent or other intellectual property
right arising from or relating to the services contemplated hereby.
(b) RSI hereby agrees to defend and/or handle at its own cost and
expense any claim or action against META, its subsidiaries and/or affiliated
companies, for actual or alleged infringement of any patent, copyright or other
property right (including, but not limited to, misappropriation of trade
secrets) based on any database, software program, service and/or other materials
furnished to META by RSI or used by RSI pursuant to the terms of this Agreement
or the use thereof by META.
(c) RSI agrees to give to META, in reasonable detail, prompt written
notice of any threat, warning, or notice of any such claim or action against RSI
which could have an adverse impact on META's or RSI's use of said database,
software program, service and/or materials.
(d) In addition to META's other rights and RSI's obligations pursuant
to this paragraph, RSI agrees, should META's use of any database, software
program and/or other material furnished to META by RSI, be enjoined by any
court, to promptly obtain, at no expense to META, the right to continue to use
the items so enjoined or, at no expense to META, provide META promptly with
substitute items (which supply of such items will not violate any third party's
rights), that the qualitatively and functionally at least the equal of the
enjoined products and reasonably satisfy META's needs to the same extent as the
enjoined product.
18. Unilateral Termination Right. In addition to the rights of the
parties to terminate this Agreement set forth in Section 6 above, after January
1, 1998, either party shall have the unilateral right to terminate this
Agreement, in its sole discretion and upon no less than thirty (30) days prior
notice to the other party, at any time for any other reason or no reason. In the
event META exercises such unilateral termination right, META shall pay to RSI
the aggregate Royalties and reimbursable expenses to the date of such
termination, subject to any claims or set offs META may have (including
recoupment of any unearned Advance Royalty).
19. Independent Contractor. The parties to this Agreement are
independent contractors and nothing herein shall be construed to place them in
the relationship of partners, joint venturers, or principal and agent. RSI shall
not have the power to bind or obligate META, nor shall META have the power to
bind or obligate RSI; no party shall hold itself out as having any such
authority. Personnel supplied by RSI hereunder are not META's personnel or
agents, and RSI assumes full responsibility for its acts. RSI shall be solely
responsible for the payment of compensation of RSI employees assigned to perform
services hereunder and such employees shall be informed that they are not
entitled to the provision of any META employee benefits. META shall not be
responsible for payment of workers' compensation, disability benefits,
unemployment insurance or for withholding income taxes and social security for
any RSI employee, but such responsibility shall be that of RSI. In the event
that the Internal Revenue Service, any state or local government agency or any
other applicable entity determines that the personnel provided by RSI are
employees of META for the purpose of withholding tax liability, RSI agrees to
indemnify META against and release META from all liabilities, costs, and
expenses (including, but not limited to, attorneys' fees) associated with the
defense of such claim. <PAGE> 9
20. Insurance. While RSI provide services to META hereunder, RSI shall
maintain general liability insurance in the amount of $1,000,000 providing
coverage to RSI and META as named insureds against liability for bodily injury,
death or property damage. RSI, at RSI's expense, shall obtain from and, while
this Agreement is in effect, maintain with, companies acceptable to META, the
following :
(i) comprehensive general liability insurance, naming META as an
additional insured, for bodily injury and property damage with
a minimum combined single limit of one million dollars
($1,000,000.00) per occurrence; and
(ii) to the extent RSI has employees other than Principal, worker's
compensation insurance, in statutory amounts, including
employer's liability insurance with a minimum limit of one
hundred thousand dollars ($100,000.00).
RSI's insurance shall be deemed to be primary. RSI, at its expense may
obtain and maintain such insurance in addition to that described in clauses (i)
and (ii) of this paragraph as RSI deems necessary or advisable. RSI shall not be
deemed to be relieved of any liability or responsibility because of the fact
that it maintains (or does not maintain) insurance. Before RSI begins to perform
the services described herein, RSI shall cause its insurance carriers to certify
in writing to META that the insurance described in this paragraph: (a) are in
force and (b) may not be canceled or substantially changed unless such carriers
notify META thereof at least thirty (30) days in advance In the event that, at
any time, META asks RSI to do so, RSI shall permit META to examine the originals
of the policies that relate to the insurance described in this paragraph.
In the event that RSI decides to use personnel other than its own
personnel to perform, or help RSI perform, the services, RSI shall arrange to
have such personnel, or the entities for which such personnel work, provide to
RSI, before such personnel begins to work, evidence of the same fidelity and
insurance coverage that RSI must obtain and maintain as described in the first
paragraph of this Paragraph 20, subject to the same terms and conditions
contained in such paragraph.
RSI shall advise META of all damages to property of META or of other
entities, and of all injuries to persons, of which RSI may become aware in
connection with its performing the services and its other obligations pursuant
to this Agreement and shall do so promptly after it becomes so aware. RSI, at
its expense, shall obtain, and, while this Agreement is in effect, maintain,
insurance, in commercially reasonable amounts, that covers the theft, loss or
destruction of the equipment, tools and supplies that RSI uses to perform the
services and its other obligations pursuant to this Agreement.
21. Notice. All notices hereunder shall be in writing and be deemed
given when delivered personally or on the fifth business day after being mailed,
postage prepaid, by registered or certified mail, return receipt requested, to
the appropriate party at its address first above written (or at such other
address for such party as shall be specified by notice in fact delivered).
22. Survival of Representations, Warranties, Covenants and Agreements.
The representations, warranties, covenants, and agreements contained in this
<PAGE> 10
Agreement or in any schedule, exhibit or other document delivered pursuant
hereto shall survive and continue in full force and effect after any
investigation made at any time by or on behalf of any party hereto or after
completion of the services contemplated hereby or both.
23. Severability. The parties intend that the terms of this Agreement
shall be enforced to the greatest extent permitted by applicable law. If, for
any reason whatsoever, any one or more of the provisions of this Agreement shall
be held to be inoperative, unenforceable or invalid by a court of competent
jurisdiction in a particular case, such holding shall not render such provision,
in any other case, or render any of the other provisions of this Agreement,
inoperative, unenforceable or invalid.
24. Headings. The paragraph headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
25. Assignment; Benefit. This Agreement may not be assigned by any
party without the prior written consent of the other parties, except that META
may assign this Agreement in connection with a merger, consolidation or sale of
all or substantially all of its assets. This Agreement shall be binding upon and
insure to the benefit of the successors and permitted assigns of the parties.
Nothing in this Agreement is intended to confer upon any person, other than the
META and RSI and its successors and permitted assigns, any rights or remedies
under or by reason of this Agreement.
26. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement.
27. Entire Agreement; Modification. This Agreement, including all
schedules, exhibits and other attachments hereto, sets forth the entire
agreement among the parties regarding the subject matter hereof. Any and all
prior or other agreements relating hereto are merged herein. The terms of this
Agreement may not be amended, waived, rescinded, terminated or otherwise
modified except by a writing signed by a duly authorized representative of the
party, or the party himself, to be so bound. A party may waive in writing
compliance by another party with any of the terms of this Agreement (except such
as may be imposed by law); no such waiver, however, shall be a waiver of any
other matter or a continuing waiver.
28. Governing Law. This Agreement shall be governed by the laws of the
State of Connecticut, without regard to its conflicts of laws. Any dispute shall
be resolved in the state or federal court for Fairfield County, Connecticut.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
META: RSI:
META Group, Inc. Rubin Systems Incorporated
<PAGE> 11
By /s/ Dale Kutnick By /s/ Howard Rubin
------------------------ ----------------------
Dale Kutnick Howard Rubin
Title President and CEO Title President
----------------- -------------------
Date October 11, 1996 Date October 11, 1996
Principal:
/s/ Howard Rubin
- --------------------------------
Howard Rubin, Individually
Date October 11, 1996
<PAGE> 12
EXHIBIT I
---------
RSI will:
maintain benchmark database and provide unlimited access for ad hoc data
queries for client inquiries and consulting
conduct all APS benchmarks
produce APS Benchmark Results Report for each client
produce Annual Worldwide Benchmark Report
provide additional support to META's APS staff for handling client inquiries
provide client telephone support of data collection process
META Group will:
provide sales & marketing
provide META sales support
produce marketing and sales collateral with support from RSI (particularly
with respect to the benchmarking portion of APS)
handle all client inquiries
distribute and collect data collection instruments
provide production support and mailing of all research deliverables
conduct initial half day benchmark workshop for clients
RSI and META APS staff will jointly:
maintain currency of data collection instruments and questionnaires (RSI
will champion this effort and be primarily responsible)
define and create regular research reports within three months of the APS
service launch (META will champion this effort and be primarily responsible)
Deliverables:
Support - By RSI: Annual Application Productivity Benchmarks; By META:
Telephone Consultation (Inquiries and Ad-hoc data queries); By META:
Annual Conference, Data Collection Support (additional fee on contract basis
for services beyond minimum required, META can perform directly oroutsource)
Written - By RSI: Annual Customized Application Productivity Benchmark
Results Report, Annual Worldwide Benchmark Report; By META: META Fax,
some set of monthly written reports to be specified by META from time
to time and for which RSI will collaborate and contribute
Data Collection questionnaire and reports to be provided by RSI subject to
review, expansion and modification from time to time as META and RSI may agree
1) Work-Profile metrics
Maintenance vs. development
Maintenance drill-down
Development lifecycle drill-down by industry and cross-industry
<PAGE> 13
2) Portfolio Support Characteristics (support rates and language
distribution)
3) Development Productivity
lines of code
function points
cycle times
per employee or project
4) Quality (post-release defect rates) (can also include quality of systems
review)
5) Software Tool for conducting Carnegie Mellon University software
process assessment
6) Best Practices inventory (review of tools, techniques,
and organizational infrastructure)
7) Staff Profile - % of staff by:
job title
training level
degrees
compensation
8) Budget/Spending Patterns - Overall spending and drill down, also expected
change
9) Organizational Priorities - Where overall IT and development
priorities are focused
<PAGE> 14
EXHIBIT 2
Milestones and Timing
Generally: as soon as possible, but not later than three (3)
months after the commencement of a client's
subscription for APS, META will conduct an on-site
benchmarking workshop and initiate data collection.
From the time at which client data has been
collected, RSI will finalize the benchmarking and
produce an APS report for such client as soon as
possible but not more than one (1) month of RSI's
receipt after all or substantially all of such
client's data.
APS Service Launch: 1/1/97
Client Inquiries: To be acted on by META within 48 hours,
provided that to the extent META requires the
input/services of RSI, RSI will reasonably
cooperate and use its best efforts to ensure META's
timely response.
APS Annual
Conference: Second Half of calendar 1997
Conference Planning
Timetable: [To be supplied by BD and appended]
10.2
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED
BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT
ADDENDUM to AGREEMENT
October 20, 1997
Mr. Howard Rubin
President
Rubin Systems, Inc.
5 Winterbottom Lane
Pound Ridge, NY 10576
Dear Howard,
Confirming our recent discussions regarding * * *, the
Applications Productivity Strategies Development and Service Agreement ("the
Agreement") between META Group, Inc. ("META") and Rubin Systems, Inc. ("RSI"),
dated October 11, 1996, is hereby modified and clarified as follows:
1.) META will * * * of all sales of the Software Engineering Productivity
Strategies Service ("SEPS").
2.) The remaining balance due META * * * as of September 30,
1997 * * * * * per Article 7 of the Agreement.
3.) * * * *. RSI hereby agrees
that until * * *. The concept of a 24 month
earn-out of the Old Advance outlined in Article 7, paragraph (b.) of
the Agreement, is null and void.
4.) * * * the royalty rate shall
* on all SEPS sales.
5.) * * *. *.
If the above meets with your understanding, please sign one copy of this letter
below.
Very truly yours, Agreed and Accepted
/s/ Bernard F. Denoyer
/s/ Howard Rubin
-----------------------
Bernard F. Denoyer Howard Rubin, President
Chief Financial Officer Rubin Systems, Inc.
Date: 10/21/97
--------
10.3
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED
BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT
ADDENDUM to AGREEMENT
June 18, 1998
Mr. Howard Rubin
President
Rubin Systems, Inc.
P.O. Box 387
450 Long Ridge Road
Pound Ridge, NY 10576
Dear Howard,
This letter is to confirm the agreement between Rubin Systems ("RSI") and META
Group, Inc. ("META") whereby META will act as a distributor for RSI and will
actively promote, sell, and distribute the Worldwide Benchmark Report. The terms
of the agreement are as follows:
1) META receives * * on all hard copy sales of the Worldwide Benchmark
Report. * * *.
2) META receives a * * on all CD sales of the Worldwide Benchmark
Report. The * * * will be used to offset the development,
production, and technical support costs associated with creating and
supporting a CD. Even though META is a non-exclusive distributor of the
hard copy version, META will be the exclusive distributor of the CD version
of the Report.
3) META will be responsible for developing product specific marketing
campaigns and producing the necessary sales collateral.
4) In return, we ask you to promote the value proposition of the Worldwide
Benchmark Report with the Direct Marketing Department and review the sales
scripts and collateral.
5) META and RSI have the ability to cancel this agreement by providing a
notice in writing six months prior to the actual termination date.
* * * * META will
combine royalty payments with PEMS Sales on a monthly basis.
If the above meets with your understanding, please sign one copy of this letter
below.
Very truly yours, Agreed and Accepted
/s/ Bernard F. Denoyer
/s/ Howard Rubin
-----------------------
Bernard F. Denoyer Howard Rubin, President
Chief Financial Officer Rubin Systems, Inc.
Date: 6/30/98
--------
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED
BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT
ADDENDUM 3 to AGREEMENT
June 9, 1999
Mr. Howard Rubin
President
Rubin Systems, Inc.
450 Long Ridge Road
Pound Ridge, NY 10576
Dear Howard,
This Addendum 3 to Agreement ("Addendum") confirms our recent discussions
amending the Applications Productivity Strategies Development and Service
Agreement ( the "Original Agreement" ) among META Group, Inc. ( "META" ), Howard
Rubin ("Howard") and Rubin Systems, Inc. ("RSI"), dated October 11, 1996, as
amended by Addendum #1 dated October 25, 1997, Addendum #2 dated June 18,1998
(the Original Agreement, as amended, is hereinafter the "Agreement") concerning
distribution of the annual RSI Worldwide Benchmark Report. The parties hereby
agree to amend the Agreement as follows:
1. META will continue to produce, market, sell, and fulfill any RSI reports
("Works") Howard or RSI present to META, so long as META determines in its
reasonable discretion they would be appropriate for distribution through
META's channels. META reserves the right to make editorial changes subject
to RSI's reasonable approval, and RSI agrees to obtain all copyright
clearances META deems necessary or desirable, all at RSI's expense.
2. META will be responsible for developing product specific marketing
campaigns and producing the necessary sales collateral. RSI will develop
the sales value proposition, and review sales scripts and collateral for
the Works as needed.
3. META will pay RSI * * on all revenues received from sales of Works,
regardless of format/media used by META to fulfill orders. Revenue from
Works for purposes of international sales shall mean the net amount
received by META from its international distributors.
4. META will pay RSI * * on any "derivative" works published by META that
contain RSI data in any form, with analysis performed by META, and which
are sold as a discrete product offering.
5. RSI Royalty Share as defined in paragraph 7 of the Original Agreement, on
META's Performance Engineering Measurement Strategies (PEMS, f/k/a APS)
service subscriptions, shall hereinafter be modified as follows* * * *.
<PAGE> 2
6. Royalty Share for the international PEMS service shall be based on *
*.
7. On PEMS services sold without an RSI benchmark RSI would receive a Royalty
Share equal to * *.
8. The above modifications will become effective on all PEMS and Works
bookings after July 1, 1999, and Amendment #2 dated June 18, 1998 is hereby
superceded in it's entirety.
9. * * * *
*.
10. Except as expressly modified by this Addendum, the Agreement shall continue
to govern the respective rights and obligations of the parties hereto.
If the above meets with your understanding please sign one copy of this letter
below.
META GROUP, INC. RUBIN SYSTEMS, INC.
By: /s/ Bernard F. Denoyer By: /s/ Howard Rubin
------------------------- -----------------------
Bernard F. Denoyer Howard Rubin, President
Chief Financial Officer
date: 6/14/99
-------
/s/ Howard Rubin
--------------------------
Howard Rubin, Individually
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