UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 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 May 11, 1999
was 10,931,945
Total Number of Pages: 19
Exhibit Index is on Page 18
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META Group, Inc.
INDEX
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PAGE
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
March 31, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Income (unaudited):
Three months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited):
Three months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Conditon and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
META Group, Inc.
Consolidated Balance Sheets
(in thousands)
March 31, December 31,
- -------------------------------------------------------------------------------
Assets 1999 1998
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<S> <C> <C>
Current assets:
(unaudited)
Cash and cash equivalents $ 8,677 $ 9,945
Marketable securities 23,373 21,031
Accounts receivable, net 31,066 35,306
Deferred commissions 2,105 1,436
Deferred tax asset 3,808 3,808
Other current assets 5,019 2,894
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Total current assets 74,048 74,420
Marketable securities 11,996 15,850
Furniture and equipment, net 5,738 4,553
Deferred tax asset 256 792
Goodwill, net 5,675 5,528
Other assets 12,053 11,044
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Total assets $109,766 $112,187
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 166 $ 1,432
Deferred Revenues 33,824 31,276
Other current liabilities 1,055 6,789
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Total current liabilities 35,045 39,497
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Stockholders' equity:
Preferred stock - -
Common stock 126 123
Paid-in capital 59,163 58,443
Retained earnings 15,752 14,444
Treasury stock, at cost (320) (320)
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Total stockholders' equity 74,721 72,690
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Total liabilities and stockholders' $109,766 $112,187
equity
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See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
META Group, Inc.
Consolidated Statements of Income
(in thousands, except per-share data)
(unaudited)
For the three months ended
March 31,
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1999 1998
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<S> <C> <C>
Revenues:
Continuous Advisory Services $15,808 $13,179
Project Consulting 2,870 1,076
Published Research 1,427 887
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Total revenues 20,105 15,142
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Operating expenses:
Cost of services and fulfillment 11,286 7,538
Selling and marketing 4,982 3,446
General and administrative 1,793 1,520
Depreciation and amortization 593 447
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Total operating expenses 18,654 12,951
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Operating income 1,451 2,191
Interest income 772 605
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Income before provision for income taxes 2,223 2,796
Provision for income taxes 914 1,148
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Net income $ 1,309 $ 1,648
============ ============
Net income per diluted common share $ .10 $ .13
============ ============
Weighted average number of diluted common
shares outstanding 12,905 12,299
============ ============
Net income per basic common share $ .11 $ .15
============ ============
Weighted average number of basic
common shares outstanding 11,830 11,162
============ ============
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
META Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the three months ended
March 31,
- --------------------------------------------------------------------------------
1999 1998
------------------------------
<S> <C> <C>
Operating activities:
Net income $ 1,309 $ 1,648
Adjustments to reconcile net income to net cash
(used in) provided by
Operating activities:
Depreciation and amortization 593 447
Deferred income taxes 536 1,025
Changes in assets and liabilities:
Accounts receivable 4,240 3,540
Deferred commissions (669) (544)
Other current assets (2,138) (707)
Other assets 258 (687)
Accounts payable (1,287) (844)
Accrued expenses and other current liabilities (5,734) (2,638)
Deferred revenues 2,548 926
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Net cash (used in) provided by operating activities (344) 2,166
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Investing activities:
Capital expenditures (1,722) (804)
Proceeds from (investments in) marketable 1,512 (2,418)
securites - net
Investments and advances (1,437) (16)
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Net cash used in investing activities (1,647) (3,238)
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Financing activities:
Proceeds from exercise of stock options 723 282
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Net cash provided by financing activities 723 282
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Net decrease in cash and cash equivalents (1,268) (790)
Cash and cash equivalents, beginning of period 9,945 12,910
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Cash and cash equivalents, end of period $ 8,677 $12,120
============= ============
Supplemental information:
Cash paid during the period for income taxes $ 379 $ 123
============= ============
See notes to consolidated financial statements.
</TABLE>
<PAGE> 5
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.
Note 2 - Financial Statement Presentation
- -----------------------------------------
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
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information." Consequently, the Company now reports
separately the revenues earned from each of its three operating segments:
Continuous Advisory Services, Project Consulting and Published Research, 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 current method is consistent with
the Company's management approach used regularly by the Company's decision
makers in assessing performance and allocating resources. The revenues for the
three months ended March 31, 1998 have been reclassified to conform to the 1999
presentation.
Note 3 - Income Taxes
- ---------------------
During the quarters ended March 31, 1999 and 1998, the Company recorded a
tax provision of $0.9 million and $1.1 million, respectively, reflecting an
effective tax rate of 41%. During the quarter ended March 31, 1999, the Company
paid $250,000 for federal alternative minimum tax liabilities. The total
deferred tax asset, including the current portion, decreased to $4.0 million at
March 31, 1999, from $4.6 million at December 31, 1998, as the Company utilized
its net operating loss carryforwards to offset taxable income.
Note 4 - Investment in META Security Group, Inc.
- ------------------------------------------------
On March 15, 1999, the Company entered into an agreement to advance $2.7
million to META Security Group, Inc., an independent start-up consulting firm,
in exchange for a secured convertible promissory note. META Security Group, Inc.
offers security consulting services and hands-on operational support services
including threats and vulnerability assessments, policy and standards
development, network monitoring services and technical research and development.
As of March 31, 1999, the Company had advanced $1.3 million which is included in
Other Assets on the consolidated balance sheet. The investment is accounted for
under the cost method.
<PAGE>
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 different
distribution channels. In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Statement 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 Project Published Consolidated
Services Consulting Research Total
-------- ---------- -------- -----
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1999
Revenues $15,808 $2,870 $1,427 $20,105
Operating Income 2,527 (791) (285) 1,451
Three Months Ended March 31, 1998
Revenues $13,179 $1,076 $ 887 $15,142
Operating Income 2,411 (223) 3 2,191
</TABLE>
Note 6 - Subsequent Events
- --------------------------
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. As of May
12, 1999, approximately 1,209,000 shares had been repurchased at an average
price of $10.04 per share.
Due to cash requirements arising from the expansion of the repurchase plan,
the Company reclassified approximately $9.0 million of its marketable securities
from held-to-maturity to available-for-sale. Since the repurchase plan
commenced in April 1999, the cash requirements could not have been
reasonably anticipated at December 31, 1998. It is the Company's intention to
hold the remaining $26.3 million of marketable securities to maturity. The fair
value of the marketable securities at the date of the reclassification
approximated amortized cost.
<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") and 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 79%
and 87% of the Company's total revenues for the quarters ended March 31, 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.
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 23% to $68.9 million at March 31, 1999, from $56.3
million at March 31, 1998. At March 31, 1999, the Company had approximately
4,200 Continuous Advisory Services subscribers in approximately 1,800 client
organizations worldwide, as compared to 3,495 subscribers in 1,475 organizations
at March 31, 1998.
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.
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
<PAGE>
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 MARCH 31, 1999 AND 1998
REVENUES Total revenues increased 33% to $20.1 million in the quarter ended
March 31, 1999, from $15.1 million in the quarter ended March 31, 1998.
Revenues from Continuous Advisory Services, which are derived from
annually renewable contracts, together with any interim add on's, payable
by clients in advance, increased 20% to $15.8 million in the quarter ended March
31, 1999, from $13.2 million in the quarter ended March 31, 1998. The increase
in revenues from Continuous Advisory Services was primarily due to continued
expansion of the Company's domestic sales force, an increase in analyst
consulting to existing clients, growing international market acceptance of the
Company's Continuous Advisory Services, and the introduction of the Company's
INfusion products during 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 towards consulting services. Continuous Advisory
Services revenues attributable to international clients increased 26% in the
quarter ended March 31, 1999, from the quarter ended March 31, 1998, and
remained constant as a percentage of Continuous Advisory Services revenue at
15%. The increase in international revenues was primarily due to an increased
demand for the Company's Continuous Advisory Services in existing international
markets. The Company currently has sales representation in 30 countries. The
Company currently expects that international Continuous Advisory Services
revenues will continue to grow at a faster rate than domestic Continuous
Advisory Services revenue.
The Company increased Contract Value 23% to $68.9 million at March 31, 1999,
from $56.3 million at March 31, 1998. The Company grew its subscriber client
base 20% to 4,200 Continuous Advisory Service clients at March 31, 1999 from
3,495 clients at March 31, 1998.
Project Consulting revenues, which result from strategic consulting
engagements servicing clients' business and technology issues, increased 167% to
$2.9 million in the quarter ended March 31, 1999 from $1.1 million in the
quarter ended March 31, 1998, and increased as a percentage of total revenues to
14% from 7%. The significant increase was primarily due to the acquisition of
The Sentry Group, Inc. ("Sentry") in October of 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 an integration commenced in the first quarter of 1999 in connection
with the Sentry acquisition. 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 publications offering
in-depth analysis of single business or IT issues, increased 61% to $1.4 million
in the quarter ended March 31, 1999 from $0.9 million in the quarter ended March
31, 1998, and increased as a percentage of total revenues to 7% from 6%. The
increase was primarily due to an increase in sales of publications distributed
under the Company's agreement with CXP International, S.A. and the introduction
of new products, and was partially offset by publishing delays with respect to
certain publications sold by the Company.
The Company currently expects a continuation of the growth rates
experienced during the quarter ended March 31, 1999 in Project Consulting and
<PAGE>
Published Research revenues as a result of a shift in business demand by clients
from Continuous Advisory Services towards more focused, client specific
services, and due to the Sentry acquisition.
COST OF SERVICES AND FULFILLMENT Cost of services and fulfillment increased
50% to $11.3 million in the quarter ended March 31, 1999, from $7.5 million in
the quarter ended March 31, 1998, principally due to increased staffing costs
for analyst, consultant, and fulfillment positions necessary to support the
Company's growth both domestically and internationally and as a result of the
Sentry acquisition. The principal areas of cost increases were compensation and,
to a lesser extent, travel. Cost of services and fulfillment increased as a
percentage of total revenues to 56% from 50% due to continued hiring of analysts
and consultants. While the Company anticipates continuing increases in the
amount of costs of services and fulfillment, it expects that such expenses will
decline slightly as a percentage of total revenue.
SELLING AND MARKETING EXPENSES Selling and marketing expenses increased 45%
to $5.0 million in the quarter ended March 31, 1999, from $3.4 million in the
quarter ended March 31, 1998, and increased as a percentage of total revenues to
25% from 23%. 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 continued the expansion of its
Inside Sales channel for selling published research, and has developed a new
team of account development representatives within the marketing department to
provide more direct sales-lead support to the Direct Sales force. The Company
anticipates continuing increases in the amount of selling and marketing
expenses, although it expects that such expenses, as a percentage of total
revenues, will decrease slightly by the end of 1999.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased 18% to $1.8 million in the quarter ended March 31, 1999, from $1.5
million in the quarter ended March 31, 1998, and decreased as a percentage of
total revenues to 9% from 10%. The increase in expenses was principally due to
increased finance, accounting, human resources, and corporate IT staffing and
expenses required to support the growth of the Company. The Company anticipates
continuing increases over the prior year in the amount of general and
administrative expenses, but expects such expenses to remain approximately the
same as a percentage of total revenues.
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased
33% to $593,000 in the quarter ended March 31, 1999, from $447,000 in the
quarter ended March 31, 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.
INTEREST INCOME Interest income increased 28% to $772,000 in the quarter
ended March 31, 1999, from $605,000 in the quarter ended March 31, 1998, due to
an increase in the Company's cash and marketable securities balances over the
first quarter of the prior year due to positive cash flow from operations in
1998 and an increase in interest income from debt financings of investee
companies.
PROVISION FOR INCOME TAXES During the quarters ended March 31, 1999 and 1998,
the Company recorded a tax provision of $0.9 million and $1.1 million,
respectively, reflecting an effective tax rate of 41%. During the quarter ended
March 31, 1999, the Company paid $250,000 for federal alternative minimum tax
liabilities. The total deferred tax asset, including the current portion,
decreased to $4.0 million at March 31, 1999, from $4.6 million at December 31,
1998, as the Company utilized its net operating loss carryforwards to offset
taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $0.3 million of cash in operations during the three months
<PAGE>
ended March 31, 1999, compared with $2.2 million of cash generated from
operations in the three months ended March 31, 1998. The decrease in cash
generated from operations in 1999 is primarily due to decreased net income,
bonuses paid to employees based on the achievement in 1998 of performance goals,
and an increase in short-term advances made to investee companies.
The Company used $1.7 million of cash in the three months ended March 31,
1999, compared with $0.8 million in the three months ended March 31, 1998, for
the purchase of furniture, equipment, computers, and related software for use by
the Company's employees. The Company expects that additional purchases of
equipment will be made as the Company's employee base continues to grow. As of
March 31, 1999, the Company had no material commitments for capital
expenditures; however, the Company is currently upgrading significant internal
systems to support business growth. The total cash outlay for the completion of
the project in 1999 (excluding internal resources) is not expected to exceed $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. As of May
12, 1999, approximately 1,209,000 shares were repurchased at an average price of
$10.04 per share. The Company's existing cash and marketable securities are
being used to finance the repurchase program.
On March 15, 1999, the Company entered into an agreement to advance $2.7
million to META Security Group, Inc., an independent start-up consulting firm,
in exchange for a secured convertible promissory note. META Security Group, Inc.
offers security consulting services and hands-on operational support services
including threats and vulnerability assessments, policy and standards
development, network monitoring services and technical research and development.
As of March 31, 1999, the Company had advanced $1.3 million which is included in
Other Assets on the consolidated balance sheet.
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, but callable, higher-yield
marketable debt securities. Generally, these securities are purchased in
denominations of $1 million to $7 million and held to maturity.
As of March 31, 1999, the Company had cash and cash equivalents of $8.7
million, marketable securities of $35.3 million, and working capital of $39.0
million. The Company believes that existing cash balances and anticipated cash
flows from operations will be sufficient to meet its working capital and capital
expenditure requirements for the foreseeable future, including the authorized
share repurchase program discussed above.
<PAGE>
YEAR 2000 READINESS DISCLOSURE
The following disclosure may be deemed "Year 2000 Readiness Disclosure"
pursuant to the Year 2000 Information and Readiness Disclosure Act.
State of Readiness
- ------------------
During 1998, the Company commenced a program to review the Year 2000 compliance
status of both the IT and non-IT software and systems used in its internal
business processes, to obtain appropriate assurances of compliance from the
manufacturers of these products, and to modify or replace all non-compliant
products.
The Company made inquiries with critical third party providers of intermediary
products or services to determine the impact of Year 2000 issues on their
business and operations, and the resulting impact on the business and operations
of the Company. Certain of these systems relate to the ability of the Company to
transmit its products to its customers via the internet and by CD-ROM, and are
reliant on the compliance of the third parties in order to operate past 1999.
The Company has been advised by the applicable third parties that the necessary
modifications for the Year 2000 issue have been completed or will be completed
by the end of 1999. In addition, the Company believes that its internal systems
are Year 2000 compliant to interface with such third parties. However, the
Company can offer no assurance that its systems, to the extent they are reliant
on third party systems, will be operational on January 1, 2000.
The Company has contacted all of the 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 April 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 being reviewed is the Company's current telephone system,
which is critical to the function of the business. The Company currently plans
to replace its existing telephone system during 1999. Also, in response to the
increase in clients and employees, and the need for improved information
management for customer service, the Company expects to complete implementation
of a new client information system during the first half of 1999. In selecting
the new client information system, Year 2000 compliance was one of the criteria
reviewed, and the Company has obtained a representation from the vendor that the
system is Year 2000 compliant.
Currently, the Company has not identified any internal non-IT systems that are
both critical to the business and would cause significant disruption of business
in the event of failure in the year 2000.
Costs to Address Year 2000 Issues
- ---------------------------------
Based on the Company's internal evaluation performed to date on potential costs
for completing the evaluating, testing, modifying or replacing of any of its
internal IT or non-IT software or systems, the Company currently expects to
spend approximately $2.2 million (including $2.1 million of costs for replacing
the client information system and telephone system), of which the Company has
spent approximately $1.6 million as of March 31, 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
<PAGE>
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. Although the Company's products include
advisory services on the Year 2000 issue itself, and therefore could
potentially increase business for the Company, such impacts can not be
estimated by the Company at this time. As such, there remains a risk
that a shift in the focus of customers' and potential customers'
discretionary IT spending could have a material adverse effect on the
Company's business, operating results and financial condition.
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 March 31, 1999, the Company had over
$35 million in marketable securities, which are primarily invested in
unsecured, short- term investment grade, corporate debt instruments
(commercial paper). 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 March 31, 1999, the Company had over $31 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 and CD-ROM. In the event of disruption of the other forms of
<PAGE>
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 client
information 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.
o In the event the Company is unable to replace the existing phone
system prior to the end of 1999, the company intends to upgrade the
existing system to be Year 2000 compliant prior to the end of 1999.
The Company does not currently have a contingency plan in the event of
a failure of long distance telephone service in general.
The Company does not currently have a contingency plan in place with regards to
the risk of asset impairment described above but will be reviewing investment
risk to include Year 2000 exposure as we approach the year 2000.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial performance
of the Company. However, from time to time, information provided by the Company
or statements made by its employees may contain "forward-looking" information
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 effect on the
<PAGE>
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
Refer 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.
<PAGE>
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. However, the Company believes that none of
these proceedings is likely to have a material adverse effect on the Company's
business, results of operations, or financial condition.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
--------
Exhibit
Number Description
------- -----------
10.1 Employment agreement between META Group, Inc. and
Larry R. DeBoever dated as of October 15, 1996
10.2 Promissory Note dated as of November 1, 1996 issued
by Larry R. DeBoever to META Group, Inc. in an
aggregate principal amount of $500,000
10.3 Amended and Restated 1995 Employee Stock Purchase Plan
11.1 Statement re computation of per-share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
There were no reports on Form 8-K filed by the Company for the
quarter ended March 31, 1999.
<PAGE> 16
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: May 14, 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> 17
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- --------- ----------------------------------------------------------- ----------
10.1 Employment agreement between META Group,Inc. and *
Larry R. DeBoever dated as of October 15, 1996
10.2 Promissory Note dated as of November 1, 1996 issued *
by Larry R. DeBoever to META Group, Inc. in an aggregate
principal amount of $500,000
10.3 Amended and Restated 1995 Employee Stock Purchase Plan *
11.1 Statement re computation of per-share earnings 19
27.1 Financial Data Schedule *
* Exhibit included in EDGAR filing with Securities and Exchange Commission.
------------------
<PAGE> 18
EXHIBIT 11.1
META Group, Inc.
EXHIBIT TO QUARTERLY REPORT ON FORM 10-Q
Computation of Net Income Per Common Share
For the three months ended
March 31,
- --------------------------------------------------------------- -------------
1999 1998
------------- -------------
Net income....................................... $1,309,000 $1,648,000
============= =============
Weighted average number of common and common
equivalent shares outstanding:
Average number of common shares
outstanding during the period............ 11,830,397 11,161,700
Add common share equivalents - options
to purchase common shares................ 1,074,948 1,137,498
------------- -------------
Total............................. 12,905,345 12,299,198
============= =============
Net income per diluted common share.............. $.10 $.13
===== =====
Net income per basic common share................ $.11 $.15
===== =====
<PAGE> 19
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<NAME> META Group, Inc.
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<CASH> 8,677
<SECURITIES> 35,369
<RECEIVABLES> 31,965
<ALLOWANCES> (899)
<INVENTORY> 0
<CURRENT-ASSETS> 74,048
<PP&E> 8,847
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<TOTAL-ASSETS> 109,766
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0
0
<COMMON> 126
<OTHER-SE> 74,595
<TOTAL-LIABILITY-AND-EQUITY> 109,766
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<TOTAL-COSTS> 11,286
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<INCOME-PRETAX> 2,223
<INCOME-TAX> 914
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</TABLE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 15th day of October, 1996 by and between Larry R.
DeBoever (the "Employee") and META Group, Inc. (the "Company").
WHEREAS, the Company and DeBoever Architectures, Inc. ("DAI") are entering
into an Asset Purchase Agreement dated as of the date hereof;
WHEREAS, the Employee is a principal stockholder and the Chief
Executive Officer and President of DAI;
WHEREAS, as a condition to and as consideration for the Asset Purchase
Agreement, the Company and the Employee desire to enter into this Employment
Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. Position and Responsibilities. Effective November 1, 1996, the Employee
agrees to serve as Senior Vice President and Service Director of the Company,
and the Employee shall exercise such powers and comply with and perform such
directions and duties in relation to the business and affairs of the Company as
may from time to time be vested in such offices or requested by the Company and
shall use his best efforts to improve and extend the Enterprise Architecture
Strategies Service (the "EAS Service") of the Company. The Employee shall at all
times report to, and his activities shall at all times be subject to the
direction and control of, the Chief Executive Officer of the Company. It is
anticipated that, in consultation with and at the direction of the Company, the
Employee will assist the Company in effecting the transition of the APIAS
service from DAI to the Company and that his initial duties may include
repackaging and redefining DAI's APIAS service as the EAS Service of the
Company, effecting the transition of DAI's customers to the Company and training
the Company's personnel to sell, market and implement the EAS Service. The
Employee shall devote substantially all of his business time, attention and
services to the diligent, faithful and competent discharge of such duties for
the successful operation of the Company's business; provided however that the
Company acknowledges and agrees that Employee may devote a portion of his
business time to winding down the affairs of DAI. The Employee hereby accepts
said employment and agrees to perform said duties and render said services.
2. Compensation.
(A) Salary. The Company will pay to the Employee during his
employment a salary at the rate of $160,000 per annum starting January 1, 1997.
Such salary shall be payable in conformity with the Company's customary
practices for executive compensation as such practices shall be established or
modified from time to time. Salary payments shall be subject to all applicable
federal and state withholding, payroll and other taxes. For the period of
November 1, 1996 through December 31, 1996 only, the Company shall pay the
Employee $20,833.33 per month. No amounts shall be due the Employee hereunder
during the period from the date hereof to October 31, 1996.
(B) Adjustment to Salary and Bonus. So long as the Employee remains
employed by the Company, the Board of Directors of the Company shall review the
Employee's salary and bonus each calendar year so that the Employee's salary and
bonus will be consistent with those other similarly situated Company employees
with similar responsibilities and industry visibility. After 1997, the Employee
will be eligible to participate in the bonus plan made available to the other
Service Directors of the Company. If the Employee achieves 100% of the revenue
and operating margin targets outlined in Exhibit A to the Stock Option Agreement
(as defined below), his minimum total compensation in any year will not fall
below $200,000.
(C) Fringe Benefits. The Employee will also be entitled to participate
on the same basis with all other employees and executives of the Company in the
Company's standard benefits package generally available for all other employees
and executives of the Company.
(D) Business Expenses. The Company will reimburse the Employee for his
reasonable and necessary expenses in connection with the performance of his
duties on behalf of the Company. The Employee agrees that all such expenses to
be reimbursed to the Employee by the Company shall be reasonable and that the
Employee will use his best efforts to minimize the costs. Further, the Employee
agrees to provide accurate and itemized records regarding his expenses in order
for the Company to receive the benefit of any and all tax deductions with
respect to the Employee's business travel, and the Company agrees to provide
reimbursement within a reasonable time after receipt of such documentation.
(E) Stock Option. In connection with the Employee's services rendered to
the Company as a consultant and to be rendered pursuant to this Agreement as an
employee, the Company granted to the Employee on September 20, 1996, pursuant to
the 1995 Stock Plan, a non-qualified stock option to purchase an aggregate of
50,000 shares of the Company's Common Stock, $.01 par value, at an exercise
price of $25.00 per share. Such option is governed by the terms of the Stock
Option Agreement in the form attached hereto as Exhibit A (the "Stock Option
Agreement") and was granted as a non-qualified stock option under Section 422(b)
of the Internal Revenue Code of 1986, as amended (the "Code").
(F) Promissory Note. On or about November 1, 1996, the Company will
loan to Employee the gross amount of $500,000, and the Employee will deliver a
promissory note evidencing his obligations with respect to such loan in the form
attached hereto as Exhibit B (the "Note"). The Note shall be secured by, among
other things, the stock subject to the stock option referred to in Section 2(E)
above, and a life insurance policy, owned and paid for by the Company, in the
amount of $500,000 on the Employee's life naming the Company as the primary
beneficiary. The Company will use its best efforts to purchase a life insurance
policy that may be transferred to the Employee, at the Employee's expense, upon
his payment in full of his obligations under the Note and that will allow the
Employee, upon such transfer, to change the beneficiary thereof.
3. Term; Certain Benefits.
(A) Term of Employment. The term of the Employee's employment
shall commence as of the date first above written and shall terminate on the
earlier to occur of (i) December 31, 1999, (ii) the death, physical incapacity
or mental incompetence of the Employee, or (iii) the occurrence of any of the
circumstances described in Section 4 hereof (the "Expiration Date"). For the
purposes of this Agreement, the Employee shall be deemed to have suffered
physical incapacity or mental incompetence if he is unable to perform his duties
hereunder for any 180 days out of any 365-day period. In the event the
Employee's employment shall terminate due to his death, the Company shall have
no further obligations to the Employee other than the payment of salary accrued
but unpaid as of the termination date.
(B) Benefits if Agreement Terminated Dueto Disability. In the event the
Employee's employment shall terminate due to the physical incapacity or mental
incompetence of the Employee, the Company shall pay the Employee an amount equal
to the amounts recoverable by any employee of the Company under the health and
disability insurance programs available through the Company.
4. Termination at the election of the Company for Just Cause. The
Company may, immediately and unilaterally, terminate the Employee's employment
"for just cause" at any time. Termination of the Employe's employment by the
Company shall constitute a termination "for just cause" under this Section 4 if
such termination is for one or more of the following causes: (i) the substantial
and continuing failure of the Employee to render services to the Company in
accordance with his assigned duties, which materially and adversely affects or
could materially and adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company; (ii) the conviction
of the Employee of a felony, either in connection with the performance of his
obligations to the Company or which shall adversely affect the Employee's
ability to perform such obligations; (iii) gross negligence, dishonesty, breach
of fiduciary duty or material breach of the terms of this Agreement, any
confidentiality, non-competition or developments agreement in favor of the
Company, or any other agreement executed in connection herewith; (iv) chronic
alcoholism or chronic drug addiction which seriously affects Employee's
performance; (v) the commission by the Employee of an act of fraud or
embezzlement which results in loss, damage or injury to the Company, whether
directly or indirectly; or (vi) the Employee's failure to attain minimum service
revenue and operating margin targets for the Company's EAS Service as outlined
in Exhibit A to the Stock Option Agreement. In the event of a termination "for
just cause" pursuant to the provisions of this Section 4, the Employee shall be
entitled to no severance or other termination benefits.
5. No Conflict with Prior Employers. The Employee represents that he is not
bound by any agreement or any other existing or previous business relationship
which conflicts with, or may conflict with, the performance of his obligations
hereunder or prevents the full performance of his duties and obligations
hereunder.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts.
7. Severability. In case any one or more of the provisions contained in
this Agreement or any other agreements executed in connection with the
transactions contemplated hereby for any reason shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or the
such other agreements, but this Agreement or any such other agreements, as the
case may be, shall be reformed and construed as if such invalid, illegal or
unenforceable provisions had never been contained herein or therein.
8. Waivers and Modifications. This Agreement may be modified, and the
rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 8. No waiver by any party of any
breach by any other party or any provision hereof shall be deemed to be a waiver
of any later or other breach thereof or as a waiver of any other provision of
this Agreement. This Agreement sets forth all of the terms of the understandings
between the parties with reference to the subject matter set forth herein and
may not be waived, changed, discharged or terminated orally or by any course of
dealing between the parties, but only by an instrument in writing signed by the
party against whom any waiver, change, discharge or termination is sought.
9. Assignment. The Employee acknowledges that the services to be rendered
by him are unique and personal in nature. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement.
10. NonCompete/Confidentiality Agreement. In connection with his employment
by the Company pursuant to the terms of this Agreement, the Employee shall
execute and deliver to the Company simultaneously herewith the
NonCompete/Confidentiality Agreement attached hereto as Exhibit C.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original, but which taken
together shall constitute one instrument.
12. Notices. All notices required hereunder shall be given to
the parties by hand delivery, first class prepaid mail, facsimile or overnight
delivery service at the following addresses, or such other addresses as the
parties shall inform each other of in writing as set forth in this Section 12.
META Group, Inc. Larry R. DeBoever
208 Harbor Drive 20 Knowlton Drive
Stamford, CT 06912 Acton, MA 01720
Attn: Chief Financial Officer
<PAGE>
With a copy to:
Mark J. Macenka, Esq
Testa Hurwitz & Thibeault,LLP
High Street Tower
125 High Street
Boston, MA 02110
[The remainder of this page is intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
META Group, Inc.
By: /s/ Dale Kutnick
-------------------------------------------
Dale Kutnick
President and Chief Executive Officer
EMPLOYEE:
/s/ Larry R. DeBoever
-------------------------------------------
Larry R. DeBoever
PROMISSORY NOTE
---------------
$500,000.00 November 1, 1996
For value received, the undersigned, Larry R. DeBoever ("Borrower") hereby
promises to pay to the order of META Group, Inc., a Delaware corporation
("Lender"), at its principal office at 208 Harbor Drive, Stamford, Connecticut
06912 or at such other place as may be designated from time to time in writing
by Lender, the principal sum of Five Hundred Thousand Dollars ($500,000)
together with interest in arrears from and including the date hereof on the
unpaid principal balance hereunder, computed daily, at the rate of nine percent
(9%) per annum, on October 31, 1999. Interest shall be calculated on the basis
of actual number of days elapsed over a year of 360 days. Notwithstanding any
other provision of this Promissory Note, Lender does not intend to charge and
Borrower shall not be required to pay any interest or other fees or charges in
excess of the maximum permitted by applicable law; any payments in excess of
such maximum shall be refunded to Borrower or credited to reduce principal
hereunder. All payments received by Lender hereunder will be applied first to
costs of collection, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
This Promissory Note is secured by and entitled to the benefits of a Pledge
and Security Agreement between Borrower and Lender of even date herewith (the
"Pledge Agreement"). Upon the occurrence of any Event of Default, as defined in
the Pledge Agreement, Lender may declare any or all obligations or liabilities
of Borrower to Lender (including the unpaid principal hereunder and any interest
due thereon), immediately due and payable without presentment, demand, protest
or notice.
If this Promissory Note is not paid in accordance with its terms,
Borrower shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Borrower under this Promissory Note shall be
effective unless it is in a writing signed by Lender. A waiver by Lender of any
right or remedy under this Promissory Note on any occasion shall not be a bar to
exercise of the same right or remedy on any subsequent occasion or of any other
right or remedy at any time.
Any notice required or permitted under this Promissory Note shall
be in writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth the Pledge
Agreement, or to the most recent address, specified by written notice, given to
the sender pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in accordance
with the laws of the Commonwealth of Massachusetts, and shall be construed in
accordance therewith, and shall have the effect of a sealed instrument.
Borrower hereby expressly waives presentment, demand, and protest, notice
of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof or of the Pledge Agreement.
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
WITNESS: BORROWER:
/s/Arlette W. Britton /s/Larry R. DeBover
- ------------------------ ---------------------
Name: Arlette W. Britton Larry R. DeBoever
META GROUP, INC.
AMENDED AND RESTATED 1995 EMPLOYEE STOCK PURCHASE PLAN
Article 1 - Purpose.
- -------------------
This Amended and Restated 1995 Employee Stock Purchase Plan (the "Plan") is
intended to encourage stock ownership by all eligible employees of META Group,
Inc. (the "Company"), a Delaware corporation, and its participating subsidiaries
(as defined in Article 17) so that they may share in the growth of the Company
by acquiring or increasing their proprietary interest in the Company. The Plan
is designed to encourage eligible employees to remain in the employ of the
Company and its participating subsidiaries. The Plan is intended to constitute
an "employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code").
Article 2 - Administration of the Plan.
- --------------------------------------
The Plan may be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than two members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee may select one of its members as Chairman, and
shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final, unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best,
provided that any such rules and regulations shall be applied on a uniform basis
to all employees under the Plan. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
In the event the Board of Directors fails to appoint or refrains from
appointing a Committee, the Board of Directors shall have all power and
authority to administer the Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board of Directors.
Each member of the Committee shall be a "disinterested director," i.e.,
except as otherwise permitted under Section 16(b) of the Securities Exchange Act
of 1934 (the "Exchange Act") and paragraph (c)(2)(i) of Rule 16b-3 thereunder,
no member of the Committee shall be granted, nor shall have been granted,
"equity securities" (within the meaning of 17C.F.R. 240.16a-1(d))
pursuant to the Plan or any other plan of the Company or its "affiliates" (as
defined in the Exchange Act) at any time during the period commencing with the
date which is one year after date on which his service on the Committee ceases.
Notwithstanding the preceding sentence, (i) the grant or award of such an equity
security to a member of the Committee prior to the date of the effectiveness of
the Company's initial registration statement under Section 12 of the Exchange
Act shall not cause the Committee member to fail to be "disinterested," and (ii)
a member of the Committee may receive stock options under the META Group, Inc.
1995 Non-Employee Director Stock Option Plan.
Article 3 - Eligible Employees.
- ------------------------------
All employees of the Company or any of its participating subsidiaries whose
customary employment is more than twenty (20) hours per week and for more than
five (5) months in any calendar year shall be eligible to receive options under
the Plan to purchase common stock of the Company, and all eligible employees
shall have the same rights and privileges hereunder. Persons who are eligible
employees on the first business day of any Payment Period (as defined in Article
5) shall receive their options as of such day. Persons who become eligible
employees after any date on which options are granted under the Plan shall be
granted options on the first day of the next succeeding Payment Period on which
options are granted to eligible employees under the Plan. Directors who are not
employees of the Company shall not be eligible to receive options under this
Plan. In no event, however, may an employee be granted an option if such
employee, immediately after the option was granted, would be treated as owning
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or of any parent corporation or
subsidiary corporation, as the terms "parent corporation" and "subsidiary
corporation" are defined in Section 424(e) and (f) of the Code. For purposes of
determining stock ownership under this paragraph, the rules of Section 424(d) of
the Code shall apply, and stock which the employee may purchase under
outstanding options shall be treated as stock owned by the employee.
Article 4 - Stock Subject to the Plan.
- -------------------------------------
The stock subject to the options under the Plan shall be shares of the
Company's authorized but unissued common stock, par value $0.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company, including
shares purchased in the open market. The aggregate number of shares which may be
issued pursuant to the Plan is 375,000, subject to adjustment as provided in
Article 12. If any option granted under the Plan shall expire or terminate for
any reason without having been exercised in full or shall cease for any reason
to be exercisable in whole or in part, the unpurchased shares subject thereto
shall again be available under the Plan.
Article 5 - Payment Period and Stock Options.
- --------------------------------------------
The first Payment Period during which payroll deductions will be
accumulated under the Plan shall commence on January 1, 1996 and shall end on
June 30, 1996. For the remainder of the duration of the Plan, Payment Periods
shall consist of the six-month periods commencing on January 1 and July 1 and
ending on December 31 and June 30 of each calendar year.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period, at the Option
Price hereinafter provided for, a maximum of 750 shares, on condition that such
employee remains eligible to participate in the Plan throughout the remainder of
such Payment Period. The participant shall be entitled to exercise the option so
granted only to the extent of the participant's accumulated payroll deductions
on the last day of such Payment Period. If the participant's accumulated payroll
deductions on the last day of the Payment Period would enable the participant to
purchase more than 750 shares except for the 750 share limitation, the excess of
the amount of the accumulated payroll deductions over the aggregate purchase
price of the 750 shares shall be promptly refunded to the participant by the
Company, without interest. The Option Price per share for each Payment Period
shall be the lesser of (i) 85% of the average market price of the Common Stock
on the first business day of the Payment Period and (ii) 85% of the average
market price of the Common Stock on the last business day of the Payment Period,
in either event rounded up to avoid fractions of a dollar other than 1/4, 1/2
and 3/4. The foregoing limitation on the number of shares subject to option and
the Option Price shall be subject to adjustment as provided in Article 12.
For purposes of the Plan, the term "average market price" on any date means
(i) the average (on that date) of the high and low prices of the Common Stock on
the principal national securities exchange on which the Common Stock is traded,
if the Common Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Common Stock on the Nasdaq
Stock Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the average of the closing bid and asked prices last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq Stock Market; or
(iv) if the Common Stock is not publicly traded, the fair market value of the
Common Stock as determined by the Committee after taking into consideration all
factors which it deems appropriate, including, without limitation, recent sale
and offer prices of the Common Stock in private transactions negotiated at arm's
length.
For purposes of the Plan, the term "business day" means a day on which
there is trading on the Nasdaq Stock Market or the aforementioned national
securities exchange, whichever is applicable pursuant to the preceding
paragraph.
No employee shall be granted an option which permits the employee's right
to purchase stock under the Plan, and under all other Section 423(b) employee
stock purchase plans of the Company and any parent or subsidiary corporations,
to accrue at a rate which exceeds $37,500 of fair market value of such stock
(determined on the date or dates that options on such stock were granted) for
each calendar year in which such option is outstanding at any time. The purpose
of the limitation in the preceding sentence is to comply with Section 423(b)(8)
of the Code. If the participant's accumulated payroll deductions on the last day
of the Payment Period would otherwise enable the participant to purchase Common
Stock in excess of the Section 423(b)(8) limitation described in this paragraph,
the excess of the amount of the accumulated payroll deductions over the
aggregate purchase price of the shares actually purchased shall be promptly
refunded to the participant by the Company, without interest.
Article 6 - Exercise of Option.
- ------------------------------
Each eligible employee who continues to be a participant in the Plan on the
last day of a Payment Period shall be deemed to have exercised his or her option
on such date and shall be deemed to have purchased from the Company such number
of full shares of Common Stock reserved for the purpose of the Plan as the
participant's accumulated payroll deductions on such date will pay for at the
Option Price, subject to the 750 share limit of the option and the Section
423(b)(8) limitation described in Article 5. If the individual is not a
participant on the last day of a Payment Period, then he or she shall not be
entitled to exercise his or her option. Only full shares of Common Stock may be
purchased under the Plan. Unused payroll deductions remaining in a participant's
account at the end of a Payment Period by reason of the inability to purchase a
fractional share shall be carried forward to the next Payment Period.
Article 7 - Authorization for Entering the Plan.
- -----------------------------------------------
An employee may elect to enter the Plan by filling out, signing and
delivering to the Company an authorization:
A. Stating the percentage to be deducted regularly from
the employee's pay;
B. Authorizing the purchase of stock for the employee in
each Payment Period in accordance with the terms of the Plan; and
C. Specifying the exact name or names in which stock
purchased for the employee is to be issued as provided under Article 11 hereof.
Such authorization must be received by the Company at least ten business days
before the first day of the next succeeding Payment Period and shall take effect
only if the employee is an eligible employee on the first business day of such
Payment Period.
Unless a participant files a new authorization or withdraws from the Plan,
the deductions and purchases under the authorization the participant has on file
under the Plan will continue from one Payment Period to succeeding Payment
Periods as long as the Plan remains in effect.
The Company will accumulate and hold for each participant's account the
amounts deducted from his or her pay. No interest will be paid on these amounts.
Article 8 - Maximum Amount of Payroll Deductions.
- ------------------------------------------------
An employee may authorize payroll deductions in an amount (expressed as a
whole percentage) not less than one percent (1%) but not more than fifteen
percent (15%) of the employee's total compensation, including base pay or salary
and any overtime, bonuses or commissions.
Article 9 - Change in Payroll Deductions.
- ----------------------------------------
Deductions may not be increased or decreased during a Payment Period.
However, a participant may withdraw in full from the Plan.
Article 10 - Withdrawal from the Plan.
- -------------------------------------
An employee may withdraw from the Plan (in whole but not in part) at any
time prior to the last day of a Payment Period by delivering a withdrawal notice
to the Company, in which case the Company will promptly refund the entire
balance of the employee's deductions not previously used to purchase stock under
the Plan.
To re-enter the Plan, an employee who has previously withdrawn must file a
new authorization at least ten business days before the first day of the next
Payment Period in which he or she wishes to participate. The employee's re-entry
into the Plan becomes effective at the beginning of such Payment Period,
provided that he or she is an eligible employee on the first business day of the
Payment Period.
Article 11 - Issuance of Stock.
- ------------------------------
Certificates for stock issued to participants shall be delivered as soon as
practicable after each Payment Period by the Company's transfer agent.
Stock purchased under the Plan shall be issued only in the name of the
participant, or if the participant's authorization so specifies, in the name of
the participant and another person of legal age as joint tenants with rights of
survivorship.
Article 12 - Adjustments.
- ------------------------
Upon the happening of any of the following described events, a
participant's rights under options granted under the Plan shall be adjusted as
hereinafter provided:
A. In the event that the shares of Common Stock shall be
subdivided or combined into a greater or smaller number of shares or if, upon a
reorganization, split-up, liquidation, recapitalization or the like of the
Company, the shares of Common Stock shall be exchanged for other securities of
the Company, each participant shall be entitled, subject to the conditions
herein stated, to purchase such number of shares of Common Stock or amount of
other securities of the Company as were exchangeable for the number of shares of
Common Stock that such participant would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or exchange; and
B. In the event the Company shall issue any of its shares as a
stock dividend upon or with respect to the shares of stock of the class which
shall at the time be subject to option hereunder, each participant upon
exercising such an option shall be entitled to receive (for the purchase price
paid upon such exercise) the shares as to which the participant is exercising
his or her option and, in addition thereto (at no additional cost), such number
of shares of the class or classes in which such stock dividend or dividends were
declared or paid, and such amount of cash in lieu of fractional shares, as is
equal to the number of shares thereof and the amount of cash in lieu of
fractional shares, respectively, which the participant would have received if
the participant had been the holder of the shares as to which the participant is
exercising his or her option at all times between the date of the granting of
such option and the date of its exercise.
Upon the happening of any of the foregoing events, the class and aggregate
number of shares set forth in Article 4 hereof which are subject to options
which have been or may be granted under the Plan and the limitations set forth
in the second paragraph of Article 5 shall also be appropriately adjusted to
reflect the events specified in paragraphs A. and B. above. Notwithstanding the
foregoing, any adjustments made pursuant to paragraphs A. or B. shall be made
only after the Committee, based on advice of counsel for the Company, determines
whether such adjustments would constitute a "modification" (as that term is
defined in Section 424 of the Code). If the Committee determines that such
adjustments would constitute a modification, it may refrain from making such
adjustments.
If the Company is to be consolidated with or acquired by another entity in
a merger, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee shall, with respect to options then
outstanding under the Plan, either (i) make appropriate provision for the
exchange of such options on an equitable basis for the consideration payable
with respect to the outstanding shares of the Company's Common Stock in
connection with the Acquisition, or (ii) terminate all outstanding options in
exchange for a cash payment equal to the excess of the fair market value of the
shares subject to the options (determined as of the date of the Acquisition)
over the Option Price thereof (determined with reference only to the first
business day of the applicable Payment Period).
The Committee shall determine the adjustments to be made under this Article
12, and its determination shall be conclusive.
Article 13 - No Transfer or Assignment of Employee's Rights.
- -----------------------------------------------------------
An employee's rights under the Plan are the employee's alone and may not be
transferred or assigned to, or availed of by, any other person other than by
will or the laws of descent and distribution. Any option granted under the Plan
to an employee may be exercised, during the employee's lifetime, only by the
employee.
Article 14 - Termination of Employee's Rights.
- ---------------------------------------------
Whenever a participant ceases to be an eligible employee because of
retirement, voluntary or involuntary termination, resignation, layoff,
discharge, death or for any other reason, his or her rights under the Plan shall
immediately terminate, and the Company shall promptly refund, without interest,
the entire balance of his or her payroll deduction account under the Plan.
Notwithstanding the foregoing, eligible employment shall be treated as
continuing intact while a participant is on military leave, sick leave or other
bona fide leave of absence, for up to 90 days, or for so long as the
participant's right to re-employment is guaranteed either by statute or by
contract, if longer than 90 days.
If a participant's payroll deductions are interrupted by any legal process,
a withdrawal notice will be considered as having been received from the
participant on the day the interruption occurs.
Article 15 - Termination and Amendments to Plan.
- -----------------------------------------------
Unless terminated sooner as provided below, the Plan shall terminate on
January 1, 2006. The Plan may be terminated at any time by the Company's Board
of Directors but such termination shall not affect options then outstanding
under the Plan. It will terminate in any case when all or substantially all of
the unissued shares of stock reserved for the purposes of the Plan have been
purchased. If at any time shares of stock reserved for the purpose of the Plan
remain available for purchase but not in sufficient number to satisfy all then
unfilled purchase requirements, the available shares shall be apportioned among
participants in proportion to the amount of payroll deductions accumulated on
behalf of each participant that would otherwise be used to purchase stock, and
the Plan shall terminate. Upon such termination or any other termination of the
Plan, all payroll deductions not used to purchase stock will be refunded,
without interest.
The Committee or the Board of Directors may from time to time adopt
amendments to the Plan provided that, without the approval of the stockholders
of the Company, no amendment may (i) materially increase the number of shares
that may be issued under the Plan; (ii) change the class of employees eligible
to receive options under the Plan, if such action would be treated as the
adoption of a new plan for purposes of Section 423(b) of the Code; or (iii)
cause Rule 16b-3 under the Securities Exchange Act of 1934 to become
inapplicable to the Plan.
Article 16 - Limits on Sale of Stock Purchased under the Plan.
- -------------------------------------------------------------
The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any employee in the conduct of his or her own affairs. An employee may,
therefore, sell stock purchased under the Plan at any time the employee chooses,
subject to compliance with any applicable federal or state securities laws and
subject to any restrictions imposed under Article 21 to ensure that tax
withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY
MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.
Article 17 - Participating Subsidiaries.
- ---------------------------------------
The term "participating subsidiary" shall mean any present or future
subsidiary of the Company, as that term is defined in Section 424(f) of the
Code, which is designated from time to time by the Board of Directors to
participate in the Plan. The Board of Directors shall have the power to make
such designation before or after the Plan is approved by the stockholders.
Article 18 - Optionees Not Stockholders.
- ---------------------------------------
Neither the granting of an option to an employee nor the deductions from
his or her pay shall constitute such employee a stockholder of the shares
covered by an option until such shares have been actually purchased by the
employee.
Article 19 - Application of Funds.
- ---------------------------------
The proceeds received by the Company from the sale of Common Stock pursuant
to options granted under the Plan will be used for general corporate purposes.
Article 20 - Notice to Company of Disqualifying Disposition.
- -----------------------------------------------------------
By electing to participate in the Plan, each participant agrees to notify
the Company in writing immediately after the participant transfers Common Stock
acquired under the Plan, if such transfer occurs within two years after the
first business day of the Payment Period in which such Common Stock was
acquired. Each participant further agrees to provide any information about such
a transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421 and 424 of the
Code, which have certain tax consequences to participants and to the Company and
its participating subsidiaries.
Article 21 - Withholding of Additional Income Taxes.
- ---------------------------------------------------
By electing to participate in the Plan, each participant acknowledges that
the Company and its participating subsidiaries are required to withhold taxes
with respect to the amounts deducted from the participant's compensation and
accumulated for the benefit of the participant under the Plan, and each
participant agrees that the Company and its participating subsidiaries may
deduct additional amounts from the participant's compensation, when amounts are
added to the participant's account, used to purchase Common Stock or refunded,
in order to satisfy such withholding obligations. Each participant further
acknowledges that when Common Stock is purchased under the Plan the Company and
its participating subsidiaries may be required to withhold taxes with respect to
all or a portion of the difference between the fair market value of the Common
Stock purchased and its purchase price, and each participant agrees that such
taxes may be withheld from compensation otherwise payable to such participant.
It is intended that tax withholding will be accomplished in such a manner that
the full amount of payroll deductions elected by the participant under Article 7
will be used to purchase Common Stock. However, if amounts sufficient to satisfy
applicable tax withholding obligations have not been withheld from compensation
otherwise payable to any participant, then, notwithstanding any other provision
of the Plan, the Company may withhold such taxes from the participant's
accumulated payroll deductions and apply the net amount to the purchase of
Common Stock, unless the participant pays to the Company, prior to the exercise
date, an amount sufficient to satisfy such withholding obligations. Each
participant further acknowledges that the Company and its participating
subsidiaries may be required to withhold taxes in connection with the
disposition of stock acquired under the Plan and agrees that the Company or any
participating subsidiary may take whatever action it considers appropriate to
satisfy such withholding requirements, including deducting from compensation
otherwise payable to such participant an amount sufficient to satisfy such
withholding requirements or conditioning any disposition of Common Stock by the
participant upon the payment to the Company or such subsidiary of an amount
sufficient to satisfy such withholding requirements.
Article 22 - Governmental Regulations.
- -------------------------------------
The Company's obligation to sell and deliver shares of Common Stock under
the Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
identify shares of Common Stock issued under the Plan on its stock ownership
records and send tax information statements to employees and former employees
who transfer title to such shares.
Article 23 - Governing Law.
- --------------------------
The validity and construction of the Plan shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
law thereof.
Article 24 - Approval of Board of Directors and Stockholders of the Company.
- ---------------------------------------------------------------------------
The Plan was originally adopted by the Board of Directors on October 2,
1995, approved by the stockholders of the Company as of October 4, 1995, and
amended and restated by approval of the Board of Directors on March 31, 1999.
