<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1997
FILE NO. 333-21647
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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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INTERNATIONAL COMPUTEX, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
GEORGIA 7372 58-1938206
(STATE OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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5500 INTERSTATE NORTH PARKWAY, SUITE 507
ATLANTA, GEORGIA 30328
(770) 953-1464
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)
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HENRY B. LEVI, ESQ.
GAMBRELL & STOLZ, L.L.P.
SUITE 4300, ONE PEACHTREE CENTER
303 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30308
(404) 577-6000
FACSIMILE: (404) 221-6501
(NAME, ADDRESS, AND TELEPHONE AND FACSIMILE NUMBERS OF AGENT FOR SERVICE)
---------------
COPY TO:
JAMES M. JENKINS, ESQ.
HARTER, SECREST & EMERY
700 MIDTOWN TOWER
ROCHESTER, NEW YORK 14604-2070
FACSIMILE: (716) 232-2152
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) (1) FEE
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<S> <C> <C> <C> <C>
1,293,750
Common Stock, par value $.001 per share... shares(2) $9.00 $11,643,750 $3,528.41
Warrant to Purchase Common Stock, par
value $.001 per share (3)................ One Warrant $5.00 $5.00 --
Common Stock, par value $.001 per
share (4)................................ 112,500 shares $10.80 $1,215,000 $368.18
Common Stock, par value $.001 per
share (5)................................ 123,889 shares $5.40 $669,001 $202.73
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee under
Rule 457(a).
(2) Includes 168,750 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(3) To be issued to H. J. Meyers & Co., Inc., as Representative of the
Underwriters.
(4) Issuable upon exercise of Warrant.
(5) To be offered by the current stockholders of the Registrant pursuant to
Warrants granted by such stockholders to certain individuals who purchased
Senior Debentures of the Registrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH , 1997
INTERNATIONAL COMPUTEX, INC.
COMMON STOCK
1,125,000 SHARES
Except as set forth herein, the shares of common stock, $.001 par value per
share ("Common Stock"), offered hereby are being sold by International
CompuTex, Inc., a Georgia corporation ("ICI" or the "Company"). Prior to this
offering (this "Offering"), there has been no public market for the Common
Stock and there can be no assurance that an active market will develop. It is
currently estimated that the initial public offering price will be between
$8.00 and $10.00 per share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Company has
applied for listing of the Common Stock on the Nasdaq National Market under the
symbol "ICIQ."
In addition to the Common Stock offered hereunder, the stockholders of the
Company (the "Selling Stockholders") are offering 123,889 shares of Common
Stock to holders of Warrants granted in connection with their purchase of
Senior Debentures issued by the Company. These shares are offered at 60% of the
initial public offering price.
-----------
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO COMMISSIONS PROCEEDS TO SELLING
PUBLIC (1) COMPANY (2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share......... $ $ $ -0- (3)
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Total (3)......... $ $ $ -0- (3)
</TABLE>
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(1) Does not include additional compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance of
$202,500 (or $232,875 if the Underwriters' over-allotment option described
in footnote (3) is exercised in full); and (ii) warrants to purchase up to
112,500 shares of Common Stock at $10.80 per share (120% of the assumed
initial public offering price), exercisable over a period of four years,
commencing one year from the date of this Prospectus ("Representative's
Warrants"). In addition, the Company and the Selling Stockholders have
agreed to indemnify the Underwriters against certain liabilities. See
"Underwriting."
(2) Before deducting expenses of this Offering, including the Representative's
nonaccountable expense allowance, estimated at $400,000.
(3) The Company and two of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 168,750 additional shares of
Common Stock solely to cover over-allotments, if any. Of the 168,750
additional shares of Common Stock that may be purchased by the Underwriters
pursuant to such option, 50% (or up to 84,375 shares) would be sold by the
Company and 50% (or up to 84,375 shares) would be sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders. If the option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholders will be
$11,643,750, $1,047,938, $9,904,781 and $691,031, respectively. See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale when, as and if delivered to and accepted by them, and subject to
certain conditions. It is expected that delivery of the shares of Common Stock
will be made at the offices of H. J. Meyers & Co., Inc., Rochester, New York,
on or about , 1997.
H. J. MEYERS & CO., INC.
The date of this Prospectus is , 1997
<PAGE>
[ADD ARTWORK, AS APPROPRIATE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and the Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. Investors should
consider carefully the information set forth under "Risk Factors." Unless
otherwise indicated, (i) the information set forth in this Prospectus assumes
no exercise of the Underwriters' over-allotment option and (ii) all share and
per share data gives effect to stock splits effected during 1996. Certain
information contained in this Prospectus Summary and elsewhere in this
Prospectus, including information with regard to the Company's strategy for
expanding operations and related financing requirements, are forward looking
statements. For a discussion of important factors that could affect such
matters, see "Risk Factors."
THE COMPANY
International CompuTex, Inc. ("ICI" or the "Company") was incorporated in
Georgia in January 1991. The Company's principal executive offices are located
at 5500 Interstate North Parkway, Suite 507, Atlanta, Georgia 30328-4662, and
its telephone number at that address is (770) 953-1464.
ICI is a software technology company that develops, markets and supports
enterprise-wide client/server solutions and provides consulting and
implementation services for the manufacturing and process industries. ICI
specializes in helping companies improve competitiveness through the
application of information technology. The Company is active in the areas of
systems analysis and design, cross platform software development, object-
oriented technology and client/server architecture. In addition to its
technical expertise, ICI has built strong skills in industry applications for
manufacturing and product data management ("PDM"). PDM is a software technology
which allows management and control of product-related data from product
development and design to manufacturing and post-production maintenance. The
Company has focused its product development efforts on information
classification and management ("ICAM"). Among other applications, ICAM is one
of the major components of a PDM solution. Management believes that ICAM
applications are underdeveloped in the marketplace and hold great potential for
future development and sales.
ICI's virtual object warehouse and classification system, ItemQuest(TM), is
currently in the controlled availability stage with a limited number of
licensees. Management believes that ItemQuest supplies an important missing
component of a PDM solution by addressing one of the most elementary but costly
problems of the manufacturing and engineering industries--how to quickly
identify, search and retrieve existing parts information, design elements and
their relevant components for re-use throughout the enterprise. ItemQuest is
based on a sophisticated object oriented classification and search engine which
enables users to search, select and re-use product data design and
manufacturing information based on engineering or manufacturing attributes.
This, in turn, enables manufacturers to reduce product development costs and
shorten time to market, factors which increase their competitiveness.
ICI, through ItemQuest and through its services, intends to become a leading
solution provider in the ICAM and PDM markets, and to be known for its
expertise and success in helping companies improve their competitiveness
through the implementation of ICAM and PDM technology. Management expects that
the Company's focus on information classification and management through the
delivery of ItemQuest will help the Company achieve a leadership position in
these markets.
3
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
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STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Operating revenues............................. $1,246,414 $2,875,872 $3,891,034
Income from operations......................... 424,747 1,114,107 1,817,317
Net income..................................... 427,295 1,118,905 1,820,384
Pro forma provision for income taxes (1)....... 161,000 422,000 686,000
Pro forma net income (1)....................... 266,295 696,905 1,134,384
Pro forma earnings per share................... $ 0.50
Shares used in per share computation (2)....... 2,287,855
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ---------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED (4)
---------- ----------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 80,969 $ 119,750 $ 119,750 $ 8,933,750
Working capital
(deficit)............... 859,262 1,104,358 (446,144) 8,390,280
Total assets............ 982,080 1,621,011 1,621,011 10,412,587
Stockholders' equity(5). 947,460 1,552,627 2,125 8,816,125
</TABLE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............ 1,125,000 shares
Common Stock offered by the Selling
Stockholders................................... 123,889 (6)
Shares of Common Stock to be outstanding after
this Offering.................................. 3,250,000 shares (7)
Use of proceeds by the Company................. General corporate purposes,
including repayment of Senior
Debentures, funding of a
portion of final S corporation
distribution, infrastructure
investment and equipment
purchases, product development,
sales and marketing and working
capital. See "Use of Proceeds."
Nasdaq National Market Symbol.................. ICIQ
</TABLE>
- --------
(1) These pro forma amounts are based upon the assumption that the Company had
been treated for income tax purposes as a C corporation during each of
these fiscal years, using a combined 37.7% federal and state income tax
rate. Since inception, the Company has been treated for income tax purposes
as an S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"), and under Georgia income tax laws. Earnings
of the Company have been taxed for federal and State of Georgia tax
purposes directly to the stockholders of the Company, rather than the
Company. The Company's S corporation status will be terminated immediately
prior to the closing of this Offering. Upon the termination of the
Company's S corporation status, in addition to becoming subject to
corporate tax at the federal and state levels, the Company will, for future
periods, be required to provide for deferred federal and state income
taxes, calculated in accordance with Financial Accounting Standards Board
Statement 109 ("FAS 109") for the cumulative temporary differences between
the financial reporting and income tax bases of the Company's assets and
liabilities.
(2) See Note A of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used to compute the per share
amount.
4
<PAGE>
(3) The pro forma balance sheet data as of December 31, 1996 gives effect to an
additional estimated provision of approximately $21,600 for deferred income
taxes, which would have been required as a charge against retained earnings
had the Company terminated its S corporation status at December 31, 1996.
It also reflects the liability for the distribution of $1,528,902 as of
December 31, 1996 to current stockholders of the Company from the proceeds
of this Offering. See "Prior S Corporation Status and Distributions" and
Note A of the Notes to Financial Statements.
(4) Adjusted to reflect the sale of 1,125,000 shares of Common Stock offered by
the Company hereby at the assumed initial public offering price of $9.00
per share (and after deducting underwriting discounts and commissions and
estimated offering expenses, including $22,424 of previously deferred
offering expenses) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
(5) See "Prior S Corporation Status and Distributions" for a discussion of the
proposed distribution to current stockholders of all or substantially all
of the undistributed S corporation earnings of the Company through the day
prior to the closing of this Offering. As a result of that proposed
distribution, prospective investors should assume that current
stockholders' equity of the Company is a negligible amount. See "Risk
Factors--Planned Distribution of Accumulated Earnings in Connection with
Conversion to C Corporation Status."
(6) This represents shares offered by the Selling Stockholders pursuant to
Warrants granted by such stockholders to certain individuals who purchased
Senior Debentures of the Company. See "Shares Eligible for Future Sale." In
addition, two of the Selling Stockholders will participate in 50% of any
shares of Common Stock sold in the event the Underwriters exercise their
over-allotment option.
(7) Based upon the number of shares outstanding as of December 31, 1996.
Excludes 173,311 shares of Common Stock issuable upon exercise of
outstanding options at December 31, 1996, and 326,709 shares of Common
Stock reserved for future grant under the Company's 1996 Stock Option Plan
as of that date. Also excludes 112,500 shares of Common Stock subject to
warrants to be issued to the Representative of the Underwriters in
connection with this Offering (the "Representative's Warrants"). See
"Capitalization," "Management-- Stock Option Plans" and Notes A and F of
Notes to Financial Statements.
----------------
Except as otherwise noted herein, information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
5
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD, PRIOR TO ANY PURCHASE OF COMMON STOCK,
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-
LOOKING STATEMENTS, AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF NUMEROUS FACTORS,
INCLUDING THE FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS.
INTRODUCTION OF NEW PRODUCT; CHANGE OF BUSINESS FOCUS. ICI currently derives
the great majority of its revenue from its services business, primarily from
project management, implementation and customization services for the PDM
product of International Business Machines Corporation ("IBM"), called
ProductManager(TM), and from custom development services in cross platform,
client/server and object oriented software and consulting. Management believes
that the basis for the Company's next stage of growth will be the development,
delivery, support and evolution of ItemQuest. While the Company is experienced
in software development as part of custom development contracts, it has no
previous experience in the distribution and maintenance of its own product. To
be successful with ItemQuest, Management believes that the Company must invest
in and develop a strategy for distribution, customer service, maintenance,
pricing, marketing and sales. Functions including training and defect support
must be developed, staffed and maintained.
There can be no assurance that ItemQuest will achieve broad market
acceptance or that the Company will be successful in marketing ItemQuest or
enhancements to that product. In the event that the Company's current or
future competitors release new products that have more advanced features,
offer better performance or are more price competitive than ItemQuest, demand
for ItemQuest may decline or may fail to materialize. Lack of demand for
ItemQuest due to competition, technological change or other factors would have
a material adverse affect on the Company's business, financial condition and
results of operations.
RELIANCE ON IBM; LACK OF VISIBILITY IN THE MARKET. To date, most of ICI's
revenue has been derived from services rendered directly to IBM or as a
subcontractor to IBM customers. Overall, IBM has accounted, directly or
indirectly, for 75% of ICI's 1993 revenues, 65% of 1994 revenues, 81% of 1995
revenues and 70% of 1996 revenues. Management believes that IBM benefits from
utilizing ICI's skill and experience to enhance the success of ProductManager.
However, there can be no assurance that such utilization will continue.
While there has been an increase in the number of direct customer contracts
relating to IBM's ProductManager, the predominant existing relationship of the
Company as a subcontractor to IBM has thus far limited the Company's exposure
and opportunities to form direct relationships with customers. In those
instances where ICI has dealt directly with customers, it has been known
primarily for its skill and expertise in providing implementation and
customization services for PDM software systems, particularly for IBM's
ProductManager.
The Company has only extremely limited name recognition for its virtual
object warehouse and classification system (ItemQuest) and has not yet fully
developed production reference sites through the ItemQuest controlled
availability program. Management proposes to diversify and increase the
Company's client base by establishing and expanding a sales and marketing
organization and by attending PDM industry conferences, placing articles in
industry journals and aggressively marketing its services and ItemQuest to
industry consultants. However, there can be no assurance that the proposed
marketing plans will be carried out, or if carried out, will result in
favorable reviews or lead to anticipated results.
Prior to 1996, IBM used ICI's skills primarily in product development. In
1996 ICI expanded beyond internal product development and began to provide
product implementation and customization for IBM customers. Maintaining and
growing this revenue stream depends both on IBM's continued confidence in ICI
and IBM's success in the PDM market. While IBM's PDM product has shown
increasing market acceptance, there can be no assurance that other competing
PDM suppliers will not introduce PDM solutions more technologically advanced
than IBM's ProductManager, or that ProductManager will continue to be a leader
in the PDM market. The failure of ProductManager to sustain or increase its
share of the PDM solutions market would have a material adverse affect on the
Company's business, financial condition and results of operations.
6
<PAGE>
Management anticipates that the development of ItemQuest will have a
beneficial effect on the relationship between ICI and IBM, in that Management
believes that ItemQuest will enhance the effectiveness of IBM's ProductManager
product. ICI's experience in working with IBM and IBM's customers has allowed
ICI to develop expertise in providing services relative to ProductManager and
in understanding how to optimize the compatibility between ItemQuest and
ProductManager. Even though ICI also intends to market ItemQuest to users of
other PDM software products, ICI will continue to place a high priority on
maintaining a strong relationship with IBM. Nevertheless, there can be no
assurance that this close relationship will continue or that ICI's efforts in
expanding its scope to other PDM products will not adversely affect ICI's
relationship with IBM.
The relationship of ICI to IBM is governed by subcontractor agreements with
IBM and by a series of project subcontracts and work orders. None of these
agreements provide for services to be rendered over a long term and each of
them is subject to termination on relatively short notice. Accordingly, ICI's
prospects for providing continued IBM-related services depend primarily on
ICI's relationship to IBM and IBM's customers, rather than on long-term
contractual relationships. There can be no assurance that these relationships
will continue.
MANAGEMENT OF EXPANDING OPERATIONS. ICI has experienced significant growth
in recent periods, with operating revenues increasing from approximately
$355,000 in 1993 to approximately $3,891,000 in 1996. In addition, the Company
has experienced significant growth in the number of its employees, the scope
of its operating and financial systems, and the geographic area of its
operations. That growth has placed a significant strain upon its management
systems and resources. The Company's ability to compete effectively and to
manage future growth, if any, will require the Company to continue to improve
its financial and management controls, reporting systems and procedures on a
timely basis and to expand, train and manage its employee base. It is
anticipated that additional experienced management will need to be added to
meet the demands of expanded operations. There can be no assurance that such
additional management will be attracted and retained, or that the existing and
new management will be able to implement such systems effectively or on a
timely basis or to manage future expansion successfully. The failure or
inability to do so could have a material adverse affect on the Company's
business, financial condition and results of operations.
RISK OF PRODUCT DEFECTS. The Company has only recently begun to install and
implement test sites of ItemQuest with major manufacturers. As a result, the
Company has only limited experience with the installation, implementation and
operation of ItemQuest at customer sites. There can be no assurance that
ItemQuest will not require substantial modifications to satisfy performance
requirements or to fix previously undetected errors. If customers were to
experience significant problems with ItemQuest, or if the Company's customers
were dissatisfied with the product's functionality, performance or support,
the Company's business, financial condition and results of operations would be
materially adversely affected.
DISTRIBUTION RISKS; NEED TO ESTABLISH SALES CHANNELS. Until the recent
limited introduction of ItemQuest, the Company's business operations consisted
of providing services, primarily on a subcontracting basis. As a result, ICI
has not previously needed to maintain an extensive sales organization. With
the introduction of ItemQuest, Management believes that the Company must
establish sales channels and marketing, selling and consulting relationships,
both domestically and internationally. There can be no assurance that the
Company will be able to attract sufficient direct sales personnel, hardware
and software vendors, systems integrators or other marketing and selling
partners, or that the Company's actions to develop such channels will not
adversely affect its relationship with IBM. See "Reliance on IBM; Lack of
Visibility in the Market." There can also be no assurance that the cost of the
Company's investment in direct and indirect sales channels will not exceed the
revenues, if any, generated from that investment or that the Company's sales
and marketing organization will successfully compete against the sales and
marketing organizations of competitors.
COMPETITION. In providing software services, both related to ProductManager
and otherwise, ICI faces competition from numerous services providers. Many of
those competing services providers, both large and small, may have technical
skills that match or exceed those offered or intended to be offered by ICI in
the computer services industry. Barriers to entry in providing computer
services are very low, resulting in downward pricing pressures and competition
for skilled technicians. There can be no assurance that ICI will be able to
continue its growth in services revenues in the face of these competitive
factors.
7
<PAGE>
In its efforts to market ItemQuest, ICI will face direct competition from at
least two significant vendors of ICAM-related software: Aspect Development,
Inc. and CADIS, Inc. Those vendors, each of which has significantly greater
financial resources than the Company, have established customer bases, giving
them a significant advantage in the marketing of ICAM products. Additionally,
IBM may in the future decide to develop its own ICAM product integrated with
its ProductManager software. Such a product would significantly affect the
Company's software revenues from the licensing of ItemQuest as well as
ProductManager-related services revenue.
Because the barriers to entry in the software industry are relatively low,
the Company could experience additional competition for ItemQuest from other
established or emerging companies in the client/server application software
market. The Company's competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products. In
the future, products offered by PDM vendors and vendors of other complementary
products may provide ICAM functions that are highly specific to their core
technologies, making it more difficult for an independent company such as ICI
to promote its product to customers of those vendors. Many of these potential
competitors have well-established relationships with the Company's current and
potential customers, extensive knowledge of the client/server industry, better
name recognition and significantly greater financial, technical, sales,
marketing and other resources than ICI and may offer single vendor solutions
which span multiple industries. In addition, new competitors, or alliances
among competitors may emerge and rapidly acquire significant market share. The
Company also expects that competition will increase as a result of software
industry consolidations.
Increased competition could result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive
pressures will not materially and adversely affect its business, financial
condition and results of operations. See "Business--Competition."
NEED FOR QUALIFIED PERSONNEL. Management believes that the future success of
ICI will depend to a significant extent upon its ability to attract, train and
retain highly skilled technical, management, marketing and consulting
personnel. In particular, the Company has identified an immediate need for a
full-time chief accounting officer. Competition for such personnel is intense,
and the Company expects that such competition will continue for the
foreseeable future. The Company has from time to time experienced difficulty
in locating candidates with appropriate qualifications. There can be no
assurance that the Company will be successful in attracting or retaining such
personnel, and the failure to attract such personnel could have a material
adverse affect on the Company's business, financial condition and results of
operations.
RELIANCE ON ACCEPTANCE OF PDM SOLUTIONS. ICI's revenues are derived
predominantly from services related to IBM's ProductManager. The Company's
future financial performance will depend to a large extent on the growth in
the number of organizations adopting client/server software and reference data
products for PDM solutions generally, and IBM's ProductManager in particular,
as the users of these solutions engage outside vendors to implement, maintain,
customize and enhance such solutions. If the PDM market does grow, the
Company's future growth will depend upon the extent to which PDM users select
ItemQuest and use ICI's PDM services. There can be no assurance that the
market for PDM products and services will continue to grow or that the
Company's complementary products or PDM services will achieve market
acceptance. If the PDM market develops more slowly than expected, or if
ItemQuest does not gain acceptance within the PDM market, the Company's
business, financial condition and results of operations could be materially
adversely affected.
FURTHER DEVELOPMENT OF ITEMQUEST. Management believes that ItemQuest
currently offers effective and comprehensive information classification and
management capability. However, as a new product, there are areas where
further development of ItemQuest would assist in achieving broad-based market
acceptance. In particular, in order to achieve such market acceptance
ItemQuest may need further development to include standard classification
schemas and a pre-packaged component reference database, Internet and World
Wide Web applications, advanced tools to support legacy systems and migration
of data and support for capabilities to manage component suppliers. There is
no assurance that further development in those areas will be accomplished, or
that any such further development will be effective in achieving market
acceptance. See "Business--Competition."
8
<PAGE>
DEPENDENCE ON RELATIONSHIPS WITH COMPLEMENTARY VENDORS. The Company expects
that its relationship with IBM will lead to beneficial relationships with
ProductManager customers. However, the Company intends to build additional
alliances with complementary PDM vendors and vendors of computer aided design
(CAD) and enterprise resource planning (ERP) products to exploit the growing
market and promote future growth. There can be no assurance, however, that the
Company will be able to successfully build such relationships with such
vendors, or that the Company's attempt to build such relationships will not
negatively affect its relationship with IBM. Failure to build and maintain
relationships with other vendors, or the loss of the IBM relationship, could
materially and adversely affect the Company's business, financial condition
and results of operations.
PRODUCT LIFE CYCLE; NEED TO DEVELOP NEW PRODUCTS AND ENHANCEMENTS. The
markets for PDM and ICAM products are new and emerging. As such, these markets
are characterized by rapid technological change, evolving requirements,
developing industry standards and new product introductions. The dynamic
nature of these markets can render existing products obsolete and unmarketable
within a short period of time. Accordingly, the life cycle of ItemQuest is
difficult to estimate. The Company's future success will depend in large part
upon its ability to enhance ItemQuest and to develop and introduce, on a
timely basis, new products that keep pace with technological developments and
emerging industry standards. The success of the Company's software development
efforts will depend on various factors, including its ability to integrate
these products with third-party products.
INTERNATIONAL SALES. ItemQuest and ICI's services are targeted primarily to
large multinational companies, many of which are based outside of the United
States or have installation requirements outside of the United States,
primarily in Europe and Asia. To service the needs of such companies and take
advantage of the opportunities outside the United States, the Company must
provide worldwide sales and product support services. There can be no
assurance that the Company will be able to expand its existing operations
outside the United States or create an effective presence in Europe and in
Asia.
In addition, there are a number of risks inherent in international
expansion, including increased risk of software piracy, unexpected changes in
regulatory requirements, tariffs, and other trade barriers, costs and risks of
localizing products for foreign countries, longer accounts receivable payment
cycles and increased collection risks, potentially adverse tax consequences,
difficulty of repatriation of earnings and the burdens of complying with a
wide variety of foreign laws. International sales may be denominated and
collected in both U. S. dollars and international currency. Accordingly, a
portion of the Company's international sales may be subject to currency
fluctuation risks which could adversely affect the Company's business,
financial condition and results of operations. Furthermore, an increase in the
value of the U. S. dollar relative to foreign currencies could make the
Company's products more expensive and potentially less competitive in those
markets where the Company's sales are denominated in U.S. dollars.
FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and results of
operations have varied on a quarterly and an annual basis in the past and are
expected to vary significantly in the future. This will be particularly true
as the Company attempts to derive increasing revenue from licenses of
ItemQuest. The Company's revenues and results of operations are difficult to
forecast and could be materially adversely affected in any given period by
many factors, some of which are outside the control of the Company. These
include, among other factors, the relatively long sales and implementation
cycles for the Company's products and services; the size and timing of
individual license transactions; seasonality of revenues; changes in the
Company's operating expenses; changes in the mix of products and services
sold; timing of introduction or enhancement of products by the Company or its
competitors; market acceptance of new products; technological changes in
software and hardware; personnel changes and difficulties in attracting and
retaining qualified sales, marketing, technical and consulting personnel;
changes in customers' budgeting cycles; foreign currency exchange rates;
quality control of products sold; and economic conditions generally and in
specific industry segments.
LENGTHY SALES AND IMPLEMENTATION CYCLES. Marketing of ItemQuest is expected
to require the Company to engage in a sales cycle typically lasting up to six
months, during which the Company will need to educate prospective customers
about the use and benefits of ItemQuest. In addition, the implementation of
ItemQuest typically will involve a significant commitment of resources by the
customer over an extended period of time,
9
<PAGE>
due to the customer's need to re-engineer its product development processes.
For these reasons, sales and customer implementation cycles will be subject to
significant delays over which the Company may have little or no control.
Accordingly, any delay in the sale or customer implementation of a large
project or a number of smaller projects could have a material adverse affect
on the Company's business, financial condition and results of operations and
may cause the Company's operating results to vary significantly from quarter
to quarter.
LIMITED OPERATING HISTORY. The Company was founded in 1991 and, until the
recent introduction of ItemQuest, was chiefly a supplier of services to IBM
and to ProductManager customers. As the Company's business expanded from 1993
through 1996, it has been able to manage its expenses (primarily the cost of
technical personnel) in line with revenues, generating substantial profit
margins. Nevertheless, the Company has only a limited operating history upon
which to base an evaluation of its business and prospects. As the Company
undergoes a significant change in its business with the introduction of
ItemQuest and expands its operations to meet the expected demand for services
and for that product, there can be no assurance that the Company will be able
to realize or sustain such growth or that the Company will remain profitable
in the future.
CONCENTRATION OF SHARE OWNERSHIP AND VOTING POWER. Based upon the number of
shares of Common Stock that will be outstanding upon the completion of this
Offering, the executive officers and directors of the Company, as a group,
will beneficially own approximately 63.4% of the Company's outstanding Common
Stock, after giving effect to the exercise of all outstanding options held by
such individuals as of December 31, 1996. As a result, the executive officers
and directors as a group will be able to elect at least a majority of the
Board of Directors and will retain the voting power to approve all matters
requiring approval by the stockholders of the Company. In addition, subject to
certain limitations imposed by applicable law, the executive officers and
directors of the Company will be able to, among other things, amend the
Company's Articles of Incorporation and By-Laws and effect or preclude
fundamental corporate transactions involving the Company, including the
acceptance or rejection of any proposals relating to a merger of the Company
or an acquisition of the Company by another entity, in each case without the
approval of any of the Company's other stockholders. See "Principal and
Selling Stockholders" and "Description of Capital Stock."
DEPENDENCE ON SENIOR MANAGEMENT AND OTHER KEY EMPLOYEES. The Company's
success depends to a significant extent upon members of senior management and
other key employees, none of whom have agreements for a particular term of
employment or providing for future compensation. The Company does not maintain
key man life insurance on any of its employees, but has applied for such
coverage for its Chief Executive Officer, Haim E. Dahan. The loss of the
services of any one of the key employees could have a material adverse affect
on the Company. See "Management--Officers and Key Employees."
DEPENDENCE ON PROPRIETARY AND LICENSED TECHNOLOGY. The Company's success
depends in great measure on its proprietary technology. The Company will rely
primarily on a combination of copyrights, trade secrets, confidentiality
procedures and contractual provisions with its employees, consultants and
business partners and on its license agreements to protect its proprietary
rights. The Company will attempt to protect its software, published data,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. In addition, the Company will
consider technical procedures to further protect against unauthorized copying
and use, as deemed necessary. There can be no assurance that the Company will
be successful in protecting its proprietary technology or that unauthorized
parties will not attempt to or be successful in copying aspects of the
Company's products or obtain and use the Company's proprietary information.
Management believes that ItemQuest may be particularly vulnerable to
unauthorized use in certain countries due to the ability of users of ItemQuest
to implement this product in a limited mode without the assistance of ICI.
There can be no assurance that steps taken by the Company to deter this
misappropriation will be adequate. In the event of such misappropriation, the
laws of certain foreign countries may not protect the Company's rights to its
proprietary technology to the same extent as the laws of the United States.
10
<PAGE>
The Company may submit patent applications with respect to ItemQuest in the
future. If and when submitted, there can be no assurance that any patent
covering ItemQuest will be issued, or that any patent, if issued, will provide
sufficient protection or prove enforceable in actions against alleged
infringements. The Company is not aware that ItemQuest infringes the
proprietary rights of third parties, but there can be no assurances that third
parties will not claim infringement by the Company with respect to current or
future products. Any such claims, with or without merit, could be time
consuming, result in costly litigation, cause product shipment delays, or
require the Company to enter into royalty or licensing agreements with the
third party claiming ownership. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse affect on the Company's business,
financial condition and results of operations.
In addition, the Company relies on certain software that it licenses from
third parties, including software that is used in ItemQuest. There can be no
assurance that such firms will remain in business, that they will continue to
support their products, that their products will continue to be suitable for
ICI's needs or that their products will otherwise continue to be available to
the Company, and if so, on commercially reasonable terms. The loss of or
inability to maintain any of these software licenses or the failure to obtain
suitable substitutes could result in delays or cancellations in product
shipments, which could materially adversely affect the Company's business,
financial condition and results of operations.
PLANNED DISTRIBUTION OF ACCUMULATED EARNINGS IN CONNECTION WITH CONVERSION
TO C CORPORATION STATUS. Since its formation, the Company has elected S
corporation status for federal and state income tax purposes. The Company
intends to convert from an S corporation to a C corporation concurrently with
the closing of this Offering. As a result, effective on the day preceding such
closing, the Company intends to distribute accumulated S corporation earnings
to the five existing stockholders in the amount of approximately $1,950,000.
The Company will distribute certain receivables and cash to effect this
distribution. It is not currently anticipated that any portion of the cash
distribution will be funded out of the proceeds of this Offering, although
there is no assurance that Offering proceeds will not be required for that
purpose. As a result of this planned distribution, prospective investors in
the Company should make their investment decision on the basis of their
evaluation of future prospects of the Company, rather than the current
financial condition of the Company. See "Certain Transactions," "Prior S
Corporation Status and Distributions" and "Use of Proceeds."
As a result of the proposed stockholder distribution in connection with the
Company's conversion to a C corporation, the Company's cash reserves as of
December 31, 1996 will not be available to the Company for operational and
other purposes. Management believes, although no assurance can be provided,
that the net proceeds of this Offering, combined with anticipated cash flow
resulting from pending projects, will provide adequate cash for operations for
at least the next 24 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NEED FOR ADDITIONAL FINANCING. Management believes that the proceeds of this
Offering will be adequate to address the near-term capital needs of the
Company. Over the longer term, however, it is anticipated that additional
capital will be required as the Company continues its expansion program. The
amount of additional capital that will be needed cannot be determined at this
time. The source of this capital may be further public or private equity or
debt financings, collaborative arrangements with corporate partners or funds
from other sources. No assurance can be given that funds to finance this
further development will be available to the Company on acceptable terms, if
at all. Additionally, such additional financing may involve substantial
dilution to the Company's stockholders or may require that the Company
relinquish rights to certain of its technologies or products. If adequate
funds are not available from operations or additional sources of financing,
the Company's ability to continue to expand its business may be adversely
affected.
NO PRIOR MARKET; POSSIBLE VOLATILITY. Prior to this Offering there has been
no public market for the Common Stock of the Company. The initial public
offering price was determined by negotiations among the Company, the Selling
Stockholders and the Representative. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. There
can be no assurance that an active public market will develop or be sustained
after this Offering or that the market price of the Common Stock will not
decline
11
<PAGE>
below the initial public offering price. Future announcements concerning the
Company or its competitors, quarterly or annual variations in results of
operations, announcements of technological innovations, the introduction of
new products or changes in pricing policies by the Company or its competitors,
proprietary rights, litigation, changes in earnings estimates by analysts and
other factors could cause the market price of the Common Stock to fluctuate
substantially. In addition, stock prices for many technology companies
fluctuate widely for reasons that may be unrelated to results of operations.
These fluctuations, as well as general economic, market and political
conditions such as recessions or military conflicts, may materially and
adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Immediately upon the
effectiveness of this Offering, the 1,125,000 shares offered hereby will be
freely tradeable. The sale of substantial amounts of Common Stock in the
public market following this Offering could have a material adverse affect on
the price of the Common Stock. Beginning one year after the date of this
Offering, approximately 2,125,000 shares will become eligible for sale upon
the expiration of agreements not to sell such shares, subject to compliance
with Rule 144 under the Securities Act. The Representative may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to such agreements.
As of March 20, 1997, there were outstanding stock options covering an
aggregate of 325,511 shares of Common Stock granted to Company employees under
ICI's employee stock option plans. Of those option shares, 159,511 shares that
may be acquired upon exercise of certain of these options are restricted from
being transferred for a period of one year following the closing date of this
Offering. Nevertheless, beginning one year after the closing date of this
Offering, options outstanding on March 20, 1997 covering 127,456 shares will
be exercisable, and the Common Stock acquired upon the exercise of those
options would be eligible for sale, subject in some cases to compliance with
Rule 144. Sale of a substantial portion of those shares could have a material
adverse affect on the price of the Common Stock.
Purchasers of Senior Debentures sold by the Company in January 1997 received
warrants from the stockholders of the Company (the "Stockholder Warrants") to
purchase up to 250,000 shares of Common Stock held by these stockholders.
Those warrants are exercisable following the closing date of this Offering and
continuing through the third anniversary date of the issuance of the
Stockholder Warrants. Holders of the Stockholder Warrants who purchase Common
Stock within the 30-day period following the date of this Prospectus will
receive Common Stock that will be freely transferable one year after the date
of this Prospectus. Holders of the Stockholder Warrants who exercise their
Warrants after that 30-day period may receive restricted Common Stock, but in
any event will have certain piggyback registration rights in a Company-
initiated registration with respect to such Common Stock. If such holders, by
direct market sales or by exercising their piggyback registration rights,
cause a large number of shares to be sold in the public market, such sales
could have a material adverse affect on the market price for the Common Stock.
In addition, inclusion of such shares in a Company-initiated registration may
have an adverse affect on the Company's ability to raise needed capital. See
"Shares Eligible for Future Sale" and "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS. The initial public
offering price is substantially higher than the price per share paid by
current stockholders, which was a negligible amount. Investors purchasing
Common Stock in this Offering will, therefore, incur immediate dilution from
the initial public offering price and will incur additional dilution upon the
exercise of outstanding stock options. See "Dilution."
FORWARD-LOOKING STATEMENTS. Although not applicable as a safe harbor to
limit the Company's liability for sales made in this Offering, this Prospectus
contains certain forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements may be deemed to include marketing plans, the
Company's expectations concerning growth in the market, certain financial
projections and the Company's planned use of proceeds. Actual results could
differ from those projected in any forward-looking statements. The forward-
looking statements are made as of the date of this Prospectus and the Company
assumes no obligation to update such forward-looking statements, or to update
the reasons why actual results may differ from those projected in the forward-
looking statements. Numerous factors, including without limitation factors
mentioned in this Risk Factors section, many of which are beyond the control
of Management of ICI, could cause future results to differ substantially from
those contemplated in such forward-looking statements.
12
<PAGE>
RISKS ASSOCIATED WITH EMERGING INTERNET MARKET. A portion of the Company's
strategy is to utilize the Internet and the World Wide Web to enable ItemQuest
to be better utilized as an enterprise-wide solution to item classification
and maintenance. ICI intends to extend ItemQuest's potential user community by
allowing web browser access to ItemQuest's information search and maintenance
features. The Company may devote substantial resources to developing products
designed for use with the Internet and the World Wide Web, and there can be no
assurance that the revenues generated, if any, from the use of the Internet
and the World Wide Web will be greater than the costs of developing and
modifying products for such use. See "Use of Proceeds." Further, the Company's
solutions may be rendered obsolete by or less valuable in comparison to
competitive solutions made possible by future development of the Internet and
the World Wide Web. If this were to occur, the Company's business, financial
condition and results of operations would be materially adversely affected.
PRIOR S CORPORATION STATUS AND DISTRIBUTIONS
Since its inception, the Company has elected to operate under Subchapter S
of the Code and comparable provisions of the Georgia corporate income tax
laws. An S corporation generally is not subject to income tax at the corporate
level (with certain exceptions under state income tax laws). Instead, the S
corporation's income generally passes through to the shareholders and is taxed
on their personal income tax returns.
Concurrently with the closing date of this Offering, the Company will elect
to terminate its S corporation status. As a result, the Company's earnings
through the date of termination of the Company's S corporation status
generally will be taxed for federal and state income tax purposes directly to
those persons who were stockholders of the Company prior to the closing of
this Offering (the "Pre-Offering Stockholders"). Subsequent to the termination
of its S corporation status, the Company will be subject to federal and state
income taxes on its earnings.
Effective the day preceding the closing date of this Offering, the Company
will declare a distribution to the Pre-Offering Stockholders in an amount
equal to the Company's undistributed S corporation earnings from its formation
through the date immediately preceding the date of termination of the
Company's S corporation status. If the Company's S corporation status had
terminated as of December 31, 1996, the amount of the additional distribution
would have been $1,528,902. The actual amount of this distribution is
estimated to be approximately $1,950,000, reflecting undistributed earnings
through the date preceding the anticipated closing date of this Offering. This
distribution will consist of accounts receivable and cash. It is not currently
anticipated that it will be necessary to fund any portion of the cash payments
out of the proceeds of this Offering. See "Risk Factors--Planned Distribution
of Accumulated Earnings in Connection with Conversion to C Corporation
Status," "Use of Proceeds" and "Certain Transactions."
Purchasers of Common Stock in this Offering will not receive any of this
final distribution.
The Company has entered into an S corporation termination, tax allocation
and indemnification agreement with the Pre-Offering Stockholders relating to
the distribution of undistributed S corporation earnings to such Stockholders
and indemnification arrangements among such Stockholders and the Company for
certain tax liabilities.
USE OF PROCEEDS
Based on an assumed initial public offering price of $9.00 per share, the
net proceeds to the Company from the sale of the 1,125,000 shares of Common
Stock offered by the Company hereby are estimated to be approximately
$8,814,000 (approximately $9,505,000 if the Underwriters' over-allotment
option is exercised in full) after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. The
anticipated uses of the net proceeds are subject to change due to the actual
circumstances of operating the Company's business. The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders,
which will occur, if at all, only to the extent of 50% of the Underwriters'
over-allotment option.
The principal purposes of this Offering are to increase the Company's equity
capital, to create a public market for the Common Stock, to facilitate future
access by the Company to public equity markets and to provide increased
visibility of the Company.
13
<PAGE>
The Company currently intends to allocate the net proceeds of this Offering
over the next 24 months approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT OF
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- --------------------------- ------------- ------------
<S> <C> <C>
Repayment of Senior Debentures(1).................... $1,130,000 12.8%
Marketing and sales.................................. 800,000 9.1%
Product development(2)............................... 2,000,000 22.7%
Capital investment(3)................................ 750,000 8.5%
Working capital...................................... 4,134,000 46.9%
---------- -----
Total.............................................. $8,814,000 100.0%
========== =====
</TABLE>
- --------
(1) The Senior Debentures were issued in January 1997 in a private placement
to 17 investors, in the aggregate principal amount of $1,115,000. That
offering was for the purpose of funding infrastructure and equipment
purchases, expansion of marketing and sales capacity, and for working
capital and general corporate purposes. The $1,130,000 amount includes an
estimated $15,000 in interest, which accrues on the Senior Debentures at
6% per annum, payable semi-annually. The principal amount is due and
payable in January 2000, subject to the Company's obligation to prepay the
Senior Debentures upon completion of an initial public offering of equity
securities in the amount of at least $5,000,000.
(2) This represents the current estimate of Management as to the proceeds to
be used in the development of new technologies to be incorporated within
the ItemQuest product, including, among other areas of development, the
development of Internet and World Wide Web capabilities and technological
improvements that help to position ItemQuest in market segments in
addition to the PDM market.
(3) This represents the estimated amount of proceeds to be used for
infrastructure and equipment purchases and upgrades.
A portion of the proceeds from this Offering may also be used to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. While from time to time the Company evaluates
potential acquisitions of such businesses, products and technologies, there
are no present commitments or agreements with respect to any such acquisition.
It is currently anticipated that there will be adequate cash and accounts
receivable available at the time this Offering is completed to fund the entire
amount of the distribution to the current stockholders in connection with the
Company's conversion from an S corporation to a C corporation. If that is not
the case, a portion of the proceeds of this Offering would be used for that
purpose. See "Prior S Corporation Status and Distributions."
Pending such uses, the Company currently plans to invest the net proceeds in
investment grade, short-term, interest-bearing debt securities.
The Company believes, based upon its current plans, that its existing
capital resources, including the net proceeds of this Offering, will be
sufficient to meet its cash needs for at least 24 months after this Offering.
See, however, "Risk Factors--Need for Additional Financing."
DIVIDEND POLICY
The Company made aggregate distributions to its stockholders of $137,903,
$678,706 and $1,215,217 in 1994, 1995 and 1996, respectively. These dividends
were paid by the Company while it maintained subchapter S status for income
tax purposes. The Company expects to change this election to C corporation
status concurrently with the closing of this Offering, and in connection with
that change declare a dividend to its current stockholders, in an amount
estimated at approximately $1,950,000. See "Prior S Corporation Status and
Distributions."
Following this Offering, it will be the policy of the Company to retain
earnings to finance the business. Accordingly, other than final Subchapter S
distribution, as described above, the Company does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. Future dividends, if
any, will be determined by the Board of Directors of the Company and will
depend on the Company's earnings, capital requirements, financial condition,
level of indebtedness and other factors deemed relevant by the Board of
Directors.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996; (ii) on a pro forma basis after giving effect to the
payment of a distribution to the current stockholders of the Company; and
(iii) the capitalization at December 31, 1996 as adjusted to reflect the sale
of 1,125,000 shares of Common Stock offered by the Company hereby, at the
assumed initial public offering price of $9.00 per share, and after deducting
underwriting discounts and commissions and estimated offering expenses and the
application of the net proceeds therefrom, as set forth in "Use of Proceeds."
This table should be read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
<S> <C> <C> <C>
Long-term debt.......................... $ 18,935 $18,935 $ 18,935
---------- ------- ----------
Stockholders' equity
Common Stock, $0.001 par value per
share:
Authorized: 20,000,000
Issued and outstanding: 2,125,000
actual (3,250,000 issued and
outstanding as adjusted).............. 2,125 2,125 3,250
Paid-in Capital........................ -0- -0- 8,812,875
Retained Earnings...................... 1,550,502 -0- -0-
---------- ------- ----------
Stockholders' equity.................. 1,552,627 2,125 8,816,125
---------- ------- ----------
Total capitalization.................. $1,571,562 $21,060 $8,835,060
========== ======= ==========
</TABLE>
- --------
(1) Because of certain temporary differences between income for financial and
tax reporting purposes (which are primarily attributable to the Company's
election to claim accelerated depreciation in computing its taxable
income), an additional provision for deferred income taxes will be
required as a charge against Retained Earnings as of the date upon which
the S corporation status of the Company is terminated. See Note A of the
Notes to Financial Statements. The "Pro Forma" column gives effect to an
additional estimated provision of approximately $21,600 for deferred
income taxes which would have been required as a charge against retained
earnings had the Company terminated its S corporation status at December
31, 1996. It also reflects the payment of the final distribution to the
current stockholders of the Company. As of December 31, 1996, the amount
of the final distribution would have totalled $1,528,902. The actual
amount of the final distribution will depend upon the Company's results of
operations through the date of termination of S corporation status. See
"Prior S Corporation Status and Distributions." This column does not
reflect the issuance of $1,115,000 in Senior Debentures by the Company in
January 1997, to be repaid out of the net proceeds of this Offering. See
"Use of Proceeds."
(2) The "As Adjusted" column gives effect to the adjustments described in Note
(1) above, the receipt of $8,814,000 estimated net proceeds of this
Offering and the application of net proceeds as set forth under "Use of
Proceeds." As adjusted outstanding Common Stock excludes 173,311 shares of
Common Stock issuable upon exercise of outstanding options at December 31,
1996, each at an exercise price of $.543 per share, 163,200 shares of
Common Stock issuable upon exercise of outstanding options granted
subsequent to December 31, 1996 each at an exercise price of $4.80 per
share, and 163,489 shares of Common Stock reserved for future grant under
the Company's 1996 Stock Option Plan. Also excludes 112,500 shares of
Common Stock issuable upon exercise of the Representative's Warrants to be
granted in connection with this Offering. See "Management--Stock Option
Plans," "--Compensation of Directors," "Description of Capital Stock--
Options to Purchase Common Stock," " Underwriting" and Note F of Notes to
Financial Statements.
DILUTION
The following table sets forth, as of December 31, 1996, the differences
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock purchased from the Company, the
15
<PAGE>
total consideration paid to the Company and the average price per share paid
before deducting underwriting discounts and commissions and estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 2,125,000 65.4% $ 770 * *
New Investors........... 1,125,000 34.6% 10,125,000(1) 100.0% $9.00(1)
--------- ------ ----------- ------
Total................. 3,250,000 100.0% $10,125,770 100.0%
========= ====== =========== ======
</TABLE>
- --------
* Negligible.
(1) Estimated, subject to completion of this Offering.
The above computations assume no exercise of stock options after December
31, 1996 and no exercise of the Underwriters' over-allotment option in this
Offering (in which 50% of the option shares would be sold by the Selling
Stockholders and 50% by the Company). As of December 31, 1996, there were
outstanding employee stock options to purchase 173,311 shares of Common Stock
each with an exercise price of $0.543 per share. In connection with this
Offering, the Representative will receive warrants to purchase up to 112,500
shares of Common Stock at a price equal to $10.80 per share (120% of the
assumed initial public offering price), as described in "Underwriting." To the
extent outstanding options or warrants are exercised, there will be further
dilution to new investors. See "Capitalization," "Management--Stock Option
Plans," "- Compensation of Directors," "Description of Capital Stock--Options
to Purchase Common Stock" and Note F of Notes to Financial Statements.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and Notes thereto and other financial
information included elsewhere in this Prospectus. The statement of operations
data set forth below for the years ended December 31, 1994, 1995 and 1996 and
the balance sheet data as of December 31, 1995 and 1996 have been derived from
and are qualified by reference to the audited Financial Statements of the
Company included elsewhere in this Prospectus. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Operating Revenues.......................... $1,246,414 $2,875,872 $3,891,034
---------- ---------- ----------
Expenses:
Research and development................... 13,491 111,242 3,365(1)
Operating.................................. 681,300 1,499,824 1,830,574
General and administrative................. 126,876 150,699 239,778
---------- ---------- ----------
Total expenses............................. 821,667 1,761,765 2,073,717
---------- ---------- ----------
Income from operations...................... 424,747 1,114,107 1,817,317
Interest income............................. 2,548 4,798 3,067
---------- ---------- ----------
Net Income.................................. $ 427,295 $1,118,905 $1,820,384
========== ========== ==========
Pro forma income data:
Net income as reported (2)................. $ 427,295 $1,118,905 $1,820,384
Pro forma provision for income taxes (2)... 161,000 422,000 686,000
---------- ---------- ----------
Pro Forma Net Income....................... $ 266,295 $ 696,905 $1,134,384
========== ========== ==========
Pro Forma Net income per share (3)......... $ .50
==========
Shares used in per share computation (3)... 2,287,855
==========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
DECEMBER 31, ---------------------
1995 ACTUAL PRO FORMA
------------ ---------- ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................ $ 80,969 $ 119,750 $ 119,750
Property and equipment...................... 86,709 168,178 168,178
Other Assets................................ 814,402 1,333,083 1,333,083
-------- ---------- ----------
Total Assets................................ $982,080 $1,621,011 $1,621,011
======== ========== ==========
Current Liabilities (4)..................... $34 ,620 $ 49,449 $1,599,951
Long-term liabilities, net of current
liabilities................................. 0 18,935 18,935
Stockholders' equity (5).................... 947,460 1,552,627 2,125
-------- ---------- ----------
Liabilities and Stockholders' Equity........ $982,080 $1,621,011 $1,621,011
======== ========== ==========
</TABLE>
- --------
(1) Commencing in the year ended December 31, 1996, the Company capitalized
certain costs related to product development. See Notes A and I of Notes
to Financial Statements.
(2) Through December 31, 1996 the Company had elected Subchapter S status and,
as a result, was not subject to payment of federal or state income tax on
its net income. Pro forma income data reflects federal and state income
taxes (assuming a 37.7% effective tax rate) as if the Company had been
taxed as a C Corporation rather than as an S Corporation during each of
these fiscal years. See Note A of Notes to Financial Statements.
(3) See Note A of Notes to Financial Statements.
(4) The "Pro Forma" column gives effect to an additional estimated provision
of $21,600 for deferred income taxes which would have been required as a
charge against retained earnings had the Company terminated its S
Corporation status at December 31, 1996. It also reflects the payment of
the final distribution to the current stockholders of the Company. As of
December 31, 1996, the amount of the final distribution would have
totalled $1,528,902. The actual amount of the final distribution will
depend upon the Company's results of operations through the date of
termination of S corporation status. See "Prior S Corporation Status and
Distributions."
(5) See "Prior S Corporation Status and Distributions" for a description of
the Company's plan to distribute accumulated earnings in connection with
its conversion from S corporation status to C corporation status under
federal and state income tax laws.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto.
OVERVIEW
From the time of its incorporation in 1991 through mid-1996, all Company
revenues resulted from computer software-related services. To date, ICI has
focused its primary efforts in the area of PDM software applications. ICI has
provided a wide variety of services to IBM, including product development and,
on a subcontract basis, customer installation, implementation and
customization services relating to IBM's PDM product, ProductManager.
ICI also has applied its expertise in client/server software development by
providing specialized software services directly to customers other than IBM,
in some cases relating to IBM's ProductManager and in other cases unrelated to
IBM.
Commencing in April 1995, ICI began development work on its own product,
ItemQuest, which is intended to address the ICAM market, and which includes
PDM-related applications. Among other potential applications, ItemQuest
provides virtual object warehouse and classification capabilities to
manufacturing or engineering customers, enabling them to shorten and reduce
the cost of the new product development cycle. Although
17
<PAGE>
research and development costs began to be incurred in the second quarter of
1995, the first limited revenues from licenses of ItemQuest were not received
until the last quarter of 1996. Initial licenses of ItemQuest have been
offered on a limited basis to a selected group of customers. As of March 1997,
contracts have been signed with three customers in this "controlled
availability program." When ItemQuest reaches the stage where Management
determines that it is ready for general availability, and ICI begins to
license ItemQuest on an increased scale, Management anticipates that
substantial service revenues will be generated by customer implementation and
customization of ItemQuest, as well as from ItemQuest license fees. There can
be no assurance, however, that efforts to license ItemQuest will be
successful, or that substantial services revenues would result from any such
licenses. See "Risk Factors--Introduction of New Product; Change of Business
Focus."
RELIANCE ON IBM
The Company's business currently is heavily reliant on IBM in two ways.
First, a substantial portion of services revenues are derived directly or
indirectly from IBM, either for (i) product development services rendered
directly to IBM, (ii) services rendered to IBM ProductManager customers on a
subcontract basis through IBM, or (iii) services rendered directly to IBM
customers under contracts to provide implementation or customization services
with respect to IBM's ProductManager. Second, although Management believes
that ItemQuest will be compatible with a wide variety of PDM software products
and with a number of other types of complementary applications, as well as
being useful in stand-alone applications, the strongest initial market for
ItemQuest is expected to be IBM customers currently using ProductManager. See
"Risk Factors--Reliance on IBM; Lack of Visibility in the Market."
SENIOR DEBENTURES, WARRANTS AND EMPLOYEE STOCK OPTIONS
In January 1997, the Company issued an aggregate of $1,115,000 in Senior
Debentures, bearing interest at 6% per annum, with interest being payable
semi-annually and the principal amount payable in January 2000. The principal
and accrued interest are required to be prepaid out of the proceeds of this
Offering. The Senior Debentures are held by 17 purchasers, who acquired them
in a private placement. See "Use of Proceeds." The Board of Directors of the
Company has determined that the Warrants issued in connection with the Senior
Debentures have a fair market value of $2.10 per Warrant or an aggregate of
$260,167, based upon an assumed 123,889 Warrants granted. Accordingly, the
results of operations for the first and second quarters of fiscal 1997 would
be adversely affected by a $260,167 non-cash charge against earnings for
interest (less any income tax benefit), because this value ascribed to the
Warrants will be deemed to be a contribution to capital by the current
stockholders of the Company, and treated as additional interest paid to the
holders of the Senior Debentures. See "Shares Eligible for Future Sale."
In January 1997, the Company granted stock options to 32 employees, covering
an aggregate of 163,200 shares of Common Stock, at an exercise price of $4.80
per share, under the Company's 1996 Stock Option Plan. See "Management--Stock
Option Plans." Management believes that these options were granted at the then
current fair market value of the Common Stock. The results of operations for
the first quarter of 1997 would be adversely affected by a non-cash charge for
compensation (less any income tax benefit), however, if it is determined that
the exercise price of the employee stock options granted in January 1997 was
less than 100% of fair market value.
PLANNED DISTRIBUTION OF ACCUMULATED EARNINGS
As discussed in "Prior S Corporation Status and Distributions," in
connection with the conversion of the Company from S corporation status to C
corporation status for federal and state income tax purposes, the Company
intends to distribute to its five current stockholders an amount equal to the
accumulated, undistributed subchapter S earnings of the Company through the
date prior to the closing date of this Offering. This distribution will be
effected by transfer of accounts receivable and by cash payments, a portion of
which will be derived from the proceeds of this Offering.
INCOME TAX MATTERS
Since its inception, the Company has elected to operate as an S corporation
under the Code. An S corporation generally is not subject to income tax at the
corporate level (with certain exceptions under state
18
<PAGE>
income tax laws). Accordingly, the Financial Statements do not include a
provision for federal and state income taxes, except on a pro forma basis.
Effective the date prior to the closing date of this Offering, the Company
will terminate its S corporation status and, thereafter, will be subject to
federal and state income taxes on its earnings. See "Prior S Corporation
Status and Distributions."
In connection with this Offering, the Company's S corporation status will be
terminated. Pursuant to SFAS No. 109, "Accounting for Income Taxes," the
Company will be required to record deferred income taxes upon the termination
of its S corporation status. This will result in a non-cash, non-recurring
charge to earnings during the quarter in which this Offering is completed.
Such charge would have been approximately $21,600 had the S corporation status
of the Company terminated at December 31, 1996. See "Prior S Corporation
Status and Distributions."
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of gross
revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Total Revenues............................................. 100.0% 100.0% 100.0%
===== ===== =====
Expenses
Operating................................................. 55.7% 56.0% 47.1%
General and Administrative................................ 10.2% 5.2% 6.2%
----- ----- -----
Total Expenses............................................ 65.9% 61.2% 53.3%
----- ----- -----
Income from Operations..................................... 34.1% 38.8% 46.7%
Other Income--Interest Income.............................. -- -- --
----- ----- -----
Net income (1)............................................. 34.1% 38.8% 46.7%
===== ===== =====
Pro forma income data:
Net income as reported.................................... 34.1% 38.8% 46.7%
Pro forma provision for income taxes...................... 12.9% 14.7% 17.6%
----- ----- -----
Pro forma net income....................................... 21.2% 24.1% 29.1%
===== ===== =====
</TABLE>
- --------
(1) Net income for each of these fiscal years does not reflect a provision for
federal and state income taxes, as a consequence of the Company's S
corporation status prior to this Offering.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995.
Operating Revenues. The revenues of the Company during the year ended
December 31, 1996 consisted primarily of revenues from software services, with
revenues from licenses and related services in connection with the Company's
ItemQuest product constituting approximately $270,000, or less than 10% of
revenues. Revenues for the year ended December 31, 1995 consisted entirely of
revenues from software services. Operating revenues increased 35% to
approximately $3,891,000 in 1996, compared to approximately $2,876,000 in
1995. This increase resulted from a number of factors. The most important
factor was increased sales of ProductManager by IBM in 1996, resulting in
increased demand for ICI's software services, as a substantial portion of
those services are provided, both directly and on a subcontract basis, to IBM
ProductManager customers.
Increased operating revenues in 1996 over 1995 also were due to increased
overall demand for the Company's software services, including a major project
for the Eastman Kodak Company in 1996. Another factor contributing to
increased operating revenues was an increase in the proportion of projects
undertaken
19
<PAGE>
directly with IBM customers, rather than on a subcontract basis. Finally,
there were approximately $270,000 in license fees and related services from
ItemQuest in 1996, compared to no such license fees in 1995.
Software services revenues in 1996 increased in comparison to 1995 with no
significant increases in software services personnel. This was due to more
efficient management of personnel and an increase in the proportion of
software services projects conducted on a fixed bid basis, as compared to an
hourly basis. The factors leading to an increase in operating revenues in 1996
were partially offset by a substantial increase in the amount of personnel
time devoted to the development of the ItemQuest product in 1996, as compared
to 1995.
Operating and Research and Development Expenses. Operating and research and
development expenses increased by approximately $223,000, or 14%, in 1996
compared to 1995. This increase in operating expenses was substantially less
than the increase in operating revenues between the two years, due to the
increased efficiencies referred to above. This rate of increase was reduced
also by the capitalization of approximately $276,000 in ItemQuest development
costs in 1996, compared to 1995, in which no such costs were capitalized, but
instead were expensed as research and development expenses. Increases in
operating expenses were attributable primarily to the addition of the North
Carolina office, and payroll associated with additional management personnel
and sales personnel.
General and Administrative Expenses. General and administrative expenses
increased by $89,000, or 59%, in 1996 as compared to 1995. This increase was
due to increased business activity in general, and in particular as a result
of increases in legal and accounting expenses, underwriting expenses
associated with the offering of senior debentures, which commenced in December
1996, and payment of license fees to third-party software vendors.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
Operating Revenues. Operating revenues in 1995 increased by approximately
$1,630,000, or 131%, compared to the year ended December 31, 1994. This
increase in operating revenues was due primarily to the increase in demand for
ICI's software services, particularly related to product development efforts
for IBM's ProductManager, and the increase in billing volume generated by
additional personnel hired to provide those services. In 1995, the Company
commenced a substantial product development project for IBM relating to the
IBM ProductManager software product. In addition, there was a substantial
increase in revenues relating to the provision of training services to IBM
ProductManager customers.
Operating and Research and Development Expenses. Operating and research and
development expenses during 1995 increased by approximately $916,000, or 132%,
as compared to 1994. This increase was due primarily to general increases in
business activity and increased personnel required to provide the increased
level of software services. Research and development expense increased by
approximately $98,000 in 1995 over 1994, as a result of ItemQuest product
development efforts. In addition, there was a substantial increase in the
level of infrastructure expenses relating to increases in personnel, as well
as expansion of office space in Atlanta, Georgia.
General and Administrative Expenses. General and administrative expenses
increased in 1995 by approximately $25,000, or 19%, as compared to 1994. This
increase was due to growth in personnel and business activity, and the
corresponding increased demand for general and administrative services.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of the Company's cash has been operations. As of December
31, 1996, the Company had approximately $120,000 in cash. Net cash provided by
operating activities was approximately $300,000, $680,000 and $1,640,000 for
1994, 1995 and 1996, respectively, and was primarily due to net income of
approximately $427,000, $1,119,000 and $1,820,000, respectively. The sources
of cash from operations were
20
<PAGE>
partially offset by increases in accounts receivable of $132,000, $483,000 and
$237,000 in 1994, 1995 and 1996, respectively, and other working capital
changes.
In 1994, 1995 and 1996, approximately $37,000, $59,000 and $365,000,
respectively, were used for investing activities, including purchases of
property and equipment, and, in 1996, $276,000 was used for capitalized
software development costs related to the development of ItemQuest, compared
to no such capitalized costs in 1994 or 1995. Cash used for investing
activities was substantially less in 1995 and 1994, as ItemQuest development
costs substantially increased in 1996.
The Company made distributions to its stockholders, amounting to
approximately $138,000, $679,000 and $1,215,000, in 1994, 1995 and 1996,
respectively. As discussed in "Dividends," such distributions are not expected
to continue after the Company converts to C corporation status.
As of December 31, 1996, the Company's principal commitments consisted of
obligations under operating leases for office space. Rent expense for the
1994, 1995 and 1996 totaled $17,063, $57,497 and $79,496, respectively. Future
minimum lease commitments total $110,000 through the year 2000. Future lease
commitments are expected to increase substantially when new leases are
executed for the Atlanta and North Carolina operations. There was no material
long-term debt as of December 31, 1996.
Upon receipt of the proceeds from this Offering, and after such proceeds are
applied as described in "Use of Proceeds," Management anticipates that it will
have adequate cash to fund operations for at least the next eighteen months,
although these funds may not be adequate to fully implement the Company's
long-term expansion plans. See "Risk Factors--Need for Additional Financing."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate from period to period as a
result of, among other things, the timing of software services agreements and
ItemQuest license agreements, as well as the somewhat seasonal nature of
customers' capital budgets. Given the limited experience of the Company in
licensing the ItemQuest product, Management cannot predict the extent or
nature of sales fluctuations or the impact of cyclical factors.
INFLATION
Management does not believe that inflation has had a material effect on the
Company's operations during the past several years. Management anticipates
that the Company generally will be able to modify its pricing structure for
services and products to substantially offset future increases in its
operating costs.
BUSINESS
GENERAL
ICI is a software technology company that develops, markets and supports
client/server software and implementation services for the manufacturing and
process industries. ICI provides services in the areas of system analysis and
design, object-oriented technology, cross platform development, and
client/server architecture. Since its inception in 1991, ICI has built strong
skills in industry applications for manufacturing and product data management
("PDM"). ICI's virtual object warehouse and classification system (ItemQuest),
which currently is in the controlled availability stage, enables manufacturers
to reduce product development costs and time-to-market by allowing them to
create and manage their own standardized repository for information regarding
all items used throughout the enterprise. ItemQuest is based on a
sophisticated object oriented classification and search engine used to
classify objects, such as parts and assemblies, documents and drawings, and to
retrieve references to those objects. These capabilities enable ItemQuest to
complement and enhance the effectiveness of PDM software, as well as other
systems.
21
<PAGE>
Currently, ICI's revenues are derived primarily from its services business,
which is comprised principally of PDM-related services and custom software
development. The demand for these services, especially in the PDM application
area, is strong and exceeds ICI's current capacity. Management expects that
this demand will increase, although this cannot be assured. See "Risk
Factors--Management of Expanding Operations."
Management anticipates that ItemQuest will be made generally available to
the marketplace by the end of the first quarter of 1997. At that time, in
addition to generation of license fee revenue, Management anticipates that
ItemQuest will add significantly to the Company's core services business.
Management expects the ratio of services to license fee revenue for ItemQuest
to be roughly two to one. ItemQuest remains in the controlled availability
stage, however, and no assurances can be given that ItemQuest will be
successfully introduced. See "Risk Factors -Introduction of New Product;
Change of Business Focus."
ICI is closely associated with IBM Manufacturing Industry Solutions Unit,
based in Charlotte, North Carolina, where ICI maintains an office. Because of
the Company's relationship with that Unit, which is responsible for the
development and support of ProductManager, a large portion of ICI's customer
base consists of manufacturing companies that are users of ProductManager.
ProductManager customers for which ICI has provided services directly or
through IBM include, among others, Pratt & Whitney, Lockheed Martin, Space
Systems/Loral, IVECO, SPS Technologies, Hyundai, Daewoo Motor Co. and Siemens.
It is anticipated that this customer base will continue to grow as IBM
experiences success in the PDM market. See "Risk Factors--Dependence on IBM;
Lack of Visibility in the Market."
The Company's primary objective is to be a leader in the information
classification and management (ICAM) marketplace, both in terms of products
and services. To achieve that objective, the Company's business strategy
includes a roll-out of ItemQuest into the PDM marketplace and in other
applications; increasing technical personnel available to provide ICAM and
PDM-related services; leveraging its existing customer relationships to
capture new customers; increasing exposure to customers using PDM products;
increasing advertising and marketing to build awareness for ItemQuest and ICI
services; and expanding into international markets. Management believes that
the Company can substantially implement these strategies with the proceeds
from this Offering. See, however, "Risk Factors--Need for Additional
Financing."
INDUSTRY BACKGROUND
Manufacturing and process companies face intense competitive pressure on a
global basis. Their response is to increase focus on bringing products to
market faster and at lower cost, with increasingly higher levels of quality.
To achieve those enhancements, these companies have re-engineered their
processes and continue to make significant investments in information
technology. One such technology is PDM. PDM is software technology that allows
companies to manage and control product related data from the product
development and design stages through manufacturing and post-production
maintenance stages. By managing and sharing this data more effectively,
manufacturing companies can improve the efficiency of their entire product
development process and reduce time-to-market, thereby increasing their
competitiveness.
A major component within a PDM application is information classification and
management, or ICAM. ICAM allows companies to classify and group data by its
characteristics, thereby providing the capability for quick and easy access to
data. Management believes that this access frequently is integral to a
successful PDM implementation. The primary objective of information
classification and management is to reduce time-to-market of new products.
22
<PAGE>
LOGO
It is typical in modern manufacturing for even the least complex products to
be composed of numerous parts, some supplied by third party vendors and some
manufactured within the enterprise. Purchase or development of these parts can
represent a substantial portion of new product cost. The search for or
development of the right parts or the optimal combination of parts can create
significant delays. Thus, selection of the optimal set of parts early in the
design process can greatly reduce the cost and improve the efficiency of new
product development.
A major factor contributing to delays in product development is the
inability of design engineers to quickly locate existing parts or acceptable
substitutes that meet design requirements. Since designing new parts is an
expensive and time-consuming process, manufacturers prefer to re-use existing
parts or acceptable substitutes, whether manufactured internally or by a third
party. Most large manufacturing systems are not equipped with a classification
and search facility that allows the design engineer to easily and definitively
determine whether a part exists or a new one needs to be designed.
Design engineers generally know the particular component they need and the
specific characteristics of that component. However, because traditional
systems do not allow parts to be located based on characteristics or
attributes that a design engineer is familiar with, they are not always
helpful. Parts typically are located by part numbers or coded descriptions.
However, design engineers usually are not familiar with the thousands of part
numbers or coded descriptions that may exist in a large and often
geographically dispersed enterprise. Without a system that provides an
effective information classification and management capability, finding an
existing part can be extremely difficult and time-consuming.
Since searching for an existing part often can take longer than designing a
new part, engineers often take the "easier" approach of designing a new part,
which in most instances is much more expensive than re-using an existing part.
This added cost stems not only from the longer design and manufacturing
process, but also in the lost time in bringing the new product to market. If
the delay is long enough, the manufacturer's ability to effectively compete in
the marketplace can be greatly hindered.
23
<PAGE>
To reduce product development costs and shorten time-to-market, several
capabilities must be provided. Vast amounts of information related to either
custom components internally designed or provided by suppliers currently exist
in some form within a manufacturing enterprise. This information, commonly
referred to as "legacy data," must be organized and managed to provide optimal
value. To achieve this, legacy data first must be standardized (i.e. multiple
names for the same component reduced to a single reference) and mapped from
diverse formats and sources to a single part definition in the classification
system. Next, the enterprise must be provided with the ability to have new
parts data added to the legacy data to form one complete system. Once all of
the data is mapped to the company's data system, powerful search and retrieval
capabilities with an intuitive user interface are required for the selection
of the optimal components.
Management believes that there will be an active market for an effective
ICAM system on a stand-alone basis. Moreover, a system that provides ICAM
features, and which is also integrated with a PDM system, would greatly
enhance the effectiveness of the PDM system. Information classification and
management provides an important missing component to a PDM system by creating
a combined system that organizes product data and enables it to be retrieved
with speed and effectiveness.
PDM INDUSTRY ANALYSIS
OVERVIEW. The PDM market is growing at a rapid rate. According to CIMdata,
Inc., a PDM industry analyst, worldwide revenues for PDM software and services
were $684 million in 1995, representing a 43% increase over 1994. CIMdata has
reported that it expects the market for PDM software to continue its current
growth and approach $2 billion in annual revenues by 2000. Industry analysts
attribute this trend to several factors:
. Continued investment in technology by manufacturing companies to improve
competitiveness
. Increased familiarity with and maturing of PDM technology, leading to
broader market acceptance
. Increased number of successful PDM implementations
IBM has participated in this market growth with the success of
ProductManager Version 3.0. In an attempt to accelerate the growth of its
software revenues, IBM has established relationships with independent software
services companies, such as ICI, to supplement its own skills in providing
customers with implementation and customization services. The ability to
deliver these services effectively is one of the most important factors in a
successful PDM project. ICI intends to capitalize on its relationship with
IBM, which dates back to 1993, to continue to capture a substantial portion of
these services revenues.
Major PDM vendors have focused attention and resources in the first three
PDM application areas: Document Management, Workflow, and Product Structure
Management. This has created an opportunity to supply the fourth application
of PDM: Information Classification and Management (ICAM). Presently, it is
believed that there are only two companies, Aspect Development, Inc. and
CADIS, Inc., with broad market exposure that offer ICAM products and services
to satisfy this market need. See "Competition, Dependence on Relationships
with Complementary Vendors," and "Risk Factors--Introduction of New Product;
Change of Business Focus." Management believes that the market for PDM, and
specifically ICAM software, is experiencing substantial growth worldwide.
Expertise in PDM software technology, combined with the introduction of
ItemQuest for information classification and management, has positioned ICI to
take advantage of this market growth.
MARKET SEGMENTS. The industry view of PDM and ICAM systems falls into
traditional lines of segmentation. To date, the discrete manufacturing
segments of aerospace, automotive and electronics have led in implementation
of PDM systems. Opportunity also exists in other discrete segments, process
industries and utilities. ICI expects to continue to derive revenues from
providing services to users of PDM systems in all industry segments and
intends to market ItemQuest to all industry segments. See "Risk Factors--
Introduction of New Product; Change of Business Focus."
ICI MARKET POSITION. Management believes ICI's current market position as a
services provider for IBM's ProductManager provides a strong base to launch
ItemQuest. The synergy between the services the Company provides and the
ItemQuest product, and the opportunity to use ICI's skills across these two
areas of business, are expected to be significant factors in ICI's future
growth. In combining these skills and experience,
24
<PAGE>
Management believes that ICI offers a unique set of capabilities to help
manufacturing companies improve their competitiveness through the application
of ICAM and PDM technology to their business. However, ICI's current close
relationship to, and reliance on IBM creates certain risks. See "Risk
Factors--Reliance on IBM; Lack of Visibility in the Market."
ITEMQUEST SOLUTION
ITEMQUEST FEATURES. Management believes that the information classification
and management capabilities of ItemQuest provide a solution to one of the most
costly problems of manufacturing and engineering industries--how to quickly
and reliably identify, classify and retrieve existing data for re-use
throughout the enterprise. Management also believes that ItemQuest is based on
the PDM industry's most sophisticated search and classification engine for
parts, assemblies, documents, drawings and other relevant items. This,
combined with ItemQuest's power and flexibility, allows ItemQuest to serve as
a complete classification and management system. In a manufacturing
enterprise, ItemQuest provides quick access to data by classifying it in terms
of recognizable attributes. Such classification enables the data to be
retrieved with speed and effectiveness, thereby decreasing a new product's
time to market and increasing the Company's competitiveness.
ItemQuest is an object-oriented search and classification system that is
structured using a three-tiered client/server architecture, consisting of a
data layer, an application layer, and a presentation layer. ItemQuest allows
for any combination of these tiers to coexist on a single machine or across
multiple machines. This allows for a scalable implementation, permitting the
use of additional and more powerful hardware to cope with increasing numbers
of users.
LOGO
ItemQuest provides an intuitive process for describing an item using a
Graphical User Interface (GUI) that does not require a user to have special
computer expertise. The user interface is cross-platform, allowing it to run
on most of the popular client operating systems. The data server is database
independent to allow the application direct access to almost any database that
can be accessed with Structured Query Language (SQL). Server objects in both
the application server and database server have CORBA compliant interfaces to
allow for easy integration and maximum flexibility and scalability at customer
sites.
25
<PAGE>
Item attributes used within ItemQuest can be any of the basic types:
numeric, character, boolean or string. ItemQuest also supports user defined
types, called extended types, which allow the definition of functional
routines to manipulate the data when it is retrieved and stored.
In addition to the search and classification capabilities that are available
in other classification systems, ItemQuest provides the following capabilities
that are expected to position it favorably in the market:
. INTEGRATED ARCHITECTURE STRATEGY. ItemQuest is designed to be integrated
with other product offerings. This does not preclude it from being
packaged as a stand-alone system, but does offer a product that is
generally suited to be licensed by vendors of PDM or similar systems.
Management anticipates that these vendors would be interested in
licensing ItemQuest because it would enable them to provide more robust
and competitive functionality within their product offerings. Management
believes that this opportunity is not currently being adequately
addressed in the market by other providers of ICAM systems.
. DATABASE INDEPENDENCE. ItemQuest is developed with a database
independence layer that supports different Relational Database Management
Systems. According to a report prepared by CIMdata, this level of support
is more effective than other currently available systems. In addition,
ItemQuest is capable of maintaining multiple simultaneous connections to
different databases. These capabilities enhance ItemQuest's flexibility
and ease of implementation into an organization's existing information
technology environment.
. ABILITY TO MAINTAIN ACCESS TO LEGACY SYSTEMS. ItemQuest allows on-line
connection and mapping to legacy systems during the initial
implementation and loading of ItemQuest. In addition, ItemQuest has the
capability of maintaining this on-line link to existing data systems of
the enterprise. Management believes this capability distinguishes
ItemQuest from its competitors because it allows data to be retrieved
from the enterprise's existing database using ad-hoc queries rather than
requiring costly bulk loading of all legacy data and the subsequent data
clean-up that is often required in connection with such bulk loading
activities. As a result, the enterprise is able to implement the data
classification and retrieval system immediately and bulk load the legacy
data and new data to a single system at a subsequent time.
. PRODUCTMANAGER INTEGRATION. ItemQuest has been integrated with the
current version of ProductManager. This illustrates ItemQuest's ability
to be integrated and licensed for classification, search and retrieval
functions within a PDM system. Management believes that currently no
other information classification and management system has achieved this
degree of integration with ProductManager.
. BUILT-IN TOOL APPROACH FOR IMPLEMENTATION. ItemQuest offers the basic
built-in tools and capabilities required to implement the system at a
customer site. This eliminates the need for the customer to purchase
basic implementation tools from the vendor. It is expected that this will
reduce the initial implementation costs and total cost of ownership of
ItemQuest. Management believes that currently most vendors do not
routinely provide these tools directly to their customers.
. MAINSTREAM TECHNOLOGY. ItemQuest employs mainstream technologies,
including multiple platform client support, CORBA (Common Object Request
Broker Architecture), C++, three-tiered client-server architecture,
Windows NT and UNIX, as well as a defined Web strategy. This is
consistent with customer's strategies for new technology acquisitions.
Use of mainstream technology decreases the likelihood of the technology
becoming rapidly outdated and enables ItemQuest to easily integrate with
other software products.
ICI intends to develop an ItemQuest client application that can be executed
by persons using World Wide Web browsers such as Netscape(R) Navigator(R).
This client application will allow users within an enterprise or external
users such as customers or suppliers to use ItemQuest technology to perform
queries. There can be no assurance, however, that this application will be
developed on a timely basis or that it will achieve market acceptance. See
"Risk Factors--Further Development of ItemQuest."
26
<PAGE>
LOGO
ITEMQUEST BENEFITS. Implementation of ItemQuest for information
classification and management applications will provide benefits to
manufacturing and engineering companies that will contribute to the
achievement of the following goals, leading to improved competitiveness:
. BRING PRODUCTS TO MARKET FASTER. ItemQuest's easy to use system helps
improve productivity of design engineers, allowing a more rapid design
process. Also, re-use of existing parts minimizes the need to develop new
parts, significantly cutting product cycle time and time to market.
. LOWER COSTS. ItemQuest enables manufacturers to generate savings through
improvements in productivity and improved return on investment in
existing parts, by extending the useful life of existing parts. ItemQuest
also helps companies avoid costly development of new parts when
inventoried parts may be used.
. HIGHER LEVELS OF QUALITY. Re-use of parts capitalizes on proven
reliability and experience in the market. This in turn takes advantage of
maintenance and support systems already in place for current parts and
designs.
ICI SERVICES
PDM-RELATED SERVICES. ICI currently offers a range of implementation and
programming services that capitalize on its PDM industry knowledge and
expertise in object oriented, cross-platform and client/server application
development. Implementation support and customization services for IBM's
ProductManager are delivered by ICI on a subcontract basis through IBM, as
well as on a direct contract basis with ProductManager customers. Currently, a
substantial number of Company employees work under an ICI contract with IBM
Charlotte and provide a wide range of services to IBM and its customers,
including:
. Program development
. Defect support
. Implementation
. Customization
. Integration
27
<PAGE>
A significant portion of a PDM solution is the implementation services that
apply PDM technology to a company's specific business. With its intimate
knowledge of PDM systems, ICI is well positioned to provide the following PDM
services:
. Project management
. Installation
. Workshops
. Solution architecture
. Customization
. Integration
CUSTOM DEVELOPMENT. Apart from its ICAM and PDM-related services, ICI offers
programming skills to companies whose business needs require a custom
development solution. Currently, ICI is providing development services for
Eastman Kodak Company. The resulting product is expected to provide
significant productivity enhancements for laboratory personnel, and in turn
produce reduction in research and development cycle times and improvement in
manufacturing effectiveness.
CUSTOMERS
SERVICES. For 1996 the Company's largest customers were IBM, Eastman Kodak
Company, Lockheed Martin, Pratt & Whitney and Space Systems/Loral. The
Company's revenues in any period are substantially dependent upon a relatively
small number of large projects and this trend is expected to continue for the
foreseeable future. In 1994, services to IBM for development and
implementation work and to Kodak for custom development work accounted for 65%
and 10%, respectively, of total revenue. In 1995, services to IBM and Lockheed
Martin accounted for 81% and 4%, respectively, of total revenues. In 1996,
sales and services to IBM, Kodak and Pratt & Whitney accounted for 70%, 13%
and 8%, respectively, of total revenues. The 70% revenues received from IBM in
1996 consisted 56.9% from IBM United States (primarily under subcontracts for
a variety of IBM customers), 5.8% from IBM Italy, 0.3% from IBM England, 3.4%
from IBM Korea and 0.8% from IBM Japan. In 1994, 1995 and 1996, ICI had
approximately 10, 10 and 15 direct customers, respectively.
ITEMQUEST. ICI has entered into agreements with four customers, Space
Systems/Loral, SPS Technologies, Black & Decker and Sony for the ItemQuest
controlled availability program. These companies are manufacturers embarking
on PDM implementations and focusing within their engineering divisions on
consolidation of standard parts and re-use of existing parts. ICI's strategy
in the controlled availability program is to work closely with these companies
in order to validate ItemQuest's function and establish an implementation
methodology.
Once released in the general marketplace, the Company will provide ItemQuest
to customers under standard non-exclusive, non-transferable license
agreements. As is customary in the software industry, in order to protect its
intellectual property rights, the Company will not sell or transfer title to
its products to its customers. The Company's standard license agreement will
provide that the licensed software may be used solely for the customer's
internal operations.
Although Management expects that ItemQuest will be well received, there can
be no assurance that this will be the case or that the controlled availability
program will meet its objectives. See "Risk Factors--Introduction of New
Product; Change of Business Focus."
COMPETITION
ITEMQUEST. In the information classification and management market, ICI
currently faces competition principally from Aspect Development, Inc. and
CADIS, Inc. These two companies have targeted their solutions mainly to the
engineering and manufacturing industries.
28
<PAGE>
Aspect Development, Inc. Aspect Development is a publicly-owned, worldwide
provider of enterprise-wide component and supplier management (CSM) systems
for preferred parts and supplier management, parts selection, and design re-
use. Aspect's customers include 50 of the world's leading electronics and
mechanical manufacturing companies.
CADIS, Inc. CADIS is a privately owned software and services company that
provides new technology solutions for information access. CADIS provides
multi-national manufacturing corporations the opportunity to achieve
substantial cost savings through the elimination of part redundancy and
standardization of new parts using the CADIS parts management system. The
parts management system addresses the problem of controlling parts and vendor
proliferation across the enterprise through the implementation and application
of its technology and services.
As summarized in "ItemQuest Solution," above, Management believes, based on
its own comparative analysis and based on CIMdata's review, that ItemQuest can
compete favorably with the products offered by Aspect and CADIS. See "Risk
Factors--Introduction of New Product; Change of Business Focus" and "--
Competition."
SERVICES. ICI faces competition from numerous providers of services related
to the PDM market and services related to custom development. Large national
consulting firms, such as Andersen Consulting, Keane, Inc. and Decision
Consultants, Inc., as well as regional and local services providers, compete
against the Company both for customers and for qualified personnel. While
conditions in these markets are extremely competitive, Management believes
that the PDM market, as well as custom software development, are growing
services markets. Although barriers to entry in these markets are low for
competitors of the Company, Management believes that the impact of new
entrants to the market will be more than offset by the growth of the overall
market. There can be no assurance, however, that this growth will continue for
any particular period, if at all, or that the Company will be able to attract
and retain a sufficient number of qualified personnel. Management believes
that in the services area the Company competes primarily on the basis of its
skilled personnel, its reputation in the industry and its relationship with
customers, and to a lesser extent on the basis of price. See "Risk Factors--
Competition"; "--Need for Qualified Personnel."
MARKETING STRATEGY
GENERAL. ICI's marketing strategy is to promote and convey the message that
ICI's services and ItemQuest will help manufacturing companies improve
competitiveness by reducing time to market, reducing costs and improving
quality. Sales of ICI services will be based upon continued and expanded
promotion of ICI's established skills and customer reputation and in
conjunction with ItemQuest. Management believes that ItemQuest sales will be
driven by the following fundamentals:
. The integration between ItemQuest and IBM ProductManager is currently a
strong differentiator, creating significant opportunity in the existing
ProductManager installed base, as well as highlighting integration
potential with other PDM vendors.
. Manufacturing companies will continue to invest in PDM technology to
improve competitiveness due to the significant return on investment
generated by such investment.
. Implementation services capability is critical if a PDM project is to be
successful. Management believes that this capability currently is in
short supply. Management believes that ICI is a leader in PDM
implementation services for ProductManager and will continue to build on
that capability.
. Opportunities for information classification and management solutions
continue to grow. The number of offerings on the market is limited and
expensive, ranging from $50,000 to several million dollars. In spite of
the high cost, Management believes that prospective customers will
realize that an effective ICAM solution can deliver an attractive return
on investment due to the high proportion of new product cost comprised of
part and component costs.
29
<PAGE>
Initially, the Company intends to market and sell its products and services
primarily through a direct sales force hired using a portion of the proceeds
raised in this Offering, as well as through strategic relationships and other
distribution channels.
However, with the anticipated broader introduction of ItemQuest, the Company
intends to establish sales channels either through relationships it has
developed with its customers or through its own direct resources to establish
marketing, selling and consulting relationships both domestically and
internationally. In addition, the Company intends to use its relationships
with hardware and software vendors and systems consultants to encourage these
parties to recommend or distribute the Company's products. To support its
sales force, the Company intends to conduct a number of marketing programs,
including public relations, telemarketing, seminars, trade shows and user
groups.
The Company's marketing strategy contains several assumptions, including but
not limited to its ability to successfully introduce ItemQuest within the PDM
marketplace. There can be no assurance that this will occur on a timely basis,
if at all. See "Risk Factors--Introduction of New Product; Change of Business
Focus."
In general, pricing for ItemQuest will follow the industry standard of a
one-time charge for each concurrent user license. In addition, there will be a
monthly maintenance charge for each license. Site licenses will be available
on a special bid basis giving unrestricted use at a given company site. Volume
purchase discounts for both ItemQuest and services will be offered on a
special bid basis as well. ItemQuest pricing strategy will focus on capturing
market share and establishing a solid base of customer references.
RESEARCH AND DEVELOPMENT
The Company has committed, and expects to continue to commit in the future,
substantial resources to product development, particularly to ItemQuest.
During 1995 and 1996, ICI's investment in ItemQuest was approximately $111,000
and $280,000, respectively. Research and development efforts are directed at
increasing product functionality, improving product performance and expanding
compatibility with third party software. The Company's investment in the
research and development of ItemQuest represented a significant percentage of
its operating costs during 1995 and 1996.
The Company intends to supplement its product development efforts by
reviewing customer feedback on ItemQuest and working with customers and
potential customers to anticipate future functionality requirements. To assist
in this effort, the Company intends to host a customer advisory board made up
of representatives from key customers who would meet periodically to provide
feedback to the Company's current and future product offerings.
The Company's future success will depend in part upon its ability to enhance
its current products and to develop and introduce new products on a timely
basis that keep pace with technological developments, emerging industry
standards and the increasingly sophisticated needs of its customers. If the
Company is unable, however, for technological or other reasons, to develop and
introduce new products or enhancements, the Company's business, financial
condition or results of operations could be materially adversely affected. See
"Risk Factors--Product Life Cycle; Need to Develop New Products and
Enhancements."
In addition, products as complex as ItemQuest frequently contain undetected
errors or failures when first introduced or when new versions are released.
The Company may discover errors in certain of its products and enhancements,
both before and after initial shipments, which may lead to delays or lost
revenues during the period required to correct these errors. See "Risk
Factors--Risk of Product Defects."
EMPLOYEES
As of March 20, 1997, the Company employed 40 persons, of whom 18 were based
in Charlotte, North Carolina and 22 were based in Atlanta, Georgia. Of the
total, three were engaged in sales and marketing, 34 were primarily in product
development and software services and three were primarily in finance and
administration. No current employee of the Company is represented by a labor
union with respect to his or her
30
<PAGE>
employment by the Company. The Company has experienced no organized work
stoppage and believes its relationship with its employees to be good. The
Company believes that its future success will depend to a significant extent
upon its ability to attract, train and retain highly skilled technical,
management, sales, marketing and consulting personnel. Competition for such
personnel in the computer software industry is intense. The Company has from
time to time experienced difficulty in locating candidates with appropriate
qualifications. There can be no assurance that the Company will be successful
in attracting or retaining such personnel, and the failure to attract or
retain such personnel could have a material adverse affect on the Company's
business or results of operations. See "Risk Factors--Management of Expanding
Operations" and "--Dependence on Key Personnel."
FACILITIES
The Company's principal administrative, sales, marketing, support and
software research and development facility is located in approximately 6,000
square feet of leased space in Atlanta, Georgia. The Company also subleases a
1700-square-foot office outside of Charlotte, North Carolina. The terms of
those leases expire in March 2002 and May 2000, respectively. The Company
currently is negotiating lease terms for an alternative location for the North
Carolina offices, as its current office space in that location is not expected
to be large enough to accommodate expected growth in personnel and equipment.
The Company believes that, should the need arise, suitable additional or
alternative space will be available in the future on commercially reasonable
terms.
The Company currently owns no real estate or real estate investments and has
no plans to acquire any real estate or investments in real estate.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Executive officers, directors and key employees of the Company and their
age, as of the date of this Prospectus, along with their business experience
for at least the past five years, are as follows:
<TABLE>
<CAPTION>
YEAR IN WHICH
NAME AGE POSITION DIRECTORSHIP COMMENCED
---- --- -------- ----------------------
<C> <C> <S> <C>
Haim E. Dahan 36 Chairman of the Board, 1993
Chief Executive Officer and
Chief Financial Officer
Charles J. Giarratana 41 President
Ron Friedman 36 Vice President of
Operations
Michael J. Galvin 31 Director and Vice President 1993
of Research and Development
Patricia Tuxbury Salem 33 Director and Treasurer 1993
</TABLE>
Mr. Dahan founded the Company in 1991 and has served as Chairman of the
Board of Directors and Chief Executive Officer of the Company since January
1993. Prior to such time, from November 1989 to October 1992, Mr. Dahan was a
technical specialist for AGS Information Services, Inc. Mr. Dahan received his
M.Sc. in Mathematics and Computer Science from Ben-Gurion University, Israel
in 1986.
Mr. Giarratana joined the Company in March 1996 as President. Prior to that
time, from March 1993 to February 1996, Mr. Giarratana served as World-Wide
Director of Marketing and Services for IBM's ProductManager. From January 1991
to February 1993, Mr. Giarratana was a business unit executive with IBM. Mr.
Giarratana received a Bachelor of Science degree in Mathematics and Computer
Science from the University of New Hampshire in 1977.
Mr. Friedman joined the Company as Vice President of Operations in October
1995. Prior to such time, from January 1993 to September 1995, Mr. Friedman
served as Program Manager and Technical Liaison at Elbit Fort Worth, a defense
system development and integration provider. From January 1983 to January
1993, Mr. Friedman served in various technical and managerial positions at
Elbit Defense System, Ltd., a defense system
31
<PAGE>
solution provider. Mr. Friedman received a B.A. degree in Mathematics and
Computer Science from the University of Haifa, Israel in 1988.
Mr. Galvin joined the Company in August 1993 as Technical Director and is
currently the Vice-President of Research and Development. Prior to joining the
Company, Mr. Galvin was a Senior Analyst with Worldspan from March 1991 to
August 1993. Prior to such time, from January 1989 to March 1991, Mr. Galvin
worked as a consultant for AGS Information Services, Inc., where he worked on
the development of IBM's ProductManager. Mr. Galvin received a Bachelor of
Science degree in Computer Science from the Southern College of Technology in
1988.
Ms. Salem joined the Company in June 1993 as Systems Analyst and has served
as Treasurer of the Company since that time. From February 1990 to May 1993,
Ms. Salem worked as a consultant for AGS Information Services, Inc., where she
focused on the development of software for the manufacturing sector and
specialized in product data management (PDM). Ms. Salem graduated from the
University of Vermont in 1985 with a Bachelor of Science degree in Electrical
Engineering.
Members of the Board of Directors serve for one-year terms. No director of
the Company is a director of any other company filing reports under the
Securities Exchange Act of 1934.
It is the intention of the Board of Directors to identify and select at
least two qualified persons, independent from the Company, to become directors
of the Company within 90 days from the date of this Prospectus. See "Stock
Option Plans" for a description of stock options that will be granted to
"outside directors" of the Company. In addition, the Company has identified a
need for a full-time chief accounting officer.
COMMITTEES
The Company currently has no committees of its Board of Directors. Upon the
selection and election of qualified independent directors, the Board of
Directors expects to establish both an audit committee and a compensation
committee, all of which is expected to occur within 90 days from the date of
this Prospectus.
Once created, the audit committee will be responsible for making
recommendations to the Board of Directors regarding the selection of
independent auditors, reviewing the results and scope of the audit and other
services provided by the Company's independent accountants and reviewing and
evaluating the Company's audit and control functions.
The compensation committee will make recommendations regarding the Company's
employee stock option plan and decisions concerning salaries and incentive
compensation for employees and consultants of the Company.
The Board of Directors may also create other committees, including an
executive committee and a nominating committee.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid by
the Company during the year ended December 31, 1996 to the Company's chief
executive officer. The Company has no executive officers whose total annual
salary and bonus exceeded $100,000 during that year.
SUMMARY COMPENSATION TABLE
FOR YEAR 1996
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS
POSITION SALARY BONUS COMPENSATION AWARDED
------------------ ------- ----- ------------ -------------
<S> <C> <C> <C> <C>
Haim E. Dahan, $60,000 $-0- $1,500(1) None
Chief Executive Officer
</TABLE>
- --------
(1) Includes matching payments made on behalf of the executive officer into
the Company's 401(k) Plan account for such executive officer during 1996,
with respect to 1995. Excludes personal benefits the aggregate value of
which was less than 10% of the annual salary of Mr. Dahan.
32
<PAGE>
Mr. Dahan does not currently hold and has never received any options to
purchase the Company's Common Stock.
No compensation intended to serve as incentive for performance to occur over
a period longer than one year was paid pursuant to a long-term incentive plan
during 1996 to Mr. Dahan or any other officer of the Company. The Company does
not have any defined benefit or actuarial plan under which benefits are
determined primarily by final compensation or average final compensation and
years of service.
None of the officers of the Company have entered into employment contracts
with the Company covering employment compensation terms other than current
salaries and standard employee benefits.
CHANGE OF CONTROL ARRANGEMENTS
As of March 20, 1997, the Company has granted options to purchase an
aggregate of 325,511 shares of Common Stock to employees of the Company
pursuant to the Company's employee stock option plans. The agreements for
these options provide that the options vest over a four-year period beginning
on the date the option was granted. In the event that the Company is acquired
by another entity, or other events occur that meet the definition of a change
of control or threatened change of control in the option agreement, the
vesting of the options accelerates prior to that event.
STOCK OPTION PLANS
The Board of Directors has reserved a total of 500,000 shares of Common
Stock for issuance under the Company's 1996 Stock Option Plan (the "1996
Option Plan") and the Company's 1995 Restricted Nonqualified Incentive Stock
Option Plan (the "1995 Option Plan"), which has been terminated. At March 20,
1997, 325,511 shares of Common Stock were subject to outstanding options at a
weighted average exercise price of $2.59 per share. Of the 500,000 total
authorized shares, 174,489 shares remain available for future grant under the
1996 Option Plan, which was adopted effective December 20, 1996. Options may
be granted to employees (including officers), consultants, advisors and
directors, although only employees and directors and officers who are also
employees may receive "incentive stock options" intended to qualify for
certain tax treatment. The exercise price of incentive stock options must be
no less than the fair market value of the Common Stock on the date of grant.
The exercise price of nonqualified stock options is not subject to any
limitation. Options granted under the Option Plans generally vest over a four-
year period and have a term of ten years.
The 1996 Option Plan provides for the automatic grant of stock options to
directors of the Company who are not employees of the Company or any parent or
subsidiary corporation of the Company ("Outside Directors"). Under the 1996
Option Plan, each Outside Director (of which there are none as of the date of
this Prospectus) will be granted, automatically on the effective date of his
or her election to the Board, an option to purchase 3,000 shares of Common
Stock, and an additional option to purchase 1,000 shares of Common Stock on
each subsequent anniversary of that date. The exercise price of each such
option will equal the fair market value of the Common Stock on the date of
grant, and the term of each option will be ten years.
Options granted under the 1996 Option Plan are nontransferable. Options
generally are exercisable only while the option holder remains employed or
otherwise affiliated with the Company, and for a limited period of time after
termination of employment or affiliation. Options held by Messrs. Giarratana,
Friedman and Peter Jeng also contain a provision restricting them from selling
shares acquired upon exercise of those options for a period of one year
following the closing date of this Offering.
COMPENSATION OF DIRECTORS
Directors of the Company currently do not receive any payment for services
provided as a director. On an annual basis, directors who are not employees of
the Company will receive grants of options to purchase the
33
<PAGE>
Company's Common Stock, as described in "Stock Option Plans," above. The
Company currently does not pay additional amounts for committee participation
or special assignments of the Board of Directors.
LIMITATION OF LIABILITY/INDEMNIFICATION
The Company's Articles of Incorporation contain certain provisions permitted
under the Georgia Business Corporation Code ("GBCC") which eliminate the
personal liability of directors for monetary damages for a breach of
director's duty of care or other duty as a director, except for: (i) breach of
a director's duty of loyalty, (ii) acts or omissions which involve intentional
misconduct or a knowing violation of law, (iii) the unlawful payment of
dividends, stock purchase or stock redemption, or (iv) any transaction from
which the director derives any improper personal benefit. The Articles of
Incorporation provide that a director's liability shall be eliminated or
limited to the fullest extent permitted by the GBCC, as amended from time to
time. The Articles of Incorporation and the Company's By-laws also contain
provisions indemnifying the Company's directors and officers to the fullest
extent permitted by the GBCC. The Company has also entered into agreements to
indemnify its directors and executive officers. A copy of the form of such
indemnification agreement has been attached as an exhibit to the Registration
Statement of which this Prospectus is a part. The Company believes that these
provisions and agreements will assist the Company in attracting and retaining
qualified individuals to serve as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or others pursuant to the foregoing
provisions, the Company has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
Since January 1, 1995, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of the Common Stock of
the Company had or will have a direct or indirect material interest other than
the transactions described below.
On two occasions since January 1, 1995, the Company has borrowed funds from
its stockholders for working capital purposes. In each case the Company paid
no interest to the stockholders and the loans were repaid on or before
schedule. The maximum aggregate amount outstanding at any time since January
1, 1995 under these funding programs was $178,706.
The Board of Directors has indicated its intention to distribute to its
current Stockholders, effective the day immediately preceding the date of the
closing of this Offering, an amount equal to the accumulated undistributed S
corporation earnings of ICI as of that date. It is anticipated that the
distribution will be in the amount of approximately $1,950,000, to be effected
in the form of an assignment of all accounts receivable as of that date and
the balance in cash, a portion of which may, but is not expected to, be paid
out of the proceeds of this Offering. See "Prior S Corporation Status and
Distributions." Purchasers of Common Stock in this Offering will not receive
any of this final distribution.
The Company believes that all transactions with affiliates described above
were made or will be made on terms no less favorable to the Company than could
have been obtained from unaffiliated third parties.
34
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 20, 1997, assuming no
exercise of the Underwriters' over-allotment option, (i) by each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) by each of the executive officers named in the tables under
"Executive Compensation" and by each of the Company's directors, and (iii) by
all executive officers and directors as a group. Currently, there are five
stockholders of the Company, three of whom are also directors and executive
officers. Except as indicated in the footnotes to this table, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by each
stockholder. The address for each of the individuals listed below is: c/o
International CompuTex, Inc., 5500 Interstate North Parkway, Suite 507,
Atlanta, Georgia 30328-4662.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
BENEFICIAL -------------------------------------------------------------
OWNER NUMBER PERCENT BEFORE OFFERING(1) PERCENT AFTER OFFERING(1)
---------- --------- ------------------------- ------------------------
<S> <C> <C> <C>
Haim E. Dahan 1,407,468 66.2% 43.3%
Michael J.
Galvin 331,171 15.6% 10.2%
Patricia
Tuxbury Salem 275,973 13.0% 8.5%
All executive
officers and
directors as a
group (five
persons)(2) 2,046,901 94.9% 62.4%
</TABLE>
- --------
(1) Percent ownership is based on: (i) before this Offering, 2,125,000 shares
of Common Stock outstanding on March 20, 1997, plus any shares issuable
pursuant to options held by the person or group in question which may be
exercised within 60 days of March 20, 1997 and (ii) after this Offering
3,250,000 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option), plus any shares issuable pursuant to
options held by the person or group in question that may be exercised
within 60 days of March 20, 1997.
(2) Includes 32,289 shares subject to employee stock options that are
exercisable within 60 days of March 20, 1997.
Each of the stockholders of the Company has granted to the holders of Senior
Debentures warrants to purchase shares of Common Stock, aggregating up to
250,000 shares. The number of shares subject to the warrants will be based
upon the $1,115,000 aggregate principal amount of the Senior Debentures,
divided by the initial public offering price of the Common Stock offered and
sold in this Offering. The warrant exercise price will be 60% of the initial
public offering price. Based upon the $9.00 anticipated initial public
offering price, a total of 123,889 shares of Common Stock may be purchased
from the current stockholders at $5.40 per share. These warrants will be
exercisable commencing the closing date of this Offering and continuing
through January 2000. See "Shares Eligible for Future Sale."
The number of warrant shares that may be purchased from each of the current
stockholders is as follows:
<TABLE>
<CAPTION>
CURRENT STOCKHOLDER WARRANT SHARES
------------------- --------------
<S> <C>
Haim E. Dahan 82,056
Michael J. Galvin 19,307
Patricia Tuxbury Salem 16,090
James L. McAlarney, III 3,218
Peter W. Jeng 3,218
-------
Total 123,889
=======
</TABLE>
The above amounts are proportionate to the number of shares of Common Stock
currently held by the current stockholders of the Company.
35
<PAGE>
In addition, two of the current stockholders, Haim E. Dahan and Michael J.
Galvin, have agreed to participate in 50% of the Underwriters' over-allotment
option in this Offering. If exercised in full, those stockholders would sell
an aggregate of 84,375 shares of Common Stock, allocated among them as
follows:
<TABLE>
<CAPTION>
SELLING MAXIMUM NUMBER OF SHARES
STOCKHOLDER SUBJECT TO OVER-ALLOTMENT OPTION
----------- --------------------------------
<S> <C>
Haim E. Dahan 68,304
Michael J.
Galvin 16,071
</TABLE>
If the 123,889 shares of Common Stock are sold pursuant to the warrants held
by holders of the Senior Debentures and if the maximum number of shares of
Common Stock are purchased pursuant to the Underwriters' over-allotment
option, as of March 20, 1997 the number and percentage of shares of Common
Stock that would be beneficially owned by the directors and current beneficial
owners of 5% or more of the Common Stock, and by all executive officers and
directors as a group, following this Offering, would be as follows:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
----------------------
BENEFICIAL OWNER NUMBER PERCENT(1)
---------------- --------- ---------
<S> <C> <C>
Haim E. Dahan 1,257,108 37.7%
Michael J. Galvin 295,793 8.9%
Patricia Tuxbury Salem 259,883 7.8%
All executive officers and directors as a
group (five persons) (2) 1,845,073 54.8%
</TABLE>
- --------
(1) Percent ownership is based on 3,334,375 shares of Common Stock outstanding
after this Offering (including 84,375 shares issued by the Company
pursuant to the Underwriters' over-allotment option), plus any shares
issuable pursuant to options held by the person or group in question that
may be exercised within 60 days of December 31, 1996.
(2) Includes 32,289 shares subject to options that are exercisable within 60
days of March 20, 1997.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
a single class of Common Stock with a par value of $.001 per share. The
following summary of certain provisions of the Common Stock of the Company
does not purport to be complete and is subject to, and qualified in its
entirety by, the Articles of Incorporation and By-Laws of the Company, which
are included as exhibits to the registration statement of which this
Prospectus forms a part, and by the provisions of applicable law.
COMMON STOCK
As of March 20, 1997, there were 2,125,000 shares of Common Stock
outstanding and held of record by five stockholders. The holders of Common
Stock are entitled to one vote for each share held of record on each matter
voted on at a stockholders' meeting and are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of any outstanding indebtedness. Holders of
Common Stock have no preemptive or subscription rights, and there are no
redemption or conversion rights with respect to such shares. All outstanding
shares of Common Stock are fully paid and nonassessable, and the shares of
Common Stock to be issued upon completion of this Offering will be fully paid
and nonassessable.
OPTIONS TO PURCHASE COMMON STOCK
As described in "Management--Stock Option Plans," the Company has reserved
an aggregate of 500,000 shares for issuance pursuant to the 1996 Option Plan
and the 1995 Option Plan. Of these shares, 325,511 were
36
<PAGE>
subject to outstanding options on March 20, 1997 and the remaining 174,489
shares are available for future option grants under the 1996 Option Plan.
REGISTRATION RIGHTS
In connection with the sale of the Senior Debentures by the Company in
January 1997, the stockholders of the Company granted to the purchasers of the
Senior Debentures warrants to purchase Common Stock from those stockholders
(the "Debenture Holder Warrants"), exercisable until January 2000, commencing
after the closing of this Offering, subject to certain restrictions. The
holders of the Debenture Holder Warrants will have certain rights to register
under the Securities Act shares of Common Stock that may be transferred to
them upon exercise of the Debenture Holder Warrants. If the Company registers
any of its Common Stock either for its own account or for the account of other
security holders, the holders of such Common Stock are entitled to include
those shares of Common Stock in the registration, subject to the ability of
the underwriters to limit the number of shares included in this Offering. All
fees, costs and expenses of such registrations (other than underwriting
discounts and commissions) will be borne by the Company. See "Shares Eligible
for Future Sale."
Upon completion of this Offering, the firm of H. J. Meyers & Co., Inc., as
Representative of the Underwriters (the "Representative"), will receive
warrants (the "Representative's Warrants") to acquire up to 112,500 shares of
Common Stock. See "Underwriting" for a description of the registration rights
associated with the Common Stock that may be acquired upon exercise of the
Representative's Warrants.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for shares of Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect market prices prevailing from time to
time. See "Risk Factors--No Prior Market; Possible Volatility."
Upon completion of this Offering, the Company will have outstanding
approximately 3,250,000 shares of Common Stock, assuming the Underwriters'
over-allotment option is not exercised. Of these shares, the 1,125,000 shares
sold in this Offering will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 2,125,000
shares of Common Stock will be held by the five existing stockholders of the
Company and were issued and sold by the Company in reliance on exemptions from
registration requirements of the Securities Act. These shares may be sold in
the public market only if registered or pursuant to an exemption from
registration such as Rule 144 or 144(k) under the Securities Act. The
Company's current stockholders, who following this Offering together will own
an aggregate of 2,125,000 shares of the Common Stock, have executed lockup
agreements with the Underwriters providing that they will not directly or
indirectly sell, contract to sell, grant any option to purchase or otherwise
transfer or dispose of any securities of the Company until one year after the
effective date of this Offering. The Representative may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lockup agreements. Further, stock option agreements held
by Messrs. Giarratana, Friedman and Jeng contain a provision restricting them
from selling shares that they may acquire upon exercise of such options for a
period of one year from the date this Offering is closed.
As a result of the foregoing agreements, only the 1,125,000 shares of Common
Stock being offered hereby will be eligible for resale without restriction on
the effective date of this Offering. The remaining outstanding shares will be
eligible for resale, pursuant to Rule 144, beginning one year after the
effective date of this Offering.
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one
37
<PAGE>
year (including the holding period of any prior owner except an affiliate) is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the number of shares of Common
Stock then outstanding (which will equal approximately 32,500 shares
immediately after this Offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of the
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares to be sold for at least two years (including the holding period of
any prior owner except an affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Shortly after this Offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the 1995 and 1996 Option Plans of the Company or
reserved for issuance under future options granted under the 1996 Option Plan.
As of March 20, 1997, there were outstanding options to purchase 325,511
shares under these option plans. Based upon the number of shares subject to
outstanding options at March 20, 1997 and reserved for future issuance under
the 1996 Option Plan, such registration would cover 500,000 shares. This
registration statement will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to affiliates of the Company, be
available for sale in the open market immediately following the expiration of
any applicable lockup agreements. See "Management--Stock Option Plans."
As described in "Underwriting" below, the Company will issue to the
Representative warrants to purchase 112,500 shares of Common Stock at $10.80
per share (120% of the initial public offering price), exercisable 12 months
after the date of this Prospectus. See "Underwriting" for a description of
registration rights that the Representative will receive in connection with
the Common Stock that may be acquired upon exercise of the Representative's
Warrants.
The Company has included within the Registration Statement for this Offering
123,889 shares of Common Stock that may be transferred by the current
stockholders of the Company to purchasers of the Senior Debentures, in the
event the purchasers of the Senior Debentures exercise the Debenture Holder
Warrants, as described in "Description of Capital Stock--Registration Rights."
The Company has agreed with the holders of the Debenture Holder Warrants to
register such shares of Common Stock and maintain the effectiveness of that
registration for a period of at least 30 days following the effective date of
this Offering. Accordingly, to the extent holders of the Debenture Holder
Warrants exercise those Warrants within such 30-day period, the Common Stock
that they receive will not be restricted stock. Those holders have agreed with
the Company that regardless of when the Debenture Holder Warrants are
exercised they will not resell any Common Stock purchased pursuant to those
Warrants until after the 12-month period following the effective date of this
Offering. At that time, to the extent such shares of Common Stock are not
restricted shares, they will be freely tradeable on the market. If they are
restricted shares, they may be sold only after the one-year holding period
under Rule 144, or pursuant to the registration rights described in
"Description of Capital Stock--Registration Rights."
38
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representative,
H. J. Meyers & Co., Inc., have severally agreed to purchase from the Company,
on a "firm commitment" basis, the following respective numbers of shares of
Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Total....................................................... 1,125,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of Common Stock offered hereby if any such shares are
purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers who are members of
the National Association of Securities Dealers, Inc. at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may re-allow, a concession not in excess of $ per
share to certain other dealers. After the initial public offering contemplated
hereby, the offering price and other selling terms may be changed by the
Underwriters.
The Company and the Selling Stockholders have granted the Underwriters an
over-allotment option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 168,750 additional shares of Common Stock
at the public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus. Fifty percent of such shares
will be sold by the Company and 50% of such shares will be sold by the Selling
Stockholders. To the extent that the Underwriters exercise such option, each
of the Underwriters will have a firm commitment to purchase the same
percentage thereof that the number of shares of Common Stock to be purchased
by it shown in the above table bears to 1,125,000, and the Company and the
Selling Stockholders will be obligated, pursuant to such option, to sell such
shares to the Underwriters. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of the Common Stock
offered hereby. If purchased, the Underwriters will offer such additional
shares on the same terms as those on which the 1,125,000 shares are being
offered.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 2% of the total proceeds of this Offering, or
$202,500 (and 2% of the total proceeds from the sale of any shares of Common
Stock pursuant to the exercise of the over-allotment option, or $232,875 if
the Underwriters exercise the over-allotment option in full). In addition to
the Underwriters' commissions and the Representative's expense allowance, the
Company is required to pay the costs of qualifying the shares of Common Stock
under federal and state securities laws, together with legal and accounting
fees, printing and other costs in connection with this Offering.
At the closing of this Offering, the Company will issue to the
Representative, for nominal consideration, the Representative's Warrants to
purchase up to 112,500 shares of Common Stock of the Company. The shares of
Common Stock subject to the Representative's Warrants are identical to the
shares of Common Stock sold to the public, except for the purchase price and
certain registration rights. The Representative's Warrants will be exercisable
for a four-year period commencing one year from the date of this Prospectus,
at an exercise price of $10.80 per share of Common Stock (that being 120% of
the assumed initial public offering price per share of Common Stock). The
Representative's Warrants will not be transferable prior to their initial
exercise date except to successors in interest to the Representative and
directors and officers of the Representative.
39
<PAGE>
The Representative's Warrants will contain anti-dilution provisions
providing for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transactions. The
Representative's Warrants will not entitle the Representative to any rights as
a stockholder of the Company until such warrants are executed and the shares
of Common Stock are purchased thereunder.
The Representative's Warrants and the shares of Common Stock issuable
thereunder may not be offered for sale to the public except in compliance with
the applicable provisions of the Securities Act. The Company has agreed that
if it causes a post-effective amendment to the Registration Statement of which
this Prospectus is a part, or a new registration statement to be filed with
the Securities and Exchange Commission, the Representative shall have the
right during the life of the Representative's Warrants to include therein for
registration the Representative's Warrants and/or the shares of Common Stock
issuable upon their exercise at no expense to the Representative (other than
the proportional share of underwriting discounts, commissions and related
expenses). Additionally, the Company has agreed that, upon demand by the
holder(s) of at least 50% of the (i) total unexercised Representative's
Warrants and (ii) shares of Common Stock issued upon the exercise of the
Representative's Warrants, made on no more than two separate occasions during
the exercise period of the Representative's Warrants, the Company shall use
its best efforts to register the Representative's Warrants and/or any of the
shares of Common Stock issuable upon the exercise thereof, provided that the
Company has available current financial statements, the initial such
registration to be at the Company's expense (other than the proportional share
of underwriting discounts, commissions and related expenses) and the second at
the expense of the holder(s).
For the period during which the Representative's Warrants are exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the
interests of the other stockholders of the Company. The holder(s) of the
Representative's Warrants can be expected to exercise the warrants at a time
when the Company would, in all likelihood, be able to obtain any needed
capital from an offering of its unissued Common Stock on terms more favorable
to the Company than those provided for in the Representative's Warrants. Such
facts may materially adversely affect the terms on which the Company can
obtain additional financing. To the extent that the Representative realizes
any gain from the resale of the Representative's Warrants or the shares of
Common Stock issuable thereunder, such gain may be deemed additional
underwriting compensation under the Securities Act.
Pursuant to the Underwriting Agreement between the Company and the
Representative of the Underwriters, the Company has agreed that for a period
of three years after this Offering an individual to be designated by the
Representative will be entitled to attend meetings of the Board of Directors
of the Company in the capacity of unofficial observer. If a designee of the
Representative is elected to the Board of Directors, this observer requirement
will be deemed to be satisfied. The Representative has not yet identified the
individual to be so designated.
The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Selling Stockholders and the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Representative of the Underwriters has advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
The Company and all of its current stockholders have agreed that for a
period of one year from the date of this Prospectus, each of them will not,
without the prior written consent of the Representative of the Underwriters,
which shall not be unreasonably withheld, sell, assign, hypothecate, pledge or
otherwise dispose of any shares of Common Stock or any options, warrants or
other rights with respect to any Common Stock, subject to certain limited
exceptions (including the issuance of shares by the Company in connection with
an acquisition). The Company also has agreed that for a period of 18 months
from the date of this Prospectus, the Company will not sell or issue any
securities pursuant to Regulation S under the Securities Act without the
Representative's consent, which shall not be unreasonably withheld.
40
<PAGE>
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock was determined through negotiations among the Company, representatives
of the Selling Stockholders and the Representative of the Underwriters. Among
the factors considered in such negotiations were history of and the prospects
for the industry in which the Company competes, the prevailing securities
market conditions, the price-earnings ratios of publicly traded companies that
the Company, the Selling Stockholders and the Representative of the
Underwriters believed to be comparable to the Company, the ability of the
Company's management, revenues and earnings of the Company in recent periods,
estimates of the business potential of the Company and the present state of
the Company's business operations. See "Risk Factors--No Prior Market;
Possible Volatility."
The Company has agreed that it will engage a public relations firm
acceptable to the Representative and the Company. The Company also has agreed
to maintain a relationship with such public relations firm for a minimum
period of two years and on such other terms as are acceptable to the
Representative.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the stockholders by Gambrell & Stolz, L.L.P.,
Atlanta, Georgia. Harter, Secrest & Emery, Rochester, New York, is acting as
counsel for the Underwriters in connection with certain legal matters relating
to the sale of the Common Stock offered hereby.
EXPERTS
The financial statements of International CompuTex, Inc. at December 31,
1996 and 1995, and for each of the three years in the period ended December
31, 1996 appearing in this Prospectus have been audited by Habif, Arogeti &
Wynne, P.C., independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term shall include any amendments thereto) on
Form SB-2 (File No. 333-21647) under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement. Certain items are omitted from this Prospectus and
are contained in exhibits to the Registration Statement as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement and the exhibits and schedules
thereto, may be inspected without charge at the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
all or any part thereof may be obtained from the Commission at prescribed
rates. The Commission also maintains a Web site at http://www.sec.gov which
contains reports, proxy statements and other information regarding registrants
that file electronically with the Commission.
The Company is not currently a reporting company under the Securities
Exchange Act of 1934. The Company intends to furnish its stockholders with
annual reports containing financial statements audited by its independent
auditors.
41
<PAGE>
GLOSSARY
Certain terms or phrases used in this Prospectus have technical meanings, as
set forth below, in addition to other terms defined elsewhere in this
Prospectus:
"CAD"--Computer Aided Design; CAD is the process whereby computers are
utilized to facilitate the design of manufactured goods. Typically run on high
speed workstations, CAD systems are often integrated with Computer Aided
Manufacturing (CAM) systems. This allows for the automation of the manufacture
of products by computers or robots using design information originating from a
CAD system.
"CORBA"--Common Object Request Broker Architecture; CORBA is an industry
standard that defines a higher level facility for distributed computing. CORBA
allows applications to communicate with one another without regard to the
hardware or software systems or the location of the application.
"ERP"--Enterprise Resource Planning; ERP is an application with an
enterprise-wide focus on customer order management, financial information,
personnel and availability of materials.
"ICAM"--Information Classification And Management; ICAM is a software
technology which serves a dual function. The first function is the ability to
read and classify information based on attributes with which end-users are
familiar. The second function allows for the maintenance and retrieval of this
information. ICAM provides a mechanism for retrieval of stored information
through user defined queries. ICAM also allows the user to add, change and
remove information.
"Legacy systems"--Applications and databases maintained by an enterprise
consisting of previously developed or acquired data or other information.
"Migration of data"--The process whereby data or information is moved from
one database to another, or from one system to another. The Company's software
product, ItemQuest(TM) "Symbol", permits a customer to "migrate" legacy data
from that customer's existing database to its ItemQuest database and classify
the data based on attributes specified by the customer.
"Object oriented"--Object oriented programming is a form of software
development that models real world entities through a representation of
"objects" that contain data as well as instructions that work upon the data.
With objects, a system can be designed using familiar business entities (such
as a person or an account), and the design can be carried all the way down to
the programming level. Object technology assists users by providing solutions
that more closely resemble the business processes with which they are
familiar.
"PDM"--Product Data Management; PDM is a system of software applications,
used principally by manufacturing and design companies, which allow management
and control of product-related data from development and design stages through
the manufacturing and post-production marketing phases of a product.
"Virtual object warehouse"--Most large companies keep their data in various
disparate databases associated with several applications. With a data
warehouse, a company periodically extracts data from its various application
databases and consolidates it centrally. Object warehouses store business
objects rather than the simple relational data typically found in data
warehouses, greatly simplifying access to the information. In a virtual
warehouse, data is not physically copied to a central database, but is instead
transparently accessed from the native disparate databases. A virtual object
warehouse allows easy access to business objects and their information without
requiring a centralized repository.
"Virtual object warehouse and classification system"--A virtual object
warehouse and classification system combines the power and flexibility of
virtual object warehousing and information classification and management
systems. (See above definitions.) In a virtual object warehouse and
classification system, enterprise-wide business objects can be accessed
without requiring them to be located in one centralized database.
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
International CompuTex, Inc.
We have audited the accompanying balance sheets of INTERNATIONAL COMPUTEX,
INC. [an S corporation] as of December 31, 1996 and 1995, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years ended December 31, 1996, 1995, and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of INTERNATIONAL COMPUTEX,
INC. as of December 31, 1996 and 1995 and the results of its operations and
its cash flows for the years ended December 31, 1996, 1995, and 1994 in
conformity with generally accepted accounting principles.
Atlanta, Georgia
January 24, 1997
F-1
<PAGE>
INTERNATIONAL COMPUTEX, INC.
BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
1996 1996 1995
----------- ---------- --------
[UNAUDITED]
<S> <C> <C> <C>
CURRENT ASSETS
Cash......................................... $ 119,750 $ 119,750 $ 80,969
Accounts receivable, net of allowance for
doubtful accounts of $24,082 for 1996 and
$-0- for 1995............................... 1,020,319 1,020,319 807,370
Prepaid expenses............................. 13,738 13,738 5,543
---------- ---------- --------
Total current assets........................ 1,153,807 1,153,807 893,882
PROPERTY AND EQUIPMENT, net................... 168,178 168,178 86,709
OTHER ASSETS
Software development costs................... 276,372 276,372
Deferred offering costs...................... 22,424 22,424
Miscellaneous assets......................... 230 230 1,489
---------- ---------- --------
$1,621,011 $1,621,011 $982,080
========== ========== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable................................. $ 45,260 $ 45,260 $ 34,620
Current portion of long-term debt................ 4,189 4,189
Accrued distribution of S corporation earnings... 1,528,902
Deferred income taxes............................ 21,600
---------- ---------- --------
Total current liabilities....................... 1,599,951 49,449 34,620
LONG-TERM DEBT, net of current portion............ 18,935 18,935
---------- ---------- --------
Total liabilities............................... 1,618,886 68,384 34,620
---------- ---------- --------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 20,000,000 shares
authorized; 2,125,000 shares issued and
outstanding..................................... 2,125 2,125 2,125
Retained earnings................................ -0- 1,550,502 945,335
---------- ---------- --------
Total stockholders' equity...................... 2,125 1,552,627 947,460
---------- ---------- --------
$1,621,011 $1,621,011 $982,080
========== ========== ========
</TABLE>
See auditors' report and accompanying notes.
F-2
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Operating revenues........................... $ 3,891,034 $2,875,872 $1,246,414
----------- ---------- ----------
Expenses
Operating................................... 1,833,939 1,611,066 694,791
General and administrative.................. 239,778 150,699 126,876
----------- ---------- ----------
2,073,717 1,761,765 821,667
----------- ---------- ----------
Income from operations..................... 1,817,317 1,114,107 424,747
Other income
Interest income............................. 3,067 4,798 2,548
----------- ---------- ----------
Net income--historical..................... 1,820,384 1,118,905 427,295
Pro forma provision for income taxes [Note
A].......................................... 686,000 422,000 161,000
----------- ---------- ----------
Pro forma net income......................... $ 1,134,384 $ 696,905 $ 266,295
=========== ========== ==========
Pro forma earnings per share [Note A]........ $ .50
===========
Weighted average shares outstanding.......... 2,287,855
===========
</TABLE>
See auditors' report and accompanying notes
F-3
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY
STOCK EARNINGS STOCK
------ ----------- --------
<S> <C> <C> <C>
Balances, December 31, 1993...................... $2,355 $ 217,814 $[2,300]
Net income...................................... 427,295
Retirement of treasury stock.................... [ 230] [ 2,070] 2,300
Distributions paid.............................. [ 137,903]
------ ----------- -------
Balances, December 31, 1994...................... 2,125 505,136 -0-
Net income...................................... 1,118,905
Distributions paid.............................. [ 678,706]
------ ----------- -------
Balances, December 31, 1995...................... 2,125 945,335 -0-
Net income...................................... 1,820,384
Distributions paid.............................. [1,215,217]
------ ----------- -------
Balances, December 31, 1996...................... 2,125 1,550,502 -0-
Pro Forma Distribution of S corporation
earnings........................................ [ 1,528,902]
Pro Forma deferred income taxes................. [ 21,600]
------ ----------- -------
Pro Forma Balances, December 31, 1996............ $2,125 $ -0- $ -0-
====== =========== =======
</TABLE>
See auditors' report and accompanying notes
F-4
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase [Decrease] In Cash
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................. $1,820,384 $1,118,905 $427,295
---------- ---------- --------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization............ 31,518 20,007 6,261
Provision for bad debt................... 24,082
Changes in assets and liabilities
Increase in accounts receivable......... [ 237,031] [ 483,252] [132,388]
Decrease [Increase] in prepaid expenses. [ 8,195] 3,225 [ 7,756]
Decrease [Increase] in miscellaneous
assets.................................. 1,029 [ 1,029]
Increase in accounts payable............ 10,640 21,979 8,352
---------- ---------- --------
Total adjustments...................... [ 177,957] [ 439,070] [125,531]
---------- ---------- --------
Net cash provided by operating
activities............................ 1,642,427 679,835 301,764
---------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment....... [ 88,257] [ 59,228] [ 36,553]
Software development costs capitalized...... [ 276,372]
---------- ---------- --------
Net cash used by investing activities..... [ 364,629] [ 59,228] [ 36,553]
---------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Stockholder distributions paid.............. [1,215,217] [ 678,706] [137,903]
Principal payments on long-term debt........ [ 1,376]
Deferred offering costs..................... [ 22,424]
---------- ---------- --------
Net cash used by financing activities..... [1,239,017] [ 678,706] [137,903]
---------- ---------- --------
Net increase [decrease] in cash.......... 38,781 [ 58,099] 127,308
Cash, beginning of year...................... 80,969 139,068 11,760
---------- ---------- --------
Cash, end of year........................ $ 119,750 $ 80,969 $139,068
========== ========== ========
NON-CASH FINANCING AND INVESTING ACTIVITIES
Acquisition of property and equipment by
long-term debt.............................. $ 24,500
</TABLE>
See auditors' report and accompanying notes
F-5
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
INTERNATIONAL COMPUTEX, INC., a Georgia corporation, was formed for the
purpose of development and sale of computer software and computer consulting
services.
REVENUE RECOGNITION:
Revenue consists primarily of computer consulting services. Revenue is
primarily recognized as the services are performed and invoiced.
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is recognized.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which are as follows:
<TABLE>
<S> <C>
Leasehold improvements 5 years
Computer equipment 5 years
Business office equipment 5 years
Vehicle 5 years
</TABLE>
OTHER ASSETS:
Organization costs are recorded at cost and amortized on a straight-line
basis over a five-year period.
INCOME TAXES:
The Company had elected to be treated as an S Corporation pursuant to the
Internal Revenue Code for federal and state income tax purposes. The income of
an S Corporation is taxable to the individual stockholders. Such income is
distributable to the stockholders without any further tax consequences. The
stockholders will revoke the S Corporation status immediately prior to the
closing of the proposed public offering, and the Company will be taxable as a
C corporation from that date forward. The Company will account for income
taxes using the liability method and will accrue deferred tax assets and
liabilities for differences in the timing of income and expense items between
financial statement and tax return reporting.
A pro forma provision for income taxes has been presented which represents
income taxes which would have been provided had the Company operated as a C
Corporation.
ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets, liabilities,
and disclosures. Accordingly, the actual amounts could differ from those
estimates. Any adjustments applied to estimated amounts are recognized in the
year in which such adjustments are determined.
F-6
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1996:
The "Pro Forma" column on the balance sheet gives effect to an additional
estimated provision of $21,600 for deferred income taxes which would have been
required as a charge against retained earnings had the Company terminated its
S corporation status at December 31, 1996. It also reflects payment of an
assumed final distribution in the amount of $1,528,902 to the current
stockholders of the Company as of December 31, 1996. The actual amount of the
final distribution will depend upon the Company's results of operations
through the date of termination of S corporation status.
PRO FORMA EARNINGS PER SHARE:
Pro forma earnings per share is computed using the weighted average number
of shares outstanding during the period including common stock equivalents
which are accounted for using the treasury stock method. Common stock
equivalents granted by the Company at a price below the proposed public
offering price per common share have been included in the common shares
outstanding as if they were outstanding for all periods presented using the
treasury stock method, and the proposed public offering price, anticipated at
a range of $8 to $10 per share.
Historical earnings per share data has not been presented.
FINANCIAL INSTRUMENTS:
The carrying value of cash, accounts payable and notes payable approximates
fair value because of the short-term maturity of those instruments. For other
debt instruments, the carrying value approximates fair value based on stated
interest rates.
SOFTWARE DEVELOPMENT COSTS:
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," initial costs are charged to operations as research prior
to the development of a detailed program design or a working model.
Thereafter, the Company capitalizes the direct costs and allocated overhead
associated with the development of software products. Costs incurred
subsequent to the product release, and research and development performed
under contract, are charged to operations.
Capitalized costs are amortized over the estimated product life (seven
years) on the straight-line basis. Amortization will begin when the product is
available for general release to customers. Unamortized costs are carried at
the lower of book value or net realizable value.
B. CASH--CONCENTRATION OF CREDIT RISK:
As of December 31, 1996, the Company maintained deposits in one institution
which exceeded the Federal Deposit Insurance Corporation limit by
approximately $600,000. The difference between this amount and the amount of
cash per the Company's records is primarily due to stockholder distributions
paid in December 1996 that were outstanding as of December 31, 1996.
F-7
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Leasehold improvements................................ $ 5,785 $ -0-
Computer equipment.................................... 177,649 102,677
Business office equipment............................. 11,317 11,317
Vehicle............................................... 32,000 -0-
-------- --------
226,751 113,994
Accumulated depreciation.............................. [ 58,573] [ 27,285]
-------- --------
Net................................................. $168,178 $ 86,709
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995, and 1994
amounted to $31,288, $19,777 and $6,031, respectively.
D. LEASES AND COMMITMENTS AND CONTINGENCIES:
The Company maintains operating leases for office space. Rent expense for
the years ended December 31, 1996, 1995, and 1994 totaled $79,496, $57,497,
and $17,063, respectively. Leases expire in March, 1997 and May, 2000.
The future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1997............................................................. $ 41,701
1998............................................................. 27,985
1999............................................................. 28,710
2000............................................................. 11,962
--------
$110,358
========
</TABLE>
E. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Note payable, due in monthly installments of $507 including
principal and interest at 8.75% per annum through September
2001, secured by vehicle.................................... $ 23,124
Less amount due within one year.............................. [4,189]
--------
$ 18,935
========
</TABLE>
Maturity of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ -------
<S> <C>
1997.............................................................. $ 4,189
1998.............................................................. 4,571
1999.............................................................. 4,987
2000.............................................................. 5,441
2001.............................................................. 3,936
-------
$23,124
=======
</TABLE>
F-8
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F. EMPLOYEE BENEFIT PLANS:
Effective July 1, 1995, the Company adopted a qualified deferred
compensation plan, under Section 401(k) of the Internal Revenue Code. Under
the plan, employees may elect to defer up to fifteen percent (15%) of their
salary, subject to Internal Revenue Service limits. The Company contributes a
matching fifty percent (50%) of the first five percent (5%) of employee
contributions, totaling $29,143 for 1996 and $11,982 for 1995. In addition,
the plan allows for the Company to make discretionary contributions based on
the participant's salary. The Company made discretionary contributions of $-0-
for 1996 and $27,000 for 1995.
The Company adopted the 1995 Restricted Nonqualified Incentive Stock Option
Plan (the "1995 Plan"), effective August 1, 1995, for officers and key
employees, which provided for non-qualified stock options. Options to purchase
173,311 shares of common stock have been granted at $.543 per share and are
outstanding under the 1995 Plan.
The Company adopted the 1996 Stock Option Plan, effective December 20, 1996
(the "1996 Plan"). Under the 1996 Plan, which provides for issuance of either
incentive stock options or nonqualified stock options, the maximum number of
shares of common stock for which options may be granted is 500,000 shares
reduced by the number of shares outstanding under or issued pursuant to stock
options granted under the 1995 Plan. As of December 31, 1996, no options had
been granted under the 1996 Plan. The 1995 Plan was terminated, prospectively,
effective December 20, 1996.
G. STOCK SPLITS:
Effective January 23, 1996, the Board of Directors authorized a 1,000 for 1
forward stock split of the Company's common stock, to be effected in the form
of a stock dividend. Effective December 20, 1996, the Board of Directors
authorized a 2.7597 for 1 forward stock split to be effected in the form of a
stock dividend. After these splits, a total of 2,125,000 shares of common
stock was issued and outstanding. Retroactive effect has been given to these
splits.
H. MAJOR CUSTOMER INFORMATION:
During the years ended December 31, 1996, 1995, and 1994, revenue from one
major customer totaled approximately $2,740,000, $2,340,000, and $810,000,
respectively. These amounts accounted for 70%, 81% and 65% of total revenues,
respectively. The amount due from the customer, included in accounts
receivable, totaled approximately $600,000 and $703,000 at December 31, 1996
and 1995, respectively.
I. SOFTWARE DEVELOPMENT COSTS:
<TABLE>
<S> <C>
Unamortized balance, January 1, 1996........................... $ -0-
Current year (1996):
Total expenditures........................................... 279,737
Less research and development expense........................ 3,365
--------
Net capitalized costs......................................... $276,372
========
</TABLE>
In management's opinion, the net realizable value of future sales exceeds
the carrying value of unamortized software development costs; therefore, no
adjustment to carrying value is required. Research and development costs for
1995 and 1994 totaled approximately $111,000 and $13,000, respectively.
F-9
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
J. SUBSEQUENT EVENTS:
In January, 1997, the Company received proceeds from the sale of Senior
Debentures in the amount of $1,115,000. Interest accrues at 6% per annum,
payable semi-annually, and the principal amount is due in January 2000.
Purchasers of the Senior Debentures received Warrants from the stockholders of
the Company to purchase up to 250,000 shares of common stock held by these
stockholders at an exercise price of 60% of the initial public offering price.
The Company is required to prepay the Senior Debentures in whole, without
penalty, if the Company receives at least $5,000,000 gross proceeds from a
public offering or a private placement of its common stock. As part of the
issuance of the Senior Debentures, the Company incurred a closing cost of
approximately $133,000 which has been capitalized and will be written off over
the life of the loan.
F-10
<PAGE>
[ARTWORK TO BE ADDED HERE--INSIDE BACK COVER]
43
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized in connection with the offering made hereby to
give any information or to make any representations not contained in this Pro-
spectus and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company, any Selling Stockholder
or any Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby to any
person or by anyone in any jurisdiction in which it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.........................................................
Risk Factors...............................................................
Prior S Corporation Status
and Distributions.........................................................
Use of Proceeds............................................................
Dividend Policy............................................................
Capitalization.............................................................
Dilution...................................................................
Selected Financial Data....................................................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................................................
Business...................................................................
Management.................................................................
Certain Transactions.......................................................
Principal Selling Stockholders.............................................
Description of Capital Stock...............................................
Shares Eligible for Future Sale............................................
Underwriting...............................................................
Legal Matters..............................................................
Experts....................................................................
Additional Information.....................................................
Glossary...................................................................
Index to Financial Statements.............................................. F-1
</TABLE>
------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,125,000 SHARES
INTERNATIONAL
COMPUTEX, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
H. J. MEYERS & CO., INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Articles of Incorporation and By-Laws of the Registrant provide
that the Registrant shall indemnify any person to the full extent permitted by
the Georgia Business Corporation Code (the "GBCC"). Sections 14-2-850-859 of
the GBCC, relating to indemnification, are hereby incorporated herein by
reference.
In accordance with Sections 14-2-830-832 of the GBCC, the Articles of
Incorporation of the Registrant eliminate the personal liability of directors
to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director with certain limited exceptions.
The Registrant also has entered into indemnification agreements with each of
its officers and directors, the form of which is filed as Exhibit 10.4, and
reference is hereby made to such form of agreement.
Reference is made to Section 10 of the Underwriting Agreement (Exhibit 1.1),
which provides for indemnification by the Underwriters of the Registrant, its
officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
SEC Registration Fee................................................. $4,099.32
NASD Filing Fees..................................................... 1,786.00
NASDAQ Filing Fees................................................... 21,250.00
Printing and Engraving Expenses...................................... *
Accounting Fees and Expenses......................................... *
Legal Fees and Expenses.............................................. *
Blue Sky Fees and Expenses........................................... *
Transfer Agent's Fees and Expenses................................... *
Underwriters' Non-Accountable Expense Allowance...................... *
Miscellaneous Expenses............................................... *
---------
Total................................................................ $
=========
</TABLE>
- --------
*To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion gives retroactive effect to the stock splits
effected in March 1996 and December 1996. Commencing January 1, 1994, the
Registrant has sold and issued the following unregistered securities:
In January 1997, the Registrant issued Senior Debentures in the aggregate
principal amount of $1,115,000 to 17 accredited investors, with warrants to
purchase up to 250,000 shares of Common Stock from certain stockholders of the
Company. The placement of Senior Debentures was sold by H. J. Meyers & Co.,
Inc., which received for such services an aggregate of 11% of the gross
proceeds of that offering as commissions and nonaccountable expense
reimbursement. At the time this Registration Statement was filed, the
Registrant was preparing to offer to these investors the right to rescind
their investment in Senior Debentures. The Registrant determined that it was
necessary to make that rescission offer due to certain misunderstandings that
occured in the placement of the Senior Debentures. Those misunderstandings
related to the terms of the warrants, and the resale and registration rights
related thereto. Each of the investors declined the recission offer and
affirmed the investment.
In July 1995, pursuant to a nonqualified stock option plan, the Company
granted options to three key employees to purchase an aggregate of 140,745
shares of Common Stock, at $0.543 per share. One of such options, covering
66,233 shares, has subsequently been terminated.
II-1
<PAGE>
In February 1996, pursuant to that same option plan, the Company granted
options to nine key employees to purchase an aggregate of 107,079 shares of
Common Stock, at $0.543 per share. Four of such options, covering 11,040
shares, have subsequently been terminated.
In January 1997, pursuant to the 1996 Stock Option Plan, the Company granted
options to 32 employees to purchase an aggregate of 163,200 shares of Common
Stock at $4.80 per share. These options were granted to each of the employees
of the Company who were not directors of the Company. Two of such options,
covering 10,240 shares, have subsequently been terminated.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act of 1933, as amended (the "Securities Act"). The offering by the Registrant
of Debentures and Warrants was exempt under SEC Rule 506 promulgated under
Section 4(2) and under Section 4(6) of the Securities Act, on the basis that
each of the purchasers of the Debentures and Warrants was an accredited
investor. The granting of employee options did not necessarily involve the
sale of a security, but to the extent that a sale of a security was involved,
it was effected pursuant to an employee benefit plan and exempt under Rule 701
promulgated under Section 3(b) of the Securities Act and under Section 4(2)
under the Securities Act. If a Registration Statement under the Securities Act
is not effective with respect to the option shares at the time options are
exercised, the option agreements provide for compliance with an applicable
exemption from the registration requirements, such as Rule 701 or Section
4(2), before shares are issued pursuant to option exercises. A selling agent
was utilized in connection with the sale of the Senior Debentures and
Warrants; no selling agent was involved in connection with the granting of the
employee stock options.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of the Registrant, included as
Exhibit 2.1 in the Registration Statement on Form 10-SB filed by the
Registrant, dated February 11, 1997 and incorporated herein by this
reference (the "Form 10-SB").
3.2 By-Laws of the Registrant, included as Exhibit 2.2 in the Form 10-SB and
incorporated herein by this reference.
4.1 Form of Senior Debenture, included as Exhibit 3.1 in the Form 10-SB and
incorporated herein by this reference.
4.2* Form of Representative's Warrants
5.2* Opinion of Gambrell & Stolz, L.L.P.
10.1 1995 Restricted Non-qualified Incentive Option Plan, dated August 1,
1995, included as Exhibit 6.1 in the Registration Statement on Form 10-
SB and incorporated herein by this reference.
10.2 1996 Stock Option Plan, included as Exhibit 6.2 in the Form 10-SB and
incorporated herein by this reference.
10.3 Forms of Stock Option Agreements, included as Exhibit 6.3 in the Form
10-SB and incorporated herein by this reference.
10.4 Escrow Agreement by and between the Registrant, Gambrell & Stolz, L.L.P.
and certain stockholders of the Registrant, included as Exhibit 6.4 in
Form 10-SB and incorporated herein by this reference.
10.5 Form of Indemnity Agreement, included as Exhibit 6.5 in the Form 10-SB
and incorporated herein by this reference.
10.6 Form of Warrant attached to Senior Debentures, included as Exhibit 6.6
in the Form 10-SB and incorporated herein by this reference.
10.7 Offer letter to Ron Friedman dated September 15, 1995, included as
Exhibit 6.7 in the Form 10-SB and incorporated herein by this reference.
10.8 Offer letter to Charles J. Giarratana dated February 13, 1996, included
as Exhibit 6.8 in the Form 10-SB and incorporated herein by this
reference.
10.9 Agreement dated as of February 7, 1997 between the Registrant and H.J.
Meyers & Co., Inc., relating to the offer of the Registrant to rescind
the sale of the Senior Debentures, included as Exhibit 6.9 in the Form
10-SB and incorporated herein by this reference.
10.10 Form rescission offer letter with respect to Senior Debentures, included
as Exhibit 6.10 in the Form 10-SB and incorporated herein by this
reference.
10.11 S Corporation Termination, Tax Allocation and Indemnification Agreement
dated as of March 24, 1997.
10.12 Lease Agreement between Registrant and Riveredge One Associates, Ltd.,
dated April 1, 1997.
11.1 Statement re: Computation of Per Share Earnings
23.1* Consent of Gambrell & Stolz, L.L.P.--included in Exhibit 5.1
23.2 Consent of Habif, Arogeti & Wynne, Certified Public Accountants
24.1 Power of Attorney--Included on Page II-4.
27.0 Financial Data Schedule
</TABLE>
* To be filed by amendment.
(b) Financial Statement Schedules
None
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution;
(b) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering; and
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of this offering.
(2) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding), is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4), or Rule 497(h) under the Securities Act as part of
this Registration Statement as of the time it was declared
effective.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the
registration statement, and the offering of such securities at that
time as the initial bona fide offering of those securities.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Haim E. Dahan and Michael J. Galvin, or either
of them, as his or her true and lawful attorney-in-fact and agent with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as to
all items and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Pre-
Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, in the City of Atlanta, State of Georgia, on March
25, 1997.
INTERNATIONAL COMPUTEX, INC.
BY:
----------------------------------
HAIM E. DAHAN, CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 1 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ----------------------------- Director, Chief
Haim E. Dahan Executive Officer and March 25,
Chief Financial Officer 1997
- ----------------------------- Director
Michael J. Galvin March 25,
1997
- ----------------------------- Director and Chief
Patricia Tuxbury Salem Accounting Officer March 25,
1997
II-5
<PAGE>
EXHIBIT 10.11
S CORPORATION TERMINATION,
TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
This Tax Allocation and Indemnification Agreement, dated as of March 24,
1997 (the "Agreement"), is made by and between INTERNATIONAL COMPUTEX, INC., a
Georgia corporation (the "Company"), and the persons identified on the signature
pages hereto, who constitute all of the stockholders of the Company on the date
hereof (each individually, a "Stockholder," and collectively, the
"Stockholders").
RECITALS:
A. The Company is an S corporation, within the meaning of Section 1361 of
the Internal Revenue Code of 1986, as amended (the "Code"), and the Stockholders
are its only stockholders as of the date of this Agreement.
B. The Company has entered into an underwriting agreement to sell shares
of its common stock to the public in an initial public offering registered under
the Securities Act of 1933, as amended (the "Public Offering").
C. The Stockholders are currently the only stockholders of the Company and
will continue to be so until immediately before the Closing (as defined below)
of the Public Offering.
D. In connection with the Public Offering, and in order to induce the
investment by the public in the Company, the Company and the Stockholders desire
to provide for an S corporation termination, tax allocation and indemnification
agreement in connection with tax periods prior to and following the Termination
Date (as defined below).
AGREEMENT:
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Stockholders do hereby
covenant and agree as follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Accumulated Adjustments Account" shall have the meaning assigned to that
term by Section 1368(e)(1) of the Code.
"Closing" shall mean the closing and completion of the offering by the
Company of shares of its stock, as described in the Form SB-2 registration
statement initially filed by the Company with the Securities and Exchange
Commission on February 12, 1997.
<PAGE>
"Code" shall have the meaning set forth in Recital A.
"C Short Year" shall have the meaning set forth in Section 1362(e)(I)(B) of
the Code.
"Public Offering" shall have the meaning set forth in Recital B.
"S corporation" shall have the meaning set forth in Section 1361 of the
Code.
"S corporation Taxable Income" shall mean, for periods beginning on or
after the date the Company became an S corporation and ending with the close of
the last day of the S Short Year, the sum of (i) the Company's items of separate
stated income and gain (within the meaning of Section 1366(a)(1)(A) of the Code)
reduced, to the extent applicable, by the Company's separately stated items of
deduction and loss (within the meaning of Section 1366(a)(1)(A) of the Code) and
(ii) the Company's nonseparately computed net income (within the meaning of
Section 1366(a)(1)(B) of the Code).
"S Short Year" shall have the meaning set forth in Section 1362(c)(1)(A) of
the Code.
"Termination Date" shall mean the date on which the Company's status as an
S corporation is terminated by reason of revocation of the election for the
Company to be an S corporation pursuant to Section 1362(d)(1) of the Code, which
date shall be not earlier than the date the registration statement related to
the Public Offering is declared effective by the Securities and Exchange
Commission and not later than two days prior to the date of the Closing, as
designated by the Company.
ARTICLE II
TERMINATION; TERMINATION PAYMENTS
2.1 Termination of S Corporation Status. The Company shall terminate its
-----------------------------------
status as an S corporation pursuant to an election, as permitted pursuant to
Section 1362(d)(1) of the Code, which election shall be made by the Company and
the Stockholders and shall be effective on the Termination Date.
2.2 Termination Payments to Stockholders. Immediately prior to the
------------------------------------
Termination Date, the Company shall distribute to the Stockholders (pro rata in
accordance with the relative number of shares of stock of the Company held by
each Stockholder as of the Termination Date) an amount equal to the "Accumulated
Adjustments Account" of the Company as of the Termination Date. Such
distribution shall take the form of the assignment of accounts receivable of the
Company as of the Termination Date, plus an amount of cash which, when combined
with the amount of the accounts receivable to be distributed, equals the
Accumulated Adjustments Account. For purposes of this Section 2.2, the term
"Accumulated Adjustments Account" shall have the meaning set forth in Section
1368(e) of the Code as determined by the Chief Financial Officer of the Company
in accordance with the Company's books and records and without regard to any
future adjustments to the Company's taxable income as described in Section 2.3.
<PAGE>
2.3 Future Adjustments. In the event that any future examination of any
------------------
tax return by any taxing authority results in a final determination increasing
the taxable income of the Company for the S Short Year, or for any period ending
prior to the Termination Date, the Company shall distribute to the Stockholders
(pro rata in accordance with the relative number of shares of stock of the
Company held by each Stockholder as of the Termination Date) within 30 days of
such final determination, cash in an amount equal to the amount of such increase
in the taxable income of the Company resulting from such final determination.
2.4 Short Taxable Years. The parties acknowledge that the taxable year in
-------------------
which the S corporation status of the Company is terminated will be an S
Termination Year for tax purposes, as defined in Section 1362(e)(4) of the Code.
Pursuant to Section 1361(e)(1) of the Code, the S Termination Year of the
Company shall be divided into two short taxable years: an "S Short Year" and a
"C Short Year." As defined in Section 1362(c)(1)(A) of the Code, the S Short
Year shall be that portion of the Company's S Termination Year ending on the day
immediately preceding the Termination Date. Pursuant to Section 1362(e)(1)(B)
of the Code, that portion of the S Termination Year beginning on the Termination
Date and ending on the last day of the taxable year shall be the C Short Year of
the Company.
2.5 Absence of Representations Regarding Receivables. The parties
------------------------------------------------
acknowledge that the Company has made and shall make no representations
whatsoever regarding the collectibility of the accounts receivable to be
distributed pursuant to Section 2.2.
ARTICLE III
ALLOCATION OF INCOME
The Company and the Stockholders agree that for tax purposes (including for
purposes of determining the Company's S corporation Taxable Income for its
fiscal year ending December 31, 1997) the Company shall allocate its items of
income, gain, loss, deduction and credit for its fiscal year ending December 31,
1997 between the S Short Year and the C Short Year in accordance with normal tax
accounting rules (the so-called "closing of the books method"), as permitted by
Section 1362(e)(3) of the Code. The Company will make the election permitted by
Section 1362(e)(3) in a timely manner. The Stockholders agree to consent to
such election and to provide the Company with the statement of consent of all
Stockholders described in Section 1.1362-6(b) of the Treasury Regulations. The
Company and the Stockholders agree to make, and to provide such information and
obtain such consents as are necessary to make any comparable election required
under applicable state and local income tax laws.
ARTICLE IV
TAXES
4.1 Liability for Taxes Incurred During the S Short Year and for Tax
----------------------------------------------------------------
Periods Ending Prior to the Termination Date. The Stockholders, severally and
- --------------------------------------------
not jointly, each covenant and agree that: (i) the Stockholders have duly
included, or will duly include, in their own federal, state and local income tax
returns their respective allocable shares of all items of income, gain, loss,
deduction or credit attributable to the S Short Year of the Company or to any
prior period (or that portion of any period) during which the Company was an S
corporation to the extent required by applicable law; (ii) such returns shall,
to the extent required by applicable law, include their allocable share of S
<PAGE>
corporation Taxable Income of the Company from all sources through and including
the close of business on the last day of the S Short Year of the Company; and
(iii) the Stockholders shall, to the extent required by applicable law, pay any
and all taxes they are required to pay, as a result of being a stockholder of
the Company, for all taxable periods (or that portion of any period) during
which the Company was an S corporation.
4.2 Stockholder Indemnification for Tax Liabilities. The Stockholders,
-----------------------------------------------
severally (according to the relative percentage of the outstanding shares of
Company common stock owned by each Stockholder on the last day of any applicable
period to which a liability described below relates) and not jointly, each
hereby indemnify and hold the Company harmless from, against and in respect of
any unpaid income tax liabilities of the Company (including interest and
penalties imposed thereon) (i) which are attributable to the S Short Year or any
period ending prior to the Termination Date, or (ii) which are incurred by the
Company as a result of a final determination of an adjustment (by reason of an
amended return, claim for refund, audit, judicial decision or otherwise) to the
taxable income of the Stockholders for any period (including, without
limitation, the S Short Year) which (in the case of this clause (ii)) results in
a decrease for any period in the Stockholders' taxable income and a
corresponding increase for any period in the taxable income of the Company.
4.3 Company Indemnification for Tax Liabilities. The Company hereby
-------------------------------------------
indemnifies and agrees to hold the Stockholders harmless from, against and in
respect of income tax liabilities (including interest and penalties imposed
thereof), if any, incurred by the Stockholders as a result of a final
determination of an adjustment (by reasons of an amended return, claim for
refund, audit, judicial decision or otherwise) to the taxable income of the
Company for any period ending after the Termination Date (including, without
limitation, the C Short Year) which results in a decrease for any period in the
Company's taxable income and a corresponding increase for any period in the
taxable income of the Stockholders.
4.4 Payments. The Stockholders or the Company, as the case may be, shall
--------
make any payment required under Section 4.2 or Section 4.3 of this Agreement
within 30 days after receipt of notice from the other party that a final
determination has occurred and a payment is due by such party to the appropriate
taxing authority.
4.5 Refunds. If the Company receives a refund of any income tax
-------
(including penalties and interest) for any period prior to the Termination Date,
or as to which it has previously been indemnified by the Stockholders, it shall
pay an amount equal to such refund, within 30 days after receipt thereof, to the
Stockholders in accordance with the percentage of the outstanding shares of
Company stock owned by each Stockholder on the last day of any applicable period
to which the refund relates. If the Stockholders receive a refund of any income
tax (including penalties and interest) as to which they have previously been
indemnified by the company, they shall, within 30 days after receipt thereof,
remit an amount equal to such refund to the Company.
4.6 Notice and Control of Proceedings. The Company and the Stockholders
---------------------------------
agree that (i) within 10 days after any of such persons receives written notice
of any income tax examinations, claims, settlements, proposed adjustments or
related matters that may affect in any way the income tax liability of a party
under this Agreement, such person shall provide written notice thereof to such
each other party hereto, and (ii) the party or parties who would be responsible
<PAGE>
for the payment of the applicable taxes if the matter in question were to be
resolved adversely shall be entitled, in his or its reasonable discretion and at
his or its sole expense, to handle, control and compromise or settle the defense
thereof, so long as such party or parties are acting diligently and in good
faith. Such party or parties shall keep the other party(ies) apprised of the
status thereof and shall consult with such other party(ies) concerning the
conduct of the defense thereof. Notwithstanding the foregoing, however, the
party handling such matters shall not compromise or settle any matter which
could adversely affect the tax liability of another party without such other
party's prior written consent, which shall not be unreasonably withheld. The
parties hereto shall execute all instruments required to effectuate the intent
of this Section 4.6.
4.7 Cooperation. The parties will make available to one another, as
-----------
reasonably requested, and to any taxing authority, all information, records or
documents relating to the liability for taxes covered by this Agreement and will
preserve any such information, records or documents until the expiration of the
applicable statute of limitations or extensions thereof. The party requesting
such information shall reimburse the other party for all reasonable out-of-
pocket costs incurred in producing such information.
4.8 Costs. Except as otherwise provided herein, each party shall bear his
-----
or its own costs in administering this Agreement.
4.9 Conduct of the Company in the Ordinary Course of Business. From the
---------------------------------------------------------
date hereof until the Termination Date, the business of the Company will be
conducted in the ordinary course, consistent with past practices (including,
without limitation, its receivables collection and expense payment practices).
ARTICLE V
COLLECTION OF ACCOUNTS RECEIVABLE
5.1 Collection and Disbursement. The Stockholders appoint the Company to
---------------------------
act as their agent to collect the accounts receivable to be transferred to the
Stockholders pursuant to Section 2.2, and to disburse such collected amounts to
the Stockholders (pro rata in accordance with the relative number of shares of
stock of the Company held by each Stockholder as of the Termination Date). Such
disbursements shall be made on a quarterly basis, payable within 15 days after
the end of each calendar quarter in which any of said accounts receivable are
collected, without interest. Each such payment shall be accompanied by a report,
in reasonable detail, listing the accounts receivables collected, the allocation
among the Stockholders, and the accounts receivable remaining outstanding as of
the end of such quarter.
5.2 Sequential Collection. For purposes of determining priority of payment
---------------------
when the Company receives payments from customers whose accounts receivable are
being transferred pursuant to Section 2.2, unless otherwise specifically
indicated by the customer, any payment received by the Company from a customer
shall be credited to the oldest outstanding accounts receivable of that
customer, based upon invoice date.
5.3 Collection Efforts. Unless specifically requested by the Stockholders,
------------------
and unless full costs of collection are advanced by the Stockholders, the
Company shall not be obligated to use extraordinary means to collect the
transferred accounts receivable. Extraordinary means in this context shall be
<PAGE>
deemed to include bringing a legal action or retaining a collection firm to
effect collection of an unpaid account.
ARTICLE VI
MISCELLANEOUS
6.1 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which counterparts collectively
shall constitute an instrument representing the Agreement between the parties
hereto.
6.2 Construction of Terms. Nothing herein expressed or implied is
---------------------
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors, any
rights or remedies under or by reason of this Agreement.
6.3 Intent of Parties. It is the parties' intent that the liability for
-----------------
income taxes arising from the operations of the Company will be borne by the
Stockholders for all periods through and including the S Short Year and by the
Company for periods beginning with the C Short Year, and this Agreement shall be
construed so as most equitably to achieve such intent.
6.4 Governing Law. This Agreement between the parties hereto shall be
-------------
governed and construed in accordance with the substantive laws of the State of
Georgia without regard to its choice of law rules.
6.5 Severability. In the event that any one or more of the provisions of
------------
this Agreement shall be held to be illegal, invalid or unenforceable in any
respect, the same shall not in any respect affect the validity, legality or
enforceability of the remainder of this Agreement, and the parties shall use
their best efforts to replace such illegal, invalid or unenforceable provisions
with an enforceable provision approximating, to the extent possible, the
original intent of the parties.
6.6 Notices. Unless otherwise provided, any notice required or permitted
-------
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery or telecopy (receipt confirmed, with a copy to be
sent by reputable overnight courier as set forth herein) to the party to be
notified, or one business day after delivery to a reputable overnight courier,
postage prepaid, and addressed to the party to be notified at the addressed
indicated for such party on the signature pages hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
6.7 Amendments and Waivers. Any term of this Agreement may be amended,
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of each of the parties hereto; provided, however, that
no consent of the Company shall be effective unless approved by a majority of
the disinterested members of its Board of Directors.
6.8 Full Understanding. Each Stockholder represents and agrees that such
------------------
Stockholder fully understands his or her right to discuss all aspects of this
Agreement with such Stockholder's private attorney, and that to the extent, if
<PAGE>
any, that the Stockholder desired, has availed himself or herself of such right.
Each Stockholder further represents that he or she has carefully read and fully
understands all of the provisions of this Agreement, that such Stockholder is
competent to execute this Agreement, that the Stockholder's agreement to execute
this Agreement has not been obtained by any duress, that he or she freely and
voluntarily enters into it, and that he or she has read this Agreement in its
entirety and fully understands the meaning, intent and consequences of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
INTERNATIONAL COMPUTEX, INC. Address of Company:
5500 Interstate North Parkway, Suite 507
By:_____________________________ Atlanta, Georgia 30328-4662
Title:__________________________ Attention: Chief Executive Officer
STOCKHOLDERS:
/s/ Haim E. Dahan
__________________________ 5500 Interstate North Parkway, Suite 507
Haim E. Dahan Atlanta, Georgia 30328-4662
/s/ Michael J. Galvin
__________________________ 5500 Interstate North Parkway, Suite 507
Michael J. Galvin Atlanta, Georgia 30328-4662
/s/ Peter W. Jeng
__________________________ 5500 Interstate North Parkway, Suite 507
Peter W. Jeng Atlanta, Georgia 30328-4662
/s/ James L. McAlarney
__________________________ 5500 Interstate North Parkway, Suite 507
James L. McAlarney Atlanta, Georgia 30328-4662
/s/ Patricia Taxbury Salem
__________________________ 5500 Interstate North Parkway, Suite 507
Patricia Tuxbury Salem Atlanta, Georgia 30328-4662
<PAGE>
OFFICE BUILDING LEASE
THIS LEASE, made this 3/rd/ day of January, 1994, by and between RIVER
EDGE ONE ASSOCIATES, LTD. (hereinafter called "Lessor"), and ICI, INTERNATIONAL
COMPUTEX, INC., A _____________ corporation (hereinafter called "Lessee").
FOR AND IN CONSIDERATION of the mutual covenants and conditions contained
herein, the parties hereto do hereby agree as follows:
1. PREMISES
Lessee desires to lease from Lessor approximately 990 rentable square feet in
Suite 507 as outlined by the floor plan. Exhibit "A," (hereinafter referred to
as the "Premises") in the building known as River Edge One, 5500 Interstate
North Parkway, Atlanta , Georgia 30328-4662, as such building is more fully
and particularly described in Exhibit "B"; such exhibits attached hereto are
incorporated herein by reference.
2. TERM
The term of this Lease (hereinafter called "Term") shall be one (1) year
commencing on January 1, 1994 (hereinafter called "Commencement Date"), and
expiring at 11:59 p.m. on December 31, 1994, except as otherwise provided
herein.
3. BASE RENTAL
Lessee agrees to pay Lessor a Base Rental as follows:
PSF Monthly Annually
--- ------- --------
January 1, 1994-Decmeber 31, 1994 $14.00 $1,155.00 $13,860.00
Each monthly installment shall be due and payable promptly on the first day of
each month, in advance and without offset, deduction, or prior demand, during
the Term of this Lease. Monthly installments of Base Rent shall be payable to
RiverEdge One Associates, Ltd., c/o TMW Real Estate Management Inc., 5500
Interstate North Parkway, Suite 220, Atlanta, Georgia 30328-4662.
In the event that the lessee shall fail to pay monthly installment within five
(5) days of the due date, a late charge of five percent (5%) of the monthly Bas
Rental, with a minimum of twenty dollars ($20.00) per month, shall be added to
the Base Rental and paid to the Lessor for each such late payment and the same
shall be treated as additional rent. Should Lessee present a check to Lessor
that is returned from Lessee's bank for any reason, Lessor reserves the right to
ask for payment in the form of certified funds. Lessee agrees to pay Lessor
interest on all Base Rental, additional rental or other sums due hereunder, at
the rate of twelve percent (12%) per annum (or the maximum rate permitted by
applicable law, whichever is less), not paid when such amounts are due and
payable.
4. SECURITY DEPOSIT
Prior to occupancy, Lessee shall pay to Lessor, as a security deposit, the
amount of One Thousand One Hundred and Fifty-Five and No/100 Dollars ($1,155.00)
(the "Security Deposit"). The Security Deposit is refundable to Lessee within
thirty (30 days following the satisfactory completion of all the terms of the
Lease and provided that no defective conditions, other than the normal wear and
tear, are left not repaired by the Lessee, and the lessee is not otherwise in
default under this lease. Lessor may, but shall not be required to, apply all or
a portion of the Security Deposit toward sums
1
<PAGE>
due to Lessor by the Lessee hereunder, and any portion of the Security Deposited
by Lessor for such purposes shall be restored by Lessee within fifteen (15) days
after written demand therefore from Lessor. Any portion of the Security Deposit
not required to reimburse Lessor for Lessor's expense in repairing defective
conditions caused by Lessee or for paying amounts owed by Lessee to lessor,
shall be refunded to Lessee as provided above.
5. IMPROVEMENTS, REPAIRS BY LESSOR
Prior to commencement to the Term of this Lease, Lessee will, at its expense,
unless otherwise stated herein, complete, alter, renovate and/or decorate the
Premises to conform to the floor plan attached hereto as Exhibit "A" and any
specifications shown thereon. Throughout the Term of this Lease or any renewal
thereof, Lessor shall not otherwise be required to make any repairs or
improvements to Premises, except repairs necessary for safety and tenentability,
and customary office building maintenance.
6. DELIVERY OF POSSESSION TO LESSEE BY LESSOR
If Lessor, for any reason whatsoever, fails to deliver possession of Premises to
lessee at the commencement of the Term as above-specified, this Lease shall not
be void or voidable nor shall Lessor be liable to Lessee for any loss or damage
resulting therefrom; but in that event, there shall be a proportionate reduction
of rent covering the period between commencement of the Term as specified above
and the time when Lessor can deliver possession.
7. USE OF PREMISES
Lessee shall use the Premises only for business or professional office purposes
and shall not use the Premises for any illegal purpose, or violate any statute,
regulation, rule, or order of any governmental body, or create or allow to exist
any nuisance, or trespass, or do any act in or about the Premises, or bring
anything onto or in the Premises or the building containing the same which will
in any way increase the insurance on the Premises or said building, deface or
injure the Premises or such building, or overload the floor of the Premises.
8. REPAIRS BY LESSEE
Lessee, during the Term of this Lease or any extension or renewal of this Lease,
shall, at its sole cost and expense, make all repairs as shall be reasonably
necessary to keep the Premises in good repair and condition, normal wear
excepted. Lessee further agrees that all damage or injury of whatever nature
done to the Premises by the Lessee or by any person in or upon the Premises
except the Lessor, Lessor's agents, servants and employees, shall be repaired by
Lessee at its sole cost and expense.
Lessor shall maintain the structural portions of the building, including the
basic plumbing, heating and electrical systems installed in accordance with
similar building in Atlanta, but taking into consideration the age of the
building, unless the condition requiring such maintenance is caused in part or
in whole by the act, neglect, fault or omission of any duty by Lessee, its
agents, servants, employees or invitees, in which case Lessee shall pay lessor
the reasonable cost of such maintenance or repairs.
Lessor shall retain duplicate keys to all doors of the Premises and Lessor and
its agents, employees and independent contractors shall have the right to enter
the premises at reasonable hours to make repairs, additions, alterations, and
improvements that are required by this Lease or are otherwise performed with
lessee's prior written consent, to exhibit the Premises to prospective
purchasers, lenders or tenants but Lessor may enter to exhibit the Premises to
prospective tenants only during the last twelve (12) months of the Term or
following any event of default for as long as such event of default remains
uncured, and to inspect the Premises to ascertain that Lessee is complying with
all of its covenants and obligations hereunder. Lessor shall also have the right
to enter the Premises
2
<PAGE>
at reasonable hours to install, maintain, repair and replace pipes, wires,
cables, duct work, conduit and utility lines through hung ceiling space and
column space within the Premises. Lessor agrees to use reasonable efforts to
minimize any interference with Lessee's business caused by such entry. Lessor
shall, except in the case of an emergency, afford Lessee such prior notification
of an entry into the Premises as shall be reasonably practicable under the
circumstances, for the purpose of exhibiting the Premises to a prospective
purchaser or tenant. During such time as such work is being carried on in or
about the Premises, payments provided herein shall not abate unless Premises or
any portion thereof are rendered unusable for more than two (2) business days
within any sixty (60) day period, and Lessee waves any claim or cause of action
against Lessor for damages by reason of interruption of Lessee's business or
loss of profits therefrom because of the prosecution of any such work or any
part thereof.
9. ALTERATIONS
Lessee shall make no alterations or other improvements to the Premises without
Lessor's prior written consent. Unless otherwise agreed, all such improved
alterations and other improvements shall be made by Lessor at Lessee's sole
expense and shall become the property of Lessor and be surrendered with the
Premises upon the expiration of this Lease.
Lessor may, at Lessor's option, require Lessee to remove any or all such
alterations, improvements, decorations and furnishings and repair any damage to
the Premises resulting from such alterations.
In the event that local, state or Federal government by legislative,
administrative, or judicial action shall in any legally enforceable manner by
ordinance, act, statute, order, mandate, rule, regulation or otherwise require
during the Term, any alteration of, or improvement to any portion of the
building, determined by Lessor's Independent Accountants to be capital in nature
based upon the application of generally accepted accounting practices ("Mandated
Alterations"), then the annual rent per square foot shall be increased as
follows:
(i) A portion of the cost of the Mandated Alterations shall be allocated
to the Lessee based upon the proportion that the number of square
feet of rentable area of the Premises bears to the number of square
feet of rentable area of the building.
(ii) Lessor's Independent Accountant shall amortize the cost over a
period of not less than five (5) years in accordance with generally
accepted accounting standards and allocate the annual amortization
of the cost to the net rentable area of the building in terms of
annual cost per square foot of rentable area (the "Amortized Annual
Cost").
(iii) Effective on the first day of the month following notice from Lessor
of the computation of he Amortized Annual Cost of the Mandated
Alterations, the Base Rent above shall be increased by the Amortized
Annual Cost, but not to exceed fifteen cents ($0.15) per square foot
multiplied by the rentable area of the Premises. The base monthly
rent shall be increased by one twelfth of such amount.
Notwithstanding the foregoing, Lessee shall not be obligated to contribute to
the cost of any Mandated Alteration unless such Mandated Alteration is the
result of an adoption of a new or changed ordinance, act, statute, order,
mandate, rule or regulation or interpretation thereof not existing on January 1,
1994.
10. RELOCATION
Upon ninety (90) days' written notice to the Lessee, Lessee may substitute for
the leased Premises other Premises in the building (the "New Premises") in which
event the New premises shall be deemed to be the leased Premises for all
purposes hereunder, provided:
3
<PAGE>
(a) The New Premises shall be similar in area and appropriateness for
Lessee's purposes.
(b) Lessor shall, at Lessor's sole expense, conform to the leasehold
improvements in the New Premises as closely as practicable to the
improvements then existing in the Premises.
(c) Lessor shall reimburse Lessee for all out-of-pocket expenses directly
resulting from such relocation, including reasonable moving expenses,
but in no event shall Lessor be responsible for any interruption in
Lessee's business caused by such relocation.
(d) Within thirty (30) days of Lessor's request, Lessee shall execute an
amendment to this Lease documenting the substitution of the New
premises under this Lease
11. SERVICES TO LESSEE
Lessor reasonably agrees to provide Lessee, as Lessor reasonably deems
necessary, subject to limitations contained in any governmental control now or
hereafter imposed or matters beyond Lessor's control and subject to cessation
for reasonable necessity, the following services:
(a) Heating and air-conditioning service daily on Monday through Friday,
inclusive, except for holidays observed by national banks as legal
holidays, from 8:00a.m. to 6:00 p.m., and on Saturdays, if not a
holiday, from 8:00 a.m. to 1:00 p.m.
(b) Electric current for building, standard tenant lighting and
small business machinery only from electric circuits designated by
Lessor for Lessee's use. Lessee will not use any electrical equipment
which in Lessor's opinion will overload the wiring installations or
interfere with the reasonable use thereof by other users in the
building. Lessee will not, without Lessor's prior written consent in
each instance, connect any items such as non-building standard
lighting, vending equipment, printing or duplicating machines,
computers (other than desktop word processors and personal computers),
auxiliary air conditioners, and other computer-related equipment to
the electrical system of the Premises, or make any alteration or
addition to the system. If any additional circuitry or wiring is
required by Lessee, and Lessor approves installation of the same in
writing, such works shall be performed at Lessee's expense by Lessor's
electrician or under Lessor's control or supervision, and Lessee shall
pay Lessor for such additional work as billed. In the event the Lessee
utilizes electric current or other utilities in excess of the amount
which would be typically utilized by normal business office use of the
Premises, then Lessor shall have the right to charge Lessee as
additional rent a reasonable sum as reimbursement for the direct cost
of such additional use or services. In the event of a disagreement as
to the reasonableness of the amount of such additional rent, the
opinion of a qualified, local and independent professional engineer
selected by Lessor in good faith shall be binding upon Lessor and
lessee. Payment for such additional electrical power shall be deemed
additional rent due from Lessee.
(c) General cleaning and janitorial service five times per week.
(d) Reasonable quantities of water to lavatories, toilets and water
fountains in or appurtenant to the Premise.
12. LIABILITY OF LESSOR
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Excepting for the willful misconduct or gross negligence of Lessor, its agents
and employees, Lessor shall not be liable to Lessee in any manner whatsoever
for failure or delay in furnishing any service provided for in this Lease, and
no such failure or delay to furnish any service or services by Lessor shall be
an actual or constructive eviction of Lessee nor shall any such event operate
to relieve Lessee from the prompt and punctual performance of each and all
covenants to be performed herein by Lessee; nor shall Lessor be liable to
Lessee for damage to person or property caused by defects in the cooling,
heating, electric, water, elevator or other apparatus or systems or by water
discharged from sprinkler systems, if any, in the Building; nor shall Lessor
be liable to Lessee for the theft, or loss of any property of Lessee whether
from the Premises or any part of the Building or property adjoining the
Building containing the Premises. Lessor agrees to make reasonable efforts to
protect Lessee from interference or disturbance of third persons including
other tenants, however, Lessor shall not be liable for any such interference
or disturbance whether caused by another tenant or tenants or Lessor or other
person, not shall Lessee be relieved form any obligation herein because of
such interference, disturbance or breach.
13. LESSOR'S RIGHT TO ENTER PREMISES
Lessee shall not change the locks on any entrance to the Premises. Upon
Lessee's written request to Lessor, Lessor will make a reasonable change of
locks on behalf of Lessee at Lessee's sole cost and expense. Lessor and its
agents, employees, and contractors shall have the right upon reasonable
advance notice to Lessee (except in emergencies) to enter the Premises to make
necessary repairs, additions, alterations, and improvements to the Premises or
Building, including, without limitation, the erection, use and maintenance of
pipes and conduits and to show the Premises to prospective tenants and
purchasers.
14. DEFAULT
The occurrence of any of the following shall constitute an event of default
hereunder by Lessee:
(a) The Base Rent payable under this Lease (including any additional rent) or
any sum of money due hereunder is not paid when due, and such failure to
pay continues for more than five (5) days after Lessee's receipt of
notice thereof from t he Lessor. Provided, however, that the Lessor shall
not be required to provide Lessee with the notice and the five-day period
set forth in this subparagraph more than three (3) times during the Term
of this Lease, and the forth and each subsequent failure to timely pay
such sums shall immediately constitute and event of default hereunder.
(b) The Premises are deserted, vacated, or not used as regularly and
consistently as would normally be expected for similar premises put to
the same or similar purposes as set forth herein, even though the Lessee
continues to pay the stipulated Base Rent, and such condition is not
corrected within ten (10) days of Lessee's receipts of notice thereof
from Lessor to Lessee. Provided, however, that Lessor shall not be
required to provide the Lessee with the notice and ten (10) day period
set forth in this subparagraph more than once during the term of this
Lease, and the second, and each subsequent, occurrence of such condition
shall immediately constitute an event of default hereunder.
(c) Lessee or any guarantor of this Lease files any petition for debt relief
under any section or chapter of the national or federal bankruptcy code
or any other applicable federal or state bankruptcy, insolvency or other
similar act.
(d) Any petition is filed against Lessee under any section or chapter of the
national or federal bankruptcy code or any other applicable federal or
state bankruptcy, insolvency or other similar act, and such petition is
not dismissed within sixty (60) days after the date of such filing.
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(e) Lessee or any guarantor of this Lease shall become insolvent or transfer
property to defraud creditors or there shall be a material adverse change
in the net worth or credit rating of the Lessee or such guarantor.
(f) Lessee makes material misrepresentations to lessor prior to or
contemporaneously with the execution of this Lease.
(g) Lessee or any guarantor of this Lease shall make an assignment for the
benefit of creditors.
(h) A receiver is appointed for any of the for any of the assets of Lessee or
any guarantor of the Lease, and such receiver is not removed within sixty
(60) days of Lessee's receipt of notice from Lessor to obtain such
removal.
(i) A lien is filed against the Premises or Lessor's estate therein by reason
of any work, labor services or materials performed or furnished, or
alleged to have been performed or furnished, to Lessee or anyone holding
the Premises by, through or under Lessee, and Lessee fails to cause the
same to be vacated and canceled of record, or bonded off in accord with
the provisions of this Lease, within twenty (20 days of the filing date
thereof.
(j) Lessee fails to observe, perform and keep each and every of the
covenants, agreements. provisions, stipulations and conditions contained
in this Lease to be observed, performed and kept by Lessee, including
without limitation the "Rules and Regulations" for the project of which
the Premises is a part, and unless otherwise specified herein, Lessee
persists in such failure for twenty (20 days after receipt of notice by
Lessor requiring that Lessee correct such failure.
15. REMEDIES
Upon the occurrence of any material default by Lessee, Lessor shall have the
option to do and [perform any one or more of the following:
(a) Termination of Lease- Terminate this Lease, in which event Lessee shall
immediately surrender the Premises to Lessor. If Lessee shall fail to do
so, Lessor may, without notice and prejudice to any other remedy
available, enter and take possession of the Premises and remove Lessee or
anyone occupying the Premises and its effects without being liable to
prosecution or any claim for damages. In the event of termination of this
Lease, Lessee shall be responsible to Lessor for (i) all payments due
under this Lease prior to the date of termination, (ii) all costs
incurred by Lessor in connection with such termination, and (iii) the
entire amount of Base Rent, Additional Rents and other charges due
hereunder for the remainder of the Term, with such difference discounted
to its present value by using a discount factor of 6%. Such amount shall
be paid by Lessee to Lessor immediately upon demand by Lessor and shall
constitute liquidated damages and not a penalty or forfeiture (Lessee and
Lessor agree that the actual damages are impossible to ascertain and that
the amount described above is a reasonable estimate thereof). If Lessor
elects to terminate this Lease, Lessee's liability to Lessor for damages
shall survive such termination.
(b) Lessor may correct such default and Lessee shall reimburse Lessor upon
demand for the cost incurred by Lessee in curing such default.
(c) Reletting of Premises- Enter upon and take possession of the Premises as
agent of Lessee without terminating (termination shall only occur by
written notice of termination from lessor to Lessee) this Lease and
without being liable to prosecution or any claim for damages. Lessor may
relet the Premises and in that connection may make any suitable
alterations or refurb***************************************************
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**********************************************n this Lease, and upon
such other terms (including the granting of concessions) as Lessor solely
determines to be acceptable. If Lessor elects to reenter and relet all or
any portion of the Premises Lessor shall apply the rent so elected as
follows:
(1) first, to any amount due hereunder other than the Base Rent and
Additional Rent;
(2) second, to the payment of costs and expenses of such reletting;
(3) third, to the payment of Rental and Additional Rent;
(4) forth, the residue shall be held and applied to future Base Rent and
Additional Rent due hereunder and if any such excess exists at the
termination of this Lease shall be paid over to Lessee.
No such reentry or taking possession of the Premises shall be construed as an
election on Lessor's part to terminate this Lease unless a written notice of
such intention be given to Lessee. Lessor, however, shall have no duty to relet
the Premises and Lessor's failure to do so shall not release Lessee's liability
for rent or damages. Lessor shall have the right to rent any other available
space in the building before reletting or attempting to relet the Premises.
16. CUMMULATIVE REMEDIES
The above-stated remedies of the Lessor shall be deemed to be in addition to,
and not in lieu of, any other rights and remedies provided Lessor either at law
or in inequity. No delay in enforcing the provisions of the Lease shall be
deemed to constitute a waiver of such default by Lessor, and the pursuit by
Lessor of one or more remedies shall not be deemed to constitute an election
against other remedies.
17. EFFECT OF TERMINATION OF LEASE
No termination of this Lease prior to the normal ending thereof by lapse of time
or otherwise shall effect Lessor's right to collect sums due hereunder for the
period prior to termination thereof.
18. ASSIGNMENT AND SUBLETTING
Lessee May not, without prior written consent of Lessor, which consent shall not
be unreasonably withheld, assign this lease or any interest hereunder, or sublet
Premises or any part thereof, or permit the use of Premises by any other party
other than Lessee or an entity which owns, is owned by, or is under common
ownership with lessee. In the event Lessee wishes to sublease the Premises or
assign the Lease, Lessor has the right, but not the obligation, to terminate the
lease effective as of the date Lessee vacates the Premises. Should Lessor elect
to terminate the Lease, Lessee shall be relieved of any liability or obligation
to pay rent beyond the date of termination. Consent to one assignment or
sublease shall not destroy or waive this provision, and all later assignments
and subleases shall become liable directly to Lessor for all obligations of
Lessee hereunder, without relieving Lessee's liability.
In making Lessor's determination to approve or disapprove a proposed assignment
or sublease hereunder, Lessor and Lessee agree that Lessor may withhold its
consent or any proposed assignment or sublease, and such withholding of consent
by Lessor will not be deemed to be unreasonable, (1) if the proposed assignee or
subtenant is not a reputable party or is a party who would (or whose use would)
detract from the character of the building, such as. Without limitation, a
dental, medical, or chiropractic office or a governmental office, or (2) if the
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proposed assignee or subtenant shall be engaged in a business in the Premises
which is not consistent with the then standards of the building or is not
permitted by or would contravene the provisions of this Lease, or (3) if the
Lease or use of the Premises or any portion thereof by such subtenant or
assignees will cause Lessor to be in violation of any restrictive use covenants
granted by Lessor to any other tenant in the building in such tenants' lease, or
(4) if, in the case of a proposed assignment or sublease the proposed assignee
is not of sufficient financial worth to perform its obligations under this lease
as such obligations become due; provided, however, it is understood and agreed
that the reasons outlined above in this sentence are not intended, and shall not
be construed, to be an exclusive list of reasonable basis upon which Lessor may
withhold its consent and Lessor reserves the right to disapprove of a proposed
assignment or sublease by virtue of such other reasonable bases.
Upon execution of any sublease or assignment approved by Lessor under this
Article 18, a fully-executed counterpart of the sublease or assignment shall be
promptly delivered to Lessor by Lessee.
A change, whether voluntary, involuntary, or by operation of law, or a merger,
consolidation or other reorganization of more than 49% ownership in Lessee shall
be deemed an voluntary assignment of this Lease and subject to the provisions of
Article 18.
19. DESTRUCTION OR DAMAGE TO THE PREMISES
If the Premises are totally destroyed (or so substantially damages as to be
untenantable) by storm, fire, earthquake, or other casualty caused by the act or
failure to act by the Lessee, and the Premises cannot in the judgment of Lessor
be restored by the Lessor within 120 days, this Lease shall terminate as of that
date. If the Premises are damaged but not rendered wholly untenantable by any
such casualty, rental shall abate in proportion as the Premises have been
damaged and lessor shall at Lessor's option (i) restore the Premises as speedily
as practicable to substantially the same condition as existed immediately
preceding such casualty, whereupon full rent shall recommence, or (ii) notify
Lessee within thirty (30) days that this Lease is terminated.
20. REMOVAL OF FIXTURES
Lessee may (of not in default hereunder) prior to the expiration of this Lease,
or any extension thereof, remove all unattached and movable personal property
and equipment which Lessee has placed in the Premises, provided Lessee repairs
all damages to premises caused by such removal. All personal property of Lessee
remaining on the Premises after the end of the Term shall be deemed conclusively
abandoned, notwithstanding that title to or a security interest in such personal
property in any manner deems it proper, in its sole discretion. Lessee hereby
waives and releases any claim against Lessor arising out of the removal or
disposition of such personal property. Lessee shall reimburse Lessor the cost
of removing such personal property.
21. LEASING BROKER/AGENT'S COMMISSION
Lessor And Lessee each represent to the other that they have dealt with no
broker, agent, or finder (hereinafter referred to as "Broker") in connection
with this Lease other than Broker as set forth in "Agent's Disclosure." Lessor
and Lessee hereby indemnify the other and agree to hold the other harmless from
and against any and all claims, causes, demands, losses, liabilities, fees.
Commissions, settlements, judgments, damages, expenses and fees (including
attorney's fees and court costs) in connection with any claim for commission,
fees compensation or other charge relating in any way to this Lease, or to the
consummations of the transactions contemplated hereunder, which may be made by
any person, firm or entity (other than Broker which shall be the responsibility
of Lessor) based upon any agreement or agreements made or alleged to have been
made by such party or its representative. The provisions of this paragraph
shall survive termination or expiration of this Lease.
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22. ATTORNEY'S FEES
If any rent owing under this Lease is collected by or through an attorney at
law, Lessee agrees to pay Lessor's reasonable attorney's fees and other
reasonable costs of collection.
23. ENTIRE AGREEMENT
This Lease, including any attachments made a part hereof, contains the entire
agreement of the parties and no representations, inducements, promises or
agreements, oral or otherwise, between the parties not embodied herein shall be
of any force or effect. No failure of Lessor to exercise any power given Lessor
hereunder or to insist upon strict compliance by Lessee of any obligation
hereunder or to insist upon strict compliance by Lessee of any obligation
hereunder, and no customer practice of the parties at variance with the terms
hereof shall constitute a waiver of lessor's right to demand exact compliance
with the terms hereof.
24. SUBORDINATION AND ATTORNMENT
Lessee agrees that this Lease shall be subject and subordinate to any mortgage,
security deed, loan deed or similar instruments now on paid Premises and to all
advances already made, or which may hereafter be made, on account of said
instruments to the full extent of all debts and charges secured thereby and to
any renewals or extensions of all or any part thereof and to any such
instruments which any owner of said Premises nay hereafter at any time elect to
place on said Premises, and Lessee agrees upon request to hereafter execute any
paper or papers which counsel for Lessor may deem necessary to accomplish that
end and, in default of Lessee so doing, that Lessor is hereby empowered to
execute such paper or papers in the name of Lessee, and as the act and deed of
Lessee, and this authority is hereby declared to be coupled with an interest and
not revocable. It is further understood and agreed, however, that neither such
subordination, nor any foreclosure of any such instrument, shall affect Lessee's
right to continuing possession of the Premises under the terms of this Lease so
long as Lessee shall not default in the performance of Lessee's obligations
hereunder.
25. ESTOPPEL CERTIFICATE
Upon Lessor's request the Lessee shall execute, acknowledge, and deliver to the
Lessor, within ten (10) days from the date of said request: (a) a "mortgagee's
acceptance letter" and/or a statement in writing certifying that this Lease is
in full force and effect and continuing the dates to which the rent and any
other charges have been paid, and the statement so delivered to the Lessor may
be relied upon by any prospective purchaser of, or by any mortgagee upon, the
building of which the Premises are a part; and (b) the most recent financial
statements of Lessee and any guarantor of this Lease; and (C) an estoppel
certificate from any guarantor of this Lease certifying that said guaranty is in
full force and effect.
26. NO ESTATE IN LAND
This Lease shall create the relationship of landlord and tenant between Lessor
and Lessee; no estate shall pass out of Lessor, Lessor has only a usufruct, not
subject to levy and sale and not assignable by Lessee except by Lessor's
consent.
27. RIGHTS CUMMULATIVE
All rights, powers and privileges conferred hereunder upon parties hereto shall
be cumulative but not restrictive to those given by law.
28. HOLDING OVER
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If Lessee remains in possession after expiration of the Term hereof, without
Lessor's acquiescence and without any distinct written agreement of the parties,
Lessee shall be a tenant at sufferance, and there shall be no renewal of this
Lease by operation of law. During any such holdover period, Lessee shall pay
holdover rent equal to 200% of the last Base Rental amount due from Lessee prior
to such holdover.
29. SURRENDER OF PREMISES
At termination of this Lease, Lessee shall surrender Premises and keys thereof
to Lessor in same condition as at commencement of Term, normal wear and tear
only excepted.
30. SERVICE
All notices under this Lease shall be sent to Lessee:
ICI
5500 Interstate North Parkway
Suite 507
Atlanta, Georgia 30328-4662
and to Lessor:
RiverEdge Associates, Ltd.
C/o TMW Real Estate Management Inc.
5500 Interstate North parkway
Suite 220
Atlanta, Georgia 30328-4662
31. DAMAGE OR THEFT OF PERSONAL PROPERTY
Lessee agrees that all personal property brought into the Premises shall be at
the risk of the Lessee only and that the Lessor shall not be liable for these
thereof or any damages thereto occasioned from any act of any co-tenant, or
other occupants of said Building or any other person.
32. RULES AND REGULATIONS
The rules and regulations with regard to the Building of which the Premises are
a part, annexed hereto, and all rules and regulations which Lessor may
hereafter, from time to time, adopt and promulgate for the government and
management of said Building, are hereby made a part of this lease as Exhibit "C"
and shall, during the Term of this Lease, be in all things observed and
performed by lessee and by Lessee's employee's, servants and agents.
33. EMINENT DOMAIN CLAUSE
It is mutually agreed that if the whole or any part of the Premises shall be
taken by Federal, State, City or County authority for public use, or under any
statute, or by right of eminent domain, then when possession shall be taken
thereunder of said Premises, or any part thereof, the Term hereby granted and
all rights of the Lessee hereunder shall immediately cease and terminate. It is
expressly agreed that the Lessee shall not have any right or claim of any award
made to or received by Lessor of such taking.
34. DEFINITIONS
"LESSOR" AS USED IN THIS Lease shall include first party, his heirs,
representative, assigns and successors in title to Premises. "Lessee shall
include second party, his heirs and
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representatives, and if this lease shall be validly assigned or sublet, shall
include also Lessee's assignees or sublessee, as to premises covered by such
assignment or sublease. "Agent" shall include third party, his successor,
assigns, heirs and representatives. "Lessor", "Lessee" and "Agent" include male
and female, singular or plural, corporation, partnership or individual, as may
fit the particular parties.
35. INDEMNIFICATION
Subject to the other provisions of this Lease, Lessee hereby indemnifies Lessor
from and agrees to hold Lessor harmless against, any and all liability, loss,
cost, damage or expense, including, without limitation. Court costs and
reasonable attorney's fees, imposed on Lessor by any person whomsoever, caused
by the negligence or willful misconduct of Lessee, or any of its partners,
employees, contractors, servants, agents, subtenants, or legal representatives.
Subject to the provisions of this Lease, Lessor hereby indemnifies Lessee from,
and agrees to hold Lessee harmless against, any and all liability, loss, cost,
damage or expense, including without limitation, court costs and reasonable
attorney's fees, imposed on Lessee by any person whomsoever, caused by the
negligence or willful misconduct of Lessor or any of its partners, employees,
contractors, servants, agents, or legal representatives. The provisions of this
Article 35 shall survive the expiration or any termination of this Lease.
36. INSURANCE
During the Term of this Lease, and any extension and renewal thereof, Lessee,
at its sole cost and expense, shall carry and maintain, and shall deliver to
Lessor a certificate of insurance evidencing such coverage both prior to taking
possession of the Premises and annually thereafter, the following types of
insurance with insurance companies rated no less than A, Class VI as in the
current edition of Best's Guide:
(a) Property Insurance on the Special or All-Risk From, in amounts
sufficient to replace Lessee's personal property and all improvements
to the Premises on a Replacement Cost New basis.
(b) Commercial General Liability Insurance with limits of no less than
$2,000,000 per occurrence, $2,000,000 General Aggregate and $2,000,000
Completed Operations Aggregate.
(c) Worker's Compensation Insurance with liability limits required by the
laws of the state in which the Premises is located.
Such insurance shall, to the extent permitted by law, name lessor as an
additional insured and provide for thirty (30) days prior written notice to
Lessor prior or any modification or termination of said insurance.
Lessor and Lessee shall each have included (so long as commercially reasonable
and obtainable) in all policies of all risks, fire, extended coverage, business
interruption and other insurance respectively obtained by them covering the
Premises, the building and contents therein, a waiver by the insurer of all of
subrogation against the other in connection with any loss or damage thereby
insured against. Any additional premium for such waiver shall be paid by the
primary insured. To the full extent permitted by law, Lessor and Lessee each
waives all right of recovery against the other (and any officers, directors,
partners, employees, agents, and representatives of the other) for, and agrees
to release the other from liability for, loss or damage to the extent such loss
or damage is covered by valid and collectible insurance in effect covering the
party seeking recovery at the time of such loss or damage would be covered by
the insurance required to be maintained under this Lease by the party seeking
recovery. If the release of either party, as set forth in the immediately
preceding sentence, should contravene
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any law with respect to exculpatory agreements, the liability of the party in
question shall be deemed not released but shall be secondary to the liability of
the other's insurer.
37. AGENT'S DISCLOSURE
McWhirter Realty Corporation represented the Lessor in this transaction and will
be compensated by the Lessor by separate agreement.
38. HAZARDOUS WASTE
The term "Hazardous Substances", as used in this Lease shall mean pollutants,
contaminants, toxic or hazardous wastes, or any other substances, the removal of
which is required or the use of which is restricted, prohibited or penalized by
any "Environmental Law", which term shall mean any federal, state or local law
or ordinance relating to pollution or protection of the environment. Lessee
hereby agrees that (i) no activity will be conducted on the Premises that will
produce any Hazardous Substance, except for such activities that are part of the
ordinary course of Lessee's business (the "Permitted Activities"), provided such
Permitted Activities are conducted in accordance with all environmental laws and
have been approved in advance, in writing, by Lessor; (ii) the Premises will
not be used in any manner for the storage of any Hazardous Substances except for
the temporary storage of such materials that are used in the ordinary course of
Lessee's business *the "Permitted Materials"), provided such Permitted materials
are properly stored in a manner and location meeting all Environmental Laws and
approved in advance, in writing, by Lessor; (iii) Lessee will not permit any
Hazardous Substances to be brought onto the Premises, except for the permitted
materials described above, and if so brought or found located thereon, the same
shall be immediately removed, with proper disposal, and all required cleanup
procedures shall be diligently undertaken pursuant to all Environmental Laws,
If, at any time during or after the Term of the Lease, the Premises are found to
be so contaminated or subject to said conditions, Lessee agrees to indemnify and
hold Lessor harmless from all claims, demands, actions, liabilities, costs,
expenses, damages and obligations of any nature arising from, or as a result of,
the use of the Premises by Lessee. The foregoing indemnification shall survive
the termination or expiration of this Lease.
39. EXCULPATION OF LESSOR
Lessor's obligations and liability to Lessee with respect to this Lease shall be
limited solely to Lessor's interest in the Building, and neither Lessor nor any
joint ventures (if any), partners, officers, directors, employees or
shareholders of or in lessor shall have any personal liability whatsoever with
respect to this Lease.
40. TELEPHONE SERVICE
Lessee acknowledges and agrees tat securing and arranging for telephone service
to the Premises is the sole responsibility of Lessee and that Lessor has no
responsibility or obligation to provide or arrange such telephone service, nor
to permit installation of any facilities or equipment in the Building outside
the Premises in connection with providing telephone service to the Premises.
41. SIGNAGE
Lessor agrees that Lessee shall be listed on the Building directory at no cost
or expense to Lessee. Lessee shall not place any signs, decals or other
materials upon the windows or suite doors of the Premises nor on the exterior
walls of the Premises. Lessor agrees to provide Lessee, at Lessee's expense,
one building standard suite door tenant identification sign. Any additional
signage desired by the Lessee shall be approved, in writing, by Lessor and the
management company of the Building, which shall be granted in their sole
discretion.
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42. FORCE MAJEURE
In the event of a strike, lockout, labor trouble, civil commotion, act of God or
any other cause (collectively hereinafter called "Force Majeure") outside and
beyond Lessor's control, resulting in the impairment of Lessor's ability to
perform any obligation or provide any service hereunder, this Lease shall not
terminate except at Lessor's election, and Lessee's obligation to pay Base
Monthly Rental, additional rental and all other charges and sums due payable by
Lessee shall not be altered or excused and Lessor shall not be considered to be
in default under this lease or liable in damages to Lessee in any manner.
43. LIENS
Lessee shall keep the Premises, the building, and property upon which the
building is situated free from any liens or claims of lien arising out of work
performed, materials furnished or obligations incurred by, for or at the
instance of Lessee, its assignees and subtenants. Should any such lien or
claim of lien be filed an recorded, Lessee shall bond against or discharge the
same within ten days after written request of Lessor; provided that the Lessee
shall have the right to contest the validity of any lien or claim if the Lessee
shall first have posted a bond to insure that upon final determination of the
validity of such lien or claim the lessee shall immediately pay any judgment
rendered against it with all proper costs and charges, and shall have such lien
released without cost to Lessor.
Nothing contained in this Lease shall be deemed or construed as constituting the
consent or request of Lessor, expressed or implied, to any contractor,
subcontractor, laborer, mechanic, materialman for the performance of any labor
or the furnishing of any materials for any specific improvement, alteration or
repair of or to the Premises or any part thereof, nor as giving Lessee a right,
power or authority to contract for or permit there rendering of any services or
the furnishing of any materials that would give rise to the filing of any
mechanic's or materialman's lien or claim of lien against the Premises or the
Lessee's interest therein, the building or the property upon which the building
is located.
44. SPECIAL STIPULATIONS
Insofar as the following stipulations conflict with any of the foregoing
provisions, the following shall control: See Addendum of Special Stipulations
attached hereto and by reference incorporated herein.
[SIGNATURE APPEARS ON NEXT PAGE]
IN WITNESS WHEREOF, THE PARTIES HAVE HEREUNTO SET THEIR HANDS AND SEALS, IN
QUADRUPLICATE, THE DAY AND YEAR FIRST ABOVE WRITTEN.
LESSOR: RIVEREDGE ONE ASSOCIATES, LTD.
BY: TMW Real Estate management, Inc.,
its Authorized Agent
Signed, sealed, and delivered
in the presence of:
_____________________________ _______________________________________
13
<PAGE>
President
_________________________
Notary Public
LESSEE:
ICI, INTERNATIONAL CompuTex, INC.
Signed, sealed, and delivered
in the presence of:
_____________________________ _____________________________________
_________________________ Its: ____________________________________
Notary Public
ADDENDUM
SPECIAL STIPULATIONS
1. Lessor shall provide Lessee with a $1,980 tenant improvement allowance
which shall be used by Lessee to paint the Premises.
1. This Lease is subject to cancellation of the existing lease for the
Premises with Progressive Insurance Company.
14
<PAGE>
PARTITION PLAN
15
<PAGE>
EXHIBIT B
DESCRIPTION OF PROPERTY
All that tract or parcel of land lying and being in Landlots 205 and 210 of the
17/th/ District, Fulton County, Georgia, and being more particularly described
as follows:
TO FIND THE POINT OF BEGINNING, commencing at the point where the northern line
of Landlot 205 intersects the northwesterly line of the right-of-way of
Northside Drive (a 50-foot right-of-way); run thence south 22 degrees 33
minutes 43 seconds west along the northwesterly line of the right-of-way of said
Northside Drive a distance of 20.67 feet to a point; run thence south and
southwesterly along the northwesterly line of the right-of-way of said Northside
Drive and along the arc of a curve having a chord bearing south 34 degrees 52
minutes 02 seconds west for 76.91 feet, a distance of 77.05 feet to a point; run
thence south 41 degrees 20 minutes 49 seconds west along the northwesterly line
of the right-of-way of said Northside Drive a distance of 300.75 feet to a
point; run thence southwest and south along the westerly line of the right-of-
way of said Northside Drive and along the arc of a curve having a chord bearing
south 23 degrees 45 minutes 46 seconds west for 447.18 feet, a distance of
454.38 feet to a point; running thence southwest and south along the westerly
line of the right-of-way of said Northside Drive and along the arc of a curve
having a chord bearing south 00 degrees 27 minutes and 20 seconds east for
246.20 feet; a distance of 247.18 feet to a point; run thence south and
southwest along the westerly line of the right-of-way of said Northside Drive
and Interstate North Parkway (an 80-foot right-of way) and along the arc of a
curve having a chord bearing south 19 degrees 38 minutes 19 seconds west of
86.22 feet, a distance of 91.28 feet to a point; run thence south 52 degrees 56
minutes 58 seconds west along the westerly line of the right-of-way of said
Northside Drive and said Interstate North Parkway a distance of 25.91 feet to a
point; run thence southwest and south along the westerly line of the right-of-
way of said Interstate North Parkway and along the arc of a curve having a chord
bearing south 34 degrees 08 minutes 55 seconds west for 487.42 feet, a distance
of 496.27 feet to a point; run thence south 15 degrees 20 minutes 52 seconds
west along the westerly line of the right-of-way of said Interstate North
Parkway a distance of 55.29 feet to the POINT OF BEGINNING; FROM THE POINT OF
BEGINNING AS THUS ESTABLISHED, running thence south 15 degrees 20 minutes 52
seconds west along the westerly line of the right-of-way of said Interstate
North Parkway a distance of 260.00 feet to a point; running thence south and
southwest along the westerly line of the right-of-way of said Interstate North
Parkway and along the arc of a curve having a chord bearing south 44 degrees 39
minutes 19 seconds west for 893.61 feet, a distance of 933.81 feet to a right-
of-way monument; running thence south 73 degrees 57 minutes 46 seconds west a
distance of 72.42 feet to a point; running thence south 78 degrees 14 minutes 13
seconds west a distance of 238.65 feet to a point; running thence north 25
degrees 06 minutes 03 seconds east a distance of 473.09 feet to a point;
running thence north 67 degrees 39 minutes 10 seconds east a distance of 143.74
feet to a point; running thence north 37 degrees 26 minutes 01 seconds a
distance of 307.18 feet to a point; running thence north 55 degrees 00 minutes
00 seconds east a distance of 250.00 feet to a point; running thence north 72
degrees 52 minutes 58 seconds east a distance of 287.73 feet to the POINT OF
BEGINNING; being property containing 9.0 acres according to a Boundary Survey
prepared for Pope & Land Enterprises by D.E. Hill Engineers, Inc., bearing the
certification of R.L. Rhinehard, Georgia Registered Land Surveyor No. 1476,
date June 28, 1977, and last revised June 24, 1979.
EXHIBIT B
RIVEREDGE ONE EASEMENT
16
<PAGE>
All that tract or parcel of land lying and being in Landlots 205 and 210 of the
17/th/ District, Fulton County, Georgia, and being more particularly described
as follows:
TO FIND THE POINT OF BEGINNING, commencing at the point where the northern line
of Landlot 205 intersects the northwesterly line of the right-of-way of
Northside Drive (a 50-foot right-of-way); run thence south 22 degrees 33
minutes 43 seconds west along the northwesterly line of the right-of-way of said
Northside Drive a distance of 20.67 feet to a point; run thence south and
southwesterly along the northwesterly line of the right-of-way of said Northside
Drive and along the arc of a curve having a chord bearing south 34 degrees 52
minutes 02 seconds west for 76.91 feet, a distance of 77.05 feet to a point; run
thence south 41 degrees 20 minutes 49 seconds west along the northwesterly line
of the right-of-way of said Northside Drive a distance of 300.75 feet to a
point; run thence southwest and south along the westerly line of the right-of-
way of said Northside Drive and along the arc of a curve having a chord bearing
south 23 degrees 45 minutes 46 seconds west for 447.18 feet, a distance of
454.38 feet to a point; running thence southwest and south along the westerly
line of the right-of-way of said Northside Drive and along the arc of a curve
having a chord bearing south 00 degrees 27 minutes and 20 seconds east for
246.20 feet; a distance of 247.18 feet to a point; run thence south and
southwest along the westerly line of the right-of-way of said Northside Drive
and Interstate North Parkway (an 80-foot right-of way) and along the arc of a
curve having a chord bearing south 19 degrees 38 minutes 19 seconds west of
86.22 feet, a distance of 91.28 feet to a point; run thence south 52 degrees 56
minutes 58 seconds west along the westerly line of the right-of-way of said
Northside Drive and said Interstate North Parkway a distance of 25.91 feet to a
point; run thence southwest and south along the westerly line of the right-of-
way of said Interstate North Parkway and along the arc of a curve having a chord
bearing south 34 degrees 08 minutes 55 seconds west for 487.42 feet, a distance
of 496.27 feet to a point; run thence south 15 degrees 20 minutes 52 seconds
west along the westerly line of the right-of-way of said Interstate North
Parkway a distance of 55.29 feet to the POINT OF BEGINNING; FROM THE POINT OF
BEGINNING AS THUS ESTABLISHED, running thence south 15 degrees 20 minutes 52
seconds west along the westerly line of the right-of-way of said Interstate
North Parkway a distance of 260.00 feet to a point; running thence south and
southwest along the westerly line of the right-of-way of said Interstate North
Parkway and along the arc of a curve having a chord bearing south 44 degrees 39
minutes 19 seconds west for 893.61 feet, a distance of 933.81 feet to a right-
of-way monument; running thence south 73 degrees 57 minutes 46 seconds west a
distance of 72.42 feet to a point; running thence south 78 degrees 14 minutes 13
seconds west a distance of 238.65 feet to a point; running thence north 25
degrees 06 minutes 03 seconds east a distance of 473.09 feet to a point;
running thence north 67 degrees 39 minutes 10 seconds east a distance of 143.74
feet to a point; running thence north 37 degrees 26 minutes 01 seconds a
distance of 307.18 feet to a point; running thence north 55 degrees 00 minutes
00 seconds east a distance of 250.00 feet to a point; running thence north 72
degrees 52 minutes 58 seconds east a distance of 287.73 feet to the POINT OF
BEGINNING; being property containing 9.0 acres according to a Boundary Survey
prepared for Pope & Land Enterprises by D.E. Hill Engineers, Inc., bearing the
certification of R.L. Rhinehard, Georgia Registered Land Surveyor No. 1476,
date June 28, 1977, and last revised June 24, 1979.
17
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entry passages, corridors, halls, elevators, and stairways
shall not be obstructed by Lessee, or used by them for any other purpose
other than those of ingress and egress. The floors, skylights and windows
that reflect or admit light into any place in the building in which the
Premises are located, shall not be covered or obstructed by Lessee. The
water closets and other water apparatus shall not be used for any other
purpose than those for which they were constructed and no sweepings,
rubbish, or other obstructing substances, shall be thrown therein. Any
damage resulting to them or to associated system from misuse shall be borne
by Lessee who, or whose clerks, agents or servants shall cause it.
2. No advertisements or other notice shall be inscribed, painted, or affixed
on any part of the outside or inside of said building, except upon the
doors, and of such order, size and style, and at such places as shall be
designated by Lessor. Interior signs or doors will be supplied by Lessee by
Lessor, the cost of the signs to be charged to and paid by Lessee.
3. No Lessee shall do or permit to be done in the Premises, or bring or keep
anything therein, which shall in any way increase the rate of fire
insurance on said building, or on property kept therein, (only artificial
and fire resistant Christmas trees and/or decorations are permitted), or
obstruct or interfere with the rights of other Lessees, or in any way
injure or annoy them, or conflict with any of the rules and ordinances of
the Board of health. Lessee, their clerks and servants, shall maintain
order in the building, shall not make or permit any improper noise in the
building or interfere in any way with other tenants or those having
business with them. Nothing shall be thrown by the Lessee, their clerks or
servants, out the windows or doors, or down the passages or skylights of
the building. No rooms shall be occupied or used as sleeping lodging
apartments at any time. No part of the building shall be used or in any way
appropriated for gambling, immoral or other unlawful practices, and no
intoxicating liquors shall be sold in said building.
4. Lessee shall not employ any other persons other than the janitors of
Lessors (who will be provided with passkeys into the offices) for the
purpose of cleaning or taking charge of the Premises.
5. No animals, birds, bikes, or other vehicles, or other obstructions, shall
be allowed in the offices, halls, corridors, elevators or elsewhere in the
building.
6. All Lessees and occupants shall observe strict care not to leave their
windows open when it rains or snows and, for any fault or carelessness in
any of these respects, shall make good any injury sustained by other
Lessees to Lessor for damage to paint, plastering or other parts of the
building, resulting from such default or carelessness. No painting shall be
done, nor shall any alterations be made, to any part of the building by
putting up or changing any partitions, doors or windows, nor shall there be
any nailing, boring or screwing into the woodwork or plastering nor shall
any connection be made to the electric wires or gas or electric fixtures,
without the consent in writing on each occasion of Lessor or its agent.
Lessor requires Lessees to monitor all installation of communications and
other non-electrical wiring to insure that all installed wiring is of a
plenum-rated type and that all relevant building and fire codes are
concerning plenum-rated wiring are maintained by the installer. All glass,
locks and trimmings in or upon the doors and windows of the building shall
be kept whole and, when any part thereof shall be broken, the same shall be
immediately replaced or repaired and put in order under the direction and
to the satisfaction of Lessor, or its agents, and shall be left whole and
in good repair. Lessee shall not injure, overload, or deface the building,
woodwork or the walls of the Premises, nor carry upon the Premises any
noisome, noxious, noisy or offensive business.
18
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
7. No more than two keys for each office will be furnished without charge. No
additional locks or latches shall be put upon any door without the written
consent of Lessor. Lessee, at termination of their lease of the Premises,
shall return to lessor all keys to doors in building.
8. Lessor in all cases retains the power to prescribe the weight and position
of iron safes or other heavy articles.
9. The use of burning fluid, camphor, alcohol, benzene, kerosene or anything
except gas or electricity for lighting the Premises, is prohibited. No
offensive gases or liquids will be permitted.
10. If Lessee desires blinds or window covering of any kind over the windows,
they must be of such shape, color and material as may be prescribed by
Lessor, and shall be erected with Lessor's consent and at the expense of
said Lessee. No awning shall be placed on said building.
19
<PAGE>
EXHIBIT 11.1
INTERNATIONAL COMPUTEX, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
Income per share calculations:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Net income 1,134,384
=========
Weighted average number
of common and common
equivalent shares are as
follows:
Weighted average common
shares outstanding 2,125,000
Shares issued from assumed
exercise of common stock
equivalents (1) 162,855
---------
Weighted average number
of common and common
equivalent shares
outstanding 2,287,855
=========
Per share data:
Net income .50
=========
</TABLE>
(1) Shares issued from assumed exercise of common stock equivalents include
the number of incremental shares which would result from applying the
treasury stock method.
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF HABIF, AROGETI & WYNNE APPEARS HERE]
March 25, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of International
CompuTex,Inc. on Form SB-2 of our report dated January 24, 1997, appearing in
the Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the headings "Selected Financial Data" and "Experts"
in such Prospectus.
Very truly yours,
HABIF, AROGETI & WYNNE, P.C.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 119,750 80,969
<SECURITIES> 0 0
<RECEIVABLES> 1,044,401 807,370
<ALLOWANCES> (24,082) 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,153,807 893,882
<PP&E> 168,178 86,709
<DEPRECIATION> 31,288 19,777
<TOTAL-ASSETS> 1,621,011 982,080
<CURRENT-LIABILITIES> 49,449 34,620
<BONDS> 0 0
0 0
0 0
<COMMON> 2,125 2,125
<OTHER-SE> 1,550,502 945,335
<TOTAL-LIABILITY-AND-EQUITY> 1,621,011 1,621,011
<SALES> 0 0
<TOTAL-REVENUES> 3,891,034 2,875,872
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,073,717 1,761,765
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,820,384 1,118,905
<INCOME-TAX> 686,000<F1> 422,000<F1>
<INCOME-CONTINUING> 1,134,384<F1> 696,905<F1>
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,134,384<F1> 696,905<F1>
<EPS-PRIMARY> .50<F1> 0
<EPS-DILUTED> 0 0
<FN>
<F1> PRO FORMA
</FN>
</TABLE>
