<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission File Number 1-12909
INTERNATIONAL COMPUTEX, INC.
(Exact name of small business issuer as specified in its charter)
GEORGIA 58-1938206
(State of incorporation) (I.R.S. Employer Identification No.)
5500 INTERSTATE NORTH PARKWAY, SUITE 507
ATLANTA, GA 30328
(Address of principal executive offices)
(770) 953-1464
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB, or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for the year ended December 31, 1997 were $5,257,070.
The aggregate market value of the voting stock held by non-affiliates of the
Issuer (based on the closing sale price of the Common Stock as reported on the
Nasdaq National Market on March 16, 1998) was approximately $9,199,562. For
purposes of this determination, shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determinant
for other purposes. As of the close of business on March 16, 1998, there were
3,550,690 shares of common stock, $0.001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-KSB
1. 1998 Proxy Statement into Part III.
2. Form 10-SB Registration Statement No. 0-22137 into Part III.
3. Form SB-2 Registration Statement No. 333-21647 into Part III.
4. Form S-8 Registration Statement No. 333-31861 into Part III.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
1
<PAGE>
INTERNATIONAL COMPUTEX, INC.
FORM 10-KSB
For the Fiscal Year Ended December 31, 1997
Table of Contents
PART I
Item 1. Description of Business
Item 2. Description of Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE>
PART I
Forward looking statements in this Annual Report on Form 10-KSB are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Stockholders are cautioned that all forward-looking
statements pertaining to the Company involve risks and uncertainties, including,
without limitation, those contained in Item 6 of this report under the caption
entitled "Management's Discussion and Analysis or Plan of Operation Business
Risk Factors" and other risks detailed from time to time in the Company's
periodic reports and other information filed with the Securities and Exchange
Commission.
Item 1. Business
--------
GENERAL
- -------
International CompuTex, Inc. ("ICI" or the "Company") is a software company that
develops, markets and supports enterprise-wide client/server CSM (Component and
Supplier Management) solutions through its ItemQuest product suite. ICI also
provides CSM and PDM (Product Data Management) consulting and implementation
services for the engineering and manufacturing industries. Specifically, ICI
has concentrated on developing three-tier, CORBA-compliant client/server
applications for both the manufacturing and engineering industries. ItemQuest
focuses on its ability to quickly find and retrieve existing parts for re-use
throughout a business enterprise and on vendor management. ICI also intends to
provide a robust SCM (Supply Chain Management) solution through ItemWeb,
currently under development, which utilizes the ItemQuest base technology.
Since its formation as a Georgia corporation in 1991, ICI has built strong
skills in industry software services and applications for PDM and manufacturing.
From 1991 through mid-1996, all Company revenues resulted from computer
software-related services. During that period, ICI focused its primary efforts
in the area of PDM software applications services. The Company 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 applied its expertise in
client/server software development by providing specialized PDM software
services directly to customers other than IBM, in some cases relating to IBM's
ProductManager and in other cases unrelated to IBM.
In late 1996, the Company introduced on a controlled availability basis its
software solution, ItemQuest, 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, such as ERP (Enterprise Resource
Planning) and SCM.
In 1997, ICI's revenues were derived primarily from its services business, which
is comprised principally of PDM-related services and custom software
development. In late April 1997, the Company announced that ItemQuest was
generally available to the marketplace. In addition to the generation of license
fee revenue, the Company's Management anticipates that ItemQuest will add
significantly to the Company's services business. In 1998, the Company intends
to continue its transition from a services oriented business to a solutions
oriented business combining products and services. Key technical resources have
been moved to the strategic development of ItemQuest Version 1.5, and the
Company's new product that is under development, ItemWeb. Administrative, sales
and marketing, and product development expenses have also been significantly
increased in order to develop and enhance ItemQuest and ItemWeb.
PRODUCTS
- --------
ItemQuest is a decision support system for procurement personnel and design
- ---------
engineers, providing rapid access to enterprise data through flexible schema-
based searches. ICI Management believes that, as a "Distributed Virtual CSM"
solution, ItemQuest provides considerable benefits: vendor consolidation, fewer
components, lower priced parts, shorter product development cycles, improved
product quality and lower product cost. Consequently, Management believes that
ItemQuest can produce significant return on investment (ROI) while offering
ease-of-use, safety, flexibility and growth.
Procurement personnel will use CSM to consolidate and classify commodities and
vendors across the enterprise. Procurement departments also want to negotiate
better component price discounts based on volume and the
3
<PAGE>
elimination of parts proliferation in the overall organization. The benefits of
these gains are: better strategic vendor relationships and reduced multi-vendor
handling costs; reduced parts costs resulting from higher quantity discounts;
and reduced inventory levels and related inventory carrying costs.
Design engineers will use CSM to better locate potentially re-usable parts and
acceptable substitutes for new or upgraded designs. By doing so the following
benefits can accrue: faster time to market for new products due to less time
needed to design, test, manufacture (or buy) and develop new components;
improved product quality safety due to the knowledge of existing components'
capabilities; reduced design and prototyping costs, including the ability to
handle more projects due to CSM's efficiency impacts; and costs savings through
increased parts re-use.
An important feature of ItemQuest is the ability to integrate seamlessly with
other types of enterprise systems such as PDM, ERP, MRP (Materials Resource
Planning) and CAD (Computer Aided Design) by using an open Application
Programming Interface (API) based on CORBA (Common Object Request Broker
Architecture), the distributed computing industry standard. ItemQuest supports
industry-standard databases, such as Oracle, DB/2 and SQL Server, giving
customers direct access to their own proprietary component and supplier
information.
ICI Management believes that a unique feature of the ItemQuest CSM solution is
the introduction of a three-tier classification model with a "virtual data
access" manager between the search schema and the database. This approach
creates numerous benefits unavailable with traditional two-tier systems,
including:
Rapid deployment. No new database must be installed, and direct access to
legacy databases, including "data cleansing", allows fast prototyping of
schemas without time consuming and costly data migration.
Easy searches. Searches can be conducted using various criteria, such as
attribute parameters, vendor and part number.
Substitute components. Using a "fuzzy logic" algorithm, ItemQuest can find
components that are the closest match to a set of specifications. Thus, a
user can find an appropriate substitute for an unavailable component.
Multiple search templates. Different departments within an enterprise
engineering, procurement, manufacturing and quality assurance can classify
the same components according to the differing needs of various groups of
users.
Capability to link related information. Relationships between components,
documents, vendors and pricing are easily modeled in ItemQuest, allowing
the enterprise to develop an "information web" connecting data from
disparate sources such as PDM, MRP, ERP, and CAD systems.
Virtual information access. ItemQuest allows users to store different
items, such as components, documents, drawings and information on
suppliers, in different tables or even different databases, with
transparent access to all the information provided by ItemQuest.
Web Access. A full Java-based Web interface makes CSM functions available
through the Internet and intranets and allows direct links to the extranets
of preferred vendors and content providers.
Openness. The CORBA-compliant, three-tier client/server architecture is
the standard architecture being mandated by the information technology
policies of many manufacturers. As a result, ItemQuest users receive of
all the CSM benefits inherent in an open CSM system.
Database independence. This feature enables a customer to use ItemQuest on
its existing database. As a result, an ItemQuest customer can save the
time, money and effort associated with the purchase, installation and
training on a new Data Base Management System, and allows direct access to
legacy database systems without requiring costly data migration.
ItemWeb. This product is currently under development. Using the same
- --------
technology and architecture as ItemQuest (which "pulls" components data),
ItemWeb will allow a manufacturer to "push" internal parts and component data to
its customers by a secured Web client search interface schema to support their
MRO (Maintenance, Repair and Operations) parts needs. ICI intends to develop EC
(Electronic Commerce) partnerships in the future. It is
4
<PAGE>
anticipated that these partners will be able, through ItemWeb, to supply their
customers with easy, secured Web access to internal parts and components data.
ItemWeb can also be used by distributors, dealers and brokers to provide secured
parts search access and access to drawings and documents.
PRODUCT RESEARCH AND DEVELOPMENT
- ---------------------------------
The Company has committed, and expects to commit in the future, substantial
resources to product development, particularly ItemQuest and ItemWeb. During
1996 and 1997, the Company spent approximately $280,000 and $634,000,
respectively, on product research and development activities. Research and
development efforts are directed at increasing product functionality, improving
product performance and expanding compatibility with third-party software.
The Company's future success will depend in part on 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.
In addition, products as complex as ItemQuest and ItemWeb 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.
MARKETING AND DISTRIBUTION
- --------------------------
The Company markets and sells its products and services primarily through its
direct sales force based in Atlanta and sales offices in San Jose, California,
and Kent, England, as well as through strategic relationships. In 1997,
international sales comprised 4% of the Company's revenues. The Company's sales
and marketing organization consisted of 7 employees as of December 31, 1997,
with plans to approximately double that number during 1998.
The ICI strategy is to expand its distribution channels to reach a broad
customer base in its targeted industries. The Company's field sales force
conducts multiple presentation and demonstrations of ICI's CSM solution to
management and users at customer sites and ICI's Atlanta office. Sales cycles
generally range from three to nine months. The Company currently ships, and in
the future intends to ship, its products within a short period of time after the
execution of a license, and, as a result, does not and will not have a material
backlog of unfulfilled license orders at any given time.
With the continued development of ItemQuest and the introduction of ItemWeb, the
Company intends to establish sales channels either through relationships it has
developed with customers or through its own direct resources to establish
marketing, selling and consulting relationships both domestically and
internationally. In addition the Company intends to establish relationships
with hardware and software vendors and systems consultants to increase the sales
and distribution of ICI'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.
In general, pricing for ItemQuest and ItemWeb will follow the industry standard
of a one-time charge for each concurrent user license. In addition, there will
be an optional annual 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 ICI's products and services will be offered
on a special bid basis as well. The Company's pricing strategy will focus on
capturing market share and establishing a solid base of customer references.
STRATEGIC RELATIONSHIPS
- -----------------------
The Company began developing two strategic relationships in 1997 that were
officially announced in February 1998. On January 23, 1998, ICI signed a terms
agreement to establish a Strategic Business Alliance with IHS Engineering (a
subsidiary of IHS Group, Inc.), integrating IHS Engineering's electronic
component data with the ItemQuest product. As a result, engineers and
procurement professionals will be able to access component information databases
as well as other internal and external parts databases from within the ItemQuest
CSM solution. The
5
<PAGE>
integrated component management tool will be jointly marketed and sold on a
world-wide basis. On February 10, 1998, ICI and IBM announced the signing of an
agreement whereby the ProductManager/ItemQuest integration module that
seamlessly links ItemQuest and IBM's ProductManager software suite for PDM will
be sold to ProductManager customers through IBM's PDM Consulting and
Implementation Services organization. The ProductManager/ItemQuest integration
provides a way for ProductManager customers to implement a CSM classification
system in conjunction with ProductManager implementation.
COMPETITION
- ------------
CSM Products and Services. In the CSM market, ICI currently faces competition
- -------------------------
principally from Aspect Development, Inc. (Aspect). The other major competitor
in the CSM market, CADIS, Inc., was acquired by Aspect in December 1997. Aspect
is a publicly owned, worldwide provider of enterprise-wide CSM systems for
preferred parts and supplier management, parts selection, and design re-use.
Management of ICI believes the Company can compete favorably with commercially
available products and services in the CSM solutions market.
PDM Services. ICI faces competition from numerous providers of services related
- ------------
to the PDM market, including, but not limited to large national consulting firms
such as Andersen Consulting, Keane, Inc. and Decision Consultants, Inc., as well
as regional and local services providers. Although barriers to entry in these
markets are low, ICI Management believes the Company will be able to remain
competitive on the basis of its skilled personnel, its reputation in the PDM
market, and its relationships with its customers. In future years, beginning in
1998, the Company's anticipates that PDM Services will decline in relative size
and importance as compared to ItemQuest and ItemWeb products and services.
EMPLOYEES
- ---------
As of March 16, 1998, the Company employed 56 persons, of whom 42 were based in
Atlanta, 12 were based in Charlotte, North Carolina, and 1 each were based in
San Jose, California, and London, England. Of the total, 7 were engaged in
sales and marketing, 7 were primarily in administration, and 42 were primarily
in product development and software services. No current employee of the
Company is represented by a labor union with respect to his or her employment by
the Company. The Company has experienced no organized work stoppage and
believes its relationship with its employees to be good. The Company's future
success will depend to a significant extent upon its ability to attract, train
and retain highly skilled technical, management, and sales and marketing
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.
Item 2. Properties
- -------------------
The Company's principal administrative, sales, marketing, support and software
research and development facility is located in approximately 6,000 square feet
of space in Atlanta, Georgia. This facility is leased to the Company through
March 2002. The Company also leases a facility of approximately 4,500 square
feet in Charlotte, North Carolina, through June 2002. The Company believes that
its current facilities are adequate for its needs through the end of 1998, and
that, should it be needed, suitable additional or alternative space will be
available in the future on commercially reasonable terms.
Item 3. Legal Proceedings
- --------------------------
On January 15, 1998 Aspect Development, Inc. and CADIS, Inc. brought an action
against the Company and R. Steven Norwood, Vice President of Sales for the
Company. The action was brought in the United States District Court for the
Northern District of California. The suit alleges that Mr. Norwood breached
alleged fiduciary and contractual obligations to his former employer, CADIS, in
performing his duties as Vice President of the Company. The action further
alleges that the Company and Mr. Norwood have used Aspect or CADIS trade secrets
(in the form of alleged customer lists) and interfered with Aspect's business.
The plaintiffs sought broad injunctive relief, as well as damages, against the
Company and Mr. Norwood.
In an order dated February 19, 1998, the Court preliminarily enjoined the
Company and Mr. Norwood from using information contained in certain specified
customer lists and from soliciting any customers named on those lists. The
6
<PAGE>
Order, which expires April 15, 1998, permits the Company to contact prospective
customers that fall into certain categories, even if present on the lists,
including customers that were prior or potential customers of the Company or
introduced to ICI by one of its strategic marketing partners or other third
party.
On March 9, 1998, the Company filed counterclaims against Aspect, including
claims for actual and attempted monopolization under the Sherman Anti-Trust Act,
unfair competition and interference with prospective relationships. In its
counterclaims, the Company is seeking, among other things, injunctive relief and
unspecified compensatory relief.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
The Company's Common Stock has been traded in the over-the-counter market and
the Nasdaq National Market System since the Company's initial public offering on
April 29, 1997. According to the Company's transfer agent, the Company had
approximately 25 stockholders of record and 1,304 street name stockholders as of
March 12, 1998. The following table sets forth the low and high sales price of
the Company's Common Stock in each of the Company's last three fiscal quarters:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 High Trade Low Trade Dividends
- ---------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Second Quarter (April 30 to June 30) $10.625 $9.00 - 0 -
Third Quarter $ 11.50 $8.75 - 0 -
Fourth Quarter $12.875 $6.50 - 0 -
</TABLE>
Item 6. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
---------------------
This section contains forward-looking statements that are subject to substantial
risks and uncertainties. Actual results may differ materially from those
anticipated by statements made herein. Factors that might cause such
differences include, but are not limited to, those discussed in "Business Risk
Factors" at the end of this section.
OVERVIEW
International CompuTex, Inc. ("ICI" or the "Company") is a software technology
company that develops, markets and supports enterprise-wide client/server
solutions. The Company provides consulting and implementation services for the
engineering and manufacturing industries in the areas of Component and Supplier
Management ("CSM") and Product Data Management ("PDM"). From the time of its
incorporation in 1991 through mid-1996, all Company revenues resulted from
computer software-related services with a primary focus in the area of PDM
software applications. Among other applications, CSM is a major part of a PDM
solution. 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.
Throughout its history, 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. Through December 1997, ICI derived the great majority
of its revenues from consulting and implementation services rendered directly to
IBM or as a subcontractor to IBM customers.
Beginning in 1995, the Company has developed ItemQuest, an object-oriented
classification and search solution for CSM applications, that allows users to
search, select and re-use product data design and manufacturing information
based on engineering and manufacturing attributes. ItemQuest, which has the
flexibility to be integrated into existing software or to operate as a stand-
alone system, provides economic and strategic benefits to discrete manufacturing
companies by improving design, productivity, rationalization of parts, and the
implementation of strategic supplier
7
<PAGE>
relationships. It enables manufacturers to reduce design and development costs,
increase procurement efficiencies, and shorten time to market. Management
believes that the basis for the Company's next stage of growth will be the
further development, delivery, support and evolution of ItemQuest. The Company
is currently making the transition from a services oriented business to a
solutions oriented business combining products and services. While the Company
is experienced in software development as part of custom development contracts,
it had no previous experience in the distribution and maintenance of its own
product prior to 1997. To be successful with ItemQuest, the Company plans over
the next six to twelve months to invest approximately $3.5 million of the total
$9.3 million proceeds of its initial public offering to develop and implement a
strategy for distribution, customer service, maintenance, pricing, marketing and
sales. Functions including training and defect support must be developed,
staffed and maintained.
ICI began development work on ItemQuest in April 1995. In the last quarter of
1996, the Company began generating ItemQuest revenues from four customers in a
"controlled availability program". The product became generally available in
April 1997. The Product Manager/Item Quest Integration ("PM/IQ") became
generally available in July 1997. Management anticipates that, beginning in the
second half of 1998, there will be a substantial increase in revenues generated
by ItemQuest license fees as well as customer implementation and customization
services related to ItemQuest. There can be no assurance, however, that the
efforts to develop and market ItemQuest will be successful or profitable. In
addition, as expenses related to ItemQuest increase and anticipated PDM services
revenues decline in 1998, there can be no assurance that the Company will remain
profitable. Furthermore, even if the development and marketing of ItemQuest is
successful, there can be no assurance as to when, if ever, ItemQuest results
will represent a substantial portion of the Company's revenues or net income.
RESULTS OF OPERATIONS
The following table presents for the periods indicated the percentage
relationship of certain statement of operations data items to total revenues.
<TABLE>
<CAPTION>
Percentage of Total Revenues
----------------------------
<S> <C> <C>
Statement of Operations Data 1997 1996
Revenues
Services and other 95.9% 95.5%
Software 4.1 4.5
Total revenues 100.0 100.0
Operating expenses
Direct costs services 28.3 33.1
Direct costs software 2.1 0.0
Selling and marketing 11.8 8.8
General and administrative 24.3 10.5
Depreciation and amortization 1.8 0.8
Research and development 7.2 0.1
Total operating expenses 75.5 53.3
Operating income 24.5 46.7
Other income/(expenses) (3.3) 0.1
Income before taxes 21.2 46.8
Provision for income taxes 4.2 0.0
Net income historical 17.1% 46.8%
Pro forma provision for taxes 3.5 17.6
Pro forma net income 13.5% 29.2%
</TABLE>
8
<PAGE>
REVENUES
Total revenues increased 35% from $3,891,034 in 1996 to $5,257,070 in 1997.
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 1997, 95.9% of the
Company's revenues, or $5,042,570, came from software services, and 4.1% of the
revenues, or $214,500, came from ItemQuest license fees. In 1996, 95.5% of the
Company's revenues, or $3,716,034, came from software services, and 4.5%, or
$175,000, came from license fees. The Company's business continued to be
heavily reliant on IBM, with 72% of revenues for 1997, or approximately
$3,710,000, compared to 71% of revenues for 1996, or approximately $2,740,000,
for services to IBM or related to IBM's ProductManager software product.
Management's objectives for revenues for 1998 and beyond are twofold: 1)
increase non-IBM revenues as a percentage of total revenues; and 2) increase
ItemQuest and ItemWeb revenues as a percentage of total revenues. The Company
currently intends to continue to invest the proceeds of its initial public
offering in order to implement a comprehensive marketing and development plan
for ItemQuest and ItemWeb. New technologies to be developed include, among
other areas, Internet and World Wide Web capabilities and technological
improvements that help to position ItemQuest and ItemWeb in market segments in
addition to the PDM market. As ICI undergoes a significant transition in its
business with the continued development of ItemQuest and the introduction of
ItemWeb, there can be no assurance that the Company will be able to sustain its
historical revenue growth rate or that the Company will remain profitable in the
future.
DIRECT COSTS
Direct costs for services, consisting of payroll-related expenses, increased
15.3% from $1,288,782, or 33.1% of revenues, in 1996 to $1,486,057, or 28.3% of
revenues in 1997. The increase in direct costs primarily reflects the increased
volume of business from 1996 to 1997 and increasing labor costs in the high
technology market. The decrease in direct costs as a percent of revenues is
primarily due to increased margins from fixed bid contracts in 1997.
Direct costs for software consists of amortization of software development
costs. Direct costs for software increased from $0, or 0.0% of revenues, in 1996
to $111,264, or 2.1% of revenues, in 1997. This increase was caused entirely by
the amortization of software development costs in 1997. Software development
costs for ItemQuest of $276,372 and $125,565 were capitalized in 1996 and
1997, respectively, but amortization did not start until April 1997, when
ItemQuest was available for general release to customers. Software development
costs of $131,640 were capitalized in 1997 for PM/IQ, and amortization started
in July 1997 when the product was available for general release.
SELLING AND MARKETING
Selling and marketing expenses increased 82.4% from $340,860, or 8.8% of
revenues, in 1996 to $621,884, or 11.8% of revenues, in 1997. Payroll-related
selling and marketing expenses increased 206% from $96,952 in 1996 to $297,655
in 1997, primarily as a result of increased sales personnel. Other selling and
marketing expenses, including travel entertainment and trade shows increased 33%
from $243,908 for 1996 to $324,229 for 1997, primarily because of increased
expenses for trade shows and marketing materials. Management expects that such
expenses will increase in dollar amounts and as a percentage of total revenues
in the future as the Company expands its sales and marketing staff.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1,276,736, or 24.3% of revenues, in
1997 compared to $408,538, or 10.5% of revenues, in 1996, an increase of 212%.
The biggest factor in this increase was a non-recurring non-cash charge of
compensation for $389,282 resulting from stock options granted to employees in
January 1997. Payroll-related expenses increased 339% from $68,625 in 1996 to
$301,354 in 1997 as administrative personnel were added to accommodate the
increase in the Company's revenues and assets and the additional expenses
related to being a public company. In addition, the Company moved to a larger
office in Charlotte in June 1997, and the Company expanded its Atlanta location
in June 1997. As a result, rent increased 83% from $79,495 in 1996 to $145,662
in 1997.
9
<PAGE>
Management expects that, after removing the effect of the one-time expense for
the January 1997 stock options, its general and administrative expenses will
increase in dollar amounts and may increase as a percentage of total revenues as
the Company expands its staffing, continues its geographic expansion and
experiences the higher costs associated with being a public company.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 198% from $31,518, or 0.8% of revenues,
in 1996 to $94,041, or 1.8% of revenues, in 1997. The contributing factor for
this increase was additional fixed assets, principally computer equipment,
office furniture and leasehold improvements, in 1997 versus 1996. Management
expects that such expenses will increase in dollar amounts in the future, but
may decrease as a percentage of total revenues in the event that revenues
increase.
RESEARCH AND DEVELOPMENT
Research and development expenditures consist exclusively of engineering
personnel costs. The Company expended $634,282, or 12% of total revenues, for
research and development in 1997 compared to $279,737, or 7% of revenues, for
1996, an increase of 127%. This increase reflected the hiring of additional
development personnel for the Company's ItemQuest and ItemWeb products. Of the
amounts expended, $257,205 was capitalized in 1997, and $276,372 was capitalized
in 1996. The Company began expensing research and development expenditures in
July 1997, and the Company's Management anticipates that future research and
development expenditures will be expensed rather than capitalized. Management
expects that a significant level of research and development expenses will be
required to be competitive in the future. Accordingly, the Company expects that
the absolute dollar amounts as well as the percentage of total revenues for
research and development expenditures will increase in the future.
OTHER INCOME/EXPENSES
Other income/expenses (net) changed from interest income of $2,413 in 1996 to a
net expense of $174,448 (comprised of $240,836 of interest income, $57,975 of
investment income from dividends and gains, and $473,259 of interest expense) in
1997. Included in the interest expense for 1997 amount was a non-recurring non-
cash charge of $319,241 that was a result of warrants issued by the Company's
original stockholders in connection with the Company's Senior Debentures. The
Company determined that the warrants issued in connection with the Senior
Debentures had a fair market value of $2.72 per warrant or an aggregate of
$319,241, based upon 117,368 warrants granted. An initial non-cash charge to
interest was recognized in first quarter 1997. As a result of the Company's
initial public offering, the Senior Debentures were prepaid in May 1997, and the
balance of the non-cash charge ($297,071) was recognized in second quarter 1997.
This value ascribed to the warrants was deemed to be a contribution to capital
by the original stockholders of the Company and treated as additional interest
paid to the holders of the Senior Debentures.
An additional non-recurring charge to interest expense of $132,650 was
recognized in 1997 related to financing costs, primarily underwriting expenses,
recognized when the Senior Debentures were prepaid. The combined non-recurring
interest charges were $451,891, or 9% of revenues, for 1997.
PROVISION FOR INCOME TAXES
Prior to the Company's initial public offering, 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 and is distributable to the stockholders without any
further tax consequences. The stockholders revoked the S Corporation status on
April 30, 1997 immediately prior to the closing of the Company's initial public
offering, and the Company became taxable as a C Corporation from that date
forward. A pro forma provision for income taxes has been presented which
represents income taxes that would have been provided had the Company operated
as a C Corporation throughout its history.
The historical provision for income taxes for 1997 was $218,922. The pro forma
provision for taxes for 1997 was $186,000, resulting in a combined actual and
pro forma income tax amount for 1997 of $404,922, or an effective tax rate of
36.3%. In 1996, the Company was an S corporation for the entire year. The pro
forma provision for income taxes was $686,000, or an effective tax rate of
37.7%. If the Company is profitable for 1998, there is no reason to believe
that the effective income tax rate will significantly change in either
direction.
10
<PAGE>
NET INCOME
The Company realized pro forma net income of $710,660, or 13.5% of revenues, in
1997 compared to $1,134,384, or 29.2% of revenues, in 1996. Net income declined
both in absolute terms and as a percentage of revenues in 1997 primarily because
of two factors: 1) the previously discussed non-recurring charges for
compensation related to options ($389,282) and the non-recurring interest
charges in connection with the Company's Senior Debentures ($319,241 related to
warrants and $132,650 related to financing costs); and 2) the significant
increase in the Company's expenses related to the development and marketing of
ItemQuest. Management expects the combination of increased infrastructure and
development expenses combined with the marketing transition taking place
regarding ItemQuest to have an adverse impact on short-term earnings in 1998,
and may lead to unprofitable results for part or all of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Prior to 1997, the primary source of the Company's cash was operations. In
January 1997, the Company issued an aggregate of $1,115,000 in Senior
Debentures. In May 1997, the Company completed its initial public offering,
providing approximately $9,300,000 in cash proceeds to the Company. At the
closing of its initial public offering, the Company prepaid the Senior
Debentures principal and accrued interest in whole on May 5, 1997.
Consequently, the composition of the Company's cash flow changed substantially
for 1997 compared to 1996. Net cash provided by operating activities increased
by $40,583, or 2.5%, for 1997 ($1,683,010) compared to 1996 ($1,642,427). Net
cash used by investing activities increased from $364,629 in 1996 to $1,777,632
in 1997, an increase of $1,413,003, or 388%. These investing activities
included short-term investments ($1,046,562), acquisition of property and
equipment ($473,842) and capitalization of software development costs
($257,228). Cash flows from financing activities changed from net cash used in
1996 of $1,239,017 versus net cash provided of $6,918,223 in 1997. Aside from
the initial public offering proceeds, the other major item in this category was
S Corporation distributions to stockholders, increasing from $1,215,217 in 1996
to $2,387,124 in 1997. An additional $123,003 was owed as of December 31, 1997
to the Company's original stockholders as part of the final distribution to
stockholders, reflecting undistributed earnings through the Company's S
Corporation termination date of April 30, 1997. As the remaining assigned
accounts receivable are collected by the Company, the proceeds will be paid to
the S Corporation stockholders.
The Company's initial public offering provided approximately $9,300,000 in cash
proceeds to the Company in May 1997. At December 31, the Company has $6,943,351
in cash and cash equivalents, $1,046,562 in investments, and $9,014,310 in
working capital. After such proceeds are applied as described in "Use of
Proceeds" in the Registration Statement, the Company's Management anticipates
that it will have adequate cash to fund operations for at least the next twelve
months, although there can be no assurance that such funds will be adequate to
fully implement the Company's long-term expansion plans.
SUBSEQUENT EVENTS
On February 2, 1998, Thybo New Ventures, Ltd., an affiliate of IHS Group, Inc.
of Denver, Colorado, purchased 300,000 shares of the Company's Common Stock for
$9.50 per share, generating $2,850,000 in additional capital for the Company.
The purchaser obtained certain limited registration rights with respect to a
portion of these shares. Emil Dahan, CEO of the Company, received exclusive
voting rights with respect to such shares for a two-year period. The 300,000
shares represent approximately 8.4% of the outstanding stock of the Company.
BUSINESS RISK FACTORS
Investors in the Company should be aware of, among others, the following risks
and uncertainties that could materially and adversely affect the Company and the
market for the Company's securities, in addition to other risk factors mentioned
in other sections of this report.
The revenues and results of operations of the Company are difficult to forecast
and could be materially adversely affected by many factors, including among
others, the relatively long sales and implementation cycles for the Company's
products; the Company's lack of extensive prior experience in the selling,
distribution and maintenance of its own software product; the lower than
expected growth rate of the market for the Company's services and ItemQuest and
ItemWeb products; the challenges inherent in establishing third-party sales
channel relationships;
11
<PAGE>
dependence on the Company's relationship with IBM and a relatively small number
of other customers; increases in the Company's operating expenses; timing of
introduction or enhancement of products by the Company or its competitors;
market acceptance of new products and existing products; technological changes
in software or database technology; personnel changes and difficulties in
attracting qualified sales, marketing, technical, and consulting personnel;
quality control of products sold; and economic conditions generally and in
specific industry segments. Some of these factors are beyond the Company's
control.
There can be no assurance that the Company's products will achieve broad market
acceptance or that the Company will be successful in marketing its products or
enhancements thereto. 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 the Company's products, the
demand for the Company's products would be materially and adversely affected.
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
operation, placing a significant strain on the Company's management. The
Company's future results of operations will depend in part on the ability of its
officers and other key employees to continue to implement and expand its
operational, customer support and financial control systems and to expand, train
and manage its employee base. In addition, Management believes that the
Company's future success will also 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 is
intense, and the Company expects that such competition will continue for the
foreseeable future. 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 effect on the Company's
business, financial condition and results of operations.
12
<PAGE>
Item 7. Financial Statements
- -----------------------------
INTERNATIONAL COMPUTEX, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
13
<PAGE>
INTERNATIONAL COMPUTEX, INC.
TABLE OF CONTENTS
PAGE
----
Independent auditors' report F-2
Financial statements:
Balance sheet F-3
Statements of income F-4
Statements of changes in stockholders' equity F-5
Statements of cash flows F-6 - F-7
Notes to financial statements F-8 - F-18
14
<PAGE>
[LETTERHEAD OF HABIF, AROGETI & WYNNE, P.C. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
International CompuTex, Inc.
We have audited the accompanying balance sheet of INTERNATIONAL COMPUTEX, INC.
[corporation] as of December 31, 1997, and the related statements of income,
changes in stockholders' equity, and cash flows for the years ended December 31,
1997 and 1996. 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, 1997 and the results of its operations and its cash flows for
the years ended December 31, 1997 and 1996 in conformity with generally accepted
accounting principles.
Atlanta, Georgia
March 14, 1998, except Note M, as to which the date is March 24, 1998.
15
<PAGE>
INTERNATIONAL COMPUTEX, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
Current assets
- --------------
<S> <C>
Cash and cash equivalents $6,943,351
Accounts receivable, net of allowance of $-0- 1,146,483
Investments 1,046,562
Prepaid expenses 197,956
----------
Total current assets 9,334,352
----------
Property and equipment, net 548,209
- ----------------------- ----------
Other assets
- ------------
Software development costs, net of accumulated
amortization of $111,264 422,333
Other 10,305
----------
432,638
----------
$10,315,199
==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current liabilities
- -------------------
<S> <C>
Accounts payable and accrued expenses $ 76,077
Current portion of long-term debt 3,775
Deferred revenue 117,187
S corporation distributions payable 123,003
----------
Total current liabilities 320,042
----------
Long-term liabilities
- ---------------------
Long-term debt, net of current portion 14,834
Deferred taxes 45,202
----------
60,036
----------
Total liabilities 380,078
----------
Stockholders' equity
- --------------------
Common stock, $.001 par value, 20,000,000
shares authorized; 3,250,690 shares issued and
outstanding 3,251
Additional paid-in-capital 9,530,283
Retained earnings 401,587
----------
</TABLE>
9,935,121
-----------
$10,315,199
==========
See auditors' report and accompanying notes.
16
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Operating revenues
- ------------------
Services $5,042,570 $3,716,034
Software 214,500 175,000
---------- ----------
5,257,070 3,891,034
--------- ----------
Expenses
- --------
Direct costs - services 1,486,058 1,288,782
Direct costs - software 111,264 -
Sales and marketing 621,884 340,860
General and administrative 1,276,736 408,538
Depreciation and amortization 94,041 31,518
Research and development 377,057 3,365
---------- ----------
3,967,040 2,073,063
---------- ----------
Income from operations 1,290,030 1,817,971
---------- ----------
Other income [expense]
- ----------------------
Interest income 240,836 3,067
Dividend income 33,986 -
Unrealized capital gains 24,655 -
Realized capital losses [ 666]
Interest expense [473,259] [ 654]
-------- -----
[174,448] 2,413
-------- -----
Income before provision for income taxes 1,115,582 1,820,384
Provision for income taxes 218,922 -
-------- ------
Net income - historical 896,660 1,820,384
Pro forma provision for income taxes [Note A] 186,000 686,000
---------- ----------
Pro forma net income $ 710,660 $1,134,384
========= =========
Pro forma earnings per share [Note A] $ .23 $ .50
========= =========
Weighted average shares outstanding 3,100,898 2,287,855
========= =========
</TABLE>
See auditors' report and accompanying notes
17
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Total
Number $.001 par Paid-in Retained Stockholders'
of shares Stock Capital Earnings Equity
---------- ---------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1996 2,125,000 $2,125 $ - $ 945,335 $ 947,460
Net income - - - 1,820,384 1,820,384
Distributions - - - [1,215,217] [1,215,217]
---------- ------- ---------- ----------- -----------
Balances, December 31, 1996 2,125,000 2,125 - 1,550,502 1,552,627
Issuance of stock options [Note J] - - 442,382 - 442,382
Issuance of warrants [Note L] - - 22,170 - 22,170
Net income as S corporation
January 1, 1997 - April 30,
1997 - - - 495,073 495,073
Distributions to S corporation
shareholders [Note M] - - [ 464,552] [2,045,575] [2,510,127]
Issuance of common stock
in connection with initial
public offering [Note K] 1,125,000 1,125 9,285,938 - 9,287,063
Issuance of common stock 690 1 374 - 375
Lapse of stock options [Note J] - - [ 53,100] - [ 53,100]
Issuance of warrants [Note L] - - 297,071 - 297,071
Net income as C corporation
May 1, 1997 - December 31,
1997 - - - 401,587 401,587
---------- ------- ---------- ----------- -----------
Balances, December 31, 1997 3,250,690 $3,251 $9,530,283 $ 401,587 $ 9,935,121
========== ======= ========== =========== ===========
See auditors' report and accompanying notes.
</TABLE>
18
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase [Decrease] In Cash and Cash Equivalents
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
----------- -----------
<S> <C> <C>
Cash flows from operating activities
- -------------------------------------
Net income $ 896,660 $ 1,820,384
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 205,305 31,518
Provision for bad debt - 24,082
Deferred taxes 45,202 -
Noncash charge for option issuances 389,282 -
Noncash charge for warrant issuances 319,241 -
Changes in assets and liabilities
Increase in accounts receivable [ 126,164] [ 237,031]
Increase in prepaid expenses [ 184,218] [ 8,195]
Decrease [Increase] in other assets [ 10,302] 1,029
Increase in accounts payable and accrued
expenses 30,817 10,640
Increase in deferred revenue 117,187 -
----------- -----------
Total adjustments 786,350 [ 177,957]
----------- --------
Net cash provided by operating
activities 1,683,010 1,642,427
----------- -----------
Cash flows from investing activities
- --------------------------------------------------
Acquisition of property and equipment [ 473,842] [ 88,257]
Software development costs capitalized [ 257,228] [ 276,372]
Investments [1,046,562] -
--------- ---------
Net cash used by investing activities [1,777,632] [ 364,629]
--------- ---------
Cash flows from financing activities
- --------------------------------------------------
Deferred offering costs 22,424 [ 22,424]
Principal payments on long-term debt [ 4,515] [ 1,376]
Issuance of common stock 9,287,438 -
S Corporation distributions paid [2,387,124] [1,215,217]
--------- ---------
Net cash provided [used] by financing
activities 6,918,223 [1,239,017]
----------- ----------
Net increase in cash and cash
equivalents 6,823,601 38,781
Cash and cash equivalents, beginning of year 119,750 80,969
----------- -----------
Cash and cash equivalents, end of year $ 6,943,351 $ 119,750
=========== ===========
</TABLE>
See accountants' report and selected information.
19
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CASH FLOWS [CONTINUED]
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
------------ -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash paid during the years for
Interest $ 154,018 $ -
Taxes $ 295,000 $ -
NONCASH FINANCING AND INVESTING ACTIVITIES
- ------------------------------------------
Acquisition of property and equipment by long-term debt $ - $ 24,500
Distribution to S corporation shareholders by declaring
S corporation distribution payable. $ 123,003 $ -
</TABLE>
See auditor's report and accompanying notes
20
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
General:
-------
INTERNATIONAL COMPUTEX, INC., (the "Company"), a Georgia corporation, was
formed for the purpose of development and sale of licensed computer software
and computer consulting services. The Company develops, markets and supports
enterprise client/server software products that enable manufacturers to
improve product development and business processes through component and
supplier management and product data management. The Company licenses
software and provides software services both within and outside the United
States.
Cash and Cash Equivalents:
-------------------------
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
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:
Computer equipment 5 years
Office furniture and equipment 5-7 years
Other 5 years
Other Assets:
------------
Other assets consists of deposits and organization costs. Organization costs
are recorded at cost and amortized on a straight-line basis over a five-year
period.
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 incurred prior to the attainment of technological and
marketing feasibility of products are charged to operations. Thereafter, the
Company capitalizes the direct costs and allocated overhead associated with
the development of software products until the point of market release. Costs
incurred subsequent to the product release, and research and development
performed under contract, are charged to operations.
21
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
------------------------------------------
Capitalized costs are amortized over the estimated product life, which is
three years, on the straight-line basis. Amortization begins when the
product is available for general release to customers. Unamortized costs are
carried at the lower of book value or net realizable value.
Revenue Recognition:
-------------------
Revenue consists primarily of consulting services, licensing fees, and post
contract customer support. The Company accounts for such revenue in
accordance with the American Institute of Certified Public Accountants'
(AICPA) Statement of Position 91-1, Software Revenue Recognition, as follows:
----------------------------
License revenue Revenue from the license of software is recognized
after shipment of the product and fulfillment of
acceptance terms, provided no significant
obligations remain and collection of resulting
receivable is deemed probable.
Installation,
consulting and
education When services are provided.
Support contract Ratably over the life of the contract from the
effective date.
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, with income
taxable and distributable to the individual stockholders without any further
tax consequences. The stockholders revoked the S Corporation status on April
30, 1997, immediately prior to the closing of the Company's initial public
offering [Note K]. Upon termination of S Corporation Status [Note M], and the
Company's Initial Public Offering, the Company became taxable as a C
Corporation from that date forward. A pro forma provision for income taxes
has been presented that represents income taxes that would have been provided
had the Company operated as a C Corporation throughout its history.
Estimates:
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts of assets, liabilities, and disclosures of contingent
assets and liabilities at the date of the financial statements and the
revenues and expenses during the period. Actual amounts could differ from
those estimates.
22
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
------------------------------------------
Advertising:
-----------
The Company's policy is to expense advertising costs as incurred.
Reclassifications:
-----------------
Certain amounts in the accompanying 1996 financial statements have been
reclassified to conform to the presentation adopted in the 1997 financial
statements.
B. CASH CONCENTRATION OF CREDIT RISK:
----------------------------------
At times the Company maintains deposits in one institution which exceed the
FDIC limits. At December 31, 1997, the amounts at risk were approximately
$6,976,000.
C. ACCOUNTS RECEIVABLE:
--------------------
Accounts receivable consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Billed $1,041,015
Unbilled 93,576
Miscellaneous 11,892
----------
1,146,483
Less allowance
for doubtful accounts -
---------
$1,146,483
=========
</TABLE>
The maximum accounting loss from the credit risk associated with accounts
receivable is the amount of the receivable recorded, which is the face amount
of the receivable, less the allowance for doubtful accounts.
D. PROPERTY AND EQUIPMENT, NET:
---------------------------
Property and equipment consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment $472,100
Office furniture and equipment 190,708
Other 37,785
--------
700,593
Accumulated depreciation [152,384]
-------
$ 548,209
=======
</TABLE>
23
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
D. PROPERTY AND EQUIPMENT, NET: [Continued]
---------------------------
Depreciation expense for the years ended December 31, 1997 and 1996 amounted
to $93,811 and $31,288, respectively.
E. SOFTWARE DEVELOPMENT COSTS:
--------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1997:
<S> <C>
Balance, beginning of year $ 276,372
Amounts capitalized 257,225
Amortization [111,264]
-------
Balance, end of year $ 422,333
=========
Research and development costs incurred $ 634,282
Less amounts capitalized [257,225]
-------
Research and development charged to expense $ 377,057
=========
</TABLE>
No amortization of capitalized software development costs was recognized in
1996, as market release had not occurred for the products. 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.
F. INVESTMENTS:
-----------
Investments are comprised of certain debt and equity securities which are
classified as trading securities in accordance with Financial Accounting
Standard No. 115: Accounting for Certain Investments in Debt and Equity
Securities. Accordingly, investments are recorded at fair market value and
unrealized holding gains and losses are included in current period earnings.
The carrying and fair values of investment securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
Gross
Carrying Fair Unrealized
Value Value Gains
---------- ---------- ----------
<S> <C> <C> <C>
Corporate securities $1,021,907 $1,046,562 $24,655
========== ========== ==========
</TABLE>
24
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
G. LONG-TERM DEBT:
--------------
Long-term debt consists of the following at December 31, 1997:
Note payable, due in monthly installments of
$507 including principal and interest at 8.75%
per annum through September 1, 2001, secured
by vehicle. $ 18,609
Less: amount due within one year [ 3,775]
-------
$ 14,384
=======
<TABLE>
<CAPTION>
<S> <C>
Maturity of long-term debt is as follows:
December 31,
----------------------------------------
1998 $ 3,775
1999 4,988
2000 5,442
2001 4,404
-------
$18,609
=======
</TABLE>
H. LEASES AND COMMITMENTS AND CONTINGENCIES:
----------------------------------------
Operating Leases:
----------------
The Company maintains operating leases for office space. Rent expense for the
years ended December 31, 1997 and 1996 totaled $169,621 and $79,496,
respectively.
The future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31,
------------
1998 $175,889
1999 180,419
2000 185,272
2001 191,065
2002 69,718
--------
</TABLE>
$802,363
=======
25
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
H. LEASES AND COMMITMENTS AND CONTINGENCIES: [Continued]
----------------------------------------
Pending Litigation:
------------------
On January 15, 1998, Aspect Development, Inc. and CADIS, Inc. brought an
action against the Company and R. Steven Norwood [Norwood], Vice President of
Sales for the Company. The action was brought in the United States District
Court for the Northern District of California. The suit alleges that Norwood
breached alleged fiduciary and contractual obligations to his former employer,
CADIS, in performing his duties as Vice President of the Company. The action
further alleges that the Company and Norwood have used Aspect or CADIS trade
secrets (in the form of alleged customer lists) and interfered with Aspect's
business. The plaintiffs sought broad injunctive relief, as well as damages,
against the Company and Norwood.
In an order dated February 19, 1998, the Court preliminarily enjoined the
Company and Norwood from using information contained in certain specified
customer lists and from soliciting any customers named on those lists. The
order, which expires April 15, 1998, permits the Company to contact
prospective customers that fall into certain categories, even if present on
the lists, including customers that were prior or potential customers of the
Company or introduced to ICI by one of its strategic marketing partners or
other third party.
On March 9, 1998, the Company filed counterclaims against Aspect, including
claims for actual and attempted monopolization under the Sherman Anti-Trust
Act, unfair competition and interference with prospective relationships. In
its counterclaims, the Company is seeking, among other things, injunctive
relief and unspecified compensatory relief.
<TABLE>
<CAPTION>
I. INCOME TAXES:
-------------
<S> <C>
</TABLE>
The provision for income taxes consist of:
<TABLE>
<CAPTION>
Current taxes:
<S> <C>
Federal $128,205
State 45,515
-------
173,720
-------
Deferred Taxes:
Federal 38,008
State 7,194
-------
45,202
-------
Total $218,922
========
</TABLE>
26
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
I. INCOME TAXES: [Continued]
------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability at December 31,
1997 are presented below:
<TABLE>
<CAPTION>
Non-Current:
<S> <C>
Deferred tax asset
Stock options $146,759
--------
Deferred tax liability:
Accumulated depreciation 32,742
Accumulated amortization 159,219
--------
191,961
--------
Net deferred tax liability $ 45,202
========
</TABLE>
J. EMPLOYEE BENEFIT PLANS:
----------------------
401(k) Plan:
-----------
Effective July 1, 1995, the Company adopted a qualified defined contribution
plan, under Section 401(k) of the Internal Revenue code. Under the plan,
employees may elect to contribute 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. 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 1997 and 1996. Company matching
contributions totaled $43,998 for 1997 and $29,143 for 1996.
Stock Option Plan:
-----------------
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.
Of that amount, 2,760 options have been terminated as a result of employee
terminations and 690 options have been exercised, resulting in 169,861 options
outstanding under the 1995 Plan. The 1995 Plan was terminated, prospectively
effective December 20, 1996.
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. In January 1997, the Company granted
stock options to 31 employees, covering an aggregate of 163,200 shares of
common stock, at an exercise price of $4.80 per share.
27
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
J. EMPLOYEE BENEFIT PLAN: [Continued]
---------------------
Stock Option Plan: [Continued]
-----------------
For financial statement purposes, the Company has determined that the current
value of the common stock at the grant date totaled $7.75, which results in a
$2.95 per option charge to compensation expense. During the year, 31,240 of
these options expired as a result of employee terminations. Accordingly, the
results of operations for 1997 were affected by a noncash charge for
compensation expense of $389,282.
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 stock options at the grant
date is determined by management. Options granted under the Option Plans
generally vest over a four-year period and have a term of ten years, expiring
in 2006 and 2007. The fair value of the options granted, prior to the IPO, at
prices of $.543 and $4.80 were determined by management. All other options
were issued at the closing price on the date of grant. The following is a
summary of transactions:
<TABLE>
<CAPTION>
Shares Under Option
--------------------------
<S> <C> <C> <C> <C>
1 9 9 7 1 9 9 6
--------------------- ------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of shares Price of shares Price
---------- ---------- --------- --------
Outstanding, beginning of year 173,311 $ .543 74,511 $.543
Granted during the year 255,700 6.268 98,800 .543
Exercised during the year [ 690] .543 -
Expired during the year [ 34,000] 4.454 -
------- -------
Outstanding, end of year 394,321 3.918 173,311 .543
======= =======
Eligible, end of year for exercise
currently 41,948 .543 18,628 .543
======= =======
</TABLE>
At December 31, 1997 and 1996, there were 105,879 and 326,689 shares,
respectively, reserved for future grants.
28
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
J. EMPLOYEE BENEFIT PLAN: [Continued]
---------------------
Statement of Financial Accounting Standards No. 123:
---------------------------------------------------
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option
or similar equity instrument and encourages all entities to adopt that method
of accounting for all of their employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost of those plans
using the method of accounting prescribed by APB 25. Entities electing to
remain with the accounting in APB 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value based
method of accounting defined in this statement had been applied.
The Company has elected to account for its stock-based compensation plans
under APB 25. However, the Company has computed for pro forma disclosure
purposes the value of options granted during 1997, subsequent to the IPO,
using the Black-Scholes option-pricing model as prescribed by SFAS 123. The
following weighted average assumptions were used for grants in 1997:
Risk-free interest rate 6.2%
Expected dividend yield 0.0%
Expected lives 5 years
Expected volatility 36.3%
The total value of options granted during 1997 was computed as approximately
$345,000, which would be amortized on a pro forma basis over the four-year
vesting period of the options. If the Company had accounted for these plans
in accordance with SFAS 123, the Company's net income and pro forma net income
per share to the year ended December 31, 1997 would have been as follows:
As Reported Pro Forma
----------- --------
Pro forma net income $710,660 $656,899
Pro forma net income per share $ .23 $ .21
K. STOCKHOLDERS' EQUITY:
--------------------
Initial Public Offering:
-----------------------
The Company completed its initial public offering of 1,125,000 shares of
common stock at $9.50 per share on May 5, 1997. Net proceeds to the Company
amounted to $9,287,063.
29
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
K. STOCKHOLDERS' EQUITY: [Continued]
--------------------
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 were issued
and outstanding. Retroactive effect has been given to these splits in the
accompanying financial statements.
L. SENIOR DEBENTURES:
-----------------
In January 1997, the Company received proceeds from the sale of senior
debentures in the amount of $1,115,000 at 6% interest per annum, payable semi-
annually, with the principal amount due in January 2000. Purchasers of the
senior debentures received warrants from the stockholders of the Company to
purchase 117,368 shares of common stock held by these stockholders at 60% of
the initial public offering price. As a result of its initial public offering
and the terms of the senior debentures, the Company prepaid in whole the
senior debentures principal with accrued interest of $19,795 on May 5, 1997,
and the stockholders issued 117,368 warrants at an exercise price of $5.70 per
share, or 60% of the initial public offering price of $9.50 per share. The
issuance of the warrants and prepayment of the senior debentures resulted in
the Company taking a noncash, nonrecurring charge to interest expense of
$319,241. The prepayment of the senior debentures resulted in the Company
recognizing interest expense of $132,650 related to financing costs of the
senior debentures, primarily sales commissions.
M. TERMINATION OF S CORPORATION STATUS:
-----------------------------------
On April 30, 1997, the Company's shareholders, in accordance with the
Company's original S Corporation Termination, Tax Allocation and
Indemnification Agreement (the "Agreement") dated March 24, 1997, elected to
terminate the Company's status as an S corporation, and the Company became
subject to federal and state income taxes. Under the amended Agreement, dated
March 24, 1998, $2,360,127 was distributed to the S Corporation stockholders
by an assignment of accounts receivable and cash equaling the Company's
stockholders' equity less common stock of $2,125 as of April 30, 1997.
Additionally, prior to April 30, 1997 the Company distributed $150,000 in cash
to the pre-IPO stockholders.
30
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
N. MAJOR CUSTOMER INFORMATION:
--------------------------
During the years ended December 31, 1997 and 1996, revenue from IBM totaled
approximately $3,710,000 and $2,740,000, respectively. These amounts
accounted for 71% and 70% of total revenues, respectively. The amount due
from IBM included in accounts receivable, totaled approximately $ 574,000 at
December 31, 1997.
O. SUBSEQUENT EVENTS:
-----------------
On February 2, 1998, the Company issued and sold to Thybo New Ventures Limited
(Thybo), a Bermuda corporation, and an affiliate of IHS Group, Inc. of Denver,
Colorado 300,000 shares of common stock of the Company, at $9.50 per share.
Payment of the purchase price was made on February 2, 1998. No commissions or
finders fees were payable out of the $2,850,000 proceeds of this private
placement.
Pursuant to the Common Stock Purchase Agreement between the Company and Thybo,
Thybo granted to Haim E. Dahan, the Chief Executive Officer of the Company,
exclusive voting rights with respect to the 300,000 shares for a two-year
period commencing February 2, 1998, so long as those shares are held by Thybo
or an affiliate during that period.
31
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
None
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
Information regarding the directors of the Company is incorporated by reference
to the information set forth in the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended December 31, 1997 (the "1998
Proxy Statement").
The executive officers of the Company who are elected by and serve at the
discretion of the Board of Directors, and their ages as of March 16, 1998, are
as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Haim Emil Dahan 37 Chairman of the Board and Chief Executive Officer
Lawrence D. Duckworth 51 President and Chief Operating Officer
Michael J. Galvin 32 Vice President of Research and Development
Patricia Tuxbury Salem 34 Treasurer and Director of Product Data Management Services
Ron Friedman 37 Vice President of Operations
R. Steven Norwood 40 Vice President of Sales
Ralph E. Walter 49 Chief Financial Officer
</TABLE>
32
<PAGE>
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, he 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. Duckworth joined the Company as President and Chief Operating Officer in
December 1997. Prior to joining ICI, he held the following positions: President
of Carrecker-Antinori, Inc., a financial industry software solutions company
based in Dallas, Texas, from February 1997 to November 1997; Chief Executive
Officer of Antinori Software, Inc., a banking industry software company located
in Atlanta, Georgia, from October 1995 to January 1997; Chief Executive Officer
of Momentum Software, Inc., a messaging middleware software company based in
Boston, Massachusetts, from August 1993 to September 1995; and President of
Intercomputer Communications, a data communications company located in
Cincinnati, Ohio, from March 1985 to April 1993. Mr. Duckworth received a B.A.
degree in Economics from Marshall University in 1969 and an M.B.A. degree in
Marketing and Finance from Virginia Polytechnic Institute in 1973.
Mr. Galvin joined the Company in August 1993 as Technical Director and is
currently Vice-President of Research and Development. Prior to joining the
Company, he was a Senior Analyst with Worldspan from March 1991 to August 1993.
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, she
Salem worked as a consultant for AGS Information Services, Inc., focusing on the
development of software for the manufacturing sector and specializing in Product
Data Management (PDM). Ms. Salem graduated from the University of Vermont in
1985 with a Bachelor of Science degree in Electrical Engineering.
Mr. Friedman joined the Company in October 1995 as Vice President of Operations.
Prior to such time, from January 1993 to September 1995, he served as Program
Manager and Technical Liaison at Elbit Fort Worth, a defense system development
provider. From January 1983 to January 1993, Mr. Friedman served in various
technical and managerial positions at Elbit Defense System, Ltd., a defense
system solution provider. Mr. Friedman received a B.A. degree in Mathematics
and Computer Science from the University of Haifa, Israel in 1988.
Mr. Norwood joined the Company as Vice President of Sales in December 1997.
Prior to joining ICI, he was Eastern Area Vice President for CADIS, Inc., a
manufacturer of CSM software, from October 1994 to December 1997. Prior to that,
from October 1984 to September 1994, Mr. Norwood held various sales executive
positions with Computervision Corporation, a manufacturer of computer aided
design and engineering data management software. Mr. Norwood received a
Bachelor of Science degree in Marketing with a minor in Computer Science from
Appalachian State University in 1980.
Mr. Walter joined the Company as Controller and Chief Accounting Officer in 1997
and was named Chief Financial Officer in July 1997. Prior to such time, Mr.
Walter worked as a self-employed corporate finance and accounting consultant
from May 1992 to March 1997, specializing in startup companies and small
businesses. During that period, he served as Controller of H-G International,
Inc., a food distributor and franchiser located in Deerfield Beach, Florida,
from May 1993 to December 1995. Mr. Walter received a B.A. degree in Liberal
Arts from University of Pennsylvania in 1970 and an M.B.A. degree with a finance
concentration from Carnegie Mellon University in 1977.
Item 10. Executive Compensation
- --------------------------------
This information is set forth under the caption "Certain Information Regarding
Executive Officers and Directors" in the Company's 1998 Proxy Statement, which
information is incorporated herein by reference.
33
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
This information is set forth under the caption "Security Ownership" in the
Company's 1998 Proxy Statement, which information is incorporated herein by
reference.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
This information is set forth under the caption "Certain Information Regarding
Executive Officers and Directors -- Certain Transactions" in the Company's 1998
Proxy Statement, which information is incorporated herein by reference.
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Documents filed as part of this report.
1. Financial Statements;
All financial statements of the Company as described in Item 7 of this
report on Form 10-KSB
2. Financial statement schedule included in Part III of this Form:
Page
----
Report of Independent Auditors __
All other financial statements and schedules not listed above are omitted as
the required information is not applicable or the information is presented in
the financial statements or related notes.
3. Exhibits
The following exhibits are filed herewith or incorporated herein by reference:
3.1 The Company's Amended and Restated Articles of Incorporation
included as Exhibit 2.1 to the Registration Statement No. 0-22137
on Form 10-SB filed by the Company on February 11, 1997 (the
"Form 10-SB), and incorporated herein by this reference.
3.2 The Company's Amended and Restated By-Laws dated December 17,
1996, included as Exhibit 2.2 to the Form 10-SB, and incorporated
herein by this reference.
10.1 The Company's 1995 Restricted Non-qualified Incentive Stock
Option Plan, dated August 1, 1995, included as Exhibit 6.1 to the
Form 10-SB, and incorporated herein by this reference.
10.2 The Company's 1996 Stock Option Plan, as amended, included
as Exhibit 4.2 to the S-8 Registration Statement of the Company,
Registration No. 333-31861, and incorporated herein by this
reference.
10.3 Offer Letter from the Company to Lawrence D. Duckworth,
dated December 19, 1997.
10.4 Offer Letter from the Company to R. Steven Norwood, dated
November 25, 1997.
10.5 Common Stock Purchase Agreement between the Company and
Thybo New Ventures Limited, dated January 29, 1998.
10.6 Agreement Terms, IHS/ICI Strategic Business Alliance, dated
January 23, 1998
34
<PAGE>
10.7 Subcontractor Agreement/Statement of Work between the
Company and IBM, for the development of the PM/IQ base
integration module, dated January 7, 1998.
10.8 Amendment to S Corporation Termination, Tax Allocation and
Indemnification Agreement dated March 24, 1998.
10.9 S Corporation Termination, Tax Allocation and Indemnification
Agreement dated as of March 24, 1997, included as Exhibit 10.11
to the Company's Registration Statement on Form SB-2, File No.
333-21647 (the "Form SB-2") and incorporated herein by this
reference.
10.10 Forms of Stock Option Agreements, included as Exhibit 6.3 in the
Form 10-SB and incorporated herein by this reference.
10.11 Form of Indemnity Agreement between the Company and its
directors and executive officers.
10.12 Form of Warrant attached to Senior Debentures, included as
Exhibit 6.6 in the Form 10-SB and incorporated herein by this
reference.
10.13 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.
10.14 Lease Agreement between Company and Riveredge One Associates,
Ltd., dated April 1, 1997, included as Exhibit 10.12 to the
Form SB-2.
10.15 Subcontractor Agreement between the Company and IBM, dated
September 17, 1996, included as Exhibit 10.13 to the Form SB-2.
10.16 Subcontractor Agreement between the Company and IBM, dated
August 27, 1993, as amended, included as Exhibit 10.14 to the
Form SB-2.
11.1 Statement re: Computation of Per Share Earnings (Loss).
23.1 Independent Auditors' Consent.
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the fourth quarter of the
recently completed fiscal year.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 30, 1998.
INTERNATIONAL COMPUTEX, INC.
By: /s/ Haim E. Dahan
----------------------------
Haim E. Dahan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Haim E. Dahan Chairman of the Board and
- ---------------------------- Chief Executive Officer March 30, 1998
Haim E. Dahan
/s/ Michael J. Galvin Vice President of Research and
- ---------------------------- Development and Director March 30, 1998
Michael J. Galvin
/s/ Patricia Tuxbury Salem Treasurer, Director of Product Data
- ---------------------------- Management Services and Director March 30, 1998
Patricia Tuxbury Salem
/s/ Leo Benatar Director
- ---------------------------- March 30, 1998
Leo Benatar
/s/ Hugh E. Sawyer Director
- ---------------------------- March 30, 1998
Hugh E. Sawyer
/s/ Ralph E. Walter Chief Financial Officer and
- ---------------------------- Chief Accounting Officer March 30, 1998
Ralph E. Walter
</TABLE>
36
<PAGE>
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
10.3 Offer Letter from the Company to
Lawrence D. Duckworth, dated
December 19, 1997.
10.4 Offer Letter from the Company to R.
Steven Norwood, dated November
25, 1997.
10.5 Common Stock Purchase Agreement
between the Company and Thybo New
Ventures Limited, dated January 29, 1998.
10.6 Agreement Terms, IHS/ICI Strategic
Business Alliance, dated January 23, 1998.
10.7 Subcontractor Agreement/Statement of
Work between the Company and IBM, for the
development of the PM/IQ base integration
module, dated January 7, 1998.
10.8 Amendment to S Corporation Termination,
Tax Allocation and Indemnification Agreement,
dated March 24, 1998.
10.11 Form of Indemnity Agreement between the Company
and its directors and executive officers.
11.1 Statement re: Computation of Per Share
Earnings (Loss).
23.1 Independent Auditors' Consent.
<PAGE>
[LETTERHEAD OF INTERNATIONAL COMPUTEX, INC. APPEARS HERE]
December 19, 1997
Larry Duckworth
Dear Mr. Duckworth,
It is with great pleasure that I extend to you an offer to join International
CompuTex, Inc. as President. Your anticipated start date will be December 19,
1997. Your status as a President is subject to Board approval, which is expected
to be formalized in the next several days. Each Board member has already been
consulted and has indicated his or her approval informally.
You will report to me in my capacity as CEO. Your responsibilities will be those
as outlined in the attached responsibilities and goals. At least at the outset,
your primary focus will be marketing, selling of ItemQuest and PDM related
services, ItemQuest and PM implementation, customization and maintenance
services, as well as assisting in establishment of the strategic partnerships
and relationships to further the growth of ICI.
We are prepared to offer you a package that we believe is extremely competitive
as well as one that will reward performance with tremendous upside potential.
Your compensation the first year (December 1997 through December 1998) will be a
base of $170,000 per year paid on a semi-monthly basis. In addition, you will
receive a bonus equal to 40% of your base annual salary if you achieve both the
annual revenue goals and the net profit goals that will be established by the
Board of Directors. If you achieve 90% of both the revenue goals and the net
profit goals, you will receive a 50% of the eligible bonus (50% of the 40% of
your base annual salary), prorated for achievement between 90% and 100% of
revenue goals and net profit goals. If you exceed the established revenue goals
and net profit goals you will be eligible for an additional bonus under a
formula that will be established at the time the goals and objectives are
established.
In addition to the above compensation, it has been recommended to the Board of
Directors that you be granted stock options on the following terms and
conditions:
(a) The first option that has been recommended is an option to purchase 150,000
shares of common stock, with a standard 4-year vesting period, i.e., with
vesting to occur at 25% per year, effective on the first four anniversaries
of the date of grant. Under the stock option agreement form that is
currently being used by ICI, the excercisability of your stock options would
be accelerated in the event of change of control.
(b) In addition, it has been recommended to the Board of Directors that if you
reach your yearly revenue goals and net profit goals with respect to
calendar years 1998, 1999, 2000, and 2001, as will be established by the
Board of Directors with respect to each of those years, you will be eligible
to receive additional annual stock option grants of 37,500 shares for each
year as to which both of those goals are met. If you achieve 90% of the
Board of Directors
<PAGE>
established revenue goals and net profit goals, you will receive a 50% of
the stock option grant (50% of the 37,500 shares), prorated for achievement
between 90% and 100% of revenue goals and net profit goals. Each of those
four years will be evaluated separately. Those additional options will
follow the normal vesting schedule in effect at that time, which as stated
above currently provides for vesting at a rate of 25% per year following the
date of grant. In the event of change of control of the Company (as defined
in the stock option agreement) prior to granting of the additional options
for 1998, 1999, those options would be granted immediately and would become
immediately exercisable in accordance with Section 11(a) as provided in our
standard stock option agreement form. If such change of control occurs
during 1999, then the accelerated granting of stock options would be for the
1999, 2000 periods. If the change of control occurs during 2000, then the
acceleration of granting would occur with respect to the 2000 and 2001
option periods. If change of control occurred during the year 2001, the
acceleration of granting would occur with respect to options for that year
only. In any event, acceleration with respect to an option for particular
year will not occur if that year has been completed and based on results for
that year you have not qualified for the option grant.
(c) So that you will be comfortable with the definition of "change of control"
as used in this letter, a copy of our current standard form stock option
agreement is attached to this letter.
(d) At this time, the ICI 1996 Stock Option Plan does not have a sufficient
number of available shares to satisfy the grant of any of the options
described above. Accordingly, the grant of these options must be deferred
until after the ICI 1996 Option Plan can be amended, which is expected to
take place at the April 1998 Annual Meeting of the Shareholders of ICI.
Although there can be no guarantee that such an amendment will be approved,
I am confident that it will be.
(e) Because of the postponement of the granting of your stock options until
after the annual meeting, it has been recommended to the Board that the
exercise price for your stock options will be the lower of the closing price
of ICI common stock on the date of this letter, or the closing price of ICI
common stock on the date of grant, which is expected to occur promptly
following the 1998 Annual Meeting. You should understand that if the
applicable lower price is the current price, rather than the price in April
1998 your stock options will be treated as nonqualified stock options and
will not have the benefit of the incentive stock option rules under Section
422 of the Internal Revenue Code. (It would not have been possible for all
of your options to qualify for ISO treatment in any event, since there are
limits on the amount of ISOs that can vest in any one year.)
Your compensation in 1999 and in subsequent years will consist of a base salary
and bonuses as will be determined by the Board of Directors.
ICI is committed to being proactive in the professional development of its
employees. As part of this commitment, you may expect your first annual review
no later than one year after your start date with ICI.
2
<PAGE>
As a full time salaried employee, you will be eligible to participate in the
excellent benefit programs at ICI. Details of the benefit programs and company
policies and procedures will be provided upon your start date. Below are some of
the benefits included:
. Medical Insurance. Our plan is administered by Mutual of Omaha. You will
have an extensive list of doctors to choose from for your medical care.
You and your family will be eligible for coverage at the beginning of
the month, thirty (30) days after your date of hire. If you start on
December 15, 1997, then you will be eligible for medical/dental and life
insurance coverage on February 1, 1998. See attached sheet for detailed
costs.
. Dental Insurance. Our plan is administered by Mutual of Omaha. You can
use any dentist of your choice. You and your family will be eligible for
coverage at the beginning of the month, thirty (30) days after your date
of hire. If you join ICI on December 15, 1997, then you are eligible for
medical coverage as of February 1, 1997.
. Life Insurance. ICI provides you paid life insurance ($15,000) thirty
days after your date of hire. You can purchase additional supplemental
life insurance at reduced rates if you desire. You and your family will
be eligible for coverage at the beginning of the month, thirty (30) days
after your date of hire. If you join ICI on December 15, 1997, then you
are eligible for medical coverage as of February 1, 1997.
. 401(k) Retirement Savings Plan. ICI will match 50% of the first 5% you
contribute, to the extent permitted under the Internal Revenue Code and
regulations adopted thereunder. You will be eligible to start the 401(k)
on April 1, 1998.
. Vacation. You accrue ten (10) days your first year. You earn one
additional day for each subsequent year up to a total of 20 days per
year.
. Sick Days. You earn six (6) days per year.
. Holidays. We observe 10 paid holidays per year. Eight (8) of these are
set, you can choose when you want to take the other two (2).
As an employee of ICI, you will be expected to sign certain agreements on your
date of hire pertaining to the solicitation of customers, recruitment of
employees, assignment of intellectual property rights and disclosure of
confidential information, all of which can be furnished upon your request. Any
questions regarding ICI's agreements, policies, benefits administration or
eligibility should be directed to myself or Eve Zapler, ICI's Office Manager.
Please let Ms Zapler or me know if you would like to review copies of these
before your start date.
It is extremely important to ICI that you neither use nor disclose any
confidential or proprietary information from any previous employer as you
perform your duties and responsibilities at ICI. ICI specifically instructs you
not to bring to ICI or make any use of any such information, or to breach any of
your other obligations to former employers.
Our offer to hire you will remain valid until December 15, 1997. Your employment
and compensation with ICI are "at will" and are contingent upon your submission
of satisfactory proof of your identity and your legal authorization to work in
the United States. If you fail to submit this proof, federal law prohibits us
from hiring you.
Larry, if you agree with, and accept the terms of this offer of employment,
please sign below and return this letter to our office. An additional copy of
this letter is being furnished to you to retain for your records. I and the
other officers of ICI look forward to working with you to build a world class
sales team. Your expertise, enthusiasm, and past record will provide a strong
3
<PAGE>
foundation for our company. I am confident that your acceptance of this offer
will begin a very bright future for both you and ICI.
Please don't hesitate to call if I can answer any questions you may have.
Sincerely, Accepted by:
/s/ Emil H. Dahan [SIGNATURE APPEARS HERE]
Emil H. Dahan [SIGNATURE APPEARS HERE] Date: 12-19-97
Chief Executive Officer ----------------------- --------
4
<PAGE>
Subject: December 1, 1997-December 31, 1998 Company Goals and Objectives for
Larry Duckworth
Responsibilities
- ----------------
. By January 15, 1998, you must present to the Board of Directors for approval
your sales strategy and revenue goals for ItemQuest software, licensing,
services, and maintenance in 1998. Elements of this strategy are to include
direct and non-direct sales channels and partnerships. Success will be
measured by services and software revenue, expense management, and customer
satisfaction and the hiring and training of a sales and marketing team to
sell and implement IQ. Upon approval by the Board of Directors these goals
will become part of your goals to achieve your bonus and stock option
incentives for 1998.
. In conjunction with our PR/Media firms develop and implement a marketing
strategy and material to support sales of IQ software and services and
develop name and product recognition of ICI and ItemQuest.
. Develop and implement a plan to provide customization, implementation, and
maintenance services for ItemQuest.
. By January 15, 1998, develop and submit to the Board of Directors for
approval your revenue goals and marketing/sales plan to sell and provide PDM
and PM related services in 1998. Upon approval by the Board of Directors
these goals will become part of your goals to achieve your bonus and stock
option incentives for 1998.
. Assist with the development and execution of a strategy for developing
strategic partnerships with the following:
1. IHS
2. BAAN
3. SAP
4. Oracle
5. IBM
6. Big 4 Accounting Firms
7. PTC
8. MetaPhase
. Develop and implement a plan to develop professional relationships with the
following research groups:
1. CIMdata
2. Gartner Group
3. AMR
4. Other major IT, Procurement and Manufacturing related professional
organizations.
Larry, the following departments will report directly to you:
1. Sales (U.S., and International)
2. Marketing
3. Services (IBM, ItemQuest)
Expenses
- --------
Develop and document a 1998 budget plan proposal, including resource
requirements, to support the sales, marketing, services, and partnership plan.
5
<PAGE>
[LETTERHEAD OF ICI APPEARS HERE]
Steve Norwood
5939 Cabell View Court
Charlotte, NC 28277
Dear Mr. Norwood,
It is with great pleasure that I extend to you an offer to join International
CompuTex, Inc. as Vice President of Sales, Atlanta, GA. Your anticipated start
date will be December 1, 1997.
You will initially report to Emil Dahan, CEO, ICI. Your responsibilities will
be those as described to you during your discussions with Emil Dahan and as
outlined in the enclosed sales objectives. Your sales focus will be the
licensing and selling of ItemQuest software and associated services for
implementation, customization, and maintenance as well as establishing the
strategic partnerships and relationships to further the sales and distribution
of our ItemQuest software and services.
We are prepared to offer you a package that we believe is extremely competitive
as well as one that will reward performance with tremendous upside potential.
Your compensation the first year (December 1997 through December 1998) will be a
base of $125,000 per year paid on a semi-monthly basis. In addition, you will
receive a one time signing bonus of $75,000, which will be prorated and paid
over a 12 month period ($6,250 per month, paid on a semi-monthly basis). See
the attached sheet for details of the sales plan.
In addition, to the above compensation, it has been recommended to the Board of
Directors that you be granted 50,000 stock options at the current stock price as
soon as possible after your first day of employment. These options will vest at
25% a year over the next 4 years. Upon reaching your sales quota for 1998, you
will be eligible for an additional 25,000 stock options at the current stock
price on the day of grant. In the event of a change of control, these options
will be immediately granted and exercisable per Section 11(a) in the Stock
Option Agreement. These options also will vest 25% a year over the next 4
years after the date of the grant.
Your future compensation in 1999, will consist of a base salary and commissions
based upon the ItemQuest sales and services as defined in the attached sales
objectives.
To help you with your move to the Atlanta area, ICI is willing to reimburse you
for up to $32,000.00 in reasonable expenses involved in the moving, buying and
selling of new home and temporary living expenses related to your relocation.
You will be required to supply receipts for expenses incurred to receive
reimbursement. You will be receiving reimbursement for moving expenses upon the
movement of your family to the Atlanta area.
To assure our mutual success, ICI will make significant investments in your
relocation and training. In order to guarantee that ICI does not bear all of the
risk of this investment, you agree
<PAGE>
to reimburse the company in the amount equal to the sum of your signing bonus
($75,000), relocation expenses, and out of pocket training costs actually
incurred by ICI, should you voluntarily terminate your employment with ICI or
should ICI terminate your employment with cause, within eighteen (18) months
from your date of hire. The amount you must reimburse the company if you leave
prior to 18 months will be reduced by the amount of commissions you have earned
for the ItemQuest revenue you have produced. The formula will be amount of
ItemQuest revenue over the time of your employment x 2.5%. For example if you
are responsible for $4 million in ItemQuest revenues your first year and then
leave ICI you would be required to reimburse ICI ($75,000 + 32,000 - ($4 million
x 2.5%) = $7,000.
ICI is committed to being proactive in the professional development of its
employees. As part of this commitment, you may expect your first annual review
no later than one year after your start date with ICI.
As a full time salaried employee, you will be eligible to participate in the
excellent benefit programs at ICI. Details of the benefit programs and
company policies and procedures will be provided upon your start date. Below are
some of the benefits included:
. Medical Insurance. Our plan is administered by Mutual of Omaha. You will have
an extensive list of doctors to choose from for your medical care. You and
your family will be eligible for coverage at the beginning of the month,
thirty (30) days after your date of hire. If you start on December 1, 1997,
then you will be eligible for medical/dental and life insurance coverage on
January 1, 1997. See attached sheet for detailed costs.
. Dental Insurance. Our plan is administered by Mutual of Omaha. You can use
any dentist of your choice. You and your family will be eligible for coverage
at the beginning of the month, thirty (30) days after your date of hire.
If you join ICI on December 1, 1997, then you are eligible for medical
coverage as of January 1, 1997.
. Life Insurance. ICI provides you paid life insurance ($15,000) thirty days
after your date of hire. You can purchase additional supplemental life
insurance at reduced rates if you desire. You and your family will be
eligible for coverage at the beginning of the month, thirty (30) days after
your date of hire. If you join ICI on December 1, 1997, then you are eligible
for medical coverage as of January 1, 1997.
. 401(k) Retirement Savings Plan. ICI will match 50% of the first 5% you
contribute. You will be eligible to start the 401(k) on April 1, 1998.
. Employee Stock Option Plan. ICI encourages employees to participate in the
ownership of the company. Details of this plan will be provided at a later
date.
. Vacation. You accrue ten (10) days your first year. You earn one additional
day for each subsequent year up to a total of 20 days per year.
. Sick Days. You earn six (6) days per year.
. Holidays. We observe 10 paid holidays per year. Eight (8) of these are set,
you can choose when you want to take the other two (2).
As an employee of ICI, you will be expected to sign certain agreements on your
date of hire pertaining to the solicitation of customers, recruitment of
employees, assignment of intellectual property rights and disclosure of
confidential information, all of which can be furnished upon your request. Any
questions regarding ICI's agreements, policies, benefits administration or
eligibility should be directed to myself or Eve Zapler, ICI's Office Manager.
Please let Ms Zapler or me know if you would like to review copies of these
before your start date.
2
<PAGE>
It is extremely important to ICI that you neither use nor disclose any
confidential or proprietary information from any previous employer as you
perform your duties and responsibilities at ICI. ICI specifically instructs you
not to bring to ICI or make any use of any such information, or to breach any of
your other obligations to former employers.
Our offer to hire you will remain valid until November 25, 1997. Your employment
and compensation with ICI are "at will" and are contingent upon your submission
of satisfactory proof of your identity and your legal authorization to work in
the United States. If you fail to submit this proof, federal law prohibits us
from hiring you.
Steve, if you agree with, and accept the terms of this offer of employment,
please sign below and return this letter to our office. An additional copy of
this letter is being furnished to you to retain for your records. I and the
other officers of ICI look forward to working with you to build a world class
sales team. Your expertise, enthusiasm, and past record will provide a strong
foundation for our company. I am confident that your acceptance of this offer
will begin a very bright future for both you and ICI.
Please don't hesitate to call if I can answer any questions you may have.
Sincerely, Accepted by:
/s/ John L. Butler
Human Resources Manager [SIGNATURE APPEARS HERE] DATE 11/26/97
(770) 240-2305 ------------------------- ----------
[email protected]
3
<PAGE>
Subject: December 1, 1997-December 31, 1998 Sales Objective for Steve Norwood
Responsibilities
- ----------------
Develop and implement a sales strategy to sell ICI's ItemQuest software and
services. Elements of this strategy are to include direct and non-direct sales
channels and partnerships. Success will be measured by services and software
revenue, expense management, and customer satisfaction and the hiring and
training of a sales and marketing team to sell and implement IQ. You will assist
in the development of a marketing strategy to support sales of IQ software and
services.
Sales
- -----
Develop and document a sales plan to achieve the following January 1, 1998
through December 31, 1998 revenue objectives. These revenue objectives are based
on having six (6) sales personnel. If the number of sales personnel increases
over the next twelve months then the sales objectives and your compensation plan
will be modified to account for the additional personnel. For example if the
number of sales personnel increase to seven (7) then the sales goal increases to
$8 million for 1998 in order to achieve the $50,000 bonus.
. IQ Sales and IQ implementation services quota for 1998 is $7,000,000. For
1998, your bonus for achieving IQ revenue equaling $7 million will be
$50,000. For any IQ revenue exceeding $7 million you will receive 2.5% (2.5%
times the amount of revenue in excess of $7 million, for example $7.6 million
in IQ related revenues for 1998 would be calculated as 2.5% times $600,000
which equals $15,000 in bonuses). Total bonus for $7.6 million in sales would
be ($65,000, ($50,000 for reaching $7 million plus $15,000 for reaching $7.6
million)). This bonus plan will be in effect for 1998 only. A separate
compensation plan for 1999, will be developed in the fall of 1998.
Partnerships
- ------------
Develop a list of strategic and tactical partnerships needed in order to sell
and market ItemQuest. These partnerships should include but are not limited to
the following:
. ERP vendors such as SAP and BAAN, etc.
. PDM vendors such as Metaphase, MatrixOne, Sherpa, etc.
. CAD/CAM vendors such as Catia, PTC, Computervision etc.
. Content suppliers such as IHS, Harbinger, Aquion, etc.
. Database companies such as Oracle, Informix, IBM, etc.
. Consulting firms such as Arthur Anderson, E&Y, etc.
. Research firms such as Gartner Group, CIMdata, etc.
Marketing
- ---------
In conjunction with our PR firms and senior management develop a marketing
strategy and plan to develop name recognition for ICI and ItemQuest. Finalize
marketing material and brochures. Develop a list of trade shows/conventions ICI
must attend.
Expenses
- --------
Develop and document a 1998 expense plan proposal, including resource
requirements, to support the sales and marketing plan.
The above plans must be developed in collaboration with ICI management team. A
draft of your plans is due six weeks after joining ICI.
4
<PAGE>
Duties of
Vice President of Sales
Duties: The Vice President of Sales will be responsible for the sales of
the IQ software and services of International CompuTex, Inc. as
defined below:
. Within 90 days of hiring you will be expected to have hired
additional sales personnel in order to have a staff of six (6)
direct sales personnel.
. For 1998, achieve $7 million in ItemQuest Sales and services.
. By February 98, in conjunction with HR develop compensation
plans for sales, pre-sales, and sales administration.
. By June 1998, identify and have in place the necessary
partnerships and relationships with PDM, ERP, CAD/CAM vendors,
VARs, resellers, consultants, etc. to market and sell IQ
software and services.
. Within 60 days of joining ICI, develop and implement a sales
model for ItemQuest sales and services.
. Set the proper level of expectation with prospects and
customers relating to Return on Investment in ICI products and
services, Product functionality, ICI Customer service, and
Customer implementation responsibilities.
5
<PAGE>
COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is made as of January 29,
1998 by and between International CompuTex, Inc., a Georgia corporation
("Seller"), and Thybo New Ventures Limited, a Bermuda corporation ("Purchaser").
The parties hereby agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
---------------------------------
SECTION 1.01. Sale and Issuance of Common Stock. Subject to the
----------------------------------
terms and conditions of this Agreement, Purchaser agrees to purchase at the
Closing and Seller agrees to issue and sell to Purchaser at the Closing 300,000
shares (the "Shares") of Seller's Common Stock, par value $0.001 per share (the
"Common Stock") at a purchase price of $2,850,000 ($9.50 per share).
SECTION 1.02. Closing. (a) The purchase and sale of the Shares
--------
shall take place via telecopy on February 2, 1998 at 10:00 a.m. New York City
time, or at such other time as Seller and the Purchaser mutually agree upon,
orally or in writing (which time and place are designated as the "Closing"). At
the Closing, Seller shall deliver to the Purchaser certificates representing the
Shares being purchased hereby against delivery by the Purchaser to Seller of the
purchase price therefor by wire transfer payable in same-day funds to an account
specified by Seller. Delivery shall be made through the facilities of the
Depository Trust Company unless Purchaser shall otherwise instruct.
ARTICLE II
Representations and Warranties of Seller
----------------------------------------
Seller hereby represents and warrants to the Purchaser that:
SECTION 2.01. Organization, Good Standing and Qualification. Seller
----------------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted.
Seller is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties. Seller does not have any subsidiaries.
<PAGE>
SECTION 2.02. Capitalization. The authorized capital of Seller
---------------
consists, or will consist, immediately prior to the Closing, of:
(a) Common Stock. 20,000,000 shares of Common Stock, of which
-------------
3,250,690 shares are issued and outstanding.
(b) Options and Warrants. Except for (i) options issued or issuable
---------------------
for an aggregate of 499,310 shares of Common Stock under the 1995
Restricted Non-qualified Incentive Stock Option Plan, dated August 1, 1995,
and the 1996 Stock Option Plan, dated December 20, 1996, as proposed to be
amended, and (ii) the Warrant dated May 5, 1997 to purchase 112,500 shares
of Common Stock issued pursuant to the Underwriting Agreement dated April
29, 1997, there are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements, orally or in writing, for
the purchase or acquisition from Seller of any shares of its capital stock
(the rights and options in clauses (i) and (ii) above being collectively
called the "Existing Equity Rights"). There exist no rights of first
refusal or similar rights in respect of shares of Seller's capital stock
issued or sold by Seller.
SECTION 2.03. Authorization. All corporate action on the part of
--------------
Seller, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of Seller hereunder and the authorization, issuance and delivery of
the Shares has been taken or will be taken prior to the Closing, and the
Agreement, when executed and delivered by Seller, shall constitute a valid and
legally binding obligation of Seller, enforceable against Seller in accordance
with its terms.
SECTION 2.04. Valid Issuance of Shares. The Shares being issued to
-------------------------
Purchaser hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement and applicable state and
federal securities laws and not subject to any preemptive rights of others. The
issued and outstanding shares of Seller's Common Stock are duly and validly
issued, fully paid and nonassessable and have been issued in compliance with
applicable state and federal securities laws and are approved for quotation on
the Nasdaq National Market ("NNM") under the symbol "ICIQ". Based in part upon
the representations of Purchaser in this Agreement, the Shares will be issued in
compliance with all applicable federal and state securities laws and will be
listed on the NNM.
SECTION 2.05. Governmental Consents. No consent, approval, order or
----------------------
authorization of, or registration,
2
<PAGE>
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of Seller is required in connection
with the consummation of the transactions contemplated by this Agreement.
SECTION 2.06. Litigation. Except as described in the SEC Documents
-----------
(as defined in Section 2.12) or Schedule 2.06 hereto, there is no action, suit,
proceeding or investigation pending or, to Seller's knowledge, currently
threatened against Seller that questions the validity of this Agreement or the
right of Seller to enter into it, or to consummate the transactions contemplated
hereby, or that would reasonably be expected to result, either individually or
in the aggregate, in any material adverse change in the business, assets,
condition, affairs or prospects of Seller, financially or otherwise, or any
change in the current equity ownership of Seller, nor is Seller aware that there
is any basis for the foregoing. Seller does not warrant, however, that the
litigation described in Schedule 2.06 will not become material, either favorably
or unfavorably to Seller, as such litigation progresses, it having been filed
recently and no discovery having been performed. The foregoing includes,
without limitation, any actions pending or threatened (or any basis therefor
known to Seller) involving the prior employment of any of Seller's employees,
their use in connection with Seller's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. Except as described in Schedule
2.06, Seller is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
SECTION 2.07. Patents and Trademarks. The SEC Documents disclose all
-----------------------
material information pertaining to all patents, registered trademarks and trade
names, and pending applications therefor, owned by Seller. Seller has title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and process material to its
business as now conducted without, to the best of Seller's knowledge, any
conflict with or infringement of the rights of others. Except as included in
the SEC Documents, and except for software licensed from Neuron Data, Inc. and
NobleNet, Inc., distributor for IONA Technologies, Inc., Seller is not party to
and has not granted any options, licenses, or agreements of any kind relating to
the foregoing, nor is Seller bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights or processes of any other person or entity. Seller has not received any
communications alleging that Seller has violated or, by conducting its business
as proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. To Seller's knowledge, none of its employees is obligated
under any contract (including
3
<PAGE>
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere in any material respect with the use of his or her best efforts
to promote the interests of Seller or that would conflict with Seller's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of Seller's business by the employees of Seller,
will conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument under
which any of such employees is now obligated.
SECTION 2.08. Compliance with Other Instruments. Seller is not, nor
----------------------------------
will it be on the date of Closing, in violation or default in any respect of any
provisions of its Restated Articles of Incorporation or By-laws or, in any
material respect, of any instrument, judgment, order, writ, decree or contract
to which it is a party or by which it is bound or of any provision of federal or
state statute, rule or regulation applicable to Seller. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any material lien, charge
or encumbrance upon any assets of Seller.
SECTION 2.09. Agreements; Action. (a) Except as described in the SEC
-------------------
Documents and as listed in Schedule 2.09, there have been no material
agreements, understandings or proposed transactions between Seller and any of
its officers, directors, affiliates, or any affiliate thereof.
(b) Except as included in the SEC Documents, there are no
agreements, understandings, instruments, contracts or proposed transactions to
which Seller is a party or by which it is bound that involve (i) obligations
(contingent or otherwise) of, or payments to or by, Seller in excess of,
$50,000, other than in the ordinary course of Seller's business, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from Seller other than in the ordinary course of Seller's business.
(c) Since April 29, 1997, Seller has not (i) except for dividends in
the amount of $2,418,765 distributed in accordance with the S Corporation
Termination, Tax Allocation and Indemnification Agreement dated March 24, 1997,
paid any dividends, or authorized or made any distribution upon or with respect
to any class or series of its capital stock, (ii) except as disclosed in the SEC
Documents, incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $50,000 or in excess of $200,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses,
4
<PAGE>
or (iv) other than in the ordinary course of business and consistent with past
practice, sold, exchanged or otherwise disposed of any of its assets or rights.
(d) Seller is not a party to, and is not bound by, any contract,
agreement or instrument, or subject to any restriction under its Restated
Articles of Incorporation or By-laws, that materially and adversely affects its
business as now conducted, its properties or its financial condition.
SECTION 2.10. Registration Rights. Except as contemplated herein, in
--------------------
the Warrants for 112,500 shares of Common Stock issued to the Underwriters in
the April 1997 public offering, and with respect to the 117,368 shares that may
be acquired by holders of the Debenture Holder Warrants (as such term was
defined in Seller's April 29, 1997 Prospectus), Seller has not granted or agreed
to grant any registration rights, including piggyback rights, to any person or
entity.
SECTION 2.11. Title to Property and Assets. Seller owns its property
-----------------------------
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair Seller's ownership or use of such property
or assets. With respect to the property and assets it leases, Seller is in
compliance with such leases in all material respects and holds a valid leasehold
interest free of any liens, claims or encumbrances.
SECTION 2.12. SEC Documents, Financial Statements. Since becoming
------------------------------------
registered under the Securities Exchange Act of 1934 (the "Exchange Act") on
April 29, 1997, Seller has filed all reports, schedules, forms, statements,
exhibits and other documents required to be filed by it with the Securities and
Exchange Commission (the "Commission") pursuant to the reporting requirements of
the Exchange Act (all of the foregoing, together with Registration Statement No.
333-21647, as amended, being referred to herein as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the applicable requirements of the Securities Act of 1933 (the "Securities Act")
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder applicable to such SEC Documents, and, as of their respective dates,
none of the SEC Documents taken as a whole (when read together with all exhibits
included therein and financial statement schedules thereto and documents (other
than exhibits) incorporated by reference therein) contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of Seller included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto. Such financial statements
5
<PAGE>
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of Seller as of the dates thereof and
the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustment).
SECTION 2.13. Employee Benefit Plans. Seller is in compliance in all
-----------------------
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which Seller would have any liability; Seller has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Section 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which Seller would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause the loss
of such qualification.
SECTION 2.14. Tax Returns and Payments. Seller has filed all tax
-------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. Seller has paid all taxes and other
assessments due.
SECTION 2.15. Insurance. Seller has in full force and effect fire
----------
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
SECTION 2.16. Labor Agreements and Actions. Seller is not bound by
-----------------------------
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
Seller, has sought to represent any of the employees, representatives or agents
of Seller. There is no strike or other labor dispute involving Seller pending,
or to the knowledge of Seller threatened, which could have a material adverse
effect on the assets, properties, financial condition, operating results or
business of Seller (as such business is presently conducted and as it is
proposed to be conducted), nor is Seller aware of any labor organization
activity involving its employees. Seller is not aware that
6
<PAGE>
any officer or key employee intends to terminate their employment with Seller,
nor does Seller have a present intention to terminate the employment of any of
the foregoing. Seller has complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related
to employment.
SECTION 2.17. Offering. Subject to the truth and accuracy of
---------
Purchaser's representations set forth in this Agreement, the offer, sale and
issuance of the Shares as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933 (the "Securities Act"),
and neither Seller nor any authorized agent acting on its behalf will take any
action hereafter that would cause the loss of such exemption.
SECTION 2.18. Permits. Seller has all franchises, permits, licenses
--------
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of Seller and believes
that it can obtain, without undue burden or expense, any similar authority for
the conduct of its business as planned to be conducted. Seller is not in
default in any material respect under any of such franchises, permits, licenses
or other similar authority.
ARTICLE III
Representations and Warranties of Purchaser
-------------------------------------------
The Purchaser hereby represents, warrants and covenants to and for the
benefit of Seller that:
SECTION 3.01. Authorization. All corporate action on the part of
--------------
Purchaser, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of Purchaser hereunder has been taken prior to Closing, and
delivered by Purchaser and shall constitute a valid and legally binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms.
SECTION 3.02. Purchase Entirely for Own Account. The Shares to be
----------------------------------
acquired by it will be acquired for investment for its own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and it has no present intention of selling, granting any participation
in, or otherwise distributing the same. It does not presently have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares. It understands that this sale of the Shares has
not been, and will not be, registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act which
depends
7
<PAGE>
upon, among other things, the bona fide nature of its investment intent and the
accuracy of its representations as expressed herein. It represents that it has
not been formed for the specific purpose of acquiring the Shares.
SECTION 3.03. Disclosure of Information. It has received all the
--------------------------
information it considers necessary or appropriate for deciding whether to
acquire the Shares. It further represents that it has had an opportunity to ask
questions and receive answers from Seller regarding the terms and conditions of
the offering of the Shares. The foregoing, however, does not limit or modify
the representations and warranties of Seller in Article II of this Agreement or
the right of the Purchaser to rely thereon.
SECTION 3.04. Investment Experience. It has substantial experience
----------------------
in evaluating and investing in private placement transactions so that the
Purchaser is capable of evaluating the merits and risks of its investment in
Seller. By reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated with and
who are not compensated by Seller or any affiliate or selling agent of Seller,
directly or indirectly, it has the capacity to protect its own interests in
connection with the purchase of the Shares hereunder.
SECTION 3.05. Restricted Securities. It understands that the Shares
----------------------
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Seller in a transaction not involving a
public offering and that under such laws and applicable regulations such Shares
may be resold without registration under the Securities Act only in certain
limited circumstances. In this respect, it represents that it is familiar with
Rule 144 promulgated under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and otherwise by the
Securities Act.
SECTION 3.06. Further Limitations on Disposition. Without in any way
-----------------------------------
limiting the representations set forth above, the Purchaser further agrees not
to make any disposition of all or any portion of the Shares unless and until the
conditions set forth in paragraphs (a) and (b) are satisfied:
(a) Either (x) there is in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement; or (y) (i) the
Purchaser shall have notified Seller of the proposed disposition and shall
have furnished Seller with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably requested by
Seller, the Purchaser shall have furnished Seller with an opinion of
counsel, reasonably satisfactory to Seller, that such disposition will not
require registration under
8
<PAGE>
the Securities Act or any applicable state securities laws. It is agreed
that Seller will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances; provided, however,
-------- -------
the Purchaser acknowledges that the transfer agent for the Common Stock may
require opinions of counsel for any transactions made pursuant to Rule 144.
(b) Any resale prior to February 2, 2001, pursuant to paragraph (a)
will be limited to no more than 100,000 shares in any six month period.
Notwithstanding the foregoing provisions of this Section 3.06, a transfer by the
Purchaser to a constituent shareholder (including any constituent of a
constituent) of the Purchaser if such transferee is an accredited investor (as
defined in Rule 501(a) under the Securities Act) shall be permitted if the
transferee or transferees agree in writing to be subject to the terms hereof to
the same extent as if they were the Purchaser hereunder.
SECTION 3.07. Legends. It is understood that the Shares may bear one
--------
or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the
certificate so legended.
SECTION 3.08. Accredited Investor. It is an accredited investor as
--------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
SECTION 3.09. Organization and Good Standing. Purchaser is a
-------------------------------
corporation duly organized and in good standing under the laws of Bermuda and
has all requisite corporate power and authority to carry on its business as now
conducted and to execute and deliver this Agreement.
ARTICLE IV
Conditions of Purchaser's Obligations at Closing
------------------------------------------------
The obligations of the Purchaser to Seller under this Agreement at the
Closing are subject to the fulfillment,
9
<PAGE>
on or before such Closing, of each of the following conditions:
SECTION 4.01. Representations and Warranties. The representations
-------------------------------
and warranties of Seller contained in Article II shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of such date.
SECTION 4.02. Performance. Seller shall have performed and complied
------------
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before such Closing.
SECTION 4.03. Certificates of Officers. Seller shall deliver to
-------------------------
Purchaser at such Closing certificates of the officers of Seller certifying that
the conditions specified in Sections 4.01 and 4.02 have been fulfilled and as to
such other matters as the Purchaser may reasonably request.
SECTION 4.04. Proceedings and Documents. All corporate and other
--------------------------
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchaser, and the Purchaser shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
SECTION 4.05. Opinion of Counsel. The Purchaser shall have received
-------------------
from Gambrell & Stolz, counsel for Seller, an opinion, dated as of the Closing,
in the form attached hereto as Exhibit A.
SECTION 4.06. No Material Adverse Change. (i) Seller shall not have
---------------------------
sustained since September 30, 1997, any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, and (ii) there shall not have been any change in the capital stock or
long-term debt of Seller or any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
earnings, general affairs, business, operations, properties, management,
stockholders' equity, results of operations or prospects of Seller, taken as a
whole, the effect of which, in any such case described in clause (i) or (ii), is
in Purchaser's sole judgment so material and adverse as to make it impracticable
or inadvisable to proceed with the purchase of the Shares.
10
<PAGE>
ARTICLE V
Conditions of Seller's Obligations at Closing
---------------------------------------------
The obligations of Seller to the Purchaser under this Agreement are
subject to the fulfillment, on or before the Closing, of each of the following
conditions:
SECTION 5.01. Representations and Warranties. The representations
-------------------------------
and warranties of the Purchaser contained in Article III shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of such date.
ARTICLE VI
Covenants of Seller
-------------------
SECTION 6.01. Agreement as to Voting of the Shares. Purchaser hereby
-------------------------------------
agrees and covenants that, through February 2, 2000 (or such earlier date as may
apply as set forth in Section 6.04), on each occasion on which shareholders of
Seller are entitled to vote or consent on any issue, whether at an annual or
special meeting of shareholders, by written consent or otherwise (hereinafter
collectively referred to as "Shareholder Votes"), Purchaser shall designate Haim
E. Dahan, who currently is Chief Executive Officer of Seller ("Dahan"), as its
proxy or attorney-in-fact to vote or otherwise act with respect to the Shares on
behalf of Purchaser in all respects in connection with the Shareholder Votes,
including without limitation granting to him a proxy to vote in his discretion
on any action that may be taken at an annual or special meeting of shareholders
whether or not such action was described in any proxy statement or solicitation
prepared on behalf of Seller. The term "Shares" as used in this Article VI
shall include also any other shares of Common Stock or other securities of
Seller that are issued to Purchaser with respect to the Shares pursuant to a
stock dividend, stock split or otherwise.
SECTION 6.02. Execution of Proxies and Powers of Attorney. Promptly
--------------------------------------------
upon request of Dahan or of Seller, but in any event within not more than 10
days after written notice is given to Purchaser requesting execution of an
enclosed or previously furnished proxy, power of attorney or other written
authorization that would grant to Dahan the right to vote or consent with
respect to the Shares with respect to any Shareholder Vote, Purchaser shall duly
execute such proxy, power of attorney or other written authorization and cause
such proxy, power of attorney or other written authorization to be delivered to
Dahan at the address for Seller as established pursuant to Section 8.06, or to
such other address as Dahan may furnish to Purchaser by not less than 10 days
prior written notice. Purchaser shall not make any attempt to revoke or
supersede any such proxy, power of attorney or other
11
<PAGE>
written authorization given to Dahan pursuant to this Article VI, nor may
Purchaser make any attempt to vote the Shares directly or through any other
person, proxy or attorney-in-fact with respect to any Shareholder Vote as to
which a proxy, power of attorney or other written authorization has been given
to or has been requested by or on behalf of Dahan. Any attempt by Purchaser to
do so in violation of this Article VI shall be void and ineffective, and Seller
is hereby authorized to so notify the transfer agent for the common stock and
any inspector(s) of election with respect to any Shareholder Vote. Purchaser
hereby designates Dahan as its attorney-in-fact (which designation is hereby
deemed to be coupled with an interest) for the limited purpose of providing
notices, casting votes and taking any other actions, including the execution of
any ballots, instruments or other documents necessary to effectuate the purposes
of this Article VI.
SECTION 6.03. Scope of Voting Rights. In his exercise of the voting
-----------------------
rights established pursuant to this Article VI, Dahan shall, in his uncontrolled
discretion, in respect of any and all of the Shares, possess and be entitled to
exercise the right to vote thereon for every purpose, in person or by proxy, to
waive any share privilege in respect thereof (excluding any right or privilege
to subscribe for any additional shares of Common Stock, which shall remain
vested in Purchaser notwithstanding any other provision of this Article VI), and
to consent to any lawful corporate act of Seller, as though absolute owner of
the Shares. Dahan is specifically authorized by way of example, without
limiting his rights hereunder, to vote the Shares for, or to consent in respect
thereof to, any increase or reduction of the shares of Seller, any agreement of
consolidation, merger, share exchange or the sale or other disposition of all,
substantially all, or any part of the property, assets and franchises of Seller
and the granting, ratification or confirmation of any option or options therefor
(whether or not such option or options extend(s) beyond the term of this
Agreement), or the dissolution of Seller, and the judgment of Dahan as to the
adequacy of the consideration thereby to be received by the Seller and Purchaser
(provided each shareholder is treated uniformly, share for share) shall be
conclusive and binding upon Purchaser and all persons claiming through or under
Purchaser. Dahan may, directly or indirectly, transact any lawful business with
Seller, notwithstanding the rights granted to him hereunder. Dahan may also
serve as director and compensated officer of Seller and may vote the Shares for
himself, as such. The granting of voting rights to Dahan under this Article VI
shall not constitute him as a fiduciary under applicable law.
SECTION 6.04. Termination of Voting Rights. The voting rights
-----------------------------
granted under this Article VI shall extend through the earlier of (i) the date
set forth in Section 6.01, or (ii) the date on which Purchaser and Purchaser's
"Affiliates", as such term is defined in the Securities Act, on a collective
basis beneficially own less than 150,000
12
<PAGE>
shares of Common Stock, or (iii) the death or incapacity of Dahan, at which time
the voting rights granted under this Article VI shall terminate automatically.
For purposes of this Section 6.04, the number of shares shall be adjusted
appropriately to reflect any stock dividend, stock split or similar transaction.
SECTION 6.05. Applicability to Transferees; Legend on Certificates.
-----------------------------------------------------
The voting rights granted under this Article VI shall apply to Purchaser and
Purchaser's Affiliates during the period set forth in this Article VI. Any
Shares transferred during such period to a transferee that is not an Affiliate
of Purchaser shall be free from any of the provisions of this Article VI,
provided that such transfer is in compliance with all of the terms of this
Agreement. Each certificate representing the Shares shall, during the period in
which this Article VI remains applicable as to such Shares, bear on its front or
reverse a prominent legend referring to the terms of this Article VI, as
follows:
THE VOTING RIGHTS WITH RESPECT TO THESE SECURITIES ARE LIMITED BY THE TERMS
OF AN AGREEMENT BETWEEN THE HOLDER HEREOF AND THE COMPANY, TERMINATING,
WITH RESPECT TO SUCH VOTING RESTRICTIONS, NOT LATER THAN FEBRUARY 2, 2000.
A COPY OF SUCH AGREEMENT IS MAINTAINED AT THE EXECUTIVE OFFICES OF THE
COMPANY AND A COPY THEREOF IS AVAILABLE TO THE HOLDER FROM THE COMPANY UPON
REQUEST.
SECTION 6.06. Enforcement, Third Party Beneficiary. Either the
-------------------------------------
Seller or Dahan shall have the right to enforce the terms of this Article VI by
specific performance, in addition to any other legal or equitable remedies that
may be available to Seller or Dahan. Notwithstanding any other provision of
this Agreement to the contrary, any legal action related to this Article VI,
whether brought by Purchaser, Seller or Dahan, shall be brought in a state or
federal court in Fulton County, Georgia, which the parties agree shall have
exclusive jurisdiction over any such action. Purchaser, on its own behalf and
on behalf of any Affiliate of Purchaser that is a transferee of the Shares,
hereby waives any argument or claim that such courts are not a convenient forum
for any such action or that jurisdiction or venue is not proper for any reason
whatsoever. The parties specifically intend that Haim E. Dahan is and shall be
deemed to be a third-party beneficiary of this Article VI and shall have the
full right to enforce the provisions hereof in his own behalf.
ARTICLE VII
Registration Rights
-------------------
SECTION 7.01. Definitions. As used herein, "Holders" means Purchaser
------------
and any persons or entities to whom the rights granted under this Article VII
are transferred by any Purchaser, their successors or assigns, and "Registrable
Securities" shall mean, with regard to the exercise of any
13
<PAGE>
right pursuant to Section 7.02, (i) the 90,000 Shares bearing the legend
specified in Section 7.08 and (ii) any other shares of Common Stock of Seller
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the Shares referred to in clause
(i).
SECTION 7.02. Incidental Registration. If Seller at any time
------------------------
proposes to file prior to February 2, 2003, on its behalf or on behalf of any of
its security holders (other than Holders of Registrable Securities) (the
"demanding security holders") a registration statement under the Securities Act
on any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of Seller
pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock
or any other class of equity security (as defined in Section 3(a)(11) of the
Exchange Act) of Seller, it will give written notice to all Holders of the
Registrable Securities at least four weeks before the initial filing with the
Commission of such registration statement, which notice shall set forth the
intended method of disposition of the securities proposed to be registered by
Seller. The notice shall offer to include in such filing the aggregate number
of shares of Registrable Securities, as such Holders may request.
Each Holder of any Registrable Securities desiring to have Common
Stock registered under this Section 7.02 shall advise Seller in writing within
10 days after the date of receipt of such offer from Seller, setting forth the
amount of such Common Stock for which registration is requested. Seller shall
thereupon include in such filing the number of shares of Common Stock for which
registration is so requested, subject to the following sentence, and shall use
its best efforts to effect registration under the Securities Act of such shares.
If a public offering is proposed for the securities being registered by Seller
or such demanding security holder and the managing underwriter of such public
offering advises Seller in writing that, in its opinion, the distribution of the
Common Stock requested to be included in the registration concurrently with the
securities being registered by Seller or such demanding security holder would
materially and adversely affect the distribution of such securities by Seller or
such demanding security holder, then Seller, if applicable, and all selling
security holders (including, if applicable, the Holders and the demanding
security holder who initially requested such registration) shall reduce (to the
extent Seller has a contractual right to impose such a reduction) the amount of
securities each intended to distribute through such offering on a pro rata
basis; provided, however, that Seller shall not be required to reduce the amount
-------- -------
of securities to be distributed on its behalf to less than 50% of the aggregate
number of securities to be registered in such offering.
14
<PAGE>
SECTION 7.03. Registration Procedures. If Seller is required by the
------------------------
provisions of this Article VII to effect the registration of any of Purchaser's
securities under the Securities Act, Seller will, as expeditiously as possible:
(a) promptly prepare and file with the Commission a registration
statement with respect to such securities and cause such registration
statement to become and remain effective for a period of time required for
the disposition of such securities by the Holders thereof, but not to
exceed three months from the effective date thereof;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities covered by
such registration statement until the earlier of such time as all such
securities have been disposed of in a public offering or the expiration of
three months, and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Holders of such securities set forth in such
registration statement;
(c) furnish to such Holders such number of copies of such registration
statement, each amendment and supplement thereto, and the prospectus
included in such registration statement (including each preliminary
prospectus), all in conformity with the requirements of the Securities Act,
and such other documents, as such Holders may reasonably request;
(d) notify such Holders promptly after Seller shall receive notice
thereof, of the time when such registration statement became effective or
when any amendment or supplement to any prospectus forming a part thereof
has been filed;
(e) notify such Holders promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus
forming a part thereof or for additional information;
(f) advise such Holders after Seller shall receive notice or otherwise
obtain knowledge of the issuance of any order by the Commission suspending
the effectiveness of such registration statement or amendment thereto or of
the initiation or threatening of any proceeding for that purpose, and
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal promptly if such stop order should be issued;
15
<PAGE>
(g) use its best efforts to register or qualify such securities under
such other securities or blue sky laws of such jurisdictions within the
United States and Puerto Rico as each Holder (or any underwriter on behalf
of such Holder) of such securities shall request (provided that Seller
shall not be obligated to qualify as a foreign corporation to do business
under the laws of any jurisdiction in which it is not then qualified or to
file any general consent to service of process), and do such other
reasonable acts and things as may be required of it to enable such Holder
to consummate the disposition in such jurisdiction of such securities;
(h) furnish on the date that such securities are delivered to
underwriters for sale pursuant to such registration or, if such securities
are not being sold through underwriters, on the date that such registration
statement becomes effective, (i) an opinion dated such date, of the
independent counsel representing Seller for the purposes of such
registration, addressed to such underwriters, if any, and, if such
securities are not being sold through underwriters, then to the Holder
making such request, in customary form and covering matters of the type
customarily covered in such legal opinions and (ii) a comfort letter dated
such date, from the independent certified public accountants of Seller,
addressed to such underwriters, if any, and, if such securities are not
being sold through underwriters, then to the Holder making such request in
a customary form and covering matters of the type customarily covered by
such comfort letters as such underwriters or such Holder, as the case may
be, shall reasonably request;
(i) enter into customary agreements (including one or more
underwriting agreements in customary form) and take such other actions as
are reasonably required or reasonably requested by such Holders or any
underwriter on behalf thereof in order to expedite or facilitate the
disposition of such securities;
(j) use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, but not later than 18 months after the
effective date of such registration statement, an earnings statement
covering the period of at least 12 months beginning with the first full
month after the effective date of such registration statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act (including, at the option of Seller, Rule 158);
(k) notify such Holders at any time when a prospectus relating to such
registration statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which such registration
statement contains an untrue statement of
16
<PAGE>
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and, at
the request of any such Holder, prepare a supplement or amendment to such
registration statement so that such registration statement will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(l) cause all shares of Common Stock being so registered to be listed
on each securities exchange on which similar securities issued by Seller
are then listed or, if similar securities are not then listed, take all
reasonable action either to list such shares on a securities exchange or to
facilitate the trading of the securities on the Nasdaq National Market; and
(m) provide a transfer agent and registrar for all shares of Common
Stock being so registered not later than the effective date of such
registration statement.
It shall be a condition precedent to the obligation of Seller to take
any action pursuant to this Article VII in respect of the securities which are
to be registered at the request of any Holder of the Registrable Securities that
such Holder shall furnish to Seller such information regarding the securities
held by such Holder and the intended method of disposition thereof as Seller
shall reasonably request and as shall be required in connection with the action
taken by Seller. Seller may reasonably rely upon any such information so
furnished by a Holder.
SECTION 7.04. Expenses. All expenses incurred in complying with this
---------
Article VII, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), printing expenses,
fees and disbursements of counsel and accountants for Seller and expenses of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 7.03(g), shall be paid by Seller, except any discount or commissions
------
payable to any underwriter by such Holders and fees and expenses of counsel for
such Holders.
SECTION 7.05. Indemnification and Contribution. (a) In the event of
---------------------------------
any registration under the Securities Act pursuant to this Article VII of any
Registrable Securities, Seller will indemnify and hold harmless the Holder
thereof against any losses, claims, damages, liabilities or expenses, joint or
several, to which such Holder may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
17
<PAGE>
prospectus contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse such Holder for any legal or any
other expenses incurred by such Holder in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
--------
however, that Seller shall not be liable in any such case to the extent that
- -------
such loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, preliminary prospectus, prospectus or
amendment or supplement in reliance upon and in conformity with written
information furnished to Seller by such Holder or an underwriter on behalf of
such Holder expressly for use therein; and provided further that the foregoing
-------- -------
indemnity agreement with respect to any prospectus shall not inure to the
benefit of the Holder if it is conclusively determined by a court of competent
jurisdiction not subject to appeal that a copy of a prospectus was not sent or
given by or on behalf of the Holder to the purchaser of the Common Stock who has
asserted a claim, if required by law to have been so delivered, at or prior to
the written confirmation of the sale of Common Stock to such person, and if a
prospectus would have cured the defect giving rise to such loss, claim, damage
or liability;
(b) Each Holder of Registrable Securities, by acceptance of the
registration provisions provided herein, agrees to indemnify and hold harmless
Seller against any losses, claims, damages, liabilities or expenses, joint or
several, to which Seller may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any registration
statement under which securities were registered under the Securities Act at the
request of such Holder, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any such
registration statement, preliminary prospectus, prospectus or amendment or
supplement in reliance upon and in conformity with written information furnished
to Seller by such Holder expressly for use therein; and will reimburse Seller
for any legal or other expenses reasonably incurred by Seller in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the
18
<PAGE>
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under such
subsection except to the extent it has been materially prejudiced by such
failure. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (which shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
(d) If the indemnification provided for in this Section 7.05 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to therein or
if the indemnified party failed to give the notice required under subsection (c)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of Seller on the one hand and the
relevant Holder on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by Seller on the one hand or the relevant Holder on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Seller and each
Holder registering securities under this Article VII agree that it would not be
just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
19
<PAGE>
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Holder registering securities under this
Article VII shall be required to contribute any amount in excess of the amount
by which the total price at which the securities registered and sold by such
Holder exceeds the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of Seller under this Section 7.05 shall be in
addition to any liability which Seller may otherwise have and shall extend, upon
the same terms and conditions, to each person (including each underwriter) who
participated in the offering of the registered securities and to each person, if
any, who controls any Holder registering securities under this Article VII or
any such person (including each such underwriter) within the meaning of Section
15 of the Securities Act; and the obligations under this Section 7.05 of any
Holder registering securities under this Article VII shall be in addition to any
liability which such Holder may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of Seller and to each person,
if any, who controls Seller within the meaning of Section 15 of the Securities
Act.
SECTION 7.06. Inspection of Records and Documents. Each Holder and
------------------------------------
underwriter participating in any disposition pursuant to the registrations
described in this Article VII, and any attorney, accountant or other agent
retained by any such Holder or underwriter (collectively, the "Inspectors"),
shall have conducted, at dates, times and locations reasonably specified by such
Inspectors, such investigations, inquiries and conferences with such directors,
officers, employees and agents (including, without limitation, outside
accountants and counsel) of Seller and its subsidiaries, been furnished and
reviewed such documentation of Seller and its subsidiaries and conducted such
other procedures, as the Inspectors deem necessary, in their sole judgment, to
have a satisfactory "due diligence" defense under Section 11 of the Securities
Act in connection with such registrations.
SECTION 7.07. Assignment of Registration Rights. Each Holder of
----------------------------------
Registrable Securities may assign all or any part of its rights under this
Article VII to any Affiliate of such Holder to whom such Holder sells, transfers
or assigns such Registrable Securities. In the event that the Holder shall
assign its rights pursuant to this Article VII in connection with the transfer
of less than all its Registrable Securities, the Holder shall also retain its
rights with respect to its remaining Registrable Securities.
20
<PAGE>
SECTION 7.08. Legend on Certificate(s). Inasmuch as less than all
-------------------------
the Shares shall carry with them registration rights under this Article VII, at
the Closing the Company shall give instructions that the Shares be issued in the
form of two certificates, with one certificate representing 90,000 shares of
Common Stock and bearing a legend prominently referring to the registration
rights provided under this Article VII, and with the other certificate
representing 210,000 shares and bearing a legend while held by a Holder
prominently referring to the absence of such rights. Any replacement
certificates issued therefor shall reflect, similarly, the existence or absence
of such rights in accordance with the terms of this Article VII.
ARTICLE IX
Miscellaneous
-------------
SECTION 8.01. Survival. The warranties and representations of Seller
---------
and Purchaser contained in or made pursuant to this Agreement shall survive for
a period of 4 years after the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of Purchaser or Seller. All agreements and
covenants contained herein shall survive indefinitely until, by their respective
terms, they are no longer operative.
SECTION 8.02. Transfer; Successors and Assigns. The terms and
---------------------------------
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
SECTION 8.03. Governing Law. This Agreement shall be governed by and
--------------
construed under the laws of the State of Georgia.
SECTION 8.04. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
SECTION 8.05. Title and Subtitles. The titles and subtitles used in
--------------------
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
SECTION 8.06. Notices. (a) All notices, requests, demands and other
--------
communications under this Agreement or in connection herewith shall be given to
or made upon Purchaser at Thybo New Ventures Limited, Par La Ville Place, 14 Par
La Ville Road, Hamilton HM JK Bermuda, with a copy to J.A.M.
21
<PAGE>
Vijverberg, TBG Management S.A.M., 29 Bvd Princesse Charlotte, B.P. 89 MC 98007,
Monaco Cedex or, if to Seller to International CompuTex, Inc., 5500 Interstate
North Parkway, Suite 507, Atlanta, Georgia 30328; attention: Chief Executive
Officer.
(b) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Agreement shall be in writing,
and shall be sent by certified or registered mail, postage prepaid, return
receipt requested, and shall be deemed to be given or made when receipt is so
confirmed.
(c) Any party may, by written notice to the other, alter its address
or respondent, and such notice shall be considered to have been given 10 days
after confirmation of receipt thereof.
SECTION 8.07. Finder's Fee. Each party represents and warrants that
-------------
it neither is nor will be obligated for any finder's fee or commission in
connection with this transaction. The Purchaser agrees to indemnify and to hold
harmless Seller from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which Purchaser or any of its officers,
employees, or representatives is responsible in connection with this
transaction. Seller agrees to indemnify and hold harmless Purchaser from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Seller or any of its officers, employees or representatives
is responsible in connection with this transaction.
SECTION 8.08. Expenses. Seller covenants and agrees with the
---------
Purchaser that Seller will pay or cause to be paid upon demand the following:
(i) the fees, disbursements and expenses of Seller's counsel and accountants in
connection with the purchase and sale of the Shares; (ii) all expenses in
connection with the qualification of the Shares, for offering and sale under
state securities laws, including the fees and disbursements of counsel for
Purchaser in connection with such qualification; (iii) the cost of preparing
stock certificates; (iv) the cost and charges of any transfer agent or
registrar; (v) all fees and expenses provided for in Article VII; (vi) all out-
of-pocket costs and expenses associated with the filing of any Schedule 13-D,
Schedule 13-G or any successor form or the filing of any amendment thereto
required to be filed under the Exchange Act as a result of the Shares being
included in a filing by a group because of the voting rights granted under
Article VI of this Agreement; and (vii) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 8.08.
22
<PAGE>
SECTION 8.09. Indemnification. Seller agrees to indemnify and hold
----------------
harmless each Holder, the Purchaser and the directors, officers, employees and
agents of the Purchaser and each person who controls the Purchaser within the
meaning of either the Securities Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Securities Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any lawsuit, action or claim that they
or any of them are part of a "control group", a "controlling shareholder" or an
"affiliate" of Seller, or any lawsuit or other action arising out of or based
upon a claim made pursuant to Section 13(d) under the Exchange Act and the rules
promulgated thereunder or any successor provision thereto as a result of the
Shares being included in a filing by a group because of the voting rights
granted under Article VI of this Agreement, and agrees to reimburse each such
indemnified party, within 30 business days after such expenses are incurred, for
all reasonable fees and expenses of counsel or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action.
SECTION 8.10. 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 Seller and the holders of a
majority of the Shares purchased hereunder. Any amendment or waiver effected in
accordance with this Section shall be binding upon each transferee of any
Shares, each future holder of all such Shares, and Seller.
SECTION 8.11. Severability. If one or more provisions of this
-------------
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
SECTION 8.12. Entire Agreement. This Agreement dated January 29,
-----------------
1998, constitutes the entire Agreement between the parties hereto pertaining to
the subject matter hereof and thereof, and any and all other prior written or
oral agreements existing between the parties hereto are expressly canceled.
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Purchase Agreement
as of the date first above written.
THYBO NEW VENTURES LIMITED,
by
---------------------------
Name: J.A.M. Vijverberg
Title:
INTERNATIONAL COMPUTEX, INC.,
by
--------------------------
Name:
Title:
24
<PAGE>
EXHIBIT A
OPINION OF COUNSEL
GAMBRELL & STOLZ
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Georgia, with
corporate power and authority to own its properties and conduct its
business, and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
nature of its business or the character or location of its properties
requires such qualification, except where failure so to qualify will not
materially affect the business, properties or financial condition of the
Company;
(ii) (a) the authorized capitalization of the Company as of the date
hereof is 20,000,000 shares of Common Stock, par value $.001 per share; (b)
the shares of Common Stock now outstanding have been duly authorized
and validly issued, are fully paid and non-assessable, conform to the
description thereof set forth in the SEC Documents, have not been issued in
violation of the preemptive rights of any shareholder and, except as
described in the SEC Documents, are not subject to any restrictions upon
the voting or transfer thereof; (c) all the Shares have been duly
authorized and, when paid for as provided herein, shall be validly issued,
fully paid and non-assessable, shall not have been issued in violation of
the preemptive rights of any shareholder, and no personal liability shall
attach to the ownership thereof; (d) the shareholders of the Company do not
have any preemptive rights or other rights to subscribe for or purchase,
and, except as provided in the Purchase Agreement and except pursuant to
restrictions on transferability imposed under federal and state securities
laws, there are no restrictions upon the voting or transfer of, any of the
Shares; and (E) to the best of our knowledge, except for the options and
warrants described in Section 2.02(b) of the Purchase Agreement, there are
no preemptive rights or options, warrants, conversion privileges or other
rights (or agreements for any such rights) outstanding to purchase or
otherwise obtain any of the Company's securities;
(iii) the certificates evidencing the Shares are each in valid and
proper legal form;
(iv) the Purchase Agreement has been duly authorized, executed and
delivered by the Company and (assuming due execution and delivery thereof
by the Purchaser) is a valid and binding agreement enforceable in
accordance with its terms, subject to the following qualifications:
Exhibit A - 1
<PAGE>
(a) The enforceability of the Purchase Agreement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting generally the enforcement of creditors'
rights;
(b) The enforceability of the Purchase Agreement is subject to
and may be affected by general principles of equity; and
(c) Rights of indemnity and contribution under the Agreement may
be limited by federal or state securities laws.
(v) to the knowledge of such counsel, except as described in Schedule
2.06, (a) there is no pending, threatened or contemplated legal or
governmental proceeding affecting the Company which could materially and
adversely affect the business, property, operations, condition (financial
or otherwise) or earnings of the Company, or which questions the validity
of the Purchase Agreement, or of any action to be taken by the Company
pursuant thereto; and (b) there is no legal or governmental proceeding, or
regulation required to be described or referred to in the SEC Documents or
in any similar document that will be filed with respect to the period
ending on the date hereof;
(vi) to the knowledge of such counsel (a) the Company is not in
violation of or default under the Purchase Agreement; and (b) the execution
and delivery thereof and the incurrence of the obligations therein set
forth and the consummation of the transactions therein contemplated shall
not result in a violation of, or constitute a default under, the Articles
of Incorporation or By-laws of the Company, or any material obligation,
agreement, covenant or condition contained in any bond, debenture, note or
other evidence of indebtedness, or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or
instrument to which the Company is a party or by which its assets are
bound, or any material order, rule, regulation, writ, injunction or decree
of any government, governmental instrumentality or court;
(vii) the SEC Documents (except for the financial statements, notes
thereto and other financial information contained therein, as to which no
opinion need be rendered) comply as to form in all material respects with
the Securities Act or the Exchange Act, as applicable, and the rules and
regulations thereunder; and such counsel has no reason to believe that the
SEC Documents, on the respective effective or filing dates contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
Exhibit A - 2
<PAGE>
(viii) all descriptions contained in the SEC Documents of contracts
and other documents are accurate and fairly present the information
required to be described in all material respects, and such counsel is
familiar with all contracts and other documents referred to in, or filed as
exhibits to, the SEC Documents and, to the knowledge of such counsel, no
contract or document of a character required to be summarized or described
therein or to be filed as an exhibit thereto is not so summarized,
described or filed;
(ix) the descriptions contained in the SEC Documents which purport to
summarize the provisions of statutes, rules and regulations are accurate
summaries in all material respects, and such descriptions fairly present in
all material respects the information shown, and the descriptions contained
in the SEC Documents that concern matters of law or legal conclusions have
been reviewed by such counsel and are correct in all material respects; and
(x) no authorization, approval, consent or license of any governmental
or regulatory authority or agency is necessary in connection with: (a) the
authorization, issuance, sale, or delivery of the Shares by the Company or
(b) the execution, delivery and performance of the Purchase Agreement by
the Company.
Exhibit A - 3
<PAGE>
EXHIBIT 10.6
IHS/ICI Strategic Business Alliance
Agreement Terms
I. Value Added Reseller authorization
A. IHS grants ICI the right to resell CAPSXpert products as a Value
Added Reseller in the US and Europe.
1. IHS reserves the right to set the list price for CAPSXpert plus
reserves the right to set the CAPSXpert price for opportunities
with current IHS customers.
2. ICI will pay IHS a rate of 80% of net revenue received from
CAPSXpert subscriptions.
B. ICI grants IHS the right to resell ItemQuest products as a Value
Added Reseller.
1. ICI reserves the right to set the list price for ItemQuest.
2. IHS will pay ICI a rate of 80% of net revenue received from
ItemQuest software, services, and maintenance where ICI is
required to model and develop demonstrations using customer's
data.
3. IHS will pay ICI a rate of 75% of net revenue received from
ItemQuest software where IHS models and develops demonstrations
using customer's data.
4. IHS will pay ICI a rate of 95% of net revenue received for data
services performed by ICI.
5. IHS will pay ICI a rate of 80% for net revenue received for
ItemQuest maintenance. In turn, IHS will train personnel in ICI
products and provide Level 1 maintenance support.
C. Product/Service Provider and VAR responsibilities:
--------------------------------------------------------------
Product/Service Provider VAR
--------------------------------------------------------------
ICI IHS resells ItemQuest software
--------------------------------------------------------------
IHS ICI resells CAPSXpert databases
--------------------------------------------------------------
The VAR is primarily responsible for all phases of the sales
opportunity, noting that ICI may take a more active role regarding
customer's data.
- --------------------------------------------------------------------------------
TASK** Product/Service VAR
Provider
- --------------------------------------------------------------------------------
Lead Generation Major Driving Role
- --------------------------------------------------------------------------------
Deal Qualification & Priority Major Driving Role
- --------------------------------------------------------------------------------
Presentation & Demonstration Major Driving Role
- --------------------------------------------------------------------------------
Custom Demonstration with
Customer Data (1) (1)
- --------------------------------------------------------------------------------
ROI for proposal Reactive Supporting Role Major Driving Role
- --------------------------------------------------------------------------------
Prospects Senior
Management Sponsorship Major Driving Role
- --------------------------------------------------------------------------------
Data Services and Quotation (1) (1)
- --------------------------------------------------------------------------------
Proposal Reactive Supporting Role Major Driving Role
- --------------------------------------------------------------------------------
Negotiations & Close Reactive Supporting Role Major Driving Role
- --------------------------------------------------------------------------------
Level 1 Maintenance support Major Driving Role
. Provide front-line customer support
(on site and call center)
. Research customer problems and
determine if they can be reproduced
. Distribute software upgrades and bug free.
- --------------------------------------------------------------------------------
(1) -- The VAR payment rate changes based on whether ICI or IHS performs the
tasks associated with customer's data.
1
<PAGE>
D. Provided that the "Finder" roles are fulfilled by IHS, ICI will pay
IHS at a rate of 15% net revenue received form ItemQuest software for
IHS customer leads and sales participation that result in a sale
closed by ICI.
Loads identified and qualified by the "finding" party will be
transferred to the selling party
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
TASK--
Seller Finder
------------------------------------------------------------------------------------------
<S> <C> <C>
Opportunity Generation Major Driving Role Major Driving Role
------------------------------------------------------------------------------------------
Deal Qualification & Priority Major Driving Role Reactive Supporting Role
------------------------------------------------------------------------------------------
Presentation & Demonstration Major Driving Role Reactive Supporting Role
------------------------------------------------------------------------------------------
Custom Demonstration with Customer Data Major Driving Role
------------------------------------------------------------------------------------------
ROI for proposal Major Driving Role
------------------------------------------------------------------------------------------
Prospectus Senior Management Sponsorship Major Driving Role
------------------------------------------------------------------------------------------
Data Services and Quotation Major Driving Role
------------------------------------------------------------------------------------------
Proposal Major Driving Role Reactive Supporting Role
------------------------------------------------------------------------------------------
Negotiations & Close Major Driving Role Reactive Supporting Role
------------------------------------------------------------------------------------------
</TABLE>
II. Development and Support
A. IHS and ICI agree to produce a combined product that uses ICI's
ItemQuest application and IHS' CAPSXpert databases (IQ/CAPSXpert).
1. IHS and ICI will jointly develop a product definition that
includes functions, features and content.
2. ICI will integrate CAPSXpert into ItemQuest using mutually
agreed requirements, at no charge, with committed delivery dates
per the agreed upon plan. Direct development related costs
incurred by both parties will be equally shared up a total of
$200,000 from ICI and a total of $200,000 from IHS.
B. ICI, with IHS' assistance, will produce a business plan that defines:
1. Product release schedules with functionality
2. Integration strategy to key partners
3. Resources for Development, Product Marketing, Sales, Support
C. Both ICI and IHS commit to at least one technical resource and one
product management resource, fully dedicated, to support the needs
required by this relationship. As reasonably required, more resources
may be added.
D. Both parties will develop infrastructure to provide support to
customers for the combined product.
E. Under non-disclosure, each party will provide the other party required
technical information and support for the integration of CAPSXpert to
ItemQuest; tools and training for customer data integration; and
training for installation and support of each other's products.
F. Both parties will cooperate together on customer installations, noting
that each Party shall be responsible for the effective installation
and post-installation support of its products as stated in the terms
of this agreement. In July, 1998 the parties will meet to review the
need and opportunity to modify this initial support plan.
2
<PAGE>
III. Marketing and Selling
A. IHS will develop a list of top prospects and key accounts for
initial target sales
1. IHS and ICI will mutually agree upon initial target
accounts
B. IHS reserves the right to either forward a sales opportunity
lead to ICI, or manage the sales opportunity as a VAR.
C. ICI commits to one dedicated Sales Manager to IHS for the
first six months of this agreement, and 3 dedicated Sales Reps
thereafter.
D. IHS commits to train and certify a minimum of 2 Sales Manager
and 3 Sales Support Engineers on the combined product.
E. IHS will allow ICI to distribute CAPSXpert databases to its
sales force for the purpose of demonstration of reference data.
F. ICI will allow IHS to distribute ItemQuest software to its sales
force for the purposes of demonstration.
G. ICI and IHS will jointly develop marketing announcements:
1. Develop joint capability statement
2. Develop joint press release
3. ICI will distribute a targeted mailing to a list of top
prospects currently identified by IHS.
H. CAPSXpert databases will be sold on a subscription only basis,
neither ICI nor the customer will own the software or data.
I. ICI will ensure IHS, policy of fair use for CAPSXpert products,
and obtained IHS data licenses from customers. IHS will ensure
ICI's policy of fair use and obtain ICI data licenses from
customers.
J. Proposals by either ICI or IHS that quote the joint product will
use a standard boilerplate format jointly developed, unless
requested differently by the prospect.
K. ICI grants IHS the right to use the ItemQuest name for sales
opportunities involving the ItemQuest software.
L. Both parties shall cooperate and share agreed upon costs for
targeted collateral. In addition, parties will include
partnership information as appropriate in their collateral. The
parties shall cooperate in seminars, press release events,
tradeshows and presentations.
M. Both parties shall agree to allow the other party the use of the
other's logo and trademark in accordance to define uses,
procedures and restrictions.
N. Both parties shall proactively sell the combined solution on a
global basis.
IV. Agreement terms
A. The term of this agreement is five years, with 180 day
termination rights by both parties, after the third year. It
will renew automatically for in one-year terms, unless either
party notifies the other party 120 days in advance of
cancellation.
B. Payment for the sale of products and services are due to the
other party following quarter after the customer has been
invoiced, and revenue has been recognized.
C. ICI is the primary CSM provider to IHS. IHS is the primary data
provider to ICI.
D. Neither party shall assign or otherwise transfer this Agreement
without the prior written consent of the other party, which
consent will not be reasonably withheld.
E. Nothing in the terms of this agreement allows for the transfer
of proprietary or proprietary rights to the other party without
written consent of the first party.
3
<PAGE>
The Terms and Conditions represent the complete and exclusive statement of the
understanding between ICI and IHS, Inc. and supersede all prior proposals and
understandings, oral or written, relating to the subject matter of these Terms
and Conditions and may be amended only by a written document executed by ICI and
IHS, Inc.
Acceptance and execution of these terms and conditions are subject to a thorough
due diligence with results satisfactory to ICI, resulting in a mutually
satisfactory definitive agreement between the two parties. Both parties shall
use best efforts to expedite the finalized agreement.
INFORMATION HANDLING ICI Corporation
SERVICES, (IHS)
BY: /s/ [SIGNATURE APPEARS HERE] BY: /s/ [SIGNATURE APPEARS HERE]
----------------------------- -----------------------------
Date: 1/23/98 Date: 1/23/98
--------------------------- ---------------------------
4
<PAGE>
EXHIBIT 10.7
Subcontractor Agreement Statement of Work
- --------------------------------------------------------------------------------
Fixed Bid Contract for PM/IQ base integration module
Scope of Services, Charges, and other applicable terms
This Statement of Work to the IBM Subcontractor Agreement between IBM and
International CompuTex, Inc. (ICI) is for the development of the PM/IQ base
integration module.
"SEE ATTACHED STATEMENT OF WORK DOCUMENT"
Actual Start Date:
Estimated End Date:
Each of us agrees that the complete agreement between us about this transaction
consists of 1) this Statement of Work and 2) the IBM Subcontractor Agreement (or
any equivalent agreement signed by both of us) and its applicable Attachments
and Transaction Documents.
Agreed to: International CompuTex, Inc. Agreed to: International Business
Machines
By /s/ C.J. Giarratana By /s/ Thomas J. Rider, Jr.
------------------------- -------------------------------
Authorized Signature Authorized Signature
Name (type or print): Name (type or print):
C. J. Giarratana Thomas J. Rider, Jr.
Date: Date:
12-23-97 1-7-98
Subcontractor Address: Statement of Work Number:
International Computex, Inc.
5500 Interstate North Parkway, Suite 507 IBM P.O. Number:
Atlanta, GA 30328-4662
Phone/Fax (770) 953-1464/(770) 953-1574 IBM Corporation
8501 IBM Drive
Charlotte, NC 28262
IBM customer contact name/telephone: Tom Rider (704) 594-1428
<PAGE>
1. Statement of Work
This Statement of Work defines the scope of work and associated deliverables
with respect to the development of a base integration module between ICI
ItemQuest(TM) and IBM ProductManager(TM) (PM/IQ base integration module). This
module is separate and distinct from ItemQuest. This work will be performed by
ICI under the terms and conditions of the IBM Subcontractor Agreement #N670701
between IBM and ICI. When a conflict in terms exists between agreements, the
terms of this Statement of Work will apply.
1.1 Project Scope
The scope of this project is for the development, test, documentation and
packaging of the PM/IQ base integration module code. This work is to include the
following activities:
1. Requirements definition as agreed to by the parties involved.
2. Integration architecture and design as agreed to by the parties
involved.
3. Code and testing based on requirements as determined by ICI.
4. Documentation as determined by ICI.
5. Defect support as defined in section 1.3.5.
1.2 Key Assumptions
This Statement of Work and ICI's estimates to perform this Statement of Work are
based on the following "Key Assumptions":
1. PM/IQ base integration module will be supported by ICI on AIX and
Solaris. Other platforms may be supported as required and agreed to by
both parties.
2. ICI will keep current with ProductManager releases and snaps using the
IBM provided relcon tool.
3. The PM/IQ base integration module is a "Material" as that term is
defined in the IBM Subcontractor Agreement.
4. PM/IQ base integration module will be year 2000 compliant to the extent
ProductManager complies. ProductManager's definition of "year 2000
compliant" is that the customizations are capable of correctly
processing, providing and/or receiving date data within and between the
20th and 21st centuries.
5. Development and support services will be provided from ICI's facilities
in Charlotte, NC and/or Atlanta, GA.
6 IBM will name and market the PM/IQ base integration module as an IBM
ProductManager Solution offering.
7. ICI does not relinquish its right or ability to make the PM/IQ base
integration module available to customers independent of IBM. In the
event ICI contract with a customer to provide this solution independent
of IBM's involvement in the account, ICI will pay IBM a one time
services fee of $5,000 per customer. For the purpose of this item 7,
"customer" shall mean an entity and its majority owned subsidiaries.
8. Extensions or enhancements to the PM/IQ base integration module
generated by customers or IBM that are to become part of the standard
PM/IQ base integration module will be evaluated and developed solely by
ICI as determined by ICI. IBM may satisfy customer unique requirements
resulting in derivative works.
9. IBM, at their discretion, will inform ICI of product plans that may
impact the PM/IQ base integration module including but not limited to
Beta access to future releases. This information will be accepted by
ICI as IBM "Information" under the terms of the Agreement or Exchange
of Confidential Information currently in place between IBM and ICI.
<PAGE>
1.3 ICI Responsibilities
1.3.1 Requirements Definition
Description: Develop functional requirements for PM/IQ base integration
module based upon ICI's knowledge of PDM implementations and customer input.
Completion: This task will be complete when the requirements document
has been completed.
Deliverable: Requirements document.
1.3.2 Development of PM/IQ Base Integration Module
Description: Utilizing ProductManager's Application Customization Environment
(ACE), which will be provided free of charge to ICI, generate agreed upon
customizations including screens, application, database and I/O logic. This task
includes unit, function, and system testing of customizations.
Completion: This task will be complete when system test has been
completed.
Deliverable: None.
1.3.3 Packaging of PM/IQ Base Integration Module
Description: Develop installation instructions, system requirements and
dependencies, and customization delivery vehicle.
Completion: This task will be considered complete when all documentation
has been completed.
Deliverable: Appropriate user documentation.
1.3.4 Installation and Demonstration
Description: Install PM/IQ base integration module and a demonstration
version of ItemQuest for the purpose of training. This effort is not to
exceed two days (not including travel) at IBM's Charlotte facility.
Completion: This task will be considered complete at the conclusion of
this 2-day effort.
Deliverable: Installation documentation and appropriate training
material.
<PAGE>
1.3.5 Defect Support
Description: Provide on-going defect support for the PM/IQ base
integration module code. Severity level definition for the purpose of
identifying the criticality of defects and the correction response is as
follows:
Severity - 1: Functional defect in the customization code that inhibits
pilot run/production.
Severity - 2: Defects found in customization code which has to be
substituted through workarounds.
Severity - 3: Cosmetic defects found in customization code.
Severity - 4: Trivial problems found in the customization code.
Completion: On-going.
Deliverable: Phone support as described above.
1.3.6 Maintenance and Future Releases
Description: As they become generally available, ICI will provide
maintenance releases and future function releases to IBM.
Completion: On-going.
Deliverable: Extracts for maintenance and future releases.
1.3.7 Marketing Support
Description: Provide the necessary technical and functional product
information as input to the development of a marketing plan and collateral
material.
Completion: On-going.
Deliverable: Technical and functional product documentation which meet
the requirements above.
1.4 IBM Responsibilities
1.4.1 PM/IQ Base Integration Module Sales and Marketing
Description: IBM will sell and market the PM/IQ base integration module
as a solutions offering. Services required for this implementation may be
offered using IBM personnel, ICI personnel, or a third party that has been
approved by ICI.
Completion: On-going.
Deliverable: Marketing plan and collateral material to support sales
efforts.
1.5 Charges
Travel and Living expenses incurred by ICI to support this Statement of Work
will be charged as actuals to IBM. There will be no charge to IBM for the
licensing rights described in this SOW.
<PAGE>
EXHIBIT 10.8
AMENDMENT TO S CORPORATION TERMINATION,
TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
This Amendment relates to the S Corporation, Termination, Tax
Allocation and Indemnification Agreement dated as of March 24, 1997 (the
"Agreement"), by and between International CompuTex, Inc., a Georgia corporation
(the "Company"), and each of its then-current stockholders, Haim E. Dahan,
Michael J. Galvin, Peter W. Jeng, James L. McAlarney and Patricia Tuxbury Salem
(the "Stockholders"). The effective date of this Amendment is March 24, 1998.
RECITALS:
A. It was the intention of the Company and of the Stockholders at the
time the Agreement was executed that the amount of termination payments made
pursuant to Section 2.2 of the Agreement was intended to be equal to the net
worth of the Company as of the Termination Date, as determined by the Company
for accounting purposes. The Agreement provided for such distributions, however,
based upon the Accumulated Adjustments Account, which is a term utilized in
connection with the preparation of the federal income tax return for the
Company. At the time the Agreement was executed, the parties to the Agreement
had no reason to believe that the amount of distributions based upon net worth
as calculated for accounting purposes would be different from the amount of
distributions based upon the Accumulated Adjustment Account.
B. The Company subsequently has determined that the calculation of
the Accumulated Adjustments Account as of the Termination Date was less than the
amount of net worth of the Company as of the Termination Date for accounting
purposes.
C. The conversion of the Company's tax status from an S Corporation
to a C Corporation was completed in connection with its initial public offering
of common stock. In the prospectus prepared in connection with such offering,
the proposed distribution to the five Subchapter S stockholders of the Company
was disclosed by reference to accumulated, undistributed earnings, without
specific reference to any tax calculation, with the estimated amount of such
distribution being $2.4 million dollars. The actual distribution made was
$2,360,127. Reports issued by the Company to its shareholders and filed with the
Securities and Exchange Commission have reflected the amount of distribution as
$2,418,765, which was the amount anticipated prior to writing off certain
receivables as uncollectible.
D. Having considered the foregoing, the parties have mutually agreed
to amend the Agreement to cause its terms to be consistent with the intentions
of the parties and to be consistent with prior filings with the Securities and
Exchange Commission and disclosures to shareholders of the Company. Each of the
two members of the Board of Directors of the
<PAGE>
Company who are not parties to the Agreement has specifically consented to the
execution and delivery of this Amendment.
THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged by each of the parties hereto, and in
consideration of the premises recited above, the Company and the Stockholders
agree as follows:
1. The following defined term shall be added to Article I of the
Agreement:
"Stockholders' Equity" shall have the meaning ascribed to such term
under Generally Accepted Accounting Principles (GAAP), except that the
Common Stock Par Value shall be subtracted from such amount.
2. Section 2.2 of the Agreement shall be deleted in its entirety and
replaced with the following:
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 Stockholders' Equity 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
distributable, equals the Stockholders' Equity of the Company as of the
Termination Date. For purposes of this Section 2.2, the amount of the
Stockholders' Equity of the Company shall be as determined by the Chief
Financial Officer of the Company in accordance with the Company's books and
records.
3. Section 2.3, relating to future adjustments in distribution amounts
resulting from any future examination of tax returns, shall be deleted in its
entirety.
4. Except as provided above, this Amendment shall not affect any other
provisions of the Agreement, including without limitation those provisions
requiring the Stockholders to indemnify the Company for any tax liabilities of
the Company attributable to periods of time prior to the Termination Date or
which are incurred by the Company as a result of any adjustment in the taxable
income of the Stockholders for any period prior to the Termination Date.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date set forth above.
INTERNATIONAL COMPUTEX, INC.
By: /s/ Ralph E. Walter
-----------------------------------
Title: Chief Financial Officer
STOCKHOLDERS:
/s/ Haim E. Dahan
- --------------------------------------
Haim E. Dahan
/s/ Michael J. Galvin
- --------------------------------------
Michael J. Galvin
/s/ Peter W. Jeng
- --------------------------------------
Peter W. Jeng
/s/ James L. McAlarney
- --------------------------------------
James L. McAlarney
/s/ Patricia Tuxbury Salem
- --------------------------------------
Patricia Tuxbury Salem
3
<PAGE>
EXHIBIT 10.11
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of _______________, ____, by and
between INTERNATIONAL COMPUTEX, INC., a Georgia corporation (the "Corporation")
and _______________ ("Indemnitee"), a Director and/or Officer of the
Corporation.
W I T N E S S E T H:
WHEREAS, it is essential to the Corporation to retain and attract as Directors
and Officers the most capable persons available; and
WHEREAS, service as a director or officer of a corporation, particularly a
corporation the securities of which are or are to be publicly held, may subject
a person to substantial litigation and other risks; and
WHEREAS, it is the express policy of the Corporation to indemnify its
Directors and Officers so as to provide them with the maximum possible
protection permitted by law; and
WHEREAS, Indemnitee does not regard the indemnification provided for under the
Corporation's Articles of Incorporation and By-laws as adequate in the present
circumstances and may not be willing to serve as a Director or Officer without
the provision of further rights to the indemnification, and the Corporation
desires Indemnitee to serve in such capacity.
NOW THEREFORE, for and in consideration of the premises, agreements and
covenants contained herein, the services provided by Indemnitee as Director or
Officer of the Corporation, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a
------------------
Director and/or Officer of the Corporation until his or her death, or his or her
resignation or removal from office, or the election or appointment and
qualification of his or her successor, whichever shall first occur.
2. Definitions. As used in this Agreement:
-----------
(a) The term "Proceeding" shall include any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether of a civil,
criminal, administrative or investigative nature (including, without
limitation, any action, suit or proceeding by or in the right of the
corporation to procure a judgment in its favor), in which Indemnitee may be
<PAGE>
or may have been or may be threatened to be made to become involved in any
manner (including, without limitation, as a party or a witness) by reason
of the fact that Indemnitee is or was a Director, Officer, employee or
agent of the Corporation, or is or was serving at the request of the Board
of Directors or an Officer of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise (whether or not for profit), or by reason of anything
actually or allegedly done or not done by Indemnitee in any such capacity,
whether or not Indemnitee is serving in such capacity at the time any
liability or expense is incurred for which indemnification or reimbursement
can be provided under this Agreement.
(b) The term "Expenses" includes, without limitation, attorneys' fees and
disbursements and all other costs, expenses and obligations actually and
reasonably incurred by Indemnitee in connection with (i) investigating,
defending, being a witness in or otherwise participating in, or preparing
to defend, be a witness in or participate in, any Proceeding, (ii)
establishing a right to indemnification under Paragraph 7 of this Agreement
or (iii) obtaining recovery under any directors' and officers' liability or
similar insurance policy or policies purchased or maintained at any time by
the Corporation.
(c) References to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise tax assessed with respect to
any employee benefit plan; references to "serving at the request of the
Board of Directors or an Officer of the Corporation" shall include any
service as a Director, Officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such Director, Officer,
employee or agent with respect to an employee benefit plan or its
participants or beneficiaries; and a person who acted in good faith and in
a manner he or she reasonably believed to be in the interests of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
Corporation" for purposes of this Agreement.
3. Indemnity in Third-Party Proceedings. The Corporation shall indemnify
------------------------------------
Indemnitee in accordance with the provisions of this Paragraph 3 if Indemnitee
is or was or is threatened to be made to become involved in any manner,
including without limitation as a party or witness, in any Proceeding (other
than a Proceeding by or in the right of the Corporation to procure a judgment in
its favor) against any and all Expenses and any and all judgments, fines and
penalties entered or assessed against Indemnitee, and any and all amounts
reasonably paid or payable in settlement by Indemnitee, in connection with such
Proceeding, but only if Indemnitee acted in good faith and, in the case of
conduct in his or her official capacity, that such conduct was in the best
interests of the Corporation and in all other cases at least not opposed to the
best interests of the Corporation, and Indemnitee in the case of a Proceeding of
a criminal nature, in addition, had no reasonable cause to believe that his or
her conduct was unlawful.
4. Indemnity in Proceedings By or In the Right of the Corporation. The
--------------------------------------------------------------
Corporation shall indemnify Indemnitee in accordance with the provisions of this
Paragraph 4 if Indemnitee is or was or is threatened to be made to become
2
<PAGE>
involved in any manner, including without limitation as a party or witness, in
any Proceeding by or in the right of the Corporation, against any and all
Expenses, but only if Indemnitee acted in good faith and, in the case of conduct
in his or her official capacity, that such conduct was in the best interests of
the Corporation and in all other cases at least not opposed to the best
interests of the Corporation, except that no indemnification for Expenses shall
be made under this Paragraph 4 in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Corporation,
unless and only the extent that any court in which such Proceeding was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Expenses as such court shall deem
proper.
5. Indemnification of Expenses of Successful Party; No Adverse Presumption.
-----------------------------------------------------------------------
Notwithstanding any other provisions of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise, in defense of any
Proceeding or in defense of any claim, issue or matter therein, including the
dismissal of an action without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. The termination of any
Proceeding by judgment, order of court, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a presumption
for purposes of any provision of this Agreement that Indemnitee did not act in
good faith, in a manner which he or she reasonably believed to be in the best
interests of the Corporation, or with respect to any Proceeding of a criminal
nature, that such person had reasonable cause to believe that his or her conduct
was unlawful.
6. Advances of Expenses. The Expenses incurred by Indemnitee in any
--------------------
Proceeding shall be paid by the Corporation in advance, promptly upon the
written request of the Indemnitee, if Indemnitee shall undertake to repay such
amount to the extent that it is ultimately determined that Indemnitee is not
entitled to indemnification. No security for the performance of any such
undertaking shall be required and any such undertaking shall be accepted by the
Corporation without regard to the financial capacity of Indemnitee to perform
its obligations thereunder.
7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon
-----------------------------------------------------------------------
Application. Without limiting the obligation of the Corporation to promptly
- -----------
make payments in respect of Expenses in accordance with Paragraph 6, any
indemnification under Paragraphs 3 and 4 shall be made no later than 45 days
after receipt by the Corporation of the written request of Indemnitee, unless a
determination is made within said 45-day period by (a) the Board of Directors of
the Corporation by a majority vote of a quorum consisting of Directors who are
not and were not parties to the relevant Proceeding, or (b) independent legal
counsel in a written opinion (which counsel shall be appointed if such a quorum
is not obtainable) that the Indemnitee has not met the relevant standards for
indemnification set forth in Paragraphs 3 and 4.
The right to indemnification or advances as provided by this Agreement shall
be enforceable by Indemnitee in any court of competent jurisdiction. The burden
of proving that indemnification is not appropriate shall be on the Corporation.
3
<PAGE>
Indemnitee's Expenses reasonably incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such Proceeding shall also be indemnified by the Corporation.
8. Indemnification Hereunder Not Exclusive. The indemnification provided by
---------------------------------------
this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the General Business Corporation Code of the
State of Georgia (the "Corporate Code"), the Articles of Incorporation or By-
laws of the Corporation, any other agreement, any vote of stockholders or
disinterested Directors, or otherwise, either as to action in his or her
official capacity or as to action in any other capacity. To the extent that
Indemnitee otherwise would have any greater right to indemnification under any
provision of the Corporate Code or the Articles of Incorporation or By-laws of
the Corporation as in effect on the date hereof, Indemnitee will be deemed to
have such greater right hereunder, and, to the extent that any change is made to
the Corporate Code (whether by legislative action or judicial decision) or the
Articles of Incorporation or the By-laws of the Corporation, which permits any
greater right to indemnification than that provided under this Agreement as of
the date hereof, Indemnitee will be deemed to have such greater right
thereunder. The Corporation will not adopt any amendment to the Articles of
Incorporation or By-laws of the Corporation, the effect of which would be to
deny, diminish or encumber Indemnitee's right to indemnification under the
Corporate Code, the Articles of Incorporation or the By-laws of the Corporation
or otherwise as applied to anything actually or allegedly done or failed to be
done in whole or in part prior to the date upon which the amendment was approved
by the Corporation's Board of Directors, its stockholders or both, as the case
may be.
The rights to indemnification and advancement of expenses under this Agreement
shall continue as to Indemnitee even though he or she may have ceased to be a
Director and/or Officer, or to serve in any capacity for or on behalf of the
Corporation or any other enterprise, and shall inure to the benefit of the
heirs, executors, administrators or estate of Indemnitee.
9. Partial Indemnification. In the event that Indemnitee is entitled under
-----------------------
any provision of this Agreement to indemnification by the Corporation for a
portion but less than the entire amount of any Expenses, judgments, fines,
penalties or amounts paid or payable in settlement, the Corporation shall fully
indemnify Indemnitee in accordance with the applicable provisions of this
Agreement for such portion of such Expenses, judgments, fines penalties or
amounts paid in settlement.
10. Liability Insurance and Funding. To the extent the Corporation purchases
-------------------------------
or maintains any insurance policy or policies providing directors' and officers'
liability or similar insurance, Indemnitee shall be covered by such policy or
policies, in accordance with its or their terms, to the maximum extent of the
coverage available for any Director or Officer of the Corporation. Indemnitee's
Expenses in connection with successfully obtaining any recovery under any such
directors' and officers' liability insurance or similar policy shall also be
indemnified by the Corporation. The Corporation may, but shall not be required
to, create a trust fund, grant a security interest or use other means (including
without limitation procuring one or more letters of credit) to ensure the
4
<PAGE>
payment of such amounts as may be necessary to satisfy its obligations to
provide indemnification and advance Expenses pursuant to this Agreement.
11. Subrogation. In the event that the Corporation provides any
-----------
indemnification or makes any payment to Indemnitee in respect of any matter in
respect of which indemnification or the advancement of expenses is provided for
herein (regardless of whether such indemnification or payment is provided or
made under the provisions of this Agreement, the Corporate Code, the Articles of
Incorporation or By-laws of the Corporation or otherwise), the Corporation shall
be subrogated to the extent of such indemnification or other payment to all of
the related rights of recovery of Indemnitee against other persons or entities.
Indemnitee shall execute all papers reasonably required and shall do everything
that may be reasonably necessary to secure such rights and enable the
Corporation effectively to bring suit to enforce such rights (with all of
Indemnitee's reasonable costs and expenses,including attorneys' fees and
disbursements, to be reimbursed by or, at the option of Indemnitee, advanced by
the Corporation).
12. No Duplication of Payments. The Corporation shall not be obligated under
--------------------------
this Agreement to provide any indemnification or make any payment to which
Indemnitee is otherwise entitled hereunder to the extent, but only to the
extent, that such indemnification or payment hereunder would be duplicative of
any amount actually received by Indemnitee pursuant to any insurance policy, the
Corporate Code, the Articles of Incorporation or the By-laws of the Corporation
or otherwise.
13. Saving Clause. If any provision of this Agreement or the application of
-------------
any provision hereof to any circumstance is held illegal, invalid or otherwise
unenforceable, the remainder of this Agreement and the application of such
provision to any other circumstance shall not be affected, and the provision so
held to be illegal, invalid or otherwise unenforceable shall be reformed to the
extent (but only to the extent) necessary to make it legal, valid and
enforceable.
14. Notice. Indemnitee shall give to the Corporation notice in writing as
------
soon as practicable of any claim made against him or her for which
indemnification will or could be sought under this Agreement; provided, however,
that any failure to give such notice to the Corporation will relieve the
Corporation from its obligations hereunder only if, and to the extent that, such
failure results in the forfeiture of substantial rights and defenses. Notice to
the Corporation shall be directed to the Corporation (to the attention of the
Chief Executive Officer, with a copy to the General Counsel) at its principal
executive office or such other address as the Corporation shall designate in
writing to Indemnitee. Notice shall be deemed received when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof orally
confirmed), or three calendar days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid, or one
business day after having been sent for next-day delivery by a nationally
recognized overnight courier. In addition, Indemnitee shall give the
Corporation such information and cooperation as it may reasonably require and
shall be within Indemnitee's power.
5
<PAGE>
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one and the same instrument.
16. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Georgia, without giving effect to the
principles of conflicts of law thereof.
17. Successors. This Agreement shall be binding upon the Corporation and its
----------
successors, including without limitation any person acquiring directly or
indirectly all or substantially all of the business or assets of the Corporation
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor will thereafter be deemed the "Corporation" for purposes of this
Agreement), but will not otherwise be assignable, transferable or delegatable by
the Corporation. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business or assets of the Corporation, to assume
and agree in writing to perform this Agreement, expressly for the benefit of
Indemnitee, in the same manner and to the same extent the Corporation would be
required to perform if no such succession had taken place.
18. Entire Agreement. This Agreement constitutes the entire agreement of the
----------------
Corporation and Indemnitee and supersedes all prior contracts, agreements,
arrangements, communications, discussions and representations, whether oral or
written, with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date and year first above written.
INTERNATIONAL COMPUTEX, INC.
By:____________________________________
Title:__________________________________
INDEMNITEE:
_______________________________________
6
<PAGE>
EXHIBIT 11.1
INTERNATIONAL COMPUTEX, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
YEARS ENDED DECEMBER 31,
1997 1996
Primary and fully diluted:
Weighted average common stock outstanding 2,875,460 2,125,000
Common stock equivalents (modified treasury stock method) 225,438 162,855
---------- ----------
Total weighted average and common equivalent
shares outstanding 3,100,898 2,287,855
========== ==========
Net income/(loss) $ 710,660 $1,134,384
========== ==========
Net income/(loss) per share $ 0.23 $ 0.50
1
<PAGE>
[LETTERHEAD OF HABIF, AROGETI & WYNNE, P.C. APPEARS HERE]
INDEPENDENT AUDITORS' CONSENT
International CompuTex, Inc.
5500 International North Parkway, Suite 507
Atlanta, Georgia 30328-4662
Gentlemen:
We consent to the incorporation by reference in the Registration Statement
number 333-31861 on Form S-8 of International CompuTex, Inc. of our report dated
March 14, 1998, except as to Note M, as to which the date is March 24, 1998
relating to the balance sheet of International CompuTex, Inc. as of December 31,
1997 and the related statements of income, stockholders' equity, and cash flows
for the years ended December 31, 1997 and 1996. We also consent to the inclusion
of this report in the December 31, 1997 annual report on Form 10-KSB of
International CompuTex, Inc.
HABIF, AROGETI AND WYNNE, P.C.
/s/ Habif, Arogeti & Wynne, P.C.
--------------------------------------
Atlanta, Georgia
March 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,943,351
<SECURITIES> 1,046,562
<RECEIVABLES> 1,146,483
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,334,352
<PP&E> 700,593
<DEPRECIATION> 152,384
<TOTAL-ASSETS> 10,315,199
<CURRENT-LIABILITIES> 320,042
<BONDS> 0
0
0
<COMMON> 3,251
<OTHER-SE> 9,931,870
<TOTAL-LIABILITY-AND-EQUITY> 10,315,199
<SALES> 5,257,070
<TOTAL-REVENUES> 5,257,070
<CGS> 0
<TOTAL-COSTS> 1,597,322
<OTHER-EXPENSES> 2,369,718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,448
<INCOME-PRETAX> 1,115,582
<INCOME-TAX> 404,922
<INCOME-CONTINUING> 710,660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 710,660
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
