<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
_________________ to __________________.
Commission File Number: 0-23589
C2i SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0775687
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
6138 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121-3223
(619) 812-5800
(Address and telephone number of principal executive offices)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of the Registrant's Common Stock, $0.001 par
value, was 3,542,171 as of May 15, 1998.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
1
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C2i SOLUTIONS, INC.
REPORT ON FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. Balance Sheets as of March 31,1998
(Unaudited) and December 31,1997 (Unaudited) 3
Statements of Operations for the three months ended
March 31,1998 and 1997 (Unaudited), and for the period
from Inception through March 31,1998 (Unaudited) 4
Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 (Unaudited), and for the period
from Inception through March 31, 1998 (Unaudited) 5
Notes to the Financial Statements (Unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 10
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
C2i Solutions, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,045,058 $ 298,823
Short-term investments 4,000,000 --
Accounts receivable 75,233 --
Prepaid expenses and other 42,514 40,702
----------- -----------
Total current assets 5,162,805 339,525
----------- -----------
Property and equipment, net 75,579 64,065
Deferred offering costs -- 259,906
Deferred finance charges, net -- 24,412
Noncurrent prepaid 89,570 --
Other assets, net 2,744 2,775
----------- -----------
Total assets $ 5,330,698 $ 690,683
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 332,531 $ 248,942
Accrued payroll and related 67,293 59,276
Bridge notes payable, net -- 501,698
Accrued royalty due to former stockholder -- 1,345
Accrued interest payable -- 12,500
Current portion of capital lease obligations 5,514 5,326
Other current liabilities 104 2,026
----------- -----------
Total current liabilities 405,442 831,113
----------- -----------
Capital lease obligations, net of current portion 10,800 12,251
----------- -----------
Stockholders' Equity (Deficit):
Preferred Stock - $.001 par value; 1,000,000 shares
authorized; no shares issued and outstanding -- --
Common Stock - $.001 par value; 10,000,000 shares authorized;
3,542,171 and 2,391,338 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 3,542 2,391
Additional paid-in capital 7,475,164 1,910,516
Warrants to acquire common stock 223,100 108,000
Deficit accumulated during the development stage (2,481,874) (1,850,776)
Deferred compensation (305,476) (322,812)
----------- -----------
Total stockholders' equity (deficit) 4,914,456 (152,681)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 5,330,698 $ 690,683
=========== ===========
</TABLE>
NOTE: The balance sheet at December 31,1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed consolidated financial statements.
3
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C2i Solutions, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTH THREE MONTH (SEPTEMBER 17,
PERIOD ENDED PERIOD ENDED 1996) THROUGH
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Products $ -- $ 13,829 $ 42,048
Services 69,079 0 116,112
----------- ----------- -----------
Total revenues 69,079 13,829 158,160
----------- ----------- -----------
Cost of revenues:
Products:
Customers -- -- 10,613
Former stockholder -- 9,252 17,652
Services 30,392 -- 55,321
----------- ----------- -----------
Total cost of revenues 30,392 9,252 83,586
----------- ----------- -----------
Gross profit 38,687 4,577 74,574
Selling, general and administrative expenses 548,873 60,531 2,410,732
----------- ----------- -----------
Operating loss (510,186) (55,954) (2,336,158)
Interest expense 17,792 -- 39,491
Interest expense to employees and former employees 2,483 -- 5,588
Other expense 120,548 -- 120,548
Interest income (19,911) -- (19,911)
----------- ----------- -----------
Net loss $ (631,098) $ (55,954) $(2,481,874)
=========== =========== ===========
Loss per share (basic and diluted) $ (0.22) $ (0.05)
=========== ===========
Shares used in computing loss per share 2,818,153 1,050,000
=========== ===========
</TABLE>
See accompanying notes.
4
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C2i Solutions, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTH THREE MONTH (SEPTEMBER 17,
PERIOD ENDED PERIOD ENDED 1996) THROUGH
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (631,098) $ (55,954) $(2,481,874)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 7,766 2,250 36,540
Amortization of deferred compensation 23,746 47,259
Non-cash compensation and other expenses 131,312 1,329,682
Changes in operating assets and liabilities:
Accounts receivable (75,233) 1,528 (75,233)
Prepaid expenses and other (91,382) (1,474) (132,084)
Accounts payable 83,589 1,726 332,531
Accrued payroll and related 8,017 (444) 67,293
Accrued interest payable (12,500) -- --
Accrued royalty, due to former stockholder (1,345) (1,248) --
Other current liabilities (1,922) 930 104
----------- ----------- -----------
Net cash used for operating activities (559,050) (52,686) (875,782)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (27,848) (18,224) (88,881)
Purchase of marketable securities (4,000,000) -- (4,000,000)
Other assets -- -- (4,200)
----------- ----------- -----------
Net cash used for investing activities (4,027,848) (18,224) (4,093,081)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from initial public offering, net 5,932,313 -- 5,932,313
Proceeds from issuance of common stock 2,083 -- 262,083
Proceeds from issuance of Bridge Notes and warrants -- -- 600,000
Repayment of Bridge Notes payable (600,000) -- (600,000)
Repayment of capital lease obligations (1,263) -- (1,961)
Deferred finance charges -- -- (26,820)
Deferred offering costs -- -- (259,906)
Advance from former stockholder -- -- 45,586
Repayment of advance from former stockholder -- (20,838) (34,874)
Collection of capital subscriptions receivable
from stockholders -- 97,500 97,500
----------- ----------- -----------
Net cash provided by financing activities 5,333,133 76,662 6,013,921
----------- ----------- -----------
Net increase in cash 746,235 5,752 1,045,058
Cash at beginning of period 298,823 16,467 --
----------- ----------- -----------
Cash at end of period $ 1,045,058 $ 22,219 $ 1,045,058
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
NON-CASH FINANCING ACTIVITIES:
Capital subscriptions receivable from stockholders $ -- $ -- $ 197,500
Equipment acquired under capital lease obligations -- -- 18,276
OTHER CASH FLOW INFORMATION:
Interest paid 22,011 -- 22,209
Income taxes paid 1,024 -- 3,424
</TABLE>
See accompanying notes.
5
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C2i Solutions, Inc.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
C2i Solutions, Inc. (the "Company") was incorporated in the State of Delaware on
September 30, 1997. The Company was initially organized as a California limited
liability company under the name of Challenge 2000 International, LLC ("LLC") on
September 17, 1996 ("Inception"). From Inception through September 30, 1997, the
Company operated under the name of the LLC. On September 30, 1997, the Company
reorganized as a Delaware corporation and changed its name to C2i Solutions,
Inc. On September 30, 1997, all LLC Owner Units were converted into 2,391,338
shares of the Delaware corporation's common stock and all Owner options were
converted into options to acquire 547,500 shares of common stock.
Concurrent with the formation of the Delaware corporation, the LLC was
dissolved.
The accompanying financial statements have been adjusted to give retroactive
effect to the reorganization and capital structure of the Delaware corporation
from Inception.
The Company is a provider of integrated solutions for organizations to assess,
manage and implement required changes to computer applications for the "Year
2000 Problem." In addition to third-party vendors' products, the Company offers
its customers a complete range of consulting services, including project
management, out-sourcing, and testing in connection with Year 2000 projects.
Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of conducting business. Since Inception, the Company has been
primarily engaged in organizational activities, including raising capital,
recruiting personnel, and marketing its products and services. As of March 31,
1998, the Company has not realized significant revenues and therefore, is
considered to be in the development stage.
The Company's ability to transition from the development stage, and ultimately
to attain profitable operations, is dependent upon its ability to raise
additional capital through debt or equity financing and the successful market
acceptance of its products and services. There can be no assurances that the
Company's products and services or its efforts to raise additional capital will
be successful. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
financial statements should be read in conjunction with the financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997. Operating
results for the three month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
6
<PAGE> 7
C2i Solutions, Inc.
(a development stage company)
Notes to Financial Statements
(Unaudited)
2. CAPITAL TRANSACTIONS
In October 1997, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission,
permitting the Company to sell up to 1,150,000 shares of common stock and up to
1,150,000 warrants for the purchase of common stock to the public. The Board of
Directors also approved the issuance of underwriter's warrants to purchase up to
100,000 shares of common stock and 100,000 warrants in connection with this
proposed initial public offering.
In February 1998, the Company completed an initial public offering of 1,000,000
shares of its Common Stock and 1,150,000 Warrants (which included 150,000
Warrants pursuant to the underwriter's over-allotment option). In March 1998,
the underwriter exercised its over-allotment option with respect to 150,000
shares of Common Stock of the Company. The Company received net proceeds of
$5,672,407, which includes $100 the Company received as consideration for the
warrants issued to the underwriter, after deducting an underwriting discount of
10% of the gross proceeds of the offering, a non-accountable expense allowance
of 3% of the gross proceeds of the offering and actual expenses of $430,743
related to the offering.
In January 1998, the Company's Board of Directors and stockholders approved the
1997 Stock Option Plan ( "Option Plan"), which has an initial share reserve of
82,500 shares of Common Stock. Under the Option Plan, 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 all nonqualified stock options must equal at least 85% of the
fair market value of Common Stock on the date of grant, and the exercise price
of incentive stock options must be no less than the fair market value on the
date of grant. Options granted under the Option Plan are generally immediately
exercisable, vest over periods ranging from one to four years and must be
exercised within ten years.
In January 1998, the Company granted nonqualified options to purchase an
aggregate of 20,500 shares to two consultants and incentive stock options to
purchase an aggregate of 20,000 shares to two employees under the Option Plan.
Nonqualified options to purchase 20,500 shares vest ratably over four years and
incentive stock options to purchase 20,000 shares vest ratably over three years.
All of these options have exercise prices of $5.50 per share and expire ten
years from the date of grant or earlier in the event of termination of
employment or consulting engagement.
In March 1998, the Company issued 833 shares of its Common Stock to a former
employee of the Company for total cash consideration of $2,083 as a result of
the exercise of stock options.
7
<PAGE> 8
C2i Solutions, Inc.
(a development stage company)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-QSB contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Such statements are subject to risks and uncertainties and actual events or
results may differ materially. Factors that could cause or contribute to such
differences include, without limitation, those discussed in this Item 2 as well
as those discussed in the Company's prospectus dated February 24, 1998 relating
to the Company's initial public offering.
OVERVIEW
C2i Solutions, Inc. (the "Company") is a provider of services to address the
Year 2000 challenge and to transition legacy applications effectively and
efficiently. C2i employs proven methodology, advanced tools and the expertise of
dedicated professionals to offer a wide variety of Year 2000 services. From
assessment through implementation and testing, C2i brings together the elements
required for cost-effective implementation of solutions to the Year 2000
problem.
The following discussion should be read in conjunction with the attached
financial statements and notes thereto.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Total revenues for the three months ended March 31, 1998, consisted entirely of
revenues from services totaling $69,079, compared to total revenues of $13,829
for the three month period ended March 31, 1997, which consisted entirely of
product revenues. One customer accounted for 100% of the Company's total
revenues for the three month period ended March 31, 1998, while 88% of the
Company's revenues resulted from one customer for the three month period ended
March 31, 1997.
Cost of revenues were 44% ($30,392) for the first quarter of fiscal 1998, and
consisted primarily of personnel related costs of providing consulting services.
Cost of revenues were 67% ($9,252) for the same period in 1997, representing the
cost of products sold, including third party royalties relating to licensed
technology . Gross margin percentage for the first quarter of fiscal 1998 was
56%, compared to the same prior year quarter gross margin percentage of 33%,
which reflects a more favorable mix of services revenues relative to products
revenues.
The Company incurred selling, general and administrative expenses for the three
month period ending March 31, 1998 totaling $548,873, compared with $60,531 for
the three month period ending March 31, 1997. This increase was attributable to
increased personnel and related expenses due to a greater number of employees,
increased facilities expenses in connection with the relocation to larger
offices and expansion of the operations, increased travel and marketing expenses
incurred in connection with the overall scale-up of the Company's operations and
business development efforts, the payment of salaries to executive officers
(most of whom had waived salaries during 1997) and higher legal, accounting and
other general and administrative expenses associated with becoming a public
company.
Interest income was $19,911 for the three months ended March 31, 1998, compared
with $0 for the three months ended March 31, 1997. This increase reflects
interest earned from the short-term investment of the net proceeds from the
Company's initial public offering, which closed on February 27, 1998. This
interest income was offset by interest expense of $20,275 for the first quarter
of fiscal 1998 related to capital lease obligations and the bridge financing.
8
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C2i Solutions, Inc.
(a development stage company)
LIQUIDITY AND CAPITAL RESOURCES
From Inception through February 1998, the Company financed its operations
primarily through the proceeds from the issuance of Common Stock and a Bridge
financing completed in October 1997, resulting in an aggregate of approximately
$958,000 from the sale and issuance of debt and equity securities, including
warrants. In February 1998, the Company completed an initial public offering of
its common stock and warrants to acquire common stock. This offering provided
the Company with net proceeds of approximately $5,672,407, including proceeds
from the exercise of the underwriter's overallotment option received in March
1998. Funds from these sources have been and are expected to continue to be used
as working capital to fund expansion of the Company's infrastructure and
internal operations, including purchases of capital equipment and the hiring of
additional personnel.
The Company's operating activities used net cash of $559,050 and $52,686 during
the three month periods ended March 31, 1998 and 1997, respectively. This
increase in cash used for operating activities in 1998 compared to 1997 results
primarily from the larger net loss for the 1998 period, as a result of the
Company's continued expansion of its operations, as well as an increase in
prepaid expenses.
The Company's investing activities used cash of $4,027,848 and $18,224 during
the three month periods ended March 31, 1998 and 1997, respectively. This
increase in cash used for investing activities in 1998 compared to 1997 results
from the purchase of $4,000,000 of short-term investments with the excess net
proceeds from the Company's initial public offering and an increase of $9,624 in
purchases of property and equipment for the 1998 period, compared to the same
period in 1997.
The Company's financing activities provided net cash of $5,333,133 and $76,662
during the three month periods ended March 31, 1998 and 1997, respectively. This
increase in cash provided by financing activities in 1998 compared to 1997
results from an increase in the net proceeds from the sale of common stock
totaling $5,934,396 during 1998 (of which $5,932,313 related to the Company's
initial public offering) compared with net proceeds of $97,500 during the same
period during 1997. These net cash increases during the three month periods
ended March 31, 1998 and 1997, were partially offset by cash used to repay the
bridge notes ($600,000) and capital lease obligations ($1,263) in 1998, and
$20,838 of cash used to repay an advance from a former stockholder in the same
period of 1997.
As of March 31, 1998, the Company had cash and short-term investments of
$5,045,058 and working capital of $4,757,363 compared with cash of $298,823 and
working capital deficit of ($491,588) at December 31, 1997. Based on
management's current operating plan and anticipated personnel increases, the
Company believes that its existing resources will be sufficient to fund
operations through the balance of fiscal 1998. However, the Company expects to
continue to experience operating losses and to use cash in operations through at
least the third quarter of fiscal 1998.
The Company's ability to achieve sustained profitability will be dependent upon
a number of factors, including its ability to generate future revenues. Although
the Company is pursuing business development opportunities, which
it hopes will produce future revenues, there can be no assurance that the
Company will be able to successfully negotiate any additional contracts, or that
any such current or future contracts will provide the Company with expected
benefits. The Company may be required to seek additional capital through the
public or private sale of securities. There can be no assurance that, if needed,
such funding will be available on acceptable terms, if at all. The Company's
ability to raise additional funding will be affected by its operating
performance, prospects and by conditions affecting the public equity markets.
9
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C2i Solutions, Inc.
(a development stage company)
PART II: OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1998, the Company issued 833 shares of its Common Stock
to a former employee of the Company for total cash consideration of $2,083 as a
result of the exercise of stock options. The sale was exempt under Rule 701
promulgated under the Securities Act of 1933.
Pursuant to the Company's Registration Statement on Form SB-2
(No. 333-39425), declared effective by the Commission on February 13, 1998, the
Company registered 1,150,000 shares of Common Stock, $.001 par value, 1,150,000
Redeemable Warrants and 1,150,000 shares of Common Stock underlying such
Redeemable Warrants. Of such securities, 150,000 shares of Common Stock and
Redeemable Warrants were subject to an over-allotment option in favor of the
underwriter of the initial public offering, Gilford Securities, Incorporated,
which over-allotment option has been exercised as to both the Shares of Common
Stock and the Redeemable Warrants as of March 31, 1998.
The price to the public per share of Common Stock was $6.00 per
share, with underwriting discounts and commissions of $0.60 per share, for net
proceeds to the Company of $5.40 per share. The price to the public of the
Redeemable Warrants was $0.10 per warrant, with an underwriting discount and
commission of $0.01 per Warrant with proceeds to the Company of $0.09 per
Warrant. The aggregate price to the public of the Common Stock and Warrants
(including those issued upon exercise of the overallotment option) was
$7,015,000, with aggregate underwriting discounts and commissions of $701,500,
and payment of a non-accountable expense allowance to the underwriter in the
amount of $165,450, for aggregate net proceeds to the Company of $6,148,150,
which includes $100 the Company received as consideration for the warrants
issued to the underwriter in connection with the initial public offering. The
Company also incurred an additional $45,000 non-accountable expense allowance to
the former underwriter and $430,743 of other expenses, for total offering
expenses of $641,193, none of which was paid to directors, officers or general
partners of the Registrant or their associates, or to any person owning 10% or
more of any class of equity of the Registrant. The net proceeds to the Company
from the sale of the 1,150,000 shares of Common Stock and 1,150,000 Redeemable
Warrants were approximately $5,672,407, after deducting underwriting discounts
and commissions and the offering expenses payable by the Company.
Proceeds of the initial public offering were used to repay the
Bridge Notes and accrued interest thereon, totaling $621,412, $17,920 of which
was paid to a former executive officer of the Company. The Company also used
$8,703 to purchase machinery and equipment, $621 to repay capital leases and
accrued interest, $116,654 to pay employees' and officers' salaries and related
payroll taxes, $141,081 for other general corporate purposes, and $4,000,000 was
used to purchase short-term investments. The remaining $1,045,058 in proceeds
from the initial public offering will be used for working capital, including
payment of $151,980 of expenses related to the offering which were unpaid as of
March 31, 1998.
10
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C2i Solutions, Inc.
(a development stage company)
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 27, 1998, the holders of 2,116,352 shares of the
Company's issued and outstanding Common Stock, or 88.5% of the outstanding
shares acted by written consent to approve the 1997 Stock Option Plan, which has
an initial share reserve of 82,500 shares of Common Stock (the "Option Plan"),
and to approve a form of indemnity agreement (the "Indemnity Agreements")
between the Company and its directors and officers.
Under the Option Plan, 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
all nonqualified stock options must equal at least 85% of the fair market value
of the Common Stock on the date of grant, and the exercise price of incentive
stock options must be no less than the fair market value on the date of grant.
Options granted under the Option Plan are generally immediately exercisable,
vest over periods ranging from one to four years and must be exercised within
ten years.
The Indemnity Agreements require the Company, among other things,
indemnify its officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified, and obtain directors' and officers' insurance if available
on reasonable terms.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended
March 31, 1998.
Items 1, 3 and 5 are not applicable and have been omitted.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
3.1 Certificate of Incorporation (supercedes the Certificate of
Incorporation previously filed with the Delaware Secretary of
State).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 in the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1997)
10.10 Master Services Agreement dated February, 1998 by and between the
Company and United Guaranty Corporation
27.1 Financial Data Schedule
11
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C2i Solutions, Inc.
(a development stage company)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C2I SOLUTIONS, INC.
Dated: May 15, 1998 By: /s/ John Anthony Whalen, Jr.
----------------------------------------
John Anthony Whalen, Jr., President
and Chief Executive Officer (Principal
Executive Officer)
Dated: May 15, 1998 By: /s/ Diane E. Hessler
----------------------------------------
Diane E. Hessler
Chief Financial Officer (Principal
Financial and Accounting Officer)
12
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION OF
C2i SOLUTIONS, INC.
The undersigned, for purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, does
hereby execute this Certificate of Incorporation and does hereby certify as
follows:
FIRST: The name of the Corporation is C2i Solutions, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle County, Delaware,
19801, and the name of the registered agent therein and in
charge thereof, upon whom process against the Corporation
may be served is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized
under the General Corporation Law of Delaware.
FOURTH:
A. Classes of Stock. The Corporation is authorized to issue two
classes of shares to be designated respectively "Preferred Stock" and "Common
Stock." The total number of shares of Common Stock authorized is ten million
(10,000,000), each with the par value of $0.001 per share, and the total number
of shares of Preferred Stock authorized is one million (1,000,000), each with
the par value of $0.001 per share.
B. Preferred Stock. The Preferred Stock may be issued in from time to
time in one or more series. The Board of Directors of this corporation is
authorized to fix or alter the rights, preferences, privileges and restrictions
granted to or imposed upon wholly unissued series of Preferred Stock, and the
number of shares constituting any such series and the designation thereof, or
any of them. The Board of Directors is also authorized to increase or decrease
the number of shares of any series of Preferred Stock prior or subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the
Corporation, and for further definition, limitation and
regulation of the powers of the Corporation and of its
directors and stockholders:
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<PAGE> 2
A. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In
addition to the powers and authority expressly conferred
upon them by statute or by this Certificate of Incorporation
or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
C. On and after the closing date of the first sale of the
Corporation's Common Stock pursuant to a firmly underwritten
registered public offering (the "IPO"), any action required
or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such
stockholders. Prior to such sale, unless otherwise provided
by law, any action which may otherwise be taken at any
meeting of the stockholders may be taken without a meeting
and without prior notice, if a written consent describing
such actions is signed by the holders of outstanding shares
having not less than the minimum number of votes which would
be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present
and voted.
D. Special meetings of stockholders of the Corporation may be
called only (1) by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time
any such resolution is presented to the Board for adoption)
or (2) by the holders of not less than ten percent (10%) of
all of the shares entitled to cast votes at the meeting.
SIXTH:
A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time
any such resolution is presented to the Board for adoption).
The directors shall be divided into three classes with the
term of office of the first class to expire at the annual
meeting of the stockholders held in 1998; the term of office
of the second class to expire at the meeting of the
stockholders held in 1999; the term of office of the third
class to expire at the annual meeting of the stockholders
held in 2000; and thereafter for each such term to expire at
each third succeeding annual meeting of stockholders after
such
2
<PAGE> 3
election. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, a vacancy resulting
from the removal of a director by the stockholders as
providing in Article SIXTH, Section C below may be filled at
a special meeting of the stockholders held for that purpose.
B. Newly created directorships resulting from any increase in
the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation or
other cause (other than removal from office by a vote of the
stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at
the next annual meeting of stockholders at which the term of
office to which they have been elected expires, and until
their respective successors are elected, except in the case
of the death, resignation, or removal of any director. No
decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent
director.
C. Any directors, or the entire Board of Directors, may be
removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a
majority of the voting power of all of the then outstanding
shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting
from such removal may be filled by a majority of the
directors then in office, though less than a quorum, or by
the stockholders as provided in Article SIXTH, Section A
above. Directors so chosen shall hold office for a term
expiring at the next annual meeting of stockholders at which
the term of office to which they have been elected expires,
and until their respective successors are elected, except in
the case of the death, resignation, or removal of any
director.
SEVENTH: The Board of Directors is expressly empowered to adopt,
amend or repeal Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the
Board of Directors shall require the approval of a majority
of the total number of authorized directors (whether or not
there exist any vacancies in previously authorized
directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board).
The stockholders shall also have power to adopt, amend or
repeal the Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the
stockholders shall require, in addition to any vote of the
holders of any class or series of stock of the Corporation
required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of
the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of
directors, voting together as a single class.
3
<PAGE> 4
EIGHTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law,
or (iv) for any transaction from which the director derived
an improper personal benefit.
If the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the
liability of a director, then the liability of a director of
the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation
Law, as so amended.
Any repeal or modification of the foregoing provisions of
this Article EIGHTH by the stockholders of the Corporation
shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such
repeal or modification.
NINTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in
the manner prescribed by the laws of the State of Delaware
and all rights conferred upon stockholders are granted
subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any vote
of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at
least 66-2/3% of the voting power of all of the then
outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors,
voting together as a single class, shall be required to
amend or repeal this Article NINTH, Article FIFTH, Article
SIXTH, Article SEVENTH or Article EIGHTH.
TENTH: The incorporator of the corporation is Douglas J. Rein,
whose mailing address is 4365 Executive Drive, Suite 1600,
San Diego, CA 92121-2189.
The undersigned incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is his act and deed on this 30th day of September,
1997.
/s/ Douglas J. Rein
-------------------------------
Incorporator
4
<PAGE> 1
C2i Solutions, Inc.
(a development stage company)
EXHIBIT 10.10
MASTER SERVICES AGREEMENT DATED FEBRUARY 3, 1998 BY AND BETWEEN
THE COMPANY AND UNITED GUARANTY CORPORATION
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT (the "Agreement") is made and entered
into as of this 3rd day of February, 1998 (the "Effective Date"), by and between
C2i Solutions Inc., a Delaware Corporation, with principal offices at 6138 Nancy
Ridge Drive, San Diego, California 92121 ("C2i"), and, United Guaranty
Corporation, a North Carolina corporation, with principal offices at 230 N. Elm
Street, Greensboro, NC 27420-1567 ("Client").
BACKGROUND
Client wishes to engage C2i to provide certain professional services
as described in the Statement of Work. C2i agrees to provide such professional
services in accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties agree as follows:
AGREEMENT
1. PERFORMANCE OF SERVICES. C2i agrees to use commercially
reasonable efforts to perform the services set forth in the initial Statement of
Work (the "Services") as set forth in Exhibit A (the "Statement of Work"). C2i
shall retain sole discretion as to the designation of personnel and resources to
perform the Services except as noted on the Statement of Work for Professional
Services dated the 3rd day of February, 1998. The Statement of Work shall not be
binding on either party until both parties have executed the Statement of Work.
In the event that any C2i personnel assigned to perform Services is moved by C2i
to another project, C2i shall assign replacement personnel with skill levels at
least comparable to the skill levels of the original personnel.
2. AGREEMENT ON ADDITIONAL SERVICES. Client may, from time to time,
request C2i to perform services outside the Statements of Work. If C2i is able
to perform such additional services the parties shall execute an additional
Statement of Work. Such additional Statement of Work shall be deemed a Statement
of Work for the purposes of this Agreement when executed by both parties and
shall be governed by the terms and conditions set forth in this Agreement. The
additional services set forth in such Statement of Work shall be "Services" for
the purpose of this Agreement. No Statement of Work shall be binding on either
party until both parties have executed the Statement of Work.
13
<PAGE> 2
C2i Solutions, Inc.
(a development stage company)
3. PRIORITY AMONG AGREEMENTS. In the event that the terms and
conditions in this Agreement and the terms and conditions in a Statement of Work
are contradictory or inconsistent then the terms and conditions set forth in
this Agreement shall govern the rights and obligations of the parties.
4. PROGRESS REPORTS. From time to time during the term of this
Agreement, C2i may submit to Client written progress reports summarizing C2i's
progress in performing the Services.
5. FEES. The fees for the Services will be set forth in the
Statement of Work. C2i shall invoice Client for Services rendered in a given
month at the end of such month for the applicable fees and expenses incurred
during such month. Client agrees to pay, in full, all such invoices thirty (30)
days from the date on the invoice. Interest shall accrue on all payments which
are more than thirty (30) days past due at a rate equal to the lesser of (i) one
and one half percent (1.5%) per month or (ii) the maximum monthly rate permitted
by law, compounded monthly. Client shall be responsible for all taxes based on
work performed or products delivered pursuant to this Agreement except for any
tax based on C2i's net income.
6. TRAVEL AND EXPENSES. Client agrees to reimburse C2i for all
expenses incurred by C2i in the performance of the Services when such Services
are to be performed at a site other than C2i's facilities, including without
limitation in-flight travel time of C2i personnel traveling to Client's
facility, at the applicable hourly rates of such C2i personnel. C2i will itemize
and invoice Client for such expenses and Client agrees to pay such invoices
within thirty (30) days of the date on the invoice. Such expenses may include
but are not limited to, airfare, lodging, rental car, mileage, parking, meals,
fax and telephone charges.
7. TERM AND TERMINATION.
7.1 Term. This Agreement shall commence on the Effective Date
and shall, unless earlier terminated as provided herein, continue in effect
until December 1, 1998. Either party may terminate this Agreement for
convenience, without cause, effective thirty (30) days after written notice to
the other party is delivered to such other party.
7.2 Termination for Cause. If either party is in material
breach of the terms of this Agreement, the non-breaching party may give written
notice of such breach to the breaching party and an opportunity to cure the
breach within fifteen (15) days. If such breach is not cured within such fifteen
(15) day period, the non-breaching party may immediately terminate this
Agreement by subsequent written notice to the party in breach.
7.3 Effect of Termination. Upon the expiration or termination
of this Agreement, (i) all amounts outstanding except any amounts in dispute
which Client owes to C2i shall be immediately due, (ii) each party shall
promptly return to the other party all Confidential Information held by it in
connection with the performance of this Agreement, and (iii) C2i shall be under
no further obligation to complete work pursuant to a Statement of Work. Upon
reslution of the dispute, any outstanding amounts shall become due and payable
to C2i.
14
<PAGE> 3
C2i Solutions, Inc.
(a development stage company)
7.4 Survival. The provisions of Sections 3 ("Priority Among
Agreements"), 7 ("Term and Termination"), 8 ("Confidentiality and
Non-Disclosure"), 9 ("Non-Circumvention and No Solicitation of Employees", 10
("No Warranty"), 11 ("Limitation of Liability"), 12 ("Indemnification") and 13
("Miscellaneous") shall survive the expiration or termination of this Agreement
8. CONFIDENTIALITY AND NON-DISCLOSURE.
8.1 Confidential Information. Each party (the "Receiving
Party", as applicable) agrees during the term of this Agreement and thereafter
to take all steps reasonably necessary to hold the Confidential Information of
the other party (the "Disclosing Party", as applicable) in confidence.
"Confidential Information" includes, but is not limited to, technical and
business information relating to the Disclosing Party's inventions or products,
research and development, production, manufacturing and engineering processes or
other processes or techniques, software programs or other tools specification,
costs, profit or margin information, and salaries, finances, customers,
suppliers, marketing, and production and future business plans, and any third
party's proprietary or confidential information disclosed to the Receiving Party
in the course of providing Services to the Disclosing Party. Notwithstanding the
other provisions of this Agreement, nothing received by the Receiving Party will
be considered to be the Disclosing Party's Confidential Information if (1) it
has been published or is otherwise readily available to the public other than by
a breach of this Agreement; (2) it has been rightfully received by the Receiving
Party from a third party without confidential limitations; (3) it has been
independently developed for the Receiving Party by personnel or agents having no
access to the Disclosing Party's Confidential Information; or (4) it was known
to the Receiving Party prior to its first receipt from the Disclosing Party. The
Receiving Party shall use the Disclosing Party's Confidential Information only
for the purposes of providing and receiving Services to and from the Disclosing
Party as set forth herein, unless otherwise mutually agreed in writing. The
Receiving Party may disclose the Disclosing Party's Confidential Information to
affiliates and to third persons, including contractors, solely for the purposes
of this Agreement or as otherwise allowed herein, including consultation
regarding the purchase or provision of Services, but only under the terms of a
written confidentiality agreement with such third person containing
confidentiality and use terms substantially similar to those imposed herein upon
a Receiving Party. Neither party shall communicate any information to the other
party in violation of the proprietary rights of any third party. Notwithstanding
anything to the contrary in this Agreement, either party may disclose
Confidential Information as may be required by law or by regulatory or judicial
process, in which case the party making the disclosure shall notify the other
party of such disclosure.
8.2 Publicity. Except as may be required by applicable law or
regulation, each party shall (i) submit to the other party all advertising,
written sales promotional materials, press releases and other publicity matters
relating to this Agreement in which the other party's name is mentioned, and
(ii) not publish or use such advertising, sales promotional materials, press
releases or publicity matters without the other party's written consent. Such
consent shall not be unreasonably withheld. Client agrees to identify a Client
contact person who, upon reasonable written notice, will provide, at C2i's
request, references to third parties.
15
<PAGE> 4
C2i Solutions, Inc.
(a development stage company)
9. NON-CIRCUMVENTION AND NO SOLICITATION OF EMPLOYEES.
9.1 Non-Circumvention. Client acknowledges that information
relating to certain suppliers, contacts, certain intermediaries and associations
of C2i may become known to Client as a result of disclosure by C2i in the
performance of C2i's duties under this Agreement. Client further acknowledges
that C2i has a proprietary interest in such information, as well as the
exclusive claim to the benefit derived therefrom, including the opportunities,
information, and goodwill pertaining thereto. All such information shall be
Confidential Information of C2i and subject to the restrictions set forth in
Section 8 ("Confidentiality and Non-Disclosure"). Accordingly, Client shall
provide C2i with the full benefit of all work and contacts relevant to the
business of C2i throughout the term of this Agreement.
9.2 No Solicitation of Employees. Client agrees not to,
directly or indirectly through its agents, offer employment or contract work to
C2i personnel or subcontractors. In the event that Client wishes to offer
employment to a C2i employee or contract with a C2i subcontractor during such
period, Client shall notify C2i management. If C2i management agrees to permit
Client to make an offer to an employee or subcontractor, Client agrees that C2i
management shall deliver the offer of employment. If the employee or
subcontractor accepts the original offer or a subsequent offer from Client, C2i
shall be entitled to a placement fee from Client. Said placement fee shall be
the greater of (i) twenty percent (20%) of the annual compensation of the
prospective employee including salary, estimated commissions and bonuses, or
(ii) thirty percent (30%) of any contract for Services. The aforementioned
restrictions and covenants concerning C2i personnel and subcontractors shall
remain in full force and effect for each and every C2i employee or subcontractor
for a period of six (6) months after the later of (i) the contractor or employee
no longer under contract with or employed by C2i or (ii) the termination or
expiration of this Agreement.
10. NO WARRANTY. C2i PROVIDES THE SERVICES SET FORTH IN THE
STATEMENT OF WORK "AS IS." C2i DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, FOR
THE SERVICES PROVIDED HEREUNDER, INCLUDING ANY WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, MERCHANTIBILITY OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS.
11. LIMITATION OF LIABILITY.
11.1 Waiver of Consequential Damages. C2i SHALL NOT BE LIABLE
TO CLIENT OR ANY THIRD PARTY FOR ANY INDIRECT, PUNITIVE, INCIDENTAL, EXEMPLARY,
SPECIAL OR CONSEQUENTIAL DAMAGES HOWEVER CAUSED, WHETHER FOR BREACH OF CONTRACT,
TORT, NEGLIGENCE OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY LOSS OF INCOME,
PROFITS OR DATA, OR COST OF PROCUREMENT OF SUBSTITUTE GOODS, EVEN IF C2i HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING OUT OF OR RELATED TO
THE PERFORMANCE OF SERVICES HEREUNDER. THIS LIMITATION SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OFANY LIMITED REMEDY PROVIDED
HEREIN.
16
<PAGE> 5
C2i Solutions, Inc.
(a development stage company)
11.2 Limitation of Liability. NEITHER PARTY'S TOTAL LIABILITY
TO THE OTHER PARTY OR ANY THIRD PARTY HEREUNDER SHALL NOT EXCEED THE FEES PAID
TO C2i BY CLIENT UNDER THE STATEMENT OF WORK GIVING RISE TO SUCH LIABILITY.
12. INDEMNIFICATION. Client agrees to indemnify, defend and hold
C2i, its officers, directors, agents and employees harmless from and against any
and all liabilities, damages, losses, expenses, claims, demands, suits, fines,
penalties (whether civil or criminal) or judgments, including reasonable
attorneys' fees, costs and expenses incidental thereto which may be suffered by,
accrued against, charged to or recoverable from C2i, its officers, directors,
agents, or employees, arising out of or in connection with the performance by
C2i of its obligations under this Agreement, except to the extent that any such
loss, claim, damage or liability results from the gross negligence or bad faith
of C2i in performing the Services that are the subject of this Agreement
13. MISCELLANEOUS.
13.1 Force Majeure. In the event that either party is unable
to perform any of its obligations under this Agreement (except the obligation to
pay moneys due) or to enjoy any of its benefits because of (or if failure to
perform the Software development Services is caused by) natural disaster,
actions or decrees of governmental bodies or communication line failure or
similar cause beyond the reasonable control of a party (hereafter referred to as
a "Force Majeure Event") the party who has been so affected shall immediately
give notice to the other party and shall use commercially reasonable efforts to
resume performance. Upon receipt of such notice, all obligations (except the
obligation to pay moneys due) under this Agreement shall be immediately
suspended for the duration of the Force Majeure Event.
13.2 Attorneys' Fees. In the event that any action is brought
for any breach or default of any of the terms of this Agreement, or otherwise in
connection with this Agreement, the prevailing party shall be entitled to
recover from the other party all costs and expenses incurred in that action or
any appeal therefrom, including without limitation, all attorneys' fees and
costs actually incurred.
13.3 Notices. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if mailed to the party below to whom
notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid, and properly addressed to the party to whom notice
is to be given at the address of such party set forth in this Agreement or to
such other address as that party may designate by written notice as provided in
this paragraph.
C2i Solutions, Inc. United Guaranty Corporation
ATTN: Frank J. Vukmanic ATTN: H.G. (Tripp) Waddell, III
6138 Nancy Ridge Drive 230 N. Elm Street
San Diego, CA 92121 Greensboro, NC 27420-1567
CC: Diane E. Hessler, VP & CFO CC: Margaret Avery, Esq.
17
<PAGE> 6
C2i Solutions, Inc.
(a development stage company)
13.4 Assignment. Neither party shall sell, transfer or assign
any right or obligation hereunder without the prior written consent of the other
party. Any act in derogation of the foregoing shall be null and void.
13.5 Entire Agreement. This Agreement and all Exhibits
referred to herein embody the entire understanding of the parties with respect
to the subject matter hereof and shall supersede all previous communications,
representations or understandings, either oral or written, between the parties
relating to the subject matter hereof.
13.6 Settlement by Arbitration. Any dispute arising out of
this Agreement shall be resolved by binding arbitration in San Diego, California
under the rules of the American Arbitration Association ("AAA"). Three
arbitrators shall be selected according to AAA rules within thirty (30) days of
submission of the dispute to AAA. The arbitrator shall conduct the arbitration
in accordance with the California Evidence Code. Except as expressly provided
herein, no discovery of any kind shall be taken by either party without the
written consent of the other party, provided, however, that either party may
seek the arbitrators' permission to take any deposition which is necessary to
preserve the testimony of a witness who either is, or may become, outside the
subpoena power of the arbitrator or otherwise unavailable to testify at the
arbitration. The arbitrators shall have the power to enter any award that could
be entered by a Judge of the Superior Court of the State of California sitting
without a jury, and only such power, except that the arbitrators shall not have
the power to award punitive damages, treble damages, or any other damages which
are not compensatory, even if permitted under the laws of the State of
California or any other applicable law. The arbitrators shall award the
prevailing party its costs and its reasonable attorneys' fees, and the losing
party shall bear the entire cost of the arbitration, including the arbitrator's
fee. The arbitration award may be enforced in any court having jurisdiction over
the parties and the subject matter of the arbitration. Notwithstanding the
forgoing, the parties irrevocably submit to the non-exclusive jurisdiction of
the Superior Court of the State of California, San Diego County, and the United
States District Court for the Southern District of California, San Diego Branch,
in any action to enforce an arbitration award. In addition, the parties
irrevocably submit and consent to the exclusive jurisdiction of the Superior
Court of the State of California, San Diego County, and the United States
District Court for the Southern District of California, San Diego Branch for any
claim or dispute arising under this Agreement.
13.7 Governing Law. This Agreement shall be governed in all
respects by and construed in accordance with the laws of the State of California
as applied to agreements entered into and to be performed entirely within
California between California residents.
13.8 Construction. This Agreement has been negotiated by the
parties and their respective counsel. This Agreement will be fairly interpreted
in accordance with its terms and without any strict construction in favor of or
against any party. Any ambiguity will not be interpreted against the drafting
party.
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<PAGE> 7
C2i Solutions, Inc.
(a development stage company)
13.9 Counterparts. This Agreement may be executed in
counterparts, all of which taken together shall constitute one single agreement
between the parties.
13.10 Headings. The section headings appearing in this
Agreement are inserted only as a matter of convenience and in no way define,
limit, construe or describe the scope or extent of such paragraph or in any way
affect such paragraph.
13.11 Independent Contractor. The relationship of the parties
established by this Agreement is that of independent contractors. Nothing
contained in this Agreement and no action by either party will be deemed to
constitute any party or any of such party's employees or agents to be an
employee or agent of the other party or will be deemed to create any
partnership, joint venture, association, syndicate among or between any of the
parties, or will be deemed to confer on any party any express or implied right,
power or authority to enter into any agreement or commitment, express or
implied, or to incur any obligation or liability on behalf of the other party.
C2i personnel shall not be entitled to benefits which Client may make available
to its employees. No part of C2i's compensation will be subject to withholding
by Client for any payroll related taxes.
13.12 No Waiver. No failure or delay on the part of either
party in exercising any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right or remedy
preclude any other or further exercise thereof or of any other right or remedy.
No provision of this Agreement may be waived except in a writing signed by the
party granting such waiver.
13.13 Purchase Orders. The terms and conditions of this
Agreement shall apply to all orders submitted to C2i and supersede any different
or additional terms on purchase orders from Client which are hereby rejected by
C2i. All purchase orders for Services issued by Client to C2i shall be subject
to acceptance in writing by C2i at its principal place of business.
13.14 Severability. If any provision hereof or any part
thereof is declared or adjudged illegal, invalid, or unenforceable under
applicable law, such illegality, invalidity, or unenforceability will not
vitiate the remainder of this Agreement, and this Agreement will be construed as
if such illegal, invalid or unenforceable passages were omitted.
IN WITNESS WHEREOF, C2i and Client have caused this Agreement
to be executed, and the persons signing below warrant that they have been duly
authorized to sign for and on behalf of the respective parties.
C2i Solutions, Inc. Client
/S/ Frank J. Vukmanic 2/5/98 /S/ [Signature] 2/5/98
- --------------------------------- ---------------------------------------
Signature Date Signature Date
Sr. Vice President Senior Vice President--CIO
- --------------------------------- ---------------------------------------
Title Title
19
<PAGE> 8
C2i Solutions, Inc.
(a development stage company)
EXHIBIT A
Statement of Work
THIS STATEMENT OF WORK (the "Statement of Work") is made and entered
into as of this 3rd day of February, 1998 (the "Effective Date"), by and between
C2i Solutions Inc., a Delaware Corporation, with principal offices at 6138 Nancy
Ridge Drive, San Diego, California 92121-3223 ("C2i"), and United Guaranty
Corporation, a North Carolina corporation, with principal offices at 230 N. Elm
Street, Greensboro, NC 27420-1567 ("Client").
BACKGROUND
Client wishes to engage C2i to provide certain professional services
as described in this Statement of Work. C2i agrees to provide such professional
services in accordance with the terms and conditions of the Master Services
Agreement executed by C2i and Client dated the 3rd day of February, 1998.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties agree that C2i will provide the Services
as follows:
SCOPE:
This engagement is expected to require approximately 680 man-hours.
To accomplish the services listed below, it is expected to require one (1)
person for two (2) days once every two (2) weeks at Client's offices in
Greensboro, NC, through the end of September, 1998.
SERVICES:
1. Consult with the project management of the testing
process.
2. Recommend modifications to Client's Year 2000 strategy and plan
as needed.
SERVICE FEE SCHEDULE:
Consulting Services -- Time and Materials:
Executive Consultant - $195/hr. + travel time + expenses
The current C2i personnel assigned to this Statement of Work shall
not be replaced without the approval of Client except in the event that the
individual is unable to complete this project (i.e. due to termination of
employment, illness or death). Such approval shall not be unreasonably withheld.
Invoices will be issued to Client monthly based on expenses, and
time and materials expended during the month, or as services are completed,
whichever occurs first.
20
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C2i Solutions, Inc.
(a development stage company)
GENERAL:
This Statement of Work shall be governed by the terms set forth in
that certain Master Services Agreement between the parties.
C2i Solutions, Inc. Client
/S/ Frank J. Vukmanic 2/5/98 /S/ [Signature] 2/5/98
- --------------------------------- ---------------------------------------
Signature Date Signature Date
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,045,058
<SECURITIES> 4,000,000
<RECEIVABLES> 75,233
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,162,805
<PP&E> 96,549
<DEPRECIATION> 20,970
<TOTAL-ASSETS> 5,330,698
<CURRENT-LIABILITIES> 405,442
<BONDS> 10,800
0
0
<COMMON> 3,542
<OTHER-SE> 4,910,914
<TOTAL-LIABILITY-AND-EQUITY> 5,330,698
<SALES> 0
<TOTAL-REVENUES> 69,079
<CGS> 0
<TOTAL-COSTS> 30,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,275
<INCOME-PRETAX> (631,098)
<INCOME-TAX> 0
<INCOME-CONTINUING> (631,098)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (631,098)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
