<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1998
REGISTRATION NO. 333-45957
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
ICARUS INTERNATIONAL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
7372
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
52-2069941
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
600 JEFFERSON PLAZA
FIFTH FLOOR
ROCKVILLE, MARYLAND 20852
(301) 424-4646
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICE AND PRINCIPAL PLACE OF BUSINESS)
------------------
Copies to:
<TABLE>
<S> <C> <C>
JEFFREY A. KOEPPEL, ESQ. HERBERT G. BLECKER, PRESIDENT HARLAN P. COHEN, ESQ.
FIORELLO J. VICENCIO, ESQ. ICARUS INTERNATIONAL, INC. JOHN B. MCKNIGHT, ESQ.
ELIAS, MATZ, TIERNAN & HERRICK 600 JEFFERSON PLAZA, LOCKE PURNELL RAIN HARRELL
L.L.P. FIFTH FLOOR (A PROFESSIONAL CORPORATION)
734 15TH STREET, N.W. ROCKVILLE, MARYLAND 20852 2200 ROSS AVENUE
12TH FLOOR (301) 424-4646 SUITE 2200
WASHINGTON, D.C. 20005 DALLAS, TEXAS 75201
(202) 347-0300 (214) 740-8000
</TABLE>
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 10, 1998
2,000,000 SHARES
COMMON STOCK
[ICARUS INTERNATIONAL, INC. LOGO]
ICARUS INTERNATIONAL, INC.
---------------------
All of the shares of Common Stock offered hereby (the "Offering") are being sold
by ICARUS International, Inc. ("ICARUS" or the "Company"). Prior to this
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$7.00 and $9.00 per share of Common Stock. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price. The
Company has received conditional approval for quotation of the Common Stock on
the Nasdaq National Market under the symbol "ICRS."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 4.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Per Share........................ $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes a non-accountable expense allowance equal to two percent of the
gross proceeds of this Offering payable to Hoak Breedlove Wesneski & Co. and
Laidlaw Global Securities, Inc., as representatives ("Representatives") of
the several underwriters ("Underwriters"). The Company has agreed to
indemnify the Underwriters against certain civil liabilities. See
"Underwriting."
(2) Before deducting estimated expenses of this Offering of $1,200,000 payable
by the Company (exclusive of the Representatives' non-accountable expense
allowance).
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 300,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public will be $ , the total Underwriting Discount will be
$ and the total Proceeds to Company will be $ . See
"Underwriting."
---------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. Delivery of such shares will be made through the offices of
Hoak Breedlove Wesneski & Co., Dallas, Texas, or its agent on or about ,
1998.
HOAK BREEDLOVE WESNESKI & CO. LAIDLAW GLOBAL SECURITIES, INC.
The date of this Prospectus is , 1998.
<PAGE> 3
[FRONT INSIDE COVER -- PANEL ONE]
[CIRCULAR FLOW CHART GRAPHIC TITLED "ICARUS--ENGINEERING BUSINESS DECISIONS"
"KNOWLEDGE-BASED ENGINEERING TECHNOLOGY."]
The flow chart depicts the general process by which the Company's automated
engineering software works. The chart begins as a long arrow at the top, left
corner with "BUSINESS QUESTION" and concludes at the bottom, right corner with a
"BUSINESS ANSWER" of either "GO" or "NO GO."
The beginning of the process is represented by a full-color photo of a
corporate executive with the phrases "Which market?," "How long?," "How much?,"
"Why?," and "Business Risk," reversed out of the photo in white, and is
positioned over the text that reads, "BUSINESS QUESTION."
The arrow continues around and through a spoke-like image that represents
the phases of the simplified process manufacturing plant lifecycle. On each of
the spokes are the names of each phase, including "Business Development,"
"Process Engineering," Cost Engineering," "Detailed Engineering/Procurement,"
"Construction Scheduling," and "Operations & Maintenance." In the center of the
image is the ICARUS Logo.
The spokes are encircled with the benefits of the ICARUS system which
include "Faster Time to Market," "Compressed Schedules," "Cost Reductions," and
"Engineering Process Automation." These benefits are represented in a different
color to indicate they are different elements in the process.
Below the text "BUSINESS ANSWER" is a full-color photo depicting an
"engineering team" with text reversed out to white that reads, "Confident
Decisions" and "Backed by Engineering."]
[Caption to graphic: "ICARUS develops knowledge-based engineering
technology for the process manufacturing segments of various industries. The
Company's technology enables customers to analyze a proposed project more
quickly, more accurately and less expensively than they can using conventional
methods."]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING THE ENTRY OF STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
i
<PAGE> 4
[INSIDE FRONT COVER -- PANELS TWO AND THREE]
[Flow chart graphic depicts a header entitled "SIMPLIFIED PROCESS
MANUFACTURING PLANT LIFECYCLE." Under the header are six arrows linked
horizontally entitled (Arrow 1) "Business Development," (Arrow 2) "Process
Engineering," (Arrow 3) "Cost Engineering," (Arrow 4) "Detailed
Engineering/Procurement," (Arrow 5) "Construction Scheduling" and (Arrow 6)
"Operations and Maintenance". Above arrows 1-3 there is a line entitled
"Decision Engineering" and above arrows 4-6 there is a line entitled "Plant
Engineering." On the top, left corner of the page is the Company's logo with the
caption "ICARUS Knowledge-Based Engineering Technology." Below the Arrows, the
page is horizontally divided into two segment planes entitled (Segment 1)
"Existing Products" and (Segment 2) "Products Planned For Release in FY 1999 And
Thereafter." Segment 1 runs horizontally under the linked arrows and contains
"ICARUS Process Evaluator" under Arrow 2, "ICARUS 2000" under Arrows 3 and 4,
"ICARUS Project Manager" under Arrows 5 and 6, and "Questimate" under Arrow 6.
Segment 2 runs horizontally under Segment 1 and contains "Decision Engineering
Analyzer*," "Decision Center*," "Process Model*" and "Project Model*" under
Arrow 1, "Plant-Product*" and "Process-Product*" under Arrow 2, "Construction
Estimating Modules" under Arrows 3 and 4, "ICARUS Project Scheduler" under Arrow
5, and "ICARUS Technology Server + Application Programming Interfaces" under
Arrows 1-6. *Product jointly developed with other software and/or technology
providers.]
[Caption to graphic: "ICARUS International, Inc.'s business strategy is to
deploy its knowledge-based engineering technology to meet customer needs in
every stage of the process manufacturing plant lifecycle."]
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and the notes thereto appearing elsewhere in this Prospectus. Except
as otherwise indicated herein, the information in this Prospectus assumes (i)
the completion of the recapitalization of the Company and certain related
entities (the "Recapitalization," as more specifically defined under "Certain
Transactions -- Pending Recapitalization") to be effected immediately prior to
the closing of the Offering, (ii) an initial public offering price of $8.00 per
share, the midpoint of the range set forth on the cover page of this Prospectus,
and (iii) the 30-day over-allotment option granted to the Underwriters is not
exercised. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
ICARUS provides knowledge-based engineering software solutions for the
process manufacturing segments of the chemical, petroleum refining, pulp and
paper, food and other industries. Process manufacturing plants make products in
bulk quantities through various chemical, physical and other operations. The
Company's desktop products are based on its proprietary knowledge-based
engineering technology, which uses embedded expert system modules, automated
design and cost models and specialized databases to emulate the work processes
of expert engineers.
Industry sources indicate that more than 15,000 process manufacturing
plants are now in operation worldwide and that global spending on process
manufacturing plant construction projects is expected to total $160 billion in
1998 -- an all-time high. The Company's 300-plus customers are primarily large,
multinational corporations that own and operate process manufacturing plants or
provide engineering and construction services to such owner-operators. The
Company's customers include such companies as Mitsubishi Chemical Corporation,
Shell Oil Company, The Mead Corporation, Campbell Soup Company and Fluor Daniel,
Inc.
The Company's knowledge-based engineering technology automates important
steps in the "decision engineering" process through which a customer's
engineering staff -- often without the benefit of comprehensive, up-to-date
design, cost and scheduling information -- evaluates the technological and
economic feasibility of the construction or modification of a process
manufacturing plant so that senior executives can determine whether to proceed
with the proposed project. Despite the importance of this decision, which may
involve a capital investment in excess of one billion dollars, these executives
usually have only a limited ability to manage the conventional decision
engineering process, which is time-consuming, labor-intensive, imprecise and
expensive.
The Company's current products directly address a number of the
deficiencies in the conventional decision engineering process by
"re-engineering" the process to take full advantage of both today's enhanced
desktop computing technology and the Company's knowledge-based engineering
technology. The Company's products enable engineers to simulate, model and
analyze the design, cost and time requirements of a proposed project more
quickly, more accurately and less expensively than they can using conventional
engineering methods. ICARUS products also enhance senior executives' ability to
focus the decision engineering process on business priorities. With information
that integrates business considerations with sophisticated engineering analysis,
senior executives can make faster, better informed and more confident decisions.
Benefits arising from the use of the Company's decision engineering software
products include more effective strategic planning, faster reaction to market
developments and improved plant operating efficiency, all of which enhance the
customer's competitive position.
The Company also provides desktop software products that automate important
steps in the "plant engineering" process, which occurs after the decision to
proceed with a project has been made. These products also facilitate
construction scheduling and cost estimation for smaller projects at existing
plants.
The Company's strategy is to deploy its knowledge-based engineering
technology to meet customer needs in every stage of the process manufacturing
plant lifecycle -- from the business development decision to
1
<PAGE> 6
consider entering a process manufacturing segment, through the process and cost
engineering analysis of a specific proposed plant, to the detailed engineering,
construction scheduling and operations and maintenance activities that follow
the decision to proceed with a proposed plant.
As part of this strategy, the Company will continue to expand its portfolio
of integrated desktop software products, either on its own or in cooperation
with other engineering software and technology companies. The Company plans to
supplement its current offering of process and cost engineering software
products and also to release a new suite of business development products
designed to enable senior executives to analyze, without engineering staff
support, high-level, early-stage technological and economic feasibility issues.
Ultimately, the Company plans to offer its customers licenses of its core
knowledge-based engineering technology for deployment in an enterprise network
configuration in which multiple clients using different applications can
simultaneously access the technology and associated customer- and
project-specific object-oriented databases on a server. As part of this plan,
the Company intends to release an object-oriented database application
programming interfaces ("APIs") that will enable third-party engineering
software developers to integrate their applications, such as computer-aided
design ("CAD") production of detailed construction drawings, with the Company's
technology. The Company believes that this approach will expand the applications
options available to its customers and, at the same time, reduce the software
and database compatibility problems that currently affect its customer's
engineers and executives.
The planned products described above are expected to be released in fiscal
year 1999 and thereafter. As of April 30, 1998, the Company had incurred
substantially all of its share of the development expense related thereto,
although additional development expense will be required for certain
process-specific products and integration with other technologies. In addition,
other expenses associated with the introduction of these products will be
incurred in future periods.
The primary source of the Company's revenues are single-year and multi-year
term license fees. At April 30, 1998, 71.9% of the Company's licenses had a
remaining life of one year or more. For the fiscal year ended April 30, 1998,
76.7% of licensed authorized users whose licenses expired during such period
elected to renew such licenses (including renewals that involved the
substitution of another ICARUS product) and 55.5% of all new licenses sold to
authorized users were for a term of two or more years. The Company believes that
its license renewal rates and ability to sell multi-year term licenses are
important historical financial strengths. ICARUS also derives revenue from
technical support, training for its customers' employees, maintenance agreements
and consulting services.
One or more of the Company's products are licensed to 18 of the top 20
chemical companies and 18 of the top 20 petroleum refining companies, as such
companies are listed in the "1997 Fortune 500 List," and 8 of the top 10
chemical plant contractors listed in Engineering News Record's "Top 400
Contractors." ICARUS markets its products on a world-wide basis through its
direct sales force operating from its home office in Rockville, Maryland and its
other offices in Houston, Texas, Altrincham, England, and Tokyo, Japan. The
Company also has independent sales representatives located in Argentina,
Australia, Brazil, Colombia, Germany, India, South Africa, South Korea and
Venezuela and sales representatives that sell into the People's Republic of
China and certain independent republics of the former Soviet Union. As part of
its marketing effort, ICARUS participates in domestic and international trade
shows, publishes a newsletter, advertises in engineering and other trade
magazines, and holds annual user conferences in the United States, Europe and
Japan.
The name "ICARUS" is an acronym for Industrial Computer Application
Retrieval and Utility Systems, which was adopted when ICARUS commenced business
operations in 1969. Unless the context otherwise requires, references in this
Prospectus to "ICARUS" or the "Company" include ICARUS International, Inc., a
Maryland corporation, and its predecessors and consolidated subsidiaries. The
Company's subsidiaries include ICARUS Corporation, ICARUS Services Limited,
ICARUS Nippon K.K. and ICARUS Development and Marketing Corporation. See
"Business -- Corporate Structure" and "Certain Transactions -- Pending
Recapitalization." The Company's principal offices are located at 600 Jefferson
Plaza, Fifth Floor, Rockville, Maryland 20852; its telephone number is (301)
424-4646. The Company's World Wide Web site is located at
http://www.icarus-us.com. Information contained in the Company's Web site does
not constitute, and shall not be deemed to constitute, part of this Prospectus.
2
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock to be offered........................... 2,000,000 shares
Common Stock to be outstanding after the Offering.... 5,000,000 shares(1)
Use of proceeds...................................... To further the Company's strategic goals by
funding: the development of complementary
knowledge-based engineering software products,
the expansion of its engineering and direct
sales and marketing force, possible business
alliances or the acquisition of complementary
technologies or companies; and for general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............... ICRS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------------
1995 1996 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue...................................... $5,058 $5,678 $7,339 $9,136
Total operating expenses........................... 4,554 5,395 6,309 8,105
Income from operations............................. 504 283 1,030 1,031
Net income......................................... 300 193 656 662
Net income per share, Basic and Diluted(2)......... 0.10 0.06 0.22 0.22
Weighted average common shares, Basic and
Diluted(2)...................................... 3,000 3,000 3,000 3,000
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1998
---------------------------
ACTUAL AS ADJUSTED(3)
------ --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 321 $13,721
Total assets.............................................. 5,974 19,374
Total liabilities......................................... 4,179 4,179
Total stockholders' equity................................ 1,795 15,195
</TABLE>
- ---------------
(1) Excludes (i) 750,000 shares of Common Stock reserved for issuance under the
Company's 1998 Stock Option Plan (the "Stock Option Plan"), of which options
to purchase approximately 554,600 shares of Common Stock are expected to be
granted to a number of the Company's directors, officers and employees prior
to the commencement of the Offering with the exercise price to be set at the
initial public offering price set forth on the cover page of this
Prospectus, and (ii) 500,000 shares of Common Stock reserved for issuance
under the Company's Recognition and Retention Plan and Trust (the
"Recognition Plan"), of which no shares of Common Stock are expected to be
granted immediately following consummation of the Offering. See
"Management -- Stock Plans -- 1998 Stock Option Plan" and "-- Recognition
and Retention Plan and Trust."
(2) Computed as described in Note A of Notes to Consolidated Financial
Statements.
(3) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$8.00 per share, after deducting the estimated underwriting discount and
Offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
3
<PAGE> 8
RISK FACTORS
The shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information in
this Prospectus before investing in shares of the Common Stock offered hereby.
The discussion in this Prospectus contains certain forward-looking statements
that involve risks and uncertainties, such as statements of the Company's plans,
goals, objectives, expectations and intentions. The cautionary statements made
in this Prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this Prospectus. Prospective
investors in the shares of Common Stock offered hereby are cautioned that, while
the forward-looking statements reflect the Company's good faith beliefs, they
are not guarantees of future performance and involve known and unknown risks and
uncertainties and that the Company's actual results could differ materially from
those discussed herein. Some of the factors that could cause or contribute to
such differences include those discussed below, as well as those discussed
elsewhere herein.
MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS
The success of the Company is dependent upon continued and increased use in
the process manufacturing segments of various industries of engineering software
in general, and of the Company's knowledge-based engineering software products
in particular. Market acceptance of the Company's existing and future products
depends on several factors including the ease with which the products can be
implemented and used, the performance and reliability of the products, the range
of tasks that the products can perform, the degree to which users achieve
expected cost savings and productivity gains, and the extent to which the
Company's customers and prospective customers are able to implement alternative
approaches to meet their business development, engineering, construction
scheduling and operations and maintenance needs. Some of the above factors are
beyond the Company's control. There can be no assurance that the Company's
customers will realize the intended benefits of the Company's products or that
the Company's products will achieve continued or increased market acceptance.
Any significant or ongoing failure to achieve such benefits or to maintain or
increase market acceptance would substantially restrict the future growth of the
Company and could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- The Decision
Engineering Process" and "-- Competition."
DEPENDENCE ON CONTRACT RENEWALS
The Company derives a significant portion of its total revenue from the
renewal of license agreements with existing customers. Total revenue from
renewed license agreements (including renewals that involved the substitution of
another ICARUS product) constituted 46.2% ($3.4 million) and 45.3% ($4.1
million) of total revenue for the fiscal years ended April 30, 1997 and 1998,
respectively. The Company expects contract renewals to account for a significant
portion of the Company's total revenue in the future to the extent that the
Company increases the number of contracts for renewing customers. The Company's
license agreements generally have one to five year terms and do not obligate
customers to renew after the expiration of their licenses. The Company's ability
to secure renewals may be affected by, among other factors, its ability to
deliver consistent, high-quality and timely new products, product enhancements
and support services; ownership, management or personnel changes within customer
organizations, including acquisitions of customers by other companies; the
general global investment climate for the process manufacturing segments of
various industries; customer capital budget constraints; the introduction of
competing products by third parties; political and economic stability in
customers' markets and other factors, many of which are beyond the control of
the Company. There can be no assurance that the Company will be able to maintain
its historical renewal rates and any significant or ongoing decline in renewal
rates would have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
RISKS ASSOCIATED WITH CONTINUED PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE
The market for engineering software is characterized by rapid technological
change, quickly evolving industry standards and frequent changes in customer
requirements. As a result, new products or product
4
<PAGE> 9
features are continually being introduced by engineering software companies. The
Company's future results of operations will depend in part upon the Company's
ability to avoid product obsolescence by anticipating and responding to the
changes described above in a timely manner. There can be no assurance that the
Company will be successful in developing and marketing new products and features
or that the Company will not experience difficulties that could delay or prevent
the successful development, introduction and sale of such new products and
features or that such new products and features will adequately meet the
requirements of the marketplace and achieve market acceptance. In particular,
the Company may face additional risks in the development of products which are
intended to address different stages of the process manufacturing lifecycle
resulting from the Company's limited knowledge and experience in developing
products for such stages. The Company may also face additional risks related to
the process manufacturing requirements of certain industries not currently
addressed by the Company's products, the Company's attempt to sell new or
existing products into new markets and its dependence upon the contractual
performance of new business alliance "partners." See "Business -- Strategy."
The Company in the past has experienced delays in the release of certain
new products and new product features due primarily to the lack of funding to
support product development, difficulties in the allocation and/ or recruitment
of required personnel and delays in receipt of necessary technology and supplies
from third parties upon whom the Company was dependent. Such past delays did not
have a material adverse effect on the Company's financial condition, results of
operations or liquidity. If any new significant products or product features are
materially delayed or if they fail to achieve market acceptance, the Company's
business, operating results and financial condition would be materially
adversely affected. In addition, the introduction or announcement of new product
offerings or new product features by the Company or the Company's competitors
may cause customers to defer or forgo purchases of current versions of its
products, which could, in turn, have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Products
and Product Development."
The success of the Company's products in the future will depend, in part,
on technological factors, including the evolution of desktop and network
operating systems and the migration of existing and potential customers from
centralized mainframe-based computing systems to distributed client-server
computing systems. There can be no assurance that the Company will successfully
develop new knowledge-based engineering software products (and updated versions
of existing products) that will respond adequately to changes in existing
operating systems and the potential introduction of new operating systems or
that such development, even if successful, will be completed on a timely basis.
Neither can there be any assurance that the Company's current efforts to develop
client-server-compatible products will be successful. A failure in either case
could have a material adverse effect on the Company's business, operating
results and financial condition.
FLUCTUATIONS IN FUTURE OPERATING RESULTS
The Company's operating results have fluctuated in the past and will in the
future likely fluctuate significantly from quarter to quarter or on an annual
basis as a result of a number of factors, including, but not limited to, the
size and timing of customer orders, delays in renewals or failure of existing
customers to renew their licenses with the Company when their current licenses
expire, the length of the Company's sales cycle, changes in contract terms
(including terms affecting the timing of recognition of license revenue) and the
rate at which such changes are made, timing of new product announcements and
introductions by the Company and its competitors, the Company's ability to
develop, introduce and market new products and product enhancements, market
acceptance of the Company's products, deferrals of customer orders in
anticipation of new products or product enhancements, the Company's ability to
control costs, (including the hiring of new employees), political instability
in, or trade embargoes with respect to, foreign markets, changes in the
Company's management team, and fluctuating economic conditions. The Company's
future operating results may fluctuate as a result of these and other factors,
which could have a material adverse effect on the Company's business, operating
results and financial condition. It is possible that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be adversely affected to a material degree. See
5
<PAGE> 10
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Selected Quarterly Operating Results."
The Company ships software products within a short period after receipt of
a new order and typically does not have a material backlog of unfilled orders.
Revenue in any quarter is substantially dependent on orders booked and license
renewals in that quarter and are not predictable with any degree of certainty.
The Company has recently incurred increased expenses associated with product
development, increased staffing of its sales and marketing group, development
group and technical support group, and expansion into new leased premises for
its main office in Rockville, Maryland, with no certainty that the incurrence of
such expenses will result in future revenues. In addition, because a large
portion of the Company's expense levels are fixed (i.e., relate to salaries,
benefits and occupancy expenses), if revenue is below expectations in any given
quarter, then the adverse effect may be magnified by the Company's inability to
adjust spending in a timely manner to compensate for any revenue shortfall. In
addition, a customer's purchase of the Company's products generally involves a
significant commitment of capital with possible attendant delays frequently
associated with authorization procedures for substantial capital expenditures
within large organizations. Moreover, the Company believes that because some
customers are purchasing larger and more complex knowledge-based engineering
software products, the Company's average licensed user fees have been increasing
and purchases of the Company's products require approval at higher executive
levels. For these and other reasons, the sales cycles for the Company's products
can be lengthy and are subject to a number of significant risks over which the
Company has little or no control. As a result of the large dollar amounts
represented by a single order, the timing of the receipt of an order can have a
significant impact on the Company's revenues and earnings for a particular
period. Any significant or ongoing failure to reach definitive agreements with
customers, including renewals of current licensing agreements upon their
expiration, would have a material adverse effect on the Company's business,
operating results and financial condition.
ABILITY TO ATTRACT AND RETAIN REQUIRED PERSONNEL
The Company believes that its future business results will depend in
significant part upon its ability to attract and retain highly skilled
engineering, managerial and marketing personnel. Competition for such personnel
is intense, and any failure to attract and retain such personnel could have a
material adverse effect on the Company's business, operating results and
financial condition. In particular, the Company has found it difficult to
attract qualified engineering personnel in the past and no assurance can be
given that the Company will not have similar difficulties in the future.
INTENSE COMPETITION
The market for engineering software used in the process manufacturing
segments of various industries is intensely competitive. The Company experiences
competition primarily from its customers and potential customers, which have
developed, or may decide to develop, and/or maintain their own software
internally rather than purchasing commercial software products such as those
offered by the Company. As a result, the Company must continuously educate
existing and prospective customers about the advantages of purchasing the
Company's knowledge-based engineering software products and services. There can
be no assurance that these customers or other potential customers will perceive
sufficient value in the Company's products and services to justify licensing
them. In addition, customers or potential customers could enter into strategic
relationships with one or more of the Company's competitors to develop, market
and sell competing products and services.
The Company has also experienced and expects to continue to experience
intense competition from current and future competitors, some of whom have
significantly greater financial, technical, marketing and other resources than
the Company. The Company's current direct third-party competitors include
Timberline Software Corporation and a number of smaller private companies. To a
lesser degree, ICARUS faces competition or potential competition from Aspen
Technology, Inc., Simulation Sciences Inc. and ChemStations, Inc. Many of the
Company's competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the development, promotion and sale of their products than can the Company.
Also, several of the Company's current and
6
<PAGE> 11
potential competitors have greater name recognition and larger installed bases
that could be leveraged to increase market share at the Company's expense. The
Company expects to face increased competition as other established and emerging
companies enter the engineering software market in the process manufacturing
sector of various industries and new products and technologies are introduced.
Increased competition could result in price reductions, fewer customer orders,
reduction in license renewals and loss of market share, any of which could
materially adversely affect the Company's business, operating results and
financial condition. In addition, current and potential competitors have in the
recent past made, and may in the future make, strategic acquisitions, merge or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's current or prospective customers. Such competition could materially
adversely affect the Company's ability to sell new or renewal licenses and
support agreements on terms favorable to the Company. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect upon
the Company's business, operating results and financial condition. See
"Business -- Competition."
ABILITY TO MANAGE GROWTH
To the extent the Company experiences growth in its business, it is
expected that such growth would place a significant strain on the Company's
personnel and resources. The Company's ability to manage future growth, if any,
will depend on its ability to implement and improve operational, financial and
management information and control systems on a timely basis, together with
maintaining effective cost controls, and any failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition. No assurance can be given that the Company will not
experience such difficulties in the future.
LIMITED LINE OF PRODUCTS AND SERVICES
The Company derives its revenues from the licensing and sale of a limited
number of products and services. The Company currently offers four primary
knowledge-based engineering software products, and the software license revenue
derived from such products constituted approximately 70.4% and 76.0% of the
Company's total revenues for the fiscal years ended April 30, 1997 and 1998,
respectively. As a consequence, in the event that the Company were to experience
a decline in the demand for one or more of its knowledge-based engineering
software products, such a decline could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Products and Product Development."
CONCENTRATION OF REVENUE IN THE CHEMICAL AND PETROLEUM REFINING INDUSTRIES
The Company derives a significant amount of its total revenue from software
licenses and services to companies in the process manufacturing segments of the
chemical and petroleum refining industries, which are highly cyclical
industries. Accordingly, the Company's future success is dependent to a
substantial degree upon the continued demand for its knowledge-based engineering
software by companies in the chemical and petroleum refining industries. The
Company believes that economic downturns in the U.S., Europe and Asia at
different times, and pricing pressures experienced by chemical and petroleum
refining companies in connection with cost containment measures, have led to
delays and reductions in certain capital and operating expenditures by many of
such companies in the past, and such delays or reductions will likely recur in
the future. While the recent negative performance of Asian economies has not
materially adversely affected the Company's operating results to date, there can
be no assurance that events in Asia will not adversely affect the Company's
operating results in the future. The most recent significant adverse
international event involved the invasion of Kuwait by the military forces of
Iraq in the fourth calendar quarter of 1990, which resulted in the interruption
of the flow of petroleum from that country and in capital projects in the Middle
East in general. During that period, orders for the Company's products slowed
substantially. However, with the quick resolution of the Gulf War in the first
quarter of 1991, orders for software licenses recovered. Any such delays or
reductions in the future could have a material adverse effect on the Company's
business, operating results and financial condition. Further, the Company's
revenue in the past has been, and in the future may be,
7
<PAGE> 12
subject to substantial period-to-period fluctuations as a consequence of general
domestic and foreign economic conditions, political developments and other
factors affecting spending in the chemical and petroleum refining industries.
The Company has developed new products and product features for, and has
increased its marketing efforts of its current products to, companies in the
process manufacturing segments of other industries. However, no assurance can be
given that such efforts will decrease the Company's concentration of revenues
from the chemical and petroleum refining industries in the foreseeable future.
See "Business -- Strategy."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
For the fiscal years ended April 30, 1997 and 1998, customers located
outside the United States (based on the customer's billing address) accounted
for 32.8% and 42.3% of the Company's total revenue, respectively. The Company's
international operations are subject to risks inherent in the conduct of
international business, including unexpected changes in regulatory requirements,
exchange rates, export license requirements, tariffs and other barriers,
political and economic instability, limited intellectual property protection,
difficulties in collecting payments due from sales representatives or customers,
difficulties in managing its sales representatives, difficulties in staffing and
managing foreign subsidiary operations, and potentially adverse tax
consequences. Certain of the Company's international sales are denominated in
local currencies, and the impact of future exchange rate fluctuations on the
Company's operating results and financial condition cannot be accurately
predicted. The Company does not currently engage in currency exchange rate
hedging transactions, but the Company will occasionally buy and sell different
currencies to protect itself against currency exchange rate fluctuations. There
can be no assurance that fluctuations in currency exchange rates in the future
will not have a material adverse impact on revenue from international sales and
thus the Company's business, operating results and financial condition. The
Company may engage in hedging in the future; however, there can be no assurance
that any currency hedging policies implemented by the Company in the future will
be successful. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Sales and Marketing."
POTENTIAL FOR SOFTWARE DEFECTS
Like other software products, the Company's products have, on occasion,
contained undetected errors, or "bugs," which become apparent through use of the
product. Because the Company's new or enhanced products are initially installed
in a limited number of personal computers and operated by a limited number of
users, such errors may not be detected for a number of months after delivery of
the software. Significant errors could result in the redeployment of Company
personnel and funds to cure the errors resulting in delays in product
development and enhancements. Moreover, software products with substantial
errors could be rejected by customers, which could have a material adverse
effect on the Company's business, results of operations or financial condition.
Although the Company has not experienced material adverse effects resulting from
any such errors or defects to date, there can be no assurance that errors or
defects will not be discovered in the future, potentially causing delays in
product introduction and shipments or requiring design modifications that could
adversely affect the Company's business, results of operations, or financial
condition. It is also possible that errors or defects in the Company's software
products could give rise to product liability or other liability claims. See
"-- Product Liability."
RISKS ASSOCIATED WITH PROPRIETARY RIGHTS
The Company relies primarily upon trade secret and copyright laws to
protect its proprietary technology. The Company enters into trade secret and
confidentiality agreements with its employees and also enters into
confidentiality agreements with its sales representatives and customers. Such
confidentiality agreements typically limit access to, and seek to prohibit
decompilation and reverse engineering of the object code embedded in the
Company's knowledge-based engineering software products and other proprietary
software. The Company also typically uses a proprietary physical security device
developed by the Company and proprietary software to control the identity,
number of users and term of use of its knowledge-based engineering software
products. The Company has historically declined to seek patent protection for
its
8
<PAGE> 13
knowledge-based engineering software products because patents on such products
would result in the public disclosure of proprietary ideas and structures
associated with its software. Further, the Company generally has declined to
seek copyright registration of its copyrightable software since the registration
process requires the disclosure of certain portions of its source code and
therefore increases the risk that a competitor could use such copyright
registrations to obtain sensitive information regarding the Company's
knowledge-based engineering software products. The Company has applied for, and
received U.S. trademark and service mark registrations on many of the trademarks
and service marks used in marketing its products and services. There can be no
assurance, however, that the steps taken by the Company to protect its products
and services under applicable intellectual property laws and with the Company's
proprietary control device are adequate to prevent misappropriation of its
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. Further, it is very difficult to police unauthorized use of the
Company's products due to the nature of software. Any such misappropriation of
the Company's technology or development of competitive technologies could have a
material adverse impact on the Company's business, operating results and
financial condition. In addition, the laws of certain countries in which the
Company's products are distributed do not protect the Company's intellectual
property rights to the same extent as the laws of the United States. For
example, the laws of many foreign jurisdictions in which the Company licenses
its software products protects trademarks solely on the basis of the first to
register. The Company currently does not possess any trademark registrations in
foreign jurisdictions, although it does have copyright protection of its
software products under the provisions of various international conventions.
Accordingly, intellectual property protection of its products and services may
be ineffective in many foreign countries. In summary, there can be no assurance
that the protection provided by the laws of the United States or foreign
jurisdictions will be sufficient to protect the Company's intellectual property.
The Company could incur substantial costs in protecting and enforcing its
intellectual property rights. Although there presently are no pending or
threatened intellectual property claims against the Company, third parties may,
in the future, assert patent, trademark, copyright and other intellectual
property right claims to technologies which are incorporated into the Company's
products. In such event, the Company may be required to incur significant costs
in reaching a resolution to the asserted claims. There can be no assurance that
such a resolution would not require that the Company pay damages or obtain a
license to the third party's intellectual property rights in order to continue
licensing the Company's products as currently offered or, if such a third party
license is required, that it would be available on terms acceptable to the
Company.
Certain technology used in the Company's current products and products
under development include technology licensed from third parties. These licenses
generally require the Company to pay royalties and to fulfill confidentiality
obligations. The termination of any such licenses, or the failure of the third
party licensors to adequately maintain or update their products, could result in
delays in the Company's ability to ship certain of its products or in delays in
the introduction of the Company's new or enhanced products while it searches for
similar technology from alternative sources, if any, which would prove costly.
Any need to implement alternative technology could prove to be very expensive
for the Company and any delay in product introduction or shipment could result
in a material adverse effect on the business, result of operations and financial
condition of the Company. It may also be necessary or desirable in the future to
obtain additional licenses for use of third party products in the Company's
products and there can be no assurance that the Company will be able to do so on
commercially reasonable terms, if at all. See "Business -- Proprietary Rights."
RISKS ATTENDANT TO BUSINESS ALLIANCES OR ACQUISITIONS
The Company's business strategy includes the possible acquisition of
companies or technologies or the entry into business alliances which will
complement or supplement the products and services sold by the Company. No
assurance can be given that the Company will be able to find attractive
acquisition or business alliance candidates, or that after completion of an
acquisition or entry into an alliance the Company will be able to effectively
integrate the acquired operations or to profitability manage such operations or
business
9
<PAGE> 14
alliances. The failure to complete acquisitions or enter into business alliances
could have a material adverse effect on the Company's ability to grow its
revenues in the future.
There are significant risks attendant to the Company's entry into business
alliances or the consummation of acquisitions. The Company has recently entered
into business alliances with SRI Consulting, Inc., Hyprotech, Ltd. and
Richardson Engineering Services, Inc., and may enter into additional business
alliances in the future. Risks inherent in such current and any future alliances
include, among others, the inability to realize the intended benefits of an
alliance, the Company's increased reliance on third parties, the increased
payment of third party licensing fees or royalties for incorporation of third
party technology into the Company's products, the inadvertent transfer of the
Company's proprietary technology to a business "partner" and the opportunity
costs associated with entering into alliances. If any business alliance or
acquisition is consummated for cash and the Company borrows the required funds,
the Company may become highly leveraged, which could make it vulnerable to
increases in interest rates and extended economic downturns, limiting the
Company's flexibility in responding to changing economic and industry
conditions. If any business alliance or acquisition is financed by the issuance
of additional Common Stock or other convertible securities, such issuance may be
without stockholder approval and could dilute current stockholders and
stockholders who purchase shares of Common Stock in this Offering and may have a
negative impact on earnings per share and on the market price of the Common
Stock. While the Company's Articles of Incorporation do not require stockholder
approval prior to the issuance of additional shares of the Company's capital
stock, the rules of the Nasdaq Stock Market generally require stockholder
approval for share issuances in a transaction not involving a public offering
that are below specified price levels and which equal or exceed 20% of the
number of or voting power of shares of the Company then issued and outstanding.
There can be no assurance that the Company will be able to obtain additional
debt or equity financing on terms favorable to the Company, or at all, or if
obtained, there can be no assurance that such debt or equity financing will be
sufficient for the financing needs of the Company.
The Company, from time to time, evaluates potential business alliances and
potential acquisitions and identifies and has preliminary discussions with
potential business alliance and/or acquisition candidates, although there are,
as of the date of this Prospectus, no agreements, arrangements or understandings
between the Company and any party relating thereto.
DEPENDENCE ON MANAGEMENT PERSONNEL
The Company's future business results depend in significant part on Herbert
G. Blecker, the Company's Chairman of the Board, President and Chief Executive
Officer ("Mr. Blecker"), William F. Geritz, III, the Company's Executive Vice
President ("Mr. Geritz") and other senior management and key employees,
including certain engineering, managerial and marketing personnel. The loss of
the services of any of these individuals, or groups of individuals, could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company has employment agreements with Messrs. Blecker
and Geritz that include non-competition covenants. See "Management -- Employment
Agreements."
LEGAL PROCEEDINGS
In 1979, the Company and Mr. Blecker were convicted by a federal court for
presenting false claims to the General Services Administration ("GSA") by making
misstatements regarding Company employee qualifications in connection with the
performance of a subcontract for GSA, which resulted in overbilling the GSA for
such employees' services. The Company was fined $62,000 and Mr. Blecker was
sentenced to one year imprisonment, of which he served nine months. The GSA, in
1983, sent a letter to the Company stating that the Company would be permitted
to continue to contract with the GSA. In addition, as a result of the Company's
inability to reach a mutually agreeable payment schedule for back taxes with the
Internal Revenue Service ("IRS"), the Company filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code in 1985 and emerged therefrom in 1988,
making all payments required pursuant to its plan of reorganization, the final
payment being made in 1993. The Company believes that the foregoing described
legal proceedings have not had an adverse impact on the Company's recent
business, financial condition or results of operations. See "Business -- Legal
Proceedings -- Prior Legal Proceedings."
10
<PAGE> 15
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty exists in the
software industry concerning the potential effects associated with such
compliance. Although the Company currently offers software products that are
either designed to be Year 2000 compliant or have been, or are being or will be
upgraded to be Year 2000 compliant, there can be no assurance that the Company's
software products contain all necessary date code changes. In addition, the
Company has warranted, and may in the future warrant, to certain customers that
its products will be Year 2000 compliant, and the failure of such products to be
Year 2000 compliant could have a material adverse effect on the Company's
business, financial condition or results of operations. Any failure of the
Company's products to be Year 2000 compliant could result in a material adverse
effect on the Company's business, financial condition or results of operations.
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims arising from a customer's use of the Company's products. The
Company does not guarantee that any particular result will be obtained through
the use of its knowledge-based engineering software, because the customer's
input variables typically control the results of the product's calculations. It
is possible, however, that the limitation of liability provisions contained in
the Company's license agreements may not be effective as a result of existing or
future federal, state or local laws or ordinances or unfavorable judicial
decisions. Although the Company has not experienced any product liability claims
to date, the sale and support of its software may entail the risk of such
claims, which could be substantial in light of the applications in which the
Company's products are used. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business, operating results and financial condition.
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
by the Company hereby at an assumed initial public offering price of $8.00 per
share (the midpoint of the range as set forth on the cover page of this
Prospectus) are estimated to be $13.4 million, after deducting the estimated
underwriting discount and Offering expenses payable by the Company. Although the
Company currently anticipates that it will use a portion of such proceeds to
further its strategic goals, the remainder of such proceeds are currently
allocated only for general corporate purposes. Moreover, management will have
the discretion to modify the use of net proceeds, as described under the caption
"Use of Proceeds." Consequently, management will have broad discretion over the
use of the net proceeds of the Offering.
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, Mr. Blecker, the Chairman of the Board and
Chief Executive Officer, and his wife, Eunice E. Blecker, the Company's
Treasurer and Secretary (collectively, the "Principal Stockholders"), will, in
the aggregate, beneficially own approximately 60.0% of the issued and
outstanding shares of Common Stock of the Company, and will therefore have the
ability to effectively control the outcome of all matters (including the
election of directors, any merger or consolidation, or the sale of all or
substantially all of the Company's assets) submitted to the stockholders for
approval. This concentration of ownership may also have the effect of delaying,
deferring or preventing a change in control of the Company and making certain
transactions more difficult or impossible absent the support of such
stockholders, including proxy contests, mergers involving the Company, tender
offers, open-market purchase programs or other purchases of Common Stock that
could give public, minority stockholders of the Company the opportunity to
realize a premium over the then-prevailing market price for shares of Common
Stock. See "Principal Stockholders."
11
<PAGE> 16
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S ARTICLES OF INCORPORATION AND MARYLAND
LAW
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of preferred stock, $.01 par value per share, of the Company (the
"Preferred Stock"), of which 100 shares of Series A Preferred Stock will be
outstanding following consummation of the Recapitalization, and to determine the
price, rights, preferences, privileges and restrictions of the unissued shares
thereof, including voting rights, without any further vote or action by the
Company's stockholders within certain limitations as prescribed by the rules of
the Nasdaq National Market. See "Description of Capital Stock." Moreover, the
Articles of Incorporation ("Articles") of the Company contain certain provisions
which, among other things, maintain a "staggered" Board of Directors, limit the
personal liability of, and provide indemnification for, the directors of the
Company, require that stockholders comply with certain requirements before they
can nominate someone for director or submit a proposal before a meeting of
stockholders, limit the ability of stockholders to call special meetings of
stockholders, limit the ability of stockholders to act by written consent and
require a supermajority of stockholders in the event that a "related person" (as
defined) attempts to engage in a business combination with the Company. See
"Description of Capital Stock -- Maryland Anti-Takeover Law and Certain
Provisions of the Articles of Incorporation."
NO PRIOR PUBLIC TRADING MARKET
Prior to the Offering, there has been no public trading market for shares
of the Common Stock, and there can be no assurance that an active public trading
market will develop following completion of the Offering or, if developed, that
such market will be sustained. The initial public offering price of the shares
of Common Stock was determined by negotiation between the Company and the
Underwriters and will not necessarily reflect the market price of the Common
Stock following the Offering. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price for the Common Stock following the Offering will be
affected by a number of factors, including the announcement of new products,
product enhancements or services by the Company or its competitors, quarterly
variations in the Company's results of operations or results of operations of
the Company's competitors, changes in earnings estimates or recommendations by
securities analysts, developments in the Company's industry and in the process
manufacturing segments of various industries, general market and economic
conditions and other factors, including factors unrelated to the operating
performance of the Company or its competitors. In addition, stock prices for
many companies in the technology and emerging growth sectors have experienced
wide fluctuations which have often been unrelated to the operating performance
of such companies. Such factors and fluctuations may adversely affect the market
price of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock prevailing from time to time. Upon completion of this Offering, the
Company will have 5,000,000 shares of Common Stock outstanding. Of these
outstanding shares, the 2,000,000 shares sold in this Offering will be freely
transferable without restriction or further registration under the Securities
Act of 1933, as amended (the "Securities Act"), unless they are held by
"affiliates" of the Company within the meaning of Rule 144 promulgated under the
Securities Act ("Rule 144") as currently in effect. The remaining 3,000,000
shares held by existing stockholders will be "control shares" within the meaning
of Rule 144 and may not be sold in the absence of registration under the
Securities Act or pursuant to an exemption from registration under Rule 144
promulgated under the Securities Act.
The Company and each of the Principal Stockholders of the Company have
entered into lock-up agreements providing that neither the Company nor any
Principal Stockholder will offer, sell, pledge, grant an option for the sale of
or otherwise dispose of shares of Common Stock, or any interest therein, or any
securities
12
<PAGE> 17
exercisable for or convertible into shares of Common Stock, for a period of 180
days after the effective date of the Offering made hereby (until
, 1999) without the prior written consent of Hoak
Breedlove Wesneski & Co., except that the Company may, without consent, issue
equity securities under certain circumstances. Any shares subject to these
lock-up agreements may be released at any time by Hoak Breedlove Wesneski & Co.
In addition, the Principal Stockholders have agreed with the Company not to
sell, transfer, assign, pledge or hypothecate any of their shares of Common
Stock for a period of two years from the effective date of this Offering.
As of the date of this Prospectus, the Company has reserved an aggregate of
750,000 shares of Common Stock for issuance pursuant to the Stock Option Plan
and options to purchase 554,600 shares will be outstanding under the Stock
Option Plan immediately prior to the commencement of the Offering. Such options
will vest at a rate of 20% per year on each annual anniversary of the date on
which the option was granted. The Company also has reserved 500,000 shares for
issuance under the Recognition Plan, none of which are anticipated to be granted
immediately following the consummation of the Offering. As soon as practicable
following the Offering, the Company intends to file registration statements on
Form S-8 under the Securities Act to register shares of Common Stock reserved
for issuance under such plans. Such registration statements will automatically
become effective immediately upon filing. See "Shares Eligible for Future Sale."
SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will suffer an immediate and
substantial dilution of $4.96 per share in net tangible book value per share of
the Common Stock. See "Dilution."
13
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$8.00 per share are estimated to be $13.4 million (or approximately $15.5
million if the Underwriters' over-allotment option is exercised in full), after
deducting the estimated underwriting discount and Offering expenses payable by
the Company.
The Company intends to use the net proceeds to further its strategic goals
as described herein, and therefore expects to utilize a portion of the net
proceeds to accelerate its development of complementary knowledge-based
engineering software products, to expand its engineering and direct sales and
marketing force, for current or possible future business alliances, for the
possible acquisition of complementary technologies or companies, and for general
corporate purposes. The Company anticipates that the net proceeds of the
Offering (not including net proceeds from the exercise of the Underwriters'
over-allotment option) will be applied as follows (subject to the qualifications
set forth further below):
<TABLE>
<CAPTION>
APPROXIMATE
USE OF PROCEEDS DOLLAR AMOUNT PERCENT
- ------------------------------------------------------------ ------------- -------
<S> <C> <C>
Research and development of software products and
services.................................................. $ 3,000,000 22.4%
Sales and marketing......................................... 2,500,000 18.6
Possible business alliances or acquisitions................. * *
General corporate purposes and working capital.............. 7,900,000 59.0
----------- -----
Total.................................................. $13,400,000 100.0%
=========== =====
- ---------------
* These amounts are, as of the date of this Prospectus, unknown. It is expected that
funds needed for any possible business alliances or for acquisitions of companies
or technology will be deducted from working capital.
</TABLE>
Although the allocation of the net proceeds set forth above represents the
Company's best estimates based on its proposed plans and assumptions relating to
its operations and growth strategy and on general economic conditions, the
amounts actually expended for the above purposes may vary significantly
depending upon a number of factors, including but not limited to, cash generated
from operations, development and promotional expenses related to the
introduction of new products, the progress and timing of its new product
development efforts, changes in technology and the availability of desirable
business partners or acquisition candidates. See "Business -- Strategy."
Company management continually evaluates the manner in which it can most
effectively bring new products or product enhancements to market and,
accordingly, reviews on a constant basis whether it is more efficacious to
develop internally or acquire (by purchase, license or alliance) certain
technologies. As a consequence, the amount of net proceeds to be devoted to
furthering a given element of the Company's strategic plan, such as internal
product development, may be re-directed towards furthering one or more other
elements of the Company's strategic plan, such as possibly entering into
business alliances or undertaking acquisitions. Accordingly, the net proceeds
which may be used for a particular purpose may be subject to change based on
future events which cannot be accurately predicted. Moreover, the Company
intends to maintain its flexibility to use the net proceeds to respond to other
business opportunities in the engineering software and software services
industry in the future. Consequently, management will have broad discretion over
the use of the proceeds in this Offering. See "Risk Factors -- Broad Management
Discretion in Use of Proceeds."
The Company, from time to time, evaluates potential business alliances and
potential acquisitions and identifies and has preliminary discussions with
potential business alliance and/or acquisition candidates, although there are,
as of the date of this Prospectus, no agreements, arrangements or understandings
between the Company and any party relating thereto. There can be no assurance
that any business alliance or acquisition can or will be consummated on terms
favorable to the Company, or at all. See "Risk Factors -- Risks Attendant to
Business Alliances or Acquisitions" and "Business -- Strategy."
14
<PAGE> 19
Pending the uses described above, the Company will invest the net proceeds
from the sale of the Common Stock offered by it hereby in short-term, investment
grade, interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common Stock
and does not presently intend to pay cash dividends on the Common Stock in the
foreseeable future. Any payment of cash dividends on shares of Common Stock will
be within the discretion of the Company's Board of Directors and will depend
upon the future earnings of the Company, the Company's capital requirements,
restrictions imposed by the Company's lenders, if any, applicable requirements
of the Maryland General Corporation Law ("MGCL") and other factors considered
relevant by the Company's Board of Directors.
CAPITALIZATION
The following table sets forth the capital lease obligation and
capitalization of the Company at April 30, 1998, and as adjusted to give effect
to the Offering and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." This table should be read in conjunction with the
consolidated financial statements of the Company and the notes related thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 30, 1998
-------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligation, less current portion.............. $ 59 $ 59
------ -------
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized, 100 shares Series A Preferred Stock issued
and outstanding actual; 100 shares Series A Preferred
Stock issued and outstanding as adjusted(1)............ -- --
Common Stock, $.01 par value, 20,000,000 shares
authorized, 3,000,000 shares issued and outstanding
actual; 5,000,000 shares issued and outstanding as
adjusted(2)............................................ 30 50
Additional paid-in capital................................ 11 13,391
Retained earnings......................................... 1,763 1,763
Cumulative foreign currency translation adjustment........ (9) (9)
------ -------
Total stockholders' equity............................. 1,795 15,195
------ -------
Total capitalization................................. $1,854 $15,254
====== =======
</TABLE>
- ---------------
(1) The Company will issue 100 shares of Series A Preferred Stock in connection
with the Recapitalization, which will be consummated immediately prior to
the closing of the Offering. See "Certain Transactions -- Pending
Recapitalization."
(2) Excludes (i) 750,000 shares of Common Stock reserved for issuance under the
Stock Option Plan, of which options to purchase approximately 554,600 shares
of Common Stock are expected to be granted to a number of the Company's
directors, officers and employees prior to the commencement of the Offering
with the exercise price to be set at the initial public offering price set
forth on the cover page of this Prospectus, and (ii) 500,000 shares of
Common Stock reserved for issuance under the Recognition Plan, of which no
shares of Common Stock are expected to be granted immediately following
consummation of the Offering. See "Management -- Stock Plans -- 1998 Stock
Option Plan" and "-- Recognition and Retention Plan and Trust."
15
<PAGE> 20
DILUTION
At April 30, 1998, the net tangible book value of the Company was
approximately $887,000 or $0.30 per share of Common Stock outstanding. The net
tangible book value per share represents the amount of total assets (excluding
intangible assets) less total liabilities, divided by the total number of shares
of Common Stock outstanding. At April 30, 1998, after having given effect to the
sale of 2,000,000 shares of the Common Stock in the Offering by the Company at
an assumed initial public offering price of $8.00 per share and after deduction
of estimated underwriting discounts and Offering expenses payable by the
Company, the pro forma net tangible book value of the Company would have been
$15.2 million or $3.04 per share. This represents an immediate increase in pro
forma net tangible book value of $2.74 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $4.96 per share to
the new investors purchasing shares of Common Stock in this Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $8.00
-------
Net tangible book value per share at April 30, 1998(1)...... $0.30
Increase in pro forma net tangible book value per share
attributable to new investors............................. 2.74
-----
Pro forma net tangible book value per share after the
Offering.................................................. 3.04
-------
Dollar dilution per share to new investors.................. $4.96
-------
-------
Percentage dilution per share to new investors.............. 62.0%
------
------
</TABLE>
-------------------------
(1) Based upon 3,000,000 shares of Common Stock outstanding as of
April 30, 1998. Does not include 1,250,000 shares of Common Stock
reserved for future issuance under the Company's Stock Option Plan
and Recognition Plan. See "Management -- Stock Plans -- 1998 Stock
Option Plan" and "-- Recognition and Retention Plan and Trust."
The following table summarizes, on a pro forma basis as of April 30, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid for such shares and the average price per share paid for such
shares by existing stockholders and by the new investors purchasing shares of
Common Stock from the Company in this Offering (based on an assumed initial
public offering price of $8.00 per share and before deduction of estimated
underwriting discounts and Offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 3,000,000 60.0% $ 40,000 0.3% $0.01
New investors................... 2,000,000 40.0 16,000,000 99.7 $8.00
--------- ----- ----------- -----
Total......................... 5,000,000 100.0% $16,040,000 100.0%
========= ===== =========== =====
</TABLE>
-------------------------
(1) Assumes no exercise of stock options. As of the date of the
consummation of this Offering, there will be outstanding options
to purchase 554,600 shares of Common Stock with an exercise price
equal to the initial public offering price, which options will
vest and become exercisable at the rate of 20% per year in 1999
through 2003. It is also anticipated that options to purchase
shares will be issued to non-employee directors immediately after
the Company's 1998 annual meeting of stockholders and that no
shares will be granted under the Recognition Plan immediately
following the Offering. See "Management -- Stock Plans -- 1998
Stock Option Plan" and "-- Recognition and Retention Plan and
Trust."
16
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the years
ended April 30, 1995, 1996, 1997 and 1998 are derived from the Company's audited
consolidated financial statements, which have been audited by Grant Thornton
LLP, independent accountants, whose report for the years ended April 30, 1996,
1997 and 1998 is included elsewhere in this Prospectus. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------
1995 1996 1997 1998
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software license revenue.................................. $3,166 $3,812 $5,165 $6,947
Maintenance fee and other revenue......................... 1,892 1,866 2,174 2,189
------ ------ ------ ------
Total revenue.......................................... 5,058 5,678 7,339 9,136
Expenses:
Cost of software license revenue.......................... 250 266 419 350
Cost of maintenance fee and other revenue................. 362 578 561 729
Selling and marketing..................................... 1,710 2,220 2,626 3,450
Research and development.................................. 1,181 1,229 1,326 1,950
General and administrative................................ 1,051 1,102 1,377 1,626
------ ------ ------ ------
Total operating expenses............................... 4,554 5,395 6,309 8,105
------ ------ ------ ------
Income from operations.................................... 504 283 1,030 1,031
Interest income, net...................................... 8 21 45 93
Other (expense) income.................................... (9) -- -- (3)
------ ------ ------ ------
Income before income taxes................................ 503 304 1,075 1,121
Provision for income taxes................................ 203 111 419 459
------ ------ ------ ------
Net income............................................. $ 300 $ 193 $ 656 $ 662
====== ====== ====== ======
Net income per share, Basic and Diluted................... $ 0.10 $ 0.06 $ 0.22 $ 0.22
====== ====== ====== ======
Weighted average common shares, Basic and Diluted......... 3,000 3,000 3,000 3,000
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 236 $ 496 $1,096 $ 321
Total assets.............................................. 2,043 2,859 4,554 5,974
Total liabilities......................................... 1,762 2,397 3,427 4,179
Total stockholders' equity................................ 281 462 1,127 1,795
</TABLE>
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's consolidated financial
statements and notes thereto included elsewhere in this Prospectus. The
discussion in this Prospectus contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. While the forward-looking
statements reflect the Company's good faith beliefs, they are not guarantees of
future performance and involve known and unknown risks and uncertainties. The
Company's actual results could differ materially from those discussed here. Some
of the factors that could cause or contribute to such differences include those
discussed in "Risk Factors," as well as those discussed elsewhere herein.
OVERVIEW
The Company was organized in 1969 to develop and market engineering
services to the process manufacturing segments of the chemical, petroleum
refining and other industries. During this period, the Company developed a cost
estimation software product to be run on the mainframe computers of certain of
its large customers. In 1970, the Company shipped its first commercial cost
estimation software program, the COST System. With the proliferation of powerful
desktop computers and easy-to-use operating systems like Windows in the early
1990s, the Company shifted direction to focus on the development of
knowledge-based engineering software products. In fiscal 1993, the Company
released the first of a series of Windows-based knowledge-based engineering
products.
The Company derives its revenue primarily from the sale of licenses of its
knowledge-based engineering software products, and, to a lesser extent, from
maintenance fee and other revenue. Revenue from software licenses accounted for
70.4% and 76.0% of the Company's total revenues for the fiscal years ended April
30, 1997 and 1998, respectively. Maintenance fee, training, consulting and other
services accounted for 29.6% and 24.0% of the Company's revenues for the fiscal
years ended April 30, 1997 and 1998, respectively.
The Company typically licenses its knowledge-based engineering software to
customers on a per-authorized user basis for a one or multi-year term. The
license fee for a one-year license for a single U.S. user of one of the
Company's core knowledge-based engineering software products ranges from $7,900
to $31,500, depending on the product and license term. The license fee charged
by the Company per authorized user declines as the customer increases the total
number of authorized users and increases the commitment term of the license.
Customers who license software products from the Company under multi-year
agreements have the option of paying the applicable license fee in full at the
beginning of the term of the license or making annual payments throughout the
term of the license. A substantial majority of customers who have multi-year
agreements elect the annual payment option. The Company believes that this
election is principally because the customers prefer to pay for the Company's
knowledge-based engineering software products out of their operating budgets.
Customers who elect to pay throughout the term of the license are required to
pay additional annual charges based upon increases in the Consumer Price Index
in the United States, the Retail Price Index in the United Kingdom, the Consumer
Price Index in Japan, the United Kingdom Retail Price Index in the European
Union, and the United States Consumer Price Index elsewhere, depending upon the
location of the Company's billing office.
18
<PAGE> 23
The following table sets forth the license terms remaining at April 30,
1998 for all licenses in effect on that date:
<TABLE>
<CAPTION>
NO. OF USERS PERCENT OF ALL
LICENSE TERM REMAINING LICENSED* LICENSED USERS
- ---------------------------------------------------- ------------ --------------
<S> <C> <C>
Less than 12 Months................................. 335 28.1%
12-23 Months........................................ 120 10.0
24-35 Months........................................ 208 17.4
36-47 Months........................................ 292 24.5
48-59 Months........................................ 223 18.7
60 or More Months................................... 15 1.3
</TABLE>
- ---------------
* Does not include 4 older licenses which permit an unlimited number of users,
nor does it include 7 multi-year term licenses that have been prepaid.
The Company believes that its ability to sell a substantial number of
multi-year term licenses, as demonstrated by the above table, is an important
historical financial strength. For the twelve-month period ended April 30, 1998,
76.7% of licensed authorized users whose licenses expired during such period
elected to renew such licenses (including renewals that involved the
substitution of another ICARUS product), and 55.5% of all new licenses sold to
authorized users were for a term of two or more years. The Company is highly
dependent upon license renewal revenues. See "Risk Factors -- Dependence on
Contract Renewals."
One of the Company's strategic initiatives is to enter into technology
licensing arrangements or business alliances to more quickly bring to market new
knowledge-based engineering software products or product enhancements by
combining its technology with the technology of its business "partners."
Management of the Company believes that any revenue generated as a result of
such licensing or alliance arrangements will be partially offset by increased
costs of software license revenue due to the more significant royalty or license
fee obligations of the Company arising out of such arrangements.
In addition, the Company also expects that it will have certain higher
expenses in near-term future periods, as the Company expects to continue to
increase the level of its expenses associated with marketing and sales, product
development and technical support. These higher expenses are expected to relate
to the introduction of new products that the Company plans to introduce in
fiscal 1999. Assuming a typical sales cycle, the Company does not anticipate
that such expenses will be offset by revenue in the quarter incurred. Further,
there can be no assurance that the incurrence of such expenses will result in
future revenues.
The Company recognized revenue from product licensing agreements in fiscal
year 1998 and prior years in accordance with the American Institute of Certified
Public Accountants Statement of Position No. 91-1, "Software Revenue
Recognition" ("SOP 91-1"). Revenue from software license agreements was
recognized upon execution of a contract and shipment of the software, provided
that no significant vendor obligations remained and collection was probable.
Upon renewal of one-year licenses, revenue was recognized on the contract
renewal date. For multi-year agreements, revenue was recognized ratably over the
multi-year period on each successive anniversary date. Any amount billed in
advance of satisfying the above revenue recognition criteria was classified as
current and long-term deferred revenue. Maintenance revenue was recognized
ratably over the support period, which was generally one year. Such revenue
included amounts bundled with the initial license fee arrangement for which
separate prices were derived for financial reporting purposes based upon the
Company's historical retail pricing for separate arrangements. Consulting and
training revenue was recognized as the related services were performed. See Note
A of Notes to Consolidated Financial Statements.
The American Institute of Certified Public Accountants has released
Statement of Position No. 97-2 "Software Revenue Recognition" ("SOP 97-2"),
which supersedes SOP 91-1. The new SOP 97-2 is effective for all transactions
entered into by the Company in fiscal year 1999. The new SOP 97-2 requires,
among other things, that revenue should be recognized when there is persuasive
evidence of an existing arrangement, delivery has occurred, the fees charged are
fixed or determinable and collectibility is probable. Additionally, SOP 97-2
provides that for those arrangements which consist of multiple elements such as
upgrades, enhancements and post-contract support, the fees charged must be
allocated to each element of the
19
<PAGE> 24
arrangement based upon vendor-specific objective evidence of fair value, which
is limited to a price charged when the element is sold separately or the price
for the element is established by management. The effective date of this
provision of the statement has been deferred for one year. The Company currently
recognizes revenue on license agreements when all of the conditions described
above have been met, and revenue on multi-year license agreements typically is
not recognized until such time that payments from customers become due (i.e.,
the license anniversary date). Additionally, the Company has allocated fees
between elements of its arrangements based upon established prices charged for
those elements when sold separately. In management's opinion, the impact of SOP
97-2 is not expected to be material.
Software development costs relating to new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, after which additional costs are
capitalized in accordance with Financial Accounting Standards Board Statement
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased or
Otherwise Marketed." Historically, the Company has not incurred material
software development costs following the establishment of technological
feasibility, and therefore no costs for software development have been
capitalized for the years ended 1996, 1997 or 1998.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data as
a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue
Software license revenue.................................. 67.1% 70.4% 76.0%
Maintenance fee and other revenue......................... 32.9 29.6 24.0
----- ----- -----
Total revenue........................................... 100.0% 100.0% 100.0%
Expenses
Cost of software license revenue.......................... 4.7 5.7 3.8
Cost of maintenance fee and other revenue................. 10.2 7.7 8.0
Selling and marketing..................................... 39.1 35.8 37.8
Research and development.................................. 21.6 18.1 21.3
General and administrative................................ 19.4 18.7 17.8
----- ----- -----
Total operating expenses................................ 95.0 86.0 88.7
----- ----- -----
Income from operations...................................... 5.0 14.0 11.3
Interest income, net........................................ .4 .6 1.0
Other (expense) income...................................... -- -- --
----- ----- -----
Income before income taxes.................................. 5.4 14.6 12.3
Provision for income taxes.................................. 2.0 5.7 5.0
----- ----- -----
Net income.................................................. 3.4% 8.9% 7.3%
===== ===== =====
</TABLE>
YEAR ENDED APRIL 30, 1998 COMPARED TO YEAR ENDED APRIL 30, 1997
Total Revenue. Total revenue for the fiscal year ended April 30, 1998
increased $1.8 million or 24.5% to $9.1 million from $7.3 million for the fiscal
year ended April 30, 1997. Software license revenue consists of fees paid by the
Company's customers to license its knowledge-based engineering software under
single or multi-year arrangements. Software license revenue increased 34.5% to
$6.9 million for the fiscal year ended April 30, 1998 from $5.2 million for the
fiscal year ended April 30, 1997. The increase in software license revenue for
the year ended April 30, 1998 as compared to the year ended April 30, 1997 was
primarily due to renewals of software licenses, the addition of new users by
existing customers, the sale of new products developed in fiscal 1996 to
existing customers and the sale of new and existing products to new customers.
20
<PAGE> 25
Maintenance fee and other revenue consists of maintenance fees and revenue
derived from training, consulting services and other services. Maintenance fee
and other revenue remained relatively constant, $2.2 million, for the fiscal
years ended April 30, 1998 and 1997. The flatness was primarily attributable to
an increase in license fees over fiscal 1997, partially offset by a decline in
the sale of maintenance agreements.
Cost of Software License Revenue. Cost of software license revenue
consists of costs related to delivery of software (including disk duplication
and system Control Device costs), printing of manuals and packaging, royalties
and license fees paid to third parties. Cost of software license revenue for the
fiscal year ended April 30, 1998 was $350,000 as compared to $419,000 for the
fiscal year ended April 30, 1997. Expressed as a percentage of software license
revenue, cost of software license revenue was 5.0% and 8.1% in fiscal years 1998
and 1997, respectively. The decrease in cost of software license revenue was
attributable to decreases in third party software and system Control Device
costs, as a result of lower costs associated with the renewal of software
licenses.
Cost of Maintenance Fee and Other Revenue. Cost of maintenance fee and
other revenue consists primarily of technical support, training, depreciation
and facility costs, consulting and other contract costs. Cost of maintenance fee
and other revenue was $729,000 and $561,000 for fiscal years ended April 30,
1998 and 1997, respectively. Expressed as a percentage of maintenance fee and
other revenue, cost of maintenance fee and other revenue was 33.3% and 25.8% for
the fiscal years ended April 30, 1998 and 1997, respectively. Cost of
maintenance fee and other revenue grew because of the expansion of technical
support personnel required to support the increase in sales, as well as related
increases in facility costs and depreciation.
Selling and Marketing. Selling and marketing expense consists primarily of
personnel costs related to sales and marketing, including occupancy,
depreciation, travel, entertainment, telephone, promotional, trade show expenses
and direct sales force commissions. Selling and marketing expense was $3.5
million and $2.6 million for the fiscal years ended April 30, 1998 and 1997,
respectively. Selling and marketing expense, as a percentage of revenue was
37.8% and 35.8% for the fiscal years ended April 30, 1998 and 1997,
respectively. The increase in selling and marketing expense in fiscal year 1998
over fiscal year 1997 was chiefly the result of an increase in commission
expense associated with the corresponding increase in sales and the expansion of
the direct sales force. Also contributing to the increase was the Company's
increased focus on international market penetration and participation in
international exhibitions and related expenses.
Research and Development Research and development expense consists
principally of personnel costs, equipment, depreciation and facility costs
incurred in the research, design, development and refinement of the Company's
products. Research and development expense was $2.0 million for the fiscal year
ended April 30, 1998 as compared to $1.3 million for fiscal year 1997. Research
and development as a percentage of total revenue was 21.3% and 18.1% for the
fiscal years ended April 30, 1998 and 1997, respectively. The increase in
research and development expense is primarily attributable to increased
personnel costs including the hiring of six software product developers, general
increases in payroll and related expenses, expenses associated with the design
and implementation of the Company's new corporate database and the Company's
continued commitment and investment in the research and development of new
knowledge-based engineering software products.
General and Administrative. General and administrative expense consists
principally of personnel costs for corporate administration, in addition to
accounting and legal services, depreciation, equipment and facility costs, and
general management expense of the Company. General and administrative expense
was $1.6 million and $1.4 million for the fiscal years ended April 30, 1998 and
1997, respectively. General and administrative expense as a percentage of total
revenue was 17.8% and 18.7% for the fiscal years ended April 30, 1998 and 1997,
respectively. The increase in general and administrative expense was chiefly
attributable to an increase in general corporate legal expenses, and the
establishment of a reserve, totaling approximately $125,000, for a claim against
the Company by a former employee. (This claim was settled on June 30, 1998 for
somewhat less than the amount reserved.) Additional expenses incurred related to
the opening of the Company's Houston, Texas office, moving costs associated with
the move to the Company's new main office, and an increase in administrative
payroll and related expenses, partially offset by decreases in accounting fees
and personnel reassignments.
21
<PAGE> 26
Interest Income, net. Interest income, net increased $48,000, from $45,000
in fiscal year 1997, to $93,000 in fiscal year 1998 because of larger cash
balances on deposit.
Other (Expense) Income. Other expense was $3,000 in fiscal year 1998 and
$0 in fiscal 1997 due to a loss on disposal of property.
Provision (Benefit) for Income Taxes. The Company's effective tax rate was
40.9% and 38.9% for the fiscal years ended April 30, 1998 and 1997,
respectively.
YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR ENDED APRIL 30, 1996
Total Revenue. Total revenue increased $1.7 million or 29.3% from $5.7
million in fiscal 1996 to $7.3 million in fiscal 1997. Software license revenue
increased to $5.2 million in fiscal 1997 from $3.8 million in fiscal 1996,
representing an increase of 35.5%. The increase in software license revenue in
fiscal 1997 as compared to fiscal 1996 was primarily due to renewals of software
licenses, the addition of new users, and the sale of new products to existing
customers resulting from a promotional campaign which commenced late in the
third quarter of 1997 and continued through the fourth quarter of 1997, and to a
lesser extent, sales associated with the creation of the Company's Tokyo office
in December 1995. Maintenance fee and other revenue increased by $308,000 or
16.5% from $1.9 million in fiscal 1996 to $2.2 million in fiscal 1997. The
increase was largely the result of increases in training and maintenance fees
associated with increased license sales and increased training, partially offset
by reductions in consulting and other services.
Cost of Software License Revenue. Costs of software license revenue was
$419,000 and $266,000 in fiscal years 1997 and 1996, respectively. Expressed as
a percentage of software license revenue, cost of software license revenue was
8.1% and 7.0% in fiscal years 1997 and 1996, respectively.
Cost of Maintenance Fee and Other Revenue. Cost of maintenance fee and
other revenue was $561,000 and $578,000 in fiscal years 1997 and 1996,
respectively. Expressed as a percentage of maintenance fee and other revenue,
cost of maintenance fee and other revenue was 25.8% and 31.0% in fiscal years
1997 and 1996, respectively. Cost of maintenance fee and other revenue decreased
from fiscal years 1996 to 1997 due to a decrease in third party hardware
expenses.
Selling and Marketing. Selling and marketing expense was $2.6 million and
$2.2 million in fiscal years 1997 and 1996, respectively. However, as a
percentage of total revenues, selling and marketing expense was 35.8% and 39.1%
in fiscal years 1997 and 1996, respectively. The increase in actual expense in
fiscal 1997 from fiscal 1996 was primarily the result of new sales and marketing
activity associated with the opening of the Company's new Tokyo office in
December 1995, the expansion of the Company's direct sales force, both
nationally and internationally, and increases in telephone, travel and
commission expenses.
Research and Development. Research and development expense was $1.3
million and $1.2 million in fiscal years 1997 and 1996, respectively. However,
research and development expense as a percentage of revenue was 18.1% and 21.6%
in fiscal years 1997 and 1996, respectively. The increase in actual expense
reflects the Company's continued commitment and investment in the research and
development of new knowledge-based engineering software products.
General and Administrative. General and administrative costs were $1.4
million and $1.1 million in fiscal years 1997 and 1996, respectively. However,
general and administrative expense as a percentage of revenue was 18.7% and
19.4% in fiscal years 1997 and 1996, respectively. The increase in actual
expense is largely attributable to the formation of the Company's Tokyo office
in December 1995, the hiring of the Company's Chief Financial Officer, and to a
lesser degree increases in legal, accounting and temporary staff in preparation
for the Offering, and foreign exchange losses, which were partially offset by a
decline in equipment costs.
Interest Income, net. Interest income, net increased $24,000 from $21,000
in fiscal 1996 to $45,000 in fiscal 1997.
Provision (Benefit) for Income Taxes. The Company's effective tax rate was
38.9% and 36.5% in fiscal years 1997 and 1996, respectively.
22
<PAGE> 27
SELECTED QUARTERLY OPERATING RESULTS
The Company ships software products within a short period after receipt of
an order and typically does not have a material backlog of unfilled orders.
Total revenue in any quarter is dependent (and will become substantially
dependent to the extent the Company increases the number of contracts for new
and renewing customers that result in the recognition of license revenue upon
shipment) on orders booked and license renewals in that quarter and are not
predictable with any degree of certainty.
The Company's operating results have fluctuated in the past and may in the
future fluctuate significantly from quarter to quarter or on an annual basis as
a result of a number of factors, including, but not limited to: the size and
timing of customer orders; changes in license renewal rates, delays in renewals,
or failure of existing customers to renew their licenses with the Company when
their current licenses expire; the length of the Company's sales cycle; changes
in contract terms (including terms affecting the timing of recognition of
license revenue); success of the Company's service offerings; timing of new
product announcements and introductions by the Company and its competitors; the
Company's ability to develop, introduce and market new products and product
enhancements; market acceptance of the Company's products; deferrals of customer
orders in anticipation of new products or product features; the Company's
ability to control general and administrative costs; changes in the Company's
management team; and fluctuating economic conditions; and political instability
in, or trade embargoes with respect to, foreign markets. Further, the Company's
revenue in the past has been, and in the future, may be, subject to substantial
period-to-period fluctuations as a consequence of general domestic and foreign
economic conditions, political developments and other factors affecting spending
in the chemical, petroleum refining and other industries. Although no assurances
can be made, the Company believes that the recent economic problems in Asia will
not have a material adverse affect on the Company's operations. The Company's
future operating results may fluctuate as a result of the above factors, which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors -- Fluctuations in Future
Operating Results."
23
<PAGE> 28
The following tables set forth selected quarterly statement of operations
data in dollars and as a percent of total revenue for fiscal years 1997 and
1998. These data are unaudited but, in the opinion of the Company's management,
reflect all adjustments that the Company considers necessary for a fair
presentation of these data in accordance with generally accepted accounting
principles. The quarterly results are not indicative of future results of
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
FISCAL 1997 FISCAL 1998
------------------------------------------------ ------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1996 1996 1997 1997 1997 1997 1998 1998
-------- ----------- ----------- --------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Software license
revenue................. $1,367 $1,105 $1,342 $1,351 $1,747 $1,472 $2,119 $1,609
Maintenance fee and other
revenue................. 476 614 425 659 531 510 396 752
------ ------ ------ ------ ------ ------ ------ ------
Total revenue........... 1,843 1,719 1,767 2,010 2,278 1,982 2,515 2,361
------ ------ ------ ------ ------ ------ ------ ------
Expenses
Cost of software license
revenue................. 95 56 143 125 112 100 21 17
Cost of maintenance fee
and other revenue....... 124 144 151 142 140 176 202 211
Selling and marketing..... 673 592 686 675 748 823 936 1,043
Research and
development............. 322 326 417 261 418 458 521 553
General and
administrative.......... 311 349 288 429 438 385 402 401
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 1,525 1,467 1,685 1,632 1,856 1,942(1) 2,082(1) 2,225(1)
------ ------ ------ ------ ------ ------ ------ ------
Income from operations...... 318 252 82 378 422 40 433 136
Interest income, net...... 5 8 22 10 21 28 26 18
Other (expense) income.... (7) 7 -- -- 1 (1) (3) --
------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes..................... 316 267 104 388 444 67 456 154
Provision for income
taxes..................... 119 111 45 144 182 27 187 63
------ ------ ------ ------ ------ ------ ------ ------
Net income.................. $ 197 $ 156 $ 59 $ 244 $ 262 $ 40(1) $ 269(1) $ 91(1)
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
FISCAL 1997 FISCAL 1998
------------------------------------------------ ------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1996 1996 1997 1997 1997 1997 1998 1998
-------- ----------- ----------- --------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(AS A PERCENTAGE OF TOTAL REVENUE)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Software license
revenue................. 74.2% 64.3% 75.9% 67.2% 76.7% 74.3% 84.3% 68.1%
Maintenance fee and other
revenue................. 25.8 35.7 24.1 32.8 23.3 25.7 15.7 31.9
------ ------ ------ ------ ------ ------ ------ ------
Total revenue........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------
Expenses
Cost of software license
revenue................. 5.2 3.3 8.1 6.2 4.9 5.1 0.9 0.7
Cost of maintenance fee
and other revenue....... 6.8 8.4 8.6 7.1 6.2 8.9 8.0 8.9
Selling and marketing..... 36.5 34.5 38.8 33.6 32.8 41.5 37.2 44.2
Research and
development............. 17.5 19.0 23.6 13.0 18.4 23.1 20.7 23.4
General and
administrative.......... 16.8 20.1 16.3 21.3 19.2 19.4 16.0 17.0
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 82.8 85.3 95.4 81.2 81.5 98.0 82.8 94.2
------ ------ ------ ------ ------ ------ ------ ------
Income from operations...... 17.2 14.7 4.6 18.8 18.5 2.0 17.2 5.8
Interest income, net...... 0.3 0.5 1.2 0.5 0.9 1.4 1.0 0.8
Other (expense) income.... (0.4) 0.4 -- -- 0.1 -- (0.1) --
------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes..................... 17.1 15.6 5.8 19.3 19.5 3.4 18.1 6.6
Provision for income
taxes..................... 6.5 6.5 2.5 7.2 8.0 1.4 7.4 2.7
------ ------ ------ ------ ------ ------ ------ ------
Net income.................. 10.6% 9.1% 3.3% 12.1% 11.5% 2.0% 10.7% 3.9%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Total operating expenses were higher on an absolute basis during the second
through the fourth quarters of fiscal 1998 on a comparative basis to the
other quarters presented due primarily to increased personnel and related
benefit costs consistent with the Company's growth strategy.
24
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
During fiscal years 1997 and 1998, the Company fulfilled its cash needs
through cash provided by operations. Cash provided by operating activities
during fiscal years 1997 and 1998 was approximately $1.2 million, and $288,000,
respectively. At April 30, 1997 and 1998, the Company had working capital of
$1.1 million and $321,000, respectively. The ratio of current assets to current
liabilities at April 30, 1997 and 1998 was 1.39 to 1, and 1.09 to 1,
respectively. The Company currently does not maintain a credit facility.
Cash used in investing activities has been for the purchases and sales of
property and equipment (less disposals) which amounted to $250,000 and $505,000
in fiscal years 1997 and 1998, respectively. The Company intends to continue to
invest in its core technology and develop new technology to create innovative
integrated knowledge-based engineering products, which will involve increased
staffing levels. Although the Company currently has no significant commitments,
it expects that purchases of property and equipment in fiscal 1999 will meet or
exceed expenditures for fiscal 1998 chiefly as a result of increased staffing
levels. Capital improvements associated with the relocation of the Company's
domestic headquarters during fiscal 1998 was approximately $190,000 and
additional capital improvements of approximately $300,000 are anticipated to be
incurred in the first quarter of fiscal 1999.
Cash used in financing activities during fiscal years 1997 and 1998 was
$107,000 and $6,800, respectively. Cash used in financing activities for fiscal
1997 was primarily for the repayment of two shareholder notes that were issued
in April 1992, in the aggregate amount of $125,000, with interest at 6.5%
annually. Such notes were repaid in full in January 1997. Cash used in financing
activities during fiscal year 1998 was primarily for payments on capital lease
obligations.
The Company believes that the net proceeds from this Offering, existing
cash resources and cash flow from operations will be sufficient to fund the
Company's operations for at least the next twelve months. See "Use of Proceeds"
for more information regarding possible capital requirements with respect to the
Company's strategic goals.
The Company has taken actions to make its software products Year 2000
compliant. The majority of the Company's products are currently designed to be
Year 2000 compliant and the remainder of its major products are targeted to be
Year 2000 compliant by December 1998. Year 2000 compliance activities will be
performed as part of the Company's normal development activity. The Company does
not believe it will incur any significant Year 2000 costs with its software
products. Consequently, Year 2000 compliance costs are not expected to result in
any material incremental costs to the Company. See "Risk Factors -- Year 2000
Compliance." The Company has been informed by its vendor that its accounting
software is Year 2000 compliant.
INFLATION
Because many license agreements require an adjustment tied to certain
consumer or retail price indices, inflation has not had a significant impact on
the Company's operating results to date. The Company does not expect inflation
to have a significant impact on its results of operations during fiscal 1999.
25
<PAGE> 30
BUSINESS
THE COMPANY
ICARUS provides knowledge-based engineering software solutions for the
process manufacturing segments of the chemical, petroleum refining, pulp and
paper, food and other industries. The Company's 300-plus customers are primarily
large, multinational corporations that own and operate process manufacturing
plants (the "owner-operators") or primarily multinational engineering and
construction companies that provide services to owner-operators (the "E&C
companies"). The Company's customers include such companies as Mitsubishi
Chemical Corporation, Shell Oil Company, The Mead Corporation, Campbell Soup
Company and Fluor Daniel, Inc.
The Company's integrated knowledge-based engineering software products are
widely used in the chemical and petroleum refining industries. One or more of
the Company's products are licensed to 18 of the top 20 chemical companies and
18 of the top 20 petroleum refining companies, as such companies are listed in
the "1997 Fortune 500 List," and 8 of the top 10 chemical plant contractors
listed in Engineering News Record's "Top 400 Contractors." Near-term growth
opportunities for the Company include the introduction of new knowledge-based
engineering products to the Company's current customers and to potential
customers in the chemical and petroleum refining industries, further penetration
by existing and new products in other industries, including the pharmaceutical,
paper and pulp, food and power industries, and continued expansion in
international markets.
The Company's knowledge-based engineering technology automates important
steps in the "decision engineering" process through which a customer's
engineering staff -- often without the benefit of comprehensive, up-to-date
design, cost and scheduling information -- evaluates the technological and
economic feasibility of the construction or modification of a process
manufacturing plant so that senior executives can determine whether to proceed
with a proposed project. Despite the importance of this decision, which may
involve a capital investment in excess of one billion dollars, these executives
usually have only a limited ability to manage the conventional decision
engineering process, which is time-consuming, labor-intensive, imprecise and
expensive.
The Company's current products directly address a number of the
deficiencies in the conventional decision engineering process by
"re-engineering" the process to take full advantage of today's enhanced desktop
computing technology and the Company's knowledge-based engineering technology.
The Company's products enable engineers to simulate, model and analyze the
design, cost and time requirements of a proposed project more quickly, more
accurately and less expensively than they can using conventional engineering
methods. ICARUS products also enhance senior executives' ability to focus the
decision engineering process on business priorities. With information that
integrates business considerations with sophisticated engineering analysis,
senior executives can make faster, better informed and more confident decisions.
Benefits arising from the use of the Company's decision engineering software
products include more effective strategic planning, faster reaction to market
developments and improved plant operating efficiency, all of which enhance the
customer's competitive position.
In addition to the Company's decision engineering products, other
knowledge-based engineering software products automate important steps in the
"plant engineering" process, which occurs after the decision to proceed with a
project has been made. These products also facilitate construction scheduling
and cost estimation for smaller projects at existing plants.
THE PROCESS MANUFACTURING BUSINESS
Process manufacturing of products in bulk quantities is performed in the
chemical, petroleum refining, pharmaceutical, pulp and paper, metal and mineral,
food, consumer product, power and other industries. Through chemical reaction,
combustion, mixing, separation, heating, cooling and other operations, process
manufacturing plants process raw materials (e.g., separate oil and gas from
other substances), refine those materials (e.g., extract propylene from oil and
gas feedstocks), produce intermediate products (e.g., synthesize nylon from
propylene) and manufacture finished products. Using data provided by industry
sources, the
26
<PAGE> 31
Company estimates that total worldwide process manufacturing annual revenues
exceed $3 trillion. Industry sources also indicate that more than 15,000 process
manufacturing plants are now in operation worldwide and that global spending on
process manufacturing plant construction projects is expected to total $160
billion in 1998 -- an all-time high.
On a regular basis, owner-operators consider proposals to build or modify
process manufacturing plants. The Company believes that hundreds of proposed
process manufacturing projects are evaluated for every project actually built.
In evaluating the potential return-on-investment of project proposals,
owner-operators face three basic facts: First, the construction or modification
of a plant requires a substantial capital investment. A world-class petroleum
refining complex, for example, can cost in excess of one billion dollars.
Second, heightened global competition has reduced both profit margins and the
acceptable margin for error in project evaluation. Third, increasingly efficient
global capital markets will penalize an owner-operator, particularly a public
owner-operator, for allocating capital to a project that does not produce
satisfactory returns.
An E&C company faces an equally challenging business environment. First,
the E&C company must expend thousands of engineering man-hours on competitive
bid proposals. Second, the E&C company is under increasing pressure to prepare
more bid proposals without expanding their engineering staffs. Third, the
increasing use of lump-sum, turnkey project contracts has shifted much of the
financial risk of cost overruns, construction delays and performance shortfalls
from the owner-operator to the E&C company. Inaccurate bids or improperly
prepared proposals can result in multi-million dollar losses and seriously
damage the reputation of the E&C company.
THE DECISION ENGINEERING PROCESS
The conventional decision engineering process typically begins with a
senior business development executive at a major owner-operator who has been
assigned the task of determining which of several market opportunities the
owner-operator should pursue. Building a plant to pursue a given opportunity may
involve a commitment of more than one billion dollars, and the full impact of
that capital investment decision may not be apparent for years. To answer
business-critical questions on a proposed project's scope, cost, timing and
return, the executive will turn to his internal engineering staff for
assistance.
In response to the senior executive's request, process engineers first
perform process simulation and create conceptual process design alternatives.
With these alternatives in hand, they select the core process equipment (e.g.,
distillation towers, compressors, etc.) and produce CAD drawings, such as block
diagrams, process flow diagrams and piping and instrumentation diagrams. With
the assistance of engineers from various disciplines (such as mechanical,
structural, civil and electrical), a conceptual project design is completed and
submitted to the executive for review.
If this design is approved, engineers calculate the quantities of pipe,
steel, instrumentation, process control, electrical fixtures, wiring, paint,
insulation, etc., necessary to build the project. Then, they research cost
information for alternative geographical locations and determine the number of
construction man-hours that will be required to install, lift, weld, connect and
construct each component of the project. A team of engineers then takes this
information and creates a critical-path-method schedule that outlines the tasks
necessary to complete the project on time and within budget. Finally, after the
evaluation of several different scenarios, a detailed decision engineering
report incorporating the conceptual design of the proposed project together with
cost estimates, preliminary engineering drawings and a preliminary construction
schedule and other documents are presented to the executive for additional
review.
At this stage, project specifications are often modified, and the decision
engineering process must be repeated. A single change in one aspect of the
project may affect a multitude of engineering calculations. For example,
enlarging a pump will require a larger electrical motor and larger diameter
piping and conduit, which in turn will require a larger pump foundation, etc. An
apparently minor modification can thus result in substantially greater costs,
and despite the expense and delay, the decision engineering process must attempt
to identify the full impact of such modifications. Otherwise, the risk of cost
overruns, construction delays and/ or performance shortfalls may be greatly
increased.
27
<PAGE> 32
If the project sustains the executive's final review, internal engineering
and financial reports are sent to several E&C companies, which then perform
their own, albeit more detailed, decision engineering process to produce
engineering, procurement and construction proposals. Ultimately, they present
their proposals to the owner-operator, which will then compare its internally
developed return-on-investment analysis with the E&C companies' proposals. If
the owner-operator decides to proceed, it may ask the E&C companies to prepare
lump-sum ("cost not to exceed") or other types of bids. Then, the owner-operator
and certain selected E&C companies may engage in negotiations involving the
basis for the bid request and the bids. After the owner-operator selects an E&C
company to perform the construction, further efforts are expended to fine-tune
the decision engineering analysis during the design phase of the project.
Even when significant resources are expended in conventional decision
engineering to develop a detailed preliminary concept to assist senior executive
decision-making, the final outcome may bear little resemblance to the initial
concept. This variance largely can be attributed to deficiencies in the
conventional process, which has not been comprehensively updated to take
advantage of new technology. These deficiencies include:
- Coordination Between Business Development and Engineering Is
Limited. Senior business development executives in owner-operators and
E&C companies usually find it difficult to manage their internal
engineering staffs to ensure that business priorities are driving
engineering considerations, rather than the reverse. Senior executives
generally do not have the management tools needed to dynamically guide
and direct the decision engineering process. As a result, substantial
time and resources can be wasted on engineering issues that are not
pertinent to a senior executive's decision-making analysis, and pertinent
issues can be overlooked or under-analyzed.
- Participants Must Depend on Unreliable, Inconsistent or Unavailable Data
Sources. Each engineering team usually develops its own specialized
database of design and cost data, which may be unreliable or involve the
use of assumptions. Developing and maintaining a specialized database
requires labor-intensive research using multiple internal and external
data sources of varying reliability that may be inconsistent with one
another or with data collected by other teams. In some situations,
reliable data is simply unavailable, and the team must make assumptions
to fill the gap in available data.
- Time-Consuming, Calculation-Intensive Data Manipulation Is Required. In
addition to the laborious data entry efforts required to develop
specialized databases, each engineering team must perform time-
consuming, calculation-intensive data manipulation in its simulation,
modeling and analysis efforts. Industry sources indicate that 50% to 80%
of a process design engineer's time is spent moving and organizing,
rather than analyzing, data.
- Engineering Decisions Are Interdependent. As previously noted, a change
in one aspect of a project by one engineering team often requires changes
in other aspects of the project by other teams. It is difficult in the
conventional decision engineering process to ensure that all such
interdependent changes are made and that the final engineering product is
internally consistent. One miscalculation can adversely affect many
aspects of the project.
- Participants Must Work Sequentially. Engineering a complex project is
largely an iterative process. Engineering decision interdependence and
the capture of key information in separate, specialized databases usually
require engineering teams in the conventional decision engineering
process to work in a strictly sequential, rather than in a concurrent,
collaborative manner. A delay in the work of one team can thus delay the
work of many other teams.
- Time and Cost Constraints Limit the Testing of Alternative Process Design
Solutions. Even with the large internal engineering staffs that
owner-operators and E&C companies have traditionally maintained, time and
cost constraints force internal staff engineers to make simplifying
assumptions that limit the accuracy of their analysis and require them to
evaluate only parts of the process design, rather than the whole, or to
consider fewer alternative process design solutions. This deficiency is
exacerbated by corporate downsizings and restructurings, which have
resulted in substantial engineering staff cuts at major owner-operators.
28
<PAGE> 33
- Owner-Operators and E&C Companies Find It Difficult To Communicate. The
transfer of data and analyses from the owner-operator to the E&C company
and back is complicated by the use of different methodologies and
systems. The lack of a common language increases expense and reduces the
quality of the decisions made.
The foregoing deficiencies reduce the ability of a senior executive in an
owner-operator to: (i) focus the overall project evaluation process on business
priorities, (ii) increase the efficiency of the process so that more proposed
projects can be evaluated in the same amount of time without increased
resources, (iii) respond in a timely fashion to changing market conditions and
(iv) more effectively manage the owner-operator's relationship with the E&C
company that will ultimately perform the final plant engineering and
construction. A senior executive in an E&C company faces similar limitations.
Numerous efforts have been made to address the deficiencies of the
conventional decision engineering process through computerization. The earliest
software was mainframe based, performed only basic cost calculations and usually
supported the work of only specialized cost estimation teams. This software did
not (i) eliminate the need for engineers from other disciplines to develop
specialized databases or engage in calculation-intensive data manipulation, (ii)
provide all engineering teams with concurrent access to key information, or
(iii) more effectively address the interdependence of engineering decisions.
Despite efforts by owner-operators and E&C companies to mitigate these
continuing problems by custom designing engineering programs for specific
projects, mainframe-based computerization continued to produce imprecise results
that required thorough manual review and revision.
The deployment of powerful Windows-based desktop computers linked by
networks have provided a large number of engineers and project execution
professionals with access to computerized engineering tools for the first time.
Despite the progress demonstrated by some desktop engineering software products
that incorporate a standardized base of information for use in process
simulation and design and cost modeling, new and old users of computerized
engineering tools still face many challenges in completing their engineering
simulation, modeling and analysis.
First, users are still required in many instances to develop specialized
databases of design and cost information and to then laboriously enter the data
into spreadsheet-style programs, which perform only basic data compilation and
arithmetic functions. In most cases, users working on different aspects of the
same project still do not have concurrent access to key data and expertise.
Second, the results of one engineering team's work are not automatically
integrated with the results of other teams, so users have to remain constantly
vigilant to ensure that engineering decisions in one aspect of a project are
reflected in all other aspects of the project. Third, users often encounter
software compatibility problems when using desktop engineering from different
vendors, which often use different proprietary databases. Finally, most desktop
engineering programs do little to enhance senior management's ability to control
and shape the decision engineering process.
In short, despite the desktop revolution in computing, which has made
computerized engineering tools available to larger numbers of users, the desktop
engineering software most engineers use today still fails to automate and
integrate the decision engineering process in an effective and efficient manner.
THE ICARUS SOLUTION
Developed with the input of on-staff engineers from many disciplines
(including chemical, mechanical, structural, civil and electrical), the
Company's current line of desktop software products directly address a number of
the deficiencies of the conventional decision engineering process by
comprehensively automating and integrating important steps in the process, such
as process engineering and cost design. The Company's products reduce the
overall time and expense of the decision engineering process, while also
enabling participants -- particularly senior executives -- to take greater
control of the process so that business priorities drive engineering
considerations, rather than the reverse.
The Company's desktop software products are based on its proprietary
knowledge-based engineering technology. They provide all process participants
timely access to automated process design simulation tools,
29
<PAGE> 34
automated design and cost models and comprehensive, frequently updated design,
cost and engineering databases. ICARUS products anticipate the needs of
engineering and project execution professionals and senior executives, allowing
them to (i) quickly and easily examine alternative process designs through the
use of realistic simulations, (ii) rapidly create detailed design and cost
models and (iii) prepare preliminary engineering and construction schedules.
Using the Company's products, different engineering teams can work
collaboratively on the same project without having to spend substantial amounts
of time on repetitious data entry and manipulation. The teams can share their
data and expertise with the assurance that a change made in one area, such as
process design, will be automatically reflected in other engineering areas, such
as mechanical, electrical or civil engineering. In this way, the overall
commitment of resources to the project can be reduced even as the teams jointly
improve the quality of their project evaluation effort by performing extensive
alternative scenario analysis.
Customers have told ICARUS that the Company's products enable them to reach
a decision on whether or not to proceed with a project in approximately
one-fifth of the time previously required by conventional decision engineering
tools. Using the Company's products, owner-operators are also able to enhance
the quality of overall strategic decision-making, respond more quickly to market
changes and improve overall project design. E&C companies are able to reduce the
costs of preparing, and enhance the quality of, bids on projects, thus reducing
the risks they incur under turnkey, lump-sum project contracts. The Company
believes that a number of its customers have licensed ICARUS products because
they could not adequately address their decision engineering needs with
competing tools.
The Company believes that it currently provides the only commercial
integrated process and project evaluation software. The Company's products
utilize common proprietary elements, including expert engineering system
modules, automated models and specialized databases, and can be integrated with
engineering software products developed by other vendors. This integration
eliminates many of the labor-intensive steps associated with information
transfer and manipulation in the conventional decision engineering process and
allows engineers from different disciplines to communicate and collaborate more
effectively. For example, using the Company's process engineering product,
ICARUS Process Evaluator, a customer can take the output of a process simulation
program developed by another vendor, specify additional plant-specific
components and then rapidly simulate the engineering design and construction of
a manufacturing process plant. The customer can then electronically transfer a
file to the Company's design and cost engineering product, ICARUS 2000, which
will quickly develop detailed conceptual design and cost models of that process
plant design under varying conditions. These steps can be repeated many times to
help identify the optimal process plant design.
The data and analyses produced by the Company's products can also be used
to "jump start" the plant engineering process that follows decision engineering.
For example, such data and analyses can be used to help populate downstream CAD
applications that will generate the detailed drawings to be used in actual
engineering and construction. Additionally, certain ICARUS products directly
address steps in the plant engineering process, such as construction scheduling
and cost estimation for smaller construction projects at existing plants.
STRATEGY
The Company's strategy is to deploy its proprietary knowledge-based
engineering technology to meet customer needs in every stage of the process
manufacturing plant lifecycle. As part of this strategy, the Company will
continue to expand its portfolio of integrated desktop software products. The
Company believes that developing and marketing a comprehensive portfolio of
products that provides users throughout a customer's organization with common
desktop software tools that operate with one another and with engineering
software products supplied by other companies will substantially enhance its
competitive position. Ultimately, the Company plans to offer to its customers
licenses of its core knowledge-based engineering technology for deployment in an
enterprise network configuration in which multiple clients using different
30
<PAGE> 35
applications can simultaneously access the software and associated customer- and
project-specific databases on a server. See "-- Products and Product
Development."
To implement its strategy, the Company intends to:
Leverage the Company's Existing Customer Base to Introduce New Integrated
Desktop and Server Products. Because of its consistent delivery of quality
products, product updates, training and user conferences, the Company enjoys
strong relationships with many of its customers. The Company believes that these
relationships can be leveraged to market and sell new, integrated products to
such customers. The Company also believes that it can leverage its reputation in
the chemical and petroleum refining industries to market and sell such products
to new customers in those industries. The Company intends to recruit additional
senior sales and technical personnel to capitalize on this opportunity. See
"-- Customers."
Maintain Its Technology Leadership by Continuing to Develop Its Innovative
Knowledge-Based Engineering Technology and Software Products. The Company will
continue to expend significant resources to enhance its core technology and
develop new technology to create innovative, integrated desktop and server
software products and maintain the Company's technology leadership position
within the market it serves.
Increase the Penetration of the Company's Products in the Pulp and Paper,
Pharmaceutical, Power and Food Industries. The Company has a solid customer
base in the chemical and petroleum refining industries. The Company intends to
increase its efforts to expand its customer base in the pulp and paper,
pharmaceutical, power and food industries. Because the decision engineering
analysis related to process manufacturing in different industries involves many
of the same concepts, the Company's products may be utilized in different
industries with relatively few adjustments.
Increase Its Consulting Efforts to Provide Integrated Turn-key Engineering
Solutions. A number of the Company's customers currently seek, on a limited
basis, the Company's assistance in integrating their proprietary technology with
the Company's software, reviewing work performed by the customers' internal
staffs or performing front-end design and cost studies. The Company believes
that many of its customers would respond favorably if the Company offered
comprehensive consulting and training services. The Company intends to dedicate
substantial resources to develop such integrated turn-key engineering solutions.
Enter into Business Alliances That Accelerate Product Development and
Enhance Marketing and Sales Opportunities. The Company has recently entered
into three business alliances with leading technology and research companies
that will provide access to valuable process design and cost data and accelerate
the development of new products, including products that address stages in the
process manufacturing plant lifecycle not currently covered by the Company's
products. The Company believes that these and possible future business alliances
may provide the best opportunity to introduce certain products and open new
marketing and sales opportunities. See "-- Business Alliances."
Pursue Acquisitions to Further Product Development, Sales and Marketing and
Consulting Services. The Company intends to pursue acquisitions that will expand
its product line, increase its customer base and enhance its ability to offer
comprehensive consulting services. ICARUS believes that it can effectively
compete for acquisition opportunities because of its leadership position in
process manufacturing engineering software and its knowledge of the market and
potential acquisition targets.
PROPRIETARY TECHNOLOGIES AND DATABASES
The knowledge-based engineering technology, which is the central element of
the Company's desktop and planned server software products, incorporates
proprietary expert engineering system modules, automated design and cost models,
and specialized databases:
Expert Engineering System Modules. An expert system is a computer program
designed to emulate a human expert in a particular limited field of knowledge.
Expert systems improve productivity by helping users make decisions when a human
expert is unavailable or too expensive. The Company's expert engineering system
modules, which the Company develops using its ICARUS Mentor software development
tool, automatically calculate the design and cost impact of changes made by
multiple engineering teams working on
31
<PAGE> 36
the same project and help to solve problems associated with the interdependence
of engineering decisions. The modules enhance the performance of the Company's
automated design and cost models and can be customized by customers to
incorporate customer-developed expertise.
Automated Design and Cost Models. The Company has developed automated
design and cost models for most standard process manufacturing plant equipment
types, including the process and solids handling equipment used for heat
transfer, distillation, chemical reaction, pumping, compressing and other
functions. These models also cover the materials needed to install such
equipment in a process manufacturing plant, such as piping, steel,
instrumentation, electrical, insulation and paint. The Company's design and cost
models automate and integrate the following engineering elements: (i) "best
practices" expertise from expert engineers in many different engineering
disciplines (including process, mechanical, structural, civil and electrical
engineering); (ii) engineering design standards and codes for different
countries; (iii) construction methodology for determining the equipment,
material, fabrication, labor, expense and time requirements for a given project;
(iv) volumetric calculations used to determine the change in material
requirements when a project component is scaled up or down; (v) costing the
various inputs such as labor and materials needed to complete a project; and
(vi) critical-path-method construction scheduling.
Specialized Databases. The Company has developed extensive specialized
databases that include engineering design and cost information from a variety of
public and private sources, including information from customers. These
databases, which are embedded in the Company's knowledge-based engineering
software along with its expert engineering system modules and automated design
and cost models, are updated regularly to provide customers with current cost
and other data. The databases can be customized by customers to incorporate
customer-developed information.
BUSINESS ALLIANCES
In 1994, ICARUS entered into a business alliance with Primavera Systems
Inc. ("Primavera"), a leading provider of scheduling software. Pursuant to a
multiple-year renewable marketing and product development agreement, the two
companies have combined the Company's design and cost modeling and engineering
automation expertise with Primavera's scheduling expertise. The resulting
integrated design estimating and scheduling product, ICARUS Project Manager, has
been marketed by the Company to hundreds of authorized users in 22 countries
since fiscal 1996.
ICARUS entered into three new business alliances for product development
and marketing in 1997. The Company expects that these business alliances will
enable it to integrate complementary technology and data into its core products
in a time- and cost-efficient manner; to create new products that will be
attractive to the customer base of both the Company and the other participant in
the alliance; to immediately add complementary products to its product line; and
generally to expand its revenue opportunities without a significant up-front
investment. The Company's current business alliances are with SRI Consulting,
Inc. ("SRIC"), Hyprotech, Ltd. ("Hyprotech") and Richardson Engineering
Services, Inc. ("Richardson"). See "-- Strategy."
Alliance With SRIC. In August 1997, the Company signed a multiple-year
renewable marketing and product development agreement with SRIC, a subsidiary of
SRI International, headquartered in Menlo Park, California, to develop and
market new products based on the Company's current process design and design and
cost modeling products and its general decision engineering expertise and SRIC's
Process Economics Program ("PEP"), which provides in-depth reports of process
technology and economics for more than 800 chemical and refinery processes. The
new products will be jointly marketed by ICARUS and SRIC. See "-- Products and
Product Development."
Alliance With Hyprotech. In July 1997, the Company, through a wholly owned
subsidiary, executed a multiple-year marketing and development agreement with
Hyprotech, a company headquartered in Calgary, Canada that supplies process
simulation solutions to an international customer base in the chemical and
petroleum refining industries. The companies agreed to jointly develop at least
two new products based on certain of the Company's existing products and
expertise and Hyprotech's technology. These products will be jointly marketed
and licensed by ICARUS and Hyprotech. See "Products and Product Development."
32
<PAGE> 37
Alliance With Richardson. In May 1997, the Company entered into a
multiple-year renewable technology licensing and marketing agreement with
Phoenix-based Richardson, which is a leading publisher of global process
manufacturing plant construction estimating standards. Under the agreement,
ICARUS has the right to use Richardson's unit cost construction database to
extend the capabilities of the Company's knowledge-based engineering software
products in plant engineering. Under the agreement, the Company will market this
technology and is also authorized to resell Richardson's winRace software and
database products to the chemical industry.
The Company may use a portion of the net proceeds of the Offering to
develop the products contemplated by these or future business alliances. See
"Use of Proceeds."
PRODUCTS AND PRODUCT DEVELOPMENT
The Company's current knowledge-based engineering software products are
designed to run on standard PC hardware and operating platforms, including
Windows 95, Windows NT and UNIX. They incorporate an easy-to-use graphical user
interface, automated design and cost models, artificial intelligence modules,
and embedded databases. The Company works continually to enhance its products to
operate on new operating systems, updates of existing operating systems and new
network topologies, including the client-server environment.
The following table provides an overview of the Company's current product
line, which addresses the process engineering, cost engineering, construction
scheduling, and operations and maintenance stages of the process manufacturing
plant lifecycle.
<TABLE>
<CAPTION>
ORIGINAL CURRENT RELEASE
PRODUCT PLANT LIFECYCLE DESCRIPTION RELEASE (DATE/VERSION)
NAME STAGE OF PRODUCT DATE OPERATING SYSTEM
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
ICARUS Process Process Enables process engineers June (October 1997/Version
Evaluator Engineering to rapidly screen 1995 4.0) Microsoft Windows 95
("IPE") alternative chemical and NT
process designs for a
proposed major process
manufacturing project.
- ---------------------------------------------------------------------------------------------------
ICARUS 2000 Cost Enables engineering teams December (July 1997/Version 6.0)
Engineering in owner-operators and 1992 UNIX (August 1997/
E&C companies to quickly Version 6.0) Microsoft
prepare engineering, Windows NT
procurement and
construction estimates
for a proposed major
project.
- ---------------------------------------------------------------------------------------------------
ICARUS Project Construction Enables project managers May (June 1997/Version 3.0)
Manager Scheduling to create cost estimates 1995 Microsoft Windows 3.1, 95
and automatically develop and NT
planning and construction
schedules for small
projects, revamps and
renovations.
- ---------------------------------------------------------------------------------------------------
Questimate Operations and Enables cost estimators November (May 1997/Version 12.0)
Maintenance at operating plants to 1986 Microsoft Windows 3.1, 95
quickly evaluate the cost and NT
impact of proposed plant
modifications and
maintenance.
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Company's business strategy is to expand through internal development,
acquisitions and business alliances. The Company's strategy is to deploy its
proprietary knowledge-based engineering technology to meet
33
<PAGE> 38
customer needs in every stage of the process manufacturing plant lifecycle. The
Company's products are designed to respond to the different skills and decision
criteria applied by engineers from different disciplines and by decision-makers
that do not have substantial engineering knowledge. Consistent with this
strategy, ICARUS entered into three business alliances in calendar 1997. See
"-- Business Alliances."
During fiscal year 1999 and thereafter, ICARUS plans to release the
following products, most of which will focus on the business development and
process engineering stages of the plant lifecycle:
Decision Engineering Analyzer ("Analyzer"). Designed for use by senior
executives as well as by engineers, Decision Engineering Analyzer will enable a
user to enter basic information on the scope and features, such as product and
product capacity, of a proposed major project. This basic information can be
derived from ICARUS-SRIC products discussed below or from proprietary data
developed by a customer. Using this basic project scope definition, Analyzer
will automatically develop a detailed early conceptual design. Analyzer will
also produce estimates of design quantities, engineering tasks and associated
effort, procurement and construction work products and tasks, field manpower,
costs of project components, engineering and construction schedules, investment
and operating costs, and economic and financial reports. The product's reporting
modules will produce graphic and text reports, such as block diagrams, linked
process flow diagrams and piping and instrumentation diagrams, data sheets, and
line lists. Additionally, Analyzer will produce input files for key engineering
software applications used by the customer's internal engineering staff so that
a senior executive or staff user can perform value-added engineering on an
interactive, dynamic basis.
Decision Center. Decision Center is a product under development arising
out of the desire of the Company's customers to be able to utilize their IPE or
ICARUS 2000 programs to obtain the results of Analyzer without a major
investment in additional technology. Decision Center, when installed with IPE or
ICARUS 2000, provides the user with substantially all of the features of
Analyzer.
ICARUS-SRIC Process Model and Project Model. ICARUS and SRIC plan to
develop a Process Model and a Project Model for each of SRIC's more than 800
chemical and refinery processes. Process Model will be an interactive multimedia
software containing SRIC's PEP technical content and the results of the
Company's project evaluation technology applied to a specific process, such as
the production of gasoline. This multimedia document will be used to evaluate
major issues relating to a customer's potential entry into a particular product
line. By extracting process intelligence input data from a specific PEP report,
Project Model will automatically create for a user of ICARUS 2000 or ICARUS
Process Evaluator detailed conceptual designs and estimates for a proposed
process manufacturing plant. Using this information, the user can easily produce
cost analyses and other specialized project information.
ICARUS plans to sell Process Model and Product Model separately or as part
of an integrated software bundle called the Decision Engineering Tool Suite that
will include the Analyzer. The Company expects that this product suite will be
used for a variety of business development purposes, including front-end
analysis by senior executives of whether an owner-operator should enter a
specific process manufacturing niche.
Hyprotech-ICARUS Products. ICARUS and Hyprotech are developing two
products that combine Hyprotech's process evaluation expertise in chemical
process design with the Company's design and cost engineering expertise.
"Plant-Product" is intended to be marketed primarily to process engineers that
use Hyprotech's products but have little or no prior cost engineering experience
or responsibility. They will enter static design data to generate detailed cost
estimates. "Process-Product" will be marketed primarily to process engineers
that use Hyprotech's products to help them produce cost estimates and schedules
of engineering and construction.
ICARUS Technology Server ("ITS"). ITS combines ICARUS' core
knowledge-based engineering technology with object-oriented databases that can
serve as the central repository of all the information and graphical data
pertaining to a specific process manufacturing project throughout the decision
engineering and plant engineering processes. ITS is planned to be implemented on
an enterprise network platform, which will provide multiple users simultaneous
access. The Company plans to release APIs that will enable third-party
engineering software developers to integrate their applications, such as CAD
production of detailed construction drawings, with ITS. The Company believes
that this approach will expand the applications options
34
<PAGE> 39
available to its customers and, at the same time, reduce the software and
database compatibility problems that currently affect its customers' engineers
and executives.
ICARUS Project Scheduler ("IPS"). IPS will be designed to develop
Primavera Project Planner ("P3") engineering and construction scheduling
networks using ICARUS 2000's project estimate results. IPS will produce a
detailed P3 project schedule containing a complete Precedence Diagramming Method
network of engineering and construction activities, precedence relationships,
resources and activity codes. IPS also will be designed to produce detailed
engineering and procurement activities allowing a customer to choose whether the
engineering network begins with basic engineering or with detailed engineering.
IPS will provide the customer with an opportunity to unify the basis for the
engineering, procurement, and construction estimate and schedule, thereby
enabling the customer to better schedule and control projects during the
engineering, procurement, and construction phases.
ICARUS-Richardson Construction Estimating Modules. ICARUS is in the early
stages of developing a product that integrates the Company's design and cost
modeling technology with Richardson's unit cost estimating technology to provide
customers with enhanced cost estimating capability during the detailed
engineering/procurement and construction stages of a project.
As of April 30, 1998, 21 of the Company's employees were directly involved
in internal product development. The Company's product development expenditures
for the fiscal years ended April 30, 1997 and 1998 were $1.3 million and $2.0
million, representing 18.1% and 21.3% of total revenue, respectively. The
Company has made substantial investments in, and intends to use a portion of the
net proceeds from this Offering for, product development. See "Use of Proceeds,"
and also see "Management's Discussion and Analysis of Financial Condition and
Result of Operations -- Overview" for information relating to the expensing of
the Company's research and development costs.
ICARUS believes that its future performance will depend in large part on
its ability to maintain and enhance its current product line, develop new
products that achieve market acceptance, maintain technological competitiveness
and meet new customer requirements. See "Risk Factors -- Risks Associated with
Continued Product Development; Rapid Technological Change" and "-- Market
Acceptance of the Company's Products."
COMPANY SERVICES
The Company believes that strong customer support is crucial, both to the
initial marketing of its knowledge-based engineering software products and to
ensure that its customers successfully apply its knowledge-based engineering
software products to their engineering automation needs so that they will be
encouraged to renew and expand their license arrangements with the Company. In
addition, the Company believes that every customer support contact creates a
marketing opportunity to license its knowledge-based engineering software
products to additional users at a customer's location and to license additional
knowledge-based engineering software product to users at other customer
locations.
Training. The Company offers introductory and advanced training courses at
its Rockville, Maryland; Houston, Texas; Altrincham, England; and Tokyo, Japan
offices and, from time to time, at the offices of its customers to train
licensed users of its knowledge-based engineering software products. These
seminars generally run between one and four full days, depending upon the
product and/or platform being taught. The Company typically charges licensed
users for such training. Product training is not mandatory, but the Company
believes that such training enhances the value of the licenses purchased by the
customer and is highly recommended. The Company believes that continuing product
training helps build product loyalty and reinforces the value of the Company's
product to the customer.
Post-Contract Support. The Company also offers free technical support to
its licensed users by telephone from a help-desk located in its Rockville,
Maryland offices. The help-desk is available during business hours Monday
through Friday. In addition, the Company typically provides to its licensed
users and to customers having annual maintenance plans a "cost update" for
materials, equipment and labor, the data for which is obtained from publicly
available cost information received from the Company's customers,
35
<PAGE> 40
vendors, published data sources and from the Company's proprietary pricing
models. This update typically is released in early summer. From time to time and
on an "as available" basis, the Company may issue an update that contains one or
more new features for the knowledge-based engineering software product, such as
new report types, new screens for data input, new equipment models and the
resolution of software problems or "bugs."
Consulting Services. A number of the Company's customers currently seek,
on a limited basis, the Company's assistance in integrating their proprietary
technology with the Company's software, reviewing work performed by the
customers' internal staff or performing front-end design and cost studies. The
Company believes that these services leverage software sales because the
customer must have a license to its knowledge-based engineering software
products in most instances in order to use the cost model, application or
customization delivered by the consulting team. Application projects enable the
Company to provide turnkey solutions to customers who do not have the resources
to build their own design and cost models. These projects provide an important
mechanism for the Company to extend the range of applications that its
technology can model. Although the Company enters into agreements to protect the
customer's proprietary information in these consulting projects, the Company
typically retains the right to use the generic design and cost modeling methods,
expert systems and know-how developed as a result of the project in other
Company knowledge-based engineering software products. The Company expects to
increase the scope and depth of its consulting services in the future. See
"Business -- Strategy."
The provision of services by the Company to its customers for the years
ended April 30, 1997 and 1998 represented approximately 7.7% and 8.0% of total
revenues, respectively.
CUSTOMERS
The Company currently has over 300 customers worldwide who represent all
segments of the process manufacturing industry and the engineering and
construction firms that serve them. One or more of the Company's products are
licensed to 18 of the top 20 chemical companies and 18 of the top 20 petroleum
refining companies, as such companies are listed in the "1997 Fortune 500 List,"
and 8 of the top 10 chemical plant contractors listed in Engineering News
Record's "Top 400 Contractors."
The following is a representative list of the Company's customers.
ABB Lummus Global, Inc.
Agrium, Inc.
Air Products and Chemicals, Inc.
ARCO
Bateman Engineering, Inc.
Bayer Corporation
Bechtel Corporation
BOC Process Plants
Brown & Root, Inc.
Campbell Soup Company
Chevron Corporation
Cytec Industries, Inc.
Delta Hudson Engineering Ltd.
Dow North America
Eastman Chemical Company
Ecopetrol
Elf Atochem
North America, Inc.
Fluor Daniel, Inc.
FMC Corporation
Foster Wheeler USA Corporation
GE Plastics
Hercules Incorporated
Hoechst Celanese Corporation
ICI
Jacobs Engineering Group, Inc.
Kvaerner
LG Engineering Company, Ltd.
Lubrizol Corporation
Marathon Oil Company
Mead Corporation
Millennium Inorganic Chemicals
Mitsubishi Chemical Corporation
Mobil Technology Company
M.W. Kellogg Company
NOVA Chemicals, Inc.
Occidental Chemical Corp.
Parsons Process Group, Inc.
Pennzoil Products Company
Phillips Petroleum Company
PPG Industries, Inc.
Praxair, Inc.
Qatar General Petroleum Corp.
Rhone-Poulenc North America
Rohm and Haas Company
SABIC Americas, Inc.
Saudi Arabian Oil Company
S&B Engineers and
Constructors, Ltd.
Shell Oil Company
SNC LAVALIN, Inc.
Solutia Inc.
Solvay Polymers, Inc.
Stone & Webster
Engineering Corporation
Sverdrup Facilities, Inc.
Techint International
Construction Corp.
Texaco Refining &
Marketing, Inc.
36
<PAGE> 41
The Company derives a significant portion of its total revenue from
software licenses to companies in the chemical and petroleum refining
industries, which are highly cyclical. See "Risk Factors -- Concentration of
Revenue in the Chemical and Petroleum Refining Industries." As a consequence,
the Company is focusing greater resources on developing products and marketing
efforts directed at companies in process manufacturing segments of other
industries. No individual customer accounted for 10.0% or more of the Company's
total revenues for the fiscal years ended April 30, 1997 or 1998. Although all
of the customers listed above are current licensees of the Company's
knowledge-based engineering software, there can be no assurance that any of them
will continue to license any of such products beyond the term of the existing
license.
The Company believes that its ability to maintain and grow its customer and
revenue bases will depend, in part, on its ability to maintain a high level of
customer satisfaction. The Company believes that its customers typically
purchase knowledge-based engineering software products only when they are
convinced that such products will provide them with quicker and more reliable
results than the software they are currently utilizing (which is typically
developed "in-house" by the customer). The Company believes that its customers
are its best sales representatives and finds that sales within an organization
are easier once there is a licensed user in that organization.
SALES AND MARKETING
The Company markets its products and services in more than 25 countries
around the world through its direct sales force, which as of April 30, 1998,
consisted of 20 full time Company sales personnel based at the Company's
Rockville, Maryland office, its Houston, Texas office, its United Kingdom
offices located in Altrincham, England and its Asian offices located in Tokyo,
Japan, and through its independent sales representatives located in Argentina,
Australia, Brazil, Colombia, Germany, India, South Africa, South Korea and
Venezuela and independent sales representatives that market the Company's
products in the People's Republic of China, and in certain independent republics
of the former Soviet Union. The Company relies on its direct sales force to
initiate sales contacts, follow-up on leads provided by the Company's marketing
department and to engage in face-to-face contact with its customers to solicit
orders. The Company believes its Company sales personnel have a number of strong
relationships with existing customers which assists the sales personnel in
obtaining additional users of Company products currently licensed by its
customers and in obtaining licenses of additional knowledge-based engineering
software products. As of April 30, 1998, the Company had agreements with 13
independent, non-exclusive sales representatives in 14 countries worldwide.
These agreements are typically for a term of one year, automatically renewable
for an additional one year term unless sooner terminated. Such international
sales typically are priced in United States dollars, English pounds or Japanese
yen; product is generally shipped with thirty day payment terms. Sales by the
Company's independent sales representatives were $499,000 and $910,000 for
fiscal years 1997 and 1998, respectively.
The Company also has an in-house marketing department that designs and
updates the Company's home page on the World Wide Web and its sales materials
and performs demographic studies of new sales territories to identify potential
customers. The marketing department also works with the sales force on direct
mail, e-mail and facsimile and other marketing campaigns to gauge and generate
the interest of potential customers.
The Company sells primarily through direct contact with customers and does
not conduct significant mass market advertising due to the expense involved and
the inability to target the Company's particular customer base through such
advertising. It does, however, publish articles and advertise selectively in
professional trade publications, such as Chemical Engineering and Chemputers
magazines. The Company also publishes the SUN (its System User Newsletter) three
times per year to keep industry participants informed about news of interest
regarding ICARUS technology. The SUN is in its ninth year of publication. The
ICARUS Internet site on the World Wide Web is also used to keep its current and
potential customers informed about the latest information and developments in
process and project evaluation. In conjunction with licensed users of its
technology, the Company sponsors User Group meetings in various locations having
a concentration of Company customers to increase the proficiency of its user
community in the effective use of its products. In recent years, the Company has
also sponsored the ICARUS International User's Conference, at which customers
had the opportunity to review major industry trends, learn about the Company's
development plans and meet with industry experts. The Company believes that the
ICARUS International
37
<PAGE> 42
User Conference provides a valuable service to its customers and assists in
enhancing the Company's reputation as a leading provider of knowledge-based
engineering software to the process manufacturing industry. Moreover, the
Company actively participates in trade shows such as the Chemputers Show in the
United States and Europe each year, the Chem Show, TAPPI (Technical Association
of Pulp and Paper Industry), the Petro Expo and Daratech, as well as
international trade fairs.
COMPETITION
The growing market for engineering software used in process manufacturing
is intensely competitive and the Company's competitors include several companies
that possess significantly greater financial, technical, marketing and other
resources than ICARUS. The Company's primary competition currently comes from
customers and potential customers that have developed, or have the resources and
capabilities to develop, their own process engineering, cost engineering and
construction scheduling software solutions. The Company's direct third-party
competitors include Timberline Software Corporation and a number of smaller
private companies. To a lesser degree, ICARUS faces competition or potential
competition from Aspen Technology, Simulation Sciences Inc. and ChemStations,
Inc. The Company expects to face additional competition as other established and
new companies enter the computer-aided engineering simulation and analysis
software market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share, any of which could materially adversely
affect the Company's business, operating results and financial condition.
In order to compete in the marketplace, ICARUS must persuade a customer or
potential customer that the Company's knowledge-based engineering software
products offer a superior solution to internally developed software or
engineering products supplied by other vendors. In doing so, ICARUS emphasizes
the quality and sophistication of its products, the technological expertise and
creativity of its personnel, the frequency with which it releases
knowledge-based engineering software enhancements and updates the quality of its
technical support and training courses. Increasingly, owner-operators and E&C
companies that have for years developed and maintained their own engineering
simulation and analysis software are recognizing the efficiency and economic
gains they can achieve by deploying commercially developed engineering software,
including the Company's knowledge-based engineering software products.
PROPRIETARY RIGHTS
The Company relies primarily upon trade secret and copyright laws,
including the use of invention assignment and confidentiality agreements with
employees and confidentiality agreements with third parties, and physical
security devices such as its Control Device to protect its proprietary
technology. The Company presently relies upon its registered trademarks and
service marks as well as common law rights in its trademarks and service marks
to protect the use of its name and brands. The Company maintains United States
registrations of certain trademarks and service marks and has filed applications
for United States registrations on additional trademarks and service marks. The
Company's ability to protect its products in foreign jurisdictions, however, is
limited in that the laws of certain foreign jurisdictions in which the Company's
products are distributed do not protect the Company's intellectual property
rights to the same extent as the laws of the United States. Therefore, there can
be no assurance that the protection provided by the laws of either the United
States or of foreign jurisdictions will be sufficient to protect the Company's
proprietary rights in its products and technology.
The Company presently enters into invention assignment and confidentiality
agreements with its employees and confidentiality agreements with certain
customers. The Company also limits access to the source code to its
knowledge-based engineering software and other proprietary information. A common
feature of the Company's existing products is a proprietary electronic hardware
device called the "Control Device." The Control Device is independent of the
customer's computer hardware platform and is designed to prevent unauthorized
and unlicensed use of the Company's products. The Company's products are
designed so that they cannot be operated without the Control Device, which
resembles an external modem and plugs into the desktop computer's serial port.
Every time a Company product is used, the Control Device verifies the licensed
user's identifier to permit entry. When the license period ends, the Control
Device is designed to
38
<PAGE> 43
prevent further entry into the product. It is difficult, however, to totally
prevent unauthorized use. There can be no assurance that the steps taken by the
Company in this regard will be adequate to prevent misappropriation of its
technology or infringement of its copyrights or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology. The Company believes, however, that due to
the rapid pace of innovation within the software industry, factors such as the
technological and creative expertise of its personnel, the quality of its
products, the quality of its technical support and training services, and the
frequency of release of software product enhancements are more important to
establishing and maintaining a technology leadership position than the various
legal protections available for the Company's products and technology.
Certain technology used in the Company's knowledge-based engineering
software products, such as the Primavera Project Planner, Empress SQL and
Hummingbird, are currently licensed from third parties. These licenses generally
require the Company to pay royalties and/or license fees and to maintain the
confidentiality of certain matters. The Company believes that there are
alternative sources for each of the material components of the technology
licensed by the Company from third parties. However, the termination of any of
such licenses, or the failure of the third party licensors to adequately
maintain or update their products, could result in delay in the Company's
ability to ship certain of its products or in a delay of the introduction of its
new or enhanced products while it searches for similar technology from
alternative sources. See "Risk Factors -- Risks Associated with Proprietary
Rights."
EMPLOYEES
As of April 30, 1998, the Company had a total of 63 full-time and 2
part-time employees, including 38 in sales, marketing, technical support,
training and order fulfillment, 21 in product development and 6 in finance and
administration. Of these employees, 5 work in the Company's United Kingdom
office and 3 work in the Company's Tokyo, Japan office. None of these employees
is engaged pursuant to a collective bargaining agreement, nor has the Company
experienced any labor actions such as a work stoppage. The Company believes that
its relations with its employees are good.
LEGAL PROCEEDINGS
Prior Legal Proceedings. In 1985, the Company settled a dispute with the
IRS regarding the Company's income taxes for the fiscal years 1975 through 1978.
It was the Company's understanding that the IRS would accept a payment plan,
including interest, for the disputed amount. After the settlement papers were
signed, and the IRS obtained financial information from the Company relating to
developing such a payment plan, it appeared that the IRS believed that the
Company had sufficient cash reserves to permit an immediate payment. The Company
contended that these funds represented working capital which was needed for
corporate expansion and other operations. Negotiations to arrive at a mutually
satisfactory payment plan with the IRS could not be satisfactorily concluded.
Consequently, the Company thereafter filed a petition under Chapter 11 of the
U.S. Bankruptcy Code in 1985 to allow the Company and the IRS to work out a
payment plan satisfactory to both parties. The Company emerged from Chapter 11
when its Plan of Reorganization was confirmed by the Court in 1988. All payments
required under the Plan of Reorganization were made, with the final payment made
in December 1993, and the case was subsequently closed. The Company believes
that these proceedings have had no adverse effect on the Company's current
business, financial condition or reputation.
In 1979, a federal grand jury for the Eastern District of Virginia returned
a criminal indictment against the Company, Herbert G. Blecker, Chairman of the
Board, President and Chief Executive Officer of the Company, and an employee of
Computer Sciences Corporation ("CSC"), a company the shares of which were and
are traded on the New York Stock Exchange. The indictment arose out of events
relating to a contract between the GSA and CSC and a subcontract between CSC and
the Company. In 1972, CSC was awarded a multi-million dollar contract by the GSA
to provide federal agencies with computer and data processing services (the
"GSA/CSC contract"). That contract authorized CSC to subcontract for consulting
services. In 1972, CSC subcontracted with the Company for those services. Under
the GSA/CSC contract, the rates charged for consultant services were to be based
upon the education and experience of the
39
<PAGE> 44
consultants who performed services. The prosecution contended that Mr. Blecker
instructed a number of employees of the Company to embellish their resumes with
additional degrees and experience which they did not have and, further, that he
caused the resumes of other employees to be enhanced without their knowledge.
The 37 count indictment alleged that the Company and Mr. Blecker submitted to
the CSC invoices for fees based on the false resumes. Further, the indictment
asserted that the Company and Mr. Blecker knew that CSC, in turn, would present
to the GSA claims for payment based upon the invoices. The case was tried before
a jury. The Company and Mr. Blecker were convicted on six counts of presenting
false claims to an agency of the United States and, in addition, the Company was
convicted on two counts of mail fraud. The Company was fined $62,000 and Mr.
Blecker received a one-year sentence of confinement, of which he served nine
months.
Following this conviction, the GSA issued a debarment order which prevented
the Company from entering into a contract or subcontract for the performance of
work for the government. The debarment was terminated as of April 22, 1983,
thereby eliminating any restrictions on the ability of the Company to perform
services for the government.
In October 1980, a grand jury in the Eastern District of Virginia returned
a criminal indictment against Mr. Blecker, CSC, and five current or former
officers and employees of CSC. The charges in this indictment also arose out of
the GSA/CSC contract referred to above. The charges involved alleged improper
billing for computer services and for computer software packages. Mr. Blecker
was charged with one count of conspiracy, one count of violating the Racketeer
Influenced Corrupt Organizations Act (RICO), six counts of mail fraud, and two
counts involving alleged false claims against the government. This case was
tried by a jury in May 1983, and all of the defendants were acquitted.
The Company believes that the matters described above have had no adverse
effect on the Company's recent business, financial condition or results of
operations.
Current Legal Proceedings. On October 7, 1997, a former employee of the
Company's U.K. subsidiary, ICARUS Services Limited ("ISL"), filed suit against
ISL in the High Court of Justice, Manchester District, United Kingdom. The suit
sought approximately 75,000 pounds sterling (approximately US $125,000) for
compensation relating to the former employee's termination of employment in
early 1997, pursuant to an employment contract between ISL and the former
employee. On June 30, 1998, the Company settled this claim for approximately
68,000 pounds sterling (approximately US $113,333).
The Company is also a party from time to time to certain legal proceedings
arising in the ordinary course of its business, none of which is expected to
have a material adverse effect on the Company's business, financial condition or
results of operations.
FACILITIES
In April 1998, the Company relocated its headquarters to a larger facility
located at 600 Jefferson Plaza, Rockville, Maryland, pursuant to a new ten (10)
year lease dated December 31, 1997, as amended March 30, 1998. The new lease is
for approximately 30,500 square feet at an annual base rent of approximately
$600,000 plus annual rent escalations and increases in operating expenses. The
Company also leases approximately 4,500 square feet of office space in Houston,
Texas which lease requires an annual rent of approximately $92,000, plus all
operating expenses of the leased premises as such costs may increase from time
to time and expires on April 1, 2002, and leases approximately 1,921 square feet
in Altrincham, England which lease requires annual rent of 20,275 pound sterling
(approximately US $34,000) and expires on May 8, 2002, and leases approximately
1,000 square feet of office space in Tokyo, Japan, which lease requires an
annual rent of 3.6 million Japanese Yen plus 720,000 Japanese Yen (approximately
US $36,000) for utilities and expires on January 19, 2000. The Company believes
that its existing facilities are adequate for its current needs and that
suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.
40
<PAGE> 45
CORPORATE STRUCTURE
ICARUS International, Inc. is a newly organized Maryland corporation formed
for the purpose of holding the voting stock of ICARUS Corporation, a Maryland
corporation which performs certain software development, sales and services
described herein, and of ICARUS Services Limited, a United Kingdom private
limited company engaged in the sale of software licenses and the performance of
certain services related thereto in Europe. The Company's other subsidiaries are
ICARUS Nippon K.K., a Japanese corporation engaged in the sale of software
licenses and the performance of certain services related thereto in Asia, and
ICARUS Development and Marketing Corporation, a Maryland corporation formed to
engage in business alliances with other companies. All references to the
"Company" or to "ICARUS" include ICARUS International, Inc. and its predecessors
and consolidated subsidiaries.
41
<PAGE> 46
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------- --- ------------------------------------------------------
<S> <C> <C>
Herbert G. Blecker......... 62 Chairman of the Board of Directors, President and
Chief Executive Officer
William F. Geritz, III..... 33 Director and Executive Vice President
Peter L. Bower............. 49 Chief Financial Officer
Tyler T. Winkler........... 32 Vice President -- Sales
Eunice E. Blecker.......... 62 Treasurer and Secretary
Motoo Iso.................. 33 General Manager and member of the Board of Directors
of ICARUS Nippon K.K. (an indirect wholly-owned
subsidiary of the Company)
Dennis E. Leister, Ph.D.... 51 Director of Client Services
Daniel M. McCarthy......... 49 Director of Systems Integration
Bahram Meyssami, Ph.D...... 36 Director of Process Technology
Martin D. Ryan............. 50 Director of Cost Engineering
Dr. Robert L. 68
Steinberger.............. Director of Decision Engineering
James J. Byrne............. 62 Vice Chairman of the Board of Directors
J. Edward Beck, Jr......... 49 Director
Gary M. Roush.............. 51 Director
</TABLE>
Herbert G. Blecker. Mr. Blecker founded the Company in 1969 and has served
as Chairman of the Board of Directors, Chief Executive Officer and President of
the Company since that time. From 1969 to 1996, Mr. Blecker also served as Chief
Financial Officer of the Company. Prior to founding the Company, Mr. Blecker
held various positions with Allied Chemical Corporation, the National
Aeronautics and Space Administration and the U.S. Department of the Interior.
Mr. Blecker received his Bachelor of Chemical Engineering degree from the
College of the City of New York. Mr. Blecker is the husband of Mrs. Blecker.
William F. Geritz, III. Mr. Geritz has served as a director of the Company
since May 1997 and Executive Vice President of the Company since January 1998.
Mr. Geritz has held various positions with the Company since 1988, including
Vice President from May 1997 to January 1998, Director of Sales from 1993 to
1997, Sales Manager from 1992 to 1993, and Account Executive from 1988 to 1992.
Prior to 1988, Mr. Geritz held the position of Account Executive with Mentor
Systems, Inc., a software and hardware integration company. Mr. Geritz received
his B.A. degree in economics from St. Mary's College, St. Mary's City, Maryland.
Peter L. Bower. Mr. Bower was appointed Chief Financial Officer of the
Company effective July 10, 1998. From November 1993 to July 1998, Mr. Bower
served as the Chief Operating Officer and Chief Financial Officer of NexUS
Healthcare Information Corporation, a company which was acquired by United
Healthcare Corporation in March 1998. Prior thereto, from May 1991 to November
1993, he served as the Chief Operating Officer and Chief Financial Officer of
The Reinforced Earth Company. From January 1991 to May 1992, Mr. Bower was the
Chief Financial Officer at General Kinetics, Inc. From August 1987 to January
1991, Mr. Bower was a Senior Vice President, Corporate Finance, with Johnston
Lemon & Company. Prior thereto, Mr. Bower was a partner with Grant Thornton
L.L.P. Mr. Bower received his B.S. in Accountancy from the University of
Illinois, Champaign-Urbana, and is a certified public accountant in the State of
Illinois.
42
<PAGE> 47
Tyler T. Winkler. Mr. Winkler was appointed Vice President -- Sales in
July 1998 and served as Director of Sales of the Company from January 1998 to
June 1998. From July 1996 to January 1998, Mr. Winkler held the position of
Sales Manager, North and South America of the Company. From October 1992 to June
1996, Mr. Winkler was an Account Executive with the Company. Mr. Winkler
received his B.S. degree in management from Towson University in Towson,
Maryland.
Eunice E. Blecker. Mrs. Blecker is a co-founder of the Company and has
served as a director, Treasurer and Secretary of the Company since April 1969.
Mrs. Blecker is the wife of Mr. Blecker.
Motoo Iso. Mr. Iso has served as General Manager and Director of ICARUS
Nippon K.K. since December 1995. From October 1995 to December 1995, Mr. Iso
served as a consultant to ISL. From August 1992 to October 1995, Mr. Iso was
employed by Dodwell Marketing Services Ltd., where he sold, marketed and
provided technical support for the Company's products in Japan. Mr. Iso received
his B.S. degree in industrial science from Nihon University, Tokyo, Japan, in
1987.
Dennis E. Leister, Ph.D. Dr. Leister has served as Director of Client
Services of the Company since November 1997. From May 1993 to December 1997, Dr.
Leister was Manager of Client Services of the Company, and from May 1989 to May
1993, was the Company's Product Marketing Manager. Dr. Leister received his B.S.
degree in Biology from Yale University in 1968, his Ph.D. in cell and
developmental biology from The Johns Hopkins University, Baltimore, Maryland, in
1973, completed three years of post-doctoral training at the
Max-Planck-Institute fuer experimentelle Medizin in Goettingen, W. Germany, in
1976 and completed a second post-doctorate and visiting assistant professorship
at Indiana University, Bloomington, Indiana, in 1978.
Daniel M. McCarthy. Mr. McCarthy has served as Director of Systems
Integration of the Company since November 1997. Mr. McCarthy has been employed
by the Company since 1974 in various capacities and prior to November 1997
served most recently as Manager of Computer Operations, from 1984 to 1997. Mr.
McCarthy received his B.S. degree in chemical engineering from the University of
Notre Dame, Notre Dame, Indiana, in 1970.
Bahram Meyssami, Ph.D. Dr. Meyssami has served as Director of Process
Technology since November 1997. From December 1993 to November 1997, Dr.
Meyssami held the position of Manager of Expert Systems Technology in the
Company. Prior to that, Dr. Meyssami was an Applications Consultant for the
Company from December 1990 to December 1993. Dr. Meyssami received his B.S.,
M.S. and Ph.D. degrees in chemical engineering from the University of Maryland,
College Park, Maryland.
Martin D. Ryan. Mr. Ryan has served as Director of Cost Engineering of the
Company since November 1997. From November 1996 to November 1997 and from August
1984 to November 1996, Mr. Ryan held the positions of Manager of Technology
Services and Manager of Product Development, respectively, of the Company. Mr.
Ryan received a Diploma in Quantity Surveying from Liverpool College of
Building, United Kingdom, and is an Associate of the Royal Institute of
Chartered Surveyors.
Dr. Robert L. Steinberger. Dr. Steinberger has served as the Company's
Director of Decision Engineering since February 1998. Prior to that, Dr.
Steinberger held the positions of Director of Integrated Systems, Director of
Business Development and Director of Marketing of the Company, from April 1993
to February 1998, from 1993 to 1997 and from 1986 to 1993, respectively. Dr.
Steinberger obtained his doctorate in engineering science and master's degree in
chemical engineering from New York University, and his bachelor's degree in
chemical engineering from The City College of New York.
James J. Byrne. Mr. Byrne has served as Vice-Chairman of the Board of the
Company since January 1998. Mr. Byrne has served as Managing Partner of Byrne
Technology Partners, Ltd. since January 1996. The firm provides professional
services for strategic alliances and mergers within the computer industry and
offers technology consulting services for corporate re-engineering. From April
1990 to its sale in March 1995, Mr. Byrne served as President of Harris Adacom
Corporation, a company formed from the merger of the data communications
division of Harris Corp. and Adacom Inc., which was engaged in network systems
and services. From December 1986 to April 1990, Mr. Byrne was the Vice President
and General Manager of the data communications division of Harris Corp. Mr.
Byrne serves on the boards of directors of
43
<PAGE> 48
STB Systems, Inc., a publicly traded company listed on the Nasdaq National
Market that designs, manufactures and sells various multimedia subsystems, and
Lennox International, Inc., a manufacturer of heating, ventilation and air
conditioning systems. Mr. Byrne is also a member of the national board of
directors of the American Electronics Association (AEA), and a member of the
Advisory Council of the University of Texas School of Engineering and Computer
Science. Mr. Byrne completed the Stanford Executive Institute program at
Stanford University, Palo Alto, California, and received his B.S. degree in
business administration from Duquesne University, Pittsburgh, Pennsylvania.
J. Edward Beck, Jr. Mr. Beck has served as a director of the Company since
January 1998. Since 1985, Mr. Beck has been the President and Chief Executive
Officer of Bitrek Corporation, a privately held manufacturer of pipe fittings.
Mr. Beck also is a director of Dauphin Deposit Bank and Trust Company, a banking
subsidiary of First Maryland Bancorp, Chairman of the Board of Wilson College, a
private liberal arts college located in Pennsylvania, and Vice Chairman of the
Board for Summit Health, a non-profit healthcare provider in south-central
Pennsylvania. Over the past eight years, Mr. Beck also has served on the Boards
of Directors of Dauphin Deposit Corporation, a financial services holding
company which traded on the Nasdaq National Market, and ValleyBank Corporation,
which traded on the Nasdaq SmallCap Market until its acquisition by Dauphin
Deposit Corporation in December 1993. Prior to 1985, Mr. Beck served as the
Senior Adviser to the Assistant Secretary for Electronic Systems and Information
Technology at the U.S. Department of Treasury from 1982 to 1984. Mr. Beck
received his J.D. degree from Dickinson School of Law, Carlisle, Pennsylvania
(now known as Dickinson School of Law of the Pennsylvania State University), his
M.B.A. degree from Mt. St. Mary's College, Emmitsburg, Maryland and his B.A.
degree from Dickinson College, Carlisle, Pennsylvania.
Gary M. Roush. Mr. Roush has served as a director of the Company since
January 1998. Since February 1996, Mr. Roush has been the President of Capital
Accounting, a financial consulting firm based in Washington, D.C., and prior to
that date served as its Vice President since May 1994. From August 1988 to May
1994, Mr. Roush was an accountant with Friedman & Fuller, P.C., in Rockville,
Maryland. Mr. Roush is licensed as a certified public accountant by the
Commonwealth of Virginia and the State of Colorado, and is a member of the
American Institute of Certified Public Accountants. Mr. Roush received his
B.S.B.A. degree in accounting from the University of Denver, Denver, Colorado.
The Company's Articles of Incorporation and Bylaws provide that the
Company's Board of Directors be divided into three classes. Class I, which will
consist of Messrs. Blecker and Byrne, will expire at the Annual Meeting of
Stockholders to be held in 2000; Class II, which will consist of Messrs. Geritz
and Beck, will expire at the Annual Meeting of Stockholders to be held in 1999;
and Class III, which will consist of Mr. Roush, will expire at the Annual
Meeting of Stockholders to be held in 1998. At each annual meeting of
stockholders, one class of directors will be elected for a full term of three
years to succeed those directors whose terms are expiring.
The Board of Directors has appointed an Executive Committee, an Audit
Committee and a Compensation Committee. The Executive Committee performs the
functions of the Board, with certain exceptions, when the Board is not in
session. The members of the Executive Committee are Mr. Blecker, Chairman and
Messrs. Geritz, Roush and Byrne. The Audit Committee reviews the scope and
results of the annual audit of the Company's consolidated financial statements
conducted by the Company's independent accountants, the scope of other services
provided by the Company's independent accountants, proposed changes in the
Company's financial and accounting standards and principles, and the Company's
policies and procedures with respect to its internal accounting, auditing and
financial controls, and makes recommendations to the Board of Directors on the
engagement of the independent accountants as well as other matters which may
come before it or as directed by the Board of Directors. The members of the
Audit Committee are Messrs. Beck, Byrne and Roush, Chairman. The Compensation
Committee administers the Company's compensation programs, including the 1998
Stock Option Plan, the Recognition Plan and the 401(k) Plan, and performs such
other duties as may from time to time be determined by the Board of Directors.
The members of the Compensation Committee are Messrs. Byrne and Roush, Chairman.
44
<PAGE> 49
DIRECTOR COMPENSATION
The Board of Directors is currently required to meet not less than
quarterly. Directors who are not full-time employees of the Company receive a
quarterly fee of $1,250 for their services, plus $500 for each Board meeting
attended and $500 for each committee meeting attended and are reimbursed for
their out-of-pocket expenses arising from attendance at a Board or committee
meeting. Directors who are also employees receive no compensation for attending
such meetings other than their base salaries. It is anticipated that options to
purchase shares of Common Stock will be issued to the Company's non-employee
directors immediately following the Annual Meeting of Stockholders to be held in
1998, and that such directors will thereafter be entitled to receive additional
stock options under the Company's Stock Option Plan. See "-- Stock Plans -- 1998
Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the other most highly compensated executive officers
of the Company (collectively, the "Named Executive Officers") for the fiscal
year ended April 30, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION(3) OPTIONS($) COMPENSATION
- ---------------------------------- --------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Herbert G. Blecker(1)............. $247,000 $ -- $ -- -- $ --
Chairman of the Board,
President and Chief
Executive Officer
William F. Geritz, III(2)......... 124,000 -- -- -- --
Executive Vice President
</TABLE>
- ---------------
(1) The Company anticipates granting Mr. Blecker 63,600 options to purchase
Common Stock pursuant to the Company's Stock Option Plan immediately prior
to the Offering. See "-- Stock Plans -- 1998 Stock Option Plan."
(2) The Company anticipates granting Mr. Geritz 106,000 options to purchase
Common Stock pursuant to the Stock Option Plan immediately prior to the
Offering. See "-- Stock Plans -- 1998 Stock Option Plan."
(3) Other Annual Compensation includes accrued but unpaid vacation and sick pay,
the lease and maintenance payments for an automobile, payment of personal
telephone charges and the payment for a home security system. Such amounts
did not exceed the lesser of $50,000 or 10% of the total amount of salary
and bonus reported for Mr. Blecker for the year ended April 30, 1998.
EMPLOYMENT AGREEMENTS
Effective January 22, 1998, the Company entered into an employment
agreement with Mr. Blecker which superseded his employment agreement dated
August 1, 1981, and negotiated a new employment agreement with Mr. Geritz
(Messrs. Blecker and Geritz being referred to collectively as the "Executives").
Except for base salary amounts, terms of the employment agreements are
substantially similar. Each of the Executives are engaged for five year terms,
which terms will be automatically extended for an additional year upon each
anniversary date of the respective employment agreement. The aggregate base
salaries for the Executives in each of the calendar years 1998, 1999, 2000 and
2001 will be $290,000 and $200,000 for Mr. Blecker and Mr. Geritz, respectively.
The 1999 base salaries will be supplemented by cash bonuses of up to $60,000 and
$150,000 for Mr. Blecker and Mr. Geritz, respectively, for meeting performance
goals to be established by the Board of Directors. In addition, in June 1998,
the Board of Directors approved cash bonuses to Messrs. Blecker and Geritz of
$60,000 and $100,000, respectively, to be paid in fiscal year 1999 in
recognition
45
<PAGE> 50
of their service to the Company relating to this Offering and for other services
performed, and additional responsibilities accepted, in fiscal 1999.
The base salary amounts shall automatically be increased by the amount of
the prior year's increase in the consumer price index ("CPI"). The Executives
are entitled to participate in all employee benefit plans of the Company and
will be reimbursed for expenses relating to Company business. An automobile, the
lease payments and operating expenses of which will be paid by the Company, will
be provided to Mr. Blecker. Each Executive is entitled to four weeks paid
vacation, all Company holidays and sick leave in accordance with Company policy.
The employment agreements are terminable by the Company with or without "cause"
and upon the Executive's death, disability or retirement, or by the Executives
for "Good Reason." If the Company terminates the employment agreement for cause
or if the Executive terminates his employment for other than Good Reason, the
Executive will have no right to further compensation or benefits under the
employment agreement. If the Executive's employment is terminated by the Company
for other than cause, or for disability, retirement or death or if the
employment agreement is terminated by the Executive because the Company has
breached the employment agreement, the Executive will be entitled to receive
severance pay equal to three times the Executive's average annual compensation.
The Executive would also be entitled to maintain, at no cost to him, the Company
benefits he was then receiving (other than participation in stock option or
restricted stock plans) until he obtains full-time employment with another
employer or the expiration of the remaining term of the employment agreement,
whichever is earlier.
With respect to the employment agreements, "Good Reason" is defined to mean
termination of employment following a change in control of the Company (defined
by his employment agreement to be an event that would be required to be reported
under Regulation 14A of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the acquisition by any person of 25% or more of the voting
power of the Company or a change in the individuals constituting the Board of
Directors during any two consecutive years) based on: (i) failure to elect,
re-elect, or appoint or to re-appoint the Executives to their respective offices
or a material adverse change in their respective functions, duties or
responsibilities; (ii) a material reduction in their base salary; (iii) the
relocation of the Company's executive offices; (iv) any purported termination of
their respective employment without proper notice; or (v) the failure by any
successor to the Company to assume their respective employment agreements. If
the employment agreement is terminated for "Good Reason" subsequent to a Change
in Control, the Executive will be entitled to receive a lump sum cash severance
amount equal to five times his current base salary. The Executive would also be
entitled to maintain, at no cost to him, the Company benefits he was then
receiving (other than participation in stock options or restricted stock plans)
until he obtains full time employment with another employer or the expiration of
the remaining term of the employment agreement, whichever is earlier. The
Company has agreed to pay any excise tax attributable to any severance payment,
if necessary, pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code").
The Company expects to enter into a three year employment agreement with
Mr. Bower that provides for an annual salary of $138,000 and a grant, to occur
immediately prior to the Offering, of options to purchase 50,000 shares of
Company Common Stock. All options will be incentive stock options pursuant to
the Company's 1998 Stock Option Plan. See "-- Stock Plans -- 1998 Stock Option
Plan."
The Executives and Mr. Bower have agreed not to disclose any proprietary
information of the Company and not to compete with the Company for two years
after the termination or expiration of their respective employment agreement.
STOCK PLANS
1998 Stock Option Plan. Effective January 22, 1998, the Board of Directors
of the Company adopted the Stock Option Plan, which was approved by the
stockholders of the Company by unanimous written consent on January 22, 1998.
The Stock Option Plan is designed to attract and retain qualified personnel
in key positions, provide officers and key employees with a proprietary interest
in the Company as an incentive to contribute to the success of the Company and
reward key employees for outstanding performance and the attainment of
46
<PAGE> 51
targeted goals. The Stock Option Plan is also designed to attract and retain
qualified directors, consultants, agents and advisors to the Company. The Stock
Option Plan provides for the grant of incentive stock options intended to comply
with the requirements of Section 422 of the Code ("incentive stock options") and
non-incentive or compensatory stock options which may be granted to non-employee
directors or other persons who may not be employed by, or be directors of, the
Company (collectively "Awards"). Awards will be available for grant to directors
and key employees of the Company and its subsidiaries, except that non-employee
directors will not be eligible to receive incentive stock options.
The Stock Option Plan is administered and interpreted by the Compensation
Committee of the Board of Directors consisting of two or more non-employee
directors. Unless sooner terminated, the Stock Option Plan will be in effect for
a period of ten years or until January 21, 2008.
Under the Stock Option Plan, the Compensation Committee will determine
which officers and key employees will be granted options, whether such options
will be incentive or compensatory options, the number of shares subject to each
option, whether such options may be exercised by delivering other shares of
Common Stock and when such options become exercisable. The Stock Option Plan,
however, provides that non-employee directors automatically will be granted
compensatory stock options to purchase a specified number of shares of Common
Stock annually.
Pursuant to the Stock Option Plan, the per share exercise price of an
incentive stock option is required to be at least equal to the fair market value
of a share of Common Stock on the date the option is granted. The Code also
requires that the aggregate fair market value of the Common Stock with respect
to which the incentive stock options are exercisable for the first time by the
optionee during any calendar year cannot exceed $100,000. Moreover, any person
who owns 10% or more of the voting power of the Common Stock may not receive
incentive stock options whose exercise price is less than 110% of the fair
market value of a share of Common Stock of the Company on the date of grant. The
Stock Option Plan requires that the per share exercise price of a compensatory
stock option be no less than 85% of the fair market value of a share of Common
Stock on the date the option is granted.
Stock options will become vested and exercisable at the rate of 20% per
year on each annual anniversary of the date on which the option was granted or
as otherwise specified by the Compensation Committee, and the right to exercise
stock options shall be cumulative. Each stock option or portion thereof will be
exercisable at any time on or after its vesting date and will remain exercisable
until ten years after its date of grant or three months after the date on which
the optionee's employment terminates, unless the Compensation Committee, in its
discretion, decides at the time of grant or thereafter to extend such period of
exercise for a period of three months to five years. Unless the Compensation
Committee, in its discretion, shall specifically state otherwise at the time of
grant, all options will become immediately vested and exercisable in full on the
date an optionee terminates his or her employment or service as a non-employee
director due to his or her death, retirement, disability or as a result of a
"Change in Control" of the Company. A "Change in Control" of the Company is
defined by the Stock Option Plan to have occurred if: (i) any person other than
Mr. Blecker or the Company becomes the beneficial owner of 25% of more of the
voting power of the Company then outstanding; (ii) during any period of two
consecutive years individuals who at the beginning of such period constitute the
Board of Directors cease for any reason to constitute at least a majority of the
Board; (iii) the stockholders of the Company approve a merger or consolidation
of the Company whereby the voting securities of the Company represent less than
50% of the combined voting power of the Company immediately after such merger or
consolidation; or (iv) the stockholders of the Company approve a plan of
liquidation of the Company or an agreement for the sale or disposition of
substantially all of the Company's assets. However, failure to exercise
incentive stock options within three months after the date on which the
optionee's employment terminates may result in adverse tax consequences to the
optionee. Stock options are non-transferable except by will or the laws of
descent and distribution.
The Company has reserved for issuance pursuant to the Stock Option Plan
750,000 shares of Common Stock. In the event of a stock split, reverse stock
split or stock dividend, the number of shares of Common Stock under the Stock
Option Plan, the number of shares to which any Award relates and the exercise
price
47
<PAGE> 52
per share under any option shall be adjusted to reflect such increase or
decrease in the total number of shares of the Common Stock outstanding.
Under current provisions of the Code, the federal income tax treatment of
incentive stock options and compensatory stock options is different. With
respect to incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised, and a federal income tax deduction generally
will not be available to the Company at any time as a result of such grant or
exercise. With respect to compensatory stock options, the difference between the
market value of the Common Stock on the date of exercise and the option exercise
price generally will be treated as compensation income to the optionee upon
exercise, and the Company will be entitled to a deduction in the amount of
income so recognized.
No options were granted or exercised in fiscal 1997. The Company
anticipates granting immediately prior to the commencement of this Offering the
following number of options to the following executive officers of the Company
with an exercise price equal to the initial public offering price: 63,600 to Mr.
Blecker; 106,000 to Mr. Geritz; 50,000 to Mr. Bower; and 8,400 to Mrs. Blecker.
In addition, the Company anticipates granting 326,600 options to non-executive
employees of the Company with an exercise price equal to the initial public
offering price. These options will be subject to a five-year vesting schedule
providing that 20% of such options will vest annually. In addition, the Company
intends to issue 4,200 compensatory options to each of the three non-employee
directors immediately subsequent to the Annual Meeting of Stockholders in
calendar 1998 and immediately following each subsequent Annual Meeting (to the
extent that options remain available therefor under the Stock Option Plan).
These options will vest immediately and have an exercise price equal to the fair
market value of the Common Stock on the date of grant.
Recognition and Retention Plan and Trust. The Board of Directors of the
Company, on January 22, 1998, adopted the Recognition Plan for directors,
selected officers and employees of the Company, and the stockholders of the
Company, approved such plan by unanimous written consent on January 22, 1998.
The objective of the Recognition Plan is to enable the Company to provide
directors, officers and employees with a proprietary interest in the Company as
an incentive to contribute to its success.
The Recognition Plan is administered by the Compensation Committee, which
will have the responsibility to hold all Common Stock contributed, or to invest
all funds contributed, to a trust created for the Recognition Plan (the
"Trust"). The Recognition Plan will remain in effect for a period of ten years
or until January 21, 2008, unless it is terminated by the Board of Directors or
all assets of the trust are distributed prior to such date.
The Company has reserved for issuance 500,000 shares of Common Stock under
the Recognition Plan. The shares, while restricted, may not be sold, pledged or
otherwise disposed of and are required to be held in the Trust. If a recipient
terminates his or her employment for reasons other than death, disability or
retirement, the recipient will forfeit all rights to the allocated shares under
restriction. The Company will indemnify the trustees of the Trust for all
claims, expenses and liabilities arising out of or related to the exercise of
the trustees' powers and the discharge of their duties under the Trust, unless
the same is due to the gross negligence or willful misconduct of the Trustee.
The Trust may purchase from the Company and/or stockholders thereof additional
shares of Common Stock for distribution pursuant to the Recognition Plan. Shares
of Common Stock granted pursuant to the Recognition Plan generally will be in
the form of restricted stock earned at the rate of 20% per year, subject to
continued employment or service as a director, except that all shares will be
deemed earned as of the last day of a recipient's employment as a result of
death or retirement or, in the event and as of the date of, a Change of Control
of the Company, which is defined under the Recognition Plan to mean any change
of control of the Company which would be required to be reported by the Company
under Regulation 14A of the Exchange Act. Recipients of grants under the
Recognition Plan will not be required to make any payment at the time of grant
or when the underlying shares of Common Stock become vested.
For accounting purposes, compensation expense in the amount of the fair
market value of the Common Stock at the date of the grant to the recipient will
be recognized pro rata over the number of years during
48
<PAGE> 53
which the shares vest. The Board of Directors of the Company can terminate the
Recognition Plan at any time, and if it does so, any shares not allocated will
revert to the Company.
The Company does not anticipate granting stock awards for shares of Common
Stock to directors, executive officers and other key personnel immediately
subsequent to the consummation of the Offering but may do so thereafter. It is
currently anticipated that stock awards will be made to other officers and key
personnel by the committee primarily based on performance, although the
committee will be able to consider other factors determined to be relevant in
its sole discretion. In addition, pursuant to the Recognition Plan, shares of
Common Stock authorized to be awarded by the Recognition Plan will be available
to be awarded to non-employee directors of the Company pursuant to a formula
that complies with Rule 16b-3 under the Exchange Act. See "Risk
Factors -- Substantial Dilution."
401(k) Plan. The Company has a 401(k) plan for all employees (the "401(k)
Plan"), age 21 or older, with one year of service. The 401(k) Plan is a
contributory defined contribution plan which is intended to qualify under
Section 401(k) of the Code. Participants may contribute to the 401(k) Plan by
salary reduction of up to 20% of annual compensation for the year. Such
contribution defers the employee's earnings up to a maximum of $9,500 in each
plan year, indexed annually. The Company may, in its discretion, determine each
year to make a matching contribution out of current or accumulated net profit
equal to a percentage of the amount deferred by the employee. Although an
employee's contributions to the 401(k) Plan are immediately vested, the matching
contributions made by the Company become vested at the rate of 20% per year upon
the completion of two years of credited service. All funds contributed to the
401(k) Plan are held in a trust maintained by a brokerage firm and investments
are made at the direction of the employee. Contributions by the Company to the
401(k) Plan were $14,898 for fiscal 1997. No contributions were made for fiscal
1998.
Cafeteria Plan. All Company employees who satisfy the conditions for
coverage under the insurance benefit plans maintained by the Company are
eligible to participate in the Company's Cafeteria Plan, which permits employees
to deduct a portion of their gross wages prior to the calculation of federal
income tax, FICA and Medicare deductions and state income tax, to be used to pay
for the following permissible benefits: group health insurance, life insurance,
disability insurance, cancer plan, vision plan, accidental death, dismemberment
plan, or dental insurance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established a Compensation Committee on January 22,
1998. The Compensation Committee currently is comprised of Messrs. Byrne and
Roush. None of the executive officers of the Company currently serves on the
compensation committee of another entity or on any other committee of the board
of directors of another entity performing similar functions.
CERTAIN TRANSACTIONS
PENDING RECAPITALIZATION
The Company was organized under the laws of the State of Maryland on
December 2, 1997. On January 26, 1998, the Company entered into an Agreement and
Plan of Recapitalization with the Principal Stockholders, ICARUS Corporation
("ICARUS MD") and ICARUS Services Limited ("ICARUS UK"), providing for the
transfer by the Principal Stockholders of all of their shares of the capital
stock of ICARUS MD and ICARUS UK to the Company in exchange for an aggregate of
2,999,000 shares of Common Stock and 100 shares of Series A Preferred Stock of
the Company (the "Recapitalization"). See "Description of Capital
Stock -- Preferred Stock." As a result of the Recapitalization, ICARUS MD and
ICARUS UK will become wholly-owned subsidiaries of the Company. Following the
Recapitalization, ICARUS Nippon will remain a wholly-owned subsidiary of ICARUS
UK, and ICARUS Development and Marketing Corporation will remain a wholly-owned
subsidiary of ICARUS MD. It is anticipated that the Recapitalization will be
consummated immediately prior to the closing of the Offering.
49
<PAGE> 54
STOCKHOLDER LOANS TO COMPANY
During fiscal 1992, Mr. Blecker made two loans to the Company in the
aggregate amounts of $100,000 and $25,000, respectively. The loans were made
pursuant to an unsecured demand promissory note bearing interest at 6.5% per
annum. All amounts outstanding under the loans were fully repaid in January
1997.
FUTURE TRANSACTIONS
Future transactions between the Company and related parties will be
approved by a majority of all disinterested directors and will be on terms no
less favorable than those which could be obtained from unrelated third parties.
CONTROL BY PRINCIPAL STOCKHOLDERS
The Principal Stockholders hold 100% of the outstanding Common Stock, and
after the Offering will own approximately 60%. Accordingly, the Principal
Stockholders will, after the Offering, be in a position to control all matters
relating to the Company's business, including the election of the Company's
Board of Directors, the acquisition or disposition of assets (in the ordinary
course of the Company's business or otherwise), future issuances of Common Stock
or other securities of the Company, and the declaration and payment of dividends
on the Common Stock. In addition, they may be able to prevent, delay or make
more difficult any business combination involving the Company not approved by
them. See "Risk Factors -- Control by Principal Stockholders" and "Description
of Capital Stock -- Maryland Anti-Takeover Law and Certain Provisions of the
Articles of Incorporation."
The Principal Stockholders of the Company will benefit from this Offering
in that a public market will be created for shares of the Company's Common Stock
and the Principal Stockholders will have substantial unrealized gain with
respect to shares of the Company's Common Stock owned by them following this
Offering.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles that eliminate to the
fullest extent permissible under Maryland law the liability of its directors to
the Company or its stockholders for monetary damages except to the extent that
it is proven that the director actually received an improper benefit or profit
in money, property or services or the director's action or failure to act was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. This provision is designed to ensure that
the ability of the Company's directors to exercise their best business judgment
in managing the Company's affairs, subject to their continuing fiduciary duties
to the Company and its stockholders, is not unreasonably impeded by exposure to
potentially high personal costs or other uncertainties of litigation.
The Articles also provide that the Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, because such person is or was a director, officer, employee or
agent of the Company. Under the terms of the Articles, such indemnification also
will be provided to any person who is or was serving at the request of the
Company as a director, officer, employee, agent or in certain other capacities
of another corporation, partnership, joint venture, trust, employee benefit plan
or certain other enterprises. Such indemnification is furnished to the full
extent provided by law against expenses (including attorneys' fees), judgments,
fines, excise taxes and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding. The indemnification
provisions also permit the Company to pay reasonable expenses in advance of the
final disposition of any action, suit or proceeding as authorized by the Board
of Directors, provided that the indemnified person provides a written
affirmation that he or she has met the standards of conduct necessary for
indemnification under applicable law and undertakes to repay the Company if it
is ultimately determined that such person was not entitled to indemnification.
The rights of indemnification provided in the Company's Articles are not
exclusive of any other rights which may be available under the Articles or
Bylaws of the Company, any insurance or other agreement, by
50
<PAGE> 55
vote of stockholders or disinterested directors or otherwise. In addition, the
Articles authorize the Company to maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Company or with another
entity at the request of the Company, whether or not the Company would have the
power to provide indemnification to such person. The Company intends to obtain
director and officer liability insurance coverage.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
51
<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 30, 1998, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby by (i) each person
known by the Company to be the beneficial owner of more than 5.0% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
Executive Officers named in the Summary Compensation Table and (iv) all
executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
---------------------- ----------------------
NAME(1) NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Herbert G. Blecker(2)...................... 2,910,000 97.0% 2,910,000 58.2%
Eunice E. Blecker(2)....................... 90,000 3.0 90,000 1.8
William F. Geritz, III..................... -- -- -- --
James J. Byrne............................. -- -- -- --
J. Edward Beck, Jr. ....................... -- -- -- --
Gary M. Roush.............................. -- -- -- --
All directors and executive officers as a
group (seven persons)(3)................. 3,000,000 100.0% 3,000,000 60.0%
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. The Company believes, based on information
furnished by such persons, that the persons named in the table above
have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. The address of each
beneficial owner is 600 Jefferson Plaza, Fifth Floor, Rockville,
Maryland 20852, except that the address for Mr. Roush is c/o Capital
Accounting, 1299 Pennsylvania Avenue, N.W., Washington, D.C. 20005, the
address for Mr. Beck is c/o Bitrek Corporation, 330 East Ninth Street,
P.O. Box 510, Waynesboro, Pennsylvania 17268, and the address for Mr.
Byrne is c/o Byrne Technology Partners, Ltd., One Galleria Tower, Suite
500, 13355 Noel Road, Dallas, Texas 75240.
(2) The number of shares shown in the table for each of Mr. Blecker and
Mrs. Blecker excludes the number of shares beneficially owned by the
other. In addition, the number of shares shown in the table for each of
Mr. Blecker and Mrs. Blecker includes 1,000 shares of Common Stock
which are currently issued and outstanding as well as shares issuable
pursuant to the Recapitalization (which also includes 100 shares of
Series A Preferred Stock). See "Certain Transactions -- Pending
Recapitalization."
(3) Options to purchase approximately 554,600 shares of Common Stock are
expected to be granted to a number of the Company's executive officers
and other employees prior to the Offering, with the exercise price to
be set at the initial public offering price set forth on the cover page
of this Prospectus. These options will be subject to a five-year
vesting schedule, with 20% of such options vesting annually. After
giving effect to the complete vesting of such options, and assuming the
Company issues no further shares of Common Stock or common share
equivalents, the executive officers and other employees of the Company,
other than Herbert G. Blecker and Eunice E. Blecker, will hold
beneficial ownership of approximately 8.7% of the Common Stock of the
Company, on a diluted basis.
52
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 20,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock.
COMMON STOCK
As of April 30, 1998, there were 1,000 shares of Common Stock outstanding.
Upon the Recapitalization, the Company will issue an aggregate of 2,999,000
shares of Common Stock (in addition to 100 shares of Series A Preferred Stock)
to Mr. Blecker and Mrs. Blecker in exchange for all of the outstanding common
stock of ICARUS Corporation and ISL. See "Certain Transactions -- Pending
Recapitalization."
Dividends. Subject to the prior rights of the holders of any shares of
preferred stock that may be outstanding, the Company may pay dividends as
declared from time to time by the Board of Directors out of funds legally
available therefor. The holders of Common Stock will be entitled to receive and
share equally in such dividends as may be declared by the Board of Directors.
Voting Rights. Except as provided in any resolution or resolutions adopted
by the Board of Directors establishing any series of Preferred Stock, the
holders of Common Stock possess exclusive voting rights in the Company. Each
holder of shares of Common Stock is entitled to one vote for each share held on
all matters voted upon by stockholders.
Liquidation. Subject to the prior rights of the holders of any shares of
Company Preferred Stock that may be outstanding, in the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of the Common Stock would generally be entitled to
receive pro rata, after payment of all debts and liabilities of the Company, all
remaining assets of the Company available for distribution.
Preemptive Rights; Redemption. Holders of the Common Stock do not have any
preemptive rights with respect to any shares of capital stock of the Company. In
addition, the Common Stock is not subject to any redemption provisions.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of undesignated, "blank
check" Preferred Stock, of which 100 shares of Series A Preferred Stock will be
outstanding following consummation of the Recapitalization. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by the Company's stockholders. The Preferred Stock may be
issued in distinctly designated series, may be convertible into Common Stock and
may rank prior to the Common Stock as to dividend rights, liquidation
preferences, or both, and may have full or limited voting rights. Accordingly,
the issuance of Preferred Stock could adversely affect the voting and other
rights of holders of Common Stock.
Following consummation of the Recapitalization, there will be 100 shares of
Series A Preferred Stock issued and outstanding and held beneficially and of
record by the Bleckers. The shares of the Series A Preferred Stock rank senior
to the Common Stock as to rights upon liquidation, but are not entitled to any
dividends, are non-redeemable, have no voting rights, no registration rights and
no sinking fund is to be established for their retirement. The Series A
Preferred Stock was issued solely to facilitate the Recapitalization under
applicable law.
The authorized but unissued shares of Preferred Stock and the authorized
but unissued and unreserved shares of Common Stock are available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as otherwise
required to
53
<PAGE> 58
approve a transaction in which the additional authorized shares of Preferred
Stock would be issued or as may be required by the NASD to maintain the
quotation of the Common Stock on the National Association of Securities Dealers,
Inc. Automated Quotation ("Nasdaq") National Market no stockholder approval
would be required for the issuance of these shares. The issuance of Common or
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the market price of,
and the voting and other rights of, the holders of Common Stock. Except for this
Offering, the Recapitalization and shares reserved for issuance pursuant to the
Company's employee stock benefit plans, the Company has no current plans to
issue any shares of Common or Preferred Stock.
MARYLAND ANTI-TAKEOVER LAW AND CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION
General. The following discussion is a general summary of certain
provisions of the Maryland General Corporation Law and the Articles of the
Company, which may be deemed to have an anti-takeover effect. The following
description of certain of the provisions of the MGCL and the Articles of the
Company is necessarily general and reference should be made in each case to the
Articles which are set forth as an exhibit to the Company's Registration
Statement filed with the Commission and the applicable provisions of the MGCL.
See "Available Information." Capitalized terms not otherwise defined shall have
the meanings set forth in the Articles.
Maryland General Corporation Law. The MGCL maintains certain provisions
that may have the effect of delaying, deterring or preventing a change of
control of the Company. Section 3-701 and following sections state that control
shares (defined as shares of stock of a corporation owned by a person or as to
which such person is entitled to vote within the ranges of 20% to 33%, 33% or
more but less than 51%, or 51% or more of all voting power) acquired in a
control share acquisition (defined as the acquisition of, or power to vote, such
shares) have no voting rights except to the extent approved by stockholders at a
special meeting called for such purpose by the affirmative vote of two-thirds of
all the votes entitled to be cast on such matter, excluding all shares owned by
the person who acquired such control shares. The corporation that is the target
of a control share acquisition may, at its option, redeem any or all control
shares at their fair value, except for control shares for which voting rights
have been previously approved. In addition, if voting rights for control shares
are approved at a special meeting held in accordance with the statute and the
acquiring person is entitled to exercise or direct the exercise of a majority or
more of all voting power, all stockholders of the corporation (other than the
acquiring person) have the right to object to such action and seek from the
Company payment of fair value for their shares, which amount may not be less
than the highest price paid by the acquiring person for his or her shares in the
control share acquisition. This statute may have the effect of discouraging
persons from acquiring large blocks of Company Common Stock. Article X.D. of the
Company's Articles expressly excludes the Blecker Interest, as defined therein,
from the operation of these provisions.
Section 3-603 of the MGCL also contains a provision which is substantially
similar to Article X of the Articles relating to business combinations with
related persons. The Company has elected not to be governed by this provision of
the MGCL.
Nominations and Stockholder Proposals. Article VII.D. of the Company's
Articles governs nominations for election to the Board of Directors, and
requires all nominations for election to the Board of Directors other than those
made by the Board to be made by a stockholder who has complied with the notice
provisions of such section. Article IX.C. of the Articles provides that only
such business as shall have been properly brought before an annual meeting of
stockholders shall be conducted at the annual meeting. Business may be brought
before the meeting by or at the direction of the Board of Directors or otherwise
must be properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Company. In
both instances, written notice of a stockholder nomination or stockholder
proposal must be communicated to the attention of the Company's Secretary and
either delivered to, or mailed and received at, the principal executive offices
of the Company for the first annual meeting after the filing of the Articles,
before the close of business on the tenth day following the date on which notice
of such meeting is first given
54
<PAGE> 59
to stockholders, and thereafter, not less than 60 days prior to the anniversary
date of the mailing of proxy materials by the Company in connection with the
immediately preceding annual meeting of stockholders of the Company. Each such
notice shall include specified matters set forth in the Articles.
The procedures regarding stockholder nominations and stockholder proposals
will provide the Board of Directors with the information which will be necessary
to evaluate a stockholder nominee to the Board and stockholder proposals and
other relevant information, such as existing stockholder support for a nominee
or business proposal, as well as the time necessary to consider and evaluate
such information in advance of the applicable meeting.
Special Meetings of Stockholders. Article IX of the Company's Articles
provides that special meetings of the Company's stockholders, for any purpose or
purposes, may only be called by the Chairman of the Board, the President or a
majority of the whole Board of Directors and a majority of the Continuing
Directors (generally, those directors at the time of effectiveness of the
Articles and those directors who are not affiliated with the Related Person and
who are elected as directors prior to the time the Related Person (as defined
below) became such, or those directors who are unaffiliated with a Related
Person and who are designated as Continuing Directors before their initial
election by a majority of the other Continuing Directors), or by holders of not
less than majority of all votes entitled to be cast on any issue proposed to be
considered at such special meeting. A "Related Person" is defined generally to
include any person, partnership, corporation, group or other entity (other than
Mr. Blecker, Mrs. Blecker or any of Mr. Blecker's relatives, or the Company) who
is the beneficial owner of 10% or more of the shares of the Company entitled to
vote generally in an election of directors ("Voting Shares"). This provision
will make it more difficult for stockholders to take action opposed by the Board
of Directors.
Business Combinations. Article X of the Articles governs any proposed
"Business Combination" (defined generally to include certain sales, purchases,
exchanges, leases, transfers, dispositions or acquisitions of assets, mergers or
consolidations, or certain reclassifications of securities of the Company)
between the Company, on the one hand, and a Related Person, on the other hand.
In general, Article X provides that if certain specified conditions are not
met, then the Company may not become a party to any Business Combination without
the prior affirmative vote at a meeting of the Company's stockholders by the
holders of at least 80% of the Voting Shares, voting separately as a class, and
by an Independent Majority of Stockholders (generally, the holders of a majority
of the outstanding Voting Shares that are not beneficially owned, directly or
indirectly, by a Related Person or any affiliate or associate thereof). If such
approval were obtained, the specified conditions would not have to be met. Such
conditions also would not have to be met if the Board of Directors approved the
Business Combination.
Article X is intended to provide minimum safeguards for stockholders who do
not accept a takeover attempt and continue to hold their shares after the
attempt succeeds and the control of the Company is required by a Related Person.
However, Article X would not restrict another company that merely desired
to exercise control over the Company and did not intend to effect a subsequent
Business Combination. Moreover, these provisions may not apply to an attempted
combination with a person not a Related Person, including Mr. Blecker, Mrs.
Blecker or any "Blecker Interest" (generally, descendants of Mr. Blecker or any
person holding Voting Shares for the benefit of Mr. Blecker, Mrs. Blecker or the
descendants of Mr. Blecker). If, however, another company obtaining control over
the Company were not willing to meet the price and other conditions of Articles
X, the holders of more than one-fifth of the outstanding Voting Shares could
block a Business Combination supported by the remaining stockholders. The result
is that Business Combinations favored by a majority of stockholders might not be
approved. Article X might also discourage a tender offer for the Company's stock
because of the resulting need either to observe the minimum price requirements
or to obtain an 80% stockholder vote as a precondition to any subsequent
Business Combination. This might have the effect of preventing temporary
fluctuations in the market price of the stock of the Company that could result
from actual or rumored takeover attempts.
55
<PAGE> 60
Amendment of Articles. Article XI of the Company's Articles provides that
any amendment of the Articles must be first approved by a majority of the Board
of Directors and thereafter by the holders of two-thirds of the shares of the
Company entitled to vote in an election of directors, but the approval of 75% of
the shares of the Company entitled to vote in an election of directors is
required for any amendment to Articles VI (pre-emptive rights), VII (directors),
VIII (indemnification), IX (relating to meetings of stockholders), and XI
(amendments to the Articles and Bylaws). In addition, Article X.E. of the
Company's Articles provides that Article X may not be changed, amended or
repealed without the affirmative vote of the holders of at least 80% of the
Voting Shares and by an Independent Majority of Stockholders. However, any
change, amendment or repeal to Article X of the Company's Articles approved by
two-thirds of the whole Board of Directors and a majority of the Continuing
Directors is not subject to the approval requirements of Article X.E.
Anti-Takeover Effects. The Board of Directors believes that the foregoing
provisions in the Articles are prudent and, together with applicable state law,
will reduce vulnerability to takeover attempts and certain other transactions
that are not negotiated with and approved by the Board of Directors of the
Company. The Board of Directors believes that these provisions are in the best
interests of the Company and its stockholders. In the Board of Directors'
judgment, the Board of Directors is in the best position to determine the true
value of the Company and to negotiate more effectively for what may be in the
best interests of its stockholders. Accordingly, the Board of Directors believes
that it is in the best interests of the Company and its current and future
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors and that these provisions will encourage such negotiations
and discourage hostile takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at prices reflective of the true value of the Company and
where the transaction is in the best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to the Company's
stockholders of the foregoing provisions, these provisions also may have the
effect of discouraging a future takeover attempt in which stockholders might
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. The Board of Directors, however, has
concluded that the potential benefits of these provisions outweigh their
possible disadvantages. The Board of Directors of the Company is not currently
aware of any effort that might be made to acquire control of the Company.
Certain Benefit Plan Provisions. In addition to the above provisions, the
Company's Stock Option Plan provides that, in the event of a change in control
of the Company, any outstanding options would become immediately exercisable.
The Company's Recognition Plan also provides that in the event of any change in
control of the Company, all shares of Common Stock subject to a plan share award
shall be deemed earned as of the date of the Change of Control. Such provisions,
to the extent they increase the cost of any acquisition of control, could be
deemed to have an anti-takeover effect. See "Management -- Stock Plans -- 1998
Stock Option Plan" and "Recognition and Retention Plan and Trust."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Registrar and
Transfer Company, Cranford, New Jersey.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of
the Company. Sales of substantial shares of Common Stock in the public market
following this Offering could adversely affect the market price of the Common
Stock prevailing from time to time.
Upon completion of this Offering, the Company will have 5,000,000 shares of
Common Stock outstanding. Of these shares, all of the shares sold in this
Offering will be freely transferable without restriction or registration under
the Securities Act, except for any shares purchased by an existing "affiliate"
of the Company as that term is defined by the Securities Act (an "Affiliate"),
which shares will be subject to the
56
<PAGE> 61
resale limitations of Rule 144 adopted under the Securities Act. On the date of
this Prospectus, 3,000,000 "control shares" as defined in Rule 144 will be
outstanding. All of said shares will become available for sale in reliance upon
Rule 144 one year after the date of the Recapitalization.
The Company and each of the Principal Stockholders have agreed not to
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any swap or similar agreement that
transfers, in whole or in part, the economic risk of ownership of the Common
Stock, for a period of 180 days after the date of this Prospectus, without the
prior written consent of Hoak Breedlove Wesneski & Co. Hoak Breedlove Wesneski &
Co. may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to the lock-up agreements. In addition,
the Principal Stockholders have agreed with the Company not to sell, transfer,
assign, pledge or hypothecate any of their shares of Common Stock for a period
of two years from the effective date of this Offering.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least one year
(including the holding period of any prior owner except an affiliate of the
Company) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding; or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an Affiliate at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an Affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Subject to the contractual restrictions described above, "144(k)
shares" may therefore be sold immediately upon the completion of this Offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Exchange Act, pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after the
date of this Prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than Affiliates subject only to the manner of sale provisions of
Rule 144 and by Affiliates under Rule 144 without compliance with its two-year
minimum holding period requirements.
The Company anticipates that prior to the date of this Prospectus, options
to purchase 554,600 shares of Common Stock will be outstanding. Shortly after
this Offering, the Company intends to file a registration statement on Form S-8
under the Securities Act covering shares of Common Stock reserved for issuance
under the Company's stock plans. See "Management -- Executive
Compensation -- Stock Plans." Shares of Common Stock issued upon exercise of
options under the Form S-8 will be available for sale in the public market,
subject to Rule 144 volume limitations applicable to Affiliates and subject to
the contractual restrictions described above. The options to be granted will
vest annually over a five-year period.
57
<PAGE> 62
UNDERWRITING
The Underwriters named below, represented by Hoak Breedlove Wesneski & Co.
and Laidlaw Global Securities, Inc., have severally agreed, subject to the terms
and conditions contained in the underwriting agreement (the "Underwriting
Agreement"), by and between the Company and the Underwriters, to purchase from
the Company the number of shares of Common Stock indicated below opposite their
respective names, at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------------------ ---------
<S> <C>
Hoak Breedlove Wesneski & Co. ..............................
Laidlaw Global Securities, Inc. ............................
---------
Total..................................................... 2,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the completion of the
initial distribution, the public offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters, and to certain other conditions, including
the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 300,000 additional shares of Common Stock, to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with this Offering.
The Company has agreed to pay the Representatives a non-accountable expense
allowance of two percent (2.0%) of the gross proceeds of the Offering, which
will include proceeds derived from any exercise of the over-allotment option.
The Representatives' expenses in excess of the non-accountable expense
allowance, including their legal expenses, will be borne by the Representatives.
Up to ten percent (10%) of the shares of Common Stock in this Offering
(exclusive of shares subject to the over-allotment option) have been reserved
for sale, at the initial public offering price, to such persons as the Company
shall direct. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such shares.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
58
<PAGE> 63
The Principal Stockholders have agreed that, for a period of 180 days from
the date of this Prospectus, they will not offer, sell or otherwise dispose of
any shares of their Common Stock or options to acquire shares of Common Stock
without the prior written consent of Hoak Breedlove Wesneski & Co. The Company
has agreed not to sell any shares of Common Stock or any other securities
convertible into shares of Common Stock for a period of 180 days from the date
of this Prospectus without the prior written consent of Hoak Breedlove Wesneski
& Co., except that the Company may, without consent, issue equity securities in
connection with acquisitions and grant stock options pursuant to the Company's
stock option plans or issue shares of Common Stock upon exercise of outstanding
stock options.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the shares of
Common Stock offered hereby.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations between the Company and the Representatives. Among the factors
to be considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this preliminary prospectus is subject to change as a
result of market conditions and other factors.
Certain persons participating in this Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
Pursuant to an understanding between the Company and Hoak Breedlove
Wesneski & Co. ("HBW"), prior to this Offering HBW had the right to approve two
independent directors to the Company's Board of Directors. HBW approved the
nomination of Messrs. Beck and Byrne to the Board, neither of which had any
prior relationship with the Company.
HBW was formed in 1996 by the combination of two investment banks. The
founders and senior professionals of HBW have substantial backgrounds in
investment banking, principal investing and corporate management. HBW has served
as a co-manager of several other public offerings.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C. Locke Purnell
Rain Harrell (A Professional Corporation), Dallas, Texas, is acting as counsel
for the Underwriters in connection with certain legal matters relating to the
Offering.
EXPERTS
The Consolidated Balance Sheets of the Company as of April 30, 1997 and
1998 and the related Consolidated Statements of Operations, Stockholders' Equity
and Cash Flows for the years ended April 30, 1996, 1997 and 1998, included in
this Prospectus have been audited by Grant Thornton LLP, independent
59
<PAGE> 64
certified public accountants, as stated in their report, which is included
elsewhere herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company, which is not currently a reporting company, has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form SB-2 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and such Common Stock, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete. In each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, and each such statement is qualified in all
respects by such reference. Copies of the Registration Statement, including
exhibits and schedules thereto, and, if the Company becomes a reporting company
after the Offering, copies of its periodic reports and proxy materials, may be
inspected and copied at the Commission's Public Reference Section at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
In addition, the Commission maintains a site on the World Wide Web at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. Copies may also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. If the Company is listed on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") National Market
after the Offering, such information may also be inspected at the offices of the
National Association of Securities Dealers, Inc. ("NASD"), 1735 K Street, N.W.,
Washington, D.C. 20006.
After the Offering, the Company intends to furnish its stockholders with
annual reports containing financial statements audited and reported upon by
independent accountants and quarterly reports containing unaudited summary
financial information for each of the first three quarters of each fiscal year.
"QUESTIMATE," "ICARUS 2000," ICARUS Mentor logo design, "ICARUS" and
design, "ICARUS PROCESS EVALUATOR," and "ICARUS" are registered trademarks of
the Company. "COST" and design, "ARCHES" and design, "Questimate," "ICARUS
2000," "ICARUS," "ICARUS PROCESS EVALUATOR," and "ICARUS" and design are
registered service marks of the Company. The Company has filed an application
for the federal trademark registration of, and claims a trademark in, "ICARUS
PROJECT MANAGER" and design. The Company claims a service mark in, and has filed
an application for the federal registration of, "ICARUS PROJECT MANAGER" and
design. The Company claims and has obtained a federal copyright registration for
the work entitled "ICARUS PROCESS SYSTEMS PIPING AND INSTRUMENTATION DRAWINGS."
All other trademarks or service marks referred to in this Prospectus are the
property of their respective owners.
60
<PAGE> 65
ICARUS INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of April 30, 1997 and 1998... F-3
Consolidated Statements of Operations for the Years Ended
April 30, 1996, 1997 and 1998............................. F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended April 30, 1996, 1997, and 1998................ F-5
Consolidated Statements of Cash Flows for the Years Ended
April 30, 1996, 1997, and 1998............................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
ICARUS International, Inc.
We have audited the accompanying consolidated balance sheets of ICARUS
International, Inc. (the Company) as of April 30, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended April 30, 1998. 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 audit 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 consolidated financial statements present fairly, in
all material respects, the consolidated financial position of ICARUS
International, Inc., as of April 30, 1997 and 1998 and the results of its
operations and its cash flows for each of the three years in the period ended
April 30, 1998, in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Vienna, Virginia
June 26, 1998
F-2
<PAGE> 67
ICARUS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $1,716,371 $1,519,112
Accounts receivable, net.................................. 1,992,571 2,263,976
Prepaid expenses and other current assets................. 174,721 193,836
---------- ----------
Total Current Assets................................... 3,883,663 3,976,924
Property and Equipment, net................................. 401,899 756,314
Deferred Offering Costs..................................... 245,160 907,672
Other Noncurrent Assets..................................... 23,376 332,777
---------- ----------
Total Assets........................................... $4,554,098 $5,973,687
---------- ----------
Current Liabilities
Accounts payable.......................................... $ 228,603 $ 594,803
Accrued payroll and related costs......................... 439,581 559,455
Current maturities under capital lease obligations........ 1,630 23,410
Income taxes payable...................................... 165,840 333,512
Deferred income taxes..................................... 284,417 206,483
Deferred revenue.......................................... 1,667,453 1,938,141
---------- ----------
Total Current Liabilities.............................. 2,787,524 3,655,804
Deferred Revenue, less current portion...................... 634,033 463,411
Capital Lease Obligations, less current portion............. 5,159 59,496
Commitments and Contingencies............................... -- --
Stockholders' Equity
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 100 shares issued and outstanding.......... 1 1
Common stock, $.01 par value; 20,000,000 shares
authorized, 3,000,000 shares issued and outstanding.... 30,000 30,000
Additional paid-in capital................................ 10,357 11,357
Retained earnings......................................... 1,100,439 1,762,674
Cumulative translation adjustment......................... (13,415) (9,056)
---------- ----------
Total Stockholders' Equity............................. 1,127,382 1,794,976
---------- ----------
Total Liabilities and Stockholders' Equity............. $4,554,098 $5,973,687
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 68
ICARUS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenue
Software license revenue............................... $3,811,905 $5,164,907 $6,947,429
Maintenance fee and other revenue...................... 1,866,088 2,174,124 2,189,215
---------- ---------- ----------
Total Revenue............................................ 5,677,993 7,339,031 9,136,644
Operating Expenses
Cost of software license revenue....................... 266,296 419,059 349,841
Cost of maintenance fee and other revenue.............. 577,542 561,642 728,470
Selling and marketing.................................. 2,219,696 2,625,840 3,450,223
Research and development............................... 1,228,686 1,325,881 1,949,996
General and administrative............................. 1,102,308 1,376,951 1,626,462
---------- ---------- ----------
Total Operating Expenses................................. 5,394,528 6,309,373 8,104,992
---------- ---------- ----------
Income from Operations................................... 283,465 1,029,658 1,031,652
---------- ---------- ----------
Interest Income, net..................................... 20,649 45,575 92,563
Other (Expense) Income................................... (150) -- (2,943)
---------- ---------- ----------
Income Before Income Taxes............................... 303,964 1,075,233 1,121,272
Provision for Income Taxes............................... 111,024 418,804 459,037
---------- ---------- ----------
Net Income............................................... $ 192,940 $ 656,429 $ 662,235
---------- ---------- ----------
Earnings Per Share, Basic and Diluted.................... $ 0.06 $ 0.22 $ 0.22
---------- ---------- ----------
Weighted Average Shares Outstanding, Basic and Diluted... 3,000,000 3,000,000 3,000,000
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 69
ICARUS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
PREFERRED COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
--------- ------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of April 30, 1995... $1 $30,000 $10,157 $ 251,070 $(10,688) $ 280,540
Issuance of Common Stock....... -- -- 200 -- -- 200
Translation Adjustment......... -- -- -- -- (11,769) (11,769)
Net Income..................... -- -- -- 192,940 -- 192,940
-- ------- ------- ---------- -------- ----------
Balance as of April 30, 1996... 1 30,000 10,357 444,010 (22,457) 461,911
Translation Adjustment......... -- -- -- -- 9,042 9,042
Net Income..................... -- -- -- 656,429 -- 656,429
-- ------- ------- ---------- -------- ----------
Balance as of April 30, 1997... 1 30,000 10,357 1,100,439 (13,415) 1,127,382
Issuance of Common Stock....... -- -- 1,000 -- -- 1,000
Translation Adjustment......... -- -- -- -- 4,359 4,359
Net Income..................... -- -- -- 662,235 -- 662,235
-- ------- ------- ---------- -------- ----------
Balance at April 30, 1998...... $1 $30,000 $11,357 $1,762,674 $ (9,056) $1,794,976
-- ------- ------- ---------- -------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 70
ICARUS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net income............................................ $ 192,940 $ 656,429 $ 662,235
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization...................... 174,372 182,362 231,377
Loss on disposal of property....................... -- -- 1,572
Deferred income taxes.............................. 59,700 222,839 (99,288)
Changes in assets and liabilities
Accounts receivable................................ (442,312) (360,404) (261,556)
Prepaid expenses and other assets............. (64,328) (365,315) (998,111)
Accounts payable and accrued expenses......... 193,115 20,727 486,258
Income taxes payable.......................... (10,007) 131,241 166,532
Deferred revenue.............................. 415,515 723,866 99,139
--------- ----------- -----------
Net Cash Provided by Operating Activities............... 518,995 1,211,745 288,158
--------- ----------- -----------
Cash Flows from Investing Activities
Purchase of property and equipment.................... (215,476) (249,635) (532,292)
Proceeds from sale of property and equipment.......... -- -- 27,300
--------- ----------- -----------
Net Cash Used in Investing Activities................... (215,476) (249,635) (504,992)
--------- ----------- -----------
Cash Flows from Financing Activities
Issuance of common stock.............................. 200 -- 1,000
Capital lease payments................................ (431) (1,681) (7,770)
Repayment of notes payable............................ -- (105,375) --
--------- ----------- -----------
Net Cash Used in Financing Activities................... (231) (107,056) (6,770)
--------- ----------- -----------
Effect of Exchange Rate Changes on Cash................. (22,648) 49,626 26,345
--------- ----------- -----------
Net Increase in Cash and Cash Equivalents............... 280,640 904,680 (197,259)
Cash and Cash Equivalents, Beginning of Period.......... 531,051 811,691 1,716,371
--------- ----------- -----------
Cash and Cash Equivalents, End of Period................ $ 811,691 $ 1,716,371 1,519,112
--------- ----------- -----------
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes.............................. $ 61,331 $ 63,522 $ 394,350
--------- ----------- -----------
Cash paid for interest.................................. $ -- $ 4,922 $ 6,328
--------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 71
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting principles applied in the
preparation of the consolidated financial statements follows:
Formation of Holding Company and Recapitalization
ICARUS International, Inc., was formed December 2, 1997, to be a newly
created holding company for its two wholly owned subsidiaries, ICARUS
Corporation (a Maryland corporation) and ICARUS Services, Limited (a United
Kingdom private limited company). Upon formation, 1,000 shares of common stock
were issued by the newly created holding company. ICARUS International, Inc.,
and its subsidiaries are collectively referred to herein as "the Company." In
conjunction with the filing of a registration statement relating to an initial
public offering (see Note L), and immediately prior to the effective date of
such offering, ICARUS International, Inc., will issue an aggregate of 2,999,000
shares of a total of 20,000,000 newly authorized shares of common stock, and 100
shares of a total of 5,000,000 newly authorized preferred stock, in exchange for
all the outstanding shares of capital stock of the subsidiaries (the
Recapitalization).
The accompanying financial statements, including stockholders' equity and
per share amounts, give retroactive effect to the Recapitalization for all
periods presented.
Nature of Operations
The Company develops and markets project modeling software and services
internationally. The Company's principal products are used in the conceptual
design, estimating, scheduling, cost determination and cost tracking in the
construction of facilities in chemical processing, energy producing,
petrochemical, pharmaceutical, food, pulp and paper and related industries. The
Company's services include maintenance, application consulting services on a
contract basis and training courses.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
ICARUS International, Inc., and its wholly owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market,
and consists of short-term, highly liquid investments with original maturities
of less than three months.
Fair Value of Financial Instruments
The recorded amounts of cash and cash equivalents, accounts receivable and
accounts payable at April 30, 1997 and 1998 approximate fair value in accordance
with Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," due to the relatively short period
of time between origination of the instruments and their expected realization.
F-7
<PAGE> 72
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Depreciation and Amortization
The Company provides for depreciation and amortization, computed using the
straight-line and declining-balance methods, by charges to operations in amounts
estimated to allocate the cost of the assets over their estimated useful lives
as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Computer equipment.......................................... 3-5 Years
Purchased software programs................................. 3 Years
Furniture and fixtures...................................... 7 Years
Leasehold improvements...................................... Life of Lease
Capital leases.............................................. Life of Lease or Asset
</TABLE>
Deferred Costs
The Company accounts for expenditures, principally legal and accounting
fees in connection with preparation to sell stock in an initial public offering,
as capitalized and deferred until an offering occurs. At that time, the costs
will be netted against capital raised in the offering. Should the Company be
unsuccessful in completing the offering, such costs will be expensed at that
time.
Revenue Recognition
The Company recognizes revenue from product licensing agreements in
accordance with the American Institute of Certified Public Accountants Statement
of Position No. 91-1, "Software Revenue Recognition" (SOP 91-1).
The Company typically licenses its products pursuant to single-year and
multi-year noncancelable agreements. Revenue from software license agreements is
recognized upon execution of a contract and shipment of the software, provided
that no significant vendor obligations remain and collection is probable. For
recurring one-year license fees, revenue is recognized on the contract renewal
date. For multi-year agreements, revenue is recognized ratably over the
multi-year period on each successive anniversary date. Customer payment terms
vary. Amounts collected in advance of satisfying revenue recognition criteria
are classified as current and long-term deferred revenue in the accompanying
balance sheets.
Maintenance fee revenue is recognized ratably over the support period,
which is generally one year. Such revenue includes amounts bundled with initial
license fee arrangement for which separate prices have been derived based upon
the Company's historical retail pricing for separate arrangements.
Consulting and training revenue is recognized as the related services are
performed.
Accounts receivable arising from sale of software license agreements,
maintenance, training and other services are due from customers 30 days from the
date invoiced. Provision for returns and uncollectible accounts has been
determined based upon the Company's past experience.
Computer Software Development Costs
Development costs relating to new software products and enhancements to
existing software products are expensed as incurred until technological
feasibility has been established, after which additional costs would be
capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed." Historically, the
Company has not incurred material software development
F-8
<PAGE> 73
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
costs following the establishment of technological feasibility, and therefore no
costs have been capitalized as of April 30, 1998.
Research and Development Costs
The Company expenses research and development costs as incurred, including
costs relating to strategic technology arrangements.
Foreign Currency Translation
The financial position and results of operations of the Company's foreign
affiliates are translated using the local currency as the functional currency.
Assets and liabilities of the affiliates are translated at the exchange rate in
effect at year-end. Income statement accounts are translated at the average rate
of exchange rates prevailing during the year. Translation adjustments arising
from the use of differing exchange rates from period to period are included in
the cumulative translation adjustment account in stockholders' equity. Gains and
losses resulting from foreign currency transactions are included in operations
and are not material for any of the periods presented.
Stock-Based Compensation Costs
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but
does not require companies to record stock-based employee compensation plans at
their fair value. The Company has elected to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
employee stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the exercise price an
employee must pay to acquire the stock.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share." This statement replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Opinion 15. In complying with the requirements of SFAS No. 128, the Company has
restated all prior period EPS data.
Recently Issued Accounting Standards
The Financial Accounting Standards Board recently issued three new
accounting standards that will affect the Company's financial reporting methods.
Under SFAS No. 130, the Company will be required to display an amount
representing total comprehensive income and its components in the financial
statements. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Under SFAS No. 131, the Company
will be required to report certain information about its operating segments in
its interim and annual financial statements, and certain information about its
products and
F-9
<PAGE> 74
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
services, the geographic areas where it operates and its major customers. In the
initial year of application, comparative information for earlier years is to be
restated. Under SFAS No. 132, companies will be required to revise current
disclosure relating to employers' pension and other retiree benefits.
Implementation of this disclosure standard will not affect the Company's
financial position or results of operations. SFAS Nos. 130, 131, and 132 are
effective for the Company's fiscal year 1999.
The American Institute of Certified Public Accountants released Statement
of Position 97-2 "Software Revenue Recognition" (SOP 97-2), which supersedes SOP
91-1. The new SOP 97-2 will be effective for all transactions entered into by
the Company in fiscal year 1999. The new SOP 97-2 requires, among other things,
that revenue should be recognized when there is persuasive evidence of an
existing arrangement, delivery has occurred, the fees charged are fixed or
determinable and collectibility is probable. Additionally, SOP 97-2 provides
further that for those arrangements which consist of multiple elements such as
upgrades, enhancements and post-contract support, the fees charged must be
allocated to each element of the arrangement based upon vendor-specific
objective evidence of fair value, which is limited to a price charged when the
element is sold separately or the price for the element established by
management being the relevant authority. The effective date of this provision of
the statement has been deferred for one year. The Company currently recognizes
revenue on license agreements when all the conditions described above have been
met, and revenue on multi-year license agreements typically is not recognized
until such time that payments from customers becomes due (the anniversary date).
Additionally, the Company historically has allocated fees between elements of
its arrangements based upon established prices charged for those elements when
sold separately. In management's opinion, the impact of SOP 97-2 is not expected
to be material.
Using Estimates in Preparing Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to 1998
presentations.
Concentration of Revenue in the Chemical and Petroleum Refining Industries
The Company derives a substantial majority of its revenue from software
licenses to companies in the chemical and petroleum refining industries, which
are highly cyclical. Accordingly, the Company's future success is dependent upon
the continued demand for computer-aided chemical engineering software by
companies in these industries. The Company believes that economic downturns in
the United States, Europe, Japan and Asia and pricing pressures experienced by
chemical and petroleum companies in connection with cost containment measures
have led to delays and reductions in certain capital and operating expenditures
by many of such companies worldwide. The Company's revenue has in the past been,
and may in the future be, subject to substantial period-to-period fluctuations
as a consequence of such industry patterns, general domestic and foreign
economic conditions and other factors affecting spending in the chemical and
petroleum refining industries. There can be no assurance that such factors will
not have a material, adverse effect on the Company's business, operating results
and financial condition.
F-10
<PAGE> 75
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- ACCOUNTS RECEIVABLE
The following is a summary of accounts receivable:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1997 1998
---------- ----------
<S> <C> <C>
Trade receivables........................................... $2,109,745 $2,325,361
Other receivables........................................... 1,621 26,071
Less allowance for returns and uncollectible accounts....... (118,795) (87,456)
---------- ----------
$1,992,571 $2,263,976
========== ==========
</TABLE>
NOTE C -- PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1997 1998
----------- -----------
<S> <C> <C>
Furniture and fixtures..................................... $ 855,447 $ 876,895
Computer equipment......................................... 791,206 1,006,781
Leasehold improvements..................................... 35,874 224,128
Software................................................... 112,886 145,771
Capital lease -- software and equipment.................... 9,918 89,918
----------- -----------
1,805,331 2,343,493
Accumulated depreciation................................... (1,403,432) (1,587,179)
----------- -----------
Net property and equipment................................. $ 401,899 $ 756,314
----------- -----------
</TABLE>
Depreciation expense on property and equipment for the years ended April
30, 1996, 1997 and 1998, was approximately $173,000, $175,000 and $231,000
respectively.
NOTE D -- OTHER NONCURRENT ASSETS
The following is a summary of other Noncurrent Assets:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1997 1998
--------- ---------
<S> <C> <C>
Lease Deposit............................................... $ -- $300,000
Other....................................................... 23,376 32,777
-------- --------
$ 23,376 $332,777
-------- --------
</TABLE>
NOTE E -- ACCRUED PAYROLL AND RELATED COSTS
The following is a summary of accrued payroll and related costs:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1997 1998
--------- ---------
<S> <C> <C>
Accrued leave............................................... $399,522 $528,764
Other payroll-related costs................................. 40,059 30,691
-------- --------
$439,581 $559,455
-------- --------
</TABLE>
F-11
<PAGE> 76
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- ACCRUED PAYROLL AND RELATED COSTS -- (CONTINUED)
The accrued leave liability represents cumulative vested but unused
employee leave. Effective May 1, 1996, the Company established a maximum accrual
limit of 160 hours for any single employee. Prior-year vested amounts exceeding
the limit remain vested and payable, but no further accrual will result for any
employee until the individual's leave balance falls below the limit.
NOTE F -- RELATED PARTY TRANSACTION
In 1992, the Company borrowed a total of $125,000 from a shareholder of the
Company under two promissory note agreements. The notes, which were repaid
during fiscal year 1997, were payable on demand and accrued interest at 6.5%
annually.
NOTE G -- RETIREMENT PLAN
The Company has adopted a 401(k) profit-sharing plan covering all employees
at least 21 years of age who have been employed one year and have provided at
least 1,000 hours of service. Employees are eligible to enroll in the plan on
May 1 and November 1 of each year and may contribute up to 20% of their
compensation or the statutory limit. Annual contributions by the employer are
discretionary. Contribution expense for the years ended April 30, 1996 and 1997,
was $34,406 and $14,898, respectively. No contributions were made for fiscal
year 1998.
NOTE H -- COMMITMENTS
Operating Leases
In January 1998, the Company signed a ten-year lease agreement for its new
corporate headquarters. The lease commenced on April 27, 1998, and will expire
in 2008. Base rent on the lease is approximately $600,000 and is subject to
fixed annual escalations.
In addition to the headquarters lease, the Company has other operating
lease commitments for office space and equipment expiring through March 2008.
Future commitments on operating leases as of April 30, 1998, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
---------------------
<S> <C>
1999........................................................ $ 781,000
2000........................................................ 772,000
2001........................................................ 776,000
2002........................................................ 795,000
2003........................................................ 684,000
Thereafter.................................................. 3,710,000
----------
$7,518,000
----------
</TABLE>
Rent expense was approximately $426,000, $445,000, and $591,000 for the
years ended April 30, 1996, 1997, and 1998 respectively.
Capital Lease Obligation
The Company has capitalized leases for certain office equipment and
software. The lease agreements are for periods of up to five years, with monthly
lease payments of approximately $3,100.
F-12
<PAGE> 77
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- COMMITMENTS -- (CONTINUED)
Minimum lease payments under the capital leases, together with the present
value of the net minimum lease payments as of April 30, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
---------------------
<S> <C>
1999........................................................ $ 36,386
2000........................................................ 36,928
2001........................................................ 25,404
2002........................................................ 2,356
2003........................................................ 1,571
--------
Total minimum lease payments................................ 102,645
Less amounts representing interest.......................... 19,739
--------
Present value of net minimum lease payments................. $ 82,906
--------
</TABLE>
Business Alliances
The Company has entered into business alliances with various organizations
which provide for the integration of complementary technologies to create new
products and marketing capabilities. The terms of the alliances vary, but
generally provide for each participant's funding of its own research and
development and marketing costs and the ultimate sharing of new product revenue
and commissions. Expenses incurred by the Company during the years ended April
30, 1997 and 1998, were $-0- and approximately $195,000, respectively. Revenue
and commissions totaling $16,246 have been earned by the Company through April
30, 1998.
Employment Agreements
On January 22, 1998, the Company entered into five-year employment
agreements with its chief executive officer and executive vice president whereby
they shall be entitled to minimum base salaries as well as other employment
incentives including discretionary bonuses.
Stock Option Plan
On January 22, 1998, the Board of Directors and shareholders adopted the
1998 Stock Option Plan (the Plan). The Plan provides for the granting of
incentive stock options to employees of the Company to purchase shares of the
Company's common stock at a price equal to the fair market value of the common
stock at the date of grant. In addition to the granting of incentive stock
options, the Plan also provides for the granting of nonqualified options to
employees, non-employee directors, consultants and agents of the Company at a
price not less than 85% of the fair market value at the date of grant. Reserved
for issuance under the Plan will be 750,000 shares of common stock, of which
554,600 options to purchase such shares of Common Stock will be granted
immediately prior to the commencement of the initial public offering, at the
offering price.
All options granted to employees, non-employee directors, consultants and
agents of the Company vest and become exercisable at a rate of 20% per year on
each annual anniversary of the date on which the option was granted. The Plan
expires in January 2008.
Recognition and Retention Plan and Trust
On January 22, 1998, the Board of Directors adopted the Recognition and
Retention Plan and Trust (the Trust). Under the Trust, the Company may make
contributions in cash or shares of common stock to the Trust. All the Trust's
assets shall be invested primarily in the Company's common stock. A total of
F-13
<PAGE> 78
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- COMMITMENTS -- (CONTINUED)
500,000 shares of common stock may be purchased from the Company or its
shareholders by the Trust for distribution. A committee appointed by the Board
of Directors may grant Plan shares to employee and non-employee directors of the
Company.
Plan share awards shall be earned by a recipient at the rate of 20% of the
aggregate number of shares covered by the award as of each anniversary of the
date of grant. All Plan shares, together with any shares representing stock
dividends, shall be distributed in the form of common stock. One share of common
stock shall be given for each Plan share earned and distributable. Payments
representing cash dividends shall be made in cash. The Trust expires in January
2008, however, the Trust may be terminated earlier if all benefits have been
fully distributed or at the discretion of the Board of Directors.
Litigation
In the normal course of business operations, the Company is periodically
involved in litigation. Management is of the opinion that the outcome of such
pending litigation would not have a material impact on the Company's financial
statements.
NOTE I -- INCOME TAXES
The Company provides deferred income taxes for temporary differences
between assets and liabilities recognized for financial reporting purposes and
income tax purposes. The income tax effects of the temporary differences result
primarily from the use of accrual basis methods for financial reporting purposes
and cash basis methods for income tax filings, net operating loss carryforwards
and the use of different tax year-ends in the United Kingdom. It is anticipated
that the Company will be required to adopt the accrual basis method for income
tax reporting purposes beginning in fiscal year 1999.
The tax effect of significant temporary differences that gave rise to
deferred income taxes as of April 30, 1998, is as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
LIABILITY
------------
<S> <C>
Deferred revenue............................................ $(258,900)
Net operating losses........................................ 104,811
Valuation allowance......................................... (52,394)
---------
$ 206,483
---------
</TABLE>
F-14
<PAGE> 79
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- INCOME TAXES -- (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------
1996 1997 1998
-------- -------- ----------------
<S> <C> <C> <C>
Current
Federal......................................... $ 29,564 $169,147 $ 392,000
State........................................... 9,526 37,589 85,000
Foreign......................................... 12,234 (10,771) 81,869
-------- -------- ---------
51,324 195,965 558,869
Deferred
Federal......................................... (47,000) (28,000) (49,000)
State........................................... (8,000) (5,000) (11,000)
Foreign......................................... 114,700 255,839 (39,832)
-------- -------- ---------
59,700 222,839 (99,832)
-------- -------- ---------
$111,024 $418,804 $ 459,037
-------- -------- ---------
</TABLE>
The provision for income taxes differs from the federal statutory rate
because of the following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal tax at statutory rate............................... 34.0% 34.0% 34.0%
State income tax, net of federal tax benefit................ 4.6 4.6 4.6
Other....................................................... (2.1) .3 2.3
---- ---- ----
Provision for income taxes.................................. 36.5% 38.9% 40.9%
---- ---- ----
</TABLE>
NOTE J -- REVENUE
The following is a summary of revenue:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
Software license revenue......................... $3,880,190 $5,621,988 $6,769,662
Maintenance fees and other revenue............... 1,866,088 1,825,365 2,462,304
Less sales returns and allowances................ (68,285) (108,322) (95,322)
---------- ---------- ----------
$5,677,993 $7,339,031 $9,136,644
---------- ---------- ----------
</TABLE>
NOTE K -- GEOGRAPHIC INFORMATION
The Company's operations are based worldwide through offices in the United
States, the United Kingdom and Japan.
F-15
<PAGE> 80
ICARUS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- GEOGRAPHIC INFORMATION -- (CONTINUED)
Revenue and operating profit shown below are classified according to the
location of the office originating the invoicing. Revenue and operating profit
classified under the caption "United States" include licensing income from
non-U.S. sources.
<TABLE>
<CAPTION>
APRIL 30,
-------------------------------------
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Revenue
United States.......................................... $4,672,554 $5,795,198 $7,598,024
United Kingdom......................................... 833,131 1,267,119 1,031,998
Japan.................................................. 172,308 276,714 506,622
---------- ---------- ----------
Total revenue............................................ $5,677,993 $7,339,031 $9,136,644
---------- ---------- ----------
Income from operations
United States.......................................... $ 27,073 $ 558,360 $ 889,558
United Kingdom......................................... 226,851 584,228 287,314
Japan.................................................. 29,541 (112,930) (145,220)
---------- ---------- ----------
Total income from operations............................. $ 283,465 $1,029,658 $1,031,652
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
-------------------------------------
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Identifiable assets
United States.......................................... $2,258,740 $3,048,361 $4,450,069
United Kingdom......................................... 594,401 1,209,418 961,966
Japan.................................................. 271,455 296,319 561,652
---------- ---------- ----------
$3,124,596 $4,554,098 $5,973,687
---------- ---------- ----------
</TABLE>
F-16
<PAGE> 81
[INSIDE BACK COVER]
[In the center of the page is the ICARUS logo of a stylized globe with an "I"
embedded in it. The word ICARUS appears under the globe and beneath that, the
words "Engineering Business Decisions." Under those words appear the words
"Knowledge-Based Engineering Technology."]
<PAGE> 82
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCE IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Use of Proceeds....................... 14
Dividend Policy....................... 15
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Management............................ 42
Certain Transactions.................. 49
Principal Stockholders................ 52
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 56
Underwriting.......................... 58
Legal Matters......................... 59
Experts............................... 59
Available Information................. 60
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,000,000 SHARES
COMMON STOCK
[ICARUS LOGO]
------------------------
PROSPECTUS
------------------------
HOAK BREEDLOVE
WESNESKI & CO.
LAIDLAW GLOBAL SECURITIES, INC.
, 1998
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ICARUS International, Inc. (the "Company") is a Maryland corporation.
Section 2-405.1(c) of the Maryland General Corporation Law (the "MGCL") states:
"(c) A person who performs his duties in accordance with the standard
provided in this section shall have the immunity from liability described
under Section 5-417 of the Courts and Judicial Proceedings Article."
Section 5-417 of the Maryland Courts and Judicial Proceedings Article
states:
"A person who performs the duties of that person in accordance with
the standard provided under Section 2-405.1 of the Corporations and
Associations Article has no liability by reason of being or having been a
director of a corporation."
Section 2-418 of the MGCL states:
"(a) In this section the following words have the meaning indicated.
(1) "Director" means any person who is or was a director of a
corporation and any person who, while a director of a corporation, is or
was serving at the request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or
employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor
entity of a corporation in a merger, consolidation, or other transaction
in which the predecessor's existence ceased upon consummation of the
transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the office of director
in the corporation; and
(ii) When used with respect to a person other than a director as
contemplated in subsection (j), the elective or appointive office in
the corporation held by the officer, or the employment or agency
relationship undertaken by the employee or agent in behalf of the
corporation.
(iii) "Official capacity" does not include service for any other
foreign or domestic corporation or any partnership, joint venture,
trust, other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether the civil, criminal, administrative, or
investigative.
(b)(1) A corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity unless it is established
that:
(i) The act or omission of the director was material to the
matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
II-1
<PAGE> 84
(ii) The director actually received an improper personal benefit
in money, property, or services; or
(iii) In the case of any criminal proceeding, the director had
reasonable cause to believe that the act or omission was unlawful.
(2)(i) Indemnification may be against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by the director
in connection with the proceeding.
(ii) However, if the proceeding was one by or in the right of
the corporation, indemnification may not be made in respect of any
proceeding in which the director shall have been adjudged to be
liable to the corporation.
(3)(i) The termination of any proceeding by judgment, order, or
settlement does not create a presumption that the director did not meet
the requisite standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by conviction, or a plea
of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that
the director did not meet that standard of conduct.
(c) A director may not be indemnified under subsection (B) of this
section in respect of any proceeding charging improper personal benefit to
the director, whether or not involving action in the director's official
capacity, in which the director was adjudged to be liable on the basis that
person benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on the merits or otherwise,
in the defense of any proceeding referred to in subsection (B) of this
section shall be indemnified against reasonable expenses incurred by the
director in connection with the proceeding.
(2) A court of appropriate jurisdiction upon application of a
director and such notice as the court shall require, may order
indemnification in the following circumstances:
(i) If it determines a director is entitled to reimbursement
under paragraph (1) of this subsection, the court shall order
indemnification, in which case the director shall be entitled to
recover the expenses of securing such reimbursement; or
(ii) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant
circumstances, whether or not the director has met the standards of
conduct set forth in subsection (b) of this section or has been
adjudged liable under the circumstances described in subsection (c)
of this section, the court may order such indemnification as the
court shall deem proper. However, indemnification with respect to any
proceeding by or in the right of the corporation or in which
liability shall have been adjudged in the circumstances described in
subsection (c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same court in
which the proceeding involving the director's liability took place.
(e)(1) Indemnification under subsection (b) of this section may not be
made by the corporation unless authorized for a specific proceeding after a
determination has been made that indemnification of the director is
permissible in the circumstances because the director has met the standard
of conduct set forth in subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a quorum
consisting of directors not, at the time, parties to the proceeding,
or, if such a quorum cannot be obtained, then by a majority vote of a
committee of the board consisting solely of two or more directors
not, at the time,
II-2
<PAGE> 85
parties to such proceeding and who were duly designated to act in the
matter by a majority vote of the full board in which the designated
directors who are parties may participate;
(ii) By special legal counsel selected by the board of directors
or a committee of the board by vote as set forth in subparagraph (i)
of this paragraph, or, if the requisite quorum of the full board
cannot be obtained therefor and the committee cannot be established,
by a majority vote of the full board in which director who are
parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible. However, if the
determination that indemnification is permissible is made by special
legal counsel, authorization of indemnification and determination as to
reasonableness of expenses shall be made in the manner specified in
subparagraph (ii) of paragraph (2) of this subsection for selection of
such counsel.
(4) Shares held by directors who are parties to the proceeding may
not be voted on the subject matter under this subsection.
(f)(1) Reasonable expenses incurred by a director who is a party to a
proceeding may be paid or reimbursed by the corporation in advance of the
final disposition of the proceeding upon receipt by the corporation of:
(i) A written affirmation by the director of the director's good
faith belief that the standard of conduct necessary for
indemnification by the corporation as authorized in this section has
been met; and
(ii) A written undertaking by or on behalf of the director to
repay the amount if it shall ultimately be determined that the
standard of conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph (1)
of this subsection shall be an unlimited general obligation of the
director but need not be secured and may be accepted without reference
to financial ability to make the repayment.
(3) Payments under this subsection shall be made as provided by the
charter, bylaws, or contract or as specified in subsection (e) of this
section.
(g) The indemnification and advancement of expenses provided or
authorized by this section may not be deemed exclusive of any other rights,
by indemnification or otherwise, to which a director may be entitled under
the charter, the bylaws, a resolution of stockholders or directors, an
agreement or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office.
(h) This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in connection with an appearance
as a witness in a proceeding at a time when the director has not been made
a named defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have requested a director to
serve an employee benefit plan where the performance of the director's
duties to the corporation also imposes duties on, or otherwise involves
services by, the director to the plan or participants or beneficiaries
of the plan;
(2) Excise taxes assessed on a director with respect to an employee
benefit plan pursuant to applicable law shall be deemed fines; and
(3) Action taken or omitted by the director with respect to an
employee benefit plan in the performance of the director's duties for a
purpose reasonably believed by the director to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the corporation.
II-3
<PAGE> 86
(j) Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and to
the extent provided in subsection (d) of this section for a director and
shall be entitled, to the same extent as a director, to seek
indemnification pursuant to the provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to an officer,
employee, or agent of the corporation to the same extent that it may
indemnify directors under this section; and
(3) A corporation, in addition, may indemnify and advance expenses
to an officer, employee, or agent who is not a director to such further
extent, consistent with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors or contract.
(k)(1) A corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust, other
enterprise, or employee benefit plan against any liability asserted against
and incurred by such person in any such capacity or arising out of such
person's position, whether or not the corporation would have the power to
indemnify against liability under the provisions of this section.
(2) A corporation may provide similar protection, including a trust
fund, letter of credit, or surety bond, not inconsistent with this
section.
(3) The insurance or similar protection may be provided by a
subsidiary or an affiliate of the corporation.
(l) Any indemnification of, or advance of expenses to, a director in
accordance with this section, if arising out of a proceeding by or in the
right of the corporation, shall be reported in writing to the stockholders
with the notice of the next stockholders' meeting or prior to the meeting."
The Articles of Incorporation ("Articles") of the Company also limit the
liability of, and provide indemnification to, directors and officers of the
Company. Article VIII of the Company's Articles states:
"A. Limitation of Liability. No director who has performed his or
her duties in accordance with the standard set forth in Section 2-405.1 of
the MGCL (or any successor provision thereto) shall be personally liable to
the Corporation or its stockholders for monetary damages for any act or
omission by such director as a director; provided that a director's
liability shall not be limited or eliminated to the extent that: (i) it is
proved that the director actually received an improper benefit or profit in
money, property or services for the amount of the benefit or profit in
money, property or services actually received; or (ii) a judgment or other
final adjudication adverse to the director is entered in a proceeding based
on a finding in the proceeding that the director's action, or failure to
act, was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. No amendment to or
repeal of this Article VIII.A. shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to
such amendment.
B. Indemnification. The Corporation shall indemnify any person who
was or is a party or is threatened to be a made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, by reason of the fact that
such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, limited
liability company, partnership, joint venture, trust or other enterprise or
employee benefit plan, against liability and expenses (including court
costs and attorney's fees), judgments, fines, excise taxes and amounts paid
in satisfaction, settlement or compromise actually and reasonably incurred
by such person in connection with such action, suit or proceeding to the
full extent authorized by Section 2-418 of the MGCL or any successor
provision thereto.
II-4
<PAGE> 87
C. Advancement of Expenses. Reasonable expenses incurred by a
director, officer, employee or agent of the Corporation in defending a
civil or criminal action, suit or proceeding described in Article VIII.B.
shall be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors
only upon receipt of written affirmation by or on behalf of such person of
his good faith belief that he has met the standard of conduct necessary for
indemnification under relevant law and a written undertaking to repay such
amount if it shall ultimately be determined that the person has not met
that standard.
D. Other Rights and Remedies. The indemnification provided by this
Article VIII shall not be deemed to exclude any other rights to which those
seeking indemnification or advancement of expenses may be entitled under
the Corporation's Articles of Incorporation, any insurance or other
agreement, trust fund, letter of credit, surety bond, vote of stockholders
or disinterested directors or otherwise, both as to actions in their
official capacity and as to actions in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person; provided that no
indemnification shall be made to or on behalf of an individual if a
judgment or other final adjudication establishes that his actions, or
omissions to act, were material to the cause of action as adjudicated and
(i) were committed in bad faith; or (ii) were the result of active and
deliberate dishonesty; or (iii) the director actually received an improper
personal benefit in money, property or services; or (iv) in the case of any
criminal proceedings, the director had reasonable cause to believe that the
act or omission was unlawful; provided, however, that a director who has
been successful, on the merits or otherwise, in the defense of proceedings
referred to under clauses (i) through (iv) above, may still be indemnified
as to reasonable expenses actually incurred by such person in connection
with the proceeding as approved by a disinterested majority of the Board of
Directors.
E. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, limited liability company, partnership,
joint venture, trust or another enterprise or employee benefit plan,
against any liability asserted against him or incurred by him in any such
capacity, or arising out of his status, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or the MGCL.
F. Modification. The duties of the Corporation to indemnify and to
advance expenses to a director, officer, employee or agent provided in this
Article VIII shall be in the nature of a contract between the Corporation
and each such director, officer, employee or agent and no amendment or
repeal of any provision of this Article VIII shall alter, to the detriment
of such director, officer, employee or agent, the right of such person to
the advance of expenses or indemnification related to a claim based on an
act or failure to act which took place prior to such amendment or repeal.
G. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision of this Article VIII, the Corporation shall not indemnify a
director, officer, employee or agent for any liability incurred in an
action, suit or proceeding initiated by (which shall not be deemed to
include counter-claims or affirmative defenses) or participated in as an
intervenor or amicus curiae by the person seeking indemnification unless
such initiation of or participation in the action, suit or proceeding is
authorized, either before or after its commencement, by the affirmative
vote of a disinterested majority of the directors then in office or unless
intervention is required by law in order to protect the rights, claims or
defenses of the director, officer, employee or agent with respect to
matters for which the Corporation shall otherwise be required to provide
indemnification hereunder."
Article X of the Company's Bylaws states:
"(a) A director of the Corporation shall not be personally liable for
monetary damages for action taken, or any failure to take action, as a
director, to the extent set forth in the Corporation's Articles of
Incorporation, which provisions are incorporated herein with the same
affect as if they were set forth herein.
II-5
<PAGE> 88
(b) The Corporation shall indemnify any person who is a director,
officer, employee or agent of the Corporation to the extent set forth in
the Corporation's Articles of Incorporation, which provisions are
incorporated herein with the same affect as if they were set forth herein."
In addition, the Company intends to obtain a directors and officers
liability insurance policy relating to certain actions or omissions which may be
taken, or omitted to be taken, by the directors and officers of the Company, as
well as a policy which insures against errors and omissions in the offering
documents relating to the offer and sale of the Common Stock to the public.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the expenses to be incurred in connection
with the offering of the Common Stock described herein.
<TABLE>
<S> <C>
SEC filing fee.............................................. $ 7,635
NASD filing fee............................................. 3,088
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 500,000
Printing and delivery expenses.............................. 150,000
Blue Sky legal fees and expenses............................ 10,000
Registrar and transfer agent fees and expenses.............. 4,750
Nasdaq Market listing fees and expenses..................... 17,500
CUSIP fees and expenses..................................... 100
Miscellaneous expenses...................................... 5,000
----------
Estimated Total........................................... $1,198,073
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On December 2, 1998, in connection with the Company's formation, ICARUS
sold 1,000 shares of Common Stock to Herbert G. Blecker and Eunice E. Blecker
(the "Bleckers") for a total of $1,000. The shares were issued by the Company in
a transaction not involving a public offering pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").
Immediately prior to the Offering, pursuant to the Agreement and Plan of
Recapitalization by and among the Company and the Bleckers dated January 26,
1998, the Company will issue to the Bleckers an aggregate of 2,999,000 shares of
Common Stock and 100 shares of Series A Preferred Stock in exchange for all of
their shares of ICARUS Corporation and ISL. The issuance of such shares by the
Company will represent a transaction by the issuer not involving any public
offering pursuant to Section 4(2) of the Securities Act.
Other than the transactions described above the Company has sold no
unregistered securities within the past three years.
ITEM 27. EXHIBITS.
The Exhibits attached hereto are as follows:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Recapitalization by and among Mr.
Herbert G. Blecker, Mrs. Eunice Blecker, ICARUS Corporation,
ICARUS Service Limited and the Company, dated January 26,
1998.*
3.1 Articles of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Form of Stock Certificate of the Company.*
5.1 Form of opinion of Elias, Matz, Tiernan & Herrick L.L.P.
10.1 Technology Licensing and Marketing Agreement by and between
ICARUS
</TABLE>
II-6
<PAGE> 89
<TABLE>
<C> <S>
Corporation and Richardson Engineering Services, Inc., dated
May 1, 1997.+ *
10.2 Joint Development Agreement between ICARUS Development and
Marketing Corporation and Hyprotech, Ltd., dated July 24,
1997.+ *
10.3 Marketing and Development Agreement between ICARUS
Corporation and SRI Consulting Inc., dated August 4, 1997.+
*
10.4 Software Distribution and License Agreement between ICARUS
Corporation and Primavera Systems, Inc. dated January 17,
1995.+
10.5 Lease for One Central Plaza, 11300 Rockville Pike,
Rockville, Maryland by and between One Central Plaza Limited
Partnership and the Company, dated October 15, 1976, as
amended.*
10.6 Lease for 600 Jefferson Plaza, Rockville, Maryland, by and
between Allstate Life Insurance Company and the Company,
dated December 31, 1997.*
10.7 Lease for 16945 Northchase Drive, 14th Floor, Houston,
Texas, by and between Greenpoint Plaza Limited Partnership
and the Company, dated January 31, 1997.*
10.8 Lease for Units 3 and 4, 4th floor, First Floor Storeroom
and Car Parking, The Graftons, Stamford New Road,
Altrincham, Greater Manchester, by and between Wayborn
Leasing Limited and the Company, dated April 19, 1993.*
10.9 Lease for 5F Sakae Bldg., 2-10-3 Minami-Ikebukuro,
Toshima-Ku, Tokyo 171 Japan, by and between Saburo Ikeda and
the Company, dated January 20, 1996.*
10.10 Employment Agreement between Mr. Herbert G. Blecker and the
Company, dated January 22, 1998.
10.11 Employment Agreement between Mr. William F. Geritz III and
the Company, dated January 22, 1998.
10.12 ICARUS International, Inc. 1998 Stock Option Plan.*
10.13 ICARUS International, Inc. Recognition and Retention Plan
and Trust Agreement.*
10.14 Amendment, dated March 30, 1998, to lease for 600 Jefferson
Plaza, Rockville, Maryland, by and between Allstate Life
Insurance Company and the Company, dated December 31, 1997.*
10.15 Amendment, dated January 21, 1998, to lease for One Central
Plaza, 11300 Rockville Pike, Rockville, Maryland, by and
between the Company and One Central Plaza Limited
Partnership.
10.16 Employment Agreement between Mr. Peter L. Bower and the
Company dated July 10, 1998.**
10.17 Principal Stockholders Agreement by and between Herbert G.
Blecker, Eunice E. Blecker and ICARUS International, Inc.**
21.1 List of Subsidiaries of the Company.*
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P.
(Incorporated by reference to Exhibit 5.1).
23.2 Consent of Grant Thornton LLP.
24.1 Power of Attorney.*
27.1 Financial data schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Certain portions of this Exhibit have been omitted from this Registration
Statement and filed separately with the Commission accompanied by a request
for confidential treatment pursuant to Rule 406 under the Securities Act.
II-7
<PAGE> 90
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby provides the following undertakings:
(a) The Registrant will provide to the Underwriter at the closing
specified in the Underwriting Agreement certificates in such denominations
and registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
(c) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 424(b)(1), or (4), or
497(h) under the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective.
(d) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-8
<PAGE> 91
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of Rockville, State of Maryland on July 10, 1998.
ICARUS INTERNATIONAL, INC.
By: /s/ HERBERT G. BLECKER
------------------------------------
HERBERT G. BLECKER
CHAIRMAN OF THE BOARD, PRESIDENT
CHIEF EXECUTIVE OFFICER
------------------------
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HERBERT G. BLECKER Chairman of the Board, President July 10, 1998
- ------------------------------------------------ and Chief Executive Officer
HERBERT G. BLECKER (Principal executive officer)
/s/ PETER L. BOWER Chief Financial Officer July 10, 1998
- ------------------------------------------------ (Principal Accounting Officer
PETER L. BOWER and Principal Financial Officer)
/s/ EUNICE E. BLECKER Director, Secretary and July 10, 1998
- ------------------------------------------------ Treasurer
EUNICE E. BLECKER
/s/ HERBERT G. BLECKER* Director and Vice Chairman of July 10, 1998
- ------------------------------------------------ the Board
JAMES J. BYRNE
/s/ WILLIAM F. GERITZ, III Director and Executive Vice July 10, 1998
- ------------------------------------------------ President
WILLIAM F. GERITZ, III
/s/ HERBERT G. BLECKER* Director July 10, 1998
- ------------------------------------------------
GARY M. ROUSH
/s/ HERBERT G. BLECKER* Director July 10, 1998
- ------------------------------------------------
J. EDWARD BECK, JR.
</TABLE>
- ---------------
* Herbert G. Blecker has signed on behalf of each individual indicated in the
capacities stated as their attorney-in-fact.
II-9
<PAGE> 1
Exhibit 1.1
2,000,000 Shares
ICARUS International, Inc.
Common Stock
UNDERWRITING AGREEMENT
, 1998
HOAK BREEDLOVE WESNESKI & CO.
LAIDLAW GLOBAL SECURITIES, INC.
As Representatives of the several Underwriters
c/o HOAK BREEDLOVE WESNESKI & CO.
One Galleria Tower
13355 Noel Road, Suite 1650
Dallas, Texas 75240
Dear Sirs:
SECTION 1. Introductory. ICARUS International, Inc., a Maryland
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A annexed hereto (the "Underwriters") an
aggregate of 2,000,000 shares of its authorized but unissued Common Stock, $.01
par value per share (the "Common Stock"). Said shares are herein referred to as
the "Firm Common Shares." In addition, the Company proposes to grant to the
Underwriters an option to purchase up to 300,000 additional shares of Common
Stock (such 300,000 shares being referred to as the "Optional Common Shares"),
as provided in Section 5 hereof. The Firm Common Shares and, to the extent such
option is exercised, the Optional Common Shares, are hereinafter collectively
referred to as the "Common Shares." Hoak Breedlove Wesneski & Co. and Laidlaw
Global Securities, Inc. have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Common Shares.
You have advised the Company that the Underwriters propose to make a
public offering of the Common Shares on the effective date of the registration
statement hereinafter referred to, or as soon thereafter as in their judgment is
advisable.
The Company hereby confirms its agreement with respect to the purchase
of the Common Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Underwriters that:
(a) A registration statement on Form SB-2 (File No. 333-45957)
with respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The
Company has met all of the eligibility requirements for the use of a
registration statement on Form SB-2. There have been delivered to each
of the Representatives two signed copies of such registration statement
and amendments, together with two copies of each exhibit filed
therewith. Conformed copies of such registration statement and
amendments (but without exhibits) and of the related preliminary
prospectus have been delivered to each of the Representatives in such
reasonable quantities as each of them has requested. The Company will
next file with the Commission one of the following: (i) prior to
effectiveness of such registration statement, a further amendment or
amendments thereto, including the form of final prospectus, or (ii) a
final prospectus in accordance with Rules 430A and 424(b) of the Rules
and Regulations. As filed, such amendment and form of final prospectus,
or such final prospectus, shall include all Rule 430A Information (as
hereinafter defined) and, except to the extent that the Representatives
shall agree to a modification, shall be in all substantive respects in
the form furnished to the Representatives prior to the date and time
that this Agreement was executed and delivered by the parties hereto,
or, to the extent not completed at such date and time, shall contain
only such specific additional information and other changes (beyond
that contained in the latest Preliminary Prospectus) as the Company
shall have previously advised the Representatives would be included or
made therein.
<PAGE> 2
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration
statement becomes effective and, in the event any post-effective
amendment thereto becomes effective prior to the First Closing Date (as
hereinafter defined), shall also mean such registration statement as so
amended; provided, however, that such term shall also include all Rule
430A Information deemed to be included in such registration statement
at the time such registration statement becomes effective as provided
by Rule 430A of the Rules and Regulations. Any registration statement
filed by the Company pursuant to Rule 462(b) under the Securities Act
is called the "Rule 462(b) Registration Statement," and from and after
the date and time of filing of the Rule 462(b) Registration Statement,
the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The term "Preliminary Prospectus" shall mean
any preliminary prospectus referred to in the preceding paragraph and
any preliminary prospectus included in the Registration Statement at
the time it becomes effective that omits Rule 430A Information. The
term "Prospectus" as used in this Agreement shall mean the prospectus
relating to the Common Shares in the form in which it is first filed
with the Commission pursuant to Rule 424(b) of the Rules and
Regulations or, if no filing pursuant to Rule 424(b) of the Rules and
Regulations is required, shall mean the form of final prospectus
included in the Registration Statement at the time such registration
statement becomes effective. The term "Rule 430A Information" means
information with respect to the Common Shares and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations. All
references in this Agreement to the Registration Statement, the Rule
462(b) Registration Statement, a Preliminary Prospectus, or the
Prospectus, or any amendments or supplements to any of the foregoing,
shall refer to the copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System.
(b) To the knowledge of the Company, the Commission has not
issued any order preventing or suspending the use of any Preliminary
Prospectus, and each Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement
of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to
and including each Closing Date hereinafter mentioned, the Registration
Statement and the Prospectus, and any amendments or supplements
thereto, will contain all material statements and information required
to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act
and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will
include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of circumstances under which
they were made; provided, however, no representation or warranty
contained in this subsection 2(b) shall be applicable to information
contained in any Preliminary Prospectus, the Registration Statement,
the Prospectus or any such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company by or
on behalf of the Representatives specifically for use in the
preparation thereof.
(c) Except for the "business alliances" disclosed in the
Prospectus, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 to the Registration Statement, and
any reference herein to the Company's "subsidiaries" shall mean the
subsidiaries listed in such Exhibit 21. The Company and each of the
subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, with full corporate power and authority
(corporate and other) to own and lease their properties and conduct
their respective businesses as described in the Prospectus; on the
First Closing Date, the Company will own all of the outstanding capital
stock of its subsidiaries; the Company and its subsidiaries are in
possession of and are operating in compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the
conduct of their respective businesses, except where noncompliance
would not have a material adverse effect on the business or financial
condition of the Company and its subsidiaries, taken as a whole; the
Company and each of its subsidiaries are duly qualified to do business
and are in good standing as foreign corporations in each jurisdiction
in which the ownership or leasing of properties or the conduct of their
respective businesses requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect upon the Company and its subsidiaries, taken as
a whole; and no proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
-2-
<PAGE> 3
(d) On the First Closing Date, the Company will have an
authorized and outstanding capital stock as set forth under the heading
"Capitalization" in the Prospectus; the issued and outstanding shares
of Common Stock have been duly authorized and validly issued, will be
fully paid and nonassessable, will have been issued in compliance with
all federal and state securities laws, will have not been issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and will conform to the
description thereof contained under the heading "Description of Capital
Stock" in the Prospectus. As of each of the Closing Dates (as
hereinafter defined), the Company will have no more than 100
outstanding shares of preferred stock. All issued and outstanding
shares of capital stock of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable and,
on each Closing Date, will be owned by the Company free and clear of
any lien, claim, equity or other encumbrance of any kind or character.
Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company and its subsidiaries, and the
related notes thereto, included in the Prospectus, neither the Company
nor any of its subsidiaries has outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase,
any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description
of the Company's outstanding stock options, and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus, accurately and fairly presents
in all material respects the information required to be shown with
respect to such options, plans, arrangements, and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and will conform to the description thereof
contained in the Prospectus; and when duly countersigned by the
Company's transfer agent and registrar, and delivered to the
Underwriters in accordance with the provisions of this Agreement, good
and valid title thereto will pass to the Underwriters free and clear of
any liens, claims, equities or other encumbrances of any kind or
character (other than any liens, claims, equities or other encumbrances
that arise out of any actions or omissions of the Underwriters). No
preemptive rights or other rights to subscribe for or purchase exist
with respect to the issuance and sale of the Common Shares by the
Company pursuant to this Agreement. There are no persons with
registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement with respect to
the Common Shares included in the Registration Statement.
(f) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except to the extent that (i) the validity and binding effect and
enforcement of this Agreement may be limited by any applicable
bankruptcy, reorganization, moratorium, or similar laws of general
application, (ii) the availability of equitable remedies may be limited
by principles of equity, whether considered in a proceeding at law or
in equity, and (iii) the terms thereof may be limited by applicable
securities laws and the policies embodied therein. The making and
performance of this Agreement by the Company and the consummation of
the transactions herein contemplated by the Company or the performance
by the Company of the transactions contemplated hereby does not:
require any consent, approval, authorization or order of or
registration or filing with any court, regulatory body, administrative
agency or other governmental body, agency or official (except such as
may be required for the registration of the Common Shares under the Act
and compliance with the securities or Blue Sky laws and the clearance
of the public offering of the Common Shares by the National Association
of Securities Dealers, Inc. (the "NASD")); or conflict with, or
constitute a breach of, or a default under, the Articles of
Incorporation or Bylaws of the Company or the Certificate or Articles
of Incorporation or Bylaws or other organizational documents of any of
its subsidiaries; or conflict with or constitute a breach of or a
default under any material agreement, indenture, lease or other
instrument to which the Company or any of its subsidiaries is a party
or by which any of them or any of their respective properties may be
bound where such conflict or breach could have a material adverse
effect on the Company's financial condition or results of operations
taken as a whole (except for such conflicts, breaches or defaults for
which waivers or consents have been obtained); or violate any statute,
law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of its subsidiaries or any of the
their respective properties; or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to the terms of any
agreement
-3-
<PAGE> 4
or instrument to which any of them is a party or by which any of the
them may be bound or to which any of the property or assets of any of
them is subject, except, in each case for such conflicts, breaches,
defaults, violations, or encumbrances that would not singly or in the
aggregate have a material adverse effect on the ability of the Company
to fulfill its obligations hereunder.
(g) Grant Thornton LLP ("Grant Thornton"), who have expressed
their opinion with respect to certain financial statements filed with
the Commission as a part of the Registration Statement and included in
the Prospectus, are independent accountants as required by the Act and
the Rules and Regulations.
(h) Financial Statements; Financial Data and Statistical Data.
(i) The Consolidated Financial Statements and the
related notes thereto of the Company as of April 30, 1998 and 1997 and
for the years ended April 30, 1998 and 1997 and 1996 included in the
Registration Statement and the Prospectus (such Financial Statement
being herein referred to as the "Financial Statements") present fairly
the financial condition of the corporations covered by such Financial
Statements as of the respective dates of such Financial Statements, and
present fairly the results of operations and changes in financial
position of the corporations (and, where applicable, also on a
consolidated basis) covered by such financial statements, respectively,
for the respective periods covered thereby. Such Financial Statements
and the related notes thereto have been prepared in accordance with the
generally accepted accounting principles applied on a consistent basis
and have been audited by Grant Thornton, the Company's independent
accountants.
(ii) The selected consolidated financial data
presented in the Registration Statement for the years ended April 30,
1995, 1996, 1997 and 1998 are derived from the Company's audited
consolidated financial statements which have been audited by Grant
Thornton.
(iii) All financial statements, schedules and
financial data have been included in the Registration Statement in
material compliance with the rules and regulations of the Commission.
It is understood that all financial statements, schedules and financial
data for all periods are subject to the review by the Commission and to
their interpretation of the applicable rules and regulations.
(iv) The financial and statistical data set forth in
the Prospectus under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Dividend Policy," "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business,"
"Management," "Certain Transactions," "Principal Stockholders" and
"Shares Eligible for Future Sale" fairly present the information set
forth therein on the basis stated in the Registration Statement.
(v) The Company's financial results have been
prepared in compliance with, and its Financial Statements have been
prepared on a basis consistent with, the revenue recognition rules of
Certified Public Accountants Statement of Position No. 91-1. The
Company has no reasonable basis to believe that Certified Public
Accountants Statement of Position No. 97-2 would have had a material
impact on the Company's results of operations if it had been applied to
the Company results of operations for the years ended April 30, 1996,
1997 and 1998.
(i) The Company is not in violation or default of any
provision of its Articles of Incorporation; none of the Company's
subsidiaries is in violation or default of its Certificate or Articles
of Incorporation or other organizational documents; neither the Company
nor any of its subsidiaries is in violation or default of any provision
of its Bylaws or is in breach of or default with respect to any
provision of any judgment, decree or order, or is in breach of or
default with respect to any provision of any material agreement,
mortgage, deed of trust, lease, loan agreement, security agreement,
material license, indenture, permit or other material instrument to
which it is a party or by which it or any of its properties are bound;
and there does not exist any state of facts which constitutes an event
of default on the part of the Company or any of its subsidiaries as
defined in such documents or which, with notice or lapse of time or
both, would constitute such an event of default, except for conflicts,
breaches, defaults, violation or encumbrances that would not have a
material adverse effect on the Company's financial condition or results
of operation taken as a whole.
(j) There are no contracts or other documents required to be
described in the Registration Statement, or to be filed as exhibits to
the Registration Statement, by the Act or by the Rules and
-4-
<PAGE> 5
Regulations which have not been described or filed as required. The
contracts so described in the Prospectus are in full force and effect
on the date hereof; and neither the Company nor any of its
subsidiaries, nor to the best of the Company's or any subsidiaries's
knowledge any other party, is in breach of or default under any
material provision of any such contract which would have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(k) Except as set forth in the Prospectus, there are no legal
or governmental actions, suits or proceedings pending or, to the best
of the Company's knowledge, threatened to which the Company or any of
its subsidiaries is or may be a party or with respect to which property
owned or leased by the Company or any of its subsidiaries is or may be
the subject, or related to environmental, employment of aliens or
discrimination matters, which actions, suits or proceedings might,
individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or result in a material
adverse change in the condition (financial or otherwise), properties,
business or results of operations of the Company and its subsidiaries,
taken as a whole, and no labor disturbance by the employees of the
Company or its subsidiaries exists or, to the knowledge of the Company
or any of its subsidiaries is imminent which might be expected to
result in a material adverse change in the condition (financial or
otherwise), properties, business or results of operations of the
Company or any of its subsidiaries, taken as a whole. Neither the
Company nor any of its subsidiaries is a party to, or subject to the
provisions of, any material injunction, judgment, decree or order of
any court, regulatory body, administrative agency or other governmental
body.
(l) The Company and each of its subsidiaries have good and
marketable title to all the properties and assets reflected as owned by
them, respectively, in the financial statements hereinabove described
(or as reflected or described elsewhere in the Prospectus), subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such financial statements (or elsewhere in
the Prospectus), or (ii) those which do not materially adversely affect
the use made and proposed to be made of such property by the Company or
any of its subsidiaries. To the knowledge of the Company, the Company
and each of its subsidiaries hold their respective leased properties
under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company or
its subsidiaries. Except as disclosed in the Prospectus, the Company
and each of its subsidiaries own or lease all such properties as are
necessary to their respective operations as now conducted.
(m) Since the respective dates as of which information is
given in the Registration Statement and Prospectus and as of the date
hereof and as of the First Closing Date or Second Closing Date (as
applicable), and except as described in or specifically contemplated
by the Prospectus, (i) neither the Company nor any of its subsidiaries
has incurred any liabilities or obligations, direct, indirect or
contingent, or entered into any verbal or written agreement or other
transaction which is not in the ordinary course of business and which
reasonably could be expected to result in a material reduction in the
future earnings of the Company or its subsidiaries, taken as a whole;
(ii) the Company and its subsidiaries, taken as a whole, have not
sustained any material loss or interference with their respective
businesses or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance; (iii) the Company has
not paid or declared any dividends or other distributions with respect
to its capital stock, and the Company and its subsidiaries are not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) except for the Recapitalization described in the
Prospectus, there has not been any change in the capital stock of the
Company (other than upon the sale of the Common Shares hereunder) or
indebtedness material to the Company; and (v) there has not been any
material adverse change in the condition (financial or otherwise),
business, properties or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) The Company and its subsidiaries have sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals
and governmental authorizations to conduct their respective businesses
as now conducted; the Company has no knowledge of any infringement by
it or its subsidiaries of trademarks, trade name rights, trade dress,
patent rights, copyrights, licenses, trade secret or other similar
rights of others; and except as disclosed in the Prospectus and except
for the possible infringement discussed with the Representatives now
under investigation by the Company, the Company has no knowledge of any
infringement by others of the Company's or its subsidiaries'
trademarks, trade name rights, trade dress, patent rights, copyrights,
licenses, trade secrets or other similar rights that would be material
to the business or financial condition of the Company and its
subsidiaries, taken as a whole; and there is no claim being made
against the Company or any of its subsidiaries regarding trademark,
trade name, trade dress, patent right, copyright, license, trade secret
or other infringement which could have a material adverse effect on the
condition (financial or otherwise), business or results of operations
of the Company
-5-
<PAGE> 6
and its subsidiaries, taken as a whole.
(o) The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting
business in material compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
employment, truth-in-advertising, franchising, immigration and
environmental laws and regulations, except where failure to be so in
compliance would not materially adversely affect the condition
(financial or otherwise), business or results of operations of the
Company and its subsidiaries, taken as a whole.
(p) The Company and each of its subsidiaries have filed all
federal, resident state and foreign income and franchise tax returns or
extensions therefor required to be filed and have paid all taxes shown
as due thereon; and the Company has no knowledge of any tax deficiency
which has been or might be asserted or threatened against the Company
or any of its subsidiaries which could materially and adversely affect
the business, operations or properties of the Company and its
subsidiaries, taken as a whole; however, due to the complex nature of
interstate taxation, there can be no assurance that other states could
not assert additional filing or payment requirements.
(q) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurances that (i) sales and other business transactions are executed
in accordance with management's general or specific authorizations;
(ii) sales and other business transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; and (iii) the recorded accountability for assets is compared
with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(r) The Company is not required to make, and following receipt
of the proceeds from the sale of the Common Shares will not be required
to make, any filing or to register under the Investment Company Act of
1940, as amended.
(s) There is no proceeding pending or, to the knowledge of the
Company, threatened (or, to the knowledge of the Company or any of its
subsidiaries or any officer of the Company or its subsidiaries, any
basis therefor) which may lead to the revocation, suspension,
termination or nonrenewal of any certificate, order, license, permit,
easement, consent, waiver, approval, franchise, grant, authorization or
concession required to conduct the business of the Company or its
subsidiaries as now conducted and as proposed to be conducted and which
are material to the Company and its subsidiaries, taken as a whole.
(t) As of the date of this Agreement and each of the First
Closing Date (as hereinafter defined) and the Second Closing Date (as
hereinafter defined), there is no proceeding pending or, to the
knowledge of the Company, threatened which may lead to the
disqualification, delisting or suspension from trading of the Common
Stock on the Nasdaq National Market.
(u) Neither the Company nor any subsidiary of the Company
conducts business with the Government of Cuba, or in Cuba, or to the
knowledge of the Company, with any Cuban business entity or enterprise.
(v) No transfer taxes are required to be paid under the laws
of the States of Texas or Maryland in connection with the sale and
delivery of the Common Shares to the Underwriters hereunder.
SECTION 3. Representations and Warranties of the Underwriters.
(a) The Underwriters represent and warrant to the Company that
the information set forth (i) on the cover page of the Prospectus with
respect to price, underwriting discount and terms of the offering; and
(ii) under "Underwriting" in the Prospectus furnished to the Company by
the Representatives for use in connection with the preparation of the
Registration Statement and the Prospectus is true, accurate and correct
in all material respects and contains all information required to be
included therein by applicable laws, rules and regulations. The Company
acknowledges that this information is the sole information furnished to
the Company by the Representatives for inclusion in the Registration
Statement, any Preliminary Prospectus, any Prospectus, or any amendment
or supplement thereto.
-6-
<PAGE> 7
(b) The Underwriters are registered as broker/dealers with the
Commission and the NASD. Each of the Representatives is a corporation
validly existing and in good standing in its jurisdiction of
incorporation and has the full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by the Representatives and constitutes a valid and binding obligation
of the Representatives, enforceable against the Representatives in
accordance with its terms, except to the extent that (i) the validity
and binding effect and enforcement of this Agreement may be limited by
any applicable bankruptcy, reorganization, moratorium, or similar laws
of general application, (ii) the availability of equitable remedies may
be limited by principles of equity, whether considered in a proceeding
at law or in equity, and (iii) the terms thereof may be limited by
applicable securities laws and the policies embodied therein. The
Representatives have obtained clearance of their compensation by the
NASD and have taken all action deemed necessary in their judgment to
register or qualify the sale of the Firm Common Shares and the Optional
Common Shares in each state in which such Firm and/or Optional Common
Shares are to be offered and sold and each Underwriter is registered
and qualified to offer and sell the Common Shares in each state in
which such Common Shares will be offered and sold by such Underwriters.
There is not now pending nor, to the knowledge of the Representatives,
threatened against any Underwriter any material action or proceeding
before the Commission, the NASD, any state securities commission, the
Commodities Futures Trading Commission or any state or federal court
prohibiting or attempting to prohibit, or penalizing it from or for
acting as an underwriter, broker, dealer, salesman or agent for the
sale of securities.
SECTION 4. Purchase, Sale and Delivery of Common Shares. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to issue and
sell to the Underwriters 2,000,000 Firm Common Shares, and the Underwriters
agree, severally and not jointly, to purchase from the Company the number of
Firm Common Shares set forth opposite their respective names in Schedule A
hereto. The purchase price per share to be paid by the Underwriters to the
Company shall be $ per share.
Delivery of certificate(s) for the Firm Common Shares to be purchased
by the Underwriters shall be made by or on behalf of the Company to the
Underwriters or to the account of Hoak Breedlove Wesneski & Co. at the
Depositary Trust Corporation, New York, New York ("DTC"), or otherwise as the
Representatives may direct, for the respective accounts of Underwriters. In the
event certificates are delivered to the Underwriters other than through DTC,
such delivery shall be made on the First Closing Date (as hereinafter defined)
or the Second Closing Date (as hereinafter defined), as applicable, at the
offices of Elias, Matz, Tiernan & Herrick L.L.P., 734 15th Street, N.W., 12th
Floor, Washington, D.C. 20005 (or such other place as may be agreed upon by the
Company and the Representatives). Delivery of certificates, whether through DTC
or otherwise, shall be made at such time and date, not later than the third (or,
if the Firm Common Shares are priced, as contemplated by Rule 15c6-1(c)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), after 4:30 p.m., Washington, D.C. time, the fourth) full business day
following the first day that any of Common Shares are released by the
Underwriters for sale to the public, as the Representatives shall designate (the
"First Closing Date"); provided, however, that if the Prospectus is at any time
prior to the First Closing Date recirculated to the public, the First Closing
Date shall occur upon the later of the third or fourth, as the case may be, full
business day following the first date that any of the Common Shares are released
by the Underwriters for sale to public or the date that is 48 hours after the
date that the Prospectus has been so recirculated. The certificates for the Firm
Common Shares shall be registered in such names and denominations as the
Representatives shall have requested in writing at least two full business days
prior to the First Closing Date and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
New York, New York, as may be designated by the Representatives. Time shall be
of the essence, and delivery at the time and place specified in this Agreement
is a further condition to the obligations of the Underwriters. Payment by the
Underwriters for the purchase price for the Firm Common Shares shall be made by
wire transfer or check in immediately available funds at the option of the
Company, which shall be communicated to the Representatives at least three
Business Days prior to the First and/or Second Closing Date.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriters to purchase up to
300,000 Optional Common Shares at the purchase price per share to be paid for
the Firm Common Shares, for use solely in covering any over-allotments made by
the Underwriters in the sale and distribution of the Firm Common Shares. The
option granted hereunder may be exercised at any time within 30 days after the
first date that any of the Firm Common Shares are released by the Underwriters
for sale to the public upon written notice by the Underwriters to the Company
setting forth the aggregate number of Optional Common Shares as to which the
-7-
<PAGE> 8
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than but may coincide with the First Closing Date), being herein
referred to as the "Second Closing Date," shall be determined by the
Underwriters, but if at any time other than the First Closing Date shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. The number of Optional Common Shares to be purchased by each
Underwriter shall be determined by multiplying the aggregate number of Optional
Common Shares with respect to which such option is exercised pursuant to such
notice of exercise by a fraction, the numerator of which is the number of Firm
Common Shares to be purchased by such Underwriter as set forth opposite its name
in Schedule A and the denominator of which is the total number of Firm Common
Shares (subject to such adjustments to eliminate any fractional share purchases
as the Underwriters in their discretion may make). Certificates for the Optional
Common Shares will be made available for checking and packaging on the business
day preceding the Second Closing Date at a location in New York, New York
designated by you. The manner of payment for and delivery of the Optional Common
Shares shall be the same as for the Firm Common Shares purchased, as specified
in this Section 4. At any time before lapse of the option, the Underwriters may
cancel such option by giving written notice of such cancellation to the Company.
If the option is canceled or expires unexercised in whole or in part, the
Company will deregister under the Act the number of Optional Common Shares as to
which the option has not been exercised.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Firm Common Shares,
and of the Optional Common Shares if and to the extent that the Underwriters
exercise their option to purchase Optional Common Shares, as soon after the
effective date of the Registration Statement as in the judgment of the
Underwriters is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.
Not later than 12:00 p.m. on the second business day following the date
the Common Shares are released by the Underwriters for sale to the public, the
Company shall deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Representatives shall request.
SECTION 5. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the
parties hereto, to become effective. If the Registration Statement has
become or becomes effective pursuant to Rule 430A of the Rules and
Regulations, or the filing of the Prospectus is otherwise required
under Rule 424(b) of the Rules and Regulations, the Company will file
the Prospectus, properly completed, pursuant to the applicable
paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to the
Representatives of such timely filing. The Company will promptly advise
the Representatives in writing (i) of the receipt of any comments of
the Commission; (ii) of any request of the Commission for amendment of
or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information; (iii) when the Registration Statement shall
have become effective; and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or of the institution of any proceedings for that purpose. If
the Commission shall enter any such stop order at any time, the Company
will use its best efforts to obtain the lifting of such order at the
earliest possible moment. The Company will not file any amendment or
supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus of
which the Representatives have not been furnished with a copy a
reasonable time prior to such filing or to which the Representatives
reasonably object in writing or which is not in material compliance
with the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon the Representatives' request, any amendments or
supplements to the Registration Statement or the Prospectus which in
the Company's and the Representatives' reasonable judgment may be
necessary or advisable to enable the Underwriters to continue the
distribution of the Common Shares and will use its best efforts to
cause the same to become effective as promptly as possible. The Company
will fully and completely comply with the provisions of Rule 430A of
the Rules and Regulations with respect to information omitted from the
Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the
Common Shares is required to be delivered under the Act any event
-8-
<PAGE> 9
occurs as a result of which the Prospectus, including any amendments or
supplements, would include 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, or if it is
necessary at any time to amend the Prospectus, including any amendments
or supplements, to comply with the Act or the Rules and Regulations,
the Company will promptly advise the Representatives thereof and will
promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission
or an amendment or supplement which will effect such compliance and
will use its best efforts to cause the same to become effective as soon
as possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company, upon request, but
at the expense of such Underwriter, will promptly prepare such
amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance
with the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after
the end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as defined in Rule
158(c) of the Rules and Regulations), the Company will make generally
available to its security holders an earnings statement (which need not
be audited) covering a period of 12 consecutive months beginning after
the effective date of the Registration Statement which will satisfy the
provisions of the last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to
in Section 10(a)(3) of the Act, will furnish to the Underwriters or
mail copies of the Registration Statement, the Prospectus, the
Preliminary Prospectus and all amendments and supplements to any such
documents, in each case as soon as available and in such quantities as
the Representatives may request, for the purposes contemplated by the
Act.
(f) The Company shall cooperate with the Representatives and
their counsel in order to qualify or register the Common Shares for
sale under (or obtain exemptions from the application of) the Blue Sky
laws of such jurisdictions as the Representatives designate, will
comply with such laws and will continue such qualifications,
registrations and exemptions in effect so long as reasonably required
for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to file a general
consent to service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or
any such exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or overt threat of any
proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company, with the Representatives' cooperation, will use its best
efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives: (i) as soon as practicable after
the end of each fiscal year, copies of the Annual Report to
Stockholders of the Company containing the balance sheet of the Company
as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii)
as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-KSB, Quarterly Report on Form
10-QSB, Report on Form 8-K or other report filed by the Company with
the Commission, the NASD or any securities exchange; and (iii) as soon
as available, copies of any report or communication of the Company
mailed generally to holders of its Common Stock.
(h) During the period of 180 days from the date of the
Prospectus, without the prior written consent of Hoak Breedlove
Wesneski & Co. (the giving or withholding of such written consent being
in the sole discretion of Hoak Breedlove Wesneski & Co.), the Company
will not issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable with its Common Stock or
other equity security, except for equity securities used as
consideration in acquisitions of the assets, stock, intellectual
property or business of another person or entity, or the grant of
options in the ordinary course of business pursuant to the Company's
1997 Stock Option Plan or the issuance of shares of Common Stock in the
ordinary course of business pursuant to the Company's Recognition and
Retention Plan and Trust or in accordance with the Company's 401(k)
plan, as described in the Prospectus.
-9-
<PAGE> 10
(i) The Company will apply the net proceeds of the sale of the
Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under (or
obtain exemptions from the application of) the Blue Sky laws of the
State of California (and thereby permit market making transactions and
secondary trading in the Company's Common Stock in California), will
comply with such Blue Sky laws and will use its best efforts to
maintain such qualifications, registrations and exemptions in effect
for a period of three years after the date hereof.
SECTION 6. Payment of Expenses.
(a) Whether or not the transactions contemplated hereunder are
consummated or this Agreement becomes effective or is terminated, the
Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder, including
without limiting the generality of the foregoing, (i) all expenses
incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees and expenses of the
registrar and transfer agent of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel and the Company's independent
accountants, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution to the
Underwriters and dealers of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and
financial statements) and all amendments and supplements provided for
herein, this Agreement, the Agreement Among Underwriters, the Selected
Dealers Agreement, the Underwriters' Questionnaire, the Underwriters'
Power of Attorney and the preliminary Blue Sky memorandum and final
Blue Sky memorandum, (vi) all filing fees, attorneys' fees and expenses
incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares
for offer and sale under the Blue Sky laws, not to exceed $10,000 plus
reasonable and documented out-of-pocket expenses and (vii) all other
fees, costs and expenses referred to in Item 13 of the Registration
Statement. Except as provided in this Section 6 and in Section 8 and
Section 10 hereof, the Underwriters shall pay all of their own
expenses, including the fees and disbursements of their counsel
(excluding those relating to qualification, registration or exemption
under the Blue Sky laws and the Blue Sky memoranda).
(b) If the Firm Common Shares are purchased and sold on the
First Closing Date, then on the First Closing Date the Company shall
pay to the Representatives an aggregate amount equal to 2.0% of the
aggregate "Price to Public" set forth on the cover page of the
Prospectus for all Firm Shares sold hereunder, which amount shall
represent a non-accountable allowance for the expenses incurred by the
Representatives in connection with their duties and activities under
this Agreement. If any Optional Common Shares are purchased and sold on
the Second Closing Date, then on the Second Closing Date, for each
Optional Common Share purchased and sold, the Company shall pay to the
Representatives an additional amount equal to 2.0% of the "Price to
Public" per share set forth on the cover page of the Prospectus, which
amount shall represent an additional non-accountable allowance for the
expenses incurred by the Representatives as aforesaid.
SECTION 7. Conditions of the Obligations of the Underwriters. The
obligations of the Underwriters to purchase and pay for the Firm Common Shares
on the First Closing Date and the Optional Common Shares on the Second Closing
Date shall be subject to the accuracy of the representations and warranties on
the part of the Company herein set forth as of the date hereof and as of the
First Closing Date or the Second Closing Date, as the case may be, to the
accuracy of the statements of Company officers made herein pursuant to the
provisions of this Agreement, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective; if
the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus
shall have been filed in the manner and within the time period required
by Rule 424(b) of the Rules and Regulations; and prior to such Closing
Date, no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement or any post-effective
amendment to the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be
pending or, to the knowledge of the Company or the Representatives,
shall be
-10-
<PAGE> 11
contemplated by the Commission; and any request of the Commission for
inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to the Representatives'
satisfaction.
(b) The Representatives shall be satisfied that since the
respective dates as of which information is given in the Registration
Statement and Prospectus, (i) there shall not have been any change in
the capital stock of the Company or its subsidiaries or any material
change in the indebtedness of the Company or its subsidiaries, except
as contemplated by the Prospectus; (ii) except as set forth in or
contemplated by the Registration Statement or the Prospectus, no
material verbal or written agreement or other transaction shall have
been entered into by the Company or its subsidiaries which is not in
the ordinary course of business and which reasonably could be expected
to result in a material reduction in the future earnings of the Company
or its subsidiaries, taken as a whole; (iii) no loss or damage (whether
or not insured) to the property of the Company or its subsidiaries
shall have been sustained which materially and adversely affects the
condition (financial or otherwise), business or results of operations
of the Company or its subsidiaries, taken as a whole; (iv) no legal or
governmental action, suit or proceeding affecting the Company or its
subsidiaries which could have a material adverse effect upon the
Company and its subsidiaries, taken as a whole, or which affects or may
affect the transactions contemplated by this Agreement shall have been
instituted or threatened; and (v) there shall not have been any
material change in the condition (financial or otherwise), business,
management or results of operations the Company and its subsidiaries
taken as a whole which makes it impractical or inadvisable in the
judgment of the Representatives to proceed with the public offering or
purchase of the Common Shares as contemplated hereby.
(c) There shall have been furnished to the Representatives on
each Closing Date, in form and substance satisfactory to the
Representatives, such documents and certificates as the Representatives
shall reasonably request, including the following:
(i) An opinion of Elias, Matz, Tiernan & Herrick
L.L.P., special counsel for the Company, addressed to the
Representatives and dated the First Closing Date, or the
Second Closing Date, as the case may be, to the effect that:
(1) The Company has been duly incorporated
and is validly existing as a corporation and, based
solely upon a certificate issued by the proper
governmental authorities of the State of Maryland, is
in good standing under the laws of its jurisdiction
of incorporation, and has full corporate power and
authority to own its properties and conduct its
business as described in the Registration Statement;
the Company is not qualified to do business as a
foreign corporation in any jurisdiction;
(2) The authorized capital stock of the
Company is as set forth under the caption
"Capitalization" in the Prospectus, and the number of
shares of Common Stock that will be issued and
outstanding after consummation of the transactions
contemplated hereby is as set forth under the caption
"Prospectus Summary - The Offering" (assuming the
Underwriters do not elect to purchase any of the
Optional Common Shares) based solely on certificates
of officers of the Company; all necessary and proper
corporate proceedings have been taken in order to
validly authorize such authorized Common Stock and to
validly issue such issued and outstanding Common
Stock; all outstanding shares of Common Stock (and,
upon payment therefor as described herein, including
the Firm Common Shares and Optional Common Shares, if
any) have and will have been duly and validly
authorized and issued, are nonassessable and, to such
counsel's actual knowledge, fully paid, were not and
will not be issued in violation of any preemptive
rights or other rights to subscribe for or purchase
any securities, respectively, and conform to the
description thereof contained in the Prospectus;
without limiting the foregoing, there are no
preemptive or, except as described in the Prospectus,
other rights to subscribe for or purchase any of the
Common Shares to be sold by the Company hereunder;
neither the Articles of Incorporation nor Bylaws of
the Company, nor does any contract set forth in the
Exhibits to the Registration Statement, contain any
restriction upon the voting or transfer of any of the
shares of capital stock of the Company (including the
Firm Common Shares and the Optional Common Shares),
except such restrictions as may be imposed by federal
and state securities laws or as may be expressly
described in the Prospectus;
-11-
<PAGE> 12
(3) The recapitalization of the Company, as
described in the Prospectus (the "Recapitalization"),
was consummated prior to the First Closing Date;
(4) The terms of the Recapitalization
conform in all material respects to the description
thereof contained in the Prospectus; the
Recapitalization and the transactions contemplated
thereby have been duly authorized and consummated in
accordance with applicable law; the consummation of
the Recapitalization and the transactions
contemplated thereby did not result in a breach or
violation of any of the terms or provisions of or
constitute a default under any indenture, mortgage,
deed of trust, loan agreement or other agreement or
instrument of the Company set forth in the Exhibits
to the Registration Statement, nor did such
consummation result in any violation of the
provisions of the Articles of Incorporation or Bylaws
of the Company, or any statute, order, rule or
regulation known to such counsel of any court or
governmental agency or body having jurisdiction over
the Company;
(5) The certificate(s) evidencing the Common
Shares to be delivered hereunder are in due and
proper form under Maryland law, and when duly
countersigned by the Company's transfer agent and
registrar, and delivered to the Underwriters, or to
the order of the Underwriters, against payment of the
agreed consideration therefor in accordance with the
provisions of this Agreement, the Firm Common Shares
to be sold by the Company and the Optional Common
Shares to be sold by the Company to the extent that
the over-allotment option is exercised will pass to
the Underwriters free and clear of any liens, claims,
equities or other encumbrances of any kind or
character (other than any liens, claims, equities or
other encumbrances that arise out of any actions or
omissions of the Underwriters);
(6) Except as disclosed in the Prospectus,
there are no outstanding options, warrants or other
rights calling for the issuance of, and no
commitments or obligations to issue, any shares of
capital stock of the Company or any security
convertible into or exchangeable for capital stock of
the Company;
(7) (a) To such counsel's actual knowledge,
the Registration Statement has become effective under
the Act, and no stop order suspending the
effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued
and no proceedings for that purpose have been
instituted or are pending or overtly threatened by
the Commission; any required filing of the Prospectus
and any supplement thereto pursuant to Rule 424(b) of
the Rules and Regulations has been made in the manner
and within the time period required by such Rule
424(b);
(b) The Registration Statement, the
Prospectus and each amendment or supplement thereto
(except for the financial statements and schedules
and other statistical financial data and schedules
included therein and the information relating to the
Underwriters as described in Section 3(a) hereof, as
to which such counsel need express no opinion) comply
as to form in all material respects with the
requirements of the Act and the Rules and Regulations
as of their respective dates of effectiveness; and
(c) To such counsel's actual
knowledge, there are no franchises, leases,
contracts, agreements or documents of a character
required by the Act and the Rules and Regulations to
be disclosed in the Registration Statement or
Prospectus or to be filed as exhibits to the
Registration Statement which are not disclosed or
filed, as required;
(8) The Company has full right, corporate
power and authority to enter into this Agreement and
to sell and deliver the Common Shares to be sold by
it to the Underwriters; this Agreement has been duly
and validly authorized by all necessary corporate
action by the Company, has been duly and validly
executed and delivered by and on behalf of the
Company, and is a valid and binding agreement of the
Company enforceable against the Company in accordance
with its terms, except to the extent that (i) the
validity and binding effect and enforcement of this
Agreement may be limited by any applicable
bankruptcy, reorganization, moratorium, or similar
laws of general application, (ii) the availability of
equitable remedies may be limited by principles of
-12-
<PAGE> 13
equity, whether considered in a proceeding at law or
in equity, and (iii) the terms hereof may be limited
by applicable securities laws and the policies
embodied therein; and no approval, authorization,
order, consent, registration, filing, qualification,
license or permit of or with any court, regulatory,
administrative or other governmental body is required
for the execution and delivery of this Agreement by
the Company or the consummation of the transactions
contemplated by this Agreement, except such as have
been obtained and are in full force and effect under
the Act and under the Exchange Act and except as may
be required under applicable Blue Sky laws in
connection with the purchase and distribution of the
Common Shares by the Underwriters and the obtaining
of a letter of no objection from the NASD with
respect to such offering as to which no opinion need
be expressed by such counsel;
(9) The execution and performance of this
Agreement, the issuance, sale and delivery of the
Common Shares and the consummation of the
transactions herein contemplated will not violate any
of the provisions of the Articles of Incorporation or
Bylaws of the Company, conflict with, result in the
breach of, or constitute, either by itself or upon
notice or the passage of time or both, a default
under any agreement, mortgage, deed of trust, lease,
franchise, material license, indenture, permit or
other instrument to which the Company is a party or
by which the Company or any of its property may be
bound or affected that is set forth in the Exhibits
to the Registration Statement, or violate any
statute, judgment, decree, order, rule or regulation
of any court or government body having jurisdiction
over the Company or any of its property (other than
state securities or Blue Sky laws and regulations and
underwriter compensation under the Rules of the NASD
as to which counsel need not express any opinion);
(10) To such counsel's actual knowledge, the
Company is not in violation of its Articles of
Incorporation or Bylaws and, to such counsel's actual
knowledge the Company is not in breach of or default
with respect to any provision of any agreement,
mortgage, deed of trust, lease, loan agreement,
security agreement, license, indenture, permit or
other instrument to which the Company is a party or
by which the Company or any of its properties may be
bound or affected that is set forth in the Exhibits
to the Registration Statement, except where such
default would not materially adversely affect the
Company, and, to such counsel's actual knowledge, the
Company is in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes
of any court or jurisdiction to which they are
subject, except where noncompliance would not
materially adversely affect the Company;
(11) Except as disclosed in the Prospectus,
to such counsel's actual knowledge, there are no
legal actions, suits or governmental proceedings
pending or threatened before any court or
governmental agency, authority or body which, if
determined adversely to the Company or its
subsidiaries, would individually or in the aggregate
have a material adverse effect on the financial
position, stockholders' equity or results of
operations of the Company;
(12) To such counsel's actual knowledge no
holders of securities of the Company have rights to
the registration of shares of Common Stock or other
securities which would be required to be included in
the Registration Statement filed by the Company or
included in the offering contemplated thereby which
have not been duly waived in writing; and
(13) No transfer taxes are required to be
paid under the laws of the State of Maryland in
connection with the sale and delivery of the Common
Shares to the Underwriters hereunder.
In rendering such opinion, such counsel may rely, as
to matters of fact, on certificates of officers of the Company
and of governmental officials, in which case their opinion
shall state that they are so doing and that the Underwriters
are justified in relying on such certificates and copies of
such certificates are to be attached to the opinion. The
opinion shall be furnished to the Representatives and shall
expressly state that the Underwriters may rely on such opinion
as if it were addressed to them. Such counsel's opinion shall
be limited to matters governed by federal
-13-
<PAGE> 14
securities laws and by Maryland law. The opinion shall be
governed by, and whenever any opinion expressed herein with
respect to any matter is qualified by the phrase "to such
counsel's actual knowledge," to the knowledge of such counsel"
or "known by such counsel" or any similar phrase, such
language shall be interpreted according to, the Legal Opinion
Accord of the Section of Business Law of the American Bar
Association (1991). For purposes of such opinions, no
proceedings shall be deemed to be pending, no order or stop
order shall be deemed to be issued, and no action shall be
deemed to be instituted unless, in each case, a director or
executive officer of the Company shall have received a copy of
such proceedings, order, stop order or action. For purposes of
such opinions, no proceedings shall be deemed to be threatened
unless the potential litigant or government authority has
manifested in writing to the directors or management of the
Company or to counsel thereof a present intention to initiate
such litigation or proceedings. In addition, such opinion may
be limited to present statutes, regulations and judicial
interpretations and to facts as they presently exist as of the
date of such opinions; in rendering such opinions, such
counsel need assume no obligation to revise or supplement it
should the present laws be changed by legislative or
regulatory action, judicial action or otherwise. Such counsel
may assume that any agreement is the valid and binding
obligation of any parties to such agreement other than the
Company.
In addition, such counsel shall confirm that in
connection with the preparation of the Registration Statement,
they have participated in conferences with officers, employees
and other representatives of the Company, counsel for the
Underwriters, representatives of the independent public
accountants for the Company and representatives of the
Underwriters at which the contents of the Registration
Statement and Prospectus and related matters were discussed
and, although such counsel is not passing upon and does not
assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration
Statement and Prospectus and has not made any independent
check or verification thereof, on the basis of the foregoing
(relying as to materiality to a large extent upon the
statements of officers, employees and other representatives of
the Company), no facts have come to such counsel's attention
that lead them to believe that either the Registration
Statement (except for the financial statements, notes to the
financial statements, financial tables, and other tabular
financial and statistical data included therein or omitted
therefrom and the information from the Underwriters referred
to in Section 3(a) hereof, as to which counsel need express no
view) at the time such Registration Statement became effective
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements therein in light of the
circumstances in which they were made, not misleading, or the
Prospectus (except for the financial statements, notes to the
financial statements, financial tables, and other tabular
financial and statistical data included therein or omitted
therefrom and the information from the Underwriters referred
to in Section 3(a) hereof, as to which counsel need express no
view) as of its date contained an untrue statement of a
material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading.
(ii) An opinion of (x) Deckelbaum, Ogens & Fischer, Chartered,
rendered on behalf of ICARUS Corporation and ICARUS Development and
Marketing Corporation, (y) rendered on behalf of ICARUS Nippon
K.K. and (z) rendered on behalf of ICARUS Services Limited (each such
subsidiary of the Company, a "Subsidiary") shall be furnished to the
Representatives on each Closing Date, each such opinion addressing the
Subsidiary(s) that is the subject thereof and being in substantially
the following form:
(1) The Subsidiary has been duly
incorporated and is validly existing as a corporation
in good standing under the laws of its jurisdiction
of incorporation, and to such counsel's actual
knowledge after due inquiry and without researching
the requirements of each jurisdiction, is duly
qualified to do business as foreign corporation and
is in good standing in all other jurisdictions where
the ownership or leasing of properties or the conduct
of its business requires such qualification, except
for jurisdictions in which the failure to so qualify
would not have a material adverse effect on the
Subsidiary; and the Subsidiary has full corporate
power and authority to own its properties and conduct
its business as described in the Registration
Statement;
(2) All of the issued and outstanding shares
of capital stock of the Subsidiary
-14-
<PAGE> 15
has been duly authorized and, with respect to ICARUS
Corporation and ICARUS Services Limited, and based
upon the certification of Herbert G. Blecker and
Eunice E. Blecker, the books and records provided to
such counsel, and to such counsel's actual knowledge,
prior to the Recapitalization such shares of capital
stock were fully paid and nonassessable, and good and
valid title thereto was held by Herbert G. Blecker
and Eunice E. Blecker, and free and clear of all
liens, claims, equities or other encumbrances of any
kind or character;
(3) The consummation of the Recapitalization
and the execution and performance of this Agreement,
the issuance, sale and delivery of the Common Shares
and the consummation of the transactions herein
contemplated will not violate any of the provisions
of the charter, bylaws or other governing documents
of the Subsidiary, or, to such counsel's actual
knowledge, conflict with, result in the breach of, or
constitute, either by itself or upon notice or the
passage of time or both, a default under any material
agreement, mortgage, deed of trust, lease, franchise,
material license, indenture, permit or other material
instrument to which any Subsidiary is a party or by
which any Subsidiary or any of its property may be
bound or affected (which may be specified in a
schedule attached to such opinion), or violate any
statute, judgment, decree, order, rule or regulation
of any court or government body having jurisdiction
over any Subsidiary or any of its property (other
than state securities or Blue Sky laws and
regulations as to which counsel need not express any
opinion); and
(4) To such counsel's actual knowledge: the
Subsidiary is not in violation of its charter, bylaws
or other governing documents of the Subsidiary and,
to such counsel's actual knowledge the Subsidiary is
not in material breach of or default with respect to
any provision of any material agreement, mortgage,
deed of trust, lease, loan agreement, security
agreement, license, indenture, permit or other
material instrument to which the Subsidiary is a
party or by which the Subsidiary or any of its
properties may be bound or affected (which may be
specified in a schedule attached to such opinion),
except where such default would not materially
adversely affect the Subsidiary and/or its business
operations, and, to such counsel's actual knowledge,
the Subsidiary is in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes
of any court or jurisdiction to which they are
subject, except where noncompliance would not
materially adversely affect the Subsidiary and/or its
business operations.
In rendering such opinion, such counsel may rely, as
to matters of fact, on certificates of officers of the
Subsidiary and of governmental officials, in which case their
opinion shall state that they are so doing and that the
Underwriters are justified in relying on such certificates and
copies of such certificates are to be attached to the opinion.
The opinion shall be furnished to the Representatives and
shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them. Such counsel's
opinion shall be limited to matters governed by the laws
applicable to the jurisdiction in which the Subsidiary is
incorporated. The opinion of Deckelbaum, Ogens & Fischer,
Chartered, shall be governed by, and whenever any opinion
expressed therein with respect to any matter is qualified by
the phrase "to such counsel's actual knowledge," to the
knowledge of such counsel" or "known by such counsel" or any
similar phrase, such language shall be interpreted according
to, the Legal Opinion Accord of the Section of Business Law of
the American Bar Association (1991). For purposes of such
opinions, no proceedings shall be deemed to be pending, no
order or stop order shall be deemed to be issued, and no
action shall be deemed to be instituted unless, in each case,
a director or executive officer of the applicable Subsidiary
shall have received a copy of such proceedings, order, stop
order or action. For purposes of such opinions, no proceedings
shall be deemed to be threatened unless the potential
litigants or governmental authority has manifested in writing
to the directors or management of the applicable Subsidiary or
to counsel thereof a present intention to initiate such
litigation or proceedings. In addition, such opinions may be
limited to present statutes, regulations and judicial
interpretations and to facts as they presently exist as of the
date of such opinions, and such counsel need not survey or
research the laws of any other jurisdiction and/or survey or
research all laws of jurisdictions applicable to such opinions
in rendering such opinions, such counsel need assume no
obligation to revise or supplement it should the present laws
be changed by legislative or regulatory action, judicial
action or otherwise. Such counsel may
-15-
<PAGE> 16
assume that any agreement is the valid and binding obligation
of any parties to such agreement other than the applicable
Subsidiary.
In addition, the opinion of Deckelbaum, Ogens &
Fischer, Chartered, shall include language similar to that
found in the final paragraph of Section 7(c)(i) above and,
shall also indicate in writing to the Representatives that
they know of no reason why the Representatives would not be
justified in relying upon each of the other opinions referred
to in this Section 7(c)(ii).
(iii) An opinion of Grant Thornton, independent accountants
for the Company, addressed to the Representatives and dated the First
Closing Date, or the Second Closing Date, as the case may be, to the
effect that the Recapitalization was consummated and effected as a tax
free reorganization in accordance with all applicable laws and
regulations of the United States and the United Kingdom.
(iv) Such opinion or opinions of Locke Purnell Rain Harrell (A
Professional Corporation), counsel for the Underwriters, dated the
First Closing Date or the Second Closing Date, as the case may be, with
respect to such matters as the Representatives may reasonably require,
and the Company shall have furnished to such counsel such documents and
shall have exhibited to them such papers and records as they reasonably
may request for the purpose of enabling them to pass upon such matters.
In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and
governmental officials.
(v) A certificate of the Company executed by the President and
Chief Executive Officer, the Executive Vice President or the Chief
Financial Officer of the Company, dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that as of such
date:
(1) The representations and warranties of
the Company set forth in Section 2 of this Agreement
are true and correct as of the date of this Agreement
and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all
the conditions on its part to be performed or
satisfied on or prior to such Dates, respectively;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus or
any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the
Registration Statement has been issued; and to the
best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or
are pending or overtly threatened under the Act;
(3) Each of the respective signers of the
certificate has carefully examined the Registration
Statement and the Prospectus; in his opinion and to
the best of his knowledge, the Registration Statement
and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated
therein regarding the Company and its subsidiaries,
and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or
omits to state any material fact required to be
stated therein or necessary to make the statements
therein not misleading;
(4) Since the initial date on which the
Registration Statement was filed and as of the date
hereof, no agreement, written or oral, transaction or
event has occurred which should have been set forth
in an amendment to the Registration Statement or in a
supplement to or amendment of any Prospectus which
has not been disclosed in such a supplement or
amendment;
(5) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus and as of the date hereof, and
except as disclosed in or contemplated by the
Prospectus, there has not been any material adverse
change or a development involving a material adverse
change in the condition (financial or otherwise),
business, properties, results of operations or
management of the Company and its subsidiaries, taken
as a whole; and no legal or governmental action,
-16-
<PAGE> 17
suit or proceeding is pending or, to the best
knowledge of the Company, threatened against the
Company or its subsidiaries which is material to the
Company or its subsidiaries, whether or not arising
from transactions in the ordinary course of business,
or which may adversely affect the transactions
contemplated by this Agreement; neither the Company
nor its subsidiaries has entered into any verbal or
written agreement or other transaction which is not
in the ordinary course of business or which
reasonably could be expected to result in a material
reduction in the future earnings of the Company or
its subsidiaries, or incurred any material liability
or obligation, direct, contingent or indirect not in
the ordinary course of business, made any change in
its capital stock, made any material change in its
short-term debt or long-term debt or repurchased or
otherwise acquired any of the Company's capital
stock; and the Company has not declared or paid any
dividend, or declared or made any other distribution,
with respect to its outstanding capital stock payable
to stockholders of record, except as disclosed in the
Prospectus, on a date prior to the First Closing Date
or Second Closing Date, as the case may be; and
(6) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus, and as of the date hereof, and
except as disclosed in or contemplated by the
Prospectus, neither the Company nor any of its
subsidiaries has sustained a material loss or damage
by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(vi) On the date before this Agreement is executed and also on
the First Closing Date and the Second Closing Date, a letter addressed
to the Representatives from Grant Thornton LLP, independent
accountants, the first letter to be dated the day before the date of
this Agreement, the second letter to be dated the First Closing Date
and the third letter (in the event of a Second Closing) to be dated the
Second Closing Date, in form and substance satisfactory to the
Representatives.
(vii) On the date before this Agreement is executed, a letter
from Herbert G. Blecker and Eunice E. Blecker, in form and substance
satisfactory to you, confirming that for a period of 180 days from the
date of the Prospectus such persons will not directly or indirectly
sell or offer to sell or otherwise dispose of any shares of Common
Stock or any right to acquire such shares without the prior written
consent of Hoak Breedlove Wesneski & Co., which consent may be withheld
at the sole discretion of Hoak Breedlove Wesneski & Co.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Representatives and to Locke Purnell Rain Harrell (A Professional
Corporation), counsel for the Underwriters. The Company shall furnish the
Representatives with such manually signed or conformed copies of such opinions,
certificates, letters and documents as the Representatives request. Any
certificate signed by any officer of the Company and delivered to the
Representatives shall be deemed to be a representation and warranty by the
Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied or waived by
the Representatives, this Agreement at the election of the Representatives will
terminate upon written notification by the Representatives to the Company
without liability on the part of any Underwriter or the Company, except for the
expenses to be paid or reimbursed by the Company pursuant to Sections 6 and 8
hereof and except to the extent provided in Section 11 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. If this Agreement
shall be terminated by the Representatives pursuant to Section 7, or if the sale
to the Underwriters of the Common Shares at the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all reasonable and documented
out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the sale of the Common Shares, including but not limited to fees and
disbursements of Underwriters' counsel, printing expenses, travel expenses,
postage, telecopy charges and telephone charges relating directly to the
offering contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party, except that the provisions of this
Section, Section 6 and Section 10 shall at all times be effective and shall
apply.
-17-
<PAGE> 18
SECTION 9. Effectiveness of Registration Statement. The Representatives
and the Company will use their respective best efforts to cause the Registration
Statement to become effective, to prevent the issuance of any stop order
suspending the effectiveness of the Registration Statement and, if such stop
order be issued, to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter or
such controlling person may become subject, under the Act, the Exchange
Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of the Company,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to
state in any of them a material fact required to be stated therein or
necessary to make the statements in any of them not misleading, or
arise out of or are based in whole or in part on any inaccuracy in the
representations and warranties of the Company contained herein or any
failure of the Company to perform its obligations hereunder or under
law; and will reimburse each Underwriter and each such controlling
person for any legal and other expenses as such expenses are documented
and reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action;
provided, that the Company will not be liable in any such case to the
extent that any 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 the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with the information
furnished to the Company by the Representatives pursuant to Section 3
hereof; and provided further, that with respect to any untrue statement
or omission or alleged untrue statement or omission made in any
Preliminary Prospectus, the indemnity agreement contained in this
paragraph shall not inure to the benefit of any Underwriter from whom
the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Common Shares concerned (or to the benefit of
any person controlling such Underwriter) to the extent that any such
loss, claim, damage, liability or expense of such Underwriter or
controlling person results from the fact that a copy of the Prospectus
was not sent or given to such person at or prior to the written
confirmation of sale of such Common Shares to such person as required
by the Act, and if the untrue statement or omission has been corrected
in the Prospectus, unless such failure to deliver the Prospectus was a
result of noncompliance by the Company with its obligations under
Section 5(e) hereof.
(b) In addition to its other obligations under this Section
10, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, or any inaccuracy in the representations and
warranties of the Company herein or failure to perform the respective
obligations of the Company hereunder, all as described in Section
10(a), the Company will reimburse each Underwriter on a quarterly basis
for all reasonable and documented legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of
the Company's obligations to reimburse each Underwriter, upon receipt
of a written request therefor, for such expenses and the possibility
that such payments might later be held to have been improper in an
arbitration proceeding. To the extent that any such interim
reimbursement payment is so held to have been improper, each
Underwriter shall promptly return such payment to the Company together
with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by The Chase Manhattan
Bank (the "Prime Rate"). Any such interim reimbursement payments which
are not made to an Underwriter within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of
such request. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(c) Each Underwriter will severally indemnify and hold
harmless the Company, each of its
-18-
<PAGE> 19
directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims,
damages, liabilities or expenses, joint or several, to which the
Company, or any such director, officer, or controlling person may
become subject under the Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus,
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 the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 3 hereof
(which information is the sole information furnished to the Company by
the Underwriters for inclusion in the Registration Statement, any
Preliminary Prospectus, any Prospectus, or any amendment or supplement
thereto); and will reimburse the Company, or any such director,
officer, or controlling person for any legal and other expense as such
expenses are documented and reasonably incurred by the Company, or any
such director, officer, or controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. In addition to its
other obligations under this Section 10(c), each Underwriter severally
agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or
omission, described in this Section 10(c) which relates to information
furnished to the Company pursuant to Section 3 hereof or failure to
perform their several obligations hereunder, it will reimburse the
Company (and, to the extent applicable, each officer, director, or
controlling person) on a quarterly basis for all reasonable and
documented legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a
determination as to the propriety and enforceability of the
Underwriter's obligation to reimburse the Company (and, to the extent
applicable, each officer, director, or controlling person), upon
receipt of a written request therefor, for such expenses and the
possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper,
the Company (and, to the extent applicable, each officer, director, or
controlling person) shall promptly return such payment to the
Underwriters, together with interest, compounded daily, determined on
the basis of the Prime Rate. Any such interim reimbursement payments
which are not made within 30 days of a request for reimbursement, shall
bear interest at the Prime Rate from the date of such request. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise hereunder
to the extent it is not materially prejudiced as a proximate result of
such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such
action include both the indemnified party and the indemnifying party
and counsel to the indemnified party shall have opined in writing that
there may be a conflict between the positions of the indemnifying party
and the indemnified party in conducting the defense of any such action
or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election
so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in
accordance with the proviso to the next preceding sentence (it being
-19-
<PAGE> 20
understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel, approved by the
Underwriters in the case of Section 10(a), representing the indemnified
parties who are parties to such action) or (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of
the indemnifying party.
(e) If the indemnification provided for in this Section 10 is
required by its terms, but for any reason is held to be unavailable to
or otherwise insufficient to hold harmless any indemnified party under
paragraphs (a), (b) or (c) in respect of any losses, claims, damages,
liabilities or expenses as referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any losses, claims, damages,
liabilities or expenses referred to herein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company
and the Underwriters from the offering of the Common Shares or (ii) if
the allocation provided by clause (i) above is not permitted by
applicable law, then such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Underwriters in connection with
the statements or omissions or inaccuracies in their representations
and warranties herein which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the
Company and the Underwriters shall be deemed to be in the same
proportion, in the case of the Company, as the total price paid to the
Company for the Common Shares sold by it to the Underwriters (before
deducting expenses), and in the case of Underwriters as the
underwriting commissions received by them, bears to the total of such
amounts paid to the Company and the amounts received by the
Underwriters as underwriting commissions. The relative fault of the
Company and the Underwriters 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 stating material
fact or the inaccurate or the alleged inaccurate representations and/or
warranty relates to the information supplied by the Company or the
Underwriters and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include, subject to the limitations set forth in
subsection (d) of this Section 10, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in subsection
(d) of this Section 10 with respect to notice of commencement of any
action shall apply if a claim for contribution is to be made under this
subsection (e); provided, however, that no additional notice shall be
required with respect to any action for which notice has been given
under subsection (d) for the purposes of indemnification. The Company
and the Underwriters agree that it would not be just inequitable if
contribution pursuant to this Section 10 were determined solely by pro
rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to in this
subsection (e). Notwithstanding the provisions of this Section 10, no
Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting commissions received by such
Underwriter in connection with the Common Shares underwritten by it and
distributed to the public. No person guilty of fraudulent
misrepresentation (within a meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 10 are several in proportion to
their respective underwriting commitments and not joint.
(f) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in this
Section 10, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled
by arbitration conducted under the provisions of the Code of
Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written
notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice,
then the party responding to said demand or notice is authorized to do
so. Such an arbitration would be limited to the operation of the
interim reimbursement provisions contained in this Section 10 and would
not resolve the ultimate propriety or enforceability of the obligation
to reimburse expenses which is created by the provisions of this
Section 10.
SECTION 11. Default of One or More of the Several Underwriters. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate
-20-
<PAGE> 21
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase does not exceed 10% of the aggregate number of
the Common Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Common Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as may be specified by
the Representatives with the consent of the nondefaulting Underwriters, to
purchase the Common Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date. If, on the First Closing
Date or the Second Closing Date, as the case may be, any one or more of the
Underwriters shall fail or refuse to purchase Common Shares and the aggregate
number of Common Shares with respect to which such default occurs exceeds 10% of
the aggregate number of Common Shares to be purchased on such date, and
arrangements satisfactory to the Representatives and the Company with respect to
the First Closing Date or the Second Closing Date for the purchase of such
Common Shares are not made within 48 hours, the Agreement shall terminate
without liability of any party to any other party except that the provisions of
Section 6 and Section 10 shall at all times be effective and survive such
termination. In any such case either the Representatives or the Company, acting
jointly, shall have the right to postpone the First Closing Date and the Second
Closing Date, as the case may be, for a period of time as agreed to by the
parties in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
11. Any action taken under this Section 11 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 12. Effective Date. This Agreement shall become effective at
such time as the Registration Statement has become effective and you shall have
released the Firm Common Shares for sale to the public; provided, however, that
the provisions of Sections 6, 8, 10 and 13 hereof shall at all times be
effective. For the purposes of this Section 12, the Firm Common Shares shall be
deemed to have been so released upon the release by the Underwriters for
publication, at any time after the Registration Statement has become effective,
of any newspaper advertisement relating to any of the Common Shares, or upon the
release by the Underwriters of any of the Common Shares for sale to the public,
whichever may occur first.
SECTION 13. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice
to the Representatives or by the Representatives by notice to the
Company at any time prior to the time this Agreement shall become
effective as to all its provisions, and any such termination shall be
without liability on the part of the Company to the Underwriters
(except for the expenses to be paid or reimbursed by the Company
pursuant to Sections 6 and 8 hereof and except to the extent provided
in Section 10 hereof) or of any Underwriter to the Company (except to
the extent provided in Sections 6 and 10 hereof).
(b) This Agreement may also be terminated by the
Representatives prior to the First Closing Date or prior to the Second
Closing Date, as the case may be, by notice to the Company (i) if
additional material governmental restrictions not in force and effect
on the date hereof shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock
Exchange or in the NASDAQ National Market or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or in the NASDAQ National Market or
in the over the counter market by the NASD or the Commission, or a
general banking moratorium shall have been established by federal, New
York or Maryland authorities, (ii) if an outbreak of hostilities or
other national or international calamity or any material change in
political, financial or economic conditions shall have occurred or
shall have accelerated to such an extent that the effect on the
financial markets shall, in the judgment of the Representatives, affect
adversely the marketability of the Common Shares, (iii) if any adverse
event shall have occurred or shall exist which makes untrue or
incorrect in any material respect any statement or information
contained in the Registration Statement or Prospectus or which is not
reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information
contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened, or
there shall have been any development or prospective development
involving particularly the business or properties or securities of the
Company or its subsidiaries taken as a whole or the transactions
contemplated by this Agreement, which, in the judgment of the
Representatives, may materially and adversely affect the business or
earnings of the Company and its
-21-
<PAGE> 22
subsidiaries taken as a whole or makes it impracticable to offer or
sell the Common Shares. Any termination pursuant to this subsection (b)
shall be without liability on the part of the Underwriters to the
Company or on the part of the Company to the Underwriters (except for
expenses to be paid or reimbursed by the Company pursuant to Sections 6
or 10 hereof and except to the extent provided in Section 10).
SECTION 14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its officers and of the Underwriters set forth in
or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Underwriters or the
Company or any of its partners, officers or directors or any controlling person,
as the case may be, and will survive delivery of and payment for the Common
Shares sold hereunder and any termination of this Agreement.
SECTION 15. Notices. All communications hereunder shall be in writing
and, if sent to the Underwriters, shall be mailed, delivered or telecopied or
telegraphed and confirmed to the Underwriters at Hoak Breedlove Wesneski & Co.,
One Galleria Tower, 13355 Noel Road, Suite 1650, Dallas, Texas 75240, Attention:
Lawrence E. Wesneski, with a copy to Locke Purnell Rain Harrell (A Professional
Corporation), 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201, Attention: John
B. McKnight; and if sent to the Company shall be mailed, delivered or telecopied
or telegraphed and confirmed to the Company at 600 Jefferson Plaza, Fifth Floor,
Rockville, Maryland 20852, Attention: Herbert G. Blecker, President, with a copy
to Elias, Matz, Tiernan & Herrick L.L.P, 734 15th Street, N.W., 12th Floor,
Washington, D.C. 20005, Attention: Jeffrey A. Koeppel. The Company or the
Underwriters may change the address for receipt of communications hereunder by
giving notice to the others.
SECTION 16. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 11 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 10, and in each case their
respective successors, heirs, personal representatives and assigns, and no other
person will have any right or obligation hereunder. No such assignment shall
relieve any party of its obligations hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from any of the Underwriters
merely by reason of such purchase.
SECTION 17. Partial Unenforceability. The invalidity or
unenforceability of any Section, subsection, paragraph or provision of this
Agreement shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, subsection, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 18. Directed Share Program. The Underwriters agree with the
Company that not less than 10% of the Firm Shares shall be reserved for sales to
such persons and entities as the Company shall direct.
SECTION 19. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of Maryland.
SECTION 20. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and the Underwriters.
If the foregoing is in accordance with the Underwriters' understanding
of our agreement, kindly sign and return to us the enclosed copies hereof,
whereupon it will become a binding agreement among the Company and the
Underwriters, all in accordance with its terms.
Very truly yours,
ICARUS International, Inc.
-22-
<PAGE> 23
By:
Name:
Title:
-23-
<PAGE> 24
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
the Representatives as of the date
first above written. Acting as
Representatives of the several
Underwriters named in the attached
Schedule A.
HOAK BREEDLOVE WESNESKI & CO.
LAIDLAW GLOBAL SECURITIES, INC.
By: HOAK BREEDLOVE WESNESKI & CO.
By:
Name:
Title:
-24-
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Common
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
<S> <C> <C>
Hoak Breedlove Wesneski & Co.
Laidlaw Global Securities, Inc.
Total 2,000,000
</TABLE>
-25-
<PAGE> 1
EXHIBIT 5.1
[FORM OF EMTH LEGAL OPINION]
_____________, 1998
Board of Directors
ICARUS International, Inc.
600 Jefferson Plaza
Fifth Floor
Rockville, Maryland 20852
Gentlemen:
We have acted as special counsel to ICARUS International, Inc. (the
"Company") in connection with the preparation and filing by the Company with
the Securities and Exchange Commission ("SEC") of a Registration Statement on
Form SB-2 ("Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the public offering by the Company
of 2,300,000 shares (including 300,000 shares subject to an over-allotment
option) of common stock, par value $0.01 per share (the "Common Stock"), of the
Company, pursuant to the underwriting agreement dated __________, 1998 (the
"Underwriting Agreement"), by and among Hoak, Breedlove, Wesneski & Co.,
Dallas, Texas, and Laidlaw Global Securities, Inc., New York, New York, as
representatives of the several underwriters, and the Company. Capitalized terms
defined in the Registration Statement and not otherwise defined herein are used
herein with the meanings as so defined.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Registration Statement and
such corporate records, agreements, documents and other instruments, including
the Underwriting Agreement, and such certificates or comparable documents of
public officials and of officers and representatives of the Company, and have
made such inquiries of such officers and representatives, as we have deemed
relevant or necessary as a basis for the opinions hereinafter set forth.
<PAGE> 2
ICARUS International, Inc.
___________, 1998
Page 2
In such examination, we have assumed without independent verification
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents. As to all questions of fact material to
this opinion that have not been independently established, we have relied upon
certificates or comparable documents of officers of the Company, and we have
also relied upon the representations and warranties of the Company contained in
the Underwriting Agreement and have relied upon the accuracy and completeness
thereof without independent verification.
Based on the foregoing, and subject to the qualifications stated
herein, as of the date hereof, we are of the opinion that:
The 2,300,000 shares of Common Stock of the Company to be registered
for sale by the Company under the Registration Statement have been
duly authorized, and, when issued and sold as contemplated in the
Registration Statement and the Underwriting Agreement upon receipt of
the required consideration therefor, will be validly issued, fully
paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus included therein. In giving the foregoing
consent, we do not admit that we are in the category of persons whose consent
is required under Section 7 of the Securities Act or the rules and regulations
of the SEC promulgated thereunder.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By:
-----------------------------
Jeffrey A. Koeppel, a Partner
<PAGE> 1
Exhibit 10.4
CONFIDENTIAL TREATMENT REQUESTED-REDACTED
SOFTWARE DISTRIBUTION AND LICENSE AGREEMENT
This SOFTWARE DISTRIBUTION AND LICENSE AGREEMENT (this "Agreement")
is entered into as of the 17th day of January 1995, by and between ICARUS
CORPORATION, a Maryland corporation with offices at One Central Plaza, 11300
Rockville Pike, Rockville, Maryland 20852 ("ICARUS"), and PRIMAVERA SYSTEMS
INC., a Delaware corporation having an office at Two Bala Plaza, Bala Cynwyd,
Pennsylvania 19004 ("PRIMAVERA").
WHEREAS, Primavera has developed computer software and related
technology related to the scheduling of projects, and
WHEREAS, ICARUS has developed technology related to the project evaluation
and process evaluation of projects in the processing and related industries, and
WHEREAS, ICARUS desires to distribute Primavera computer software
technology with its computer software and market such bundled software worldwide
to its customers via its sales force, and through its Affiliate and its Dealers.
NOW, THEREFORE, in consideration of the mutual promises and undertakings
set forth in this Agreement, ICARUS and Primavera hereby agree as follows:
ARTICLE I
CONTRACT DOCUMENTS
1.01 Contract Documents. The agreement between the parties (Agreement)
shall consist of the Basic Agreement (pages 1 through 28) and the following
appendix:
1.02 Conflict. Should there be any conflict between the Basic Agreement
and the appendix, the Basic Agreement shall control.
ARTICLE II
DEFINITIONS
2.01 "Primavera Software" means the Primavera Project Planner project
scheduling software product commonly referred to in the industry as "P3 for
Windows," and all other software and firmware received by ICARUS under this
Agreement including user documentation, updates, upgrades and replacements
thereto, marketed directly or indirectly by Primavera.
2.02 "Source Code" means the Licensed Software when written in a form or
language understandable to humans, generally in a higher level computer language
and further including embedded comments, where such source code as created by
Primavera contains
- 1 -
<PAGE> 2
sufficient information to permit a programmer with ordinary skills in writing
code for project scheduling to update or modify such software.
2.03 "User Documentation" means user manuals or other written descriptions
of the Licensed Software prepared by Primavera to assist an end user of such
software to understand and use such software.
2.04 "Program Documentation" means specifications and other written
descriptions of the Licensed Software sufficiently detailed to enable a skilled
programmer to have reasonable facility in understanding, using, updating and
modifying such software, and in incorporating such software in other software
products.
2.05 "Enhancement Kit" means a sealed package commercially released by
Primavera containing an Upgrade or Update to the Licensed Software encoded in
Object Code on electronic media, and documentation therefor, developed by
Primavera during the term of this Agreement.
2.06 "Licensed Software" means the Primavera Software and all Updates
and Upgrades thereto.
2.07 "Licensed Materials" means the Licensed Software and the User
Documentation.
2.08 "Confidential Information" means business and technical information
of a party hereto that is treated as confidential by such party, and which
includes but is not limited to computer programs, source code, algorithms,
customer lists, price lists, marketing plans and business plans, and that is
furnished to the other party hereto with written notice that the same is deemed
"Confidential Information."
2.09 "Object Code" means the Licensed Software in a form that can be
executed by a computer using the appropriate operating system without
compilation or interpretation. Object Code specifically excludes Source Code.
2.10 "Firmware" means any hardware device which must be present in the
computer operating environment while Primavera Software is functioning.
2.11 "ICARUS Software" means software marketed by ICARUS that incorporates
ICARUS project evaluation and/or process evaluation and/or cost estimating
and/or cost engineering technology for the chemical processing industries,
including but not limited to the chemical, petrochemical, oil refining, power
generation, ore beneficiation, pulp and paper, food, and related industries.
- 2 -
<PAGE> 3
2.12 "Software Product" means a software product that comprises ICARUS
Software bundled with the Licensed Software, and is packaged and marketed by
ICARUS, its Affiliates, or its Dealers as a single product.
2.13 All dollar ($) figures herein are United States dollars.
2.14 "License Year" means a calendar year. The First License Year shall be
the calendar year 1995.
2.15 "Dealer" means an ICARUS authorized dealer, distributor, or Business
Partner that purchases or licenses Software Products from ICARUS and resells or
licenses such Software Products to another Dealer or to an End User. All Dealers
are independent contractors.
2.16 "Affiliate" means ICARUS Services Limited, an English corporation
having an office at The Graftons, Stamford New Road, Altrincham WA14 1DQ,
England. ICARUS Services Limited is a corporation separate from ICARUS and is an
independent contractor.
2.17 "Primavera Product Kits" or " Product Kits" means a sealed package
bearing a unique serial number or series of unique serial numbers and which
includes (a) a copy of Primavera Software encoded in Object Code on electronic
media in a form released by Primavera, and (b) User Documentation developed by
Primavera.
2.18 "End User" means a person or entity that purchases or licenses one or
more copies of the Software Products from ICARUS, its Affiliate or Dealers, and
uses such Software Products solely in accordance with the terms of a Primavera
End User License.
2.19 "Primavera End User License" means the written license agreement
contained in each Primavera Product Kit that is distributed to each End User as
part of a Software Product and which shall be the same as that distributed by
Primavera to its own customers), and pursuant to which the End User has the
limited right to use the Licensed Software. The form of the Primavera End User
License is attached hereto as Appendix B.
2.20 "Update" means all corrections, minor improvements or additions, and
substitutions to the Licensed Materials prepared or owned by Primavera and which
may from time to time be distributed to end users without imposition of an
additional charge.
2.21 "Upgrade" means all modifications, additions and substitutions to
the Licensed Materials that result in substantial performance, structural, or
functional improvements or additions for which Primavera generally imposes a
separate charge on its end users.
2.22 "Kit Order" means a written order from ICARUS to Primavera for
Product Kits or Enhancement Kits manufactured by Primavera.
- 3 -
<PAGE> 4
2.23 "Derivative Work" means any work, other than the Software Product,
derived from the Licensed Software or that utilizes or incorporates any part
thereof, in any medium, format or form whatsoever.
ARTICLE III
LICENSE GRANT
3.01 License. Primavera hereby grants to ICARUS, and ICARUS hereby accepts
from Primavera, a worldwide nonexclusive non-transferable right and license
during the term of this Agreement to:
(a) Distribute Primavera Product Kits solely as part of a Software
Product, and not as a standalone product, to End Users by sale or license
directly and through its Affiliate and Dealers;
(b) Distribute Primavera Product Kits by sale or license directly
and through its Affiliate and Dealers to End Users that have previously licensed
ICARUS Software;
(c) Distribute Enhancement Kits to End Users that have previously
licensed a Software Product by sale or license directly and through its
Affiliate and Dealers; and
(d) Use, publicly perform and publicly display the Licensed
Materials in marketing, promotion and support of the Software Products and to
sublicense its Affiliate and Dealers to do the same.
3.02 Version. Upon the commercial release by Primavera of Upgrades, if
any, to the Licensed Materials, ICARUS and Primavera shall jointly decide which
version of the Licensed Materials to include in the Software Products. It is
intended that during throughout the term of this Agreement that ICARUS shall
deliver the then current release of the Primavera software to its customers
subject to the time required by ICARUS to coordinate its own software with the
latest version from Primavera.
3.03 Distribution of Product Kits. ICARUS shall distribute the sealed
Primavera Product Kits and Enhancement Kits intact, with all packaging,
documentation, and Primavera End User Licenses contained therein. ICARUS shall
neither add any materials nor remove any materials from the Product Kits or the
Enhancement Kits. ICARUS shall not alter, deface or conceal any trademark or
tradename appearing in or on the Product Kits or the Enhancement Kits. ICARUS
shall require by written agreement that its Affiliate and Dealers adhere to the
terms of this provision.
- 4 -
<PAGE> 5
[*]
In the event Primavera shall receive any ICARUS software or firmware from
ICARUS, Primavera shall not in any way translate, disassemble, reverse engineer
or decompile same. This provision shall survive the termination of this
Agreement.
3.05 Title; Reserved Rights.
(a) ICARUS acknowledges and agrees that the Licensed Materials are
owned by Primavera. The ownership of the copyrights in the Licensed Materials,
and title to the Licensed Materials and all copies thereof, shall remain with
Primavera. ICARUS shall have no ownership rights to them by virtue of this
Agreement.
(b) Primavera acknowledges and agrees that the ICARUS Software and
the Software Products, as collective works, are owned by ICARUS. The ownership
of the copyrights in the ICARUS software and the Software Products, as
collective works, and title to the ICARUS Software and all copies thereof, shall
remain with ICARUS. Primavera shall have no ownership rights to them by virtue
of this Agreement.
(c) Primavera hereby reserves all rights not specifically granted
herein to ICARUS. Except as expressly provided in Paragraph 3.01 hereof,
Primavera does not convey to ICARUS in this Agreement any intellectual property
rights in the Licensed Materials, including without limitation rights under
patent or copyright. By way of example, ICARUS shall have no right to reproduce,
copy, or modify or prepare "Derivative Works. of the Licensed Materials, the
Primavera Product Kits, or the Enhancement Kits.
3.06 No Obligation to Develop or Market. Nothing contained in this
Agreement shall be construed to obligate ICARUS to develop, market or license
the Software Products.
3.07 Competing Products.
(a) Primavera acknowledges and agrees that ICARUS may develop,
attempt to develop, market or license to or from others project scheduling or
evaluation software similar in nature to the Primavera Software or the Software
Products in competition with PRIMAVERA, none of which is precluded by this
Agreement.
(b) ICARUS acknowledges and agrees that, in view of the nonexclusive
nature of the rights granted to ICARUS herein, Primavera retains the right to
offer, sell, license,
- ----------------
[*] This information has been omitted pursuant to a request for
confidential treatment.
- 5 -
<PAGE> 6
market or distribute the Licensed Materials and the Primavera Product Kits
directly or indirectly to any person or entity for any purpose, including
without limitation the development of software products that are functionally
similar to or competitive with ICARUS Software, the Software Products or any
other product hereafter distributed by ICARUS.
(c) ICARUS agrees to furnish reasonable advance notice to Primavera
in writing prior to entering into an agreement to license from a third party
project scheduling or project evaluation software, where such license permits
ICARUS to market such project scheduling or project evaluation software for
general license or sale to others. Primavera agrees to furnish reasonable
advance notice to ICARUS in writing prior to entering into an agreement to
license from a third party design or estimating software, where such license
permits Primavera to market such design or estimating software for general
license or sale to others.
3.08 Rental or Loan of Product Kits.
(a) ICARUS shall neither rent nor loan the Product Kits or the
Enhancement Kits, provided, however, ICARUS shall have the right to loan to
prospective End Users solely for evaluation purposes those Product Kits and
Enhancement Kits furnished to ICARUS pursuant to subparagraph (b). ICARUS shall
require by written agreement that its Affiliate and Dealers adhere to the terms
of this provision.
(b) Primavera shall, during the term of this Agreement, and upon
written request from ICARUS, furnish to ICARUS at no charge (except as provided
below) in each calendar year no more than twelve (12) Primavera Product Kits and
any related Enhancement Kits for inclusion in Software Products for loan to
prospective End Users. In no event shall the duration of any loan exceed sixty
(60) days. In the event the duration of any loan exceeds sixty (60) days, ICARUS
shall pay to Primavera the applicable royalty for said Product Kit without
regard to whether ICARUS invoices or collects funds from said prospective End
User, or otherwise causes the termination of the loan period; provided, however,
ICARUS may, subject to the limitations of the license grant, thereafter sell or
license said Primavera Product Kit without incurring any additional royalty
obligation to Primavera for said kit. ICARUS shall reimburse Primavera for the
shipping costs incurred by Primavera in furnishing such Product Kits for loan.
3.09 Internal Use; Training; Sales Demonstrations. Primavera shall, during
the term of this Agreement, and upon written request from ICARUS, furnish to
ICARUS at no charge in each calendar year Primavera Product Kits and any related
Enhancement Kits for use by ICARUS, its Affiliate and Dealers, in the amounts
set forth below, solely for their internal use, sales demonstrations, training
and technical support. ICARUS shall pay to Primavera the shipping costs incurred
by Primavera in furnishing same.
- 6 -
<PAGE> 7
[*]
3.10 License of Primavera Marks.
(a) Primavera hereby grants to ICARUS for the term of this Agreement
a worldwide non-exclusive right and license, but not the obligation, to use and
sublicense to its Affiliate and Dealers the Primavera trademarks, service marks,
brand names, and logos used by Primavera for the Primavera Software (the
"Primavera Marks") in connection with the distribution, advertising and
promotion of the Software Products, subject to the provisions of this Paragraph
3.10.
(b) ICARUS acknowledges and agrees that except for the limited right
to use the Primavera Marks to the extent herein setforth, ICARUS has no rights
in the Primavera Marks. ICARUS acknowledges that Primavera owns and retains all
proprietary rights in and to all Primavera Marks, and that ICARUS shall take no
action or make any registration that would otherwise convey or grant an interest
in said Primavera Marks. ICARUS agrees not to contest or take any action to
contest Primavera's ownership of the Primavera Marks, or to use, employ or
attempt to register any trademark, service mark, or tradename in any country in
the world that is confusingly similar to the Primavera Marks.
(c) ICARUS agrees that Primavera shall be the sole owner of any and
all goodwill in the Primavera Marks built up in the United States and in any
country in which the Software Products are distributed by ICARUS.
(d) ICARUS shall take no action that impairs or otherwise tarnishes
the Primavera Marks. ICARUS shall not remove or alter any Primavera Mark from
the Product Kits or Enhancement Kits.
(e) ICARUS shall require its Affiliate and Dealers to adhere to the
terms of this provision, and shall take steps generally consistent with the
monitoring of ICARUS's own marks to ensure that its Affiliate and Dealers use
the Primavera Marks in accordance with the terms of the license herein.
(f) ICARUS agrees to cooperate (at no cost to ICARUS) with Primavera
to protect Primavera's ownership of and interest in the Primavera Marks. This
cooperation includes prompt notice to Primavera of instances known to ICARUS in
which a third party is using the Primavera Marks without authorization.
Primavera shall have the right, but not the obligation, and shall bear all costs
and expenses, to (i) institute and prosecute any
- --------------
[*] This information has been omitted pursuant to a request for
confidential treatment.
- 7 -
<PAGE> 8
actions for infringement of the Primavera Marks throughout the world; (ii)
defend any petition to cancel any registration of the Primavera Marks; and (iii)
oppose any attempted use of or application to register any mark confusingly
similar to, or a colorable imitation of, any of the Primavera Marks throughout
the world. In the event that Primavera elects not to exercise the foregoing
rights in any particular instance, ICARUS may, at its cost and expense, exercise
such rights.
(g) Nothing contained in this Agreement shall be deemed to grant to
Primavera any rights to use, sublicense or otherwise, any trademarks, service
marks, brand names, logos belonging to ICARUS; and Primavera agrees that ICARUS
shall be the sole owner of any and all goodwill in the aforementioned, and
Primavera shall take no action that impairs or otherwise tarnishes same.
3.11 Misleading Practices; Unauthorized Warranties.
(a) To protect and preserve the goodwill and image of Primavera and
the Primavera Software, ICARUS agrees that it shall:
(i) refrain from publishing or using any misleading or
deceptive advertising or promotional material with respect to the Primavera
Software; and
(ii) refrain from making any representations, warranties
or guarantees to its Affiliate, Dealers or End Users with respect to the
specifications, features or capabilities of the Primavera Software or the
Product Kits that are inconsistent with or in addition to the warranty contained
in Primavera's End User License Agreement or the descriptions contained in the
User Documentation.
(b) ICARUS shall require that its Affiliate and Dealers agree in
writing to abide by the terms of this provision.
(c) ICARUS shall indemnify, defend and hold Primavera harmless
against claims by third parties arising from a breach by ICARUS, its Affiliate
or Dealers of this provision.
ARTICLE IV
PRODUCT KITS
4.01 Manufacture of Product Kits. Primavera shall have the sole right
to manufacture Primavera Product Kits, Demo Versions, and Enhancement Kits.
ICARUS shall not manufacture such kits.
4.02 Copy Protection Code. In the event ICARUS furnishes Primavera with
copy protection software in object code form, Primavera shall, at the reasonable
request of
- 8 -
<PAGE> 9
ICARUS, incorporate such software in the Licensed Software contained in the
Primavera Product Kits delivered to ICARUS hereunder.
4.03 Product Kit Content; Revisions.
(a) Primavera reserves the right at any time without liability or
prior notice to ICARUS to (i) determine the contents of each Product Kit, and
(ii) revise such contents, provided, however, that the incorporation of any
Upgrade or Update in the Primavera Software contained in the Product Kit shall
be subject to the provisions of subparagraph (b).
(b) Primavera shall furnish to ICARUS no less than thirty (30) day
advance written notice of the commercial release by Primavera of any Upgrades or
Updates to the Primavera Software, which notice shall describe generally the
revisions reflected in such Upgrade or Update. ICARUS shall thereafter have the
right, which it may exercise by furnishing written notice to Primavera, to order
from Primavera Product Kits containing Primavera Software that incorporates such
Update or Upgrade. In the absence of such written notice from ICARUS, Primavera
shall, in fulfillment of Kit Orders from ICARUS, continue to ship to ICARUS
Product Kits containing Primavera Software that does not incorporate such
Upgrades or Updates. Nothing herein shall be deemed to preclude ICARUS from
subsequently electing to receive such upgrade or update provided such upgrade or
update remains available from Primavera.
(c) Nothing in this Agreement shall be construed to impose on
Primavera an obligation to develop or commercially release Upgrades to the
Primavera Software.
4.04 Revised Product Kits. In the event Primavera commercially releases
revised Product Kits, ICARUS may exchange the Product Kits in its inventory for
such revised Product Kits. ICARUS shall pay all shipping costs in connection
with any such exchange.
4.05 Initial Delivery of Product Kits. Within fourteen (14) days of the
date of this Agreement, Primavera shall deliver to ICARUS an initial supply of
12 Product Kits for inclusion by ICARUS in the Software Products.
4.06 Orders for Product Kits. Subsequent to the initial delivery of
Product Kits pursuant to Paragraph 4.05, all future orders by ICARUS for Product
Kits and Enhancement Kits shall be made pursuant to written Kit Orders.
4.07 Shipment of Product Kits; Risk of Loss.
(a) Primavera shall ship Product Kits and Enhancement Kits ordered
by ICARUS within five (5) days of the date of receipt by Primavera of the Kit
Order.
(b) Primavera shall ship all Product Kits and Enhancement Kits
F.O.B. Primavera's point of shipment to the ICARUS facilities designated in the
Kit Order. Unless
- 9 -
<PAGE> 10
specified in the Kit Order, Primavera shall select the mode of shipment and the
carrier. ICARUS shall pay all shipping, freight and insurance charges.
(c) All risk of loss or damage for any Product Kits or Enhancement
Kits shall pass to ICARUS upon delivery by Primavera to the freight carrier, to
ICARUS, or to ICARUS's agent for delivery, whichever first occurs.
4.08 Controlling Terms. The terms and conditions of this Agreement shall
apply to each order accepted or shipped by Primavera. Any terms or conditions
appearing on the face or reverse side of any Kit Order that are different or
additional to the terms and conditions of this Agreement shall not be binding on
the parties unless both parties hereto expressly agree in a separate writing to
be bound by such different or additional terms and conditions. The terms and
conditions of this Agreement shall govern in the event of any conflict between
this Agreement and the terms of any Kit Order.
4.09 Cancellation of Order by Primavera. Primavera reserves the right to
cancel or suspend any Kit Order placed by ICARUS for Product Kits, or refuse or
delay shipment thereof, if ICARUS fails to make payments as required herein.
4.10 Cancellation of Order by ICARUS. ICARUS may cancel any Kit Order
without fee ten (10) days or more before the confirmed shipping date of the
Product Kits or Enhancement Kits.
4.11 Primavera End User License Agreement. All Product Kits and
Enhancement Kits (and Licensed Materials contained therein) furnished hereunder
and distributed by ICARUS shall be subject to the terms and conditions of
Primavera's End User License included in each Product Kit and Enhancement Kit,
as may be amended by Primavera from time to time. ICARUS shall ensure that each
End User shall receive such End User License.
4.12 Security Interest. ICARUS hereby pledges, assigns and grants to
Primavera, its successors and assigns a continuing security interest in and to
all Product Kits and Enhancement Kits delivered by Primavera to ICARUS hereunder
to secure payment in full to Primavera. ICARUS shall execute such UCC-1 forms
and other documents reasonably requested by Primavera to perfect such security
interest. Nothing herein shall be deemed to grant to Primavera a security
interest in any ICARUS Software or Software Product.
- 10 -
<PAGE> 11
ARTICLE V
PRICES; PAYMENT
5.01 Prices to ICARUS.
(a) ICARUS shall pay to Primavera the following license fees:
(i) for each copy of a Software Product licensed for operation
by End User on a single user system, a Base License Fee (as adjusted in
subparagraph (b) below) based upon the number of single user systems as set
forth in the "Single User Systems" license fee chart in Appendix A, and subject
to the additional terms and conditions contained therein; and
(ii) for each copy of a Software Product licensed for
operation by End User on network systems, a Base License Fee (as adjusted in
subparagraph (b) below) based upon the number of simultaneous users in the End
User organization, as set forth in the "LAN" license fee chart in Appendix A,
and subject to the additional terms and conditions contained therein; and
(iii) [*] In the event that an Enhancement Kit commercially
released by Primavera contains an Update, not an Upgrade, ICARUS shall pay to
Primavera for each Enhancement Kit only the shipping costs incurred by Primavera
in furnishing such Enhancement Kit to ICARUS.
(iv) The Base License Fees set forth in subparagraphs (i) and
(ii) above shall be adjusted for inflation as set forth in subparagraph (b)
below, and all pricing derived therefrom shall be likewise adjusted.
(b) Commencing with calendar year 1996, the adjusted Base License
Fee payable by ICARUS to Primavera for each additional copy of a Software
Product licensed to an End User shall consist of the Base License Fee for each
such copy, adjusted as of the commencement of each License Year during the term
hereof, by any change in the Index now known as the United States Bureau of
Labor Statistics, Consumer Price Index for all Urban Consumers, Washington, D.C.
Metropolitan Area (1982-84 = 100) (hereinafter referred to as the Index), or its
successor (or if discontinued its most nearly comparable
- --------------
[*] This information has been omitted pursuant to a request for
confidential treatment.
- 11 -
<PAGE> 12
successor) Index. Such adjustment shall be made by adding to the Base License
Fee, the product of the Base License Fee multiplied by a fraction
(i) the numerator of which is the difference between the Index
figure for the latest month of January for which the index is available at the
time of invoicing and the Index figure for the month of January for the First
License Year, and
(ii) the denominator of which is the Index figure for the
month of January of the First License Year.
The result of the foregoing computation shall constitute the adjusted
annual Base License Fees payable by ICARUS for each additional copy of a
Software Product licensed by ICARUS during the then current License Year. In the
event such Index is discontinued with no successor or comparable Index, then the
parties shall attempt to agree upon a substitute formula for the determination
of such License Fee adjustments in the basic License Fee to be paid hereunder,
but if they are unable to agree upon a substitute formula within thirty (30)
days, then the matter shall be determined by arbitration in accordance with the
then applicable rules of the American Arbitration Association. However, any such
substitute formula for License Fee adjustments whether arrived at by agreement
of the parties or by arbitration, shall require such adjustments to be
calculated and effected on the annual basis hereinbefore set forth.
5.02 End User Identification Reports; Forecasts.
(a) ICARUS shall submit to Primavera within thirty (30) days
following the last day of each ICARUS corporate quarter, a quarterly report
setting forth the names and addresses of each End User to which ICARUS, its
Affiliate or Dealers distributed a Software Product or an Enhancement Kit during
such quarter.
5.03 Payments by ICARUS.
(a) ICARUS shall pay to Primavera the license fees payable pursuant
to Paragraph 5.01 for each copy of a Software Product or Enhancement Kit
licensed to an End User within thirty (30) days following the last day of the
ICARUS corporate quarter during which such Software Product or Enhancement Kit
was licensed.
5.04 Interest. Interest shall accrue on any delinquent amounts owed by
ICARUS to Primavera hereunder at the rate of one and one-half percent (1.5%) per
month, or the maximum rate permitted by applicable law, whichever is less.
5.05 Taxes. ICARUS shall be responsible for and shall pay any and all
taxes, duties, withholdings or similar charges that are due and payable by
ICARUS directly to any governmental authority as a result of the distribution or
licensing of the Software Products,
- 12 -
<PAGE> 13
including all sales, user, value-added, excise, personal property or other
similar taxes imposed by any local, state or federal government or regulatory
agency of any country.
5.06 Records; Audit.
(a) ICARUS shall maintain complete and accurate records sufficient
to permit the computation of the license fees payable hereunder to Primavera.
ICARUS shall, upon ten (10) days advance written notice by Primavera, but not
more frequently than once each calendar year, permit reasonable inspection of
such records by Primavera or its accountants at the offices of ICARUS during
normal working hours. Primavera shall maintain in confidence and not use or
disclose to third parties any of the information contained in or derived from
such records without the prior written consent of ICARUS.
(b) The cost of any audit shall be borne solely by Primavera, except
that if any audit reveals an underpayment by ICARUS of royalties for any quarter
of ten (10%) percent or more, ICARUS shall reimburse Primavera for all
reasonable costs associated with the audit and Primavera shall have the right to
audit the records maintained by ICARUS every six months from that time forth. If
any audit reveals an understatement of ICARUS of the license fees due hereunder,
ICARUS shall pay the amount of the understatement within ten (10) days of
receiving written notice from Primavera, which shall include a copy of the audit
report. If any audit reveals that ICARUS has overpaid the license fees, the
amount of the overpayment shall be applied to reduce the amount of the next
payment due from ICARUS, or at the election of ICARUS, shall be paid to ICARUS
within ten (10) days. Nothing herein shall be deemed to preclude ICARUS from
disputing the results of such audit.
(c) This provision shall survive for one (1) year following the
expiration or termination of this Agreement.
ARTICLE VI
TECHNICAL SUPPORT; CONFIDENTIALITY
6.01 Support to End Users. During the term of this Agreement, Primavera
shall offer to End Users such technical support services as Primavera makes
available to other end users of the Licensed Software at a price and under other
terms and conditions that are substantially the same as those offered by
Primavera to other similarly situated end users, including the applicability of
Primavera's technical support policies with respect to superseded versions of
the Licensed Software; provided, however, Primavera shall not offer, sell or
distribute Enhancement Kits directly to End Users, regardless of whether they
subscribe to Primavera's technical support services. The parties acknowledge and
agree that ICARUS, its Affiliate and Dealers shall have sole opportunity and
responsibility to order such Enhancement Kits from Primavera and distribute them
to End Users.
6.02 Support to ICARUS. Nothing in this Agreement shall be construed to
obligate Primavera to furnish technical support, maintenance services or
training of any kind to
- 13 -
<PAGE> 14
ICARUS or to its Affiliate and Dealers, provided, however, any such support,
maintenance or training shall upon request, be provided at Primavera's
convenience to ICARUS at no greater charge than Primavera's charges its own
customers.
6.03 Confidentiality.
(a) Each party may disclose to the other information concerning its
Confidential Information as may be necessary to further the performance of this
Agreement. Each party agrees to treat the other's Confidential Information in
the manner prescribed herein.
(b) Primavera and ICARUS shall protect the other's Confidential
Information as follows:
(i) Except as specifically provided herein or otherwise
permitted by the other party in writing, each party shall not disclose
Confidential Information of the other party to third parties. Each party may
disclose Confidential Information of the other party only to those employees and
agents required to have knowledge of same to perform their duties pursuant to
this Agreement. Each party shall require each such employee or agent to enter
into a written non-disclosure agreement containing provisions substantially
consistent with the terms hereof prior to the disclosure of Confidential
Information to such employee or agent. Each party shall treat the Confidential
Information of the other party with the same degree of care as it protects its
own Confidential Information, and in no case less than a reasonable degree of
care.
(ii) Except as may specifically be permitted herein, upon the
termination of this Agreement, each party shall return to the other, or if so
requested, destroy all Confidential Information in the other's possession or
control, except such Confidential Information as may be reasonably necessary to
exercise the rights that survive the termination of this Agreement, but solely
to the extent and for the duration necessary.
(c) The foregoing obligations of confidentiality shall not apply
with respect to either party's Confidential Information to the extent that it:
(i) is within or later falls within the public domain
through no fault of the party receiving the Confidential Information; or
(ii) is, or becomes, available to the receiving party from
third parties who, in making such disclosure, have breached no written
confidentiality agreement, fiduciary or other duty; or
(iii) is previously known by the receiving party; or
- 14 -
<PAGE> 15
(iv) is independently developed by or for the receiving
party without use of the Confidential Information.
ARTICLE VII
WARRANTY; INDEMNIFICATION
7.01 Warranty to ICARUS. Primavera hereby warrants to ICARUS that the
Product Kits and Enhancement Kits, when and as delivered to ICARUS, shall be
free from physical defects in materials and workmanship. This warranty shall
apply only during the period commencing upon delivery of the Product Kit or
Enhancement Kit and ending upon the later of (a) six (6) months after receipt by
ICARUS of the Product Kit or Enhancement Kit or (b) six (6) months after
delivery by ICARUS to an End User of the Enhancement Kit or Software Product
containing the Product Kit. Notwithstanding the foregoing, to the extent any
Primavera End User License contained in a Primavera Product Kit or Enhancement
Kit extends to any End User Warranty coverage broader in scope, longer in
duration or otherwise more comprehensive than the above warranty, then Primavera
shall honor such broader, longer or more comprehensive warranty for such Product
Kit or Enhancement Kit.
7.02 Warranty to End Users. The sole and exclusive warranty of Primavera
to End Users is set forth in the Primavera End User License Agreement contained
in each Product Kit and Enhancement Kit, and Primavera makes no other warranties
to or for the benefit of End Users in this Agreement.
7.03 Replacement Requests; Returns. ICARUS shall -honor all requests
from End Users for return or replacement of Product Kits or Enhancement Kits
pursuant to the terms of the warranty from Primavera contained in Primavera's
End User License Agreement. ICARUS shall require its Affiliate and Dealers to
submit to it all such requests for returns and replacements by End Users.
7.04 Exclusive Remedy; Replacement and Return Procedure.
(a) Primavera shall replace defective Product Kits and Enhancement
Kits that are returned to Primavera's point of shipment, freight prepaid, and
this shall be the sole and exclusive remedy of ICARUS, its Affiliate, Dealers
and End Users for any breach of Primavera's warranty, unless the Primavera End
User License specifies other rights and/or remedies.
(b) ICARUS shall request return authorization from Primavera prior
to a return shipment of defective Product Kits or Enhancement Kits, or of
Product Kit or Enhancement Kit returns by End Users, and Primavera shall provide
annual reimbursement of freight charges for such returns. Primavera may, at its
option, provide credit vouchers to ICARUS for the such kits replaced or returned
based on the fees charged to ICARUS hereunder.
- 15 -
<PAGE> 16
7.05 Warranty Disclaimer. THE WARRANTY STATED IN PARAGRAPH 7.01 IS
PRIMAVERA'S SOLE AND EXCLUSIVE WARRANTY TO ICARUS PERTAINING TO THE LICENSED
MATERIALS, THE PRODUCT KITS AND THE ENHANCEMENT KITS, AND PRIMAVERA HEREBY
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.06 Exclusion of Consequential Damages; Limitation of Liability. IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, OR TO ITS AFFILIATE
DEALERS OR END USERS, FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
REGARDLESS OF THE NATURE OF THE CLAIM, INCLUDING WITHOUT LIMITATION LOST
PROFITS, COSTS OF DELAY, ANY FAILURE OF DELIVERY, COSTS OF LOST OR DAMAGED DATA
OR DOCUMENTATION OR LIABILITIES TO THIRD PARTIES ARISING FROM ANY SOURCE. IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, OR TO ITS AFFILIATE,
DEALERS OR END USERS FOR DAMAGES IN EXCESS OF THE LICENSE FEES PAID BY ICARUS TO
PRIMAVERA HEREUNDER; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATION OF
LIABILITY SHALL NOT OPERATE TO LIMIT THE LIABILITY OF ICARUS TO PRIMAVERA FOR
INFRINGEMENT OF PRIMAVERA'S INTELLECTUAL PROPERTY RIGHTS IN THE LICENSED
MATERIALS OR FOR PAYMENTS DUE UNDER THE TERMS OF THIS AGREEMENT.
7.07 Limitation of Primavera Liability. IN THE EVENT THAT,
NOTWITHSTANDING PARAGRAPH 7.04 HEREOF, PRIMAVERA IS FOUND LIABLE FOR DAMAGES
BASED ON ANY DEFECT OR NONCONFORMITY IN A PRODUCT KIT OR AN ENHANCEMENT KIT,
ITS TOTAL LIABILITY FOR EACH DEFECTIVE KIT SHALL NOT EXCEED THE LICENSE FEE
PAID BY ICARUS FOR SUCH KIT.
7.08 Indemnification by Primavera. Primavera shall defend and hold ICARUS
harmless from all claims, suits, damages and expenses (including attorney's
fees) arising from a claim against ICARUS that the Licensed Materials infringe a
United States patent, copyright, trademark or other intellectual property right,
provided that Primavera receives prompt written notice of any such claim from
ICARUS, and Primavera is afforded the opportunity to exercise sole control of
the defense and all negotiations pertaining to such claim. Primavera shall also
have the right, at its expense, either to procure the right for ICARUS to
continue to distribute the Licensed Materials, or to replace or modify them so
that they become non-infringing. If neither of the foregoing alternatives is
available on terms that Primavera, in its sole discretion, deems desirable,
ICARUS shall return to Primavera the infringing Product Kits or Enhancement Kits
in its possession upon written request from Primavera, in which event Primavera
shall refund to ICARUS the price paid, if any, by ICARUS for such returned kits.
7.09 Notification of Infringement, Etc. ICARUS shall promptly notify
Primavera of (a) any claims, allegations or notification that the marketing,
licensing or use of the Licensed
- 16 -
<PAGE> 17
Materials may or will infringe any patent, copyright, trademark or other
intellectual property right of any other person or entity; (b) any determination
or discovery that any person or entity is or may be infringing any patent,
copyright, trademark or other intellectual property right owned by Primavera;
and (c) any known failure of an End User to abide by the terms of Primavera's
End User License Agreement.
7.10 Indemnification. ICARUS shall defend, indemnify and hold Primavera
harmless from any and all claims of loss or damage to property or injury to
persons arising from the installation, use or possession of the Software
Products by ICARUS, its Affiliate, Dealers, End Users or any other person.
ARTICLE VIII
TERM; TERMINATION
8.01 Term. This Agreement shall become effective as of the date first
written above and continue for an initial term of ten (10) years, unless sooner
terminated as provided herein. Thereafter, either party may terminate this
Agreement upon ninety (90) days advance written notice to the other party.
8.02 Termination for Material Breach. Either party may, at its option,
terminate this Agreement in the event of a material breach by the other party.
Such termination may be effected only through a written notice to the other
party, specifically identifying the breach or breaches on which termination is
based. Following receipt of such notice, the party in breach shall have sixty
(60) days to cure such breach or breaches, said cure period to proceed
simultaneously with the dispute resolution procedure, if any, conducted pursuant
to Paragraph 9.12 hereof, and this Agreement shall terminate in the event that
such cure is not made by the end of such period. In the event that the parties
dispute either the existence of a material breach or the adequacy of attempted
cure, and either party submits such dispute to arbitration under Paragraph 9.13
hereof, the termination shall not be deemed effective until the arbitrator
renders a final decision finding an uncured material breach, provided, however,
that the termination shall be deemed effective if arbitration pursuant to
Paragraph 9.13 hereof is not initiated within fifteen (15) days after the
progressive dispute negotiation procedures under Paragraph 9.12 hereof are
complete. Either party may cure an alleged breach without waiving its right to
dispute resolution and arbitration as herein set forth, and shall be entitled as
part of a favorable arbitrator's decision to be compensated for payments made to
effect such cure or the payments due for Licensed software or services
delivered, as the case may be, to which it would have been entitled under this
Agreement.
8.03 Bankruptcy. If either party files a petition in bankruptcy (or is the
subject of an involuntary petition in bankruptcy that is not dismissed within
sixty (60) days after the effective filing date thereof); or is or becomes
insolvent; or enters into any formal arrangement with its creditors, or ceases
doing business in the ordinary course; or admits
- 17 -
<PAGE> 18
of a general inability to pay its debts as they become due; then the other party
shall have the right to terminate this Agreement upon thirty (30) days written
notice.
8.04 Survival. Upon termination of this Agreement, ICARUS, its Affiliate
and Dealers may distribute to End Users their remaining inventory of Software
Products, provided that ICARUS remit to Primavera all license fees due and
payable hereunder by reason of the distribution of such remaining inventory. End
Users as of the effective date of expiration or termination of this Agreement
and End Users that license the remaining inventory of Software Products pursuant
to this Paragraph 8.04 shall have a continuing right to use the Licensed
Materials in accordance with the terms of Primavera's End User License.
Paragraphs 3.03, 3.04, 3.11, 6.03, 7.08, 7.10 and 8.04, and Articles VII and IX
hereof shall also survive the termination of this Agreement.
ARTICLE IX
MISCELLANEOUS
9.01 Entire Agreement. This Agreement, together with the Appendices
hereto, collectively set forth the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and, except as
specifically provided herein, supersede and merge all prior oral and written
agreements, discussions and understandings between the parties with respect to
the subject matter hereof, and neither of the parties shall be bound by any
conditions, inducements or representations other than as expressly provided for
herein.
9.02 Independent Contractors. In making and performing this Agreement,
Primavera and ICARUS act and shall act at all times as independent contractors
and nothing contained in this Agreement shall be construed or implied to create
an agency, partnership or employer and employee relationship between them. At no
time shall either party make commitments or incur any charges or expenses for or
in the name of the other party.
9.03 Notices. Any notice required or permitted to be given hereunder,
shall, except where specifically provided otherwise, be given in writing to the
person listed below by registered mail or overnight delivery service, and the
date upon which any such notice is received at the designated address shall be
deemed to be the date of such notice. Any notice shall be delivered as follows:
If to ICARUS: ICARUS Corporation
11300 Rockville Pike
Rockville, Maryland 20852
Attention: President
- 18 -
<PAGE> 19
If to Primavera: Primavera Systems, Inc.
Two Bala Plaza
Bala Cynwyd, Pennsylvania 19004
Attention: Joel M. Koppelman
President
or addressed to such other address as that party may have given by written
notice in accordance with this provision.
9.04 Amendments; Modifications. This Agreement may not be amended or
modified except in a writing duly executed by the parties hereto.
9.05 Assignment. Neither party may assign this Agreement, or any part
thereof, without the prior written consent of the other party.
9.06 Severability. The provisions of this Agreement shall be severable,
and if any of them are held invalid or unenforceable for any reason, such
provision shall be adjusted to the minimum extent necessary to cure such
invalidity. The invalidity or unenforceability of one or more of the provisions
contained in this Agreement shall not affect any other provisions of this
Agreement.
9.07 Waivers. Any delay or forbearance by either party in exercising any
right hereunder shall not be deemed a waiver of that right.
9.08 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the State of Delaware.
9.09 Disclaimer of UN Convention on Sale of Goods. PURSUANT TO ARTICLE 6
OF THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF
GOODS ("UN CONVENTION"), THE PARTIES AGREE THAT THE UN CONVENTION SHALL NOT
APPLY TO THIS AGREEMENT.
9.10 Export Controls.
(a) ICARUS shall cooperate (but at no cost to ICARUS) with Primavera
as reasonably necessary to permit Primavera to comply with the laws and
administrative regulations of the United States relating to the control of
exports of commodities and technical data ("Export Laws").
(b) ICARUS hereby assures Primavera that ICARUS will not export or
re-export directly or indirectly (including via remote access) any part of the
Licensed Materials or the Product Kits (including any Confidential Information)
to any country for which a validated license is required for such export or
re-export under the Export Laws without first obtaining such a validated
license.
- 19 -
<PAGE> 20
(c) ICARUS will defend Primavera against any and all claims, and
indemnify Primavera against any and all losses or expenses, arising from or
otherwise in respect of any asserted violation of the Export Laws by ICARUS,
provided that Primavera shall furnish ICARUS with assistance and information and
cooperate with ICARUS in the defense of any such claim.
9.11 Force Majeure. Neither ICARUS, its Affiliate and Dealers nor
Primavera shall be liable for failure or delay of performance hereunder if
occasioned by force majeure, including war, declared or undeclared, fire, flood,
interruption of transportation, embargo, accident, explosion, inability to
procure, or shortage of supply of materials, equipment or production facilities,
governmental orders, regulations, restrictions, priorities or rationing, or by
strike, lockout, or other labor troubles, or any other cause beyond the control
of the party claiming that its failure of performance was occasioned by force
majeure. Any suspension of performance by reason of this paragraph shall be
limited to the period during which such cause or failure exists, but such
suspension shall not affect the term of this Agreement as heretofore defined.
9.12 Progressive Dispute Negotiation Procedure.
(a) This paragraph will govern any dispute between Primavera and
ICARUS arising from or related to the subject matter of this Agreement that is
not resolved by agreement between their respective personnel responsible for day
to day administration and performance of this Agreement.
(b) Prior to the filing of any suit with respect to such a dispute
(other than a suit seeking injunctive relief with respect to intellectual
property rights), the party believing itself aggrieved (the " Invoking Party")
will call for progressive management involvement in the dispute negotiation by
notice to the other party. Such a notice will be without prejudice to the
Invoking Party's right to any other remedy permitted by this Agreement.
(c) Primavera and ICARUS will use their best efforts to arrange
personal meetings and/or telephone conferences as needed, at mutually convenient
times and places, between their negotiators at the following successive
management levels, each of which will have a period of allotted time as
specified below in which to attempt to resolve the dispute:
PRIMAVERA ICARUS ALLOTTED TIME
FIRST LEVEL Manager ________ Manager _______ 7 bus. days
SECOND LEVEL CEO __________ CEO __________ 15 days
(d) The allotted time for the first-level negotiators will begin on
the effective date of the Invoking Party's notice.
- 20 -
<PAGE> 21
(e) If a resolution is not achieved by the negotiators at any given
management level at the end of their allotted time, then the allotted time for
the negotiators at the next management level, if any, will begin immediately.
(f) If a resolution is not achieved by negotiators at the final
management level within their allotted time, then either party may within ten
(10) business days request mediation to resolve the dispute.
(g) The Mediation Rules of the American Arbitration Association
shall be used unless Primavera and ICARUS agree otherwise.
(h) The mediation shall take place in the city of the party that is
not the Invoking Party.
(i) The allotted period for completion of the mediation shall be
thirty (30) days.
(j) If a resolution is not achieved by mediation within the allotted
time or if mediation is not requested within the permitted ten-day period, then
either party may file an arbitration demand or other permitted action to resolve
the dispute.
9.13 Arbitration. In the event a dispute between the parties arising under
this Agreement is not resolved using the procedures of Paragraph 9.12, the
parties shall submit to binding arbitration before a single arbitrator in
Wilmington, Delaware, under the Commercial Arbitration Rules of the American
Arbitration Association, except that temporary restraining orders or preliminary
injunctions, or their equivalent in any country of the world, may be obtained
from any court of competent jurisdiction. The pre-hearing and hearing
proceedings in the arbitration shall be generally governed by the Federal Rules
of Civil Procedure and the judicial precedent interpreting those rules. The
decision of the arbitrator shall be final and binding with respect to the
dispute subject to the arbitration and shall be enforceable in any court of
competent jurisdiction. Each party shall bear its own expenses, attorney's fees
and costs incurred in such arbitration.
9.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one Agreement.
9.15 Construction. This Agreement is the product of joint draftsmanship
and shall not be construed against one party more strictly than against the
other.
9.16 Confidentiality of Agreement. The pricing (Paragraph 5.01) terms of
this Agreement shall remain confidential, except to the extent disclosure may be
necessary in conjunction with enforcement of any term hereof, and on an as
needed basis to either party's accountants, lawyers and other professional
advisors, and to ICARUS' Affiliates.
- 21 -
<PAGE> 22
9.17 Headings. The headings in this Agreement are inserted merely for the
purpose of convenience and shall not affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have executed this Agreement as of the day and year first above written.
ATTEST: PRIMAVERA SYSTEMS, INC.
/s/ Mary R. Welloch BY:/s/ Joel M. Koppelman
- -------------------------- -------------------------
TITLE: President
-------------------
ATTEST: ICARUS CORPORATION
/s/ Lucy Brown BY:/s/ Herbert G. Blecker
- -------------------------- -------------------------
TITLE: President
-------------------
- 22 -
<PAGE> 23
APPENDIX A --PRIMAVERA PRICE SCHEDULE
PRIMAVERA PROJECT PLANNER AND FINEST HOUR
NUMBER OF BASE LICENSE FEE EACH ADDITIONAL
SIMULTANEOUS LAN (LAN PRICE FOR SIMULTANEOUS USER
USERS (QUANTITY) SIMULTANEOUS (EACH ADDITIONAL)
USERS ON SAME FILESERVER)
[*]
SINGLE USER SYSTEMS
NUMBER OF SINGLE USER BASE LICENSE FEE - BULK EACH ADDITIONAL SYSTEM -
SYSTEMS PRICE (BULK PRICE FOR BULK PRICE
SEPARATE SINGLE USER (BULK INCREMENTAL PRICE)
UNITS)
[*]
Terms and conditions:
- - Prices are in U.S. Dollars.
- - LAN pricing is for the product installed on a single fileserver. The LAN
product is not separable into independent units.
- - Bunk pricing is only valid for quantities ordered on the same purchase
order for the same delivery date to the same end user organization. The
bulk packs may not be shared among purchasers.
- - For quantities not specifically listed, use the incremental price from the
next lower tier.
- -------------
[*] This information has been omitted pursuant to a request for
confidential treatment.
- 23 -
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this 22nd day of January, 1998, between
ICARUS International, Inc., a Maryland corporation and ICARUS Corporation, a
Maryland Corporation both companies referred to herein collectively as (both
companies referred to herein collectively as the "Corporation"), and Herbert G.
Blecker (the "Executive").
WITNESSETH
WHEREAS, the Executive is presently the Chairman of the Board,
President and Chief Executive Officer of the Corporation who, in accordance
with the policies established by the Board of Directors of the Corporation (the
"Board"), develops and oversees the implementation of the goals and objectives
of the Corporation (the "Employer"); and
WHEREAS, the Employer desires to be ensured of the Executive's
continued active participation in the business of the Employer; and
WHEREAS, in consideration of the Executive's agreement that any base
salary in excess of amounts actually paid in cash from the years 1981 to the
date hereof shall not be paid to the Executive by the Corporation and/or any
Subsidiary, and in order to induce the Executive to remain in the employ of the
Employer and in consideration of the Executive's agreement to remain in the
employ of the Employer pursuant to the terms and conditions hereof, the parties
desire to specify the terms and conditions of Executive's continuing employment
with the Corporation and to provide certain severance benefits which shall be
due the Executive in the event that his employment with the Employer is
terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the
meanings set forth below for the purposes of this Agreement:
(a) AFFILIATES. "Affiliates" of the Corporation, or a person
"affiliated" with the Corporation, are any persons or entities which, directly
or indirectly, through one or more intermediaries, controls or are controlled
by or are under common control with, the persons or entities specified.
(b) AVERAGE ANNUAL COMPENSATION. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the
average level of compensation paid to the Executive by the Employer or any
subsidiary thereof during the most recent five taxable years preceding the Date
of Termination (or such shorter period
<PAGE> 2
Blecker Employment Agreement
Page 2
as the Executive was employed), including Base Salary and bonuses or other
compensation under any employee benefit plans of the Employer.
(c) BASE SALARY. "Base Salary" shall have the meaning set forth
in Section 3(a) hereof.
(d) CAUSE. Termination of the Executive's employment for "Cause"
shall mean termination because of willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order or material breach of any
provision of this Agreement. For purposes of this paragraph, no act or failure
to act on the Executive's part shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Employer. Cause shall be determined in good faith by the affirmative vote of a
majority of the whole Board of Directors (excluding the Executive) after the
Executive has been provided the opportunity to make a presentation to the Board
which presentation to the Board may be with counsel.
(e) CHANGE IN CONTROL OF THE CORPORATION. "Change in Control of
the Corporation" shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended
("Exchange Act"), or any successor thereto, whether or not the Corporation is
registered under Exchange Act; provided that, without limitation, such a change
in control shall be deemed to have occurred if (i) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) other than the
Executive or the Corporation, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding securities; or (ii) during any period of twenty
four consecutive months, individuals who at the beginning of such period
constitute the Board of Directors of the Corporation cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the period.
(f) CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(g) DATE OF TERMINATION. "Date of Termination" shall mean (i) if
the Executive's employment is terminated for Cause, Disability or for
Retirement, the date specified in the Notice of Termination, and (ii) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given or as specified in such Notice.
<PAGE> 3
Blecker Employment Agreement
Page 3
(h) DISABILITY. Termination by the Employer of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits
under the applicable long-term disability plan maintained by the Employer or
any subsidiary or, if no such plan applies, which would qualify the Executive
for disability benefits under the Federal Social Security System.
(i) GOOD REASON. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following
a Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, the
failure to elect or to re-elect or to appoint or to
re-appoint the Executive to the offices of Chairman
of the Board, President and Chief Executive Officer
of the Employer or a material adverse change made by
the Employer in the Executive's functions, duties or
responsibilities as Chairman of the Board, President
and Chief Executive Officer of the Employer;
(ii) Without the Executive's express written consent, a
material reduction (i.e., 10% or more) by the
Employer in the Executive's Base Salary as the same
may be increased from time to time or, except to the
extent permitted by Section 3(b) hereof, a material
reduction in the package of fringe benefits provided
to the Executive, taken as a whole;
(iii) Without the Executive's express written consent, the
Employer requires the Executive to work in an office
which is more than 30 miles from the location of the
Employer's current principal executive office, except
for required travel on business of the Employer to an
extent substantially consistent with the Executive's
business travel obligations prior to the Change in
Control;
(iv) Any purported termination of the Executive's
employment for Cause, Disability or Retirement which
is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (k) below
and Section 5 hereof; or
(v) The failure by the Employer to obtain the assumption
of and agreement to perform this Agreement by any
successor as contemplated in Section 13 hereof.
(j) IRS. "IRS" shall mean the Internal Revenue Service.
<PAGE> 4
Blecker Employment Agreement
Page 4
(k) NOTICE OF TERMINATION. Any purported termination of the
Executive's employment by the Employer for any reason, including without
limitation for Cause, Disability or Retirement, or by the Executive for any
reason, including without limitation for Good Reason, shall be communicated by
a written "Notice of Termination" to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a dated notice which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision
so indicated, (iii) specifies a Date of Termination, which shall be not less
than thirty (30) nor more than ninety (90) days after such Notice of
Termination is given, except in the case of the Employer's termination of
Executive's employment for Cause for which the Date of Termination may be the
date of the notice; and (iv) is given in the manner specified in Section 14
hereof.
(l) RETIREMENT. "Retirement" shall mean voluntary termination by
the Executive in accordance with the Employer's retirement policies, including
early retirement, generally applicable to the Employer's salaried employees.
(m) SUBSIDIARY. "Subsidiary" shall mean any subsidiary of the
Corporation.
2. TERM OF EMPLOYMENT.
(a) The Employer hereby employs the Executive as Chairman of the
Board, President and Chief Executive Officer, and Executive hereby accepts said
employment and agrees to render such services to the Employer, on the terms and
conditions set forth in this Agreement. Unless extended as provided in this
Section 2, this Agreement shall terminate five (5) years after the date first
above written; provided, however, this Agreement shall be automatically renewed
on its anniversary date ("Annual Renewal Date") each year for one (1)
additional year so that this Agreement shall continue in effect for a period
ending five (5) years from each Annual Renewal Date unless either party shall
give written notice of non-renewal, in accordance with Section 14 hereof to the
other party at least thirty (30) days prior to an Annual Renewal Date, in
which event this Agreement shall continue in effect for a term ending on the
fifth consecutive Annual Renewal Date immediately following such notice.
Reference herein to the term of this Agreement shall refer both to the initial
term and any successive term as the context requires.
(b) During the term of this Agreement, the Executive shall perform
such executive services for the Employer as is consistent with his title of
President and Chief Executive Officer and as directed, from time to time, by
the Board of Directors, including but not limited to, the supervision of the
Corporation's day-to-day operations. The Executive shall devote his full time,
attention and energies to the business of the Corporation and shall not, during
the term hereof (as defined in Section 2(a)), be employed or involved in any
other
<PAGE> 5
Blecker Employment Agreement
Page 5
business activity, whether or not such activity is pursued for gain, profit or
other pecuniary advantage, except for (i) volunteer services for or on behalf
of such religious, educational, non-profit and/or other eleemosynary
organization as Executive may wish to serve, (ii) service as a director of as
many as three (3) for-profit business activities, and (iii) such other
activities as may be specifically approved by the Board of Directors (without
the Executive's participation or vote). This restriction shall not, however,
preclude the Executive from employment in any capacity with affiliates of the
Corporation, nor shall any remuneration from such affiliates be considered in
calculating the Base Salary (as defined in Section 3(a)) due to Executive
hereunder.
3. COMPENSATION AND BENEFITS.
(a) For services rendered hereunder by the Executive, the Employer
shall compensate and pay Executive for his services during the term of this
Agreement at a minimum base salary of two hundred fifty thousand dollars
($250,000.00) per year ("Base Salary"), which may be increased from time to time
in such amounts as may be determined by the Board of Directors of the Employer.
In addition to his Base Salary, the Executive shall receive during the term of
this Agreement such bonus payments as may be determined by the Board of
Directors of the Employer. In addition to any bonus paid or should the Board of
Directors not provide any bonus to Executive for any year, the Executive's
Base Salary shall automatically be increased by the amount of the prior
year's increase in the "Consumer Price Index for all Urban Consumers
(1982-84=100), Washington, D.C. Area, All Items," as published by the United
States Department of Labor, Bureau of Labor Statistics (the "CPI"). With
respect to prior years, the Executive hereby agrees that the Corporation shall
not be required to pay to him any "basic annual compensation" (i.e., salary) in
excess of amounts actually paid in cash from the year 1981 to the date hereof.
(b) During the term of the Agreement, Executive shall be entitled
to participate in and receive the benefits of any pension or other retirement
benefit plan, the 401(k) plan, profit sharing, stock option, employee stock
ownership, or other plans, benefits and privileges given to employees and
executives of the Employer, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors of the Employer. The
Employer shall not make any changes in such plans, benefits or privileges which
would adversely affect Executive's rights or benefits thereunder, unless such
change occurs pursuant to a program applicable to all executive officers of the
Employer and does not result in a proportionately greater adverse change in the
rights of or benefits to Executive as compared with any other executive officer
of the Employer. Nothing paid to Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the base salary payable to Executive pursuant to Section 3(a) hereof.
<PAGE> 6
Blecker Employment Agreement
Page 6
(c) During the term of this Agreement, Executive shall be entitled
to four (4) weeks (20 working days) paid vacation in each calendar year to be
taken and determined in accordance with the vacation policies and procedures as
established from time to time by the Board of Directors of the Employer.
Executive shall also be entitled to all paid holidays to which similarly
situated executives and key management employees of the Corporation are
entitled. The Executive shall be entitled to paid leave due to physical
illness in each calendar year to be taken and determined in accordance with the
policies and procedures as established from time to time by the Board of
Directors. Executive shall not be entitled to receive any additional
compensation from the Employer for failure to take a vacation, or failure to
use "sick days," nor shall Executive be able to accumulate unused vacation or
"sick" time from one year to the next, except to the extent authorized by the
Board of Directors of the Employer.
(d) The Corporation shall provide the Executive with secretarial
and support staff and furnished offices and conference facilities in Rockville,
Maryland, and in such other location, if any, in which the Executive hereafter
agrees to perform services on behalf of the Corporation, all of which shall be
consistent with the Executive's duties as the Chairman of the Board, President
and Chief Executive Officer of the Corporation and sufficient for the efficient
performance of those duties. Nothing in this Agreement shall be construed to
require the Executive to perform or discharge his duties to the Corporation at
any office or location outside of Rockville, Maryland.
4. EXPENSES. The Employer shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employer, including,
but not by way of limitation, traveling expenses, and all reasonable
entertainment expenses (whether incurred at the Executive's residence, while
traveling or otherwise), subject to such reasonable documentation and other
limitations as may be established by the Board of Directors of the Employer.
The Employer shall furnish to the Executive a new leased automobile comparable
in class and style to Executive's current vehicle every three (3) years and
shall pay for all gas, oil, repairs, maintenance, insurance and other related
costs of such vehicle's operation. If such expenses are paid in the first
instance by Executive, the Employer shall reimburse the Executive therefor.
5. TERMINATION.
(a) The Employer shall have the right, at any time upon prior
Notice of Termination, to terminate the Executive's employment hereunder for
any reason, including without limitation termination for Cause, Disability or
Retirement, and Executive shall have the right, upon prior Notice of
Termination, to terminate his employment hereunder for any reason.
<PAGE> 7
Blecker Employment Agreement
Page 7
(b) In the event that (i) Executive's employment is terminated by
the Employer for Cause or (ii) Executive terminates his employment hereunder
other than for Good Reason, Executive shall have no right pursuant to this
Agreement to compensation or other benefits for any period after the applicable
Date of Termination.
(c) In the event that (i) Executive's employment is terminated by
the Employer for other than Cause, including termination due to Disability,
Retirement or the Executive's death, or (ii) such employment is terminated by
the Executive due to a material breach of this Agreement by the Employer, which
breach has not been cured within fifteen (15) days after a written notice of
non-compliance has been given by the Executive to the Employer, then the
Employer shall, subject to the provisions of Section 6 hereof, if applicable,
(A) Pay to the Executive, in a lump sum or in thirty-six
(36) equal monthly installments (at the Executive's option) beginning with the
first business day of the month following the Date of Termination, a cash
severance amount equal to three (3) times the Executive's Average Annual
Compensation, and
(B) Maintain and provide for a period ending at the
earlier of (i) the expiration of the remaining term of employment pursuant
hereto prior to the Notice of Termination or (ii) the date of the Executive's
full-time employment by another employer (provided that the Executive is
entitled under the terms of such employment to benefits substantially similar
to those described in this subparagraph (B)), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to participate immediately
prior to the Date of Termination (other than stock option and restricted stock
plans of the Employer), provided that in the event that the Executive's
participation in any plan, program or arrangement as provided in this
subparagraph (B) is barred or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are materially reduced,
the Employer shall arrange to provide the Executive with benefits substantially
similar to those which the Executive was entitled to receive under such plans,
programs and arrangements immediately prior to the Date of Termination.
(d) In the event that Executive's employment is terminated by the
Executive for Good Reason subsequent to Change in Control, then the Employer
shall:
(A) Pay to the Executive, in a lump sum payable within
five business days following the Date of Termination, a cash severance amount
equal to five (5) times the Executive's Average Annual Compensation, and
<PAGE> 8
Blecker Employment Agreement
Page 8
(B) Maintain and provide for a period ending at the
earlier of (i) the expiration of the remaining term of employment pursuant
hereof prior to the Notice of Termination or (ii) the date of the Executive's
full-time employment by another employer (provided that the Executive is
entitled under the terms of such employment to benefits substantially similar
to those described in this subparagraph (B)), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to participate immediately
prior to the Date of Termination (other than stock option and restricted stock
plans of Employer), provided that in the event the Executive's participation in
any plan, program or arrangement is discontinued or the benefit thereunder are
materially reduced, the Employer shall arrange to provide the Executive with
benefits substantially similar to those which the Executive was entitled to
receive under such plans, programs and arrangements immediately prior to the
Date of Termination.
6. ADDITIONAL BENEFITS UNDER CERTAIN CIRCUMSTANCES.
(a) If the Executive becomes liable, in any taxable year, for the
repayment of an excise tax under Section 4999 of the Code on account of any
payments to the Executive pursuant to Section 5, and the Employer chooses not
to contest the liability or has exhausted all administrative and judicial
appeals contesting the liability, the Employer shall pay the Executive (i) an
amount equal to the excise tax for which the Executive is liable under Section
4999 of the Code, (ii) the federal, state, and local income taxes, and interest
if any, for which the Executive is liable on account of the payments pursuant
to item (i), and (ii) any additional excise tax under Section 4999 of the Code
and any federal, state and local income taxes for which the Executive is liable
on account of payments made pursuant to items (i) and (ii).
(b) This Section 6(b) applies if the amount of payments to the
Executive under Section 6(a) has not been determined with finality by the
exhaustion of administrative and judicial appeals. In such circumstances, the
Employer and the Executive shall, as soon as
<PAGE> 9
Blecker Employment Agreement
Page 9
practicable after the event or series of events have occurred giving rise to
the imposition of the excise tax, cooperate in determining the amount of the
Executive's excise tax liability for purposes of paying the estimated tax. The
Executive shall thereafter furnish to the Employer or its successors a copy of
each tax return which reflects a liability for an excise tax under Section 4999
of the Code at least thirty (30) days before the date on which such return is
required to be filed with the IRS. The liability reflected on such return
shall be dispositive for the purposes hereof unless, within twenty (20) days
after such notice is given, the Employer furnishes the Executive with a letter
of the auditors or tax advisor selected by the Employer indicating a different
liability or that the matter is not free from doubt under the applicable laws
and regulations and that the Executive may, in such auditor's or advisor's
opinion, cogently take a different position, which shall be set forth in the
letter with respect to the payments in question. Such letter shall be
addressed to the Executive and state that he is entitled to rely thereon. If
the Employer furnishes such a letter to the Executive, the position reflected
in such letter shall be dispositive for purposes of this Agreement, except as
provided in Section 6(c) below.
(c) Notwithstanding anything in this Agreement to the contrary, if
the Executive's liability for the excise tax under Section 4999 of the Code for
a taxable year is subsequently determined to be less than the amount paid by
the Employer pursuant to Section 6(a), the Executive shall repay the Employer
at the time that the amount of such excise tax liability is finally determined,
the portion of such income and excise tax payments attributable to the
reduction (plus interest on the amount of such repayment at the rate provided
on Section 1274(b)(2)(B) of the Code) and if the Executive's liability for the
excise tax under Section 4999 of the Code for a taxable year is subsequently
determined to exceed the amount paid by the Employer pursuant to Section 6(a),
the Employer shall make an additional payment of income and excise taxes in the
amount of such excess, as well as the amount of any penalty and interest
assessed with respect thereto at the time that the amount of such excess and
any penalty and interest is finally determined.
7. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of
any benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended
to exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employer pursuant to employee benefit plans
of the Employer or otherwise.
<PAGE> 10
Blecker Employment Agreement
Page 10
8. WITHHOLDING. All payments required to be made by the Employer
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employer may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
9. NON-SOLICITATION OF CUSTOMERS AND EMPLOYEES.
(a) The Executive hereby acknowledges and recognizes the highly
competitive nature of the business of the Corporation and accordingly agrees
that, during the term of this Agreement and, in consideration of the receipt of
any payment pursuant to this Agreement, for a period of two years following the
date of termination of the Executive's employment under this Agreement, unless
otherwise agreed to in writing by the Corporation, the Executive shall not,
either directly or indirectly, in any manner or capacity, whether as principal,
agent, partner, officer, director, employee, joint venturer, salesman, or
corporate shareholder or otherwise for the benefit of any Person (as defined
below), (i) render services to, or solicit the rendering of services to, any
Person in competition with the business of the Corporation, which then is, or
at any time during a period of one year prior to the termination of the
Executive's employment under this Agreement (the "Termination Date"), was a
Customer (as defined below) of the Corporation, or (ii) solicit the rendering
of services to any Person of any kind whatsoever which is then or has been at
any time during a period of one year prior to the Termination Date a Customer,
employee, salesperson, agent or representative of the Corporation in any manner
which interferes or might interfere with the relationship of the Corporation
with such Person, or in an effort to obtain such Person as a customer,
supplier, employee, salesperson, agent or representative of any business in
competition with the Corporation, or (iii) for a period of two years following
the Termination Date, hire or participate in the hiring by any Person of an
employee of the Corporation. In order to assure strict compliance with the
foregoing, and in recognition of the compensation to be paid by Employer to
Executive on the termination of this Agreement, Executive grants to Employer
the sole and absolute right to determine whether any employment or services
anticipated to be undertaken by Executive during said period of time as
outlined above, is or may be in violation of the foregoing provisions and
Executive agrees to notify Employer, in writing, fourteen (14) days prior to
undertaking any employment or services within the said time period, regardless
of the nature thereof, of the name and address of any such intended employer,
proposed job title, proposed job description and salary, and the business of
the prospective employer. If, within such fourteen (14) day period, Employer
shall object on reasonable grounds to such anticipated employment in writing to
Executive, Executive agrees not to accept the same or in any manner directly or
indirectly render services to any such prospective employer.
"Person" means any individual, trust, partnership, corporation,
limited liability company, association, or other legal entity.
<PAGE> 11
Blecker Employment Agreement
Page 11
"Customer" means any Person with which the Corporation or any
subsidiary is currently engaged to provide goods or services, has been engaged
to provide goods or services within twelve (12) months prior to the Termination
Date, or actively marketed, discussed a project with, negotiated with, provided
a bid to or otherwise communicated with in an effort to obtain an engagement to
provide goods or services sold by the Corporation or any subsidiary within
twelve (12) months prior to the Termination Date.
(b) It is expressly understood and agreed that although the
Executive and the Corporation consider the restrictions contained in Section
9(a) of this Agreement reasonable for the purpose of preserving for the
Corporation its good will and other proprietary rights, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in Section 9(a) of this Agreement is an
unreasonable or otherwise unenforceable restriction against the Executive, the
provisions of Section 9(a) of this Agreement shall not be rendered void but
shall be deemed amended to apply as to such maximum time and territory and to
such other extent as such court may judicially determine or indicate to be
reasonable.
10. DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive
acknowledges that the Corporation's trade secrets, as they may exist from time
to time, and confidential information concerning its products, programs,
technical information, procurement and sales activities and procedures,
identity of customers and potential customers, business plans, promotion and
pricing techniques, and credit and financial data concerning customers are
valuable, special and unique assets of the Corporation. In light of the highly
competitive nature of the industry in which the Corporation's business is
conducted, the Executive agrees that all knowledge and information described in
the preceding sentence not in the public domain and heretofore or in the future
obtained by the Executive shall be considered confidential information.
Executive agrees that he will not disclose any or such secrets, processes or
information to any Person or other entity for any reason or purpose whatsoever,
except as necessary in the performance of his duties as an employee of or
consultant to the Corporation and then only upon a written confidentiality
agreement in such form and content as requested by the Corporation from time to
time, nor shall the Executive make use of any such secrets, processes or
information (other than information in the public domain) for his own purposes
or for the benefit of himself, any Person or other entity (except the Company
and its subsidiaries) under any circumstances. The provisions contained in
this Section 10 shall also apply to information obtained by the Executive with
respect to any future subsidiary of the Corporation.
11. BUSINESS INFORMATION. Upon the termination of his employment
with the Corporation, Executive (or, as appropriate, his personal
representatives) shall deliver to the Corporation (without retaining copies of
the same), all plans, source codes, designs, customer lists, correspondence,
records, documents, accounts and papers of any description
<PAGE> 12
Blecker Employment Agreement
Page 12
and any other property of the Corporation within the possession or under the
control of Executive (or, as appropriate, his personal representatives) and
relating to the affairs and business of the Corporation, whether drafted,
created or compiled by Executive or received by Executive from other
individuals or entities (whether employees of or affiliated with the
Corporation).
12. REMEDIES. The Executive acknowledges and agrees that the
Company's remedy at law for a breach or threatened breach of any of the
provisions of Section 9, Section 10 or Section 11 of this Agreement would be
inadequate and, in recognition of this fact, in the event of a breach or
threatened breach by the Executive of any of the provisions of Section 9,
Section 10 or Section 11 of this Agreement, it is agreed that, in addition to
any remedy at law, the Corporation shall be entitled to without posting any
bond, and the Executive agrees not to oppose the Corporation's request in the
nature of specific performance, temporary restraining order, temporary or
permanent injunction, or any other equitable relief or remedy which may then be
available, provided, however, nothing herein shall be deemed to relieve the
Corporation of its burden to prove grounds warranting such relief nor preclude
the Executive from contesting such grounds or facts in support thereof.
Nothing herein contained shall be construed as prohibiting the Corporation from
pursuing any other remedies available to it for such breach or threatened
breach.
13. ASSIGNABILITY. The Employer shall assign this Agreement and
its rights and obligations hereunder in whole, but not in part, to any
corporation or other entity with or into which the Employer may hereafter merge
or consolidate or to which the Employer may transfer all or substantially all of
its assets, if in any such case said corporation or other entity shall by
operation of law or expressly in writing assume all obligations of the Employer
hereunder as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights and obligations hereunder. The
Executive may not assign or transfer this Agreement or any rights or obligations
hereunder.
14. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by certified
or registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employer: Board of Directors
ICARUS International, Inc.
One Central Plaza
11300 Rockville Pike
Rockville, Maryland 20852
<PAGE> 13
Blecker Employment Agreement
Page 13
With copies to: Lawrence H. Fischer, Esq.
Deckelbaum Ogens & Fischer
1140 Connecticut Avenue, N.W.
Suite 703
Washington, DC 20036
and
Jeffrey A. Koeppel, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
To the Executive: Herbert G. Blecker
10129 Sorrel Avenue
Potomac, Maryland 20854
15. AMENDMENT; WAIVER. This Agreement supersedes and replaces the
Contract of Employment by and between the Executive and the Employer dated
August 1, 1981, which shall be, upon the execution of this Agreement,
terminated, null and void as of the date hereof. This Agreement represents the
entire agreement of the parties relating to subject matter hereof. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing signed by the
Executive and such officer or officers as may be specifically designated by the
Board of Directors of the Employer to sign on its behalf. No waiver by any
party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
16. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Maryland.
17. NATURE OF OBLIGATIONS. The obligations of the Employer
hereunder are unsecured and the Executive represents a general creditor of the
Corporation for compensation which may be due and owing. Nothing contained
herein shall create or require the Employer to create a trust of any kind to
fund any benefits which may be payable hereunder, and to the extent that the
Executive acquires a right to receive benefits from the Employer hereunder,
such right shall be no greater than the right of any unsecured general creditor
of the Employer.
<PAGE> 14
Blecker Employment Agreement
Page 14
18. INTERPRETATION AND HEADINGS. This Agreement shall be
interpreted in order to achieve the purposes for which it was entered into.
The section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
19. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect. With respect to Section 9 of this Agreement, in the event any court of
competent jurisdiction determines that such provisions are unreasonable or
contrary to law with respect to their time or geographic restriction, or both,
the parties hereto authorize such court to substitute restrictions as it deems
appropriate without invalidating such paragraph or this Agreement.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: ICARUS INTERNATIONAL, INC.
/s/ By: /s/
- -------------------------- -------------------------------
Name:
-----------------------------
Title:
--------------------------
ICARUS CORPORATION
By: /s/
-------------------------------
Name:
-----------------------------
Title:
----------------------------
EXECUTIVE
By: /s/
-------------------------------
Herbert G. Blecker
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this 22nd day of January, 1998, between
ICARUS International, Inc., a Maryland corporation and ICARUS Corporation, a
Maryland Corporation both companies referred to herein collectively as (both
companies referred to herein collectively as the "Corporation"), and William F.
Geritz, III (the "Executive").
WITNESSETH
WHEREAS, the Executive is presently the Executive Vice President of the
Corporation who, in accordance with the policies established by the Board of
Directors of the Corporation (the "Board"), is responsible for the business
development, sales and marketing for the Corporation (the "Employer"); and
WHEREAS, the Employer desires to be ensured of the Executive's
continued active participation in the business of the Employer; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Employer and in consideration of the Executive's agreement to remain in the
employ of the Employer pursuant to the terms and conditions hereof, the parties
desire to specify the terms and conditions of Executive's continuing employment
with the Corporation and to provide certain severance benefits which shall be
due the Executive in the event that his employment with the Employer is
terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the
meanings set forth below for the purposes of this Agreement:
(a) AFFILIATES. "Affiliates" of the Corporation, or a person
"affiliated" with the Corporation, are any persons or entities which, directly
or indirectly, through one or more intermediaries, controls or are controlled
by or are under common control with, the persons or entities specified.
(b) AVERAGE ANNUAL COMPENSATION. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the
average level of compensation paid to the Executive by the Employer or any
subsidiary thereof during the most recent five taxable years preceding the Date
of Termination (or such shorter period as the Executive was employed),
including Base Salary and bonuses or other compensation under any employee
benefit plans of the Employer.
<PAGE> 2
Geritz Employment Agreement
Page 2
(c) BASE SALARY. "Base Salary" shall have the meaning set forth
in Section 3(a) hereof.
(d) CAUSE. Termination of the Executive's employment for "Cause"
shall mean termination because of willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order or material breach of any
provision of this Agreement. For purposes of this paragraph, no act or failure
to act on the Executive's part shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Employer. Cause shall be determined in good faith by the affirmative vote of a
majority of the whole Board of Directors (excluding the Executive) after the
Executive has been provided the opportunity to make a presentation to the Board
which presentation to the Board may be with counsel.
(e) CHANGE IN CONTROL OF THE CORPORATION. "Change in Control of
the Corporation" shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended
("Exchange Act"), or any successor thereto, whether or not the Corporation is
registered under Exchange Act; provided that, without limitation, such a change
in control shall be deemed to have occurred if (i) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) other than the
Executive or the Corporation, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding securities; or (ii) during any period of twenty
four consecutive months, individuals who at the beginning of such period
constitute the Board of Directors of the Corporation cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the period.
(f) CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(g) DATE OF TERMINATION. "Date of Termination" shall mean (i) if
the Executive's employment is terminated for Cause, Disability or for
Retirement, the date specified in the Notice of Termination, and (ii) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given or as specified in such Notice.
(h) DISABILITY. Termination by the Employer of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits
under the applicable long-term disability plan
<PAGE> 3
Geritz Employment Agreement
Page 3
maintained by the Employer or any subsidiary or, if no such plan applies, which
would qualify the Executive for disability benefits under the Federal Social
Security System.
(i) GOOD REASON. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following
a Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, the
failure to elect or to re-elect or to appoint or to
re-appoint the Executive to the office of Executive
Vice President of the Employer or a material adverse
change made by the Employer in the Executive's
functions, duties or responsibilities as
Executive Vice President of the Employer;
(ii) Without the Executive's express written consent, a
material reduction (i.e., 10% or more) by the
Employer in the Executive's Base Salary as the same
may be increased from time to time or, except to the
extent permitted by Section 3(b) hereof, a material
reduction in the package of fringe benefits provided
to the Executive, taken as a whole;
(iii) Without the Executive's express written consent, the
Employer requires the Executive to work in an office
which is more than 30 miles from the location of the
Employer's current principal executive office, except
for required travel on business of the Employer to an
extent substantially consistent with the Executive's
business travel obligations prior to the Change in
Control;
(iv) Any purported termination of the Executive's
employment for Cause, Disability or Retirement which
is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (k) below
and Section 5 hereof; or
(v) The failure by the Employer to obtain the assumption
of and agreement to perform this Agreement by any
successor as contemplated in Section 13 hereof.
(j) IRS. "IRS" shall mean the Internal Revenue Service.
(k) NOTICE OF TERMINATION. Any purported termination of the
Executive's employment by the Employer for any reason, including without
limitation for Cause, Disability or Retirement, or by the Executive for any
reason, including without limitation for Good Reason, shall be communicated by
a written "Notice of Termination" to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a dated notice which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for
<PAGE> 4
Geritz Employment Agreement
Page 4
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Employer's termination of Executive's employment for Cause for
which the Date of Termination may be the date of the notice; and (iv) is given
in the manner specified in Section 14 hereof.
(l) RETIREMENT. "Retirement" shall mean voluntary termination by
the Executive in accordance with the Employer's retirement policies, including
early retirement, generally applicable to the Employer's salaried employees.
(m) SUBSIDIARY. "Subsidiary" shall mean any subsidiary of the
Corporation.
2. TERM OF EMPLOYMENT.
(a) The Employer hereby employs the Executive as Executive Vice
President, and Executive hereby accepts said employment and agrees to
render such services to the Employer, on the terms and conditions set forth in
this Agreement. Unless extended as provided in this Section 2, this Agreement
shall terminate five (5) years after the date first above written; provided,
however, this Agreement shall be automatically renewed on its anniversary date
("Annual Renewal Date") each year for one (1) additional year so that this
Agreement shall continue in effect for a period ending five (5) years from each
Annual Renewal Date unless either party shall give written notice of
non-renewal, in accordance with Section 14 hereof to the other party at least
thirty (30) days prior to an Annual Renewal Date, in which event this Agreement
shall continue in effect for a term ending on the fifth consecutive Annual
Renewal Date immediately following such notice. Reference herein to the term
of this Agreement shall refer both to the initial term and any successive term
as the context requires.
(b) During the term of this Agreement, the Executive shall perform
such executive services for the Employer as is consistent with his title of
Executive Vice President and as directed, from time to time, by the Board of
Directors and/or the President and Chief Executive Officer, including but not
limited to, the supervision of the Corporation's business development,
marketing and sales operations. The Executive shall devote his full time,
attention and energies to the business of the Corporation and shall not, during
the term hereof (as defined in Section 2(a)), be employed or involved in any
other business activity, whether or not such activity is pursued for gain,
profit or other pecuniary advantage, except for (i) volunteer services for or
on behalf of such religious, educational, non-profit and/or other eleemosynary
organization as Executive may wish to serve, (ii) service as a director of as
many as three (3) for-profit business activities, and (iii) such other
activities as may be specifically approved by the Board of Directors (without
the Executive's participation or vote). This restriction shall not, however,
preclude the Executive from employment in any capacity with affiliates of the
Corporation, nor shall any remuneration from such affiliates
<PAGE> 5
Geritz Employment Agreement
Page 5
be considered in calculating the Base Salary (as defined in Section 3(a)) due
to Executive hereunder.
3. COMPENSATION AND BENEFITS.
(a) For services rendered hereunder by the Executive, the Employer
shall compensate and pay Executive for his services during the term of
this Agreement at a minimum base salary of one hundred twenty-five thousand
dollars ($125,000.00) per year ("Base Salary"), which may be increased from
time to time in such amounts as may be determined by the Board of Directors of
the Employer. In addition to his Base Salary, the Executive shall receive a
cash bonus for fiscal 1998, payable in May 1998 (on a date in May 1998
determined by management) in the amount of one hundred twenty-five thousand
dollars ($125,000.00) and a cash bonus for the fiscal years 1999, 2000 and 2001
to be based upon performance objectives to be determined by and between the
Board of Directors (or the Compensation Committee thereof) and the Executive
prior to the commencement of each such fiscal year, using quarterly goals and
based upon targeted revenue and earnings growth of the Corporation, strategic
alliances or acquisitions and the Executive's management of the Corporation's
affairs, payable quarterly throughout the fiscal year, provided that the goals
are successfully attained. In addition to any bonus paid or should the Board of
Directors not provide any bonus to Executive for any year, the Executive's
Base Salary shall automatically be increased by the amount of the prior
year's increase in the "Consumer Price Index for all Urban Consumers
(1982-84=100), Washington, D.C. Area, All Items," as published by the United
States Department of Labor, Bureau of Labor Statistics (the "CPI").
(b) During the term of the Agreement, Executive shall be entitled
to participate in and receive the benefits of any pension or other retirement
benefit plan, the 401(k) plan, profit sharing, stock option, employee stock
ownership, or other plans, benefits and privileges given to employees and
executives of the Employer, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors of the Employer. The
Employer shall not make any changes in such plans, benefits or privileges which
would adversely affect Executive's rights or benefits thereunder, unless such
change occurs pursuant to a program applicable to all executive officers of the
Employer and does not result in a proportionately greater adverse change in the
rights of or benefits to Executive as compared with any other executive officer
of the Employer. Nothing paid to Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the base salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled
to four (4) weeks (20 working days) paid vacation in each calendar year to be
taken and determined in accordance with the vacation policies and procedures as
established from time to time
<PAGE> 6
Geritz Employment Agreement
Page 6
by the Board of Directors of the Employer. Executive shall also be entitled to
all paid holidays to which similarly situated executives and key management
employees of the Corporation are entitled. The Executive shall be entitled to
paid leave due to physical illness in each calendar year to be taken and
determined in accordance with the policies and procedures as established from
time to time by the Board of Directors. Executive shall not be entitled to
receive any additional compensation from the Employer for failure to take a
vacation, or failure to use "sick days," nor shall Executive be able to
accumulate unused vacation or "sick" time from one year to the next, except to
the extent authorized by the Board of Directors of the Employer.
4. EXPENSES. The Employer shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employer, including,
but not by way of limitation, traveling expenses, and all reasonable
entertainment expenses (whether incurred at the Executive's residence, while
traveling or otherwise), subject to such reasonable documentation and other
limitations as may be established by the Board of Directors of the Employer.
If such expenses are paid in the first instance by Executive, the Employer
shall reimburse the Executive therefor.
5. TERMINATION.
(a) The Employer shall have the right, at any time upon prior
Notice of Termination, to terminate the Executive's employment hereunder for
any reason, including without limitation termination for Cause, Disability or
Retirement, and Executive shall have the right, upon prior Notice of
Termination, to terminate his employment hereunder for any reason.
(b) In the event that (i) Executive's employment is terminated by
the Employer for Cause or (ii) Executive terminates his employment hereunder
other than for Good Reason, Executive shall have no right pursuant to this
Agreement to compensation or other benefits for any period after the applicable
Date of Termination.
(c) In the event that (i) Executive's employment is terminated by
the Employer for other than Cause, including termination due to Disability,
Retirement or the Executive's death, or (ii) such employment is terminated by
the Executive due to a material breach of this Agreement by the Employer, which
breach has not been cured within fifteen (15) days after a written notice of
non-compliance has been given by the Executive to the Employer, then the
Employer shall, subject to the provisions of Section 6 hereof, if applicable,
(A) Pay to the Executive, in a lump sum or in thirty-six
(36) equal monthly installments (at the Executive's option) beginning with the
first business day of the month following the Date of Termination, a cash
severance amount equal to three (3) times the Executive's Average Annual
Compensation, and
<PAGE> 7
Geritz Employment Agreement
Page 7
(B) Maintain and provide for a period ending at the
earlier of (i) the expiration of the remaining term of employment pursuant
hereto prior to the Notice of Termination or (ii) the date of the Executive's
full-time employment by another employer (provided that the Executive is
entitled under the terms of such employment to benefits substantially similar
to those described in this subparagraph (B)), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to participate immediately
prior to the Date of Termination (other than stock option and restricted stock
plans of the Employer), provided that in the event that the Executive's
participation in any plan, program or arrangement as provided in this
subparagraph (B) is barred or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are materially reduced,
the Employer shall arrange to provide the Executive with benefits substantially
similar to those which the Executive was entitled to receive under such plans,
programs and arrangements immediately prior to the Date of Termination.
(d) In the event that Executive's employment is terminated by the
Executive for Good Reason subsequent to Change in Control, then the Employer
shall:
(A) Pay to the Executive, in a lump sum payable within
five business days following the Date of Termination, a cash severance amount
equal to five (5) times the Executive's Average Annual Compensation, and
(B) Maintain and provide for a period ending at the
earlier of (i) the expiration of the remaining term of employment pursuant
hereof prior to the Notice of Termination or (ii) the date of the Executive's
full-time employment by another employer (provided that the Executive is
entitled under the terms of such employment to benefits substantially similar
to those described in this subparagraph (B)), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to participate immediately
prior to the Date of Termination (other than stock option and restricted stock
plans of Employer), provided that in the event the Executive's participation in
any plan, program or arrangement is discontinued or the benefit thereunder are
materially reduced, the Employer shall arrange to provide the Executive with
benefits substantially similar to those which the Executive was entitled to
receive under such plans, programs and arrangements immediately prior to the
Date of Termination.
6. ADDITIONAL BENEFITS UNDER CERTAIN CIRCUMSTANCES.
(a) If the Executive becomes liable, in any taxable year, for the
repayment of an excise tax under Section 4999 of the Code on account of any
payments to the Executive pursuant to Section 5, and the Employer chooses not
to contest the liability or has exhausted
<PAGE> 8
Geritz Employment Agreement
Page 8
all administrative and judicial appeals contesting the liability, the Employer
shall pay the Executive (i) an amount equal to the excise tax for which the
Executive is liable under Section 4999 of the Code, (ii) the federal, state,
and local income taxes, and interest if any, for which the Executive is liable
on account of the payments pursuant to item (i), and (ii) any additional excise
tax under Section 4999 of the Code and any federal, state and local income
taxes for which the Executive is liable on account of payments made pursuant to
items (i) and (ii).
(b) This Section 6(b) applies if the amount of payments to the
Executive under Section 6(a) has not been determined with finality by the
exhaustion of administrative and judicial appeals. In such circumstances, the
Employer and the Executive shall, as soon as practicable after the event or
series of events have occurred giving rise to the imposition of the excise tax,
cooperate in determining the amount of the Executive's excise tax liability for
purposes of paying the estimated tax. The Executive shall thereafter furnish
to the Employer or its successors a copy of each tax return which reflects a
liability for an excise tax under Section 4999 of the Code at least thirty (30)
days before the date on which such return is required to be filed with the IRS.
The liability reflected on such return shall be dispositive for the purposes
hereof unless, within twenty (20) days after such notice is given, the Employer
furnishes the Executive with a letter of the auditors or tax advisor selected
by the Employer indicating a different liability or that the matter is not free
from doubt under the applicable laws and regulations and that the Executive
may, in such auditor's or advisor's opinion, cogently take a different
position, which shall be set forth in the letter with respect to the payments
in question. Such letter shall be addressed to the Executive and state that he
is entitled to rely thereon. If the Employer furnishes such a letter to the
Executive, the position reflected in such letter shall be dispositive for
purposes of this Agreement, except as provided in Section 6(c) below.
(c) Notwithstanding anything in this Agreement to the contrary, if
the Executive's liability for the excise tax under Section 4999 of the Code for
a taxable year is subsequently determined to be less than the amount paid by
the Employer pursuant to Section 6(a), the Executive shall repay the Employer
at the time that the amount of such excise tax liability is finally determined,
the portion of such income and excise tax payments attributable to the
reduction (plus interest on the amount of such repayment at the rate provided
on Section 1274(b)(2)(B) of the Code) and if the Executive's liability for the
excise tax under Section 4999 of the Code for a taxable year is subsequently
determined to exceed the amount paid by the Employer pursuant to Section 6(a),
the Employer shall make an additional payment of income and excise taxes in the
amount of such excess, as well as the amount of any penalty and interest
assessed with respect thereto at the time that the amount of such excess and
any penalty and interest is finally determined.
<PAGE> 9
Geritz Employment Agreement
Page 9
7. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of
any benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended
to exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employer pursuant to employee benefit plans
of the Employer or otherwise.
8. WITHHOLDING. All payments required to be made by the Employer
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employer may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
9. NON-SOLICITATION OF CUSTOMERS AND EMPLOYEES.
(a) The Executive hereby acknowledges and recognizes the highly
competitive nature of the business of the Corporation and accordingly agrees
that, during the term of this Agreement and, in consideration of the receipt of
any payment pursuant to this Agreement, for a period of two years following the
date of termination of the Executive's employment under this Agreement, unless
otherwise agreed to in writing by the Corporation, the Executive shall not,
either directly or indirectly, in any manner or capacity, whether as principal,
agent, partner, officer, director, employee, joint venturer, salesman, or
corporate shareholder or otherwise for the benefit of any Person (as defined
below), (i) render services to, or solicit the rendering of services to, any
Person in competition with the business of the Corporation, which then is, or
at any time during a period of one year prior to the termination of the
Executive's employment under this Agreement (the "Termination Date"), was a
Customer (as defined below) of the Corporation, or (ii) solicit the rendering
of services to any Person of any kind whatsoever which is then or has been at
any time during a period of one year prior to the Termination Date a Customer,
employee, salesperson, agent or representative of the Corporation in any manner
which interferes or might interfere with the relationship of the Corporation
with such Person, or in an effort to obtain such Person as a customer,
supplier, employee, salesperson, agent or representative of any business in
competition with the Corporation, or (iii) for a period of two years following
the Termination Date, hire or participate in the hiring by any Person of an
employee of the Corporation. In order to assure strict compliance with the
foregoing, and in recognition of the compensation to be paid by Employer to
Executive on the termination of this Agreement, Executive grants to Employer
the sole and absolute right to determine whether any employment or services
anticipated to be undertaken by Executive during said period of time as
outlined above, is or may be in violation of the foregoing provisions and
Executive agrees to notify Employer, in writing, fourteen (14) days prior to
undertaking any
<PAGE> 10
Geritz Employment Agreement
Page 10
employment or services within the said time period, regardless of the nature
thereof, of the name and address of any such intended employer, proposed job
title, proposed job description and salary, and the business of the prospective
employer. If, within such fourteen (14) day period, Employer shall object on
reasonable grounds to such anticipated employment in writing to Executive,
Executive agrees not to accept the same or in any manner directly or indirectly
render services to any such prospective employer.
"Person" means any individual, trust, partnership, corporation,
limited liability company, association, or other legal entity.
"Customer" means any Person with which the Corporation or any
subsidiary is currently engaged to provide goods or services, has been engaged
to provide goods or services within twelve (12) months prior to the Termination
Date, or actively marketed, discussed a project with, negotiated with, provided
a bid to or otherwise communicated with in an effort to obtain an engagement to
provide goods or services sold by the Corporation or any subsidiary within
twelve (12) months prior to the Termination Date.
(b) It is expressly understood and agreed that although the
Executive and the Corporation consider the restrictions contained in Section
9(a) of this Agreement reasonable for the purpose of preserving for the
Corporation its good will and other proprietary rights, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in Section 9(a) of this Agreement is an
unreasonable or otherwise unenforceable restriction against the Executive, the
provisions of Section 9(a) of this Agreement shall not be rendered void but
shall be deemed amended to apply as to such maximum time and territory and to
such other extent as such court may judicially determine or indicate to be
reasonable.
10. DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive
acknowledges that the Corporation's trade secrets, as they may exist from time
to time, and confidential information concerning its products, programs,
technical information, procurement and sales activities and procedures,
identity of customers and potential customers, business plans, promotion and
pricing techniques, and credit and financial data concerning customers are
valuable, special and unique assets of the Corporation. In light of the highly
competitive nature of the industry in which the Corporation's business is
conducted, the Executive agrees that all knowledge and information described in
the preceding sentence not in the public domain and heretofore or in the future
obtained by the Executive shall be considered confidential information.
Executive agrees that he will not disclose any or such secrets, processes or
information to any Person or other entity for any reason or purpose whatsoever,
except as necessary in the performance of his duties as an employee of or
consultant to the Corporation and then only upon a written confidentiality
agreement in such form and content as requested by the Corporation from time to
time, nor shall the Executive make use of any such secrets, processes or
information (other than information in the public domain) for his own purposes
or for the benefit of himself, any Person or other
<PAGE> 11
Geritz Employment Agreement
Page 11
entity (except the Company and its subsidiaries) under any circumstances. The
provisions contained in this Section 10 shall also apply to information
obtained by the Executive with respect to any future subsidiary of the
Corporation.
11. BUSINESS INFORMATION. Upon the termination of his employment
with the Corporation, Executive (or, as appropriate, his personal
representatives) shall deliver to the Corporation (without retaining copies of
the same), all plans, source codes, designs, customer lists, correspondence,
records, documents, accounts and papers of any description and any other
property of the Corporation within the possession or under the control of
Executive (or, as appropriate, his personal representatives) and relating to
the affairs and business of the Corporation, whether drafted, created or
compiled by Executive or received by Executive from other individuals or
entities (whether employees of or affiliated with the Corporation).
12. REMEDIES. The Executive acknowledges and agrees that the
Company's remedy at law for a breach or threatened breach of any of the
provisions of Section 9, Section 10 or Section 11 of this Agreement would be
inadequate and, in recognition of this fact, in the event of a breach or
threatened breach by the Executive of any of the provisions of Section 9,
Section 10 or Section 11 of this Agreement, it is agreed that, in addition to
any remedy at law, the Corporation shall be entitled to without posting any
bond, and the Executive agrees not to oppose the Corporation's request in the
nature of specific performance, temporary restraining order, temporary or
permanent injunction, or any other equitable relief or remedy which may then be
available, provided, however, nothing herein shall be deemed to relieve the
Corporation of its burden to prove grounds warranting such relief nor preclude
the Executive from contesting such grounds or facts in support thereof.
Nothing herein contained shall be construed as prohibiting the Corporation form
pursuing any other remedies available to it for such breach or threatened
breach.
13. ASSIGNABILITY. The Employer may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation
or other entity with or into which the Employer may hereafter merge or
consolidate or to which the Employer may transfer all or substantially all of
its assets, if in any such case said corporation or other entity shall by
operation of law or expressly in writing assume all obligations of the Employer
hereunder as fully as if it had been originally made a party hereto, but may
not otherwise assign this Agreement or its rights and obligations hereunder.
The Executive may not assign or transfer this Agreement or any rights or
obligations hereunder.
14. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by certified
or registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
<PAGE> 12
Geritz Employment Agreement
Page 12
To the Employer: Board of Directors
ICARUS International, Inc.
One Central Plaza
11300 Rockville Pike
Rockville, Maryland 20852
Attn: Herbert G. Blecker, Chairman
With copies to: Lawrence H. Fischer, Esq.
Deckelbaum, Ogens & Fischer
1140 Connecticut Avenue, N.W.
Suite 703
Washington, DC 20036
and
Jeffrey A. Koeppel, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
To the Executive: William F. Geritz, III
5304 Woodnote Lane
Columbia, MD 21044
15. AMENDMENT; WAIVER. This Agreement supersedes and replaces the
Contract of Employment by and between the Executive and the Employer dated
August 1, 1981, which shall be, upon the execution of this Agreement,
terminated, null and void as of the date hereof. This Agreement represents the
entire agreement of the parties relating to subject matter hereof. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing signed by the
Executive and such officer or officers as may be specifically designated by the
Board of Directors of the Employer to sign on its behalf. No waiver by any
party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
16. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Maryland.
17. NATURE OF OBLIGATIONS. The obligations of the Employer
hereunder are unsecured and the Executive represents a general creditor of the
Corporation for compensation which may be due and owing. Nothing contained
herein shall create or require the Employer to create a trust of any kind to
fund any benefits which may be
<PAGE> 13
Geritz Employment Agreement
Page 13
payable hereunder, and to the extent that the Executive acquires a right to
receive benefits from the Employer hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employer.
18. INTERPRETATION AND HEADINGS. This Agreement shall be
interpreted in order to achieve the purposes for which it was entered into.
The section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
19. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect. With respect to Section 9 of this Agreement, in the event any court of
competent jurisdiction determines that such provisions are unreasonable or
contrary to law with respect to their time or geographic restriction, or both,
the parties hereto authorize such court to substitute restrictions as it deems
appropriate without invalidating such paragraph or this Agreement.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: ICARUS INTERNATIONAL, INC.
/s/ By: /s/
- -------------------------- -------------------------------------------
Name: Herbert G. Blecker
Title: President and Chief Executive Officer
ICARUS CORPORATION
By: /s/
-------------------------------------------
Name: Herbert G. Blecker
Title: President and Chief Executive Officer
EXECUTIVE
By: /s/
-------------------------------------------
William F. Geritz, III
<PAGE> 1
EXHIBIT 10.15
ONE CENTRAL PLAZA LIMITED PARTNERSHIP
C/O FRED F. FRENCH INVESTING LLC
METRO CENTER - ONE STATION PLACE
STAMFORD, CT 06902-3546
Dated as Of January 21, 1998
Icarus Corporation
One Central Plaza - Suite 602
11300 Rockville Pike
Rockville, Maryland 20852
Re: Lease Agreement by and between MACH I RESEARCH ASSOCIATES
("MACH I"), one of Landlord's Predecessors-in-interest, and
ICARUS CORPORATION ("Tenant") dated as of October 15, 1976,
wherein and whereby Mach I leased to Tenant a portion of the
sixth (6th) floor in the building at 11300 Rockville Pike,
Rockville, Maryland (the "Building"), for a term scheduled to
commence on the 1st day of January, 1977, and to end on the 31st
day of March, 1982; which lease was modified: (i) by Addendum
No. 1 to Lease dated as of October 25, 1976, between Mach I and
Tenant; (ii) by Agreement as of August 24, 1979, between Fred F.
French of Maryland, as agent ("FFF"), another of Landlord's
predecessors-in-interest, and Tenant; (iii) by letter agreement
dated as of August 31, 1979 between FFF and Tenant; (iv) by
those certain letters of Tenant dated January 23, 1981 and April
30, 1986, wherein and whereby Tenant exercised its rights to
extend the term of the lease; (v) by Extension and Additional
Space Agreement dated as of January 8, 1990, between One Central
Plaza Joint Venture ("OCPJV"), another of Landlord's
predecessors-in-interest, and Tenant, as amended by that certain
letter agreement dated January 30, 1990 between OCPJV (the "601
Additional Space Agreement"), between OCPJV and Tenant; (vii) by
Additional Space Agreement dated as of February 28, 1992 (the
"609 Additional Space Agreement") between OCPJV and Tenant;
(viii) by Additional Space Agreement dated as of January 1, 1994
(the "Storage Area # 11 Additional Space Agreement") between
OCPJV and Tenant; (ix) by Additional Space Agreement dated as of
May 1, 1995 (the "611 Additional Space Agreement") between Once
Central Plaza Limited Partnership ("Landlord") and Tenant; (x)
by letter agreement dated as of September 1, 1995 (the "Storage
Area # 10 Additional Space Agreement") between Landlord and
Tenant; and (xi) by Additional Space Agreement dated as of
November 13, 1996 (the Suite 600 Additional Space Agreement:)
between Landlord and Tenant; which lease is scheduled to end on
March 31, 1998 (which lease as so modified and as same otherwise
heretofore may have been modified is hereinafter referred to as
the "Lease".
Gentlemen:
Reference hereby is made to the above-described Lease, the term of which
presently is scheduled
<PAGE> 2
to expire on March 31, 1998. Capitalized terms used but not defined in this
agreement, if any, shall have the same meanings as are ascribed to them in the
Lease.
Tenant has requested that Landlord agree to extend the term of the Lease
for a period of one (1) month beyond the present expiration date thereof, in
order to facilitate the orderly removal by Tenant from the Building, and the
relocation by Tenant to new premises, upon the expiration of the term of the
Lease.
This letter will confirm our mutual understanding and agreement that,
effective as of January 21, 19__, the term of the Lease, for all of the premises
demised thereby (the "Premises"), hereby is extended for a further period of one
(1) month beyond the presently scheduled expiration date of the term (the
"Extended Term"), commencing on April 1, 1998 and ending on April 30, 1998 (the
"New Expiration Date").
Tenant's occupancy of the Premises during the Extended Term shall be
upon and subject to all of the same terms, covenants, conditions, provisions and
agreements contained in the Lease, except that, from and after January 21, 1998,
Tenant shall have no right or privilege whatsoever to assign the Tenant's
interest in the Lease, or to sublet all or any portion of the Premises, or to
make any alterations to the Premises, in each case without the prior written
consent of the Landlord, which Landlord may grant or withhold in its sole
discretion.
Tenant hereby acknowledges and agrees that Landlord will perform no work
in and will make no improvements to the Premises in connection with Tenant's use
and occupancy thereof during the Extended Term, and Tenant accepts the Premises
in their condition and state of repair existing on the date hereof. Tenant
hereby represents and warrants to Landlord, and covenants with Landlord, that:
(i) Tenant has dealt with no broker in connection with this agreement order
than Carey Winston Company and Tenant agrees to indemnify and hold
Landlord harmless against and from any loss, damage, cost, expense,
obligation or claim incurred by or asserted against Landlord by reason
of said representation and warranty being false or misleading;
(ii) Tenant heretofore has not deposited any sums with Landlord as security
for the Lease and no further security is being deposited in connection
with this agreement;
(iii) neither Tenant nor Landlord is in default under the Lease in any respect
and Tenant has no defenses to or offsets against the performance of
Tenant's obligations under the Lease, which, as hereby modified, is
ratified and confirmed by Tenant;
(iv) Tenant acknowledges that time is of the essence with respect to
Landlord's need to obtain possession of the Premises immediately after
the New Expiration Date and, accordingly, Tenant agrees that if
<PAGE> 3
Tenant hold over in possession after the expiration or sooner termination of the
Extended Term of the Lease, such holding over shall not be deemed to extend the
Term or renew the Lease, by such holding over thereafter shall continue upon the
terms, covenants, conditions, provisions and agreements set forth in the Lease,
except that the charge for use and occupancy of such holding over for each
calendar month or part thereof (even if such part shall be a small fraction of a
calendar month) shall be two (2) times the sum of the fixed rent and the
additional rent and other sums which had been due and payable during the last
full calendar month of the end of the Extended Term, which total sum Tenant
agrees to pay Landlord promptly upon demand, in full, without set-off or
deduction. Notwithstanding the provisions of paragraph 26 of the Lease, neither
the billing nor the collection of use and occupancy in the above amount shall be
deemed a waiver of any right of landlord to reenter and take possession of the
Premises in the event of Tenant's holding over, nor shall same be deemed a
waiver of any right of Landlord to collect damages for Tenant's failure to
vacate the Premises after the expiration or sooner termination of the Extended
Term of the Lease; and
(v) Notwithstanding the provisions of paragraph 14 of the Lease, Tenant
agrees that, after the date hereof, Landlord, at all times, shall be
entitled to enter the Premises to show the Premises or any part thereof
to any parties contemplating subsequent leasing of all or a portion of
the Premises or to any prospective purchaser or mortgages of the
Building.
Please confirm Tenant's understanding of and mutual agreement with the
foregoing by executing the enclosed four (4) copies of this letter agreement
beneath the words "Accepted and Agreed"; and then return all four (4) copies to
us. This letter agreement shall not be binding upon Landlord unless and until
Landlord shall have executed same, and delivered a fully executed counterpart to
Tenant. Upon such mutual execution and delivery, this letter agreement shall be
considered and deemed to be, and shall constitute, a binding agreement between
us.
Very truly yours,
ONE CENTRAL PLAZA LIMITED PARTNERSHIP
By: /s/ Edwin A. Malloy
-------------------------------------
Edwin A. Malloy, General Partner
Accepted And Agreed:
ICARUS CORPORATION
By: /s/ Herbert G. Blecker
-------------------------------
Herbert G. Blecker, President
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 26, 1998, accompanying the consolidated
financial statements of ICARUS International, Inc., contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the captions "Selected Consolidated
Financial Data" and "Experts."
/s/ GRANT THORNTON LLP
Vienna, Virginia
July 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF INCARUS INTERNATIONAL, INC. AND QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM SB2.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> APR-30-1997 APR-30-1998
<PERIOD-START> MAY-01-1996 MAY-01-1997
<PERIOD-END> APR-30-1997 APR-30-1998
<CASH> 1,716 1,519
<SECURITIES> 0 0
<RECEIVABLES> 2,111 2,351
<ALLOWANCES> (119) (87)
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,884 3,977
<PP&E> 1,805 2,343
<DEPRECIATION> (1,403) (1,587)
<TOTAL-ASSETS> 4,554 5,974
<CURRENT-LIABILITIES> 2,788 3,656
<BONDS> 0 0
0 0
0 0
<COMMON> 30 30
<OTHER-SE> 1,036 1,136
<TOTAL-LIABILITY-AND-EQUITY> 4,554 5,974
<SALES> 0 0
<TOTAL-REVENUES> 7,339 9,137
<CGS> 0 0
<TOTAL-COSTS> 981 1,078
<OTHER-EXPENSES> 5,328 7,027
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6 0
<INCOME-PRETAX> 1,075 1,121
<INCOME-TAX> 419 459
<INCOME-CONTINUING> 656 662
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 656 662
<EPS-PRIMARY> 0.22 0.22
<EPS-DILUTED> 0.22 0.22
</TABLE>
