<PAGE>
As filed with the Securities and Exchange Commission on July 30, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
METALOGICS, INC.
(Exact name of Small Business Issuer in its charter)
Delaware 7372 23-2840348
(State or jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
Riverview Historical Plaza
33-41 Newark Street, Suite 4-C
Hoboken, New Jersey 07030
telephone: (201) 656-0906; facsimile: (201) 656-0901
(Address and telephone number of principal executive offices and principal
place of business)
WILLIAM P. DOYLE
President and Chief Executive Officer
Riverview Historical Plaza
33-41 Newark Street, Suite 4-C
Hoboken, New Jersey 07030
telephone: (201) 656-0906; facsimile: (201) 656-0901
(Name, address and telephone number of agent for service)
---------------------
Copies to:
STEPHEN A. WEISS, ESQ. MARK J. HYLAND, ESQ. THOMAS J. POLETTI, ESQ.
SPENCER G. FELDMAN, ESQ. Seward & Kissel SUSAN B. KALMAN, ESQ.
Greenberg Traurig One Battery Park Plaza Freshman, Marantz, Orlanski,
200 Park Avenue, 15th Floor New York, New York 10004 Cooper & Klein
New York, New York 10166 telephone: (212) 574-1200 9100 Wilshire Boulevard,
Suite 8E
telephone: (212) 801-9200 facsimile: (212) 480-8421 Beverly Hills,
California 90212
facsimile: (212) 801-6400 telephone: (310) 273-1870
facsimile: (310) 274-8357
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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.
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<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered Per Share(2) Price(2) Registration Fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value..... 2,645,000(1) $ 13.00 $34,385,000 $ 10,143.58
- -------------------------------------------------------------------------------------------------------------------
Representatives' Warrants to
Purchase Common Stock ............ 230,000 $ .001 $ 230 $ 0.07
- -------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Representatives'
Warrants ......................... 230,000(3) $ 15.60 $ 3,588,000 $ 1,058.46
- -------------------------------------------------------------------------------------------------------------------
Total ............................................................... $37,973,230 $ 11,202.10
</TABLE>
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(1) Includes 345,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a).
(3) Consists of shares of Common Stock issuable upon exercise of
Representatives' Warrants issued to the Representatives of the several
Underwriters.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale there 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 30, 1998
PROSPECTUS
2,300,000 Shares
METALOGICS, INC.
Common Stock
------------
All of the 2,300,000 shares of Common Stock (the "Common Stock") offered
hereby are being sold by Metalogics, Inc. (the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company
and there can be no assurance that any active trading market will develop. It
is currently estimated that the initial public offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
intends to apply to list the Common Stock on the American Stock Exchange
("Amex") under the symbol "ML."
---------------------
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors" beginning on page 7 hereof for a discussion of material factors that
should be considered by prospective purchasers of the Common Stock.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share ......... $ $ $
- --------------------------------------------------------------------------------
Total(3) .......... $ $ $
================================================================================
(1) Excludes the value of warrants to be issued to the representatives of the
several Underwriters listed below (the "Representatives") to purchase up
to 230,000 shares of Common Stock (the "Representatives' Warrants"). The
Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
to be $500,000.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
345,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters, when,
as and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to withdraw, cancel or modify such
offer and to reject orders in whole or in part. It is expected that delivery of
share certificates will be made against payment therefor at the offices of
Cruttenden Roth Incorporated in Irvine, California or through the facilities of
the Depository Trust Company, on or about , 1998.
CRUTTENDEN ROTH
INCORPORTED
JOSEPHTHAL & CO. INC.
BARINGTON CAPITAL GROUP
The date of this Prospectus is , 1998
<PAGE>
[Picture of ICM Graphical User Interface]
Metalogics(TM) and Intelligent Configuration Management(TM) are trademarks
of the Company. This Prospectus may also contain trademarks of companies other
than the Company.
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
---------------------
The Company intends to furnish annual reports to stockholders containing
audited financial statements certified by an independent public accounting firm
and make available unaudited quarterly reports for the first three fiscal
quarters of each fiscal year and such other periodic reports as it may
determine to be appropriate or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements (including the notes thereto) appearing
elsewhere in this Prospectus. This Prospectus contains, in addition to
historical information, forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements as a result
of certain risks and uncertainties. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors" and elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
(i) assumes that the Underwriters' over-allotment option as described in
"Underwriting" is not exercised and (ii) excludes 230,000 shares of Common
Stock reserved for issuance upon the exercise of the Representatives' Warrants
and 1,000,000 shares of Common Stock reserved for issuance under the Company's
1998 Stock Option Plan. See "Management--Stock Option Plan," "Description of
Securities" and "Underwriting."
The Company
General
The Company provides enterprise network management solutions designed to
assess the status and interoperability of enterprise-wide computer and
microprocessor-embedded systems predominantly to the healthcare industry. An
essential element of the Company's enterprise management solution is its
proprietary network assessment software tool, known as Intelligent
Configuration Management ("ICM"), which dynamically assesses and monitors the
interactions within and among network software and devices connected to an
enterprise system and allows for real-time additions, changes and deletions of
software and devices from those systems. The Company provides a full range of
network and Internet management assessment and mitigation services, including
network redesign and upgrading, to ensure the reliability of an organization's
enterprise network and to enhance the productivity and efficiency of hospitals
and other healthcare providers. Using the Company's ICM software, the Company
believes that healthcare organizations can better manage their information
technology ("IT") infrastructure on an ongoing basis or allow the Company to
provide such services on an outsourcing basis.
The Gartner Group estimates that the network and systems management market
will grow to $10.0 billion by the year 2000 from $4.5 billion in 1997. The
Company has targeted the healthcare industry, one of the largest industries in
the United States accounting for an estimated 14.4% of 1996 gross domestic
product, according to the U.S. Bureau of Labor Statistics. The Company believes
that hospitals and other healthcare organizations have substantial needs for IT
management due to the diverse range of their interconnected network devices.
Based on the Company's experience with its hospital clients that generate more
than $2.0 billion in annual revenue, the Company believes that these larger
hospitals generally have more than 5,000 beds, 15,000 desktop computers, 1,000
servers and network devices and 45,000 biomedical devices. Currently, a
substantial focus of the Company's internal marketing efforts is year 2000
("Y2K") assessment and mitigation with respect to biomedical devices. Software
Productivity Research estimates that the cost of fixing the Y2K problem in the
United States alone is expected to reach $3.6 trillion by 2005. According to
the Gartner Group, more than 87% of hospitals and healthcare organizations
reported in late 1997 that they are just beginning their Y2K compliance efforts
and, according to USA Today, of the approximately 6,000 hospitals in the United
States, only 30% of them have prepared formal Y2K plans.
The Company has entered into a teaming agreement with Comdisco, Inc.
("Comdisco"), a leading technology services company. Pursuant to such
agreement, Comdisco and the Company have agreed to, on a project-by-project
basis, jointly market the Company's software and services and Comdisco's
services, including Y2K compliance testing, to prospective clients, jointly bid
on proposals and jointly perform contracted for services. Since inception, the
Company has entered into agreements with a number of healthcare organizations
covering more than 60 facilities and including many large hospital systems such
as North Shore/Long Island Jewish Health System, New York University Hospital
Center and University of Pennsylvania Health System. The Company has entered
into several significant contracts during the first
3
<PAGE>
half of 1998. Under the terms of these contracts, the Company licenses its
software and performs related services to assess clients' computer networks,
information systems and biomedical equipment, including for Y2K compliance. As
of June 30, 1998, the Company had entered into contracts with a value of
approximately $5.3 million, of which approximately $2.2 million in revenue had
been recognized through June 30, 1998 and $3.1 million may be recognized over
the remaining term of these contracts. However, since the contracts are
cancellable by the client, there can be no assurance that all of the remaining
revenue will be recognized.
Industry Background and Trends
Present day IT networks are characterized by increasing complexity and
ongoing transformation. As microprocessors are used increasingly in
non-computer devices, the definition of an organization's IT network continues
to expand. From an IT standpoint, managing the resultant network has become
increasingly difficult, especially within large organizations. As these systems
continue to expand and become more complex, the Company believes there exists a
need for enterprise management software tools that are designed to monitor and
mitigate unforeseen and untimely system problems.
The Company believes that the healthcare industry provides a significant
market opportunity for its enterprise management solutions due to (i) the
expansion of complex computer networks and other devices, (ii) the continued
integration of disparate clerical and administrative services, (iii) the need
of the healthcare industry to upgrade its IT infrastructure, (iv) the increase
in industry consolidation, (v) the increasing use of integrated systems in the
delivery of patient care and (vi) the lack of adequate internal infrastructure
to manage rapidly-growing IT networks.
The Y2K problem represents a significant example of the increasing
complexity and potentially destructive problems technology managers encounter.
In the healthcare industry, downtime is deemed unacceptable due to patient care
implications. Accordingly, the Company believes that companies which have
developed enterprise management solutions that can also successfully mitigate
Y2K problems have a significant competitive advantage.
Growth Strategy
The Company's objective is to leverage the ability of its ICM software to
quickly and efficiently assess existing and potential enterprise network
problems and thereby become a leading provider of enterprise network management
solutions. The key elements of the Company's growth strategy include the
following:
o Using Y2K Projects to Drive Recurring Revenues. During the next 18 months
the Company expects to devote substantial resources towards assisting
healthcare clients in assessing and mitigating their computer networks and
information systems for Y2K compliance. The Company's goal is to expand its
client base through the initial installation of the Company's ICM software
as part of the client's Y2K compliance effort, and the continued application
by the client of the ICM software for general enterprise management, which
will provide the Company with a source of recurring revenues.
o Outsourcing of Client Network Systems Management. The Company plans to
actively market its ability to assume numerous IT management functions that
organizations may elect to outsource. The Company believes its healthcare
industry experience and extensive knowledge of clients' computer networks
and information systems from its Y2K assessment and mitigation efforts is an
advantage in developing this potential source of outsourcing business.
o Providing Internet Management Solutions. Consolidation in the healthcare
industry has presented many organizations with the problem of integrating
diverse IT networks and systems to provide the combined entities with not
only basic functionality, but also efficient operations. The Company's goal
is to capitalize on this situation by offering Internet management solutions
to integrate
4
<PAGE>
and manage disparate networks at separate locations. The Company's ICM
software is Internet-compatible and Java-based. A Company client can deploy
and use the ICM software through its intranet, create a multi-location
enterprise management system linked by the Internet or centralize on the
Company's computer servers certain aspects of a client's enterprise
management system (such as the ICM software data), that is then linked to
the client's site through the Internet. In addition, the ICM software can be
used to provide Internet management solutions in which numerous, disparate
client networks at separate locations can be integrated and managed.
o Leveraging its Strategic Alliance with Comdisco. The Company seeks to
leverage the substantial resources and established reputation of Comdisco to
support its marketing efforts. It is expected that Comdisco will provide
test equipment lease financing and biomedical refurbishing services to
clients under joint proposals with the Company. In addition, Comdisco has
agreed to consider financing certain Y2K mitigation projects (based on
applicable terms), although to date no such financing has yet been provided.
The Company is currently bidding on a number of client projects in
collaboration with Comdisco.The Company believes that its strategic alliance
with Comdisco provides it with a competitive advantage in marketing its
products and services. Comdisco is a Fortune 500 company, with 1997 revenues
of $2.8 billion and assets of $6.4 billion.
o Pursuing Selective Acquisitions. The Company may broaden its client base and
enter new industries by acquiring other companies, technologies and
expertise that complement the Company's enterprise management solution.
While from time to time the Company evaluates potential acquisitions of
companies, technologies and products, there are no present understandings,
commitments or agreements with respect to any such transaction.
History
The Company was incorporated in the State of Delaware in February 1996 as
Meta4, Inc. and subsequently changed its name to Metalogics, Inc. The Company's
principal executive offices are located at Riverview Historical Plaza, 33-41
Newark Street, Suite 4-C, Hoboken, New Jersey 07030, and its telephone number
is (201) 656-0906.
The Offering
Common Stock offered ............... 2,300,000 shares
Common Stock to be outstanding after
the Offering ..................... 6,000,000 shares
Use of Proceeds .................... The Company intends to use the net
proceeds of this offering to finance
current Y2K assessment and expected miti-
gation projects, to expand sales and
marketing, to enhance the Company's
ongoing product development programs
and for working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Amex Symbol ............... ML
5
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
February 20, 1996 Three Months ended
(date of inception) March 31,
to Year ended -----------------------------
December 31, 1996 December 31, 1997 1997 1998
--------------------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue, net of contract
expenses ..................... $ 407,201 $1,649,699 $ 208,950 $ 432,945
Cost of revenue ................ 280,612 1,079,495 137,755 240,839
---------- ---------- ---------- ----------
Gross profit ................... 126,589 570,204 71,195 192,106
Operating expenses:
Selling, general and
administrative .............. 59,327 781,062 99,455 322,436
Depreciation ................. 2,268 17,870 1,113 11,826
Research and development -- 443,842 2,512 102,364
---------- ---------- ---------- ----------
Income (loss) from
operations ................... 64,994 (672,570) (31,885) (244,520)
Interest income ................ -- 862 -- 59
---------- ---------- ---------- ----------
Income (loss) before income
taxes ........................ 64,994 (671,708) (31,885) (244,461)
---------- ---------- ---------- ----------
Income tax expense
(benefit) .................... 84,257 (65,309) 32,307 --
---------- ---------- ---------- ----------
Net loss ....................... $ (19,263) $ (606,399) $ (64,192) $ (244,461)
========== ========== ========== ==========
Net loss per share -- basic
and diluted(1) ............... $ (0.01) $ (0.16) $ (0.02) $ (0.07)
========== ========== ========== ==========
Weighted average number of
shares outstanding --
basic and diluted(1) ......... 3,700,000 3,700,000 3,700,000 3,700,000
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
---------------------------------
Actual As Adjusted(2)
--------------- ---------------
<S> <C> <C>
Balance Sheet Data:
Cash ......................................... $ 129,201 $25,297,201
Working capital (deficit) .................... (1,113,390) 24,054,610
Total assets ................................. 461,372 25,629,372
Total liabilities ............................ 1,330,995 1,330,995
Total stockholders' (deficit) equity ......... (869,623) 24,298,377
</TABLE>
- -------------
(1) For information concerning the calculation of loss per share, see Note 1 of
Notes to Financial Statements.
(2) Adjusted to give effect to the sale by the Company of 2,300,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share, after deduction of underwriting discounts and
commissions and estimated offering expenses and the application of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
6
<PAGE>
RISK FACTORS
This Prospectus contains, in addition to historical information,
forward-looking statements, including, but not limited to, statements regarding
the Company's anticipated revenue from existing contracts for assessment
services and potential revenue from mitigation services and software licensing
and maintenance fees not yet contracted for, the Company's plans to open
additional sales offices, hire additional personnel and purchase computer and
testing equipment, the successful implementation of the Company's strategies,
acquisitions, future growth, growth rates and future increases in revenues,
sales, expenses, capital expenditures and net earnings. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "may,"
"will," "intends," "estimates" and similar expressions are intended to identify
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of certain risks and
uncertainties set forth below and elsewhere in this Prospectus. Factors that
could cause or contribute to such differences include those discussed below, as
well as those discussed elsewhere in this Prospectus. An investment in the
shares of Common Stock offered hereby involves a high degree of risk.
Prospective investors should carefully consider the following risk factors, in
addition to the other information set forth in this Prospectus, in connection
with an investment in the shares of Common Stock offered hereby.
Going Concern Assumption; Future Capital Needs Uncertain; No Assurance of
Future Financing
The Company's independent auditors' report on the Company's financial
statements as of December 31, 1997 and for the year then ended contains an
explanatory paragraph indicating that the Company's operating losses since
inception, working capital deficiency and net capital deficiency raise
substantial doubt about its ability to continue as a going concern. In
addition, the Company had an accumulated deficit of $870,123 and a working
capital deficit of $1,113,390 as of March 31, 1998. The Company may require
substantial additional funds in the future, and there can be no assurance that
the Company's future financial statements will not include a similar
explanatory paragraph if the Company is unable to raise sufficient funds or
generate sufficient cash from operations to cover the cost of its operations.
The existence of the explanatory paragraph may materially adversely affect the
Company's relationship with prospective customers, suppliers and strategic
alliances, and therefore could have a material adverse effect on the Company's
business, financial condition and results of operations.
The net proceeds from this offering are estimated to be $25,168,000,
assuming no exercise of the Underwriters' overallotment option. The Company's
future capital requirements will depend upon numerous factors, including the
progress of the Company in retaining mitigation service contracts, particularly
with respect to Y2K compliance, and the amount of revenues generated from
operations, if any, none of which can be predicted with certainty. The Company
anticipates that the proceeds of this offering, together with existing capital
resources and cash generated from operations, if any, will be sufficient to
meet the Company's cash requirements for at least the next 12 months at its
anticipated level of operations, which entail increases in spending for sales
and marketing, product development and costs associated with hiring additional
personnel. However, the Company may seek additional funding during the next 12
months and will likely seek additional funding after such time. There can be no
assurance that any additional financing will be available on acceptable terms,
or at all, when required by the Company. Moreover, if additional financing is
not available, the Company could be required to reduce or curtail the level of
its operations, seek an acquisition partner or sell securities on terms that
may be highly dilutive or otherwise disadvantageous to investors purchasing the
shares of Common Stock offered hereby. The Company has in the past and may
continue to experience operational difficulties due to working capital
constraints. Any such difficulties or delays could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note 1 to Notes
to Financial Statements.
New High Technology Business; Dependence on Single Product
The Company is subject to the risks inherent in the establishment of a new
high technology business. To address these risks, the Company must, among other
things, respond to competitive developments, respond to rapid technological
changes, changing client needs and evolving industry standards effectively
market its products and services, attract, retain and motivate qualified
personnel and enter into and maintain key strategic alliances. The Company's
decision to focus efforts on its enterprise management system is predicated on
the
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<PAGE>
assumption that, in the future, the number of users of the Company's system
will be large enough to permit the Company to operate profitably. There can be
no assurance that the Company's assumption will be correct or that the Company
will be able to successfully compete as a provider of software and services.
Any failure to achieve these goals could have a material adverse effect upon
the Company's business, operating results and financial condition.
In addition, the Company's future profitability will depend substantially
on the acceptance of its ICM enterprise management system. The Company's ICM
software was first installed in February 1998. There can be no assurance that
its ICM enterprise management system will achieve market acceptance to any
meaningful level. The Company's ability to effectuate the large-scale
introduction of its ICM enterprise management system will be dependent on the
hiring and training of additional personnel. Commercial acceptance of its ICM
enterprise management system will require the Company to successfully establish
additional sales and distribution channels. In the event the Company's
marketing efforts are unsuccessful for any reason, the Company's business,
operating results and financial condition will be materially and adversely
affected. See "Business--The ICM Enterprise Management Software."
Historical Operating Losses and Limited Revenue; Quarterly Fluctuations
The Company reported a net loss of $606,399 for the year ended December
31, 1997 and $244,461 for the three months ended March 31, 1998 on revenues of
$1,649,699 and $432,945, respectively. The Company reported a net loss of
$19,263 on revenue of $407,201 for the period from February 20, 1996 (date of
inception) to December 31, 1996. Fees from consulting services accounted for
approximately 84%, 96% and 100% of the Company's revenues for the three months
ended March 31, 1998, the year ended December 31, 1997 and for the period from
February 20, 1996 (date of inception) to December 31, 1996, respectively. The
losses in 1997 and 1998 reflect the Company's expenditures associated with
developing its ICM software and building a marketing program to sell its ICM
enterprise management system. There can be no assurance that the expenses
incurred in connection with the continuing development and marketing of its ICM
enterprise management system will not exceed the Company's expectations, or
that its software and services will generate revenue sufficient to offset these
expenses. In addition, variations in the Company's revenues and operating
results could occur from time to time as a result of a number factors, such as
the timing of the Company's revenue. The timing of revenue is difficult to
forecast because the Company has limited sales experience. Sales cycles for the
Company's products and services can be relatively long, and revenues may depend
on factors such as the size and scope of future projects, which are difficult
to predict.
Lengthy Sales and Implementation Cycles
The purchase and implementation of the Company's ICM enterprise management
system involves a significant commitment of resources by prospective clients.
As a result, the Company's sales process may be subject to delays associated
with lengthy approval processes over which the Company has little or no
control. These delays may contribute to fluctuations in the Company's operating
results, which may 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" and
"Business--Marketing and Strategic Relationship with Comdisco."
Reliance on Y2K Assessment and Mitigation Projects
The Company believes that its (i) near term profitability will depend on
its ability to effectively secure short-term Y2K assessment projects (which
last from approximately three to five months) and thereafter longer term and
higher-value Y2K mitigation projects with such customers, and (ii) future
profitability will depend on its ability to effectively market its enterprise
management system for applications other than Y2K assessment and mitigation.
The Company recognizes that market demand for Y2K assessment and mitigation
services, the majority of the work it has performed to date, will likely
decrease substantially, and eventually cease, during and after the year 2000.
The Company's failure to consistently obtain and complete Y2K assessment and
mitigation engagements to its clients' satisfaction would have a material
adverse effect on the Company's business, financial condition and results of
operations.
8
<PAGE>
Potential Inability to Secure Ongoing Enterprise Management Engagements
Substantially all of the Company's current agreements with its healthcare
clients are for the Company to provide Y2K assessment services. Following the
year 2000, the Company's success will depend largely upon its ability to become
a full-scale provider of its enterprise management system to existing and
additional clients in the healthcare industry. The inability of the Company to
secure significant additional ongoing enterprise management engagements
following completion of Y2K services would have a material adverse effect on
the Company's business, operating results and financial condition.
Client Concentration in Healthcare Sector
The Company has sold its products and services to date primarily to
customers in the healthcare industry. Events such as rapid change of client
requirements or increased competition in the healthcare industry could cause
the loss of, or significant reduction in orders from, nearly all of the
Company's clients. Any industry-specific event which causes the loss of
healthcare clients could materially and adversely affect the Company's
business, operating results and financial condition. The Company's future
profitability will depend on its ability to broaden its client base, of which
there can be no assurance.
Potential Liability to Clients; Product Liability Claims
Most of the Company's client contracts involve projects that are critical
to the operations of its clients' businesses and provide benefits that may be
difficult to quantify. The Company's failure or inability to perform contracted
for services, where such services may include enterprise management outsourcing
involving control over clients' networks that have critical patient care
service delivery functions, could give rise to claims against the Company or
damage its reputation, thereby adversely affecting its business, operating
results and financial condition. In addition, the forced break-in by outsiders
of clients' networks being managed by the Company on an outsourcing basis could
give rise to similar claims against the Company.
The Company's software product license agreement with its customers for
its ICM software typically has contained, and is expected in the future to
contain, provisions designed to limit the Company's exposure to potential
product liability claims. However, it is possible that the limitation of
liability provisions contained in the Company's license agreement may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of the
ICM software or other future products by the Company may entail the risk of
such claims and there can be no assurance that the Company will not be subject
to such claims in the future. A product liability claim brought against the
Company, regardless of its merit, could have a material adverse effect upon the
Company's business, operating results and financial condition. See
"Business--Clients and Contracts."
Reliance on Major Customers and Large Contracts
Historically, substantially all of the Company's revenue has been derived
from sales to a relatively small number of customers. During the year ended
December 31, 1997, revenue attributable to New York Hospital ("NYH"), a group
of 17 hospitals, represented approximately 97% of the Company's total revenues.
Revenue from NYH has declined significantly as a percentage of the Company's
total revenue in the first quarter of 1998 as the NYH project has been
substantially completed. If the Company is unable to broaden its client base
and reduce its dependence on large orders from relatively few customers, the
loss of, or significant reduction in orders from, any of such clients would
materially and adversely affect the Company's business, operating results and
financial condition. In addition, most of the Company's client contracts are
terminable by the client at will or on relatively short notice, without
obligation for future purchases under such contracts by the client.
Unanticipated losses of major clients or termination of major client projects
could result in the loss of substantial revenue. See "Business--Clients and
Contracts."
Rapid Technological Change; Risk of Product Delays or Defects
The computer software market is characterized by rapid technological
change, changing client needs, frequent new product introductions and evolving
industry standards. The introduction of products embodying new technologies and
the emergence of new industry standards could render the Company's products and
services
9
<PAGE>
obsolete and unmarketable. The Company's future success will depend in part
upon its ability to develop and introduce new products and services on a timely
basis that keep pace with technological developments and emerging industry
standards and address the increasing sophisticated needs of the user. There can
be no assurance that the Company will be successful in marketing its ICM
enterprise management system or new products and services that respond to
technological changes or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products and services, or that its new
products and services will adequately meet the requirements of the marketplace
and achieve market acceptance. If the Company is unable, for technological or
other reasons, to develop and introduce new products in a timely manner in
response to changing market conditions or consumer requirements, the Company's
business, operating results and financial condition will be materially
adversely affected.
A significant factor in establishing the competitiveness of the Company
will be its ability to continue to enhance its enterprise management software.
Software product development schedules are difficult to predict because they
involve creative processes, use of new development tools and the learning
processes associated with development for new technologies, as well as other
factors. Moreover, because of its complexity, software frequently contains
undetected errors, failures or "bugs," especially when first introduced or when
new versions or enhancements are released. There can be no assurance that
despite testing by the Company, errors will not be found in new software
developed by the Company. The failure to timely enhance the software
technology, or the occurrence of errors in such technology, could adversely
affect market acceptance of the Company's ICM software and damage the Company's
reputation, which could have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence on Retaining and Attracting Key Personnel
The business of the Company is dependent upon the active participation and
technical expertise of its executive officers and key personnel including
William P. Doyle, James J. Urbaniak, Ronald L. Cowley and Dr. Revere D.
Perkins. The loss of the services of one or more of such persons would have a
material adverse effect on the Company. The Company is seeking to obtain
$1,000,000 key-man life insurance policy on the life of Mr. Doyle. The Company
has five-year employment agreements with Messrs. Doyle and Urbaniak and intends
to enter into employment agreements with its other executive officers and key
employees.
The Company's ability to maintain a competitive position also depends, in
part, on its ability to attract additional qualified personnel. The New
York/Northern New Jersey metropolitan area is a highly competitive job market,
and there can be no assurance that key management and personnel will remain
employed by the Company, or that the Company will be able to attract sufficient
additional personnel to execute its business plan. Although the Company
maintains employment and consulting agreements with a number of key personnel,
there can be no assurance that the Company's current key personnel will
continue to work for the Company or that the Company will be able to obtain the
services of additional personnel necessary for the Company's growth. Failure to
attract or retain qualified personnel would have a material adverse effect on
the Company's business, operating results and financial condition.
In addition, the Company must continue to attract, retain and motivate
qualified technical personnel, such as software engineers and programmers.
Currently, a large portion of the Company's business involves the delivery of
professional services and is labor-intensive. The Company's success depends in
large part upon its ability to attract, develop, motivate and retain qualified
technical consultants, particularly project managers and other senior technical
personnel. Qualified technical consultants are in great demand and are likely
to remain a limited resource for the foreseeable future. Demand is also likely
to increase substantially as organizations increasingly devote more resources
to implement time-intensive Y2K mitigation strategies. Failure to attract or
retain qualified technical personnel would have a material adverse effect on
the Company's business, operating results and financial condition.
Competition
Many of the companies with which the Company competes, or which are
expected to offer products or services based on alternatives to the Company's
technologies, have substantially greater financial resources, research and
development capabilities, sales and marketing staffs and distribution channels
than the Company.
10
<PAGE>
There can be no assurance that the Company's ICM enterprise management system
will achieve the necessary functionality or cost-effectiveness to compete with
existing or future alternatives. Furthermore, there can be no assurance that
the Company's competitors will not succeed in developing software or services
which are more effective and cost less than those of the Company, or which
render the Company's ICM enterprise management system obsolete. The principal
competitive factors affecting the market for the Company's services and
technologies are the quality, ease of use, performance, architecture and
functionality of the software and services developed and marketed by the
Company; the effectiveness of the Company in marketing and distributing its
software and services, and price. There can be no assurance that the Company
will be successful in the face of increasing competition from new technologies
or products introduced by existing competitors or by new companies entering the
market. See "Business--Competition."
Discretion in Allocation of Net Proceeds
The Company intends to use approximately 19.4% of the net proceeds of this
offering primarily for general corporate purposes, including relocation of the
Company's corporate headquarters and possible acquisitions of companies,
technologies and products complementary to the Company's business, although the
Company has not identified any such acquisition to date. Other than the net
proceeds allocated to finance assessment and expected mitigation projects,
sales and marketing activities and ongoing product development, the Company has
no other specific plans to use the net proceeds of this offering. Accordingly,
management will retain broad discretion to allocate a significant portion of
the net proceeds of this offering. See "Use of Proceeds."
Limited Intellectual Property Protection
The Company's ability to compete effectively depends in large part on its
ability to develop and maintain proprietary aspects of its technology. The
Company relies on a combination of trade secret, copyright and trademark law
and nondisclosure agreements to protect its proprietary rights in its products.
Existing copyright laws afford only limited protection for the company's
products. Despite precautions taken by the Company, it may be possible for
unauthorized third parties to copy aspects of its ICM software or future
products or to obtain and use information that the Company regards as
proprietary. Moreover, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. In addition, some aspects of the Company's products are not subject to
intellectual property protection.
The Company cannot be certain that others will not independently develop
substantially equivalent or superseding proprietary technology, or that an
equivalent product will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's proprietary
rights. There can be no assurance that any confidentiality agreements between
the Company and its employees will provide adequate protection for the
Company's proprietary information in the event of any unauthorized use or
disclosure of such proprietary information. See "Business--The ICM Enterprise
Management Software; Product Development" and "--Intellectual Property."
Risks Related to Growth through Acquisitions and Managing Growth
As part of its growth strategy, the Company may expand its client base and
enter into new industries by acquiring other software companies, technologies
or expertise that complement the Company's ICM enterprise management system.
There can be no assurance, however, that the Company will be able to identify,
acquire or profitably manage suitable acquisition candidates or successfully
integrate such businesses, if acquired, into its operations without substantial
costs, delays or other problems. In addition, there can be no assurance that
any acquired businesses will be profitable at the time of their acquisition or
will achieve or maintain profitability levels that justify its investment or
that the Company will be able to realize expected operating and economic
efficiencies following such acquisitions. Acquisitions may involve a number of
special risks, including adverse effects on the Company's reported operating
results, diversion of management's attention, increased burdens on the
Company's management resources and financial control systems, dependence on the
retention and hiring of key personnel, risks associated with unanticipated
problems or legal liabilities and amortization of acquired intangible assets.
Any such risks, if not managed effectively, could have an adverse effect on the
Company's business, operating results and financial condition. While from time
to time the Company evaluates potential acquisitions of companies, technologies
and products, there are no present understandings, commitments or agreements
with respect to any such transaction.
11
<PAGE>
Government Regulation
The U.S. Department of Health and Human Services, the Healthcare Finance
Administration, the Social Security Administration and certain state agencies
regulate certain of the Company's clients, such as hospitals and healthcare
organizations. There can be no assurance that such regulations will not
materially adversely affect the Company by imposing burdensome regulations on
the Company's clients or strategic alliances, or otherwise. Changes in the
regulatory environment relating to the healthcare industry could have an
adverse effect on the Company. The Company cannot predict the impact that
future regulation or regulatory changes may have on its business. See
"Business--Government Regulation."
Limitations on Liability and Indemnification Matters; Control by Existing
Stockholders; Anti-Takeover Effects
As permitted by Delaware General Corporation Law, the Company has included
in its Certificate of Incorporation a provision to eliminate the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In
addition, the By-laws of the Company provide that the Company is required to
indemnify its officers and directors under certain circumstances, including
those circumstances in which indemnification would otherwise be discretionary
and the Company is required to advance expenses to its officers and directors
as incurred in connection with proceedings against them for which they may be
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. See "Management--Limitation on Liability and
Indemnification."
Immediately following this offering, William P. Doyle, the Chairman,
President and Chief Executive Officer of the Company, and James J. Urbaniak,
the Executive Vice President for Marketing and Sales and a director of the
Company, will together continue to own approximately 61.7% of the outstanding
shares of the Company's Common Stock (assuming no exercise of the Underwriters'
over-allotment option). As a result, such individuals will have the ability to
exercise significant influence over matters regarding the Company and to
determine the outcome of all matters submitted to a vote of stockholders,
including offers to acquire the Company and election of directors. Such
influence may have a significant effect in delaying, deferring or preventing a
change in control of the Company. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which will prohibit the Company from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. In addition, certain provisions of the Company's
Certificate of Incorporation and By-laws, as well as other provisions of
Delaware law, could have the effect of delaying, deferring or preventing a
change in control of the Company. These provisions include the Company's
ability to issue, without further stockholder approval, preferred stock in one
or more series which could have rights and preferences senior to the Common
Stock. Such rights and privileges could adversely affect the voting power of
the holders of Common Stock, or could result in one or more classes of
outstanding securities that would have dividend, liquidation or other rights
superior to those of the Common Stock. Issuance of such preferred stock may
have an adverse effect on the then prevailing market price of the Common Stock.
See "Principal Stockholders" and "Description of Securities."
No Prior Public Market; Possible Volatility of Stock Price
Prior to this offering, there has been no public market for the Company's
Common Stock. Accordingly, there can be no assurance that an active trading
market will develop or be sustained subsequent to this offering. The initial
public offering price of the Common Stock will be determined by negotiations
among the Company and the Representatives and may not be indicative of the
prices that may prevail in the public market. The Amex, on which the Common
Stock is expected to be traded, and the computer software sector, have
experienced and are likely in the future to experience significant price and
volume fluctuations which could adversely affect the market price of the Common
Stock without regard to the Company's operating performance. The trading price
12
<PAGE>
of the Common Stock could also be subject to significant fluctuations in
response to variations in quarterly operating results, shortfalls in sales or
earnings below analyst estimates, developments in the computer software
industry, stock market conditions and other factors. There can be no assurance
that the market price of the Common Stock will not experience significant
fluctuations or decline below the initial public offering price. See
"Underwriting."
No Anticipated Dividends
The Company has not paid any dividends on its Common Stock and, for the
foreseeable future, intends to continue its policy of retaining earnings, if
any, to finance the development and expansion of its business. See "Dividend
Policy."
Dilution
Purchasers of the Common Stock offered hereby will incur immediate
substantial dilution in net tangible book value per share from the assumed
initial offering price in the amount of $7.96. To the extent outstanding stock
options and warrants to purchase the Company's Common Stock are exercised,
there will be further dilution to such new investors. See "Dilution."
Shares Eligible for Future Sale; Potential for Adverse Effect on Stock Price
Sales of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales could materially and adversely affect the
market price of the Common Stock. Upon completion of this offering, the Company
will have outstanding 6,000,000 shares of Common Stock. The 2,300,000 shares of
Common Stock offered hereby will be immediately eligible for sale in the public
market without restriction beginning on the date of this Prospectus. The
remaining 3,700,000 shares of Common Stock are restricted in nature and are
saleable pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). All officers, directors, stockholders and optionholders of
the Company have agreed that they will not, without the prior written consent
of Cruttenden Roth Incorporated on behalf of the Underwriters (which consent
may be withheld in its sole discretion) and subject to certain limited
exceptions, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, sell short, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend, 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, any of the
economic consequences of ownership of the Common Stock, for a period of 12
months commencing on the date of this Prospectus; provided that such
restrictions do not apply to shares of Common Stock sold or purchased in this
offering or to shares of Common Stock purchased in the open market following
this offering. Cruttenden Roth Incorporated, on behalf of the Underwriters,
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements without notice to
the Company's stockholders. The Company also intends to register under the
Securities Act shares reserved for issuance pursuant to the Company's 1998
Stock Option Plan.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,300,000 shares of
Common Stock offered hereby are estimated to be approximately $25,168,000
($29,018,200 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $12.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses.
The Company intends to use the net proceeds of this offering as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage
Application of Proceeds Dollar Amount of Net Proceeds
- ----------------------- --------------- ----------------
<S> <C> <C>
Finance assessment and expected mitigation projects(1) ......... $14,500,000 57.6%
Expand sales and marketing activities(2) ....................... 3,000,000 11.9
Enhance ongoing product development(3) ......................... 2,800,000 11.1
Working capital and general corporate purposes(4) .............. 4,868,000 19.4
----------- -----
$25,168,000 100.0%
=========== =====
</TABLE>
- ------------
(1) Includes the cost of computer and testing equipment and hiring additional
personnel to service the Company's recent contracts with its hospital and
healthcare organization clients. See "Business -- Clients and Contracts."
(2) Includes the cost of hiring additional sales personnel and opening sales
offices in selected cities in the United States. See "Business --
Marketing and Strategic Relationship with Comdisco."
(3) Includes the cost of enhancing the Company's ongoing product development
program. See "Business --The ICM Enterprise Management Software; Product
Development."
(4) Includes amounts required to pay for, among other things, the proposed
relocation of the Company's corporate headquarters to larger space to
accommodate its proposed growth and the construction of a network
laboratory. See "Business -- Facility."
The Company may also use a portion of the net proceeds allocated to
working capital and general corporate purposes to acquire or invest in
companies, technologies or expertise complementary to the Company's business.
While from time to time the Company evaluates potential acquisitions of
companies, technologies and expertise, there are no present understandings,
commitments or agreements with respect to any such transaction. The Company
believes that the net proceeds of this offering, together with operating
revenues, will be sufficient to meet the Company's capital requirements and
projected requirements for working capital through at least the next 12 months.
Pending such uses, the Company intends to invest the net proceeds from the
offering in investment-grade, interest-bearing securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources."
14
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, to
finance the development and expansion of its business and, therefore, does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1998 and (ii) as adjusted to give effect to the sale and issuance of
the 2,300,000 shares of Common Stock offered by the Company hereby (after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses) at an assumed public offering price of $12.00 per share and
the application of the net proceeds therefrom as described in "Use of
Proceeds." This table should be read in conjunction with the Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1998
------------------------------
Actual As Adjusted
------------- --------------
<S> <C> <C>
Stockholders' (deficit) equity:
Preferred Stock, par value $.0001; 5,000,000 shares authorized, no shares
outstanding, actual and as adjusted ................................... $ -- $ --
Common Stock, par value $.0001; 20,000,000 shares authorized;
3,700,000 shares (actual) and 6,000,000 shares (as adjusted) issued and
outstanding ........................................................... 370 600
Additional paid-in capital .............................................. 130 25,167,900
Accumulated deficit ..................................................... (870,123) (870,123)
---------- -----------
Total stockholders' (deficit) equity .................................. (869,623) 24,298,377
---------- -----------
Total capitalization .................................................... $ (869,623) $24,298,377
========== ===========
</TABLE>
15
<PAGE>
DILUTION
The net tangible deficit of the Company as of March 31, 1998 was
$(936,623) or $(0.25) per share of Common Stock. Net tangible deficit per share
represents the amount of net tangible assets, less total liabilities, divided
by the number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of 2,300,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $12.00 per share, the net tangible
book value of the Company as of March 31, 1998 would have been $24,231,377, or
$4.04 per share. This represents an immediate increase in net tangible book
value of $4.29 per share to existing stockholders and an immediate dilution of
$7.96 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .................................... $ 12.00
Net tangible deficit per share at March 31, 1998 ................................ $ (0.25)
Increase in net tangible book value per share attributable to new investors ..... 4.29
-------
Net tangible deficit per share after this offering ................................. 4.04
--------
Dilution per share to new investors ................................................ $ 7.96
========
</TABLE>
The following table summarizes, as of March 31, 1998, the differences in
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing and new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------------- ------------------------- Average Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 3,700,000 61.7% $ 500 0.0% $ 0.00
New investors ................. 2,300,000 38.3 27,600,000 100.0 $ 12.00
--------- ----- ----------- -----
Total ...................... 6,000,000 100.0% $27,600,500 100.0%
========= ===== =========== =====
</TABLE>
The above table assumes no exercise of the Underwriters' over-allotment
option. If the Underwriters' over-allotment option is exercised in full, new
investors will have paid $31,740,000 for 2,645,000 shares of Common Stock,
representing approximately 100.0% of the total consideration for the total
number of shares of Common Stock outstanding. See "Underwriting."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for the period from February 20, 1996 (date of
inception) to December 31, 1996 and the year ended December 31, 1997, and with
respect to the balance sheets at December 31, 1996 and 1997, are derived from
the financial statements audited by KPMG Peat Marwick LLP, independent
certified public accountants, which are included elsewhere in this Prospectus.
The report of KPMG Peat Marwick LLP on the aforementioned financial statements
contains an explanatory paragraph that states that the Company's recurring
losses from operations since inception, working capital deficiency and net
capital deficiency raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. The statements of operations
data for the three months ended March 31, 1997 and 1998, and the balance sheet
data at March 31, 1998 are derived from unaudited financial statements included
elsewhere in this Prospectus. The unaudited financial statement data includes
all adjustments, consisting only of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the financial position
and results of operations for such periods. Operating results for the three
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. 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 Financial Statements
(and notes thereto) included herein.
<TABLE>
<CAPTION>
February 20, 1996 Three Months ended
(date of inception) March 31,
to Year ended -----------------------------
December 31, 1996 December 31, 1997 1997 1998
--------------------- ------------------- ------------- -------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue, net of contract expenses ..... $ 407,201 $1,649,699 $ 208,950 $ 432,945
Cost of revenue ....................... 280,612 1,079,495 137,755 240,839
---------- ---------- ---------- ----------
Gross profit .......................... 126,589 570,204 71,195 192,106
Operating expenses:
Selling, general and administrative . 59,327 781,062 99,455 322,436
Depreciation ......................... 2,268 17,870 1,113 11,826
Research and development ............. - 443,842 2,512 102,364
---------- ---------- ---------- ----------
Income (loss) from operations ......... 64,994 (672,570) (31,885) (244,520)
Interest income ....................... - 862 - 59
---------- ---------- ---------- ----------
Income (loss) before income taxes ..... 64,994 (671,708) (31,885) (244,461)
---------- ---------- ---------- ----------
Income tax expense (benefit) .......... 84,257 (65,309) 32,307 -
---------- ---------- ---------- ----------
Net loss .............................. $ (19,263) $ (606,399) $ (64,192) $ (244,461)
========== ========== ========== ==========
Net loss per share--
basic and diluted .................... $ (0.01) $ (0.16) $ (0.02) $ (0.07)
========== ========== ========== ==========
Weighted average number of shares .....
outstanding--basic and diluted ....... 3,700,000 3,700,000 3,700,000 3,700,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997 March 31, 1998
------------------- ------------------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash ................................ $ 11,877 $ 1,572 $ 129,201
Working capital (deficit) ........... (32,832) (735,790) (1,113,390)
Total assets ........................ 169,515 189,839 461,372
Total liabilities ................... 188,278 815,001 1,330,995
Total stockholders' deficit ......... (18,763) (625,162) (869,623)
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Company's
Financial Statements (and notes thereto) appearing elsewhere herein. This
section contains certain forward-looking statements including, but not limited
to, the Company's anticipated revenue from existing contracts for assessment
services and potential revenue from mitigation services and software licensing
and maintenance fees not yet contracted for, the Company's plans to open
additional sales offices, hire additional personnel and purchase computer and
testing equipment, the successful implementation of the Company's strategies,
acquisitions, future growth, growth rates and future increases in revenues,
sales, expenses, capital expenditures and net earnings. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "may,"
"will," "intends," "estimates" and similar expressions are intended to identify
forward-looking statements. The Company's actual results may differ materially
from the results discussed in the forward-looking statements as a result of
certain factors set forth in "Risk Factors" and elsewhere in this Prospectus.
Overview
The Company provides enterprise management solutions designed to assess
the status and interoperability of enterprise-wide computer and
microprocessor-embedded systems predominantly to the healthcare industry. The
Company's contracts with its clients provide for two principal sources of
revenue: consulting fees from its enterprise management services and licensing
and maintenance fees from its ICM software. Fees from services accounted for
approximately 84%, 96% and 100% of the Company's revenues for the three months
ended March 31, 1998, the year ended December 31, 1997 ("Fiscal 1997") and the
period from February 20, 1996 (date of inception) to December 31, 1996 ("Fiscal
1996"), respectively.
All of the Company's client contracts to date have been "fixed fee"
contracts, pursuant to which the Company is paid a fixed amount for delineated
tasks. The Company recognizes revenues from consulting services as the services
are provided. Amounts billed relating to future periods are deferred until
services are provided in the future periods. On fixed fee engagements, revenue
and gross profit adjustments are made to reflect revisions in estimated total
costs and contract values. Estimated losses are recorded when identified. To
date, all of these contracts have related to providing assessment consulting
services.
The Company recognizes software license revenue in accordance with
Statement of Position 97-2, "Software Revenue Recognition." Software license
revenue did not account for any revenues in Fiscal 1997 and Fiscal 1996. The
Company's ICM software was first installed in February 1998. License fees
include an initial payment and an annual maintenance component for the term of
the license. The initial payment is recognized when the software is installed
and accepted by the client. The maintenance component, which is approximately
18% of the initial license fee per year, is payable at the beginning of the
year and revenue is recognized ratably. The license fee is calculated based on
the number of nodes in the client's network; therefore, as the client's network
expands, additional license fees become payable to the Company.
Costs associated with the Company's development and enhancement of
proprietary software are expensed as incurred. Such costs that could be
capitalized pursuant to Financial Accounting Standard Board ("FASB") Statement
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," are immaterial due to the short period of time and minimal
costs incurred between the time the Company's product reached technological
feasibility and when the product was available for general release to the
public. There was no research and development expense in 1996, as the Company
was in its formative stages, and management was concentrating on the
performance of active consulting contracts.
Selling, general and administrative ("SG&A") expenses and research and
development expenses are expected to increase in total actual dollar amounts
and are likely to increase as a percentage of revenue as the Company utilizes a
portion of the net proceeds of this offering to enhance its sales and marketing
and product development efforts.
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Results of Operations
Three Months ended March 31, 1998 Compared to Three Months ended March 31,
1997
Revenue. Revenues were $433,000 for the three months ended March 31, 1998
as compared to $209,000 for the same period in 1997, an increase of $224,000,
or 107%. This increase was a result of revenues recognized under assessment
contracts entered into in 1998 and to a lesser extent from a contract entered
into in May 1997 and performed in part in the first three months of 1998.
During the three months ended March 31, 1998, the Company recorded its first
license fees of $35,000 from its ICM software.
Cost of Revenue and Gross Profit. Cost of revenue was $241,000 for the
three months ended March 31, 1998 as compared to $138,000 for the same period
in 1997, an increase of $103,000, or 75%. Direct expenses primarily consist of
the salaries and expenses of employees and officers, and amounts paid to
independent contractors hired by the Company, for the periods of time that the
employees, officers and contractors were assigned to the Company's consulting
or Y2K assessment contracts. The gross profit for the three months ended March
31, 1998 was $192,000 (44% of revenue), compared to $71,000 (34% of revenue)
for the three months ended March 31, 1997. The increase was due to increased
revenues offset in part by equipment pass-through costs of $35,000 on which the
Company recognized no profit in the three months ended March 31, 1998.
Equipment pass-through costs of $35,000 were incurred on a single project
when the Company agreed to purchase equipment on behalf of a healthcare
provider. For accounting purposes, such costs are included in both revenues and
direct expenses. Although the Company expects to recognize a nominal amount of
such costs in the second quarter of 1998, the Company does not expect to
purchase equipment on behalf of clients in the future.
Selling, General and Administrative Expenses. SG&A expenses were $322,000
for the three months ended March 31, 1998 (74% of revenue) as compared to
$99,000 for the same period in 1997 (48% of revenue), an increase of $223,000,
or 224%. This increase was predominantly due to additional sales personnel and
to the fact that more of the Company's executive officers' salary being
allocated to SG&A, rather than cost of revenue, as a result of increased
efforts by the Company's officers in selling and building a marketing program
to sell its ICM software.
Research and Development. Research and development expenses were $102,000
(24% revenue) for the three months ended March 31, 1998, as compared to $3,000
for the three months ended March 31, 1997 (1% of revenue), an increase of
$99,000, or 3,975%. The increase was due to a greater amount of time being
spent on developing the Company's ICM software.
Fiscal 1997 Compared to Fiscal 1996
Revenue. Revenues for Fiscal 1997 were $1.6 million as compared to
$407,000 for Fiscal 1996, an increase of $1.2 million, or 305%. This increase
was a result of revenue recognized under assessment contracts entered into in
1996 and performed predominantly in 1997, as well as additional assessment
contracts entered into in 1997.
Gross Profit. The gross profit for Fiscal 1997 was $570,000 (35% of
revenues), compared to $127,000 (31% of revenues) for Fiscal 1996, an increase
of $443,000, or 350%. The increase resulted from increased revenues in 1997,
offset in part by a loss of $40,000 on equipment sales to a healthcare
provider.
Selling, General and Administrative Expenses. SG&A expenses were $781,000
(47% of revenue) for Fiscal 1997 as compared to $59,000 (15% of revenue) for
Fiscal 1996, an increase of $722,000, or 1,217%. This increase was attributable
to increased sales personnel, higher professional fees, increased occupancy
expense and a large proportion of officers' salaries allocated to SG&A, rather
than cost of revenue, as such officers performed significantly more selling and
administrative functions.
Research and Development Expenses. Research and development expenses were
$444,000 for Fiscal 1997 (27% of revenue) as compared to none in Fiscal 1996.
Research and development for Fiscal 1997 focused on the Company's ICM software,
prior to which no research and development function existed.
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Liquidity and Capital Resources
At March 31, 1998, the Company had a working capital deficiency of
$1,113,000, as compared to a working capital deficiency of $736,000 at December
31, 1997. The Company's source of working capital have historically been from
cash flow generated from operations.
Net cash provided by (used in) operating activities totaled $273,000 and
$(12,000) for the three months ended March 31, 1998 and 1997, respectively, and
$82,000 and $28,000 for Fiscal 1997 and Fiscal 1996, respectively. The increase
in cash provided by operating activities for the three months ended March 31,
1998 as compared to the prior year fiscal period was due primarily to an
increase in accrued salaries, wages and payroll, and an increase in deferred
revenue. The increase in cash provided by operating activities for fiscal 1997
as compared to the prior fiscal year was due primarily to an increase in
accrued salaries, wages and payroll, and increases in accounts payable and
accrued expenses.
Net cash used in investing activities was $78,000 for the three months
ended March 31, 1998 and none for the comparable period in 1997, and $93,000
and $16,000 for Fiscal 1997 and Fiscal 1996, respectively. The increase in net
cash used in investing activities for the three months ended March 31, 1998 and
for Fiscal 1997 was due to increased capital expenditures in connection with
the establishment of the Company's corporate headquarters in Hoboken, New
Jersey, and purchases of additional computer hardware and software for the
Company's operations.
The Company estimates that its capital expenditures for the remainder of
1998 will be approximately $600,000. This amount includes $200,000 for
furniture, fixtures and equipment in connection with expanding its corporate
headquarters, $200,000 for furniture, fixtures and equipment for the opening of
new sales offices in selected cities throughout the country, and $200,000 for
additional computer hardware and software for the Company's operations.
Net cash provided by (used in) financing activities totaled $(67,000) for
the three months ended March 31, 1998 and none for the comparable period in
1997, and none for Fiscal 1997 and $500 for Fiscal 1996. The cash used in
financing activities in the three months ended March 31, 1998 related to
expenses incurred in connection with this offering.
The net proceeds from this offering are estimated to be $25,168,000,
assuming no exercise of the Underwriters' overallotment option. The Company's
future capital requirements will depend upon numerous factors, including the
progress of the Company in retaining mitigation service contracts, particularly
with respect to Y2K compliance, and the amount of revenues generated from
operations, if any, none of which can be predicted with certainty. The Company
anticipates that the proceeds of this offering, together with existing capital
resources and cash generated from operations, if any, will be sufficient to
meet the Company's cash requirements for at least the next 12 months at its
anticipated level of operations, which entail increases in spending for sales
and marketing, product development and costs associated with hiring additional
personnel. However, the Company may seek additional funding during the next 12
months and will likely seek additional funding after such time. There can be no
assurance that any additional financing will be available on acceptable terms,
or at all, when required by the Company. Moreover, if additional financing is
not available, the Company could be required to reduce or curtail the level of
its operations, seek an acquisition partner or sell securities on terms that
may be highly dilutive or otherwise disadvantageous to investors purchasing the
shares of Common Stock offered hereby. The Company has in the past and may
continue to experience operational difficulties due to working capital
constraints. Any such difficulties or delays could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Going Concern Assumption; Future Capital Needs
Uncertain; No Assurance of Future Financing," "Use of Proceeds" and
"Business--Growth Strategy."
Net Operating Loss Carryforwards
As of December 31, 1997, the Company had net operating loss carryforwards
of approximately $179,000, which expire in the year 2012. The amount of net
operating loss carryforward that can be used in any one year will be limited by
the applicable tax laws which are in effect at the time such carryforward can
be utilized. A valuation allowance has been established to offset any benefit
from the net operating loss carryforward as it cannot be determined when or if
the Company will be able to utilize the net operating losses.
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Year 2000 Compliance
The Company's ICM software and other information technology are Y2K
complaint, so that no costs are expected to be incurred to modify such software
and technology.
The Company also relies, directly and indirectly, on external systems of
business enterprises such as third party suppliers, customers, creditors and
financial organizations, and of governmental entities, for accurate exchange of
data. Even if the internal systems of the Company are not materially affected
by the Y2K issue, the Company could be affected by disruptions in the operation
of the enterprises with which the Company interacts. Despite the Company's
internal systems and business operations being Y2K compliant, there can be no
assurance that such impact will not result in a material disruption of its
business and results of operations and or have a material adverse effect on the
Company's business, results of operations and financial condition.
Recent Pronouncements of the Financial Accounting Standards Board
In February 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share ("SFAS 128"). SFAS 128
establishes standards for the computation, presentation and disclosure of
earnings per share ("EPS"), replacing the presentation of currently required
Primary EPS with a presentation of Basic EPS. It also requires dual
presentation of Basic EPS and Diluted EPS on the face of the income statement
for entities with complex capital structures. Basic EPS is based on the
weighted average number of common shares outstanding during the period. Diluted
EPS is based on the potential dilution that would occur on exercise or
conversion of securities into common stock using the treasury stock method. The
Company adopted SFAS 128 as of December 31, 1997, which had no material impact
to its reported EPS amounts.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure ("SFAS 129"). This statement establishes standards for
disclosing information about an entity's capital structure. Adoption of SFAS
129 had no impact on the Company's existing disclosures. In June 1997, the FASB
issued SFAS No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes standards for reporting and disclosure of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130, which is effective for fiscal
years beginning after December 15, 1997, requires reclassification of financial
statements for earlier periods to be provided for comparative purposes. The
Company anticipates that implementing the provisions of SFAS 130 will not have
a significant impact on the Company's existing disclosures.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of
an Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be
restated. The Company anticipates that implementing the provisions of SFAS 131
will not have a significant impact on the Company's existing disclosures.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. This statement is not expected to affect the Company as the
Company curently does not have any derivative instruments or hedging
acitivities.
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BUSINESS
Overview
The Company provides enterprise network management solutions designed to
assess the status and interoperability of enterprise-wide computer and
microprocessor-embedded systems predominantly to the healthcare industry. An
essential element of the Company's enterprise management solution is its ICM
software, a proprietary network assessment software tool, which dynamically
assesses and monitors the interactions within and among network software and
devices connected to an enterprise system and allows for real-time additions,
changes and deletions of software and devices from those systems. The Company
provides a full range of network and Internet management assessment and
mitigation services, including network redesign and upgrading, to ensure the
reliability of an organization's enterprise network and to enhance the
productivity and efficiency of hospitals and other healthcare providers. Using
the Company's ICM software, the Company believes that healthcare organizations
can better manage their IT infrastructure on an ongoing basis or allow the
Company to provide such services on an outsourcing basis.
The Gartner Group estimates that the network and systems management market
will grow to $10.0 billion by the year 2000 from $4.5 billion in 1997. The
Company has targeted the healthcare industry, one of the largest industries in
the United States accounting for an estimated 14.4% of 1996 gross domestic
product, according to the U.S. Bureau of Labor Statistics. The Company believes
that hospitals and other healthcare organizations have substantial needs for IT
management due to the diverse range of their interconnected network devices.
Based on the Company's experience with its hospital clients that generate more
than $2.0 billion in annual revenue, the Company believes that these larger
hospitals generally have more than 5,000 beds, 15,000 desktop computers, 1,000
servers and network devices and 45,000 biomedical devices. Currently, a
substantial focus of the Company's internal marketing efforts is Y2K assessment
and mitigation with respect to biomedical devices. Software Productivity
Research estimates that the cost of fixing the Y2K problem in the United States
alone is expected to reach $3.6 trillion by 2005. According to the Gartner
Group, more than 87% of hospitals and healthcare organizations reported in late
1997 that they are just beginning their Y2K compliance efforts and, according
to USA Today, of the approximately 6,000 hospitals in the United States, only
30% of them have prepared formal Y2K plans.
The Company has entered into a teaming agreement with Comdisco, a leading
technology services company. Pursuant to such agreement, Comdisco and the
Company have agreed to, on a project-by-project basis, jointly market the
Company's software and services and Comdisco's services, including Y2K
compliance testing, to prospective clients, jointly bid on proposals and
jointly perform contracted for services. Since inception, the Company has
entered into agreements with a number of healthcare organizations covering more
than 60 facilities and including many large hospital systems such as North
Shore/Long Island Jewish Health System, New York University Hospital Center and
University of Pennsylvania Health System. The Company has entered into several
significant contracts during the first half of 1998. Under the terms of these
contracts, the Company licenses its software and performs related services to
assess clients' computer networks, information systems and biomedical
equipment, including for Y2K compliance. As of June 30, 1998, the Company had
entered into contracts with a value of approximately $5.3 million, of which
approximately $2.2 million in revenue had been recognized through June 30, 1998
and $3.1 million may be recognized over the remaining term of these contracts.
However, since the contracts are cancellable by the client, there can be no
assurance that all of the remaining revenue will be recognized.
Industry Background and Trends
Present day IT networks are characterized by increasing complexity and
rapid change. As microprocessors are used increasingly in non-computer devices,
such as biomedical and office equipment, the definition of an organization's IT
network continues to expand. From an IT standpoint, managing the resulting
network has become increasingly difficult, especially within large
organizations. The Company believes that as these systems continue to expand
and become more complex, such networks are increasingly (i) less reliable, with
at least some part of the system experiencing problems at any given moment,
(ii) more expensive to operate and (iii) beyond the internal corporate ability
of many technology managers to manage effectively. Recognizing this, software
companies have developed enterprise management software, computer tools that
are designed to monitor and fix system problems.
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The Company believes that the healthcare industry provides a significant
market opportunity for its enterprise management solutions due to (i) the
expansion of complex computer networks and other devices, (ii) the continued
integration of disparate clerical and administrative services, (iii) the need
of the healthcare industry to upgrade its IT infrastructure, (iv) the increase
in industry consolidation, (v) the increasing use of integrated systems in the
delivery of patient care and (vi) the lack of adequate internal infrastructure
to manage rapidly-growing IT networks.
The Y2K problem represents a significant example of the increasing
complexity and potentially destructive problems technology managers encounter.
In the healthcare industry, downtime is deemed unacceptable due to patient care
implications. Accordingly, the Company believes that companies which have
developed enterprise management solutions that can also successfully mitigate
Y2K problems have a significant competitive advantage.
Enterprise Management Software
Enterprise management software is a comprehensive set of tools designed to
help an organization's technology manager augment a limited in-house technology
staff by integrating network and systems management. Ideally, robust enterprise
management software allows the technology manager to handle technology asset
management, help desk functions, network management, event management, software
distribution and other tasks in a coordinated fashion and from a centralized
point. This allows technology managers to move from their current mode of
operation, under which they may only have enough time to deal with emergencies
that arise on a given day, to a more strategic management of network and system
resources. The Company believes that the transition to a more effective mode of
operations may lead to significant cost savings and significant gains in
information processing efficiency.
The need for this software has risen to match the increasing complexity
and rapid change that technology managers face. However, the Company believes
that much enterprise management software is extremely sophisticated and
complicated and many organizations are simply unprepared to handle the
implementation solely using internal resources. According to a December 1997
study by the Gartner Group, 70% of all enterprise management software sold is
either not completely implemented or not meeting the goals of the purchasing
organization, even three years after purchase. It was cited that often the
vendors do not have sufficient staffing to send out consultants to implement
the vendors' enterprise management software at client organizations. As a
result, some of the key enterprise management software vendors are attempting
to build or acquire servicing units to fulfill this role (both for enterprise
management software and other software they offer). Despite these problems, the
Gartner Group estimates that the enterprise management software market will
grow to $10.0 billion by 2000 from $4.5 billion in 1997.
Enterprise Management in the Healthcare Industry
A March 1998 report by the Gartner Group indicates that the healthcare
industry has become far more information-intensive as a result of the strong
movement to managed care, which in turn has increased the amount of work that
healthcare organizations' IT systems are expected to handle. At the same time,
the report points out that healthcare organizations have spent less on
information technology than most other organizations in information-intensive
industries. As a result of these factors, healthcare organizations have weaker
IT systems, according to the Gartner Group, than ever before relative to the
increased demands placed on them.
In view of this trend, the Company believes that healthcare organizations
are increasingly looking to implement enterprise management solutions within
their IT systems as one approach to the problem. These systems are comprised of
not only computer hardware and software and communications systems, but also
biomedical equipment, laboratory equipment and patient support systems. The
Company believes that IT managers view a successfully implemented enterprise
management system as one way to cope with their increasingly information-
intensive organizations, and their limited staff and capabilities. However, the
Company believes that many enterprise management software vendors presently do
not take an active role in implementing and maintaining an enterprise
management solution that uses the vendors' software as a base. As a result,
given the complexity in initially implementing an enterprise management system,
the Company believes that many healthcare organizations have chosen not to
implement an enterprise management system unless vendors can provide a complete
enterprise management solution, including software and implementation and
support services.
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As another approach to the problem, according to the March 1998 Gartner
Group report, these same technology managers have pushed to outsource IT
operations and, as the healthcare industry continues to restructure, this trend
is expected to gain further momentum. The Company believes that IT managers are
moving to outsource IT functions that can be performed more efficiently by
outside vendors. The Company believes that vendors which provide a complete
enterprise management solution are positioned to take advantage of this trend.
The Y2K Problem
The Y2K problem is the consequence of a programming convention made in the
1950s and 1960s. The computers of that time, though physically large, were
limited in their capacity to process information. Dynamic memory (for immediate
calculations) and non-volatile memory (for long-term storage) were both limited
and expensive, forcing programmers to be frugal in the use of memory resources
in the software they designed. Recognizing that all year dates had "19" as the
first two characters well into the foreseeable future, programmers reached the
seemingly logical convention in the face of scarce memory resources of
programming year dates with only the last two digits and allowing their
programs to assume that the first two digits were "19."
As early as two decades ago, the industry began to recognize that this
would pose a problem at the turn of the century. Since programs assumed the
first two digits in a year were "19," there was no logical provision for years
beginning with "20." In the year 2000, a date entered as 2000 would be stored
as 00 and processed as 1900. At the very best, programs would respond with
incorrect information and calculations. At the very worst, systems would shut
down entirely as a result of the logical inconsistency. Furthermore, since new
programs that were developed often had to interact with older hardware and
software, it was not a simple matter to start using a four-digit year
convention. Thus, while recognized, the problem has continued. With the year
2000 less than two years away, this problem has received widespread attention.
Companies now must change the way dates are handled or risk the large-scale
failure of much of their infrastructure. Hardware, software and the overall
network, or system, must be Y2K compliant as organizations enter the new
century.
In addition to the computer hardware and software and communications
systems, healthcare organizations must ensure Y2K compliance in biomedical
equipment, laboratory equipment and patient support systems, which are
microprocessor-based and may not be Y2K complaint. While a number of companies
have emerged to offer solutions to the Y2K problem, the Company believes that
commercially available Y2K code conversion solutions simply do not offer a
product relevant to the healthcare industry, as they are unable to address
these biomedical and other microprocessor-embedded devices. The Company
believes that a simple approach of replacing every Y2K non-compliant component
with a compliant component is not the ideal solution. A Y2K solution entails
first examining the four components of an overall system: (i) vendor software
and hardware, (ii) biomedical equipment and other microprocessor-embedded
devices, (iii) stored data and databases and (iv) any legacy software. Then, a
simple Y2K solution would entail replacing every Y2K non-compliant component
with a Y2K fully compliant component. Logically, the entire system would be Y2K
compliant at that point. Some Y2K solutions vendors have adopted this strategy
and certain organizations have accepted it. In the short time remaining to the
year 2000, these organizations are trying to replace as many of their Y2K
non-compliant components as possible. However, the Company believes that this
is an inefficient and prohibitively expensive approach which, in a complex
organization, stands little chance of being successfully completed by 2000.
Growth Strategy
The Company's objective is to leverage the ability of its ICM software to
quickly and efficiently assess existing and potential enterprise network
problems and thereby to become a leading provider of enterprise network
management solutions. The key elements of the Company's growth strategy include
the following:
Using Y2K Projects to Drive Recurring Revenues. During the next 18
months the Company expects to devote substantial resources to assisting
clients towards assessing and mitigating their computer networks and
information systems for Y2K compliance. The Company believes that Y2K
projects will account for a significant part of its new business. The
Company's goal is to expand its client base through the initial
installation of the Company's ICM software as part of a client's Y2K
compliance effort, and the continued application by the client of the ICM
software for general enterprise management, which will provide the Company
with a source of recurring revenues. Under this model, the Company receives
upfront license fees and annual maintenance fees on a per node basis,
together with contract-rate implementation services fees.
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Outsourcing of Client Network Systems Management. The Company plans to
actively market its ability to assume numerous IT management functions that
organizations may elect to outsource. The Company believes its healthcare
industry experience and extensive knowledge of clients' computer networks
and information systems from its Y2K assessment and mitigation efforts is
an advantage in developing this potential source of outsourcing business.
Providing Internet Management Solutions. Consolidation in the healthcare
industry has presented many organizations with the problem of integrating
diverse IT networks and systems to provide combined entities with not only
basic functionality, but also efficient operations. The Company's goal is
to capitalize on this situation by offering Internet management solutions
to integrate and manage disparate networks at separate locations. The
Company's ICM software is Internet-compatible and Java-based. A Company
client can deploy and use the ICM software through its intranet, create a
multi-location enterprise management system linked by the Internet or
centralize on the Company's computer servers certain aspects of a client's
enterprise management system (such as the ICM software data), that is then
linked to the client site through the Internet. In addition, the ICM
software can be used to provide Internet management solutions in which
numerous, disparate client networks at separate locations can be integrated
and managed.
Leveraging its Strategic Alliance with Comdisco. The Company seeks to
leverage the substantial resources and established reputation of Comdisco
to support its marketing efforts. It is expected that Comdisco will provide
test equipment lease financing and biomedical refurbishing services to
clients under joint proposals with the Company. In addition, Comdisco has
agreed to consider financing certain Y2K mitigation projects (based on
applicable terms), although to date no such financing has yet been
provided. The Company is currently bidding on a number of client projects
in collaboration with Comdisco. The Company believes that its strategic
alliance with Comdisco provides it with a competitive advantage in
marketing its products and services. Comdisco is a Fortune 500 company,
with 1997 revenues of $2.8 billion and assets of $6.4 billion. See
"--Marketing and Strategic Relationship with Comdisco."
Pursuing Selective Acquisitions. The Company may broaden its client base
and enter new industry sectors by acquiring other companies, technologies
and expertise that complement the Company's ICM enterprise management
solution. While from time to time the Company evaluates potential
acquisitions of companies, technologies and products, there are no present
understandings, commitments or agreements with respect to any such
transaction.
The Metalogics Solution
The Company's solution to the problems presented above is based on its
belief that large enterprises will have to manage many complex change events as
they upgrade their networks and systems to address the dynamic nature of
enterprise management, including Y2K compliance and Internet management. The
Company believes that competing enterprise management software packages have
not been implemented because they are too complex for technology managers to
independently implement. The Company addresses this by offering enterprise
management services. The Company installs, configures and monitors its
enterprise management software and offers to its clients a solution which can
include having the Company's personnel take full responsibility for a client
organization's enterprise management. The Company views the Y2K problem and the
urgency with which organizations must address it as an opportunistic point of
introduction for the Company and its enterprise management software and
services.
Enterprise Management Solution. The Company takes a broad approach to
enterprise management. The Company manages both computer networks and
microprocessor-embedded devices throughout a client organization. Such devices
generally include modern elevators, HVAC (heating, ventilation and air
conditioning) systems, security systems, fire command and control systems and
communication/telephone systems. The Company can then manage the interaction
between a client organization's internal network and the Internet at large, a
process termed Internet management. The Company offers its clients one
centralized enterprise management solution for all these systems. The Company
can sell clients a complete enterprise management system, in which the Company
sells the client the ICM software, configures it and then the client's IT staff
takes over the enterprise management responsibilities with the Company's
personnel available as backup. Alternatively, the Company's clients can
outsource their enterprise management needs to the Company and the Company can
install and use its ICM software as the backbone for managing a client's IT
network.
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Y2K Solution. The Company believes that its enterprise management
software, in combination with its engineering services, offers a complete Y2K
solution to the healthcare industry. In offering a complete solution, the
Company first evaluates the scope of the Y2K compliance problem from a
system-wide perspective and then manages the steps required to allow an
organization to successfully cross the Y2K barrier.
In evaluating the scope of the problem from a system-wide perspective, the
Company uses a "mixed-compliance operability" approach, meaning that an
organization's system will be operable in 2000 even though some components of
the overall system may not be fully Y2K compliant. For example, if a desktop
computer that runs a critical piece of Y2K compliant software is not Y2K
compliant (its internal clock stores the year with only two digits), the
desktop computer's Y2K non-compliance is irrelevant if the software that runs
on that computer accesses date information it needs over a network from a
central server that is Y2K compliant. From a system-wide perspective, it does
not matter that the desktop computer is not Y2K compliant. Management believes
that the cost and time savings in taking such a mixed-compliance operability
approach to a Y2K solution can be significant.
In determining how components interact so as to achieve mixed compliance
operability, the Company relies on proprietary statistical models. Failure
modes for each system are determined using FMEA (failure modes effects
analysis). A statistical model of the risk from system failure to the
organization's operations is built using PRA (probabilistic risk assessment, a
tool to date primarily used in the military, where overall system survivability
and operability have been a priority). This model is executed in a modeling
package and used to prioritize mitigation plans for each system. High risk,
mission critical systems get priority for mitigation, or fixing, while lower
risk, less critical systems will be addressed later. The personnel resources
necessary to mitigate the systems are calculated and these resources are
priced. The result is a prioritized mitigation plan showing time, cost and
personnel resources.
The ICM Enterprise Management Software
The Company's ICM enterprise management software provides enterprise-wide
management control of information technology, which includes control of the
entire IT life cycle including:
Planning
Acquisition of the
IT Component
Deployment
Migration to New Systems
Retirement of the
IT Component
Operations, User
Satisfaction, Maintenance
& Troubleshooting
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These six life cycle steps are referred to as configuration management,
the control of technology from first conception to retirement.
The proprietary value of the Company's software lies in four key features:
o Cognitive structure - which allows the ICM software to understand how
components interact to create business systems (a business system
consists of many kinds of software, hardware, networks and data flows
that combine to give rise to, for example, general ledger systems or
hospital pharmacy systems).
o Operability knowledge - knowledge of the rules and conditions that
make business systems work, or not work, for the year 2000, for
general operations and for system performance.
o Fix-it knowledge - knowledge about how to repair or mitigate problems
that arise in business systems.
o Application of knowledge to cognitive structures - the process by
which operability and fix-it knowledge is applied to cognitive
structures to manage the technology.
[ICM module interaction graphic]
[GRAPHIC OMITTED]
As shown above, the Company's ICM software consists of the following four
modules: the Configuration Monitoring Database, the Year 2000 Compliance
Knowledge Engine, the Real Time Monitoring module and the Help Desk System.
These modules are described below:
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<PAGE>
Configuration Monitoring Database ("CMD") is the central knowledge store
for an organization's technology configuration. The CMD stores hardware,
software, network component and interconnectedness information. The information
stored about each component includes its technical details, its user community,
its location and a history of changes. However, a business system is more than
a list of components. The CMD module uses semantic rules to calculate systems
from components and their properties. As systems change, they are recalculated
dynamically. This information is necessary in order to calculate Y2K mixed
compliance operability. It is not possible to determine Y2K mixed compliance
operability from component lists because the interoperability of the components
is not accounted for. The information in the CMD is contained in an object
database that is accessible via any Internet browser. Additionally, the CMD
module includes a 3-D visualization interface. This interface allows a user to
see business systems as they are laid out physically, not just logically. This
is especially useful when technicians must plan to visit machines or when plans
for upgrades must be made. The CMD module is priced at $35,000, plus $2,000 for
each server and $75 for each other network component on the system.
Year 2000 Compliance Knowledge Engine ("CKE") is the central knowledge
store for the Y2K compliance information. It stores Y2K compliance information
for every item in the configuration database as rules. These rules are used to
calculate Y2K compliance for each component and for the business systems that
components are used to form. The CKE module uses semantic rules to calculate
systems compliance from components' compliance and their properties. As systems
change, they are recalculated dynamically. The CKE module is able to generate
mitigation project plans for non-compliant components. The plans must be
developed once in the knowledge base, but can then be reused at will. The CKE
module is priced at $35,000, plus $2,000 for each server and $75 for each other
network components on the system.
Real Time Monitoring ("RTM") module uses a TCP/IP-based (an Internet
protocol) network to monitor Y2K compliance. The RTM module consists of
intelligent software agents that reside on networkable components such as
desktop computers, hubs, routers and servers. These agents are polled by a
monitoring system that collects their information and updates the configuration
database. The monitoring system has the ability to work with a wide variety of
agents. The primary requirement is that the agent be able to acquire the volume
of information necessary to calculate Y2K compliance. The primary objective of
the monitoring system is to reduce errors in the inventory. Once in operation,
RTM will produce an inventory on demand. The RTM module is priced at $2,000 for
each server and $75 for each network client on the system.
Help Desk System ("HDS") maintains and supports current systems as well as
the Y2K compliance effort. The Y2K compliance effort can be viewed as a
concentrated, high volume series of problems similar to the problems presented
to an organization's help desk. The source of the problems may be provided by
the configuration database and the solutions may be guided by the compliance
database, but the activity is similar. Thus, the HDS is co-opted into the Y2K
compliance effort. Work orders are generated in response to Y2K problems and
prioritization is guided by the impact of the problem on the organization's
business. The solutions are often similar to typical help desk solutions and
are often carried out by the same personnel.
HDS automates, tracks and manages two interlocking processes necessary to
provide IT support: helping users with problems (the Help Desk subsystem) and
fixing or upgrading the systems that cause the problems (Configuration
Management subsystem). The Help Desk subsystem tracks the workflow of user
requests for support from problem reporting to resolution. The Help Desk
subsystem logs the problem and provides the caller with a problem tracking
number. Users can find out the progress on resolving their problem in any of
four ways and the workflow system automatically notifies them when their
problem is fixed. This module also measures support performance and user
satisfaction with problem resolution. The Configuration Management subsystem
manages the process of changing the IT configuration. Any changes to hardware,
software, networks, telecommunications and other devices are tracked. Change
procedures, including quality assurance and testing standards, are enforced in
this subsystem. When changes are made in response to user problems, the
effectiveness of the fixes is measured. Users and technology managers are able
to track and obtain reports on the schedule of upgrades, fixes or improvements
and on what user problems they will resolve. The HDS module is priced at
$165,000, plus an additional $75,000 for the optional expert system-based
problem diagnosis and typical solutions module.
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<PAGE>
Service and Maintenance. For all modules, an annual service and
maintenance contract, which includes hot-line support and periodic 90-day
software upgrade releases, is priced at approximately 18% of the initial module
price (including the cost for all servers and other system components).
Software Architecture. All of the ICM software modules are written in the
Java programming language. Java is a platform independent language that many
programmers have adopted because it allows programs to be written that can
easily be adjusted to run on different types of computing platforms, this
"portability" inherent in Java has made it especially well suited for software
such as enterprise management software which must run and communicate across a
large network, or system, composed of numerous disparate components.
The ICM software is Internet-compatible. Communication between the modules
across the network, or system, is through standard Internet protocols. The ICM
software can be deployed over an organization's intranet (a miniature,
enterprise-wide Internet) or over the Internet itself for a large, multi-site
organization. If the client desires, the ICM software data can be maintained at
the Company's headquarters where the client can access it over the Internet.
All reporting and user interfaces are viewed through a standard desktop
browser, such as Netscape Navigator or Microsoft Internet Explorer.
To date, the Company has licensed and/or deployed its CMD and CKE modules
with each of its clients. The Company has not, to date, licensed or deployed
the HDS module, however, the Company is in discussions with clients that have
shown interest in HDS and are considering purchasing such module.
Product Development. The Company's primary technology is its proprietary
ICM software developed by the Company's software engineering personnel. The
Company continually engages in research and development to enhance the existing
features and functionality of its ICM software, as well as add new modules to
such software. The Company's present research and development efforts focus on
developing distributed and scalable capabilities in the ICM software so that,
as IT networks become more complex, the ICM software can evolve and grow along
with them, and increase the capabilities of the intelligent software agents
that reside on networkable components such as desktop computers, hubs, routers
and servers to allow them to ascertain and correct problems and perform other
tasks more complicated than the present generation of agents is capable of
performing.
The Company continues to refine its existing products and frequently
introduces minor module upgrades for existing modules. The Company also has a
product development program to enhance its user interfaces. The Company's
product development and software engineering personnel monitor developments in
related fields such as statistics, artificial intelligence and computational
linguistics to determine if modifications to the ICM software design are
necessary or desired. As of July 31, 1998, the Company's product development
and software engineering personnel team consisted of 15 individuals.
Research and development expenditures were $443,842 in the year ended
December 31, 1997. The Company anticipates that its research and development
program will be expanded following the completion of this offering and has
allocated approximately $4,000,000 of the net proceeds of this offering for
ongoing product development.
Third Party Software. A small part of the Company's overall ICM software
is composed of third party software that is developed and owned by various
licensors. These third party software products are all off-the-shelf,
commercially available products that the Company can readily substitute with
other software products if required to do so. The Company licenses and resells
these third party software products bundled with its ICM software. Typically,
the Company licenses these third party software products under a non-exclusive,
standard three-year licensing agreement. The Company has entered into such
agreements with Informix Software, Inc. and Objectivity Inc. for their database
engines and with Tally Systems Corporation for its software agents.
Enterprise Management Services
In addition to selling its enterprise management software, the Company
also directly markets and performs enterprise management services for its
clients. See "--The Metalogics Solution." The Company makes use of its ICM
software to accomplish some of these services, which include the following:
29
<PAGE>
o Enterprise technology and network engineering. The Company performs
inventory assessment and mitigation, as well as integrated testing of
IT equipment. The Company conducts inventory cross-referencing against
the Company's 44,000 item CKE module. Using its ICM software, the
Company implements automated inventory management. The Company also
provides a full range of network and Internet management services. The
Company offers system integration services to include network redesign
and upgrading. The Company provides installation and training for
software and hardware. The Company also offers clients an outsourcing
solution for complete network support needs.
o Microprocessor-embedded device engineering. The Company performs
inventory assessment and mitigation (focusing on security systems,
telephone and communications systems, fire command and control
systems, modern elevators and HVAC systems as well as biomedical
devices such as imaging systems, laboratory systems and patient care
devices). The Company provides facilities engineering and
engineer-conducted testing of equipment coordinated with hospital
staff, on-site installation and testing of vendor fixes and redesign
of maintenance programs.
o Industry accreditation. Through consulting and training classes, the
Company prepares clients for IT accreditation by JACHO (Joint
Accreditation Committee for Hospital Organizations), a necessary
prerequisite for receiving Medicare and Medicaid funding. The Company
also develops and manages programs for clients seeking ISO 9000 (a set
of international quality assurance standards) certification.
Fees from services accounted for approximately 84%, 96% and 100% of the
Company's revenues for the three months ended March 31, 1998, the year ended
December 31, 1997 and the period from February 20, 1996 (date of inception) to
December 31, 1996, respectively.
The Company believes that implementation services and client service and
support are significant competitive factors in the market for enterprise
management systems, which will become increasingly important as computer
networks and information systems become more complex. The Company believes that
enterprise management software is very complex and that many organizations do
not have the in-house technology resources to successfully implement an
enterprise management system. The Company normally contracts with client
organizations to install the ICM software. Following initial installation, the
Company is also available to maintain the enterprise management system,
including software and necessary services, on an ongoing basis. Thus, clients
can outsource their entire network, or system, management to the Company.
For clients that choose to implement the ICM software using internal
resources, the Company has developed a support system to provide rapid problem
resolution both during and after the software installation process. The Company
maintains a technical support organization which assists clients in
troubleshooting problems, can designate a Company technical employees on-site
to provide system management services for each client and provides a toll-free
hotline to help identify and correct system interruptions if they should occur.
The Company also provides training to its clients.
Clients and Contracts
The Company's ICM software and services are currently being used in more
than 60 hospitals and other healthcare facilities. To date, the Company has
licensed its software and sold its services primarily to these organizations.
Sales to a limited number of hospitals and healthcare organizations have
accounted for a substantial portion of the Company's revenues. The Company
seeks to provide high-quality, responsive service to its clients in order to
maximize its client retention rate and secure continuing projects such as Y2K
mitigation. A representative list of the Company's clients are North Shore/Long
Island Jewish Health System, New York University Hospital Center and University
of Pennsylvania Health System.
Typically, the Company enters into a consulting agreement with a
healthcare organization to license its ICM software to assess the client's
information system components, biomedical systems and embedded devices for Y2K
compliance and to provide related services. The consulting agreement is a
continuing services contract in which additional statements of scope of work
may be added by the parties from time to time. The consulting agreement
generally may be terminated at any time by the client or the Company for any
reason. Under the
30
<PAGE>
agreement, the client is normally required to pay to the Company 20% of the
total estimated fees contained in a statement of scope of work at the time of
execution, with the balance payable in equal monthly installments over the term
of the statement, less a 10% reserve which is payable upon completion of the
project.
Additionally, the Company typically enters into an ICM software product
license agreement with a client for the ICM software that entitles the client
to the ICM software modules they select and software updates and telephone
support for one year. Following the first year, the Company offers clients an
annual service and maintenance contract, which includes hot-line support and
periodic 90-day software upgrade releases and which is priced at 18% of the
initial module price (including the cost for all servers and other system
components).
The Company's client contracts provide for a limited warranty by the
Company that it has all necessary rights to provide the services contemplated
by the contract and that its software will operate in substantial conformity
with applicable specifications, and the Company's liability to the client is
limited in any event to the aggregate amounts paid by the client to the Company
under the contract. Absent the Company's gross negligence, the Company is not
responsible for any tangible property damage or personal injury, including
death, resulting from the Company's software or services. Substantially all of
the Company's client contracts provide for termination by the client for any
reason on relatively-short notice, without any obligation to pay additional
amounts after such termination.
Contract Backlog. As of June 30, 1998, the Company had entered into
contracts with a value of approximately $5.3 million, of which approximately
$2.2 million in revenue had been recognized through June 30, 1998 and $3.1
million may be recognized over the remaining term of such contracts. However,
since the contracts are cancellable by the client, there can be no assurance
that all of the remaining revenue will be recognized.
Marketing and Strategic Relationship with Comdisco
The Company's sales and marketing strategy has two principal components:
direct sales and the establishment of strategic alliances which could assist
the Company to market and sell its ICM software and related services.
The Company's in-house sales force takes advantage of direct sales
opportunities and supports the Company's strategic alliance with Comdisco.
Sales persons are paid a base salary plus a bonus at the discretion of the
Company's President based on the Company's and the individual's sales
performance. The Company is considering the adoption of a more formal
commission-based compensation system for sales persons. The Company is pursuing
additional distribution channels and reseller relationships, including one with
Comdisco for personal computers leased by Comdisco, in order to increase
revenues from its ICM software and services. A portion of the net proceeds of
this offering will be used to expand the Company's marketing and sales
activities. See "Use of Proceeds."
The Company's first strategic relationship is with Comdisco, a leading
technology services company. The Company has entered into a teaming agreement
with Comdisco. Pursuant to such agreement, Comdisco and the Company have agreed
to, on a project-by-project basis, jointly market the Company's software and
services and Comdisco's services, including Y2K compliance testing, to
prospective clients, jointly bid on proposals and jointly perform contracted
for services. It is expected that Comdisco will provide test equipment lease
financing and biomedical refurbishing services to clients under such joint
proposals. In addition, Comdisco has agreed to consider financing certain Y2K
mitigation projects (based on applicable terms), although to date no such
financing has yet been provided. The Company believes that its strategic
alliance with Comdisco provides it with a competitive advantage in marketing
its products and services.
Intellectual Property
The Company regards its software as proprietary and relies primarily on a
combination of copyright, trademark and trade secret laws of general
applicability, employee confidentiality and invention assignment agreements,
third-party and non-disclosure agreements and other intellectual property
protection methods to safeguard its technology and software. The Company has
not applied for patents on any of its technology. The Company also relies upon
its efforts to enhance its software to maintain a competitive position in the
marketplace. See "Risk Factors -- Limited Intellectual Property Protection."
In July 1998, the Company submitted trademark applications for its common
law marks "Metalogics" and "Intelligent Configuration Management," which are
currently pending approval. The Company is not aware of any reason why such
trademark applications will not be granted, although there can be no assurance
thereof.
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<PAGE>
Competition
With respect to enterprise management services and the provision of Y2K
solution services, the Company competes against numerous companies. Among the
competitors that have bid against the Company for clients are Deloitte &
Touche, Ernst & Young, HMC (Health Management Consulting) and Millenia III. The
Company believes that its services taken in combination with its ICM software
allow it to offer a superior enterprise management and Y2K solution in the
marketplace.
In the market for enterprise management software, the Company believes
that no other company is commercially offering a software system that performs
true system-level enterprise management. The closest offerings are enterprise
management software that offer component-level control from Tivoli Systems,
Computer Associates and Hewlett-Packard. The Company believes that from a
system-level enterprise management standpoint, the diagnostic capabilities of
the ICM software exceed the capabilities of its competitors' commercially
available, component-level enterprise management software. Given the Company's
ICM software in combination with its services, the Company believes it offers a
superior enterprise management solution in the marketplace.
Many of the companies with which the Company competes, or which are
expected to offer products or services based on alternatives to the Company's
technologies, have substantially greater financial resources, research and
development capabilities, sales and marketing staffs and distribution channels
than the Company. There can be no assurance that the Company's ICM enterprise
management system will achieve sufficient quality, functionality or
cost-effectiveness to compete with existing or future alternatives.
Furthermore, there can be no assurance that the Company's competitors will not
succeed in developing software or services which are more effective and cost
less than those of the Company, or which render the Company's enterprise
management system obsolete. The principal competitive factors affecting the
market for the Company's services and technologies are the availability of the
software and services of the Company; the quality, ease of use, performance,
architecture and functionality of the software and services developed and
marketed by the Company; the effectiveness of the Company in marketing and
distributing their software and services, and price. There can be no assurance
that the Company will be successful in the face of increasing competition from
new technologies or products introduced by existing competitors or by new
companies entering the market. See "Risk Factors--Competition."
Government Regulation
The Company's activities currently are not subject to particular
regulation by governmental agencies other than that routinely imposed on
corporate businesses. However, a significant number of the Company's clients,
such as hospitals and other healthcare organizations, are in highly regulated
industries. The Company cannot predict the impact of future regulations on the
Company, if any, or on its clients. See "Risk Factors--Government Regulation."
Employees
The Company had 18 employees as of July 31, 1998. The Company also
retained approximately 41 independent consultants as of July 31, 1998, the
majority of whom were involved in product development and engineering. None of
the Company's employees is covered by a collective bargaining agreement and the
Company considers its relations with its employees and consultants to be good.
Facility
The Company currently leases approximately 1,500 square feet of office
space in Hoboken, New Jersey to house its administrative, marketing and product
development operations. The Company pays $2,275 per month in rent to an
unaffiliated lessor. The lease runs until May 31, 2000. The Company intends to
expand to additional space in substantially the same geographical area
following the completion of this offering in order to accommodate its proposed
growth. The Company believes that sufficient alternative office space is
readily available. A portion of the net proceeds of this offering may be used
to secure expanded office space.
Legal Proceedings
The Company is not involved in any pending or threatened legal
proceedings.
32
<PAGE>
MANAGEMENT
Executive Officers, Key Employees and Directors
The executive officers, key employees and directors of the Company, and
their ages at July 31, 1998, are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---- ----- ---------
<S> <C> <C>
William P. Doyle ...................................... 51 Chairman of the Board, President and Chief
Executive Officer
James J. Urbaniak ..................................... 52 Executive Vice President for Marketing and
Sales and Director
Ronald L. Cowley ...................................... 55 Vice President for Professional Services
Nicholas R. Wood ...................................... 53 Chief Financial Officer and Secretary
Dr. Revere D. Perkins ................................. 50 Senior Computer Scientist
Vice Admiral Daniel L. Cooper, USN (retired) .......... 64 Director
Dr. William K. Runyeon ................................ 71 Director
L. William Alter, Jr. ................................. 67 Director
</TABLE>
- ------------
William P. Doyle, a co-founder of the Company, has been the Company's
Chairman of the Board, President and Chief Executive Officer since its
inception in April 1996. Prior to founding the Company, Mr. Doyle formed and
served as President of two companies engaged in business process reengineering
and information systems development, Galen Group, Inc. (from January 1993 to
March 1996) and Applied Axiomatics, Inc. (from 1986 to December 1992). Prior to
that, Mr. Doyle joined the Database Group of Control Data Corporation as
manager and eventually rose to run the New York professional services group.
From 1987 to 1989, Mr. Doyle taught classes on systems analysis, artificial
intelligence and computational linguistics at New York University's School of
Information Technology.
James J. Urbaniak, a co-founder of the Company, has been the Company's
Executive Vice President for Marketing and Sales and a Director since its
inception. Mr. Urbaniak served in the marketing and sales group of Galen Group,
Inc. from January 1993 to March 1996, and prior thereto, served as the Manager
of Business Development of the Quality Assurance Division of
Gilbert/Commonwealth, Inc., an architectural engineering firm, from 1982 to
December 1992.
Ronald L. Cowley has been the Company's Vice President for Professional
Services since January 1998, and was a consultant to the Company from inception
until January 1998. Mr. Cowley previously served as a senior manager for
professional services with Galen Group, Inc. from January 1993 to March 1996
and head of marketing and sales for Applied Axiomatics, Inc. from 1986 to
December 1992. In addition, Mr. Cowley has served as the Chief Information
Officer for both the Federal Reserve Bank of Philadelphia and General Public
Utilities Nuclear.
Nicholas R. Wood, CPA, became the Company's Chief Financial Officer and
Secretary in February 1998. Mr. Wood previously served as a consultant and
software designer for New York Cash Exchange Corporation, an electronic funds
transfer network and service provider, from January 1997 to February 1998. Mr.
Wood also served as the Vice President -- Veritas, Distributed Systems Division
of First Data Corporation, a financial services company, from April 1993 to
September 1996. Mr. Wood co-founded and served as Vice President and Chief
Financial Officer of Veritas Venture, Inc., a developer of credit card
workstation software, from 1989 to March 1993. Mr. Wood received an M.B.A. from
Cornell University in 1969.
Dr. Revere D. Perkins, a key employee, has been the Company's Senior
Computer Scientist from inception. Dr. Perkins previously served as the Chief
Computer Scientist at both Applied Axiomatics, Inc. and Galen Group, Inc. from
1986 to December 1992 and January 1993 to March 1996, respectively. Dr. Perkins
is the author of numerous books on database design and advanced statistical
methods. His co-authored 1994 book, The Evolution of Grammar, was nominated for
the Bloomfield award. In addition, Dr. Perkins is a member of the
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<PAGE>
American National Standards Institute's National Committee on Information
Technology Standards Technical Committee that develops standards for data
representation (including date formats) and metadata registries. Dr. Perkins
received a Ph.D. in Linguistics from the State University of New York at
Buffalo in 1980.
Vice Admiral Daniel L. Cooper, USN (retired) became a director of the
Company in March 1998. Admiral Cooper retired as a Vice Admiral in 1991, after
33 years in the U.S. Navy. In the Navy, after a series of submarine commands,
Vice Admiral Cooper rose to become Director, Navy programs, plans and budgets
and Commander, Submarine Force, United States Atlantic Fleet. Since 1990, Vice
Admiral Cooper has been an independent consultant in a number of industries,
and from 1991 to 1994, he also served as Vice President and General Manager of
the Nuclear Services Division of Gilbert/Commonwealth, Inc., a company that
provides engineering, design and consulting services in support of utility,
government and industrial clients. Presently, Vice Admiral Cooper serves on the
corporate boards of Peco Energy Company, an electric utility company, and USAA
(United Services Automobile Association), an insurance organization focused on
the military market. Vice Admiral Cooper will have served the maximum ten year
term on USAA's board when he completes his current term in August 1998, at
which time he will have served for the last two years as Vice Chairman of the
board and for the last four years as Chairman of the Governance Committee. He
also serves on the advisory boards of the Applied Research Laboratory at Penn
State University and the Applied Physics Laboratory of The Johns Hopkins
University. Vice Admiral Cooper received a Masters of Public Administration
from Harvard University's Littauer School of Public Administration
(subsequently renamed the Kennedy School of Government) in 1963.
Dr. William K. Runyeon became a director of the Company in November 1997.
Dr. Runyeon is the former Chief of Surgery and President of the Medical Staff
at Reading Hospital and Medical Center in Reading, Pennsylvania. He has also
served as a Governor of the American College of Surgeons. Dr. Runyeon received
his M.D. from the University of Pennsylvania in 1948.
L. William Alter, Jr. became a director of the Company in June 1998. Mr.
Alter retired as a Lt. Colonel from the U.S. Marine Corps in 1980, completing a
military career that began following his graduation from the U.S. Naval Academy
in 1954. Mr. Alter has been a member of the American Stock Exchange since 1960.
He served on the Board of Governors of the American Stock Exchange for eight
years, and retired after serving as Vice Chairman in 1989 and 1990. Mr. Alter
presently serves as Treasurer of the U.S. Naval Academy Foundation and as a
member on the Board of Visitors for the M.J. Neeley Graduate School of Business
at Texas Christian University.
All directors are elected annually and hold office until the next annual
meeting of stockholders of the Company and until their successors have been
duly elected and qualified. The Company's By-laws provide that the Board of
Directors will consist of between three and nine members, and the number of
directors is currently set at five. Officers are elected by and serve at the
discretion of the Board of Directors. There are no family relationships among
the directors and executive officers of the Company.
Committees of the Board of Directors
The Company intends to establish an Audit Committee and a Compensation
Committee of the Board of Directors prior to the completion of this offering,
each of which will be comprised of at least two independent directors. The
Audit Committee will, among other things, make recommendations to the Board of
Directors regarding the independent auditors to be nominated for ratification
by the stockholders, review the independence of those auditors and review audit
results. The Compensation Committee will recommend to the Board compensation
plans and arrangements with respect to the Company's executive officers and key
personnel. It is contemplated that both the Audit Committee and Compensation
Committee will consist initially of Vice Admiral Daniel L. Cooper, Dr. William
K. Runyeon and L. William Alter, Jr. The Board of Directors does not currently
have and does not intend to establish a Nominating Committee, as such functions
are to be performed by the entire Board of Directors.
Compensation of Directors
Directors who are not currently receiving compensation as officers or
employees of the Company are entitled to receive $3,000 per quarter as well as
a fee of $1,000 (plus out-of-pocket expenses) for each meeting
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<PAGE>
of the Board of Directors and each committee meeting that they attend in
person. Vice Admiral Daniel L. Cooper, a director of the Company, is also a
consultant to the Company and receives consulting fees in connection therewith.
See "Certain Transactions." Employee-directors of the Company do not currently
receive, nor is it expected that they will receive following this offering,
cash compensation for serving on the Board of Directors of the Company. In
addition, directors of the Company are eligible to receive stock options under
the Company's 1998 Stock Option Plan. See "-- Stock Option Plan."
Executive Compensation
The following table sets forth the total compensation paid by the Company
to the Company's President and Chief Executive Officer and the Executive Vice
President for Marketing and Sales (together, the "Named Executive Officers"),
the only executive officers whose compensation exceeded $100,000 for the fiscal
year ended December 31, 1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation (1)
- ------------------------------------------------ ------ ----------- ------- -----------------
<S> <C> <C> <C> <C>
William P. Doyle ............................... 1997 $329,770 - -
President and Chief Executive Officer 1996 105,220 - -
James J. Urbaniak .............................. 1997 220,000 - -
Executive Vice President for Marketing and Sales 1996 72,213 - -
</TABLE>
- ------------
(1) The aggregate value of benefits to be reported under the "Other Annual
Compensation" column did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported for the Named Executive
Officers.
Employment Agreements
In June 1997, the Company entered into employment agreements with each of
William P. Doyle and James J. Urbaniak to serve as the Chairman of the Board,
President and Chief Executive Officer and the Executive Vice President for
Marketing and Sales of the Company, respectively. Pursuant to such agreements,
Messrs. Doyle and Urbaniak receive annual base salaries of $330,000 and
$220,000, respectively, and are entitled to participate in the Company's
Performance Bonus Plan described below. Mr. Doyle shall also be granted stock
options to purchase 370,000 shares of Common Stock under the Company's 1998
Stock Option Plan effective upon completion of this offering. The employment
agreements will be amended upon completion of this offering to extend through
the fifth anniversary of such date, subject to earlier termination by the
Company in the event of a material breach by such individual of their
respective agreement. Each of Messrs. Doyle and Urbaniak has agreed to devote
all of his business and professional time to the Company. Each of Messrs. Doyle
and Urbaniak has also agreed to certain covenants (i) restricting him from
engaging in any activities competitive with the business of the Company during
the term of his employment agreement and for one year thereafter, (ii)
prohibiting him from disclosure of confidential information regarding the
Company at any time and (iii) confirming that all intellectual property
developed by him and relating to the business of the Company constitutes the
sole property of the Company.
The Company intends to enter into employment agreements with each of
Ronald L. Cowley, Nicholas R. Wood and Dr. Revere D. Perkins to continue in the
positions listed above for three-year terms, commencing at the completion of
this offering, under which each individual will devote his full business and
professional time to the Company. Pursuant to such agreements, the Company
contemplates paying base annual salaries of approximately $405,000 in total to
such individuals, plus incentive compensation as determined by the Company's
Board of Directors. The agreements will additionally provide for covenants (i)
restricting the individual from engaging in any activities competitive with the
business of the Company during the term of his employment agreement and for one
year thereafter, (ii) prohibiting him from disclosure of confidential
information regarding the Company at any time and (iii) confirming that all
intellectual property developed by him and relating to the business of the
Company constitutes the sole property of the Company. Each employment agreement
is expected to provide for the termination of the individual by the Company
without "cause" upon 90 days' prior written notice and a lump sum severance
payment equal to two months' base salary.
35
<PAGE>
Performance Bonus Plan
In June 1998, the Company's directors approved the general terms of a
performance bonus plan (the "Plan") for executive officers and key employees.
The Plan provides for a bonus pool from which performance-based incentive
bonuses may be distributed to eligible employees of the Company. Once a year,
the Board of Directors will determine the size of the bonus pool based on,
among other factors, overall Company performance and general economic
environment. Executive officers and key employees will be eligible to
participate in the Plan. The bonus pool will be distributed on an annual basis,
following the completion of the Company's annual audit, to eligible personnel.
The Plan will be administered by the Company's President. In fiscal 1998, it is
currently contemplated that William P. Doyle and James J. Urbaniak, the
Company's President and Chief Executive Officer and its Executive Vice President
for Marketing and Sales, respectively, will (subject to their continued
employment with the Company) be entitled to receive an aggregate of
approximately 45% of the bonus pool, if any, payable under the Plan for such
year.
Stock Option Plan
Under the Company's 1998 Stock Option Plan (the "1998 Plan"), which was
adopted by both the Company's stockholders and Board of Directors in June 1998,
an aggregate of 1,000,000 shares of Common Stock are reserved for issuance upon
exercise of stock options. The 1998 Plan is designed as a means to retain and
motivate key employees and directors. After this offering, the Compensation
Committee of the Board of Directors will administer and interpret the 1998 Plan
and be authorized to grant options thereunder to all eligible employees of the
Company, including officers and directors who are employees of the Company.
Non-employee directors and consultants are also eligible to receive stock
options under the 1998 Plan.
The 1998 Plan provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code) and nonqualified stock
options. Options are granted under the 1998 Plan on such terms and at such
prices as determined by the Compensation Committee, except that the per share
exercise price of incentive stock options cannot be less than the fair market
value of the Common Stock on the date of grant. Each option is exercisable after
the period or periods specified in the option agreement, but no option may be
exercisable after the expiration of ten years from the date of grant. Incentive
stock options granted under the 1998 Plan are not transferable other than by
will or by the laws of descent and distribution. The Compensation Committee has
the authority to amend or terminate the 1998 Plan, provided that no such action
may impair the rights of the holder of any outstanding option without the
written consent of such holder, and provided further that certain amendments of
the 1998 Plan are subject to stockholder approval. Unless terminated sooner, the
1998 Plan will terminate on June 14, 2008.
In June 1998, the Company's Board of Directors awarded, effective upon the
completion of this offering, non-qualified stock options under the 1998 Plan to
William P. Doyle, the Company's President and Chief Executive Officer, entitling
him to purchase 370,000 shares of Common Stock at an exercise price equal to the
initial public offering price of the Common Stock. Such stock options are
exercisable over a period of five years, subject to the achievement of annual
performance milestones, at the rate of 20% of the number of options granted in
each of 1999 through 2004, inclusive, commencing one year after the completion
of this offering and, unless exercised, expire in July 2006 (subject to prior
termination in accordance with his stock option agreement). The stock options
awarded to Mr. Doyle constituted an issuance agreed upon by the Company's other
stockholder, and adopted by the Company's Board of Directors, in connection with
Mr. Doyle's invention of the ICM software. The Company's Board of Directors also
awarded, effective following the completion of this offering, non-qualified
stock options under the 1998 Plan to approximately eight other employees of the
Company (which did not include any of the individuals named under "--Executive
Officers, Key Employees and Directors" above), entitling them to purchase an
aggregate of approximately 88,000 shares of Common Stock, all of which provide
for an exercise price equal to the initial public offering price of the Common
Stock and are exercisable over a period ranging from one to five years after the
completion of this offering. The Company intends to register under the
Securities Act shares reserved for issuance pursuant to the 1998 Plan.
Limitation of Liability and Indemnification
Pursuant to the provisions of the Delaware General Corporation Law (the
"Delaware Law"), the Company has adopted provisions in its Certificate of
Incorporation which provide that directors of the Company shall not be
personally liable for monetary damages to the Company or its stockholders for a
breach of fiduciary duty as a director, except for liability as a result of (i)
a breach of the director's duty of loyalty to the Company or its
36
<PAGE>
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of the
Delaware Law, and (iv) transactions from which the director derived an improper
personal benefit. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, in accordance with the
Company's by-laws, agreements or otherwise, to the full extent permitted under
the Delaware Law. The Company intends to enter into indemnification agreements
with its directors and officers which may, in some cases, be broader than the
specific indemnification provisions contained in the Delaware Law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 31, 1998, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by: (i) each of
the Named Executive Officers, (ii) each of the Company's directors who
beneficially owns any shares, (iii) all directors and executive officers of the
Company as a group, and (iv) each other person known by the Company to own
beneficially more than 5% of the Company's Common Stock. Except as otherwise
noted, the persons named in this table, based upon information provided by such
persons, have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
Percentage of Outstanding
Common Stock
Number of Shares Beneficially Owned
of Common Stock -----------------------------------
Name and Address of Beneficial Owner (1) Beneficially Owned (2) Before Offering After Offering
- ----------------------------------------------- ------------------------ ----------------- ---------------
<S> <C> <C> <C>
William P. Doyle .............................. 2,220,000 60.0% 37.0%
James J. Urbaniak ............................. 1,480,000 40.0% 24.7%
All directors and executive officers as a group
(7 persons) .................................. 3,700,000 100.0% 61.7%
</TABLE>
- ------------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
Metalogics, Inc., Riverview Historical Plaza, 33-41 Newark Street, Suite
4-C, Hoboken, New Jersey 07030.
(2) Shares beneficially owned and percentage of ownership are based on
3,700,000 shares of Common Stock outstanding before this offering and
6,000,000 shares of Common Stock to be outstanding after the completion of
this offering. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes
voting or dispositive power with respect to such shares.
CERTAIN TRANSACTIONS
In December 1997, the Company entered into a consulting agreement with
Vice Admiral Daniel L. Cooper, a director of the Company, pursuant to which
Vice Admiral Cooper renders advice relating to, among other matters, the
organizational structure of the Company and the appointment of management.
Under the consulting agreement, Vice Admiral Cooper is entitled to receive a
$1,000 retainer per quarter and $1,000 per day for services rendered, plus the
reimbursement of out-of-pocket expenses. Vice Admiral Cooper also receives
$1,000 for each meeting of the Board of Directors or committees thereof
attended. For the three months ended March 31, 1998, Vice Admiral Cooper
received total payments of $2,584 from the Company, which did not include any
amount for Board meetings attended. See "Management -- Compensation of
Directors." The consulting agreement is automatically renewable for successive
one-year terms, and may be terminated with at least 30 days' written notice by
either party prior to the end of any term.
In 1996, the Company entered into a subcontracting agreement with
Microworks, Inc., a corporation owned by the brother of William P. Doyle, the
President and Chief Executive Officer of the Company. During 1996 and 1997, the
Company was paid a total of $186,200 and $43,950, respectively, from this
corporation for software development services.
The Company's Certificate of Incorporation provides for indemnification of
the Company's officers and directors in certain circumstances. The Company
intends to enter into indemnification agreements with each of its directors and
executive officers. See "Management -- Limitation of Liability and
Indemnification."
38
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company's authorized capital stock consists of (i) 20,000,000 shares
of Common Stock, par value $.0001 per share, and (ii) 5,000,000 shares of
Preferred Stock, par value $.0001 per share. As of the date of this Prospectus,
an aggregate of 3,700,000 shares of Common Stock were outstanding and held by
William P. Doyle and James J. Urbaniak, the President and Chief Executive
Officer and the Executive Vice President for Marketing and Sales, respectively.
No shares of Preferred Stock have been issued or are outstanding.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. In addition, such
holders are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the dissolution, liquidation or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of all liabilities of the Company. All
outstanding shares of Common Stock are fully paid and nonassessable.
The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire
or subscribe for additional, unissued or treasury shares. Accordingly, if the
Company were to elect to sell additional shares of Common Stock following this
offering, persons acquiring Common Stock in this offering would have no right
to purchase additional shares, and as a result, their percentage equity
interest in the Company would be reduced.
Pursuant to the Company's By-laws, except for any matters which, pursuant
to the Delaware Law, require a greater percentage vote for approval, the
holders of a majority of the outstanding Common Stock, if present in person or
by proxy, are sufficient to constitute a quorum for the transaction of business
at meetings of the Company's stockholders. Holders of shares of Common Stock
are entitled to one vote per share on all matters submitted to the vote of
Company stockholders. Except as to any matters which, pursuant to Delaware Law,
require a greater percentage vote for approval, the affirmative vote of the
holders of a majority of the Common Stock present in person or by proxy at any
meeting (provided a quorum as aforesaid is present thereat) is sufficient to
authorize, affirm or ratify any act or action, including the election of
directors.
The holders of Common Stock do not have cumulative rights. Accordingly,
the holders of more than half of the outstanding shares of Common Stock can
elect all of the directors to be elected in any election, if they choose to do
so. In such event, the holders of the remaining shares of Common Stock would
not be able to elect any directors. The Board is empowered to fill any
vacancies on the Board created by the resignation, death or removal of
directors.
In addition to voting at duly called meetings at which a quorum is present
in person or by proxy, Delaware Law and the Company's By-laws provide the
stockholders may take action without the holding of a meeting by written
consent or consents signed by the holders of a majority of the outstanding
shares of the capital stock of the Company entitled to vote thereon. Prompt
notice of the taking of any action without a meeting by less than unanimous
consent of the stockholders will be given to those stockholders who do not
consent in writing to the action. The purposes of this provision are to
facilitate action by stockholders and to reduce the corporate expense
associated with annual and special meetings of stockholders. Pursuant to the
rules and regulations of the Commission, if stockholder action is taken by
written consent, the Company will be required to send to each stockholder
entitled to vote on the matter acted on, but whose consent was not solicited,
an information statement containing information substantially similar to that
which would have been contained in a proxy statement.
Preferred Stock
The Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation, preferences and
relative participation, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions),
39
<PAGE>
redemption price or prices, conversion rights and liquidation preferences of
the shares constituting any series, without any further vote or action by the
stockholders. The issuance of Preferred Stock by the Board of Directors could
affect the rights of the holders of Common Stock. For example, such issuance
could result in a class of securities outstanding that would have preferences
with respect to voting rights and dividends, and in liquidation, over the
Common Stock, and could (upon conversion or otherwise) enjoy all of the rights
appurtenant to Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue the Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock. There are no
agreements for the issuance of Preferred Stock and the Board of Directors has
no present intention to issue Preferred Stock.
Delaware Anti-Takeover Law
The Company is subject to Section 203 of the Delaware Law, which prohibits
a publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
(i) prior to the date of the business combination, the transaction is approved
by the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least 66
2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person, who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the
Common Stock and there can be no assurance that a significant public market for
the Common Stock will be developed or sustained after this offering. Sales of
substantial amounts of Common Stock in the public market after this offering,
or the possibility of such sales occurring, could adversely affect prevailing
market prices of the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities.
Upon the completion of this offering, the Company will have outstanding
6,000,000 shares of Common Stock. Of such shares, the 2,300,000 shares of
Common Stock sold in the offering (assuming no exercise of the Underwriters'
over-allotment option) will be freely tradeable in the public market without
restriction under the Securities Act, unless purchased by "affiliates" of the
Company, as defined in Rule 144 under the Securities Act.
The remaining 3,700,000 shares of Common Stock outstanding are "restricted
securities," as defined in Rule 144 under the Securities Act (the "Restricted
Shares"). The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rules
144 or 701 under the Securities Act, which are summarized below.
All officers, directors, stockholders and optionholders of the Company
have agreed that they will not, without the prior written consent of Cruttenden
Roth Incorporated on behalf of the Underwriters (which consent may be withheld
in its sole discretion) and subject to certain limited exceptions, offer,
pledge, sell, contract to sell, sell any option or contract to purchase, sell
short, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend 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, any of the economic consequences
of ownership of the Common Stock, for a period of 12 months commencing on the
date of this Prospectus; provided that such restrictions do not apply to shares
of Common Stock sold or purchased in this offering or to shares of Common Stock
purchased in the open market following this offering. Cruttenden Roth
Incorporated, on behalf of the Underwriters, may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to these lock-up agreements. In addition, the Company has agreed that, for a
period of 12 months after the date of this Prospectus, it will not, without the
consent of Cruttenden Roth Incorporated, make any offering, sale or other
disposition of any shares of Common Stock or other securities convertible into
or exchangeable or exercisable for shares of Common Stock (or agreement for
such) except for the grant of options to purchase shares of Common Stock
pursuant to its 1998 Stock Option Plan and shares of Common Stock issued
pursuant to the exercise of options granted under such plan, provided that such
options shall not vest, or the Company shall obtain the written consent of the
holder thereof not to transfer such shares, until the end of such 12-month
period. See "Management--Stock Option Plan" and "Underwriting."
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
imposed under Rule 144. In general, under Rule 144, as amended, beginning 90
days after the date of this Prospectus, a person (or persons whose shares of
the Company are aggregated) who has beneficially owned Restricted Shares for at
least one year (including the holding period of any prior owner who is not 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 then outstanding shares of Common Stock (approximately 60,000 shares
following this offering), 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 and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years (including the holding period of any prior owner who is
not an affiliate of the Company) is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
41
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Cruttenden Roth Incorporated, Josephthal & Co. Inc.
and Barington Capital Group, L.P. are acting as Representatives, have severally
agreed to purchase from the Company and the Company has agreed to sell to the
Underwriters, the respective number of shares of Common Stock set forth
opposite each Underwriter's name below:
Number
Underwriters of Shares
------------ ----------
Cruttenden Roth Incorporated ..........
Josephthal & Co. Inc. .................
Barington Capital Group, L.P. .........
---------
Total ............................... 2,300,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company's
counsel and independent public accountants. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all the
shares of Common Stock if any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share to certain brokers and dealers. After the initial
public offering of the shares, the public offering price and other selling
terms may be changed by the Representatives. No change in such terms shall
change the amount of proceeds to be received by the Company as set forth on the
cover page of this Prospectus.
The Company has granted an option to the Underwriters, exercisable for a
period of 45 days after the date of this Prospectus, to purchase up to an
additional 345,000 shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discounts and
commissions. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares of Common Stock in approximately
the same proportion as set forth in the above table.
All of the Company's officers, directors, stockholders and optionholders
have agreed that they will not, without the prior written consent of Cruttenden
Roth Incorporated (which consent may be withheld in its sole discretion) and
subject to certain limited exceptions, offer, pledge, sell, contract to sell,
sell any option or contract to purchase, sell short, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend 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, any of the economic consequences of ownership of the Common
Stock, for a period of 12 months commencing on the date of this Prospectus;
provided that such restrictions do not apply to shares of Common Stock sold or
purchased in this offering or to shares of Common Stock purchased in the open
market following this offering. Cruttenden Roth Incorporated, on behalf of the
Underwriters, may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements. In addition, the Company has agreed that, for a period of 12 months
after the date of this Prospectus, it will not, without the consent of
Cruttenden Roth Incorporated, make any offering, sale or other disposition of
any shares of Common Stock of the Company or other securities convertible into
or exchangeable or exercisable for shares of Common Stock (or agreement for
such) except for the grant of options to purchase shares of Common Stock
pursuant to its 1998 Stock Option Plan and shares of Common Stock issued
pursuant to the exercise of options granted under such plan, or the Company
shall obtain the written consent of the holder thereof not to transfer such
shares, until the end of such 12-month period. See "Management--Stock Options"
and "Shares Eligible for Future Sale."
42
<PAGE>
The Company has agreed to issue to the Representatives, for a total of
$230, warrants (the "Representatives' Warrants") to purchase up to 230,000
shares of Common Stock at an exercise price per share equal to 120% of the
initial public offering price. The Representatives' Warrants are exercisable
for a period of four years beginning one year after the date of this Prospectus,
and will be restricted from sale, transfer, assignment or hypothecation for
a period of one year after the date of this Prospectus, except to officers or
partners of the Underwriters and members of the selling group. The holders of
the Representatives' Warrants will have no voting, dividend or other stockholder
rights until the Representatives' Warrants are exercised. In addition, the
Company has granted certain rights to the holders of the Representatives'
Warrants to register the Representatives' Warrants and the Common Stock
underlying the Representatives' Warrants under the Securities Act.
The Representatives have advised the Company that they do not expect any
sales of the shares of Common Stock offered hereby to be made to discretionary
accounts controlled by the Underwriters.
Prior to this offering, there has been no established trading market for
the Common Stock. Consequently, the initial public offering price for the
Common Stock offered hereby will be determined by negotiation between the
Company and the Representatives. Among the factors to be considered in such
negotiations are the preliminary demand for the Common Stock, the prevailing
market and economic conditions, the Company's results of operations, estimates
of the business potential and prospects of the Company, the present state of
the Company's business operations, an assessment of the Company's management,
the consideration of these factors in relation to the market valuation of
comparable companies in related businesses, the current condition of the
markets in which the Company operates, and other factors deemed relevant. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
this offering at or above the initial public offering price.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities under
the Securities Act or will contribute to payments the Underwriters and their
controlling persons may be required to make in respect thereof.
During and after this offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in this offering for their
account may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued at any time.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and the Representatives' Warrants, does not purport to be complete
and is qualified in its entirety by reference to the form of Underwriting
Agreement and the form of Representatives' Warrant which have been filed as
exhibits to the Company's Registration Statement.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Greenberg Traurig, New York, New York. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, Beverly Hills,
California.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997,
and for the period from February 20, 1996 (date of inception) to December 31,
1996 and the year ended December 31, 1997 included in this Prospectus and
elsewhere in the Registration Statement have been so included in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, upon authority of said firm as experts in auditing
and accounting. The report of KPMG Peat Marwick LLP on the aforementioned
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations since inception, working capital
deficiency and net capital deficiency raise substantial doubt about its ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
43
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form SB-2 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed as
a part thereof. Statements made in this Prospectus concerning the contents of
any document referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement, including the exhibits thereto
and the financial statements and notes filed as a part thereof, as well as such
reports and other information filed with the Commission, may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by the
Commission. Such reports and other information may also be inspected without
charge at a Web site maintained by the Commission. The address of such site is
http://www.sec.gov.
44
<PAGE>
METALOGICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report ............................................................. F-2
Balance Sheets as of December 31, 1996 and 1997 and as of March 31, 1998 (unaudited) ..... F-3
Statements of Operations for the period from February 20, 1996 (inception) to December 31,
1996 and for the year ended December 31, 1997 and for the three months ended March 31,
1997 (unaudited) and March 31, 1998 (unaudited) ....................................... F-4
Statements of Stockholders' Deficit for the period from February 20, 1996 (inception) to
December 31, 1996 and for the year ended December 31, 1997 and for the three months
ended March 31, 1998 (unaudited) ...................................................... F-5
Statements of Cash Flows for the period from February 20, 1996 (inception) to December 31,
1996 and the year ended December 31, 1997 and for the three months ended March 31, 1997
(unaudited) and March 31, 1998 (unaudited) ............................................ F-6
Notes to Financial Statements ............................................................ F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Metalogics, Inc.:
We have audited the accompanying balance sheets of Metalogics, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' deficit and cash flows for the period from February 20, 1996
(inception) to December 31, 1996 and for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opionion 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 financial statements referred to above present fairly,
in all material respects, the financial position of Metalogics, Inc. as of
December 31 1996 and 1997, and the results of its operations and its cash flows
for the period from February 20, 1996 (inception) to December 31, 1996 and for
the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company's recurring losses from operations since
inception, working capital deficiency and net capital deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
New York, New York
May 15, 1998, except for Note 7, which
is as of July 27, 1998
F-2
<PAGE>
METALOGICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------- ------------
1996 1997 1998
ASSETS ------------- ------------- ------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash .............................................. $ 11,877 $ 1,572 $ 129,201
Trade accounts receivable ......................... 120,314 68,200 88,404
Due from officers ................................. 23,255 -- --
Prepaid expenses .................................. -- 9,439 --
--------- ---------- ----------
Total current assets ............................ 155,446 79,211 217,605
--------- ---------- ----------
Property and equipment, at cost:
Computer equipment ................................ 16,337 108,915 186,880
Less accumulated depreciation ..................... (2,268) (20,138) (31,964)
--------- ---------- ----------
Property and equipment, net ..................... 14,069 88,777 154,916
Deferred offering costs ............................ -- -- 67,000
Security deposits .................................. -- 21,851 21,851
--------- ---------- ----------
Total assets .................................... $ 169,515 $ 189,839 $ 461,372
========= ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable ............................ $ -- $ 169,048 $ 249,533
Accrued expenses .................................. -- 147,032 218,913
Due to officers ................................... -- -- 20,855
Income taxes payable .............................. 83,907 18,598 15,098
Accrued salaries, wages and payroll taxes ......... 104,371 480,323 652,296
Deferred revenue .................................. -- -- 174,300
--------- ---------- ----------
Total current liabilities ....................... 188,278 815,001 1,330,995
--------- ---------- ----------
Stockholders'deficit:
Preferred stock; $0.0001 par value; 5,000,000
shares authorized; none outstanding ............. -- -- --
Common stock; $0.0001 par value; 20,000,000
shares authorized; 3,700,000 shares issued and
outstanding ..................................... 370 370 370
Additional paid-in capital ........................ 130 130 130
Accumulated deficit ............................... (19,263) (625,662) (870,123)
--------- ---------- ----------
Total stockholders' deficit ..................... (18,763) (625,162) (869,623)
--------- ---------- ----------
Commitments and contingencies
Total liabilities and stockholders'
deficit ........................................ $ 169,515 $ 189,839 $ 461,372
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
METALOGICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
February 20, 1996
(inception) Three months ended
to Year ended March 31,
December 31, December 31, --------------------------------
1996 1997 1997 1998
------------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
(unaudited)
Revenue, net of contract expenses ............ $ 407,201 $ 1,649,699 $ 208,950 $ 432,945
Cost of revenue .............................. 280,612 1,079,495 137,755 240,839
---------- ----------- ------------ -----------
Gross profit ................................. 126,589 570,204 71,195 192,106
Operating expenses:
Selling, general, and administrative
expenses .................................. 59,327 781,062 99,455 322,436
Depreciation ................................ 2,268 17,870 1,113 11,826
Research and development .................... -- 443,842 2,512 102,364
---------- ----------- ------------ -----------
Income (loss) from operations ............. 64,994 (672,570) (31,885) (244,520)
---------- ----------- ------------ -----------
Interest income .............................. -- 862 -- 59
---------- ----------- ------------ -----------
Income (loss) before income taxes ......... 64,994 (671,708) (31,885) (244,461)
---------- ----------- ------------ -----------
Income tax expense (benefit) ................. 84,257 (65,309) 32,307 --
---------- ----------- ------------ -----------
Net loss .................................. $ (19,263) $ (606,399) $ (64,192) $ (244,461)
========== =========== ============ ===========
Net loss per share - basic ................... $ (0.01) $ (0.16) $ (0.02) $ (0.07)
========== =========== ============ ===========
Weighted average number of shares
outstanding ................................. 3,700,000 3,700,000 3,700,000 3,700,000
========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
METALOGICS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- paid-in Accumulated
Shares Amount capital deficit Total
----------- -------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to
founders for cash .................... 3,700,000 $370 $130 $ -- $ 500
Net loss for the period from
February 20, 1996 (inception) to
December 31, 1996 .................. -- -- -- (19,263) (19,263)
--------- ---- ---- ---------- ----------
Balances at December 31, 1996 ......... 3,700,000 370 130 (19,263) (18,763)
Net loss for the year ................. -- -- -- (606,399) (606,399)
--------- ---- ---- ---------- ----------
Balances at December 31, 1997 ......... 3,700,000 370 130 (625,662) (625,162)
Net loss for the period (unaudited).... -- -- -- (244,461) (244,461)
--------- ---- ---- ---------- ----------
Balances at March 31, 1998
(unaudited) .......................... 3,700,000 $370 $130 $ (870,123) $ (869,623)
========= ==== ==== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
METALOGICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
February 20,
1996 Three months ended
(inception) to Year ended March 31,
December 31, December 31, ------------------------------
1996 1997 1997 1998
---------------- -------------- ------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................. $ (19,263) $ (606,399) $ (64,192) $ (244,461)
Adjustments to reconcile net loss to
net cash provided by (used in) oper-
ating activities:
Depreciation ....................... 2,268 17,870 1,113 11,826
Changes in operating assets and
liabilities:
Trade accounts receivable ......... (120,314) 52,114 (130,068) (20,204)
Due from officers ................. (23,255) 23,255 23,255 --
Prepaid expenses .................. -- (9,439) -- 9,439
Security deposits ................. -- (21,851) -- --
Trade accounts payable ............ -- 169,048 14,003 80,485
Accrued expenses .................. -- 147,032 23,135 71,881
Due to officers ................... -- -- -- 20,855
Income taxes payable .............. 83,907 (65,309) 32,307 (3,500)
Accrued salaries, wages and
payroll ......................... 104,371 375,952 88,570 171,973
Deferred revenue .................. -- -- -- 174,300
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities ........ 27,714 82,273 (11,877) 272,594
---------- ---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures ................. (16,337) (92,578) -- (77,965)
---------- ---------- ---------- ----------
Net cash used in investing
activities ................ (16,337) (92,578) -- (77,965)
---------- ---------- ---------- ----------
Cash flows from financing activites:
Proceeds from issuance of common
stock to founders ............... 500 -- -- --
Deferred offering costs .............. -- -- -- (67,000)
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities ........ 500 -- -- (67,000)
---------- ---------- ---------- ----------
Net increase (decrease) in cash. 11,877 (10,305) (11,877) 127,629
Cash at beginning of period ........... -- 11,877 11,877 1,572
---------- ---------- ---------- ----------
Cash at end of period ................. $ 11,877 $ 1,572 $ -- $ 129,201
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
METALOGICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1997
(All Information Subsequent to December 31, 1997 is Unaudited)
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
Metalogics, Inc., a Delaware corporation (the "Company"), develops,
markets and implements enterprise management software and services
predominantly to the healthcare industry. The Company's proprietary
software, known as its ICM software, can be used to manage Y2K compliance,
the driving force of the Company's current growth, as well as inventory
configuration and control, asset management, and network diagnosis and
troubleshooting. The Company's ICM software is composed of four
Internet-compatible and Java-based software modules that allow the
Company's clients to assess specific interactions and problems, including
Y2K compliance issues, within their total computer network. This
assessment can be performed either on-site or remotely utilizing the
Internet. Using its ICM software database, the Company can provide its
clients an ongoing turnkey system to manage their computer networks and
information systems, or manage the clients' systems on an outsourcing
basis.
The Company is subject to the risks inherent in the establishment of a new
high technology business enterprise. To address these risks, the Company
must, among other things, enter into and maintain key strategic alliances,
respond to competitive developments, effectively market its software
products and attract, retain and motivate qualified personnel. The
Company's decision to focus efforts on its enterprise management system is
predicated on the assumption that, in the future, the number of users of
the Company's system will be large enough to permit the Company to operate
profitably.
The Company was incorporated on February 20, 1996, however, the Company
commenced operations in April 1996 and had no other activity other than
the sale of common stock to its founders prior to April 1, 1996.
The Company has incurred losses from operations since inception.
Management intends to continue to develop and market its products in order
to generate future sales. In addition, the Company is actively pursuing
additional financing sources. Management believes that it can successfully
develop and market its products and obtain additional necessary financing
(see Note 7); however, there can be no assurance that it will be able to
do so. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
(b) Revenue Recognition
The Company's contracts with its clients provide for two principal sources
of revenue: consulting fees from its enterprise management services and
licensing and maintenance fees from its ICM software. All of the Company's
client contracts to date have been "fixed fee" contracts, pursuant to
which the Company is paid a fixed amount for delineated tasks. Fixed fees
contracts are accounted for under the percentage-of-completion method.
Such revenue is determined by the percentage of labor and overhead costs
incurred to date to total estimated labor and overhead costs for each
contract. Estimated losses on contracts are recorded when identified.
Fixed fee contract costs include all direct labor and material costs and
those indirect costs related to contract performance.
Revenue from computer hardware equipment sales are recognized in the
period the equipment is delivered. Revenue from computer hardware
equipment sales were $0 and $65,000 in 1996 and 1997, respectively, and
$34,622 (unaudited) for the three months ended March 31, 1998.
The Company recognizes software license revenue in accordance with
Statement of Position 97-2, "Software Revenue Recognition." The Company
records an account receivable and deferred revenue upon shipment and
invoicing of a software license to a customer. The Company recognizes
software license revenue upon completion of the product installation
provided that no significant vendor obligation exists, which the Company's
management has generally determined to occur at the point in time at
F-7
<PAGE>
METALOGICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1997
(All Information Subsequent to December 31, 1997 is Unaudited) -- (Continued)
(1) Summary of Significant Accounting Policies and Practices -- (Continued)
which the clients begin utilizing the Company's software. During the three
months ended March 31, 1998, the Company recorded its first license fees
of $35,000 from its ICM software. Customer-support revenue will be
deferred and recognized ratably over the period covered by the customer
support agreement, generally expected to be one year.
(c) Product Development Costs
Product development costs and enhancements to existing products are
charged to operations as incurred. In accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, development costs related to the software products are
expensed as incurred until the technological feasibility of the product
has been established. Technological feasibility in the Company's
circumstances occurs when a working model is completed. The Company
believes its process for developing software is essentially completed
concurrent with the establishment of technological feasibility and,
accordingly, no research and development costs have been capitalized to
date.
(d) Concentrations of Credit Risk
Revenues associated with the Company's two major clients, as a percentage
of total revenues, are as follows:
February 20,
1996,
(inception) Year
through ended
December 31, December 31,
Client 1996 1997
---------- -------------- -------------
A 52% 97%
B 48% --
Clients of the Company are primarily from the healthcare industry.
Accounts receivable regarding these significant clients, as a percentage
of total accounts receivable, are as follows:
December 31, December 31,
Client 1996 1997
---------- -------------- -------------
A 35% 100%
B 66% --
Todate, accounts receivable have been derived from clients located in the
United States. The Company performs ongoing credit evaluations of its
clients' financial condition and generally does not require collateral.
The Company has not experienced any credit losses to date.
(e) Fair Value of Financial Instruments
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, trade accounts
receivable, trade accounts payable, accrued expenses and accrued salaries,
wages and payroll taxes. At December 31, 1996 and 1997, the fair value of
these instruments approximated their financial statement carrying amount
due to their short-term nature.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated
useful lives of the related assets, generally ranging from 3 to 5 years.
F-8
<PAGE>
METALOGICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1997
(All Information Subsequent to December 31, 1997 is Unaudited) -- (Continued)
(1) Summary of Significant Accounting Policies and Practices -- (Continued)
(g) Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lives Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires
impairment losses to be recorded on long-lived assets used in operations,
including goodwill, when indications of impairment are present and the
undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount.
If such assets are impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
estimated fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying value or fair value, less costs to sell. To
date, no such impairment has been recorded.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Stock-Based Compensation
The Company accounts for its stock-based employee compensation
arrangements in accordance with provisions of APB No. 25, "Accounting for
Stock Issued to Employees," and complies with the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation cost is recognized based on the difference, if any, on the
date of grant between the fair value of the Company's stock and the amount
an employee must pay to acquire the stock.
(j) Loss Per Share
Loss per share is presented in accordance with the provisions of SFAS No.
128, "Earnings Per Share" ("SFAS 128") and the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 98. SFAS 128 replaced the
presentation of primary and fully diluted earnings (loss) per share
("EPS"), with a presentation of basic EPS and diluted EPS. Under SFAS 128,
basic EPS excludes dilution for common stock equivalents and is computed
by dividing income or loss available to common shareholders 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 and resulted in the issuance of common stock. Only basic EPS
is presented as there are no common stock equivalents outstanding for all
periods presented.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock issued for
nominal consideration, prior to the anticipated effective date of an
initial public offering, are required to be included in the calculation of
basic and diluted net loss per share, as if they were outstanding for all
periods presented. To date, the Company has not had any issuances or
grants for nominal consideration.
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
METALOGICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1997
(All Information Subsequent to December 31, 1997 is Unaudited) -- (Continued)
(1) Summary of Significant Accounting Policies and Practices -- (Continued)
(l) Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 129, "Disclosure of Information about Capital Structure" ("SFAS
129"). This statement establishes standards for disclosing information
about an entry's capital structure. Adoption of SFAS No. 129 had no impact
on the Company's existing disclosures.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(Statement 130) ("SFAS 130"). SFAS 130 establishes standards for reporting
and disclosure of comprehensive income and its components (revenues,
expense, gains and losses) in a full set of general-purpose financial
statements. SFAS 130, which is effective for fiscal years beginning after
December 15, 1997, requires reclassification of financial statements for
earlier periods to be provided for comparative purposes. The Company
anticipates that implementing the provisions of SFAS 130 will not have a
significant impact on the Company's existing disclosure.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of
an Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information
about operating segments, it also establishes standards for related
disclosure about products and services, geographic areas and major
customers. SFAS 131 is effective for fiscal years beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years must be restated. The Company adopted the provisions of SFAS
130 as of March 31, 1998. There were no differences between the Company's
comprehensive loss and its reported net loss.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments embedded in
other contracts, and for hedging activities. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. This
statement is not expected to affect the Company as the Company currently
does not have any derivative instruments or hedging activities.
(m) Unaudited Interim Financial Statements
The interim financial statements of the Company for the three months ended
March 31, 1997 and 1998 included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the SEC. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations relating
to interim financial statements. In the opinion of management, the
accompanying unaudited interim financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at March 31, 1997 and
1998, and the results of its operations and its cash flows for the three
months ended March 31, 1997 and 1998.
(2) Due From Officer
During 1996, the Company gave advances to two officers and stockholders of
the Company. At December 31, 1996, the Company had an amount due from an
officer of $23,255.
F-10
<PAGE>
METALOGICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1997
(All Information Subsequent to December 31, 1997 is Unaudited) -- (Continued)
(3) Income Taxes
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------------ ---------- ------------
<S> <C> <C> <C>
Period from February 20, 1996
(inception) to December 31, 1996:
U.S. Federal ................... $ 65,309 $-- $ 65,309
State and local ................ 18,948 -- 18,948
--------- --- ---------
$ 84,257 -- $ 84,257
========= === =========
Period ended December 31, 1997:
U.S. Federal ................... (65,309) -- (65,309)
--------- --- ---------
$ (65,309) $-- $ (65,309)
========= === =========
</TABLE>
The difference between the provision for income taxes computed at the
statutory rate and the reported amount of tax expense (benefit) attributable
to income before income taxes for the period from February 20, 1996
(inception) to December 31, 1996 and for the year ended December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
1996 1997
---------- --------------
<S> <C> <C>
Tax expense at statutory rates ............... $22,098 $ (228,381)
Increase (reduction) in income taxes resulting
from:
Valuation allowance adjustment ............ 49,532 182,791
State and local income taxes, net of
federal income tax benefit ............... 8,424 (40,530)
Other, net ................................ 4,203 20,811
------- ----------
$84,257 $ (65,309)
======= ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1997 are presented below.
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ............... $ -- $ 82,988
Accrued compensation and payroll taxes ......... 49,532 149,335
--------- ----------
Total gross deferred tax assets. ............. 49,532 232,323
Less valuation allowance ........................ (49,532) (232,323)
--------- ----------
Net deferred tax assets ...................... $ -- $ --
========= ==========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1996 and
1997 was $49,532 and $232,323, respectively. The net change in the total
valuation allowance for the years ended December 31, 1996 and 1997 was $49,532
and $182,791, respectively. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment.
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $179,000, which expire in the
year 2012.
F-11
<PAGE>
METALOGICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1997
(All Information Subsequent to December 31, 1997 is Unaudited) -- (Continued)
(4) Capitalization
On December 31, 1997, the Company had 3,700,000 common shares outstanding.
The Company had initially authorized 5,000,000 common shares, $0.0001 par
value, with 3,700,000 common shares issued at March 30, 1996 to its
founders, who are also officers of the Company. On July 27, 1998, the
Company amended its certificate of incorporation to authorize 5,000,000
preferred shares and 20,000,000 common shares.
(5) Related Party Transactions
The Company entered into a subcontracting agreement with Microworks, an
affiliated company. This affiliated company is owned by the brother of the
President and majority stockholder of the Company. During 1996 and 1997, the
Company recorded subcontracting revenue of $186,200 and $43,950,
respectively, from this related party.
(6) Commitments
The Company leases office space under a non-cancelable operating lease
expiring in 2000. Future minimum annual lease payments under this lease as
of December 31, 1997 are as follows:
Year ending December 31
-----------------------
1998 $27,300
1999 27,300
2000 11,400
-------
Total minimum lease payments $66,000
=======
Rent expense related to the office space lease for the period from February
20, 1996 (inception) to December 31, 1996 and for the year ended December
31, 1997 was $0 and $57,175, respectively. Prior to entering into its office
space lease, the Company operated out of the residence of one of its
officers and principal stockholders. The stockholder charged the Company
rent expense of $7,000 and $6,000 for the period from February 20, 1996
(inception) to December 31, 1996 and for the year ended December 31, 1997,
respectively.
(7) Subsequent Events (unaudited)
Stock Option Plan
In June 1998, the Company's stockholders and Board of Directors adopted the
Company's 1998 Stock Option Plan (the "1998 Plan"), pursuant to which an
aggregate of 1,000,000 shares of Common Stock are reserved for issuance upon
exercise of stock options. The Compensation Committee of the Board of
Directors will administer and interpret the 1998 Plan and be authorized to
grant options thereunder to all eligible employees of the Company, including
officers and directors who are employees of the Company. Non-employee
directors and consultants are also eligible to receive stock options under
the 1998 Plan.
The 1998 Plan provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code) and nonqualified stock
options. Options are granted under the 1998 Plan on such terms and at such
prices as determined by the Compensation Committee, except that the per
share exercise price of incentive stock options cannot be less than the fair
market value of the Common Stock on the date of grant. Each option is
exercisable after the period or periods specified in the option agreement,
but no option may be exercisable after the expiration of ten years from the
date of grant. Incentive stock options granted under the 1998 Plan are not
transferable other than by will or by the laws of descent and distribution.
F-12
<PAGE>
METALOGICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1997
(All Information Subsequent to December 31, 1997 is Unaudited) -- (Continued)
(7) Subsequent Events (unaudited) -- (Continued)
The Compensation Committee has the authority to amend or terminate the 1998
Plan, provided that no such action may impair the rights of the holder of
any outstanding option without the written consent of such holder, and
provided further that certain amendments of the 1998 Plan are subject to
stockholder approval. Unless terminated sooner, the 1998 Plan will terminate
on June 14, 2008.
In July 1998, the Company's Board of Directors awarded, effective upon the
completion of this offering, non-qualified stock options under the 1998 Plan
to the Company's President and Chief Executive Officer, entitling him to
purchase 370,000 common shares at an exercise price equal to the initial
public offering price. In addition, the Company awarded, effective following
the completion of this offering, 88,000 non-qualified stock options to
employees all of which provide for an exercise price equal to the initial
public offering price.
Initial Public Offering and Related Transactions
The Company is offering 2,300,000 shares of its common stock, par value
$.0001 per share, in an initial public offering (the "Offering").
Employment Agreements
In April 1998, the Company entered into employment agreements with each of
the Chairman of the Board, President and Chief Executive Officer and the
Executive Vice President for Marketing and Sales of the Company,
respectively. Pursuant to such agreements, the two officers receive annual
base salaries of $330,000 and $220,000, respectively, and are entitled to
participate in the Company's Performance Bonus Plan. The employment
agreements will be amended at the completion of this offering to extend
through the fifth anniversary of such date, subject to earlier termination
by the Company in the event of a material breach by such individual of their
respective agreement.
Performance Bonus Plan
In June 1998, the Company's directors approved the general terms of a
performance bonus plan (the "Plan") for executive officers and key
employees. The Plan provides for a bonus pool from which performance-based
incentive bonuses may be distributed to eligible employees of the Company.
Once a year, the Board of Directors will determine the size of the bonus
pool based on, among other factors, overall Company performance and general
economic environment. Executive officers and key employees will be eligible
to participate in the Plan. The bonus pool will be distributed on an annual
basis, following the completion of the Company's annual audit, to eligible
personnel. The Plan will be administered by the Company's President.
F-13
<PAGE>
===============================================================================
No dealer, salesperson or any other person has been authorized to give
any information or to make any representation other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any date subsequent to the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
-----------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ....................... 3
Risk Factors ............................. 7
Use of Proceeds .......................... 14
Dividend Policy .......................... 14
Capitalization ........................... 15
Dilution ................................. 16
Selected Financial Data .................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 18
Business ................................. 22
Management ............................... 33
Principal Stockholders ................... 37
Certain Transactions ..................... 37
Description of Securities ................ 38
Shares Eligible for Future Sale .......... 40
Underwriting ............................. 41
Legal Matters ............................ 42
Experts .................................. 42
Additional Information ................... 43
Index to Financial Statements ............ F-1
-----------------------------------
Until , 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
2,300,000 Shares
METALOGICS, INC.
Common Stock
-------------
Prospectus
-------------
[GRAPHIC OMITTED]
JOSEPHTHAL & CO. INC.
BARINGTON CAPITAL
GROUP
, 1998
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Restated Certificate of
Incorporation and By-laws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including the circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnity agreements with its
directors and executive officers that require the Registrant, among other
things, to indemnify then against certain liabilities which may arise by reason
of their status or service (other than liabilities arising from willful
misconduct of a culpable nature) and to maintain directors' and officers'
liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnity agreements to be entered
into between the Registrant and its directors and executive officers may be
sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth all costs and expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All amounts shown
are estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 11,202
NASD filing fee ............................................. 4,297
Amex listing fee ............................................ 35,000
Accounting fees and expenses ................................ 75,000
Legal fees and expenses ..................................... 165,000
Printing and engraving expenses ............................. 100,000
Transfer agent and registrar fees ........................... 2,500
Blue Sky fees and expenses .................................. 10,000
Miscellaneous expenses ...................................... 97,000
--------
Total .................................................... $500,000
========
</TABLE>
- ------------
* To be completed by amendment.
Item 26. Recent Sales of Unregistered Securities.
(a) As of March 31, 1996, the Registrant sold 3,700,000 shares of Common
Stock, of which (i) 2,220,000 shares were sold to William P. Doyle, the
Registrant's President and Chief Executive Officer, for $300, and (ii) 1,480,000
shares were sold to James J. Urbaniak, the Registrant's Executive Vice President
for Marketing and Sales, for $200. In June 1998, the Company's Board of
Directors awarded, subject to the completion of this offering, stock options to
purchase an aggregate of 458,000 shares of Common Stock to Mr. Doyle and eight
other employees of the Company. No other issuance or sale of the Registrant's
securities occurred during the last three years.
(b), (c) There were no underwriters employed in connection with any of the
transactions set forth in Item 26(a).
II-1
<PAGE>
(d) The issuances described in Items 26(a) were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. In
addition, the issuances described in Item 26(b) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions. All recipients either received adequate information
about the Registrant or had access, through employment or other relationships,
to such information.
Item 27. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1* Specimen Common Stock Certificate.
4.2 Form of Representatives' Warrant Agreement between the Company and the Representatives,
including form of Representatives' Warrant.
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel.
10.1 Form of Indemnification Agreement.
10.2 1998 Stock Option Plan.
10.3 Employment Agreement, dated June 1, 1997, between the Company and William P. Doyle.
10.4 Employment Agreement, dated June 1, 1997, between the Company and James J. Urbaniak.
10.5 Master Teaming/Subcontract Agreement, effective as of January 1, 1997, between the
Company and Comdisco, Inc.
10.6 Form of Consulting Agreement.
10.7 Form of Software Product License Agreement.
10.8 Riverview Historical Plaza Lease, dated May 7, 1997, between the Company and Riverview
Historical Plaza.
11.1 Computation of Loss Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel (included in the opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules.
None.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-2
<PAGE>
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement, 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. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The Registrant will provide to the underwriters at the closing(s)
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
(4) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 23rd day of July 1998.
METALOGICS, INC.
By:/s/ William P. Doyle
---------------------------------
William P. Doyle
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William P. Doyle and James J. Urbaniak, or
either of them, as his attorney-in-fact, each with full power of substitution
for him in any and all capacities, to sign any and all amendments to this
Registration Statement, including post-effective amendments and any and all new
registration statements filed pursuant to Rule 462 under the Securities Act of
1933 in connection with or related to the offering contemplated by this
Registration Statement, as amended, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorney-in-fact
or his substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William P. Doyle Chairman of the Board, President and Chief July 23, 1998
- ------------------------------------------------- Executive Officer (principal executive officer)
William P. Doyle
/s/ James J. Urbaniak Executive Vice President for Marketing and July 23, 1998
- ------------------------------------------------- Sales and Director
James J. Urbaniak
/s/ Nicholas R. Wood Chief Financial Officer and Secretary July 23, 1998
- -------------------------------------------------- (principal financial and accounting officer)
Nicholas R. Wood
/s/ Vice Admiral Daniel L. Cooper Director July 24, 1998
- --------------------------------------------------
Vice Admiral Daniel L. Cooper
/s/ Dr. William K. Runyeon Director July 24, 1998
- --------------------------------------------------
Dr. William K. Runyeon
/s/ L. William Alter, Jr. Director July 25, 1998
- --------------------------------------------------
L. William Alter, Jr.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1* Specimen Common Stock Certificate.
4.2 Form of Representatives' Warrant Agreement between the Company and the Representatives,
including form of Representatives' Warrant.
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel.
10.1 Form of Indemnification Agreement.
10.2 1998 Stock Option Plan.
10.3 Employment Agreement, dated June 1, 1997, between the Company and William P. Doyle.
10.4 Employment Agreement, dated June 1, 1997, between the Company and James J. Urbaniak.
10.5 Master Teaming/Subcontract Agreement, effective as of January 1, 1997, between the
Company and Comdisco, Inc.
10.6 Form of Consulting Agreement.
10.7 Form of Software Product License Agreement.
10.8 Riverview Historical Plaza Lease, dated May 7, 1997, between the Company and Riverview
Historical Plaza.
11.1 Computation of Loss Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel (included in the opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
<PAGE>
DRAFT
2,300,000 Shares1
METALOGICS, INC.
Common Stock
UNDERWRITING AGREEMENT
____________, 1998
CRUTTENDEN ROTH INCORPORATED
JOSEPHTHAL & CO. INC.
BARINGTON CAPITAL GROUP, L.P.
As Representatives of the several Underwriters,
c/o Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, California 92715
Gentlemen:
Metalogics, Inc., a Delaware corporation (the "Company"), addresses you
as the Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
2,300,000 shares of its authorized and unissued Common Stock, $0.001 par value
per share (the "Firm Shares"), to the several Underwriters. The Company also
proposes to grant to the Underwriters an option to purchase up to 345,000
additional shares of the Company's Common Stock, $0.001 par value per share (the
"Option Shares"), as provided in Section 7 hereof. The Company also proposes to
sell to you, individually and not in your capacity as Representatives, warrants
(the "Representatives' Warrants") to purchase up to 230,000 shares of Common
Stock of the Company (the "Representatives' Warrant Stock"), which sale will be
consummated in accordance with the terms and conditions of the Representatives'
Warrant Agreement (the "Representatives' Warrant Agreement"), the form of which
is filed as an exhibit to the Registration Statement described below. As used in
this Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of Common Stock, $0.001 par value per share, of the Company
to be outstanding after giving effect to the sales contemplated hereby,
including the Shares, are hereinafter referred to as "Common Stock." -------- 1
Plus an option to purchase up to 345,000 additional shares from the Company to
cover over-allotments.
1
<PAGE>
2. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to and agrees with each Underwriter
that:
(a) A registration statement on Form SB-2 (File No. 333-_____) with
respect to the Shares, the Representatives' Warrants and the Representatives'
Warrant Stock, including a prospectus subject to completion, has been prepared
by the Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the applicable rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement and such amended prospectuses subject
to completion as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file such
additional amendments to such registration statement and such amended
prospectuses subject to completion as may hereafter be required. Copies of such
registration statement and amendments and of each related prospectus subject to
completion (the "Preliminary Prospectuses") have been delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations pursuant to subparagraph
(1) or (4) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final form
of prospectus). If the registration statement relating to the Shares has not
been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement, including
a final form of prospectus. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Rules and
Regulations, including financial statements, schedules and exhibits, in the form
in which it became or becomes, as the case may be, effective (including, if the
Company omitted information from the registration statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations); in the event of any amendment thereto after the
effective date of such registration statement, shall also mean (from and after
the effectiveness of such amendment) such registration statement as so amended;
and in the event that after the effective date a new registration statement is
filed pursuant to Rule 462(b) of the Rules and Regulations, shall also mean
(from and after the effectiveness of such new registration statement) such new
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus
2
<PAGE>
is required to be filed with the Commission pursuant to Rule 424(b)(3) of the
Rules and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters for
such use.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such 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 became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material 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, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not 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, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
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; the Company is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect;
the Company is not in violation of its charter or bylaws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company is a party or by which it or its properties may be bound; and the
Company is not in material violation of any law, order, rule, regulation, writ,
3
<PAGE>
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or over its
properties of which it has knowledge. The Company does not own or control,
directly or indirectly, any corporation, association or other entity.
(d) The Company has full legal right, power and authority to enter into
each of this Agreement and the Representatives' Warrant Agreement and to perform
the transactions contemplated hereby and thereby. Each of this Agreement and the
Representatives' Warrant Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as rights to
indemnification under this Agreement or the Representatives' Warrant Agreement
may be limited by applicable law and except as the enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the Representatives'
Warrant Agreement and the consummation of the transactions herein or therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any bond, debenture, note or
other evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which its properties may be
bound, (ii) the charter or bylaws of the Company, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or over its properties. No consent, approval, authorization or order of
or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
is required for the execution and delivery of this Agreement and the
Representatives' Warrant Agreement and the consummation by the Company of the
transactions herein and therein contemplated, except such as may be required
under the Act or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, or
any of its officers or any of its properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or might materially and adversely affect its properties, assets
or rights, (ii) might prevent consummation of the transactions contemplated
hereby or (iii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations or
by the Securities Exchange Act of 1934 (the "Exchange Act") or the rules and
regulations of the Commission thereunder which have not been accurately
described in all material respects in the Registration Statement or Prospectus
or filed as exhibits to the Registration Statement.
4
<PAGE>
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders exists with respect to any of the Firm
Shares or Option Shares or the issuance and sale thereof other than those that
have been expressly waived prior to the date hereof and those that will
automatically expire upon the consummation of the transactions contemplated on
the Closing Date. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act or under
state or other securities or Blue Sky laws. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, the Company has no
outstanding 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 performance bonus, stock option 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 the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) KPMG Peat Marwick LLP, which has examined the financial statements
of the Company, together with the related schedules and notes, filed with the
Commission as a part of the Registration Statement, which are included in the
Prospectus, are independent accountants within the meaning of the Act and the
Rules and Regulations; the audited financial statements of the Company, together
with the related schedules and notes, and the unaudited financial information,
forming part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply; and all
audited financial statements of the Company, together with the related schedules
and notes, and the unaudited financial information, filed with the Commission as
part of the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.
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(h) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (v) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (vi) any loss or damage (whether or not insured) to the
property of the Company which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) the Company has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus as owned by it, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, other than such as would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company, (ii) the agreements to which the Company is a party
described in the Registration Statement are valid agreements, enforceable by the
Company, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the best of the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (iii) the Company has valid and enforceable leases
for all properties described in the Registration Statement and Prospectus as
leased by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except as set forth in the Registration Statement and Prospectus,
the Company owns or leases all such properties as are necessary to its
operations as now conducted or as proposed to be conducted.
(j) The Company has timely filed all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown thereon as
due, and there is no tax deficiency that has been or, to the best of the
Company's knowledge, might be asserted against the Company that might have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, and all tax
liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its businesses and consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect;
the Company has not been refused any insurance coverage sought or applied for;
and the Company does not have any reason to believe
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that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company exists or is imminent; and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of its
principal suppliers or international distributors, that might be expected to
result in a material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company. No
collective bargaining agreement exists with any of the Company's employees and,
to the best of the Company's knowledge, no such agreement is imminent.
(m) The Company owns or possesses adequate rights to use all patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights which are necessary to conduct its businesses as
described in the Registration Statement and Prospectus, the expiration of any
patents, patent rights, trade secrets, trademarks, licences, service marks,
trade names or copyrights would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, licenses, service marks, trade names or
copyrights; and the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of others with respect
to any patent, patent rights, inventions, trade secrets, know-how, trademarks,
licenses, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(n) The Common Stock has been approved for quotation on the American
Stock Exchange, subject to official notice of issuance.
(o) The Common Stock is registered pursuant to Section 12(b) of the
Exchange Act and is listed on The American Stock Exchange, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the American Stock Exchange, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating terminating such registration or
listing.
(p) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company" or
a company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.
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(q) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(r) The Company has not at any time during the last five (5) years (i)
made any unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(t) Each officer, director, stockholder and optionholder of the Company
has agreed in writing that such person will not, without the prior written
consent of Cruttenden Roth Incorporated on behalf of the Underwriters (which
consent may be withheld in its sole discretion) and subject to certain limited
exception, offer, pledge, sell, contract to sell, sell any option or contract to
purchase, sell short, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend 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, any of the economic consequences
of ownership of the Common Stock, for a period of 12 months commencing on the
date of the Prospectus (the "Lock-up Period"); provided that such restrictions
do not apply to shares of Common Stock sold or purchased pursuant to this
Agreement or to shares of Common Stock purchased in the open market following
the offering by Cruttenden Roth Incorporated, on behalf of the Underwriters,
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. In addition, the
Company has agreed that, for a period of 12 months after the date of this
Prospectus, it will not, without the consent of Cruttenden Roth Incorporated,
make any offering, sale or other disposition of any shares of Common Stock or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock (or agreement for such) except for the grant of options to purchase
shares of Common Stock pursuant to its 1998 Stock Option Plan and shares of
Common Stock issued pursuant to the exercise of options granted under such plan
provided that such options shall not vest, or the Company shall obtain the
written consent of the holder thereof not to transfer such shares, until the end
of such 12- month period. Furthermore, such person will also agree and consent
to the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by such person except in compliance
with this restriction. The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies of
all of the agreements pursuant to which its officers, directors and stockholders
have agreed to such or similar restrictions (the "Lock-up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants
8
<PAGE>
that it will not release any of its officers, directors or other stockholders
from any Lock-up Agreements currently existing or hereafter effected without the
prior written consent of Cruttenden Roth Incorporated.
(u) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in compliance with all rules, laws and regulations relating
to the use, treatment, storage and disposal of toxic substances and protection
of health or the environment ("Environmental Laws") which are applicable to its
business, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the Registration Statement and the
Prospectus, (iii) the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise
designated as a contaminated site under applicable state or local law.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(x) The Representatives' Warrants have been duly and validly authorized
by the Company and upon delivery to you in accordance with the Representatives'
Warrant Agreement will be duly issued and legal, valid and binding obligations
of the Company.
(y) The Representatives' Warrant Stock has been duly authorized and
reserved for issuance upon the exercise of the Representatives' Warrants and
when issued upon payment of the exercise price therefor will be validly issued,
fully paid and nonassessable shares of Common Stock of the Company.
(z) Neither the Company nor any of its Subsidiaries is, and if operated
in the manner described in the Prospectus under the caption "Business" will not
be, a "broker" within the meaning of Section 3(a)(4) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or a "dealer" within the meaning of
Section 3(a)(5) of the Exchange Act or required to be registered pursuant to
Section 15(a) of the Exchange Act.
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<PAGE>
(aa) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
3. Purchase, Sale and Delivery of 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 sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn until the day following the date of its delivery to the
Company) at the offices of Freshman, Marantz, Orlanski, Cooper & Klein, 9100
Wilshire Boulevard, Eighth Floor, East Tower, Beverly Hills, California, or such
other place as may be agreed upon among the Representatives and the Company, at
7:00 A.M., California time, on the third (3rd) full business day following the
first day that Shares are traded or at such other time and date not later than
seven (7) full business days following the first day that Shares are traded as
the Representatives and the Company may determine (or at such time and date to
which payment and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date." The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location as you may
reasonably request for checking at least one (1) full business days prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If the Representatives so elect, delivery of the Firm Shares may be made
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
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The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), in the [penultimate]
paragraph on page 2 concerning stabilization and over-allotment by the
Underwriters, and in the fourth and penultimate paragraphs under the caption
"Underwriting" in any Preliminary Prospectus and in the final form of Prospectus
filed pursuant to Rule 424(b) constitutes the only information furnished by the
Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement, and you, on behalf of the respective
Underwriters, represent and warrant to the Company that the statements made
therein do not 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, in the light of the circumstances under which they were
made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters 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 as promptly as possible; it will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of
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Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the rules and regulations of the
Commission thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive notice
or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, copies of
the Registration Statement (four of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act (four of which will include all
exhibits) all in such quantities as you may from time to time reasonably
request.
(e) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than the forty-fifth (45th)
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company
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for such fiscal year, accompanied by a copy of the certificate or report thereon
of independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to stockholders,
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange or
the NASD, (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared by the Company, and (vi) any additional information of
a public nature concerning the Company, or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(g) The Company will list, subject to notice of issuance, the Shares on
the American Stock Exchange.
(h) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(i) The Company will comply in the first 10-QSB with requirements on
reporting.
(j) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(k) If the transactions contemplated hereby are not consummated for any
reason, the Company will pay the several Underwriters for all out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel) incurred by
the Underwriters in investigating or preparing to market or marketing the
Shares, up to a maximum of $50,000.
(l) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(m) The Company has caused each officer, director, stockholder and
optionholder of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to offer, sell,
sell short or otherwise dispose of any shares of Common Stock of the Company or
other capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for Common Shares or derivative of Common Shares
owned by such person (or as to which such person has the right to direct the
disposition of) for a period of 12 months after the
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date of this agreement, directly or indirectly, except with the prior written
consent of Cruttenden Roth Incorporated.
(n) During a period of ninety (90) days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under the Option Plan or other employee benefit plan.
(o) The Company will not invest in futures contracts, options on
futures contracts or option on commodities unless the Company is exempt from the
registration requirements of the Commodity Exchange Act, as amended (the
"Commodity Act"), or otherwise complies with the Commodity Act. The Company will
not engage in any activities bearing on the Commodity Act, unless such
activities are exempt from the Commodity Act or otherwise comply with the
Commodity Act. The Company shall not invest or otherwise use the proceeds
received by it from the sale of the shares in such a manner as would require the
Company to register as an investment company under the 1940 Act.
(p) The Company is substantially on track to meet its revenues and
earnings goals for 1998.
5. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and disbursements and
legal fees of Underwriters' Counsel in connection with Blue Sky qualifications;
up to $50,000 of the fees and expenses of counsel for the Underwriters and all
other expenses directly incurred by the Company in connection with the
performance of its obligations hereunder.
(ii) In addition to its other obligations under Section 8(a) hereof,
the Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 8(a)
hereof, it will reimburse the Underwriters on a monthly basis for all reasonable
legal or other expenses incurred in connection
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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 obligation to reimburse the
Underwriters 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 Underwriters 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) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(b) In addition to their other obligations under Section 8(c) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c) hereof, they will reimburse the Company on
a monthly basis for all reasonable 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
Underwriters' obligation to reimburse the Company 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 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 to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(iii) and 5(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD in Orange
County, California (or as close geographically to Orange County, California as
is reasonably practical). Any such arbitration must be commenced by service of a
written demand for arbitration or a 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. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(iii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date
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hereof and the Closing Date and any later date on which Option Shares are to be
purchased, as the case may be, of the representations and warranties of the
Company to the performance by the Company of its obligations hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., California time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are purchased , as the case may be, the following opinion
of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, counsel for the Company,
dated the Closing Date or such later date on which Option Shares are purchased,
addressed to the Underwriters (and stating that it may be relied upon by
Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, Underwriters'
Counsel, in rendering its opinion pursuant to Section 6(e) of this Agreement)
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) The Company as a corporation in good standing under the laws of
the jurisdiction of its incorporation;
(ii) The Company has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described
in the Prospectus;
(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in
which the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to
be so qualified or be in good standing would
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not have a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company. To such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right;
(v) The Firm Shares and the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement each
have been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms hereof, will be duly
and validly issued and fully paid and nonassessable, and will not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other
similar right of stockholders;
(vi) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(vii) The Company has the corporate power and authority to enter into
the Representatives' Warrant Agreement and to issue, sell and deliver
to the Representatives the Representatives' Warrants to be issued and
sold by it thereunder;
(viii) Each of this Agreement, the Representatives' Warrant Agreement
and the Representatives' Warrants has been duly authorized by all
necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(ix) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
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(x) The Registration Statement and the Prospectus, and each amendment
or supplement thereto (other than the financial statements (including
supporting schedule) and financial data derived therefrom as to which
such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules
and Regulations;
(xi) The information in the Prospectus under the captions
"Management," "Certain Transactions," "Description of Capital Stock,"
and "Shares Eligible for Future Sale," and in the Registration
Statement in Items 24 and 26 and insofar as they constitute matters
of law or legal conclusions, has been reviewed by such counsel and is
a fair summary of such matters and conclusions;
(xii) The form of certificate evidencing the Common Stock filed as an
exhibit to the Registration Statement complies with Delaware law;
(xiii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes
are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xiv) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or referred to therein
or filed as required;
(xv) The execution and delivery of this Agreement and the
Representatives' Warrant Agreement and the performance of and the
consummation of the transactions herein and therein contemplated
(other than performance of the Company's indemnification obligations
hereunder and thereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's
charter or bylaws or (b) result in a material breach or violation of
any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or under
any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument known to
such counsel to which the Company is a party or by which its
properties are bound, or any applicable statute, rule or regulation
or any order, writ or decree of any court, government or governmental
agency or body having jurisdiction over the Company or over any of
its properties or operations;
(xvi) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body having jurisdiction over the Company or over any of its
properties or operations is necessary in connection with the
consummation by the Company of the transactions contemplated in this
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Agreement and the Representatives' Warrant Agreement, except such as
have been obtained under the Act or such as may be required under
state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters;
(xvii) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company of
a character required to be disclosed in the Registration Statement or
the Prospectus by the Act or the Rules and Regulations or by the
Exchange Act or the applicable rules and regulations of the
Commission thereunder, other than those described therein;
(xviii) The Company is not presently (a) in material violation of its
charter or bylaws, or (b) in material breach of any applicable
statute, rule or regulation or, to such counsel's knowledge, any
order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company or over any of its properties or
operations;
(xix) The Representatives' Warrants have been duly and validly
authorized by the Company and upon delivery to you in accordance with
the Representatives' Warrant Agreement will be duly issued and legal,
valid and binding obligations of the Company;
(xx) The Representatives' Warrant Stock to be issued by the Company
pursuant to the terms of the Representatives' Warrant has been duly
authorized and, upon issuance and delivery against payment therefor
in accordance with the terms of the Representatives' Warrant
Agreement, will be duly and validly issued and fully paid and
nonassessable, and to such counsel's knowledge, will not have been
issued in violation of or subject to any preemptive right, cosale
right, registration right, right of first refusal or other similar
right of shareholders;
(xxi) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of
the Company having rights known to such counsel to registration of
such shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration
Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights;
(xxii) The offer and sale of all securities of the Company made
within the last three years as set forth in Item 26 of the
Registration Statement were exempt from the registration requirements
of the Securities Act, pursuant to the
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provisions set forth in such Item, and from the registration or
qualification requirements of all relevant state securities laws.
(xx) The Company is not, and if operated in the manner described in
the Prospectus under the caption "Business" will not be, (i) an
"investment company" or an "affiliated person" of, or "promotor" or
"principal underwriter" for, an "investment company," as such terms
are defined in the Investment Company Act or (ii) a "broker" within
the meaning of Section 3(a)(4) of the Exchange Act or a "dealer"
within the meaning of Section 3(a)(5) of the Exchange Act or required
to be registered pursuant to Section 15(a) of the Exchange Act.
(xxi) The Shares have been duly authorized for listing by the
American Stock Exchange upon official notice of issuance.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although (except as specifically set forth in paragraphs (xii)
and (xiii) above) they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, nothing
has come to the attention of such counsel which leads them to believe that, at
the time the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date and on any later date on which Option
Shares are to be purchased, the Registration Statement and any amendment or
supplement, when such documents became effective or were filed with the
Commission (other than the financial statements including supporting schedules
and other financial and statistical information derived therefrom, as to which
such counsel need express no comment) contained any 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 not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto, contained 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.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the State of Delaware upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, and of government officials, in which
case its opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Seward & Kissel, special
intellectual property counsel for the Company, dated the Closing Date or the
Option Closing Date as the case
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<PAGE>
may be, addressed to the Underwriters (and stating that it may be relied upon by
counsel to the Underwriters) to the effect that:
(i) the Company is listed in the records of the United States Patent
and Trademark Office ("PTO") as the holder of record of the registered
trademarks consisting of [the name "Metalogics" and "Intelligent Configuration
Management"] (collectively, the "Trademarks"). To such counsel's knowledge,
there is no claim of any party other than the Company to any ownership interest
or lien with respect to any of the Trademarks. The Company has a valid
registered trademark or trademark application relating to the Trademarks in each
of the foreign jurisdiction listed on Exhibit A;
(ii) the statements in the Prospectus under the captions "Risk Factors
- -- Limited Intellectual Property Protection," and "Business -- Intellecutual
Property" (the "Intellectual Property Portions"), to our knowledge, insofar as
such statements relate to trademarks, patents, intellectual property or any
legal matters, documents and proceedings relating thereto fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein.
(iii) to such counsel's knowledge, there is not pending or threatened
in writing any action, suit, proceeding or claim by others (A) challenging the
validity or scope of the Trademarks or any other material trademarks, trademark
applications or domain names held by or licensed to the Company, or (B) other
than as disclosed to the Underwriters in writing, asserting that any trademark
is infringed by the activities of the Company described in the Prospectus or by
the manufacture, use, sale, promotion or advertising of any of the Company's
products or use of its domain names.
(iv) to such counsel's knowledge, there is not pending or threatened in
writing any action, suit proceeding or claim by the Company asserting
infringement on the part of any third party of the Trademarks or any other
trademarks, trademark applications, domain names, trade names or advertising
slogans held by or licensed to the Company.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion of
Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, in form and
substance satisfactory to you, with respect to the sufficiency of all such
corporate proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
KPMG Peat Marwick LLP, addressed to the Company and the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described
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in such letter delivered to you concurrently with the execution of this
Agreement (herein called the "Original Letter"), but carried out to a date not
more than five (5) business days prior to the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, (i) confirming, to
the extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from KPMG Peat Marwick
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth its opinion with respect to its examination of
the balance sheet of the Company as of March 31, 1998 and (iii) address other
matters agreed upon by KPMG Peat Marwick LLP and you. In addition, you shall
have received from KPMG Peat Marwick LLP a letter addressed to the Company and
made available to you for the use of the Underwriters stating that its review of
the Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of its examination of the Company's
financial statements as of March 31, 1998 did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the President and Chief
Financial Officer of the Company, to the effect that, and you shall be satisfied
that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or any later date on which Option Shares are to be purchased, 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 at or prior to the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto,
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<PAGE>
contained all material information required to be included therein by
the Act and the Rules and Regulations or the Exchange Act and the
applicable rules and regulations of the Commission thereunder, as the
case may be, and in all material respects conformed to the
requirements of the Act and the Rules and Regulations or the Exchange
Act and the applicable rules and regulations of the Commission
thereunder, as the case may be, the Registration Statement, and any
amendment or supplement thereto, did not and does not 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, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue statement
of a material fact or omit 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, since the effective date of the
Registration Statement, there has occurred no event required to be
set forth in an amended or supplemented Prospectus which has not been
so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company, (b) any transaction that is material to the Company,
except transactions entered into in the ordinary course of business,
(c) any obligation, direct or contingent, that is material to the
Company, incurred by the Company, except obligations incurred in the
ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the
Company, (e) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company, or (f) any loss or
damage (whether or not insured) to the property of the Company which
has been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(i) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company, and each beneficial owner of
Common Stock in writing prior to the date hereof that such person will not,
during the Lock-up Period, effect the Disposition of any Securities now owned or
hereafter acquired directly by such person or with respect to which such person
has or hereafter acquires the power of disposition, otherwise than (i) as a bona
fide gift or gifts, provided the donee or donees thereof agree in writing to be
bound by this restriction, (ii) as a distribution to limited partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of Cruttenden Roth Incorporated. The foregoing restriction is
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lockup Period, even if
such Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without
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limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.
(j) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company as to the accuracy of the representations and warranties
of the Company, as to the performance by the Company of its obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
(k) The Representatives' Warrant Agreement shall have been entered into
by the Company and you, and the Representatives' Warrants shall have been issued
and sold to you pursuant thereto.
(l) Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the American Stock Exchange upon official notice of
issuance.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
7. Option Shares.
(a) 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 to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of 345,000 Option
Shares at the purchase price per share for the Firm Shares set forth in Section
3 hereof. Such option may be exercised by the Representatives on behalf of the
several Underwriters on one (1) or more occasions in whole or in part during the
period of forty-five (45) days after the date on which the Firm Shares are
initially offered to the public, by giving written notice to the Company. The
number of Option Shares to be purchased by each Underwriter upon the exercise of
such option shall be the same proportion of the total number of Option Shares to
be purchased by the several Underwriters pursuant to the exercise of such option
as the number of Firm Shares purchased by such Underwriter (set forth in
Schedule A hereto) bears to the total number of Firm Shares purchased by the
several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and
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the Company agrees not to deposit any such check in the bank on which it is
drawn until the day following the date of its delivery to the Company). Such
delivery and payment shall take place at the offices of Freshman, Marantz,
Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, Eighth Floor, East Tower,
Beverly Hills, California, or at such other place as may be agreed upon among
the Representatives and the Company (i) on the Closing Date, if written notice
of the exercise of such option is received by the Company at least three (3)
full business days prior to the Closing Date, or (ii) on a date which shall not
be later than the fifth (5th) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than three (3) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location as you may reasonably
request for checking at least two (2) full business days prior to the date of
payment and delivery and will be in such names and denominations as you may
request, such request to be made at least three (3) full business days prior to
such date of payment and delivery. If the Representatives so elect, delivery of
the Option Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be satisfactory in form and substance to you and to Underwriters' Counsel,
and you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and completeness
of any of the representations, warranties or statements, the performance of any
of the covenants or agreements of the Company or the compliance with any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Rule 2720(b)(15) of the NASD Conduct Rules), under the Act, the
Exchange Act or otherwise, specifically including, but not limited
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to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or 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, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or 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, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subsections (ii) and (iii)
26
<PAGE>
of this Section 8(b) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter, directly or through you, specifically for use in
the preparation thereof, and agrees to reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company
and each person, if any, who controls the Company within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 8, 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 otherwise than under
this Section 8. In case any such action is brought against any indemnified
party, and it notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it shall elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded 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 the indemnifying party's
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 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect
27
<PAGE>
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the initial public
offering price, and the Company is responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter in excess of the amount of damages which such Underwriter
has otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls the Underwriters or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy, as interpreted
by the courts in certain jurisdictions, may be contrary to certain of the
provisions of this Section 8, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense to a
claim under this Section 8 and further agree not to attempt to assert any such
defense.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
28
<PAGE>
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (ii) the respective number
of Firm Shares to be purchased by the remaining Underwriters and substituted
underwriter or underwriters shall be taken as the basis of their underwriting
obligation. If the remaining Underwriters shall not take up and pay for all such
Firm Shares so agreed to be purchased by the defaulting Underwriter or
Underwriters or substitute another underwriter or underwriters as aforesaid and
the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, the Company shall not be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
29
<PAGE>
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., California time, on the second full business day following the effective
date of the Registration Statement, or (ii) the time of the initial public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set forth
in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time at or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse, or (ii) 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 over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. Any termination pursuant to any of subparagraphs (ii) through
(v) above shall be without liability of any party to any other party except as
provided in Sections 4(i), 5 and 8 hereof. In the event of termination pursuant
to subparagraph (i) above, the Company shall also remain obligated to pay costs
and expenses pursuant to Sections 4(i), 5 and 8 hereof.
30
<PAGE>
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, telecopier number (714) 852- 9603,
Attention: Mr. Byron Roth; if sent to the Company, such notice shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to Riverview Historical Plaza, 33-41 Newark Street, Suite 4-C, Hoboken,
New Jersey 07030 telecopier number (201) 656- 0901, Attention: William P. Doyle,
Chairman, President and Chief Executive Officer.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective executors,
administrators, successors and assigns, and the controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 8 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by Cruttenden Roth Incorporated on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
31
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
Metalogics, Inc.
By:---------------------------------
William P. Doyle
Chairman, President and Chief Executive
Officer
32
<PAGE>
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
JOSEPHTHAL & CO. INC.
BARINGTON CAPITAL GROUP L.P.
By: Cruttenden Roth Incorporated
On its behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By:--------------------------
Authorized Signatory
33
<PAGE>
SCHEDULE A
Number of
Firm
Shares
To Be
Underwriters Purchased
------------ ---------
Cruttenden Roth Incorporated ..........................
Josephthal & Co. Inc. .................................
Barington Capital Group L.P. .........................
---------------
Total.................................................. 2,300,000
===============
34
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
META4, INC.
Meta4, Inc., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Meta4, Inc. The date of filing of its
original Certificate of Incorporation with the Secretary of State of the State
of Delaware was February 20, 1996.
2. This Restated Certificate of Incorporation restates and integrates
and further amends the Certificate of Incorporation of the Corporation by
changing the name of the Corporation, increasing the number of authorized shares
of common stock and creating a class of shares of preferred stock of the
Corporation.
3. The text of the Certificate of Incorporation, as heretofore amended
or supplemented, is further amended hereby to read as herein set forth in full:
FIRST: The name of the corporation is Metalogics, Inc. (the
"Corporation").
SECOND: The address, including street, number, city and
county, of the registered office of the Corporation in the State of Delaware is
1013 Centre Road in the City of Wilmington, in the County of New Castle; and the
name of the registered agent of the Corporation in the State of Delaware at such
address is The Company Corporation.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The aggregate number of shares of capital stock which
the Corporation shall have authority to issue is 25,000,000 shares of capital
stock consisting of:
(a) 20,000,000 shares of Common Stock, par value
$.0001 per share (the "Common Stock"); and
(b) 5,000,000 shares of Preferred Stock, par value
$.0001 per share (the "Preferred Stock").
1
<PAGE>
PART A
COMMON STOCK
(a) Each share of Common Stock issued and outstanding shall be
identical in all respects one with the other, and no dividends shall be paid on
any shares of Common Stock unless the same dividend is paid on all shares of
Common Stock outstanding at the time of such payment.
(b) Except for and subject to those rights expressly granted
to the holders of the Preferred Stock, or except as may be provided by the
Delaware General Corporation Law, the holders of Common Stock shall have
exclusively all other rights of stockholders including, but not by way of
limitation, (i) the right to receive dividends, when, as and if declared by the
Board of Directors out of assets lawfully available therefor, and (ii) in the
event of any distribution of assets upon liquidation, dissolution or winding-up
of the Corporation or otherwise, the right to receive ratably and equally all
the assets and funds of the Corporation remaining after payment to the holders
of the Preferred Stock of the Corporation of the specific amounts which they are
entitled to receive upon such liquidation, dissolution or winding-up of the
Corporation as herein provided.
(c) In the event that the holder of any share of Common Stock
shall receive any payment of any dividend on, liquidation of, or other amounts
payable with respect to, any shares of Common Stock, which he is not then
entitled to receive, he will forthwith deliver the same in the form received to
the holders of shares of the Preferred Stock as their respective interests may
appear, or to the Corporation if no shares of Preferred Stock are then
outstanding, and until so delivered will hold the same in trust for such holders
or the Corporation.
(d) Each holder of shares of Common Stock shall be entitled to
one vote for each share of such Common Stock held by him, and voting power with
respect to all classes of securities of the Corporation shall be vested solely
in the Common Stock, other than as specifically provided in the Corporation's
Certificate of Incorporation, as it may be amended, with respect to the
Preferred Stock.
(e) No stockholder shall be entitled to any preemptive right
to purchase or subscribe for any unissued stock of any class or any additional
shares of any class to be issued by reason of any increase in the authorized
capital stock of the Corporation.
2
<PAGE>
PART B
PREFERRED STOCK
Authority is hereby vested in the Board of Directors of the Corporation
to provide for the issuance of Preferred Stock and in connection therewith to
fix by resolution providing for the issue of such series, the number of shares
to be included and such of the preferences and relative participating, optional
or other special rights and limitations of such series, including, without
limitation, rights of redemption or conversion into Common Stock, to the fullest
extent now or hereafter permitted by the Delaware General Corporation Law.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The Corporation expressly elects to be subject to the
provisions of Section 203 of the Delaware General Corporation Law.
SEVENTH: The Board of Directors is expressly authorized to
adopt, amend or repeal the By-laws of the Corporation.
EIGHTH: Elections of directors need not be by written ballot
unless the By-laws of the Corporation shall otherwise provide.
NINTH: Special meetings of the stockholders of the Corporation
may only be called by the Board of Directors of the Corporation upon the request
of any two directors, by the holders of one-third or more of the outstanding
Common Stock, or by the duly elected officers of the Corporation.
TENTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which said application has been made, be
binding on all the creditors or class of creditors, and/or on all of the
stockholders or class of stockholders of the Corporation, as the case may be,
and also on the Corporation.
ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute or by this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
TWELFTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
<PAGE>
THIRTEENTH: Except as may otherwise be specifically provided
in this Certificate of Incorporation, no provision of this Certificate of
Incorporation is intended by the Corporation to be construed as limiting,
prohibiting, denying or abrogating any of the general or specific powers or
rights conferred under the General Corporation Law upon the Corporation, upon
its stockholders, bondholders and security holders, and upon its directors,
officers and other corporate personnel, including, in particular, the power of
the Corporation to furnish indemnification to directors and officers in the
capacities defined and prescribed by the General Corporation Law and the defined
and prescribed rights of said persons to indemnification as the same are
conferred under the General Corporation Law. The Corporation shall, to the
fullest extent permitted by the laws of the State of Delaware, including, but
not limited to Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
directors and officers of the Corporation and may, in the discretion of the
board of directors, indemnify any and all other persons whom it shall have power
to indemnify under said Section or otherwise under Delaware law, from and
against any and all of the expenses, liabilities or other matters referred to or
covered by said Section. The indemnification provisions contained in the
Delaware General Corporation Law shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-law, agreement,
resolution of stockholders or disinterested directors, or otherwise, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent, both as to action in his official capacity and as to action in another
capacity while holding such office, and shall inure to the benefit of the heirs,
executors and administrators of such person.
FOURTEENTH: The number of directors constituting the Board of
Directors shall be determined by the Board of Directors, subject to the By-laws
of the Corporation. Any vacancy in the Board of Directors, whether arising from
death, resignation, removal (with or without cause), an increase in the number
of directors or any other cause, may be filled by the vote of either a majority
of the directors then in office, though less than a quorum, or by the
stockholders at the next annual meeting thereof or at a special meeting called
for such purpose. Stockholders may not apply to request that the Delaware Court
of Chancery summarily order an election to be held to fill any vacancies in the
Board of Directors whether or not, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole Board of Directors as constituted immediately prior
to any such vacancy or increase. Each director so elected shall hold office
until the next meeting of the stockholders in which the election of directors is
in the regular order of business and until his successor shall have been elected
and qualified.
4. This Restated Certificate of Incorporation was duly proposed by the
Corporation's Board of Directors and duly adopted by unanimous written consent
of the stockholders of the Corporation in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, Meta4, Inc. has caused this Restated
Certificate of Incorporation to be signed by William P. Doyle, its President,
as of this 24th day of July, 1998.
----------------------------
William P. Doyle, President
<PAGE>
BY-LAWS OF
METALOGICS, INC.
(A Delaware Corporation)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the
Corporation within the State of Delaware shall be in the City of Wilmington,
County of New Castle.
Section 2. Other Offices. The Corporation may also have an
office or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board of Directors shall
from time to time determine or the business of the Corporation may require.
ARTICLE II
Stockholders
Section 1. Place of Meetings. All meetings of the
stockholders for the election of directors or for any other purpose shall be
held at any such place, either within or without the State of Delaware, as shall
be designated from time to time by the Board of Directors and stated in the
notice of meeting or in a duly executed waiver thereof.
Section 2. Annual Meeting. The annual meeting of
stockholders shall be held at such date and time as shall be designated from
time to time by the Board of Directors and stated in the notice of meeting. At
such annual meeting, the stockholders shall elect, by a plurality vote, a Board
of Directors and transact such other business as may properly be brought before
the meeting.
Section 3. Special Meetings. Special meetings of
stockholders, unless otherwise prescribed by statute, may be called at any time
by the Board of Directors or the Chairman of the Board, if one shall have been
elected, or the President.
Section 4. Notice of Meetings. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the date, place and hour of the meeting, and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given to each stockholder of record entitled to vote thereat not less
than ten nor more than sixty days before the date of the meeting. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice. Notice shall be given personally or by mail and,
if by mail, shall be sent in a postage prepaid envelope, addressed to the
stockholder at his address as it appears on the records of the Corporation.
Notice by mail shall be deemed given at the time when the same shall be
deposited in the United States mail, postage prepaid. Notice of any meeting
shall not be required to be given to any person who attends such meeting, except
when such person attends the meeting in person or by proxy for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened, or who, either
before or after the meeting, shall submit a signed written waiver of notice, in
person or by proxy. Neither the business to be transacted at, nor the purpose
of, an annual or special meeting of stockholders need be specified in any
written waiver of notice.
<PAGE>
Section 5. List of Stockholders. The officer who has charge
of the stock ledger of the Corporation shall prepare and make, at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city, town or
village where the meeting is to be held, which place shall be specified in the
notice of meeting, or, if not specified, at the place where the meeting is to be
held. The list shall be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum, Adjournments. The holders of a majority
of the voting power of the issued and outstanding stock of the Corporation
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders, except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented by
proxy at any meeting of stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Section 7. Organization. At each meeting of stockholders,
the Chairman of the Board, if one shall have been elected, or, in his absence or
if one shall not have been elected, the President shall act as chairman of the
meeting. The Secretary or, in his absence or inability to act, the person whom
the chairman of the meeting shall appoint secretary of the meeting shall act as
secretary of the meeting and keep the minutes thereof.
Section 8. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
Section 9. Voting. Except as otherwise provided by statute
or the Certificate of Incorporation, each stockholder of the Corporation shall
be entitled at each meeting of stockholders to one vote for each share of
capital stock of the Corporation standing in his name on the record of
stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of
Section 7 of Article V of these By-Laws as the record date for
the determination of the stockholders who shall be entitled to
notice of and to vote at such meeting; or
(b) if no such record date shall have been so
fixed, then at the close of business on the day next preceding
the day on which notice thereof shall be given, or, if notice
is waived, at the close of business on the date next preceding
the day on which the meeting is held.
<PAGE>
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies. When a quorum is present
at any meeting, the vote of the holders of a majority of the voting power of the
issued and outstanding stock of the Corporation entitled to vote thereon,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of statute or of the Certificate of Incorporation or of these By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy, if there be such proxy, and shall
state the number of shares voted.
Section 10. Inspectors. The Board of Directors may, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If any of the inspectors so appointed
shall fail to appear or act, the chairman of the meeting shall, or if inspectors
shall not have been appointed, the chairman of the meeting may, appoint one or
more inspectors. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors shall determine the number of shares of capital
stock of the Corporation outstanding and the voting power of each, the number of
shares represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the results,
and do such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the chairman of the meeting, the inspectors
shall make a report in writing of any challenge, request or matter determined by
them and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as an inspector of an election of
directors. Inspectors need not be stockholders.
Section 11. Action by Consent. Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or in
connection with any corporate action, by any provision of statute or of the
Certificate of Incorporation or of these By-Laws, the meeting and vote of
stockholders may be dispensed with, and the action taken without such meeting
and vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares of stock of the Corporation entitled to vote thereon
were present and voted.
<PAGE>
ARTICLE III
Board of Directors
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation directed or required to be exercised or done by
the stockholders.
Section 2. Number, Qualifications, Election and Term of
Office. The number of directors constituting the initial Board of Directors
shall be two (2). Thereafter, the number of directors may be fixed, from time to
time, by the affirmative vote of a majority of the entire Board of Directors or
by action of the stockholders of the Corporation. Any decrease in the number of
directors shall be effective at the time of the next succeeding annual meeting
of stockholders unless there shall be vacancies in the Board of Directors, in
which case such decrease may become effective at any time prior to the next
succeeding annual meeting to the extent of the number of such vacancies.
Directors need not be stockholders. Except as otherwise provided by statute or
these By-Laws, the directors (other than members of the initial Board of
Directors) shall be elected at the annual meeting of stockholders. Each director
shall hold office until his successor shall have been elected and qualified, or
until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws.
Section 3. Place of Meetings. Meetings of the Board of
Directors shall be held at such place or places, within or without the State of
Delaware, as the Board of Directors may from time to time determine or as shall
be specified in the notice of any such meeting.
Section 4. Annual Meeting. The Board of Directors shall meet
for the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors may
be held at such other time or place (within or without the State of Delaware) as
shall be specified in a notice thereof given as hereinafter provided in Section
7 of this Article III.
Section 5. Regular Meetings. Regular meetings of the Board
of Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by statute or these By-Laws.
<PAGE>
Section 6. Special Meetings. Special meetings of the Board
of Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more directors of the Corporation or by the President.
Section 7. Notice of Meetings. Notice of each special
meeting of the Board of Directors (and of each regular meeting for which notice
shall be required) shall be given by the Secretary as hereinafter provided in
this Section 7, in which notice shall be stated the time and place of the
meeting. Except as otherwise required by these By-Laws, such notice need not
state the purposes of such meeting. Notice of each such meeting shall be mailed,
postage prepaid, to each director, addressed to him at his residence or usual
place of business, by first class mail, at least two days before the day on
which such meeting is to be held, or shall be sent addressed to him at such
place by telegraph, cable, telex, telecopier or other similar means, or be
delivered to him personally or be given to him by telephone or other similar
means, at least twenty-four hours before the time at which such meeting is to be
held. Notice of any such meeting need not be given to any director who shall,
either before or after the meeting, submit a signed waiver of notice or who
shall attend such meeting, except when he shall attend for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Section 8. Quorum and Manner of Acting. A majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, and, except as otherwise
expressly required by statute or the Certificate of Incorporation or these
By-Laws, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board of Directors. In the absence
of a quorum at any meeting of the Board of Directors, a majority of the
directors present thereat may adjourn such meeting to another time and place.
Notice of the time and place of any such adjourned meeting shall be given to all
of the directors unless such time and place were announced at the meeting at
which the adjournment was taken, in which case such notice shall only be given
to the directors who were not present thereat. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such.
Section 9. Organization. At each meeting of the Board of
Directors, the Chairman of the Board, if one shall have been elected, or, in the
absence of the Chairman of the Board or if one shall not have been elected, the
President (or, in his absence, another director chosen by a majority of the
directors present) shall act as chairman of the meeting and preside thereat. The
Secretary or, in his absence, any person appointed by the chairman shall act as
secretary of the meeting and keep the minutes thereof.
Section 10. Resignations. Any director of the Corporation
may resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 11. Vacancies. Any vacancy in the Board of
Directors, whether arising from death, resignation, removal (with or without
cause), an increase in the number of directors or any other cause, may be filled
by the vote of a majority of the directors then in office, though less than a
quorum, or by the sole remaining director or by the stockholders at the next
annual meeting thereof or at a special meeting thereof. Each director so elected
shall hold office until his successor shall have been elected and qualified.
<PAGE>
Section 12. Removal of Directors. Any director may be
removed, either with or without cause, at any time, by the holders of a majority
of the voting power of the issued and outstanding capital stock of the
Corporation entitled to vote at an election of directors.
Section 13. Compensation. The Board of Directors shall have
authority to fix the compensation, including fees and reimbursement of expenses,
of directors for services to the Corporation in any capacity.
Section 14. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, including an executive committee, each committee to consist
of one or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
Except to the extent restricted by statute or the Certificate of Incorporation,
each such committee, to the extent provided in the resolution creating it, shall
have and may exercise all the powers and authority of the Board of Directors and
may authorize the seal of the Corporation to be affixed to all papers which
require it. Each such committee shall serve at the pleasure of the Board of
Directors and have such name as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors.
Section 15. Action by Consent. Unless restricted by the
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee, as the
case may be.
Section 16. Telephonic Meeting. Unless restricted by the
Certificate of Incorporation, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation by such means shall constitute presence in person at a
meeting.
<PAGE>
ARTICLE IV
Officers
Section 1. Number and Qualifications. The officers of the
Corporation shall be elected by the Board of Directors and shall include the
President, one or more Vice-Presidents, the Secretary and the Treasurer. If the
Board of Directors wishes, it may also elect as an officer of the Corporation a
Chairman of the Board and may elect other officers (including one or more
Assistant Treasurers and one or more Assistant Secretaries) as may be necessary
or desirable for the business of the Corporation. Any two or more offices may be
held by the same person, and no officer except the Chairman of the Board need be
a director. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, or until his death, or until he shall
have resigned or have been removed, as hereinafter provided in these By-Laws.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it effective.
Section 3. Removal. Any officer of the Corporation may be
removed, either with or without cause, at any time, by the Board of Directors at
any meeting thereof.
Section 4. Chairman of the Board. The Chairman of the Board,
if one shall have been elected, shall be a member of the Board, an officer of
the Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He shall advise and counsel with the President,
and in his absence with other executives of the Corporation, and shall perform
such other duties as may from time to time be assigned to him by the Board of
Directors.
Section 5. The President. The President shall be the chief
executive officer of the Corporation. He shall, in the absence of the Chairman
of the Board or if a Chairman of the Board shall not have been elected, preside
at each meeting of the Board of Directors or the stockholders. He shall perform
all duties incident to the office of President and chief executive officer and
such other duties as may from time to time be assigned to him by the Board of
Directors.
Section 6. Vice President. Each Vice President shall perform
all such duties as from time to time may be assigned to him by the Board of
Directors or the President. At the request of the President or in his absence or
in the event of his inability or refusal to act, the Vice President, or if there
shall be more than one, the Vice Presidents in the order determined by the Board
of Directors (or if there be no such determination, then the Vice Presidents in
the order of their election), shall perform the duties of the President, and,
when so acting, shall have the powers of and be subject to the restrictions
placed upon the President in respect of the performance of such duties.
<PAGE>
Section 7. Treasure. The Treasurer shall
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the
credit of the Corporation in such depositaries as may be
designated by the Board of Directors or pursuant to its
direction;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investments of its funds, taking proper vouchers
therefor;
(f) render to the Board of Directors, whenever the
Board of Directors may require, an account of the financial
condition of the Corporation; and
(g) in general, perform all duties incident to the
office of Treasurer and such other duties as from time to time
may be assigned to him by the Board of Directors.
Section 8. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the
Board of Directors, the committees of the Board of Directors
and the stockholders;
(b) see that all notices are duly given in
accordance with the provisions of these By-Laws and as
required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates
for shares of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation
under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law
to be kept and filed are properly kept and filed; and
(e) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time
may be assigned to him by the Board of Directors.
Section 9. The Assistant Treasurer. The Assistant Treasurer,
or if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Treasurer or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties as from time to
time may be assigned by the Board of Directors.
<PAGE>
Section 10. The Assistant Secretary. The Assistant
Secretary, or if there be more than one, the Assistant Secretaries in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Secretary or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Secretary and shall perform such other duties as from time to
time may be assigned by the Board of Directors.
Section 11. Officers' Bonds or Other Security. If required
by the Board of Directors, any officer of the Corporation shall give a bond or
other security for the faithful performance of his duties, in such amount and
with such surety as the Board of Directors may require.
Section 12. Compensation. The compensation of the officers
of the Corporation for their services as such officers shall be fixed from time
to time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation.
<PAGE>
ARTICLE V
Stock Certificates and Their Transfer
Section 1. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation. If the Corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restriction of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the General Corporation Law
of the State of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Facsimile Signatures. Any or all of the
signatures on a certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum as it may direct
sufficient to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 4. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its records; provided, however, that the Corporation
shall be entitled to recognize and enforce any lawful restriction on transfer.
Whenever any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the
certificates are presented to the Corporation for transfer, both the transferor
and the transferee request the Corporation to do so.
<PAGE>
Section 5. Transfer Agents and Registrars. The Board of
Directors may appoint, or authorize any officer or officers to appoint, one or
more transfer agents and one or more registrars.
Section 6. Regulations. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
Section 7. Fixing the Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any chance, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 8. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its records
as the owner of shares of stock to receive dividends and to vote as such owner,
shall be entitled to hold liable for calls and assessments a person registered
on its records as the owner of shares of stock, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares of
stock on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
<PAGE>
ARTICLE VI
Indemnification of Directors and Officers
Section 1. General. The Corporation 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 (other than an action by or in the
right of the Corporation) by reason of the fact that he 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, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Derivative Actions. The Corporation 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 or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the-fact that he 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, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Indemnification in Certain Cases. To the extent
that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 4. Procedure. Any indemnification under Sections 1
and 2 of this Article VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
such Sections 1 and 2. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
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Section 5. Advances for Expenses. Expenses incurred in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall be ultimately
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VI.
Section 6. Rights Not Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other
subsections of this Article VI shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any law, by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 7. Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who 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, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article VI.
Section 8. Definition of Corporation. For the purposes of
this Article VI, references to "the Corporation" include all constituent
corporations absorbed in a consolidation or merger as well as the resulting or
surviving corporation so that any person who is or was a director, officer,
employee or agent of such a constituent corporation or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Article
VI with respect to the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same capacity.
Section 9. Survival of Rights. The indemnification and
advancement of expenses provided by, or granted pursuant to this Article VI
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 a person.
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ARTICLE VII
General Provisions
Section 1. Dividends. Subject to the provisions of statute
and the Certificate of Incorporation, dividends upon the shares of capital stock
of the Corporation may be declared by the Board of Directors at any regular or
special meeting. Dividends may be paid in cash, in property or in shares of
stock of the Corporation, unless otherwise provided by statute or the
Certificate of Incorporation.
Section 2. Reserves. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Board of Directors may, from time to time, in its
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation or for such other purpose as the Board of Directors
may think conducive to the interests of the Corporation. The Board of Directors
may modify or abolish any such reserves in the manner in which it was created.
Section 3. Seal. The seal of the Corporation shall be in
such form as shall be approved by the Board of Directors.
Section 4. Fiscal Year. The fiscal year of the Corporation
shall be fixed, and once fixed, may thereafter be changed, by resolution of the
Board of Directors.
Section 5. Checks, Notes, Drafts, Etc. All checks, notes,
drafts or other orders for the payment of money of the Corporation shall be
signed, endorsed or accepted in the name of the Corporation by such officer,
officers, person or persons as from time to time may be designated by the Board
of Directors or by an officer or officers authorized by the Board of Directors
to make such designation.
Section 6. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
Section 7. Voting of Stock in Other Corporations. Unless
otherwise provided by resolution of the Board of Directors, the Chairman of the
Board or the President, from time to time, may (or may appoint one or more
attorneys or agents to) cast the votes which the Corporation may be entitled to
cast as a shareholder or otherwise in any other corporation, any of whose shares
or securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may, or
may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VIII
Amendments
These By-Laws may be amended or repealed or new by-laws
adopted (a) by action of the stockholders entitled to vote thereon at any annual
or special meeting of stockholders or (b) if the Certificate of Incorporation so
provides, by action of the Board of Directors at a regular or special meeting
thereof. Any by-law made by the Board of Directors may be amended or repealed by
action of the stockholders at any annual or special meeting of stockholders.
<PAGE>
WARRANT AGREEMENT
This Warrant Agreement (this "Agreement"), dated as of ________, 1998
is by and between Metalogics, Inc., a Delaware corporation (the "Company") and
Cruttenden Roth Incorporated ("Cruttenden").
WHEREAS, Cruttenden has agreed pursuant to an Underwriting Agreement
dated ________, 1998 (the "Underwriting Agreement") to act as the representative
of the several underwriters in connection with the proposed public offering (the
"Public Offering") by the Company of 2,300,000 shares of Common Stock, including
up to 345,000 additional shares of Common Stock to cover over-allotments, if
any; and
WHEREAS, pursuant to Section 1 of the Underwriting Agreement, the
Company has agreed to issue warrants (the "Warrants") to Cruttenden, Josephthal
& Co. Inc. and Barington Capital Group, L.P. (together, the "Representatives")
to purchase, at a price of $0.001 per warrant, up to an aggregate of 230,000
shares (hereinafter, and as the number thereof may be adjusted hereto, the
"Warrant Shares") of the Company's Common Stock, $0.001 par value per share (the
"Common Stock"), each Warrant initially entitling the holder thereof to purchase
one share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and in the Underwriting Agreement set forth and for other good
and valuable consideration, the parties hereto agree as follows:
1. Issuance of Warrants: Form of Warrant. The Company will issue and
deliver to the Representatives, Warrants to purchase 230,000 Warrant Shares on
the Closing Date referred to in the Underwriting Agreement, in consideration
for, and as part of the Representatives' compensation in connection with, its
acting as the representative of the several underwriters for the Public Offering
pursuant to the Underwriting Agreement. The text of the Warrants and of the form
of election to purchase Warrants Shares shall be substantially as set forth in
Exhibit A attached hereto. The Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the present or any future
Chairman of the Board, President or Vice President of the Company, under its
corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of the Secretary or an Assistant Secretary of the Company.
Warrants bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Agreement. Warrants shall be dated as of the date of
execution thereof by the Company either upon initial issuance or upon division,
exchange, substitution or transfer.
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2. Registration. The Warrants shall be numbered and registered on the
books of the Company (the "Warrant Register") as they are issued. The Company
shall be entitled to treat the registered holder of any Warrant on the Warrant
Register (the "Holder") as the owner in fact therefor for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in such
Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or are to be
registered in the name of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. The Warrants shall be
registered initially in the name of "Cruttenden Roth Incorporated" or in such
other denominations as Cruttenden may request in writing to the Company.
3. Exchange of Warrant Certificates. Subject to any restriction upon
transfer set forth in this Agreement, each Warrant certificate may be exchanged
for another certificate or certificates entitling the Holder thereof to purchase
a like aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitled such Holder to purchase. Any Holder desiring to
exchange a Warrant certificate or certificates shall make such request in
writing delivered to the Company, and shall surrender, properly endorsed, the
certificate or certificates to be so exchanged. Thereupon, the Company shall
execute and deliver to the person entitled thereto a new Warrant certificate or
certificates, as the case may be, as so requested.
4. Transfer of Warrants. Until ________, 1999, the Warrants will not be
sold, transferred, assigned or hypothecated except to (i) other brokers or
dealers; (ii) one or more bona fide officers and/or partners of Cruttenden;
(iii) a successor to the transferring Holder in merger or consolidation; (iv) a
purchaser of all or substantially all of the transferring Holder's assets; or
(v) any person receiving the Warrants from one or more of the persons listed in
this Section 4 at such person's or persons' death pursuant to will, trust or the
laws of intestate succession, each of whom agrees in writing to be bound by the
terms hereof. The Warrants shall be transferable only on the Warrant Register
upon delivery thereof duly endorsed by the Holder or by the Holder's duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal representatives,
duly authenticated evidence of their authority shall be produced and may be
required to be deposited with the Company in its discretion. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto.
5. Term of Warrants; Exercise of Warrants.
5.1 Each Warrant entitles the registered owner thereof to
purchase one share of Common Stock at any time from 10:00 a.m., Pacific time, on
________, 1999 (the "Initiation Date") until 6:00 p.m., Pacific time, on
________, 2003 (the "Expiration Date") at a purchase price of $____ subject to
adjustment (the "Warrant Price"). Notwithstanding the foregoing, if at 6:00
p.m., Pacific
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time on the Expiration Date, any Holder or Holders of the Warrants have not
exercised their Warrants and the Closing Price (as defined below) for the Common
Stock on the Expiration Date is greater than the Warrant Price, then each such
unexercised Warrant shall be automatically converted into a number of shares of
Common Stock of the Company equal to: (A) the number of shares of Common Stock
then issuable upon exercise of a Warrant multiplied by (B) a fraction (1) the
numerator of which is the difference between the Closing Price for the Common
Stock on the Expiration Date and the Warrant Price and (2) the denominator of
which is the Closing Price for the Common Stock on the Expiration Date.
5.2 The Warrant Price and the number of Warrant Shares
issuable upon exercise of each Warrant are subject to adjustment upon the
occurrence of certain events, pursuant to the provisions of Section 11 of this
Agreement. Subject to the provisions of this Agreement, each Holder of Warrants
shall have the right, which may be exercised as expressed in the Warrant
Certificate, to purchase from the Company (and the Company shall issue and sell
to such Holder of Warrants) the number of fully paid and nonassessable Warrant
Shares specified in such Warrant Certificate, upon surrender to the Company, or
its duly authorized agent, of such Warrant Certificate, with the form of
election to purchase on the reverse thereof duly filled in and signed, and upon
payment to the Company of the Warrant Price, as adjusted in accordance with the
provisions of Section 11 of this Agreement, for the number of Warrant Shares in
respect of which such Warrants are then exercised. Payment of such Warrant Price
shall be made in cash, by wire transfer or by certified or official bank check,
or any combination thereof. No adjustment shall be made for any dividends on any
Warrant Shares of stock issuable upon exercise of a Warrant.
5.3 Upon such surrender of Warrants, and payment of the
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Holder of such
Warrants and in such name or names as such registered Holder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of such Warrants, together with cash, as provided in Section
12 of this Agreement, in respect of any fraction of a share otherwise issuable
upon such surrender and, if the number of Warrants represented by a Warrant
certificate shall not be exercised in full, a new Warrant certificate, executed
by the Company for the balance of the number of whole Warrant Shares.
5.4 If permitted by applicable law, such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
shares as of the date of the surrender of such Warrants and payment of the
Warrant Price as aforesaid. The rights of purchase represented by the Warrants
shall be exercisable, at the election of the registered Holders thereof, either
as an entirety or from time to time for only part of the shares specified
therein.
6. Compliance with Government Regulations. The Company covenants that
if any shares of Common Stock required to be reserved for purposes of exercise
or conversion of Warrants require, under any Federal or state law or applicable
governing rule or regulation of any national securities exchange, registration
with or approval of any governmental authority, or listing on any
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such national securities exchange before such shares may be issued upon
exercise, the Company will in good faith and as expeditiously as possible
endeavor to cause such shares to be duly registered, approved or listed on the
relevant national securities exchange, as the case may be; provided, however,
that (except to the extent legally permissible with respect to Warrant of which
Cruttenden is the Holder) in no event shall such shares of Common Stock be
issued, and the Company is hereby authorized to suspend the exercise of all
Warrants, for the period during which such registration, approval or listing is
required but not in effect.
7. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of the Warrants or the securities
comprising the Warrant Shares upon the exercise of Warrants; provided, however,
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue or delivery of any
warrants or certificate for Warrant Shares in a name other than that of the
registered Holder of such warrants.
8. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest; but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of such Warrant and, if requested, indemnity or bond also
reasonably satisfactory to the Company. An applicant for such substitute
Warrants shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
9. Reservation of Warrant Shares. There has been reserved out of the
authorized and unissued shares of Common Stock a number of shares sufficient to
provide for the exercise of the Warrants, and the transfer agent for the Common
Stock ("Transfer Agent") and every subsequent Transfer Agent for any shares of
the Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid are hereby irrevocably authorized and directed at all times
until the Expiration Date to reserve such number of authorized and unissued
shares as shall be required for such purpose. The Company will keep a copy of
this Agreement on file with the Transfer Agent and with every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Company will
supply such Transfer Agent with duly executed stock certificates for such
purposes and will itself provide or otherwise make available any cash which may
be issuable as provided in Section 12 of this Agreement. The Company will
furnish to such Transfer Agent a copy of all notices of adjustments, and
certificates related thereto, transmitted to each Holder pursuant to Section
11.2 of this Agreement. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be cancelled.
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10. Obtaining Stock Exchange Listings. The Company will from time to
time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the securities exchanges and stock markets within the United States of America,
if any, on which other shares of Common Stock are then listed.
11. Adjustment of Warrant Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter defined. For purposes of this Section
11, "Common Stock" means shares now or hereafter authorized of any class of
common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
11.1 Mechanical Adjustments. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock or (iv) issue by reclassification
of its shares of Common Stock other securities of the Company (including any
such reclassification in connection with a consolidation or merger in which the
Company is the surviving corporation), the number of Warrant Shares purchasable
upon exercise of each warrant immediately prior thereto shall be adjusted so
that the Holder of each Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or would have been entitled to receive after the happening of any of the events
described above, had such Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Company is the surviving corporation)
evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or earned surplus and
dividends or distribution referred to in paragraph (a) above or in the paragraph
immediately following this paragraph) or rights, options or warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock, then in each case the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, the numerator of which shall be the then
current market price per share of Common Stock (as defined in paragraph (c)
below) on the date of such distribution, and the denominator of which shall be
the then current market price per share of Common Stock, less the then fair
value (as reasonably determined by the Board of Directors of the Company) of the
portion of the assets or
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evidences of indebtedness so distributed or of such subscription rights, options
or warrants, or of such convertible or exchangeable securities applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of stockholders entitled to
receive such distribution.
In the event of a distribution by the Company to all
holders of its shares of Common Stock of a subsidiary or securities convertible
into or exercisable for such stock, then in lieu of an adjustment in the number
of Warrant Shares purchasable upon the exercise of each Warrant, the Holder of
each Warrant, upon the exercise thereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary or both, as the
Company shall determine, the stock or other securities to which such Holder
would have been entitled if such Holder had exercised such Warrant immediately
prior thereto, all subject to further adjustment as provided in this Section
11.1; provided, however, that no adjustment in respect of dividends or interest
on such stock or other securities shall be made during the term of a Warrant or
upon the exercise of a Warrant.
(c) For the purpose of any computation under paragraph (b) of
this Section, the current market price per share of Common Stock at any date
shall be the average of the daily Closing Prices for 20 consecutive trading days
commencing 30 trading days before the date of such computation. The selling
price for each day (the "Closing Price") shall be the last such reported sales
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if not listed or admitted to trading, the
average of the closing bid and asked prices of the Common Stock in the over-the
counter market as reported by the Nasdaq National Market System or Nasdaq
SmallCap System or if not approved for quotation on the Nasdaq National Market
System or Nasdaq SmallCap System, the average of the closing bid and asked
prices as furnished by two members of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that purpose.
(d) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of Warrant Shares
purchasable upon the exercise of each Warrant; provided, however, that any
adjustments which by reason of this paragraph (d) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one-thousandth of a share.
(e) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Warrant Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, the numerator
of which shall be the number of Warrant Shares purchasable upon the exercise of
each Warrant immediately prior to such adjustment, and the denominator of which
shall be the number of Warrant Shares purchasable immediately thereafter.
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(f) No adjustment in the number of Warrant Shares purchasable
upon the exercise of each Warrant need be made under paragraph (b) if the
Company issues or distributes to each Holder of Warrants the rights, options,
warrants or convertible or exchangeable securities, or evidences of indebtedness
or assets referred to in those paragraphs which each Holder of Warrants would
have been entitled to receive had the Warrants been exercised prior to the
happening of such event or the record date with respect thereto. No adjustment
need be made for a change in the par value of the Warrant Shares.
(g) In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the Holders shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of each Warrant and the Warrant Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Section 11, and the other provisions of this Agreement, with respect to the
Warrant and Warrant Shares, shall apply as nearly equivalent as practicable on
like terms to such other securities.
(h) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges for which an adjustment was made hereunder, if
any thereof shall not have been exercised, the Warrant Price and the number of
shares of Common Stock purchasable upon the exercise of each Warrant shall, upon
such expiration, be readjusted and shall thereafter be such as it would have
been had it been originally adjusted (or had the original adjustment not been
required, as the case may be) as if (i) the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange rights and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange rights whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Warrant Price or decreasing
the number of shares of Common Stock purchasable upon the exercise of each
Warrant by an amount in excess of the amount of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options, warrants or
conversion or exchange rights.
11.2 Notice of Adjustment. Whenever the number of Warrant
Shares purchasable upon the exercise of each Warrant or the Warrant Price of
such Warrant Shares is adjusted, as herein provided, the Company shall promptly
mail by first class, postage prepaid, to each Holder notice of such adjustment
or adjustments and a certificate of a firm of independent public accountants
selected by the Board of Directors of the Company (who may be the regular
accountants employed by the Company) setting forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
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11.3 No Adjustment for Dividends. Except as provided in
Section 11.1, no adjustments in respect of any dividends shall be made during
the term of a Warrant or upon the exercise of a Warrant.
11.4 Preservation of Purchase Rights Upon Merger,
Consolidation etc. In case of any consolidation of the Company with or merger of
the Company into another corporation or in case of any sale, transfer or lease
to another corporation of all or substantially all the property of the Company,
the Company or such successor or purchasing corporation, as the case may be,
shall execute with each Holder an agreement that each Holder shall have the
right thereafter upon payment of the Warrant Price in effect immediately prior
to such action to purchase upon exercise of each Warrant the kind and amount of
shares and other securities, cash and property which he would have owned or
would have been entitled to receive after the happening of such consolidation,
merger, sale, transfer or lease had such Warrant been exercised immediately
prior to such action; provided, however, that no adjustment in respect of
dividends, interest or other income on or from such shares or other securities,
cash and property shall be made during the term of a Warrant or upon the
exercise of a Warrant. Such agreement shall provide for adjustments, which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Section 11. The provisions of this Section 11.4 shall similarly apply to
successive consolidations, mergers, sales transfer or leases.
11.5 Statements on Warrants. Irrespective of any adjustments
in the Warrant Price or the number or kind of shares purchasable upon the
exercise of the Warrants, Warrants theretofore or thereafter issued may continue
to express the same price and number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
11.6 Optional Conversion.
(a) In addition to and without limiting the rights of the
Holders of the Warrants under the terms of this Agreement and the Warrants, the
holder of the Warrants shall have the right (the "Conversion Right") to convert
the Warrants or any portion thereof into shares of Common Stock as provided in
this Section 11.6 at any time or from time to time after the first anniversary
of the date hereof and prior to its expiration, subject to the restrictions set
forth in paragraph (c) below. Upon exercise of the Conversion Right with respect
to a particular number of shares subject to the Warrants (the "Converted Warrant
Shares"), the Company shall deliver to the Holder of the Warrants, without
payment by the Holder of any exercise price or any cash or other consideration,
the number of shares of Common Stock equal to the quotient obtained by dividing
the Net Value (as hereinafter defined) of the Converted Warrant Shares by the
fair market value (as defined in paragraph (d) below) of a single share of
Common Stock, determined in each case as of the close of business on the
Conversion Date (as hereinafter defined). The "Net Value" of the Converted
Warrant Shares shall be determined by subtraction of the aggregate warrant
purchase price of the Converted Warrant Shares (which aggregate warrant purchase
price includes the consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually received by the
Company for the issuance of the Warrants) from the aggregate fair market value
of the Converted Warrant Shares. No fractional shares shall be issuable upon
exercise of the Conversion Right, and
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if the number of shares to be issued in accordance with the foregoing formula is
other than a whole number, the Company shall pay to the Holder of the Warrants
an amount in cash equal to the fair market value of the resulting fractional
share.
(b) The Conversion Right may be exercised by the Holder of the
Warrants by the surrender of such Warrants at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to the Warrants which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of the Warrants
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), not later than the expiration date of
the Warrants. Certificates for the shares of Common Stock issuable upon exercise
of the Conversion Right together with a check in payment of any fractional share
and, in the case of a partial exercise, new warrants evidencing the shares
remaining subject to the Warrants, shall be issued as of the Conversion Date and
shall be delivered to the holder of the Warrants within 7 days following the
Conversion Date.
(c) In the event the Conversion Right would, at any time the
Warrants remain outstanding, be deemed by the Company's independent certified
public accountants to give rise to a charge to the Company's earnings for
financial reporting purposes, then the Conversion Right shall automatically
terminate upon receipt by the holder of this Warrant of an opinion of such
independent certified public accountant as to such adverse accounting treatment.
(d) For purposes of this paragraph 11.6, the "fair market
value" of a share of Common Stock as of a particular date shall be its "current
market price," calculated as described in paragraph 11.1(c) hereof.
12. Fractional Interests. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the sale time by the same holder, the
number of full Warrant Shares which shall be issuable upon the exercise thereon
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 12 be issuable on
the exercise of any Warrant (or specified portion thereof), the Company shall
pay an amount in cash equal to the closing price for one share of the Common
Stock, as defined in Section 11.1(c), on the trading day immediately preceding
the date the Warrant is presented for exercise, multiplied by such faction.
13. Registration Under the Securities Act of 1933. Cruttenden
represents and warrants to the Company that it will not dispose of the Warrants
or the Warrant Shares except pursuant to (i) an effective registration statement
under the Securities Act of 1933, as amended (the "Act"), including a
post-effective amendment to the Registration Statement, (ii) Rule 144 under the
Act (or any similar rule under the Act relating to the disposition of
securities), or (iii)_an opinion of counsel, reasonably satisfactory to counsel
of the Company, that an exemption from such registration is available.
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14. Certificates to Bear Legends. The Warrant, the Warrant Shares or
other securities issued upon exercise of the Warrant shall be subject to a
stop-transfer order and the certificate or certificates therefore shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. SAID
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT.
15. Registration Rights.
15.1 Demand Registration Rights. The Company covenants and
agrees with Cruttenden and any subsequent Holders of the Warrants and/or Warrant
Shares that, on one occasion, within 60 days after receipt of a written request
from Cruttenden or from Holders of more than 25% in interest of the aggregate of
Warrants and/or Warrant Shares issued pursuant to this Agreement that Cruttenden
or such Holders of the Warrants and/or Warrant Shares desires and intends to
transfer more than 25% in interest of the aggregate number of the Warrants
and/or Warrant Shares under such circumstances that a public offering, within
the meaning of the Act, will be involved, the Company shall, on that one
occasion, file a registration statement (and use its best efforts to cause such
registration statement to become effective under the Act at the Company's
expense) with respect to the offering and sale or other disposition of the
Warrant Shares (the "Offered Warrant Shares"); provided, however, that the
Company shall have no obligation to comply with the foregoing provisions of this
Section 15.1 if in the opinion of counsel to the Company reasonably acceptable
to the Holder or Holders, from whom such written requests have been received,
registration under the Act is not required for the transfer of the Offered
Warrant Shares in the manner proposed by such person or persons or that a
post-effective amendment to an existing registration statement would be legally
sufficient for such transfer (in which latter event the Company shall promptly
file such post-effective amendment (and use its best efforts to cause such
amendment to become effective under the Act)). Notwithstanding the foregoing,
the Company shall not be obligated to file a registration statement with respect
to the Offered Warrant Shares on more than one occasion.
The Company may defer the preparation and filing of a
registration statement for up to 90 days after the request for registration is
made if the Board of Directors determines in good faith that such registration
or post-effective amendment would materially adversely affect or otherwise
materially interfere with a proposed or pending transaction by the Company,
including without limitation a material financing or a corporate reorganization,
or during any period of time in which the Company is in possession of material
inside information concerning the Company or its securities, which information
the Company determines in good faith is not ripe for disclosure.
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The Company shall not honor any request to register
Warrant Shares pursuant to this Section 15.1 received later than five (5) years
from the effective date of the Company's Registration Statement on Form SB-2
(File No. 333-__________) (the "Effective Date"). The Company shall not be
required (i) to maintain the effectiveness of the registration statement beyond
the earlier to occur of 90 days after the effective date of the registration
statement or the date on which all of the Offered Warrant Shares have been sold
(the "Termination Date"); provided, however, that if at the Termination Date the
Offered Warrant Shares are covered by a registration statement which also covers
other securities and which is required to remain in effect beyond the
Termination Date, the Company shall maintain in effect such registration
statement as it relates to Offered Warrant Shares for so long as such
registration statement (or any substitute registration statement) remains or is
required to remain in effect for any such other securities, or (ii) to cause any
registration statement with respect to the Warrant Shares to become effective
prior to the Initiation Date. All expenses of registration pursuant to this
Section 15.1 shall be borne by the Company (excluding underwriting discounts and
commissions on Warrant Shares not sold by the Company).
The Company shall be obligated pursuant to this
Section 15.1 to include in the registration statement Warrant Shares that have
not yet been purchased by a Holder of Warrants so long as such Holder of
Warrants submits an undertaking to the Company that such Holder intends to
exercise Warrants representing the number of Warrant Shares to be included in
such registration statement prior to the consummation of the public offering
with respect to such Warrant Shares. In addition, such Holder of Warrants is
permitted to pay the Company the Warrant Price for such Warrant Shares upon the
consummation of the public offering with respect to such Warrant Shares.
15.2 Piggy-back Registration Rights. The Company covenants and
agrees with the Holders and any subsequent Holders of the Warrants and/or
Warrant Shares that in the event the Company proposes to file a registration
statement under the Act with respect to any class of security (other than in
connection with an exchange offer, a non-cash offer or a registration statement
on Form S-8 or other unsuitable registration statement form) which becomes or
which the Company believes will become effective at any time after the
Initiation Date then the Company shall in each case give written notice of such
proposed filing to the Holders of Warrants and Warrant Shares at least 30 days
before the proposed filing date and such notice shall offer to such Holders the
opportunity to include in such registration statement such number of Warrant
Shares as they may request, unless, in the opinion of counsel to the Company
reasonably acceptable to any such Holder of Warrants or Warrant Shares who
wishes to have Warrant Shares included in such registration statement,
registration under the Act is not required for the transfer of such Warrants
and/or Warrant Shares in the manner proposed by such Holders. The Company shall
not honor any such request to register any such Warrant Shares if the request is
received later than six (6) years from the Effective Date, and the Company shall
not be required to honor any request (a) to register any such Warrant Shares if
the Company is not notified in writing of any such request pursuant to this
Section 15.2 within at least 20 days after the Company has given notice to the
Holders of the filing, or (b) to register Warrant Shares that represent in the
aggregate fewer than 25% of the aggregate number of Warrant Shares. The Company
shall permit, or shall cause the managing underwriter of a proposed offering to
permit, the Holders of Warrant Shares requested to be included in the
registration (the "Piggy-back Shares") to include such Piggy-back Shares in the
proposed offering on the same terms and conditions as applicable to securities
of the Company included therein or as applicable to securities of any person
other than the Company and the Holders of Piggy-back Shares if the securities of
any such person
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are included therein. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company in writing that it believes that the
distribution of all or a portion of the Piggy-back Shares requested to be
included in the registration statement concurrently with the securities being
registered by the Company would materially adversely affect the distribution of
such securities by the Company for its own account, then the Holders of such
Piggy-back Shares shall delay their offering and sale of Piggyback Shares (or
the portion thereof so designated by such managing underwriter) for such period,
not to exceed 120 days, as the managing underwriter shall request provided that
no such delay shall be required as to Piggy-back Shares if any securities of the
Company are included in such registration statement for the account of any
person other than the Company and the Holders of Piggy-back Shares. In the event
of such delay, the Company shall file such supplements, post-effective
amendments or separate registration statement, and take any such other steps as
may be necessary to permit such Holders to make their proposed offering and sale
for a period of 90 days immediately following the end of such period of delay
("Piggy-back Termination Date"); provided, however, that if at the Piggy-back
Termination Date the Piggyback Shares are covered by a registration statement
which is, or required to remain, in effect beyond the Piggy-back Termination
Date, the Company shall maintain in effect the registration statement as it
relates to the Piggy-back Shares for so long as such registration statement
remains or is required to remain in effect for any of such other securities. All
expenses of registration pursuant to this Section 15.2 shall be borne by the
Company, except that underwriting commissions and expenses attributable to the
Piggy-back Shares and fees and disbursements of counsel (if any) to the Holders
requesting that such Piggy-back Shares be offered will be borne by such Holders.
The Company shall be obligated pursuant to this
Section 15.2 to include in the Piggy-back Offering, Warrant Shares that have not
yet been purchased by a holder of Warrants so long as such Holder of Warrants
submits an undertaking to the Company that such Holder intends to exercise
Warrants representing the number of Warrant Shares to be included in such
Piggy-back Offering prior to the consummation of such Piggy-back Offering. In
addition, such Holder of Warrants is permitted to pay the Company the Warrant
Price for such Warrant Shares upon the consummation of the Piggy-back Offering.
If the Company decides not to proceed with a
Piggy-back Offering, the Company has no obligation to proceed with the offering
of the Piggy-back Shares, unless the Holders of the Warrants and/or Warrant
Shares otherwise comply with the provisions of Section 15.1 hereof (without
regard to the 60 days' written request required thereby). Notwithstanding any of
the foregoing contained in this Section 15.2, the Company's obligation to offer
registration rights to the Piggy-back Shares pursuant to this Section 15.2 shall
terminate two (2) years after the Expiration Date.
15.3 In connection with the registration of Warrant Shares in
accordance with Section 15.1 and 15.2 above, the Company agrees to:
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(a) Use its best efforts to register or qualify the
Warrant Shares for offer or sale under the state securities or Blue Sky laws of
such states which the Holders of such Warrant Shares shall designate, until the
dates specified in Section 15.1 and 15.2 above in connection with registration
under the Act; provided, however, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject or to register or get
a license as a broker or dealer in securities in any jurisdiction where it is
not so registered or licensed or to register or qualify the Warrant Shares for
offer or sale under the state securities or Blue Sky laws of any state other
than the states in which some or all of the shares offered or sold in the Public
Offering were registered or qualified for offer and sale.
(b) (i) In the event of any post-effective amendment
or other registration with respect to any Warrant Shares pursuant to Section
15.1 or 15.2 above, the Company will indemnify and hold harmless any Holder
whose Warrant Shares are being so registered, and each person, if any, who
controls such Holder within the meaning of the Act, against any losses, claims,
damages or liabilities, joint or several, to which such Holder or such
controlling person may be subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any such registration
statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
will reimburse each such Holder and each such controlling person for any legal
or other expenses reasonably incurred by such Holder or such controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in any such registration statement, any
preliminary prospectus or final prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
by such Holder expressly for use in the preparation thereof. The Company will
not be liable to a claimant to the extent of any misstatement corrected or
remedied in any amended prospectus if the Company timely delivers a copy of such
amended prospectus to such indemnified person and such indemnified person does
not timely furnish such amended prospectus to such claimant. The Company shall
not be required to indemnify any Holder or controlling person for any payment
made to any claimant in settlement of any suit or claim unless such payment is
approved by the Company.
(ii) Each Holder of Warrants and/or Warrant Shares
who participates in a registration pursuant to Section 15.1 or 15.2 will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed any such registration statement, and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Company, or any such director,
officer or controlling person may become subject under the Act, or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue statement
or any
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material fact contained in any such registration statement, any preliminary
prospectus or final prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any such registration statement, any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in the preparation thereof; and will reimburse any legal or other
expenses reasonably incurred by the Company, or any such director, officer or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subparagraph (ii) shall not apply to amounts paid to
any claimant in settlement of any suit or claim unless such payment is first
approved by such Holder.
(iii) order to provide for just and
equitable contribution in any action in which a claim for indemnification is
made pursuant to this clause (b)(iii) of Section 15.3 but is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this clause (b)(iii) of Section 15.3 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that each Holder whose
Warrant Shares are being registered is responsible pro rata for the portion
represented by the public offering price received by such Holder from the sale
of such Holder's Warrant Shares, and the Company is responsible for the
remaining portion; provided, however, that (i) no Holder shall be required to
contribute any amount in excess of the public offering price received by such
Holder from the sale of such Holder's Warrant Shares and (ii) no person guilty
of a fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. This subsection (b)(iii) shall not be operative as
to any Holder of Warrant Shares to the extent that the Company has received
indemnity under this clause (b)(iii) of Section 15.3.
16. No Rights as Stockholder; Notices to Holders. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Holders or their transferee(s) the right to vote or to receive dividends or
to consent to or receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter or
any rights whatsoever as stockholders of the Company. If, however, at any time
prior to the expiration of the Warrants and prior to their exercise, any of the
following events occur:
(a) the Company shall declare any dividend payable in
any securities upon its shares of Common Stock or make any
distribution (other than a cash dividend) to the holders of
its shares of Common Stock: or
(b) the Company shall offer to the holders of its
shares of Common Stock any additional shares of Common Stock
or securities convertible into or exchangeable for shares
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of Common Stock or any right to subscribe to or purchase any
thereof; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation,
merger, sale, transfer or lease of all or substantially all of
its property, assets and business as an entirety) shall be
proposed,
then in any one or more of said events the Company shall (i) give notice in
writing of such event to the Holders, as provided in Section 17 hereof and (ii)
if there are more than 100 Holders, cause notice of such event to be published
once in The Wall Street Journal (national edition), such giving of notice and
publication to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution or subscription rights, or
for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up.
17. Notices. Any notice pursuant to this Agreement to be given or made
by the registered Holder of any Warrant to the Company shall be sufficiently
given or made if sent by first-class mail or facsimile to:
Metalogics, Inc.
Riverview Historical Plaza
33-41 Newark Street, Suite 4-C
Hoboken, New Jersey 07030
Attn: President
Fax: (201) 656-0901
Notices or demands authorized by this Agreement to be given or made by the
Company to the registered Holder of any Warrant shall be sufficiently given or
made (except as otherwise provided in this Agreement) if sent by first-class
mail to such Holder at the address of such Holder as shown on the Warrant
Register.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
principles of conflicts of laws.
19. Supplements and Amendments. The Company and Cruttenden may from
time to time supplement or amend this Agreement in order to cure any ambiguity
or to correct or supplement any provision contained herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and Cruttenden may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants and which shall not adversely
affect the interests of the Holders. This Agreement may also be supplemented or
amended from time to time by a writing executed by or on behalf of the Company
and all of the Holders.
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20. Successor. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by the
Holders of their rights hereunder shall be made in accordance with Section 4
hereof.
21. Merger or Consolidation of the Company. So long as Warrants remain
outstanding, the Company will not merge or consolidate with or into, or sell,
transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement executed
and delivered to the Holders, the due and punctual performance and observance of
each and every covenant and condition of this Agreement to be performed and
observed by the Company.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders, any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company any
the Holders of the Warrants and Warrant Shares.
23. Captions. The captions of the sections and subsections of this
Agreement have been reserved for convenience only and shall have no substantive
effect.
24. Counterparts. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
Attest: CRUTTENDEN ROTH INCORPORATED
By:_____________________________
Name:
Title:
Attest: METALOGICS, INC.
By:_____________________________
Name:
Title:
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EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT
WARRANT CERTIFICATE
OF
METALOGICS, INC.
EXERCISABLE ON OR BEFORE __________, 2003
No. 1 230,000 Warrants
This Warrant Certificate certifies that the registered holder hereof or
its registered assigns, is the registered holder of Warrants expiring ________,
2003 (the "Warrants") to purchase Common Stock, $0.001 par value per share (the
"Common Stock"), of Metalogics, Inc., a Delaware corporation (the "Company").
Each Warrant entitles the holder upon exercise to receive from the Company from
10:00 a.m., Pacific time, on ________, 1999 through and until 6:00 p.m., Pacific
time, on ________, 2003, one fully paid and nonassessable share of Common Stock
(a "Warrant Share") at the initial exercise price (the "Warrant Price") of $____
payable in lawful money of the United States of America upon surrender of this
Warrant Certificate and payment of the Warrant Price at the conditions set forth
herein and in the Warrant Agreement referred to on the reverse hereof. The
Warrant Price and number of Warrant Shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain events set
forth in the Warrant Agreement.
No Warrant may be exercised after 6:00 p.m., Pacific Time, on ________,
2003 (the "Expiration Date"). Notwithstanding the foregoing, if at 6:00 p.m.,
Pacific time on the Expiration Date, any Holder or Holders of the Warrants have
not exercised their Warrants and the Closing Price (as defined in the Warrant
Agreement) for the Common Stock on the Expiration Date is greater than the
Warrant Price, then each such unexercised Warrant shall be automatically
converted into a number of shares of Common Stock of the Company equal to: (A)
the number of shares of Common Stock then issuable upon exercise of a Warrant
multiplied by (B) a fraction (1) the numerator of which is the difference
between the Closing Price for the Common Stock on the Expiration Date and the
Warrant Price and (2) the denominator of which is the Closing Price for the
Warrant Stock on
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the Expiration Date.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this price.
This Warrant Certificate shall not be valid unless countersigned by the
Company.
IN WITNESS WHEREOF, _______________ has caused this Warrant Certificate
to be signed by its President and by its Chief Financial Officer and has caused
its corporate seal to be affixed hereunto or imprinted hereon.
Dated: , 1998
METALOGICS, INC.
By:____________________________________________
Name: William P. Doyle
Chairman, President and Chief
Executive Officer
By:____________________________________________
Name: Nicholas R. Wood
Chief Financial Officer
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[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring ________, 2003 entitling the holder on
exercise to receive shares of Common Stock, $0.001 par value per share, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement, dated as of ________, 1998 (the "Warrant Agreement"), duly
executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
The Warrants may be exercised at any time on or before ________, 2003.
The holder of Warrants evidenced by this Warrant Certificate may exercise them
by surrendering this Warrant Certificate, with the form of election to purchase
set forth hereon properly completed and executed, together with payment of the
Warrant Price at the office of the Company designated for such purpose. In the
event that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment shall
be made for any dividends on any Common Stock issuable upon exercise of this
Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. If the number of shares of Common Stock issuable upon
such exercise is adjusted, the Warrant Agreement provides that the Warrant Price
set forth on the face hereof may, subject to certain conditions, be adjusted. No
fractions of a share of Common Stock will be issued upon the exercise of any
Warrants but the Company will pay the cash value thereof determined as provided
in the Warrant Agreement. The Warrant Agreement also provides that, while the
Warrants are exercisable, the holders of the Warrants shall have an optional
conversion right to convert, without payment of any exercise price or any cash
or other consideration by such holders, the Warrants or any portion thereof into
a number of shares of Common Stock as specified in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration rights
with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment
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of any service charge, for another Warrant certificate of Warrant Certificates
of like tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company, a new Warrant certificate or Warrant
certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to other transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
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(Form of Election to Purchase)
(To be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ____________ shares of
Common Stock and herewith tenders payment for such shares in accordance with the
terms of the Warrant Agreement. The undersigned requests that a certificate for
such shares be registered in the name of _____________________________, whose
address is ______________________________________ and that such shares be
delivered to _______________________ whose address is
________________________________________. If said number of shares is less than
all of the shares of Common Stock purchasable hereunder, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
such shares be registered in the name of ________________________, whose address
is _______________________, and that such Warrant Certificate be delivered to
_______________________, whose address is _________________________________.
Signature:_____________________________________________
Date:__________________________________________________
Signature Guaranteed:__________________________________
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<PAGE>
(Form of Assignment)
(To be Executed upon Assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
the within Warrants, hereby irrevocably constituting and appointing
________________ Attorney to transfer said Warrants on the books of the Company,
with full power of substitution in the premises.
Dated:____________________________
_____________________________________________________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatever.
Signature Guaranteed:
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
23
<PAGE>
EXHIBIT 5.1
GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL
The MetLife Building
200 Park Avenue, 15th Floor
New York, New York 10166
July 29, 1998
Metalogics, Inc.
Riverview Historical Plaza
33-41 Newark Street, Suite 4-C
Hoboken, New Jersey 07030
Dear Sirs:
We are acting as counsel to Metalogics, Inc. (the "Company")
in connection with (a) the Registration Statement on Form SB-2, filed on July
28, 1998 (the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Act"), covering 2,645,000 shares (the "Shares") of the Company's
common stock, par value $.0001 per share (the "Common Stock"), including an
over-allotment option of up to 345,000 Shares and (b) the Underwriting Agreement
between the Company and Cruttenden Roth Incorporated, Josephthal & Co. Inc. and
Barington Capital Group, as the representatives of the several Underwriters,
relating to the Shares (the "Underwriting Agreement").
We have examined the originals, or certified, conformed or
reproduction copies, of all such records, agreements, instruments and documents
as we have deemed relevant or necessary as the basis for the opinion hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to such opinion, we have relied
upon, and assumed the accuracy of, certificates and oral or written statements
and other information of or from public officials, officers or representatives
of the Company, and others.
Based upon the foregoing, we are of the opinion that the
Shares, when issued and delivered in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and non-assessable.
<PAGE>
Metalogics, Inc.
July 28, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
GREENBERG TRAURIG HOFFMAN
LIPOFF ROSEN & QUENTEL
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, dated as of _____________, 1998, between
METALOGICS, INC., a Delaware corporation (the "Company"), and
__________________, a resident of the State of ____________ (the "Indemnitee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Indemnitee
as a Director of the Company;
WHEREAS, as a condition to the Indemnitee's agreement to serve the
Company as such, the Indemnitee requires that he be indemnified from liability
to the fullest extent permitted by law; and
WHEREAS, the Company is willing to indemnify the Indemnitee to the
fullest extent permitted by law in order to retain the services of the
Indemnitee;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein, the Company and the Indemnitee agree as follows:
1. Mandatory Indemnification in Proceedings Other than Those by or in
the Right of the Company. Subject to Section 4 hereof, the Company shall
indemnify and hold harmless the Indemnitee from and against any and all claims,
damages, expenses (including attorneys' fees), judgments, penalties, fines
(including excise taxes assessed with respect to an employee benefit plan),
settlements, and all other liabilities incurred or paid by him in connection
with the investigation, defense, prosecution, settlement or appeal of any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) and to which the Indemnitee was or is a party or is
threatened to be made a party by reason of the fact that the Indemnitee is or
was an officer, director, shareholder, employee or agent of the Company, or is
or was serving at the request of the Company as an officer, director, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, or by reason of anything done
or not done by the Indemnitee in any such capacity or capacities, provided that
the Indemnitee acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
<PAGE>
2. Mandatory Indemnification in Proceedings by or in the Right of the
Company. Subject to Section 4 hereof, the Company shall indemnify and hold
harmless the Indemnitee from and against any and all expenses (including
attorneys' fees) and amounts actually and reasonably incurred or paid by him in
connection with the investigation, defense, prosecution, settlement or appeal of
any threatened, pending or completed action, suit or proceeding by or in the
right of the Company to procure a judgment in its favor, whether civil,
criminal, administrative or investigative, and to which the Indemnitee was or is
a party or is threatened to be made a party by reason of the fact that the
Indemnitee is or was an officer, director, shareholder, employee or agent of the
Company, or is or was serving at the request of the Company as an officer,
director, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, or
by reason of anything done or not done by the Indemnitee in any such capacity or
capacities, provided that (a) the Indemnitee acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company and (b) no indemnification shall be made under this Section 2 in respect
of any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Company for misconduct in the performance of his
duty to the Company unless, and only to the extent that, the court in which such
proceeding was brought (or any other court of competent jurisdiction) shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
3. Reimbursement of Expenses Following Adjudication of Negligence. The
Company shall reimburse the Indemnitee for any expenses (including attorneys'
fees) and amounts actually and reasonably incurred or paid by him in connection
with the investigation, defense, settlement or appeal of any action or suit
described in Section 2 hereof that results in an adjudication that the
Indemnitee was liable for negligence, gross negligence or recklessness (but not
willful misconduct) in the performance of his duty to the Company; provided,
however, that the Indemnitee acted in good faith and in a manner he believed to
be in the best interests of the Company.
4. Authorization of Indemnification. Any indemnification under Sections
1 and 2 hereof (unless ordered by a court) and any reimbursement made under
Section 3 hereof shall be made by the Company only as authorized in the specific
case upon a determination (the "Determination") that indemnification or
reimbursement of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in Sections 1, 2
or 3 hereof, as the case may be. Subject to Sections 5.6, 5.7 and 8 of this
Agreement, the Determination shall be made in the following order of preference:
(a) first, by the Company's Board of Directors (the
"Board") by majority vote or consent of a quorum consisting of directors
("Disinterested Directors") who are not, at the time of the Determination, named
parties to such action, suit or proceeding;
(b) next, if such a quorum of Disinterested Directors
cannot be obtained, by majority vote or consent of a committee duly designated
by the Board (in which designation all directors, whether or not Disinterested
Directors, may participate) consisting solely of two or more Disinterested
Directors;
-2-
<PAGE>
c) next, if such a committee cannot be designated, by
any independent legal counsel (who may be any outside counsel regularly employed
by the Company) in a written opinion; or
(d) next, if such legal counsel determination cannot
be obtained, by vote or consent of the holders of a majority of the Company's
Common Stock.
4.1 No Presumptions. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
4.2 Benefit Plan Conduct. The Indemnitee's conduct with
respect to an employee benefit plan for a purpose he reasonably believed to be
in the interests of the participants in and beneficiaries of the plan shall be
deemed to be conduct that the Indemnitee reasonably believed to be not opposed
to the best interests of the Company.
4.3 Reliance as Safe Harbor. For purposes of any Determination
hereunder, the Indemnitee shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on (a) the records or books of account of the Company or another enterprise,
including financial statements, (b) information supplied to him by the officers
of the Company or another enterprise in the course of their duties, (c) the
advice of legal counsel for the Company or another enterprise, or (d)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 4.3 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which the Indemnitee is or was serving at the request of the
Company as an officer, director, partner, trustee, employee or agent. The
provisions of this Section 4.3 shall not be deemed to be exclusive or to limit
in any way the other circumstances in which the Indemnitee may be deemed to have
met the applicable standard of conduct set forth in Sections 1, 2 or 3 hereof,
as the case may be.
4.4 Success on Merits or Otherwise. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described in Sections 1 or 2 hereof, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal thereof. For purposes of this
Section 4.4, the term "successful on the merits or otherwise" shall include, but
not be limited to, (a) any termination, withdrawal, or dismissal (with or
without prejudice) of any claim, action, suit or proceeding against the
Indemnitee without any express finding of liability or guilt against him, (b)
the expiration of 120 days after the making of any claim or threat of an action,
suit or proceeding without the institution of the same and without any promise
or payment made to induce a settlement, or (c) the settlement of any action,
suit or proceeding under Sections 1, 2 or 3 hereof pursuant to which the
Indemnitee pays less than $10,000.
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<PAGE>
4.5 Partial Indemnification or Reimbursement. If the
Indemnitee is entitled under any provision of this Agreement to indemnification
and/or reimbursement by the Company for some or a portion of the claims,
damages, expenses (including attorneys' fees), judgments, fines or amounts paid
in settlement by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action specified in Sections 1, 2 or 3 hereof, but
not, however, for the total amount thereof, the Company shall nevertheless
indemnify and/or reimburse the Indemnitee for the portion thereof to which the
Indemnitee is entitled. The party or parties making the Determination shall
determine the portion (if less than all) of such claims, damages, expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement for
which the Indemnitee is entitled to indemnification and/or reimbursement under
this Agreement.
5. Procedures for Determination of Whether Standards have been
Satisfied.
5.1 Costs. All costs of making the Determination required by
Section 4 hereof shall be borne solely by the Company, including, but not
limited to, the costs of legal counsel, proxy solicitations and judicial
determinations. The Company shall also be solely responsible for paying (a) all
reasonable expenses incurred by the Indemnitee to enforce this Agreement,
including, but not limited to, the costs incurred by the Indemnitee to obtain
court-ordered indemnification pursuant to Section 8 hereof, regardless of the
outcome of any such application or proceeding, and (b) all costs of defending
any suits or proceedings challenging payments to the Indemnitee under this
Agreement.
5.2 Timing of the Determination. The Company shall use its
best efforts to make the Determination contemplated by Section 4 hereof
promptly. In addition, the Company agrees:
(a) if the Determination is to be made by the Board
or a committee thereof, such Determination shall be made not later than 15 days
after a written request for a Determination (a "Request") is delivered to the
Company by the Indemnitee;
(b) if the Determination is to be made by independent
legal counsel, such Determination shall be made not later than 30 days after a
Request is delivered to the Company by the Indemnitee; and
(c) if the Determination is to be made by the
shareholders of the Company, such Determination shall be made not later than 90
days after a Request is delivered to the Company by the Indemnitee.
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<PAGE>
The failure to make a Determination within the above-specified time period shall
constitute a Determination approving full indemnification or reimbursement of
the Indemnitee. Notwithstanding anything herein to the contrary, a Determination
may be made in advance of (a) the Indemnitee's payment (or incurring) of
expenses with respect to which indemnification or reimbursement is sought,
and/or (b) final disposition of the action, suit or proceeding with respect to
which indemnification or reimbursement is sought.
5.3 Reasonableness of Expenses. The evaluation and finding as
to the reasonableness of expenses incurred by the Indemnitee for purposes of
this Agreement shall be made (in the following order of preference) within 15
days after the Indemnitee's delivery to the Company of a Request that includes a
reasonable accounting of expenses incurred:
(a) first, by the Board by a majority vote of a
quorum consisting of Disinterested Directors;
(b) next, if a quorum cannot be obtained under
paragraph (a), by majority vote or consent of a committee duly designated by the
Board (in which designation all directors, whether or not Disinterested
Directors, may participate), consisting solely of two or more Disinterested
Directors; or
(c) next, if a finding cannot be obtained under
either subparagraph (a) or (b), by vote or consent of the holders of a majority
of the Company's Common Stock that are represented in person or by proxy at a
meeting called for such purpose.
All expenses shall be considered reasonable for purposes of this Agreement if
the finding contemplated by this Section 5.3 is not made within the prescribed
time. The finding required by this Section 5.3 may be made in advance of the
payment (or incurring) of the expenses for which indemnification or
reimbursement is sought.
5.4 Payment of Indemnified Amount. Immediately following a
Determination that the Indemnitee has met the applicable standard of conduct set
forth in Section 1, 2 or 3 hereof, as the case may be, and the finding of
reasonableness of expenses contemplated by Section 5.3 hereof, or the passage of
time prescribed for making such determination(s), the Company shall pay to the
Indemnitee in cash the amount to which the Indemnitee is entitled to be
indemnified and/or reimbursed, as the case may be, without further authorization
or action by the Board; provided, however, that the expenses for which
indemnification or reimbursement is sought have actually been incurred by the
Indemnitee.
5.5 Shareholder Vote on Determination. The Indemnitee and any
other shareholder who is a party to the proceeding for which indemnification or
reimbursement is sought shall be entitled to vote on any Determination to be
made by the Company's shareholders, including a Determination made pursuant to
Section 5.7 hereof. In addition, in connection with each meeting at which a
shareholder Determination will be made, the Company shall solicit proxies that
expressly include a proposal to indemnify or reimburse the Indemnitee. The
Company proxy statement relating to the proposal to indemnify or reimburse the
Indemnitee shall not include a recommendation against indemnification or
reimbursement.
-5-
<PAGE>
5.6 Selection of Independent Legal Counsel. If the
Determination required under Section 4 is to be made by independent legal
counsel, such counsel shall be selected by the Indemnitee with the approval of
the Board, which approval shall not be unreasonably withheld. The fees and
expenses incurred by counsel in making any Determination (including
Determinations pursuant to Section 5.8 hereof) shall be borne solely by the
Company regardless of the results of any Determination and, if requested by
counsel, the Company shall give such counsel an appropriate written agreement
with respect to the payment of their fees and expenses and such other matters as
may be reasonably requested by counsel.
5.7 Right of Indemnitee to Appeal an Adverse Determination by
Board. If a Determination is made by the Board or a committee thereof that the
Indemnitee did not meet the applicable standard of conduct set forth in Sections
1, 2 or 3 hereof, upon the written request of the Indemnitee and the
Indemnitee's delivery of $500 to the Company, the Company shall cause a new
Determination to be made by the Company's shareholders at the next regular or
special meeting of shareholders. Subject to Section 8 hereof, such Determination
by the Company's shareholders shall be binding and conclusive for all purposes
of this Agreement.
5.8 Right of Indemnitee to Select Forum for Determination. If,
at any time subsequent to the date of this Agreement, "Continuing Directors" do
not constitute a majority of the members of the Board, or there is otherwise a
change in control of the Company (as contemplated by Item 403(c) of Regulation
S-K), then upon the request of the Indemnitee, the Company shall cause the
Determination required by Section 4 hereof to be made by independent legal
counsel selected by the Indemnitee and approved by the Board (which approval
shall not be unreasonably withheld), which counsel shall be deemed to satisfy
the requirements of subparagraph (c) of Section 4 hereof. If none of the legal
counsel selected by the Indemnitee are willing and/or able to make the
Determination, then the Company shall cause the Determination to be made by a
majority vote or consent of a Board committee consisting solely of Continuing
Directors. For purposes of this Agreement, a "Continuing Director" means either
a member of the Board at the date of this Agreement or a person nominated to
serve as a member of the Board by a majority of the then Continuing Directors.
5.9 Access by Indemnitee to Determination. The Company shall
afford to the Indemnitee and his representatives ample opportunity to present
evidence of the facts upon which the Indemnitee relies for indemnification or
reimbursement, together with other information relating to any requested
Determination. The Company shall also afford the Indemnitee the reasonable
opportunity to include such evidence and information in any Company proxy
statement relating to a shareholder Determination.
5.10 Judicial Determinations in Derivative Suits. In each
action or suit described in Section 2 hereof, the Company shall cause its
counsel to use its best efforts to obtain from the Court in which such action or
suit was brought (a) an express adjudication whether the Indemnitee is liable
for negligence or misconduct in the performance of his duty to the Company, and,
if the Indemnitee is so liable, (b) a determination whether and to what extent,
despite the adjudication of liability but in view of all the circumstances of
the case (including this Agreement), the Indemnitee is fairly and reasonably
entitled to indemnification.
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<PAGE>
6. Scope of Indemnity. The actions, suits and proceedings described in
Sections 1 and 2 hereof shall include, for purposes of this Agreement, any
actions that involve, directly or indirectly, activities of the Indemnitee both
in his official capacities as a Company director or officer and actions taken in
another capacity while serving as director or officer, including, but not
limited to, actions or proceedings involving (a) compensation paid to the
Indemnitee by the Company, (b) activities by the Indemnitee on behalf of the
Company, including actions in which the Indemnitee is plaintiff, (c) actions
alleging a misappropriation of a "corporate opportunity," (d) responses to a
takeover attempt or threatened takeover attempt of the Company, (e) transactions
by the Indemnitee in Company securities, and (f) the Indemnitee's preparation
for and appearance (or potential appearance) as a witness in any proceeding
relating, directly or indirectly, to the Company. In addition, the Company
agrees that, for purposes of this Agreement, all services performed by the
Indemnitee on behalf of, in connection with or related to any subsidiary of the
Company, any employee benefit plan established for the benefit of employees of
the Company or any subsidiary, any corporation or partnership or other entity in
which the Company or any subsidiary has a 5% ownership interest, or any other
affiliate shall be deemed to be at the request of the Company.
7. Advance for Expenses.
7.1 Mandatory Advance. Expenses (including attorneys' fees)
incurred by the Indemnitee in investigating, defending, settling or appealing
any action, suit or proceeding described in Sections 1 or 2 hereof shall be paid
by the Company in advance of the final disposition of such action, suit or
proceeding. The Company shall promptly pay the amount of such expenses to the
Indemnitee, but in no event later than 10 days following the Indemnitee's
delivery to the Company of a written request for an advance pursuant to this
Section 7, together with a reasonable accounting of such expenses.
7.2 Undertaking to Repay. The Indemnitee hereby undertakes and
agrees to repay to the Company any advances made pursuant to this Section 7 if
and to the extent that it shall ultimately be found that the Indemnitee is not
entitled to be indemnified by the Company for such amounts.
7.3 Miscellaneous. The Company shall make the advances
contemplated by this Section 7 regardless of the Indemnitee's financial ability
to make repayment, and regardless whether indemnification of the Indemnitee by
the Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 7 shall be unsecured and interest-free.
8. Court-Ordered Indemnification. Regardless whether the Indemnitee has
met the standard of conduct set forth in Sections 1, 2 or 3 hereof, as the case
may be, and notwithstanding the presence or absence of any Determination whether
such standards have been satisfied, the Indemnitee may apply for indemnification
(and/or reimbursement pursuant to Sections 3 or 12 hereof) to the court
conducting any proceeding to which the Indemnitee is a party or to any other
court of competent jurisdiction. On receipt of an application, the court, after
giving any notice the court considers necessary, may order indemnification
(and/or reimbursement) if it determines the Indemnitee is fairly and reasonably
entitled to indemnification (and/or reimbursement) in view of all the relevant
circumstances (including this Agreement).
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<PAGE>
9. Nondisclosure of Payments. Except as expressly required by Federal
securities laws, neither party shall disclose any payments under this Agreement
unless prior approval of the other party is obtained. Any payments to the
Indemnitee that must be disclosed shall, unless otherwise required by law, be
described only in Company proxy or information statements relating to special
and/or annual meetings of the Company's shareholders, and the Company shall
afford the Indemnitee the reasonable opportunity to review all such disclosures
and, if requested, to explain in such statement any mitigating circumstances
regarding the events reported.
10. Covenant Not to Sue, Limitation of Actions and Release of Claims.
No legal action shall be brought and no cause of action shall be asserted by or
on behalf of the Company (or any of its subsidiaries) against the Indemnitee,
his spouse, heirs, executors, personal representatives or administrators after
the expiration of two years from the date the Indemnitee ceases (for any reason)
to serve as either an officer or a director of the Company, and any claim or
cause of action of the Company (or any of its subsidiaries) shall be
extinguished and deemed released unless asserted by filing of a legal action
within such two-year period.
11. Indemnification of Indemnitee's Estate. Notwithstanding any other
provision of this Agreement, and regardless whether indemnification of the
Indemnitee would be permitted and/or required under this Agreement, if the
Indemnitee is deceased, the Company shall indemnify and hold harmless the
Indemnitee's estate, spouse, heirs, administrators, personal representatives and
executors (collectively, the "Indemnitee's Estate") against, and the Company
shall assume, any and all claims, damages, expenses (including attorneys' fees),
penalties, judgments, fines and amounts paid in settlement actually incurred by
the Indemnitee or the Indemnitee's Estate in connection with the investigation,
defense, settlement or appeal of any action described in Sections 1 or 2 hereof.
Indemnification of the Indemnitee's Estate pursuant to this Section 11 shall be
mandatory and not require a Determination or any other finding that the
Indemnitee's conduct satisfied a particular standard of conduct.
12. Reimbursement of All Legal Expenses. Notwithstanding any other
provision of this Agreement, and regardless of the presence or absence of any
Determination, the Company promptly (but not later than 30 days following the
Indemnitee's submission of a reasonable accounting) shall reimburse the
Indemnitee for all attorneys' fees and related court costs and other expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action described in Sections 1 or 2 hereof
(including, but not limited to, the matters specified in Section 6 hereof).
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<PAGE>
13. Miscellaneous.
13.1 Notice Provision. Any notice, payment, demand or
communication required or permitted to be delivered or given by the provisions
of this Agreement shall be deemed to have been effectively delivered or given
and received on the date personally delivered to the respective party to whom it
is directed, or when deposited by registered or certified mail, with postage and
charges prepaid and addressed to the parties at the addresses set forth below
opposite their signatures to this Agreement.
13.2 Entire Agreement. Except for the Company's Restated
Certificate of Incorporation, this Agreement constitutes the entire
understanding of the parties and supersedes all prior understandings, whether
written or oral, between the parties with respect to the subject matter of this
Agreement.
13.3 Severability of Provisions. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such provision shall be
fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13.4 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
13.5 Execution in Counterparts. This Agreement and any
amendment may be executed simultaneously or in counterparts, each of which
together shall constitute one and the same instrument.
13.6 Cooperation and Intent. The Company shall cooperate in
good faith with the Indemnitee and use its best efforts to ensure that the
Indemnitee is indemnified and/or reimbursed for liabilities described herein to
the fullest extent permitted by law.
13.7 Amendment. No amendment, modification or alteration of
the terms of this Agreement shall be binding unless in writing, dated subsequent
to the date of this Agreement, and executed by the parties.
13.8 Binding Effect. The obligations of the Company to the
Indemnitee hereunder shall survive and continue as to the Indemnitee even if the
Indemnitee ceases to be a director, officer, employee and/or agent of the
Company. Each and all of the covenants, terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the successors to the Company
and, upon the death of the Indemnitee, to the benefit of the estate, heirs,
executors, administrators and personal representatives of the Indemnitee.
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13.9 Nonexclusivity. The rights of indemnification and
reimbursement provided in this Agreement shall be in addition to any rights to
which the Indemnitee may otherwise be entitled by statute, bylaw, agreement,
vote of shareholders or otherwise.
13.10 Effective Date. The provisions of this Agreement shall
cover claims, actions, suits and proceedings whether now pending or hereafter
commenced and shall be retroactive to cover acts or omissions or alleged acts or
omissions which heretofore have taken place.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
ADDRESS: THE COMPANY:
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Metalogics, Inc. METALOGICS, INC.
Riverview Historical Plaza
33-41 Newark Street, Suite 4-C
Hoboken, New Jersey 07030
Attention: Chief Executive Officer By:_______________________________
Name:
Title:
ADDRESS: THE INDEMNITEE:
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__________________________________
Name:
Title:
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EXHIBIT 10-2
METALOGICS, INC.
1998 STOCK OPTION PLAN
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Effective as of June 15, 1998
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Metalogics, Inc.
1998 Stock Option Plan
INTRODUCTION
Metalogics, Inc., a Delaware corporation (hereinafter referred
to as the "Corporation"), hereby establishes an incentive compensation plan to
be known as the "Metalogics, Inc. 1998 Stock Option Plan" (hereinafter referred
to as the "Plan"), as set forth in this document. The Plan permits the grant of
Non-Qualified Stock Options and Incentive Stock Options.
The Plan shall become effective on June 15, 1998. However, it
shall be rendered null and void and have no effect, and all Plan Awards granted
hereunder shall be canceled, if the Plan is not approved by a majority vote of
the Corporation's stockholders within twelve (12) months of the date the Plan is
adopted by the Corporation's Board of Directors.
The purpose of the Plan is to promote the success and enhance
the value of the Corporation by linking the personal interests of Participants
to those of the Corporation's stockholders by providing Participants with an
incentive for outstanding performance. The Plan is further intended to assist
the Corporation in its ability to motivate, and retain the services of,
Participants upon whose judgment, interest and special effort the successful
conduct of its and its subsidiaries' operations is largely dependent.
The Plan also provides pay systems that support the
Corporation's business strategy and emphasizes pay-for-performance by tying
reward opportunities to carefully determined and articulated performance goals
at corporate, operating unit, business unit and/or individual levels.
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DEFINITIONS
For purposes of this Plan, the following terms shall be
defined as follows unless the context clearly indicates otherwise:
(a) "Award Agreement" shall mean the written agreement, executed by an
appropriate officer of the Corporation, pursuant to which a Plan Award is
granted.
(b) "Board of Directors" shall mean the Board of Directors of the Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
(d) "Committee" shall mean the Board of Directors of the Corporation or any
committee of two or more persons designated by the Board of Directors to serve
as the Committee.
(e) "Common Stock" shall mean the common stock, par value $0.0001 per share, of
the Corporation.
(f) "Consultant" shall mean an individual who is in a
Consulting Relationship with the Corporation or any Parent or Subsidiary.
(g) "Consulting Relationship" shall mean the relationship that
exists between an individual and the Corporation (or any Parent or Subsidiary)
if (i) such individual or (ii) any entity of which such individual is an
executive officer or owns a substantial equity interest has entered into a
written consulting contract with the Corporation or any Parent or Subsidiary.
(h) "Corporation" shall mean Metalogics, Inc., a Delaware
corporation.
(i) "Disability" shall have the same meaning as the term
"permanent and total disability" under Section 22(e)(3) of the Code.
(j) "Employee" shall mean a common-law employee of the
Corporation or of any Parent or Subsidiary.
(k) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder.
(l) "Executive" means an employee of the Corporation or of any
Parent or Subsidiary whose compensation is subject to the deduction limitations
set forth under Code Section 162(m).
(m) "Fair Market Value" of the Corporation's Common Stock on a
Trading Day shall mean the last reported sale price for Common Stock or, in case
no such reported sale takes place on such Trading Day, the average of the
closing bid and asked prices for the Common Stock for such Trading Day, in
either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or if the Common Stock is not listed or
admitted to trading on any national securities exchange, but is traded in the
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over-the-counter market, the closing sale price of the Common Stock or, if no
sale is publicly reported, the average of the closing bid and asked quotations
for the Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or any comparable system or, if
the Common Stock is not listed on NASDAQ or a comparable system, the closing
sale price of the Common Stock or, if no sale is publicly reported, the average
of the closing bid and asked prices, as furnished by two members of the National
Association of Securities Dealers, Inc. who make a market in the Common Stock
selected from time to time by the Corporation for that purpose. In addition, for
purposes of this definition, a "Trading Day" shall mean, if the Common Stock is
listed on any national securities exchange, a business day during which such
exchange was open for trading and at least one trade of Common Stock was
effected on such exchange on such business day, or, if the Common Stock is not
listed on any national securities exchange but is traded in the over-the-counter
market, a business day during which the over-the-counter market was open for
trading and at least one "eligible dealer" quoted both a bid and asked price for
the Common Stock. An "eligible dealer" for any day shall include any
broker-dealer who quoted both a bid and asked price for such day, but shall not
include any broker-dealer who quoted only a bid or only an asked price for such
day. In the event the Corporation's Common Stock is not publicly traded, the
Fair Market Value of such Common Stock shall be determined by the Committee in
good faith.
(n) "Good Cause" shall have the equivalent meaning (or the
same meaning as "cause" or "for cause") set forth in any employment agreement
between the Participant and the Corporation or Parent or Subsidiary or, in the
absence of any such agreement, such term shall mean (i) the Participant's
willful or gross misconduct or willful or gross negligence in the performance of
his duties for the Corporation or for any Parent or Subsidiary after prior
written notice of such misconduct or negligence and the continuance thereof for
a period of 30 days after receipt by such Participant of such notice, (ii) the
Participant's intentional or habitual neglect of his duties for the Corporation
or for any Parent or Subsidiary after prior written notice of such neglect,
(iii) the Participant's theft or misappropriation of funds of the Corporation or
of any Parent or Subsidiary, fraud, criminal misconduct, breech of fiduciary
duty or dishonesty in the performance of his duties on behalf of the Parent or
any Parent or Subsidiary or commission of a felony, or crime of moral turpitude
or any other conduct reflecting adversely upon the Corporation or any Parent or
Subsidiary, (iv) the Participant's violation of any covenant not to compete or
not to disclose confidential information with respect to the Corporation or (v)
the direct or indirect breach by the Participant of the terms of a related
consulting contract with the Corporation or any Parent or Subsidiary.
(o) "Incentive Stock Option" shall mean a stock option
satisfying the requirements for tax-favored treatment under Section 422 of the
Code.
(p) "Non-Qualified Option" shall mean a stock option which
does not satisfy the requirements for, or which is not intended to be eligible
for, tax-favored treatment under Section 422 of the Code.
(q) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option granted pursuant to the provisions of Section VI
hereof.
(r) "Optionee" shall mean a Participant who is granted an
Option under the terms of this Plan.
(s) "Outside Directors" shall mean members of the Board of
Directors of the Corporation who are classified as "outside directors" under
Section 162(m) of the Code.
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(t) "Parent" shall mean a parent corporation of the
Corporation within the meaning of Section 424(e) of the Code.
(u) "Participant" shall mean any Employee or other person
participating under the Plan.
(v) "Plan Award" shall mean an Option granted pursuant to the
terms of this Plan.
(w) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
(x) "Subsidiary" shall mean a subsidiary corporation of the
Corporation within the meaning of Section 424(f) of the Code.
(y) "Termination of Consulting Relationship" shall mean the
cessation, abridgment or termination of a Consultant's Consulting Relationship
with the Corporation or any Parent or Subsidiary as a result of (i) the
Consultant's death or Disability, (ii) the cancellation, annulment, expiration,
termination or breach of the written consulting contract between the Corporation
(or any Parent or Subsidiary) and the Consultant (or any other entity) giving
rise to the Consulting Relationship or (iii) if the written consulting contract
is not directly between the Corporation (or any Parent or Subsidiary) and the
Consultant, the Consultant's termination of service with, or sale of all or
substantially all of his equity interest in, the entity which has entered into
the written consulting contract with the Corporation, Parent or Subsidiary.
II
ADMINISTRATION
The Plan shall be administered by the Committee, which shall
be composed solely of at least two Non-Employee Directors, as defined in Rule
16b-3(b)(3) promulgated under the Exchange Act and who also qualify as "Outside
Directors" (but only with respect to the period during which Plan Awards granted
hereunder are subject to the deduction limitations of Section 162(m) of the
Code). Subject to the provisions of the Plan, the Committee may establish from
time to time such regulations, provisions, proceedings and conditions of awards
which, in its sole opinion, may be advisable in the administration of the Plan.
A majority of the Committee shall constitute a quorum, and, subject to the
provisions of Section V of the Plan, the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all of the members of the Committee, shall be the acts of the Committee as a
whole.
III
SHARES AVAILABLE
Subject to the adjustments provided in Section VIII of the
Plan, the aggregate number of shares of the Common Stock which may be granted
for all purposes under the Plan shall be one million (1,000,000) shares. Shares
of Common Stock underlying awards of securities (derivative or not shall be
counted against the limitation set forth in the immediately preceding sentence
and may be reused to the extent that the related Plan Award to any individual is
settled in cash, expires, is terminated unexercised, or is forfeited. Common
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Stock granted to satisfy Plan Awards under the Plan may be authorized and
unissued shares of the Common Stock, issued shares of such Common Stock held in
the Corporation's treasury or shares of Common Stock acquired on the open
market.
IV
ELIGIBILITY
Officers and key employees of the Corporation, or of any
Parent or Subsidiary, who are regularly employed on a salaried basis as common
law employees, Consultants, and directors of the Corporation or of any Parent or
Subsidiary who are not Employees, shall be eligible to participate in the Plan.
Where appropriate under this Plan, directors who are not Employees shall be
referred to as "employees" and their service as directors as "employment".
V
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the direction of,
the Committee, which shall administer the Plan so as to comply at all times with
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder, to the extent such compliance is required, and shall otherwise have
plenary authority to interpret the Plan and to make all determinations specified
in or permitted by the Plan or deemed necessary or desirable for its
administration or for the conduct of the Committee's business. Subject to the
provisions of Section XI hereof, all interpretations and determinations of the
Committee may be made on an individual or group basis and shall be final,
conclusive and binding on all interested parties. Subject to the express
provisions of the Plan, the Committee shall have authority, in its discretion,
to determine the persons to whom Plan Awards shall be granted, the times when
such Plan Awards shall be granted, the number of Plan Awards, the exercise price
of each Plan Award, the period(s) during which a Plan Award shall be exercisable
(whether in whole or in part), the restrictions to be applicable to Plan Awards
and the other terms and provisions thereof (which need not be identical). In
addition, the authority of the Committee shall include, without limitation, the
following:
(a) Financing. The arrangement of temporary financing for an
Optionee by registered broker-dealers, under the rules and regulations of the
Federal Reserve Board, for the purpose of assisting an Optionee in the exercise
of an Option, such authority to include the payment by the Corporation of the
commissions of the broker-dealer;
(b) Procedures for Exercise of Option. The establishment of
procedures for an Optionee (i) to exercise an Option by payment of cash, (ii) to
have withheld from the total number of shares of Common Stock to be acquired
upon the exercise of an Option that number of shares having a Fair Market Value,
which, together with such cash as shall be paid in respect of fractional shares,
shall equal the Option exercise price of the total number of shares of Common
Stock to be acquired, (iii) to exercise all or a portion of an Option by
delivering that number of shares of Common Stock already owned by him having a
Fair Market Value which shall equal the Option exercise price for the portion
exercised and, in cases where an Option is not exercised in its entirety, and
subject to the requirements of the Code, to permit the Optionee to deliver the
shares of Common Stock thus acquired by him in payment of shares of Common Stock
to be received pursuant to the exercise of additional portions of such Option,
the effect of which shall be that an Optionee can in sequence utilize such newly
acquired shares of Common Stock in payment of the exercise price of the entire
Option, together with such cash as shall be paid in respect of fractional shares
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and (iv) to engage in any form of "cashless" exercise. The Committee may, in its
sole discretion, require that an exercise described under any one or more or the
methods described under clauses (ii), (iii) or (iv) of the immediately preceding
sentence (to the extent such exercise is, or is deemed to constitute, an
exercise effected by the tendering of Common Stock) be consummated with Common
Stock (i) held by the Optionee for at least six (6) months or (ii) acquired by
the Optionee other than under this Plan or a similar program.
(c) Withholding. The establishment of a procedure whereby a
number of shares of Common Stock may be withheld from the total number of shares
of Common Stock to be issued upon exercise of an Option or for the tender of
shares of Common Stock owned by any Participant to meet any obligation of
withholding for taxes incurred by the Participant upon such exercise. The
Committee may, in its sole discretion, require that if any such withholding is
effected by the tendering of Common Stock, such withholding shall be consummated
with Common Stock (i) held by the Optionee for at least six (6) months or (ii)
acquired by the Optionee other than under this Plan or a similar program.
VI
STOCK OPTIONS
The Committee shall have the authority, in its discretion, to
grant Incentive Stock Options or to grant Non-Qualified Stock Options or to
grant both types of Options. Notwithstanding anything contained herein to the
contrary, an Incentive Stock Option may be granted only to common law employees
of the Corporation or of any Parent or Subsidiary now existing or hereafter
formed or acquired, and not to any director or officer who is not also such a
common law employee. In order for an Option grant to satisfy the
"performance-based compensation" exemption to the deduction limitation under
Code Section 162(m), the maximum number of shares of Common Stock subject to
Options which may be granted to any single Executive during any one calendar
year, beginning with the year grants under this Plan first become subject to
such deduction limitations, is 500,000. The terms and conditions of the Options
shall be determined from time to time by the Committee; provided, however, that
the Options granted under the Plan shall be subject to the following:
(a) Exercise Price. The Committee shall establish the exercise
price at the time any Option is granted at such amount as the Committee shall
determine; provided, however, that the exercise price for each share of Common
Stock purchasable under any Option which is intended to satisfy the
performance-based compensation exemption to the deduction limitation under
Section 162(m) of the Code or any Incentive Stock Option granted hereunder shall
be such amount as the Committee shall, in its best judgment, determine to be not
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock at the date the Option is granted; and provided, further, that in
the case of an Incentive Stock Option granted to a person who, at the time such
Incentive Stock Option is granted, owns shares of stock of the Corporation or of
any Parent or Subsidiary which possess more than ten percent (10%) of the total
combined voting power of all classes of shares of stock of the Corporation or of
any Parent or Subsidiary, the exercise price for each share of Common Stock
shall be such amount as the Committee, in its best judgment, shall determine to
be not less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock at the date the Option is granted. The exercise price will
be subject to adjustment in accordance with the provisions of Section VIII of
the Plan.
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(b) Payment of Exercise Price. The exercise price per share of
Common Stock with respect to each Option shall be payable at the time the Option
is exercised. Such price shall be payable in cash or pursuant to any of the
other methods set forth in Sections V(a) or (b) hereof, as determined by the
Committee. Shares of Common Stock delivered to the Corporation in payment of the
exercise price shall be valued at the Fair Market Value of the Common Stock on
the date preceding the date of the exercise of the Option.
(c) Exercisability of Options. Except as provided in Section
VI(e) hereof, each Option shall be exercisable in whole or in installments, and
at such time(s), and subject to the fulfillment of any conditions on, and to any
limitations on, exercisability as may be determined by the Committee at the time
of the grant of such Options. The right to purchase shares of Common Stock shall
be cumulative so that when the right to purchase any shares of Common Stock has
accrued such shares of Common Stock or any part thereof may be purchased at any
time thereafter until the expiration or termination of the Option.
(d) Expiration of Options. No Incentive Stock Option by its
terms shall be exercisable after the expiration of ten (10) years from the date
of grant of the Option; provided, however, in the case of an Incentive Stock
Option granted to a person who, at the time such Option is granted, owns shares
of stock of the Corporation or of any Parent or Subsidiary possessing more than
ten percent (10%) of the total combined voting power of all classes of shares of
stock of the Corporation or of any Parent or Subsidiary, such Option shall not
be exercisable after the expiration of five (5) years from the date such Option
is granted.
(e) Exercise Upon Optionee's Termination of Employment or
Termination of Consulting Relationship. If the employment of an Optionee by the
Corporation or by any Parent or Subsidiary is terminated for any reason other
than death, any Incentive Stock Option granted to such Optionee may not be
exercised later than three (3) months (one (1) year in the case of termination
due to Disability) after the date of such termination of employment. For
purposes of determining whether any Optionee has incurred a termination of
employment (or a Termination of Consulting Relationship), an Optionee who is
both an employee (or a Consultant) and a director of the Corporation and/or any
Parent or Subsidiary shall (with respect to any Non-Qualified Option that may
have been granted to him) be considered to have incurred a termination of
employment (or a Termination of Consulting Relationship) only upon his
termination of service both as an employee (or as a Consultant) and as a
director. Furthermore, (i) if an Optionee's employment (or Consulting
Relationship) is terminated by the Corporation or by any Parent or Subsidiary
for Good Cause or (ii) if an Optionee voluntarily terminates his employment
other than for Disability (or incurs a voluntary Termination of Consulting
Relationship other than for Disability) with the Corporation or with any Parent
or Subsidiary without the written consent of the Committee, regardless of
whether such Optionee continues to serve as a director of the Corporation or of
any Parent or Subsidiary, then the Optionee shall, at the time of such
termination of employment (or Termination of Consulting Relationship), forfeit
his rights to exercise any and all of the outstanding Option(s) theretofore
granted to him.
(f) Maximum Amount of Incentive Stock Options. Each Plan Award
under which Incentive Stock Options are granted shall provide that to the extent
the sum of (i) the Fair Market Value of the shares of Common Stock (determined
as of the time of the grant of the Option) subject to such Incentive Stock
Option plus (ii) the fair market values (determined as of the date(s) of grant
of the option(s)) of all other shares of Common Stock subject to incentive stock
options granted to an Optionee by the Corporation or any Parent or Subsidiary,
which are exercisable for the first time by any person during any calendar year,
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exceed(s) one hundred thousand dollars ($100,000), such excess shares of Common
Stock shall not be deemed to be purchasable pursuant to Incentive Stock Options.
The terms of the immediately preceding sentence shall be applied by taking all
options, whether or not granted under this Plan, into account in the order in
which they are granted.
(g) Dividend Equivalents for Outstanding Options. The
Committee may, in its sole discretion, provide that amounts equivalent to
dividends shall be payable with respect to one or more shares of Common Stock
subject to vested but unexercised Option(s) granted to a Participant. Such
amounts shall be credited to a suspense account, and shall be payable to the
Participant in cash or in Common Stock, as set forth under the terms of the Plan
Award, if and at such time as the related Option(s) are exercised.
VII
ADJUSTMENT OF SHARES; MERGER OR
CONSOLIDATION, ETC. OF THE CORPORATION
(a) Recapitalization, Etc. In the event there is any change in
the outstanding Common Stock of the Corporation by reason of any reorganization,
recapitalization, stock split, stock dividend, combination of shares or
otherwise, there shall be substituted for or added to each share of Common Stock
theretofore appropriated or thereafter subject, or which may become subject, to
any Option, the number and kind of shares of stock or other securities into
which each outstanding share of Common Stock shall be so changed or for which
each such share shall be exchanged, or to which each such share shall be
entitled, as the case may be, and the per share price thereof also shall be
appropriately adjusted. Notwithstanding the foregoing, (i) each such adjustment
with respect to an Incentive Stock Option shall comply with the rules of Section
424(a) of the Code and (ii) in no event shall any adjustment be made which would
render any Incentive Stock Option granted hereunder to be other than an
incentive stock option for purposes of Section 422 of the Code.
(b) Merger, Consolidation or Change in Control of Corporation.
Upon (i) the merger or consolidation of the Corporation with or into another
corporation (pursuant to which the stockholders of the Corporation immediately
prior to such merger or consolidation will not, as of the date of such merger or
consolidation, own a beneficial interest in shares of voting securities of the
corporation surviving such merger or consolidation having at least a majority of
the combined voting power of such corporation's then outstanding securities), if
the agreement of merger or consolidation does not provide for (1) the
continuance of the Options granted hereunder or (2) the substitution of new
optionsfor Options granted hereunder, or for the assumption of such by the
surviving corporation, (ii) the dissolution, liquidation, or sale of all or
substantially all the assets of the Corporation to a person unrelated to the
Corporation or to a direct or indirect owner of a majority of the voting power
of the Corporation's then outstanding voting securities (such sale of assets
being referred to as an "Asset Sale") or (iii) the Change in Control of the
Corporation, then the holder of any such Option theretofore granted and still
outstanding (and not otherwise expired) shall have the right immediately prior
to the effective date of such merger, consolidation, dissolution, liquidation,
Asset Sale or Change in Control of the Corporation to exercise such Option(s) in
whole or in part without regard to any installment provision that may have been
made part of the terms and conditions of such Option(s); provided that all
conditions precedent to the exercise of such Option(s), other than the passage
of time, have occurred. The Corporation, to the extent practicable, shall give
advance notice to affected Optionees of such merger, consolidation, dissolution,
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liquidation, Asset Sale or Change in Control of the Corporation. Unless
otherwise provided in the subject Award Agreement or merger, consolidation or
Asset Sale agreement, all such Options and which are not so exercised shall be
forfeited as of the effective time of such merger, consolidation, dissolution,
liquidation or Asset Sale (but not in the case of a Change in Control of the
Corporation). In the event the Corporation becomes a subsidiary of another
corporation (the "Parent Corporation") with respect to which the stockholders of
the Corporation (as determined immediately before such transaction) own,
immediately after such transaction, a beneficial interest in shares of voting
securities of the Parent Corporation having at least a majority of the combined
voting power of such Parent Corporation's then outstanding securities, there
shall be substituted for Options granted hereunder, options to purchase common
stock of the Parent Corporation. The substitution described in the immediately
preceding sentence shall be effected in a manner such that any option granted by
the Parent Corporation to replace an Incentive Stock Option granted hereunder
shall satisfy the requirements of Section 422 of the Code.
(c) Definition of Change in Control of the Corporation. As
used herein, a "Change in Control of the Corporation" shall be deemed to have
occurred if any person (including any individual, firm, partnership or other
entity) together with all Affiliates and Associates (as defined under Rule 12b-2
of the General Rules and Regulations promulgated under the Exchange Act) of such
person (but excluding (i) a trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation or any subsidiary of the
Corporation, (ii) a corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as their
ownership of the Corporation, (iii) the Corporation or any subsidiary of the
Corporation or (iv) only as provided in the immediately following sentence, a
Participant together with all Affiliates and Associates of the Participant) who
is not a stockholder or an Affiliate or Associate of a stockholder of the
Corporation on the date of stockholder approval of the Plan is or becomes the
Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 40% of
more of the combined voting power of the Corporation's then outstanding
securities. The provisions of clause (iv) of the immediately preceding sentence
shall apply only with respect to the Option(s) held by the Participant who,
together with his Affiliates or Associates, if any, is or becomes the direct or
indirect Beneficial Owner of the percentage of securities set forth in such
clause.
VIII
MISCELLANEOUS PROVISIONS
(a) Administrative Procedures. The Committee may establish any
procedures determined by it to be appropriate in discharging its
responsibilities under the Plan. Subject to the provisions of Section XIereof,
all actions and decisions of the Committee shall be final.
(b) Assignment or Transfer. No grant or award of any Plan
Award (other than a Non-Qualified Option) or any rights or interests therein
shall be assignable or transferable by a Participant except by will or the laws
of descent and distribution or pursuant to a domestic relations order. During
the lifetime of a Participant, Incentive Stock Options granted hereunder shall
be exercisable only by the Participant.
(c) Investment Representation. Wth respect to shares of Common
Stock received pursuant to the exercise of an Option, the Committee may require,
as a condition of receiving such securities, that the Participant furnish to the
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Corporation such written representations and information as the Committee deems
appropriate to permit the Corporation, in light of the existence or nonexistence
of an effective registration statement under the Securities Act, to deliver such
securities in compliance with the provisions of the Securities Act.
(d) Withholding Taxes. In the case of the issuance or
distribution of Common Stock or other securities hereunder, upon the exercise of
any Plan Award, the Corporation, as a condition of such issuance or
distribution, may require the payment (through withholding from the
Participant's salary, reduction of the number of shares of Common Stock or other
securities to be issued, or otherwise) of any federal, state, local or foreign
taxes required to be withheld. Each Participant may satisfy the withholding
obligations by paying to the Corporation a cash amount equal to the amount
required to be withheld or, subject to the Committee's consent thereto, by
tendering to the Corporation a number of shares of Common Stock having a value
equivalent to such cash amount, or by use of any available procedure approved by
the Committee as described under Section V(c) hereof.
(e) Costs and Expenses. The costs and expenses of
administering the Plan shall be borne by the Corporation and shall not be
charged against any award nor to any employee receiving a Plan Award.
(f) Funding of Plan. The Plan shall be unfunded. The
Corporation shall not be required to segregate any of its assets to assure the
payment of any Plan Award under the Plan. Neither the Participants nor any other
persons shall have any interest in any fund or in any specific asset or assets
of the Corporation or any other entity by reason of any Plan Award, except to
the extent expressly provided hereunder. The interests of each Participant and
former Participant hereunder are unsecured and shall be subject to the general
creditors of the Corporation.
(g) Other Incentive Plans. The adoption of the Plan does not
preclude the adoption by appropriate means of any other incentive plan for
employees.
(h) Plurals and Gender. Where appearing in this Plan,
masculine gender shall include the feminine and neuter genders, and the singular
shall include the plural, and vice versa, unless the context clearly indicates a
different meaning.
(i) Headings. The headings and sub-headings in this Plan are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
(j) Severability. In case any provision of this Plan shall be
held illegal or void, such illegality or invalidity shall not affect the
remaining provisions of this Plan, but shall be fully severable, and the Plan
shall be construed and enforced as if said illegal or invalid provisions had
never been inserted herein.
(k) Liability and Indemnification. (i) Neither the Corporation
nor any Parent or Subsidiary shall be responsible in any way for any action or
omission of the Committee, or any other fiduciaries in the performance of their
duties and obligations as set forth in this Plan. Furthermore, neither the
Corporation nor any Parent or Subsidiary shall be responsible for any act or
omission of any of their agents, or with respect to reliance upon advice of
their counsel, provided that the Corporation and/or the appropriate Parent or
Subsidiary relied in good faith upon the action of such agent or the advice of
such counsel.
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(ii) Neither the Corporation, any Parent or Subsidiary, the
Committee, nor any agents, employees, officers, directors or shareholders of any
of them, nor any other person shall have any liability or responsibility with
respect to this Plan, except as expressly provided herein.
(l) Incapacity. If the Committee shall receive evidence
satisfactory to it that a person entitled to receive payment of, or exercise,
any Plan Award is, at the time when such benefit becomes payable or exercisable
, a minor, or is physically or mentally incompetent to receive such Plan Award
and to give a valid release thereof, and that another person or an institution
is then maintaining or has custody of such person and that no guardian,
committee or other representative of the estate of such person shall have been
duly appointed, the Committee may make payment of such Plan Award otherwise
payable to such person to (or permit such Plan Award to be exercised by) such
other person or institution, including a custodian under a Uniform Gifts to
Minors Act, or corresponding legislation (who shall be an adult, a guardian of
the minor or a trust company), and the release by such other person or
institution shall be a valid and complete discharge for the payment or exercise
of such Plan Award.
(m) Cooperation of Parties. All parties to this Plan and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Plan or any of its provisions.
(n) Governing Law. All questions pertaining to the validity,
construction and administration of the Plan shall be determined in accordance
with the laws of the State of Delaware.
(o) Nonguarantee of Employment or Consulting Relationship .
Nothing contained in this Plan shall be construed as a contract of employment
(or as a consulting contract) between the Corporation (or any Parent or
Subsidiary), and any employee or Participant, as a right of any employee or
Participant to be continued in the employment of (or in a Consulting
Relationship with) the Corporation (or any Parent or Subsidiary), or as a
limitation on the right of the Corporation or any Parent or Subsidiary to
discharge any of its employees (or Consultants), at any time, with or without
cause (but subject to the terms of any applicable employment or consulting
agreement).
(p) Notices. Each notice relating to this Plan shall be in
writing and delivered in person, by recognized overnight courier or by certified
mail to the proper address. Except as otherwise provided in any Award Agreement
with respect to the exercise thereunder, all notices to the Corporation or the
Committee shall be addressed to it at Metalogics, Inc., Riverview Historical
Plaza, 33-41 Newark Street, Suite 4-C, Hoboken, New Jersey 07030, Attn: Nicholas
R. Wood, Chief Financial Officer. All notices to Participants, former
Participants, beneficiaries or other persons acting for or on behalf of such
persons shall be addressed to such person at the last address for such person
maintained in the Committee's records.
(q) Written Agreements. Each Plan Award shall be evidenced by
a signed written agreement (the "Award Agreements") between the Corporation and
the Participant containing the terms and conditions of the award.
-11-
<PAGE>
IX
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Corporation shall have the right
to amend, suspend or terminate the Plan at any time, provided that no amendment
shall be made which shall increase the total number of shares of the Common
Stock of the Corporation which may be issued and sold pursuant to Incentive
Stock Options, reduce the minimum exercise price in the case of an Incentive
Stock Option or modify the provisions of the Plan relating to eligibility with
respect to Incentive Stock Options unless such amendment is made by or with the
approval of the stockholders within 12 months of the effective date of such
amendment, but only if such approval is required by any applicable provision of
law. Furthermore, no amendment to this Plan may change (i) the maximum amount of
Plan Awards that may be granted or paid on an annual basis or (ii) the exercise
price of any options granted hereunder without the prior approval of the
Corporation's stockholders in the manner required under Section 162(m) of the
Code; provided, however, that such stockholder consent is required only during
such period that the deduction limitations under Code Section 162(m) apply to
Plan Awards granted under the Plan. The Board of Directors of the Corporation
shall also be authorized to amend the Plan and the Options granted thereunder to
maintain qualification as "incentive stock options" within the meaning of
Section 422 of the Code, if applicable. Except as otherwise provided herein, no
amendment, suspension or termination of the Plan shall alter or impair any Plan
Award previously granted under the Plan without the consent of the holder
thereof.
X
TERM OF PLAN
The Plan shall automatically terminate on the day immediately
preceding the tenth (10th) anniversary of the date the Plan was adopted by the
Board of Directors of the Corporation, unless sooner terminated by such Board of
Directors. No Plan Awards may be granted under the Plan subsequent to the
termination of the Plan.
XI
CLAIMS PROCEDURES
(a) Denial. If any Participant, former Participant or
beneficiary is denied any vested benefit to which he is, or reasonably believes
he is, entitled under this Plan, either in total or in an amount less than the
full vested benefit to which he would normally be entitled, the Committee shall
advise such person in writing of the specific reasons for the denial. The
Committee shall also furnish such person at the time with a written notice
containing (i) a specific reference to pertinent Plan provisions, (ii) a
description of any additional material or information necessary for such person
to perfect his claim, if possible, and an explanation of why such material or
information is needed and (iii) an explanation of the Plan's claim review
procedure.
(b) Written Request for Review. Within 60 days of receipt of
the information stated in subsection (a) above, such person shall, if he desires
further review, file a written request for reconsideration with the Committee.
(c) Review of Document. So long as such person's request for
review is pending (including the 60-day period in subsection (b) above), such
person or his duly authorized representative may review pertinent Plan documents
and may submit issues and comments in writing to the Committee.
-12-
<PAGE>
(d) Committee's Final and Binding Decision. A final and
binding decision shall be made by the Committee within 60 days of the filing by
such person of his request for reconsideration; provided, however, that if the
Committee, in its discretion, feels that a hearing with such person or his
representative is necessary or desirable, this period may be extended for an
additional 60 days.
(e) Transmittal of Decision. The Committee's decision shall be
conveyed to such person in writing and shall (i) include specific reasons for
the decision, (ii) be written in a manner calculated to be understood by such
person and (iii) set forth the specific references to the pertinent Plan
provisions on which the decision is based.
(f) Limitation on Claims. Notwithstanding any provisions of
this Plan to the contrary, no Participant (nor the estate or other beneficiary
of a Participant) shall be entitled to assert a claim against the Corporation
(or against any Parent or Subsidiary) more than three years after the date the
Participant (or his estate or other beneficiary) initially first becomes
entitled to receive the subject benefits hereunder.
-13-
<PAGE>
Employment Agreement
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of June 1, 1997 (the
"Effective Date") by and between Meta4, Inc., a corporation organized and
operating under the laws of the State of Delaware, with its principal place of
business at 33-41 New Street Suite 4C, Hoboken, NJ 07030 (hereinafter referred
to as "The Company") and William P. Doyle, currently residing at 44-25 Angier
Avenue, Durham, North Carolina 27703 (hereinafter referred to as "Employee").
W I T N E S S E T H :
WHEREAS, the Company is a for profit corporation engaged in the business of
providing, among other things, consulting services and software development
concerning solutions to the Year 2000 problem and management of information
technology operations;
WHEREAS, Employee is a founder of the Company whose work was integral to the
Company's development of its proprietary software and intellectual property;
WHEREAS, the Company and Employee desire to enter into a formal employment
arrangement;
WHEREAS, Employee currently has an agreement with another principal shareholder
and the Company under which Employee is entitled to receive a royalty equal to
10 percent of the sales of the Company's proprietary software (the "Royalty
Agreement") and the Company and Employee desire that the Royalty Agreement be
conditionally superseded as provided herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT
A. Term. As of the Effective Date and continuing for a term of five
years unless terminated as herein provided, Employee shall serve
as President and Chief Executive Officer of the Company (the
"Term"). Employee shall perform those services consistent with
his position as President and Chief Executive Officer.
B. Best Efforts. Employee agrees at all times to faithfully,
diligently, conscientiously, and to the best of Employee's
ability, experience and talents, devote his best efforts,
energies, skills and expertise to the performance of the duties
that may be required pursuant to the terms of this Agreement;
C. Full Time and Attention. Employee shall devote full business time
and attention solely to the business and affairs of the Company
and shall not, directly or indirectly engage or participate in
any activities or matters which may adversely affect or reflect
discredit on the Company; and
<PAGE>
D. Business Opportunities. Employee shall bring to the attention of
all proposals, business opportunities or investments, other than
personal investments, of whatever nature, in areas in which the
Company is active, which are created or devised by Employee or
come to the attention of Employee and which might reasonably be
expected to interest the Company.
2. COMPENSATION
A. Base Salary. The Company shall pay the Employee an annual base
salary of three hundred thousand dollars ($300,000) (the "Base
Salary"), commencing on the first full payroll cycle following
the execution hereof. The Base Salary shall be prorated for any
partial employment period. To the extent that Employee's rate of
compensation from the Effective Date to the date of the execution
of this Agreement has been less than $300,000 per annum, the
Company shall pay Employee the difference of such rates so that
such difference shall be fully paid to Employee not later than
December 31, 1998. The Base Salary shall be payable in accordance
with the Company's normal payroll practices for senior executives
less usual, customary and required payroll deductions. The Board
of Directors may in its discretion increase the Employee's Base
Salary at any time.
B. Bonus. At the discretion of Employee and James J. Urbaniak,
Executive Vice President, and with the approval of the Board of
Directors of the company, there may be designated on an annual
basis a certain amount of funds to be paid to the company's
employees as bonus compensation (the "Bonus Pool"). Employee
shall be entitled to receive 33% of such Bonus Pool per annum
during the Term.
C. Taxes. All payments under this section shall be subject to
withholding of all applicable income and employment taxes.
3. BENEFITS - Employee shall be entitled to participate in or receive benefits
under any employee benefit plan, arrangement or prerequisite made available by
the Company to its employees currently, or in the future, subject to and on a
basis consistent with the terms, conditions and overall administration of such
plans, arrangements or prerequisites. Employee shall be entitled to a vacation
each year in accordance with the Company's policies in effect from time to time,
provided, however, that Employee shall be entitled to a minimum of four weeks
vacation per year.
<PAGE>
4. STOCK OPTIONS - Concurrent with a contemplated Initial Public Offering ("IPO
Date")the Company plans to adopt a nonqualified stock option plan. In the event
that the Initial Public Offering proceeds, then in lieu of the Royalty
Agreement, which shall be terminated on the IPO Date, Employee shall be entitled
to stock options calculated as follows: Employee shall be entitled to receive
options to purchase 370,000 shares of the Company's common stock at the IPO
price in accordance with the following schedule: (i) 74,000 shares between
November 1 and December 31, 1998; (ii) 74,000 shares between November 1 and
December 31, 1999; (iii) 74,000 shares between November 1 and December 31,
2000; (iv) 74,000 shares between November 1 and December 31, 2001; and (v)
74,000 shares between November 1 and December 31, 2002. Should the Initial
Public Offering not proceed, then the Royalty Agreement shall remain in effect.
5. CONFIDENTIALITY - Employee agrees not to disclose, directly or indirectly, or
use for the personal benefit of Employee or others, directly or indirectly, any
Trade Secrets and Confidential Proprietary Information which is prepared by or
made known to Employee during the course of his employment. For purposes of this
Agreement, the term "Trade Secrets and Confidential Proprietary Information"
shall mean information or material that is not publicly known that relates to
the business of the Company or that of its clients, including, by way of example
and without limitation, "Inventions" (as defined below), trade secrets, designs,
configurations, processes, techniques, formulas, software, improvements,
copyrightable material, marketing plans and strategies, sales and financial
reports and forecasts, financial, commercial, statistical, personnel or
technical data, and customer lists. Employee will not, during his employment or
upon the termination thereof, copy or otherwise transcribe, reproduce or remove
from the premises or possession the Company, without the Company's prior written
consent in each case, any drawings, hardware, software, disks, specifications,
tapes, descriptive matter, reproductions or any materials representing any
products, ideas, machines, processes, know-how or other developments or property
whatsoever owned, made or used by the Company. Employee acknowledges that all
pricing information, sales manuals, binders, customer lists and other customer
information, financial information and other records of documents containing
Trade Secrets and Confidential Proprietary Information prepared by Employee or
coming into Employee's possession by virtue of Employee's employment by the
Company is and shall remain the property of the Company and that, upon
termination of employee's employment hereunder, Employee shall return
immediately to the Company all such items in his possession, together with all
copies thereof. Employee agrees that the Company shall suffer irreparable harm
in the event that Employee breaches the foregoing covenant and acknowledges that
the Company will lack an adequate remedy at law should Employee breach such
covenant. Accordingly, in the event of a breach of any of these covenants by
Employee, Employee agrees that in addition to being entitled to legal remedies,
including compensatory, consequential and punitive damages, this covenant may be
specifically enforced.
<PAGE>
6. RESTRICTIVE COVENANTS - During his employment and for a period of one year
from the date of termination thereof Employee agrees not to perform services,
directly or indirectly, for any firm, person or corporation that competes or has
competed with the Company or for any client of the Company where Employee
performs or had previously performed services for such client as an employee of
the Company. Furthermore, during his employment and for a period of one year
from the date of termination thereof Employee agrees not to solicit or employ,
on behalf of himself or others, the services of any firm, person or corporation
employed at that time by the Company. Employee agrees that the Company shall
suffer irreparable harm in the event that Employee breaches the foregoing
covenant and acknowledges that the Company will lack an adequate remedy at law
should Employee breach such covenant. Accordingly, in the event of a breach of
any of these covenants by Employee, Employee agrees that in addition to being
entitled to legal remedies, including compensatory, consequential and punitive
damages, this covenant may be specifically enforced. In the event that, in any
judicial proceeding, a court refuses fully to enforce any part of this Section
6, then such nonenforceable part shall be deemed eliminated herefrom or reduced
or modified for the purpose of such proceedings to the extent necessary to
permit the remainder thereof to be enforced. Nothing contained herein shall be
deemed to prevent Employee after the termination of his employment from engaging
in any activity on behalf of any firm, person or corporation whose business
competes with that of the Company if Employee's activities on behalf of such
firm, person or corporation are not related to the business of the Company as
conducted currently or at such time.
7. DISCLOSURE - Employee will disclose promptly in writing to the Company all
inventions, improvements, processes, techniques, discoveries, codes, software,
and writings whether patentable or not, and any creative work that may be
subject to protection under federal copyright law (any such items hereinafter
referred to as "Inventions") which are conceived, made, discovered or written
jointly or singly:
A. In the course of or as a result of the services performed
hereunder, and
B. For a period of six months after termination of this Agreement,
Inventions that relate to, or arise out of any developments,
services or products that Employee has been concerned with during
the rendering of services hereunder.
8. OWNERSHIP OF WORK PRODUCT - Employee agrees that all Inventions and other
work products developed under this Agreement, whether before or after the date
of execution of this Agreement, are the exclusive property of the Company, that
the Company is the sole owner of all copyrights, patents and other rights in
connection therewith and that all such copyrightable works constitute works made
for hire. In consideration of his continued employment, and for no other
consideration, Employee hereby assigns and agrees to assign to the Company all
patents, copyrights and any other rights Employee may have or acquire in any and
all Inventions and other work products developed under this Agreement, whether
before or after the date of execution of this Agreement, or as a result of ideas
developed during work performed under this Agreement to the Company. In
addition, the Company may require, and Employee agrees to sign patent and
copyright assignments to the Company or the Company's clients and to assist the
Company in obtaining and enforcing all copyrights, patents and other rights to
Inventions and other work products. Employee will sign all instruments of
assignment and other papers to evidence vestiture of his right, title and
interest to all Inventions and work products in the Company or its clients at
the request and expense of the Company. Employee will do all acts and sign all
instruments of assignment and other papers that the Company may reasonably
request relating to applications for patents, copyrights and other rights and to
the enforcement and protection thereof. Employee agrees that the Company shall
suffer irreparable harm in the event that Employee breaches the foregoing
covenant and acknowledges that the Company will lack an adequate remedy at law
should Employee breach such covenant. Accordingly, in the event of a breach of
any of these covenants by Employee, Employee agrees that in addition to being
entitled to legal remedies, including compensatory, consequential and punitive
damages, this covenant may be specifically enforced.
<PAGE>
9. THIRD PARTY LIABILITY - Employee represents and warrants that he has not
disclosed to the Company or any of its directors, officers, employees, agents,
or consultants any knowledge, information, inventions, discoveries or ideas that
Employee possesses under an obligation of secrecy to a third party ("Third Party
Confidential Information"), and Employee agrees that Employee shall not disclose
any Third Party Confidential Information to the Company or any of its directors,
officers, employees, agents, or consultants. Employee further represents and
warrants that Employee does not have any express or implied obligation to any
third party that conflicts with any of Employee's obligations under this
Agreement ("Third Party Conflicts").
10. WAIVER - Failure by a party to insist upon strict compliance with any of the
terms or conditions of this Agreement shall not be deemed a waiver of such term
or condition, nor shall any such failure be deemed a relinquishment or waiver of
any such right or power deemed to be a waiver at any other time.
11. NOTICES - Any notices required or authorized to be given by the terms of
this Agreement shall be deemed duly given if sent by mail, return receipt
requested, to the appropriate addressee or hand delivered to the addressee. Any
such notice, if sent to the Company shall be addressed as follows:
Mr. James J. Urbaniak
META4, INC.
Riverview Historical Plaza
33-41 Newark Street Suite 4-C
Hoboken, NJ 07030
and if sent to Employee, it shall be mailed or delivered to the address on file
in the Company's office, such address to be supplied to the Company by Employee.
12. TERMINATION BY COMPANY - This Agreement and Employee's employment hereunder
may be terminated by the Company as set forth herein.
A. For Cause. "For Cause," for purposes of this Agreement, shall
mean that Employee (i) commits fraud, embezzlement or other acts
of gross dishonesty, (ii) is convicted of a felony, or (iii) the
willful and continued failure by the Employee to substantially
perform his duties hereunder after demand for substantial
performance is delivered by the Company that specifically
identifies the manner in which the Company believes the Employee
has not substantially performed his duties and such failure
continues for at least 30 days thereafter. Any such termination
shall be effective upon service of written notice to Employee.
<PAGE>
B. Severance If the Company terminates Employee's employment
(i) without cause, or (ii) based on subsection A of section 13,
Employee shall receive his Base Salary through May 31, 2002 plus
a bonus calculated at the rate of $500,000 per annum from the
Effective Date. If the Company terminates Employee's employment
based on a failure to perform as set forth in subsection A(iii)
of this Section 12, Employee shall be entitled to receive one
year's Base Salary from the effective date of the termination
plus a bonus of $500,000. Additionally, if the Company terminates
Employee's employment less than six (6) months prior to May 31,
2002, Employee shall receive an additional six (6) months' Base
Salary. Base Salary paid pursuant to this Section 12(B) shall be
paid in accordance with the Company's normal payroll practices,
and bonus paid pursuant to this Section 12(B) shall be paid in
quarterly installments, the first of which shall be paid within
30 days of the effective date of termination. The Employee shall
have no duty to mitigate any damages or payments due him
hereunder by seeking other employment or otherwise, nor shall any
income earned by Employee that is not in violation of this
Agreement serve to offset any payments due Employee hereunder.
13. TERMINATION BY EMPLOYEE - This Agreement and Employee's employment hereunder
may be terminated at any time by Employee. Any such termination shall be
effective upon service of written notice pursuant to Section 11 of this
Agreement.
A. Diminution of Responsibility. If the Company diminishes
Employee's responsibilities or removes from Employee the title of
President or Chief Executive Officer, Employee may terminate his
employment, receive severance as defined under Section 12
subsection B of this Agreement, and not be subject to the
Restrictive Covenants as defined under Section 6 of this
Agreement.
14. DEATH; INCOMPETENCY; TOTAL DISABILITY - In the event of Employee's death,
judicially-declared incompetency or total and permanent disability, this
Agreement and Employee's employment hereunder shall terminate as of the date of
death, the date incompetency is judicially declared or the date Employee is
determined by a licensed physician to be totally and permanently disabled.
15. INDEMNIFICATION - Employee agrees to indemnify and hold harmless the
Company, its directors, officers, shareholders and employees against any
liabilities and expenses, including amounts paid in settlement, incurred by any
of them in connection with any Third Party Confidential Information or Third
Party Conflicts as defined in Section 9 of this Agreement.
<PAGE>
16. CONSTRUCTION OF AGREEMENT; JURISDICTION
A. This writing constitutes the entire agreement between the parties
hereto and merges any and all prior arrangements, understandings
or representations.
B. No modification of this Agreement shall be valid unless agreed to
in writing signed by a duly authorized representative of each
party hereto.
C. Any duty or obligation arising under this Agreement which has
been incurred and which has not been fully enjoyed, enforced
and/or satisfied shall survive termination of Employee's
employment by the Company, regardless of the reason, or lack
thereof, for such termination until such duty or obligation has
been fully observed and/or satisfied.
D. This Agreement shall be governed by the laws of the State of New
Jersey without regard to principles of choice of laws.
E. If any provision of this Agreement shall be declared invalid,
illegal or unenforceable, such provision shall be severed or
modified only to the extent necessary to make such provision
enforceable and to reflect as nearly as possible the original
intent of such provision.
F. Each of the Company and Employee hereby: (i) agrees that any
suit, action or proceeding arising out of or relating to this
Agreement may be brought only in the state or federal courts
located in Newark, New Jersey; (ii) consents to the jurisdiction
of each such court in any suit, action or proceeding relating to
or arising out of this Agreement; and (iii) waives any objection
which it may have to the designation of venue or lack of
convenient forum in any such suit, action or proceeding in any of
such courts.
G. The Section headings in this Agreement have been inserted for
convenience of reference only. They do not form a part hereof and
shall not affect the interpretation of the provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
and year first written above. META4, INC.
by:___________________________
(Management name)
-----------------------------
William P. Doyle
<PAGE>
Employment Agreement
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of June 1, 1997 (the
"Effective Date") by and between Meta4, Inc., a corporation organized and
operating under the laws of the State of Delaware, with its principal place of
business at 33-41 New Street Suite 4C, Hoboken, NJ 07030 (hereinafter referred
to as "The Company") and James J. Urbaniak, currently residing at 30 Scholl
Road, Pottstown, Pennsylvania 19464 (hereinafter referred to as "Employee").
W I T N E S S E T H :
WHEREAS, the Company is a for profit corporation engaged in the business of
providing, among other things, consulting services and software development
concerning solutions to the Year 2000 problem and management of information
technology operations;
WHEREAS, Employee is a founder of the Company whose work is integral to the
Company's success;
WHEREAS, the Company and Employee desire to enter into a formal employment
arrangement;
WHEREAS, Employee currently has an agreement with another principal shareholder
and the Company under which the other Employee is entitled to receive a royalty
equal to 10 percent of the sales of the Company's proprietary software (the
"Royalty Agreement") and the Company and Employee desire that the Royalty
Agreement be conditionally superseded as provided herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT
A. Term As of the Effective Date and continuing for a term of five
years unless terminated as herein provided, Employee shall serve
as Executive Vice President for Marketing and Sales of the
Company (the "Term"). Employee shall perform those services
consistent with his position as Executive Vice President for
Marketing and Sales.
B. Best Efforts Employee agrees at all times to faithfully,
diligently, conscientiously, and to the best of Employee's
ability, experience and talents, devote his best efforts,
energies, skills and expertise to the performance of the duties
that may be required pursuant to the terms of this Agreement;
C. Full Time and Attention Employee shall devote full business time
and attention solely to the business and affairs of the Company
and shall not, directly or indirectly engage
<PAGE>
or participate in any activities or matters which may
adversely affect or reflect discredit on the Company ; and
D. Business Opportunities Employee shall bring to the attention of
all proposals, business opportunities or investments, other than
personal investments, of whatever nature, in areas in which the
Company is active, which are created or devised by Employee or
come to the attention of Employee and which might reasonably be
expected to interest the Company.
2. COMPENSATION
A. Base Salary The Company shall pay the Employee an annual base
salary of two hundred thousand dollars ($220,000) (the "Base
Salary"), commencing on the first full payroll cycle following
the Effective Date. The Base Salary shall be prorated for any
partial employment period. To the extent that Employee's rate of
compensation during the period from the Effective Date to the
date of the execution of this Agreement has been less than
$220,000 per annum, the Company shall pay Employee the difference
of such rates so that such difference shall be fully paid to
Employee not later than December 31, 1998. The Base Salary shall
be payable in accordance with the Company's normal payroll
practices for senior executives less usual, customary and
required payroll deductions. The Board of Directors may in its
discretion increase the Employee's Base Salary at any time.
B. Bonus At the discretion of Employee and James J. Urbaniak,
Executive Vice President, and with the approval of the Board of
Directors of the company, there may be designated on an annual
basis a certain amount of funds to be paid to the company's
employees as bonus compensation (the "Bonus Pool"). Employee
shall be entitled to receive 13% of such Bonus Pool per annum
during the Term.
C. Taxes All payments under this section shall be subject to
withholding of all applicable income and employment taxes.
3. BENEFITS
A. Employee shall be entitled to participate in or receive benefits
under any employee benefit plan, arrangement or prerequisite made
available by the Company to its employees currently, or in the
future, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans, arrangements
or prerequisites. Employee shall be entitled to a vacation each
year in accordance with the Company's policies in effect from
time to time, provided, however, that Employee shall be entitled
to a minimum of four weeks vacation per year.
B. In connection with Employee's contemplated relocation, the
Company agrees to loan Employee up to the sum of $______ for
purposes of Employee's purchase of a new
2
<PAGE>
permanent residence, which sum shall be fully secured by a first
mortgage on such property.
4. STOCK OPTIONS - Concurrent with a contemplated Initial Public Offering ("IPO
Date") the Company plans to adopt a nonqualified stock option plan. In the event
that the Initial Public Offering proceeds, then in lieu of the Royalty
Agreement, which shall be terminated on the IPO Date, Employee shall be entitled
to stock options as set forth below. Employee shall be entitled to receive
options to purchase shares of the Company's common stock at the IPO price on a
per annum basis in accordance with the following formula and schedule: (i) the
number of such options on a per annum basis shall be the quotient of the
Employee's bonus as granted in Section 2(B) hereof and the IPO price and (ii)
such options shall be exercisable for sixty (60) days following Employee's
receipt of a bonus pursuant to Section 2(B) hereof. Should the Initial Public
Offering not proceed, then the Royalty Agreement shall remain in effect.
5. CONFIDENTIALITY - Employee agrees not to disclose, directly or indirectly, or
use for the personal benefit of Employee or others, directly or indirectly, any
Trade Secrets and Confidential Proprietary Information which is prepared by or
made known to Employee during the course of his employment. For purposes of this
Agreement, the term "Trade Secrets and Confidential Proprietary Information"
shall mean information or material that is not publicly known that relates to
the business of the Company or that of its clients, including, by way of example
and without limitation, "Inventions" (as defined below), trade secrets, designs,
configurations, processes, techniques, formulas, software, improvements,
copyrightable material, marketing plans and strategies, sales and financial
reports and forecasts, financial, commercial, statistical, personnel or
technical data, and customer lists. Employee will not, during his employment or
upon the termination thereof, copy or otherwise transcribe, reproduce or remove
from the premises or possession the Company, without the Company's prior written
consent in each case, any drawings, hardware, software, disks, specifications,
tapes, descriptive matter, reproductions or any materials representing any
products, ideas, machines, processes, know-how or other developments or property
whatsoever owned, made or used by the Company. Employee acknowledges that all
pricing information, sales manuals, binders, customer lists and other customer
information, financial information and other records of documents containing
Trade Secrets and Confidential Proprietary Information prepared by Employee or
coming into Employee's possession by virtue of Employee's employment by the
Company is and shall remain the property of the Company and that, upon
termination of employee's employment hereunder, Employee shall return
immediately to the Company all such items in his possession, together with all
copies thereof. Employee agrees that the Company shall suffer irreparable harm
in the event that Employee breaches the foregoing covenant and acknowledges that
the Company will lack an adequate remedy at law should Employee breach such
covenant. Accordingly, in the event of a breach of any of these covenants by
Employee, Employee agrees that in addition to being entitled to legal remedies,
including compensatory, consequential and punitive damages, this covenant may be
specifically enforced.
6. RESTRICTIVE COVENANTS - During his employment and for a period of one year
from the date of termination thereof Employee agrees not to perform services,
directly or indirectly, for any firm, person or corporation that competes or has
competed with the Company or for any
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<PAGE>
client of the Company where Employee performs or had previously performed
services for such client as an employee of the Company. Furthermore, during his
employment and for a period of one year from the date of termination thereof
Employee agrees not to solicit or employ, on behalf of himself or others, the
services of any firm, person or corporation employed at that time by the
Company. Employee agrees that the Company shall suffer irreparable harm in the
event that Employee breaches the foregoing covenant and acknowledges that the
Company will lack an adequate remedy at law should Employee breach such
covenant. Accordingly, in the event of a breach of any of these covenants by
Employee, Employee agrees that in addition to being entitled to legal remedies,
including compensatory, consequential and punitive damages, this covenant may be
specifically enforced. In the event that, in any judicial proceeding, a court
refuses fully to enforce any part of this Section 3, then such nonenforceable
part shall be deemed eliminated herefrom or reduced or modified for the purpose
of such proceedings to the extent necessary to permit the remainder thereof to
be enforced. Nothing contained herein shall be deemed to prevent Employee after
the termination of his employment from engaging in any activity on behalf of any
firm, person or corporation whose business competes with that of the Company if
Employee's activities on behalf of such firm, person or corporation are not
related to the business of the Company as conducted currently or at such time.
7. DISCLOSURE - Employee will disclose promptly in writing to the Company all
inventions, improvements, processes, techniques, discoveries, codes, software,
and writings whether patentable or not, and any creative work that may be
subject to protection under federal copyright law (any such items hereinafter
referred to as "Inventions") which are conceived, made, discovered or written
jointly or singly:
A. In the course of or as a result of the services performed
hereunder, and
B. For a period of six months after termination of this Agreement,
Inventions that relate to, or arise out of any developments,
services or products that Employee has been concerned with during
the rendering of services hereunder.
8. OWNERSHIP OF WORK PRODUCT - Employee agrees that all Inventions and other
work products developed under this Agreement, whether before or after the date
of execution of this Agreement, are the exclusive property of the Company, that
the Company is the sole owner of all copyrights, patents and other rights in
connection therewith and that all such copyrightable works constitute works made
for hire. In consideration of his continued employment, and for no other
consideration, Employee hereby assigns and agrees to assign to the Company all
patents, copyrights and any other rights Employee may have or acquire in any and
all Inventions and other work products developed under this Agreement, whether
before or after the date of execution of this Agreement, or as a result of ideas
developed during work performed under this Agreement to the Company. In
addition, the Company may require, and Employee agrees to sign patent and
copyright assignments to the Company or the Company's clients and to assist the
Company in obtaining and enforcing all copyrights, patents and other rights to
Inventions and other work products. Employee will sign all instruments of
assignment and other papers to evidence vestiture of his right, title and
interest to all Inventions and work products in the Company or its clients at
the request and expense of the Company. Employee will do all acts and sign all
instruments of
4
<PAGE>
assignment and other papers that the Company may reasonably request relating to
applications for patents, copyrights and other rights and to the enforcement and
protection thereof. Employee agrees that the Company shall suffer irreparable
harm in the event that Employee breaches the foregoing covenant and acknowledges
that the Company will lack an adequate remedy at law should Employee breach such
covenant. Accordingly, in the event of a breach of any of these covenants by
Employee, Employee agrees that in addition to being entitled to legal remedies,
including compensatory, consequential and punitive damages, this covenant may be
specifically enforced.
9. THIRD PARTY LIABILITY - Employee represents and warrants that he has not
disclosed to the Company or any of its directors, officers, employees, agents,
or consultants any knowledge, information, inventions, discoveries or ideas that
Employee possesses under an obligation of secrecy to a third party ("Third Party
Confidential Information"), and Employee agrees that Employee shall not disclose
any Third Party Confidential Information to the Company or any of its directors,
officers, employees, agents, or consultants. Employee further represents and
warrants that Employee does not have any express or implied obligation to any
third party that conflicts with any of Employee's obligations under this
Agreement ("Third Party Conflicts").
10. WAIVER - Failure by a party to insist upon strict compliance with any of the
terms or conditions of this Agreement shall not be deemed a waiver of such term
or condition, nor shall any such failure be deemed a relinquishment or waiver of
any such right or power deemed to be a waiver at any other time.
11. NOTICES - Any notices required or authorized to be given by the terms of
this Agreement shall be deemed duly given if sent by mail, return receipt
requested, to the appropriate addressee or hand delivered to the addressee. Any
such notice, if sent to the Company shall be addressed as follows:
Mr. William P. Doyle
META4, INC.
Riverview Historical Plaza
33-41 Newark Street Suite 4-C
Hoboken, NJ 07030
and if sent to Employee, it shall be mailed or delivered to the address on file
in the Company's office, such address to be supplied to the Company by Employee.
12. TERMINATION BY COMPANY - This Agreement and Employee's employment hereunder
may be terminated by the Company as set forth herein.
A. For Cause "For Cause," for purposes of this Agreement, shall mean
that Employee (i) commits fraud, embezzlement or other acts of
gross dishonesty, (ii) is convicted of a felony, or (iii) the
willful and continued failure by the Employee to substantially
perform his duties hereunder after demand for substantial
performance is delivered by the Company that specifically
identifies the manner in which the Company believes
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<PAGE>
the Employee has not substantially performed his duties and such
failure continues for at least 30 days thereafter. Any such
termination shall be effective upon service of written notice to
Employee.
B. Severance If the Company terminates Employee's employment (i)
without cause, or (ii) based on subsection A of section 13,
Employee shall receive his Base Salary through May 31, 2002 plus
a bonus calculated at the rate of $500,000 per annum from the
Effective Date. If the Company terminates Employee's employment
based on a failure to perform as set forth in subsection A(iii)
of this Section 12, Employee shall be entitled to receive one
year's Base Salary from the effective date of the termination
plus a bonus of $500,000. Additionally, if the Company terminates
Employee's employment less than six (6) months prior to May 31,
2002, Employee shall receive an additional six (6) months' Base
Salary. Base Salary paid pursuant to this Section 12(B) shall be
paid in accordance with the Company's normal payroll practices,
and bonus paid pursuant to this Section 12(B) shall be paid in
quarterly installments, the first of which shall be paid within
30 days of the effective date of termination. The Employee shall
have no duty to mitigate any damages or payments due him
hereunder by seeking other employment or otherwise, nor shall any
income earned by Employee that is not in violation of this
Agreement serve to offset any payments due Employee hereunder.
13. TERMINATION BY EMPLOYEE - This Agreement and Employee's employment hereunder
may be terminated at any time by Employee. Any such termination shall be
effective upon service of written notice pursuant to Section 11 of this
Agreement.
A. Diminution of Responsibility If the Company diminishes Employee's
responsibilities or removes from Employee the title of Executive
Vice President for Marketing and Sales, Employee may terminate
his employment, receive severance as defined under Section 12
subsection B of this Agreement, and not be subject to the
Restrictive Covenants as defined under Section 6 of this
Agreement.
14. DEATH; INCOMPETENCY; TOTAL DISABILITY - In the event of Employee's death,
judicially-declared incompetency or total and permanent disability, this
Agreement and Employee's employment hereunder shall terminate as of the date of
death, the date incompetency is judicially declared or the date Employee is
determined by a licensed physician to be totally and permanently disabled.
15. INDEMNIFICATION - Employee agrees to indemnify and hold harmless the
Company, its directors, officers, shareholders and employees against any
liabilities and expenses, including amounts paid in settlement, incurred by any
of them in connection with any Third Party Confidential Information or Third
Party Conflicts as defined in Section 9 of this Agreement.
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16. CONSTRUCTION OF AGREEMENT; JURISDICTION
A. This writing constitutes the entire agreement between the parties
hereto and merges any and all prior arrangements, understandings
or representations.
B. No modification of this Agreement shall be valid unless agreed to
in writing signed by a duly authorized representative of each
party hereto.
C. Any duty or obligation arising under this Agreement which has
been incurred and which has not been fully enjoyed, enforced
and/or satisfied shall survive termination of Employee's
employment by the Company, regardless of the reason, or lack
thereof, for such termination until such duty or obligation has
been fully observed and/or satisfied.
D. This Agreement shall be governed by the laws of the State of New
Jersey without regard to principles of choice of laws.
E. If any provision of this Agreement shall be declared invalid,
illegal or unenforceable, such provision shall be severed or
modified only to the extent necessary to make such provision
enforceable and to reflect as nearly as possible the original
intent of such provision.
F. Each of the Company and Employee hereby: (i) agrees that any
suit, action or proceeding arising out of or relating to this
Agreement may be brought only in the state or federal courts
located in Newark, New Jersey; (ii) consents to the jurisdiction
of each such court in any suit, action or proceeding relating to
or arising out of this Agreement; and (iii) waives any objection
which it may have to the designation of venue or lack of
convenient forum in any such suit, action or proceeding in any of
such courts.
G. The Section headings in this Agreement have been inserted for
convenience of reference only. They do not form a part hereof and
shall not affect the interpretation of the provisions of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
and year first written above.
META4, INC.
by:_____________________________
(Management name)
________________________________
James J. Urbaniak
<PAGE>
MASTER TEAMING/SUBCONTRACT AGREEMENT
THIS MASTER TEAMING/SUBCONTRACT AGREEMENT ("Master Agreement")
effective as of January 1, 1997, is by and between Meta4, Inc. ("Meta4"), a
Delaware corporation, with offices at River View Historical Plaza, 33-41 Newark
Street, Hoboken, New Jersey 07030 and Comdisco, Inc. ("Comdisco"), a Delaware
corporation, with its principal place of business at 6111 N. River Road,
Rosemont, Illinois 60018 (individually or collectively referred to as the
"Party" or "Parties").
RECITALS
WHEREAS, Meta4 is in the business of providing Year 2000 assessment,
planning and implementation services (the "Meta4 Services") to customers in the
health care industry throughout the United States; and
WHEREAS, Comdisco is in the business of providing millenium testing
services (the "Comdisco Services") to customers throughout the United States;
and
WHEREAS, the Parties anticipate that each Party will identify one or
more current or prospective customers (each, a "Customer"') that will either
issue a request for proposals or be receptive to an unsolicited proposal for the
provision of the Meta4 Services and the Comdisco Services (each, a "Project");
and
WHEREAS, for each Project that the parties desire to submit a proposal
(a "Proposal"), the parties shall mutually team to pursue the opportunity
jointly or designate which entity shall be prime contractor and subcontractor
respectively; and
WHEREAS, in the event the parties contemplate a prime
contractor/subcontractor relationship, the prime contractor, if awarded the
contract for the Project ("Contract"), would contemplate subcontracting portions
of the Project to the subcontractor;
WHEREAS, in all such cases, the terms and conditions of this Master
Agreement will apply to the Parties according to their respective roles as joint
contractors or prime contractor and subcontractor for each Project.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
conditions set forth herein, the Parties mutually agree as follows:
1. PREPARATION AND SUBMISSION OF A PROPOSAL
1.1 The Parties shall mutually agree upon and execute a Statement to Team
substantially in the Form of Exhibit A attached hereto and incorporated by
reference to assist in the development of each Proposal. The Parties shall
specify in each Statement to Team whether to propose their respective
Services jointly (each, a "Joint Contractor") or one party will lead the
Proposal development effort ("Prime Contractor") and the other party will
assist in the development of a Proposal ("Subcontractor"). In addition to
the responsibilities of the Parties during the preparation of the
Proposal, the Statement to Team shall include the proposed scope of the
products and services (collectively "Services") to be provided by each
Party in the event that the Prime Contractor or the Joint Contractors are
awarded the Contract. The Parties may amend the Statement to Team to
reflect clarification of the proposed Services any time prior to final
Proposal submission.
<PAGE>
1.2 Each party shall cooperate to (1) prepare the Proposal for the Project,
and (2) secure the Contract for the Project.
1.3 The Subcontractor shall submit to the Prime Contractor, or the Joint
Contractors shall cooperate to coordinate, all necessary technical and
business data and information concerning its proposed portion of the
Project, including pricing data, for use in preparation of the Proposal.
Each Party shall make available appropriate and high-quality personnel to
provide reasonable assistance to prepare the Proposal. Neither Party may
remove the key personnel identified in the Statement to Team from the
Proposal preparation effort without the other Party's prior written
consent.
1.4 Prime Contractor or the Joint Contractors, as applicable, shall prepare
the Proposal, integrate the information provided by the Subcontractor or
other Party and submit the Proposal to the Customer. The Proposal shall
reflect each Party's price for its proposed portion of the Project in the
Proposal. The Prime Contractor or Joint Contractors have responsibility
for the content of the Proposal but agrees to consult with the other Party
on all matters concerning the portion of the Project to be performed by
such Party prior to submission of the Proposal to the Customer.
1.5 The Proposal shall identify the nature of the relationship between the
Parties as Prime Contractor and Subcontractor or Joint Contractors and
describe each Party's Project responsibilities in the Proposal. In the
event of Contract award, Prime Contractor or Joint Contractors shall work
to secure Customer approval of the Subcontractor as a subcontractor or a
contractual agreement with the other Party. The Prime Contractor will have
access to all necessary information relating to the Subcontractor's
portion of the Project.
1.6 Prime Contractor or each Joint Contractor respectively shall handle
contract negotiations with the Customer. Subject to Customer approval,
Subcontractor will have an opportunity to be present at meetings with the
Customer related to Subcontractor's proposed portion of the Project.
1.7 Prime Contractor will consult with and obtain the concurrence of the
Subcontractor prior to making any Proposal change relating to the
Subcontractor's proposed portion of the Project.
1.8 Prime Contractor will keep the Subcontractor advised of all changes in the
Customer's requirements.
1.9 Prime Contractor or Joint Contractors will submit the Proposal and use
their best commercial efforts to obtain the contract award, including
participation in oral presentations and preparation of best and final
offers. The Subcontractor will assist in such effort as the Prime
Contractor may reasonably require.
1.10 In the event of a Customer contract award to the Joint Contractors, each
Party shall be solely responsible for securing a separate Contract for
such Party's Services with Customer. The Joint Contractors will work
together to coordinate Contract negotiations upon Customer request.
<PAGE>
2. SUBCONTRACTING
2.1 If the Prime Contractor is awarded a Contract, then Subcontractor and the
Prime Contractor shall mutually agree upon and execute a Statement of Work
substantially in the form of Exhibit B attached hereto and incorporated by
reference. The Services to be provided under the Statement of Work shall
be consistent with those described in the Statement to Team.
2.2 Under the general supervision and direction of Prime Contractor,
Subcontractor will, through the employees designated in the Statement of
Work, perform, the Services and such employees shall not be removed from
the work without Prime Contractor's prior written consent. Subcontractor
will provide appropriate and high quality technical personnel to perform
the Services on the Project. If Prime Contractor notifies Subcontractor of
Prime Contractor's or Customer's dissatisfaction with any Subcontractor
personnel, Subcontractor will, upon request, replace such personnel with
other qualified personnel.
2.3 Changes in the scope of the Services shall only be made with the agreement
of both Parties. Neither Party shall have any obligation to commence work
in connection with a change until the Parties have agreed in writing to
the scope of the change and any fee and/or schedule adjustment.
2.4 Subcontractor agrees to use its best efforts to complete all projects and
assignments by the due date(s) specified in the Statement of Work.
2.5 Prime Contractor will have final decision making authority in connection
with the Project. Decisions in areas related to the Statement of Work will
be made in consultation with the Subcontractor.
2.6 Subcontractor will discuss all issues, recommendations and decisions
related to the Services under the Statement of Work with the Prime
Contractor prior to joint Prime Contractor and Subcontractor discussions
with the Customer.
2.7 All contacts with the Customer shall be the responsibility of the Prime
Contractor. Any contacts made by Subcontractor with the Customer shall be
only with the full knowledge, prior concurrence and participation of the
Prime Contractor.
2.8 The Services performed under the Statement of Work by the Subcontractor
shall be performed in a good and professional manner and in accordance
with this Master Agreement. Services not in compliance with the foregoing
shall be reperformed by the Subcontractor at no additional cost to the
Prime Contractor provided the Prime Contractor notifies the Subcontractor
of any non-compliance within thirty (30) days from delivery of the
nonconforming Service. EXCEPT AS EXPRESSLY SET FORTH IN A STATEMENT OF
WORK OR EXHIBIT C, THE PRECEDING IS SUBCONTRACTOR'S ONLY WARRANTY
CONCERNING THE SERVICES, AND IS MADE EXPRESSLY IN LIEU OF ALL OTHER
WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR
OTHERWISE.
2.9 Except as the parties may otherwise expressly agree in the Statement of
Work, Subcontractor shall have and retain all right, title and interest
(including all intellectual property rights) in all ideas, concepts,
know-how, designs, technology and documents and any other tangible
material developed by Subcontractor, its employees or agents under a
Statement of Work. The tangible material developed hereunder by the
Subcontractor shall hereinafter be referred to as the "Work Product."
Subcontractor shall, as its option, grant to Customer a nonexclusive,
nontransferable, perpetual license to use the Work Product for its
internal use or grant to Prime Contractor the right to sublicense the Work
Product to the Customer. Any commercial product of the Subcontractor which
is provided pursuant to a Statement of Work shall be licensed according to
the terms of the Subcontractor's end user license agreement.
<PAGE>
2.10 Subcontractor will defend at its expense and indemnify and hold Prime
Contractor and its End Users harmless from any action brought against
Prime Contractor or its End User or which Prime Contractor must defend
pursuant to any indemnity with an End User to the extent that such action
is based upon a claim that the Services or Work Product infringes a
patent, copyright, trade secret, or other proprietary right of any third
party. Subcontractor will pay all costs and damages awarded against Prime
Contractor or its End User in such action which are caused by such claim.
Prime Contractor or its End User at its expense may participate in
Subcontractor's defense of any such action through Prime Contractor's or
End User's own counsel. If the Services or Work Product become the subject
of a claim of infringement, Subcontractor will either (a) procure for
Prime Contractor for its End User the right to continue using the Services
or Work Product or (b) replace or modify the Services or Work Product to
make it non-infringing. Subcontractor's obligations under this paragraph
2.10 are contingent upon Prime Contractor or its End User promptly
notifying Subcontractor in writing of the claim and allowing Subcontractor
to defend or settle such claim and upon Prime Contractor's or its End
User's providing affiliate with all reasonable assistance in defending or
settling such claim. Subcontractor's obligation under this paragraph 2.10
apply only to the Services and Work Product as provided by Subcontractor,
unmodified by any other party, other than Subcontractor, and do not apply
to any claim of infringement which results from Subcontractor's compliance
with Prime Contractor's or End User's designs.
2.11 Subcontractor will invoice Prime Contractor for Services rendered on a
monthly basis or as otherwise set forth in the Statement of Work. Invoices
must be accompanied by as much detail as the Parties determine in their
reasonable judgment. Invoices for Services performed in accordance with
this Master Agreement will be paid within thirty (30) days of invoice
date.
2.12 Prime Contractor will reimburse the Subcontractor for all reasonable
Project related expenses incurred in providing the Services. If specified
in the Statement of Work, Subcontractor will bill for expenses within
sixty (60) days after incurring same and no expenses will be billed later
than sixty (60) days from completion of the Services. Invoices for
expenses will be paid within thirty (30) days of invoice date.
2.13 Prime Contractor agrees to pay when due all taxes of any nature assessed
by any federal, state or local governmental authority based on the
transactions hereunder, except for taxes based on Subcontractor's net
income.
2.14 Notwithstanding any other provision of this Master Agreement to the
contrary, Subcontractor agrees that the Services shall be performed in
accordance with those provisions of the Contract identified in Exhibit C,
attached hereto and incorporated herein by reference.
2.15 During the term of a Statement of Work and for a period of three (3) years
from the expiration or termination thereof, Subcontractor shall maintain
books and records relevant to the charges and, if applicable, the hours
worked, and upon the Prime Contractor's request, shall allow Prime
Contractor to inspect such books and records.
<PAGE>
3. RELATIONSHIP OF THE PARTIES
3.1 The Parties shall act as independent contractors in the performance of
this Master Agreement. Neither Party shall act as agent for or partner of
the other Party for any purpose whatsoever, and the employees of one shall
not be deemed the employees of the other party.
3.2 Nothing in this Master Agreement shall be construed to grant either Party
the right to make commitments of any kind for or on behalf of the other
party without the prior written consent of the other Party.
3.3 If agreed to by the Parties in the Statement to Team, neither Party may
bid on or solicit from any other firm the work included in Subcontractor's
proposed portion of the Project.
3.4 If agreed to by the parties in the Statement to Team, Subcontractor shall
not bid as a prime contractor or as a subcontractor to or joint venture
with any other firm which is preparing a proposal for a Project. It is
understood, however, that either Party may participate in such Project
with another firm in the event such firm is awarded the Contract.
Notwithstanding any exclusivity which may be agreed to by the parties
under a Statement to Team, Comdisco reserves the right to provide
financing to any third party to be used in connection with such party's
proposal.
3.5 Subcontractor shall not subcontract to third parties any portion of its
responsibilities without prior written consent of the Prime Contractor.
3.6 Each Party will bear all of its own costs and expenses relating to the
preparation of the Proposal. Fees and expenses related to the Services
under a Statement of Work when Prime Contractor is awarded a Contract will
be as specifically set forth in the Statement of Work.
3.7 If the Prime Contractor is awarded a Contract, the Subcontractor may not
issue a news release, public announcement, advertisement or any other form
of publicity concerning its role in the Project without the prior written
permission from the Prime Contractor.
4. CONFIDENTIAL INFORMATION
The Nondisclosure Agreement between the Parties dated December 20, 1996 is
incorporated herein by reference. In addition, the Parties acknowledge that they
will have access to confidential and proprietary materials and information of
the Customer. The Parties agree that all such materials and information of the
Customer, in any form, disclosed in connection with this Master Agreement will
be deemed to be Confidential Information, as defined in the Nondisclosure
Agreement.
<PAGE>
5. TERM
This Master Agreement is effective upon execution by both Parties and continues
in effect for a period of two (2) years, provided, however, either Party may
terminate this Master Agreement upon sixty (60) days' prior written notice. The
two (2) year term of this Master Agreement may be renewed for successive one
year terms upon the written consent of both Parties. With respect to any
Statement to Team or Statement of Work, the performance of which extends beyond
the termination of this Master Agreement, the provisions of this Master
Agreement applicable to the performance of the Statement to Team or Statement
of Work, will be deemed to survive the termination of this Master Agreement and
continue in effect for the purpose of the performance of the Statement to Team
and Statement of Work.
6. TERMINATION
6.1 A Statement to Team shall terminate upon the happening of the first to
occur of the following events:
a. Notice from the Customer that it will not award a
Contract for the Project pursuant to the Request
for Proposal;
b. Notice from the Customer of award of a Contract
for the Project to other than the Prime Contractor or
one or both of the Joint Contractors;
c. Notice from the Customer either disapproving the
Subcontractor as a subcontractor, either Party as a
Joint Contractor, or requiring selection of a third
party as a subcontractor or joint contractor for the
portion of work identified as the other Party's
responsibility in the Proposal;
d. Award of a Contract to Prime Contractor or either
Joint Contractor;
e. Material modification of Project requirements by
the Customer to the extent the Parties mutually agree
not to team for such Project;
f. Inability of the Parties to execute a Statement or
Work within thirty (30) days of Contract award by a
Customer if either Party gives notice of termination
at the end of such thirty (30) days or thereafter;
g. The expiration of thirty (30) days from the date
of the Statement to Team, unless otherwise extended
by the mutual written agreement of the Parties;
h. The insolvency, bankruptcy, reorganization under
bankruptcy laws, or assignment for the benefit of
creditors, of either Party;
i. Material breach of this Master Agreement; or
j. Mutual agreement of the Parties to terminate the
Statement to Team.
<PAGE>
6.2 Prime Contractor may terminate a Statement of Work (i) upon failure of
Prime Contractor to consummate a Contract with Customer, or (ii) upon
termination of the Contract or portion of the Contract pertaining to
the Subcontractor Services under the Statement of Work. In addition,
either Party may upon thirty (30) days' prior written notice terminate
a Statement of Work for a breach of any material term or condition;
provided the breaching Party shall not have cured such breach within
the thirty (30) day period.
7. INDEMNIFICATION AND INSURANCE
7.1 Each Party ("Indemnitor") agrees to indemnify and hold the other Party
("Indemnitee") harmless from and against any and all claims, loss,
liability, damages, judgments, expenses and costs, including reasonable
attorneys' fees, (individually or collectively, a "Liability"), for
injury or damage to real and/or tangible personal property or persons,
including wrongful death incurred while performing the Services and
arising out of or caused by the negligent acts or omissions or willful
misconduct of the Indemnitor, its agents, servants, or employees,
except to the extent that a Liability was caused by or arose out of the
negligent acts or omissions or willful misconduct of the Indemnitee,
its agents, servants or employees.
7.2 Each party will provide the other with a certificate of insurance,
evidencing compliance to the following requirements, prior to work
beginning under a Statement of Work, and prior to each insurance
renewal. Insurance limits noted below are minimum policy limits only,
and do not limit a party's responsibilities. Failure by a party to
review the other party's certificate of insurance will not be
considered a waiver by that party of the other party's contractual
requirements to provide insurance, as set forth below.
a. General Liability including products
liability/completed operations and blanket
contractual coverages, in the following minimum
amounts:
$1,000,000 each occurrence;
$2,000,000 general aggregate;
$2,000,000 products liability/completed operations aggregate.
b. Automobile Liability, including coverage for all
owned, hired, and non-owned vehicles, in the minimum
amount of $1,000,000 combined single limit, each
accident.
c. Workers' Compensation and Employer's Liability in the
following minimum limits:
Workers' Compensation - Statutory
Employer's Liability - $100,000 each employee, $500,000 disease policy
limit, $100,000 disease each employee ($100,000/$500,000/$l00,000).
<PAGE>
d. Excess Liability or Umbrella Liability in the
following minimum limits:
$5,000,000 each occurrence;
$5,000,000 aggregate.
e. Excess or Umbrella Liability insurance will, at a
minimum, provide additional insurance for general
liability, automobile liability, and employer's
liability.
f. Errors and Omissions (Professional Liability) in
the minimum amount of $1,000,000 each error and
$1,000,000 policy aggregate.
g. Each party's certificate of insurance will
specifically note the following, as applicable, in
addition to the above coverages and minimum limits:
Certificate Holder, as appropriate:
Comdisco, Inc. Meta4, Inc.
611 N. River Road 33-41 Newark Street
Rosemont, IL 60018 Hoboken, NJ 07030
Additional Insured:
"Certificate Holder, its officers, directors, and
employees are named additional insureds for general
liability, automobile liability, and excess or
umbrella liability insurance."
Waiver of Subrogation:
"Each policy of insurance noted above waives all
right of subrogation against Certificate Holder, its
officers, directors, and employees, and Certificate
Holder's subsidiary and affiliated companies, and
their respective officers, directors, and employees."
Primary Insurance:
"Each policy of insurance noted above is primary, and non-contributory to any
insurance or self-insurance of Certificate Holder, or Certificate Holder's
subsidiary and affiliated companies."
Cancellation Section:
The cancellation section of the certificate of insurance will be amended by
providing both:
1. A minimum thirty (30) day advance notice of
cancellation, nonrenewal, reduction in
policy limits, or other change adverse to
Certificate Holder;
2. Additionally, the phrase "endeavor to" and
the last two lines beginning with "but
failure to mail" will be deleted from the
standard Acord form certificate of
insurance.
<PAGE>
8. LIMITATION OF LIABILITY
The limit of each Party's liability in any manner related to this Master
Agreement, for any and all claims shall not in the aggregate exceed the fees
paid by the Customer to such Party with respect to the work involved in such
claim, but in any event not to exceed $500,000.00. In no event shall either
Party be liable for consequential, incidental or punitive loss, damage or
expenses (including lost profits or savings) even if it has been advised of
their possible existence.
9. ASSIGNMENT
Neither this Master Agreement nor any of the rights or obligations thereunder
may be assigned, delegated, or otherwise transferred by either Party, in whole
or in part, without the other Party's prior written consent.
<PAGE>
10 MISCELLANEOUS
10.1 Any notices will be in writing and sent by certified U.S. Mail,
postage prepaid, return receipt requested, and addressed to the
Parties as follows, or as otherwise designated by written notice from
one Party to the other:
Meta4, Inc. Comdisco, Inc,
33-41 Newark Street 6111 N. River Road
Hoboken, NJ 07030 Rosemont, IL 60018
Attn: Attn: General Counsel
Any notice given pursuant to this Article will be effective three (3)
days after the day it is mailed or upon receipt, whichever is earlier.
10.2 This Master Agreement and its Exhibits may be executed in duplicate
counterparts and each such counterpart will be an original and both
together will constitute one and the same document.
10.3 This Master Agreement will be governed by and construed in accordance with
the law of the State of Illinois without regard to its conflict of laws
provisions.
10.4 Headings are for convenience only and will not be used to interpret the
terms of this Master Agreement.
10.5 The invalidity, in whole or in part, of any Article or paragraph of this
Master Agreement will not affect the validity of the remainder of this
Master Agreement.
10.6 This Master Agreement and its Exhibits constitute the entire understanding
and agreement of and between the Parties regarding the subject matter, and
supersedes any prior or contemporaneous representations and agreements,
verbal or written. It may not be modified, except in writing, executed by
an authorized representative of each Party.
10.7 The rights and obligations provided by paragraphs 1.10, 2.8, 2.9, 2.13, 4,
5, 7.1, 8 and 10.8 will survive the termination of this Master Agreement.
10.8 If there is any dispute or litigation as a result of this Master
Agreement, the prevailing party will be entitled to reasonable attorneys'
fees.
10.9 No dispute under this Master Agreement may be brought before any judicial
or quasi-judicial entity unless the Party aggrieved notifies the other
Party of the claim and attempts to resolve the dispute as follows. Upon
notification of a dispute or claim, representatives of each Party will
meet within sixty (60) days of notification to attempt to resolve, the
dispute in good faith. Prior to the meeting, the Parties will investigate
the circumstances of the dispute. The representatives will attend the
dispute resolution meeting with reasonable authority to resolve the claim.
If there is no resolution of the dispute by this means, or the
non-aggrieved Party refuses to cooperate, the aggrieved Party may then
take any steps it so desires.
10.10 Neither Party shall be liable for any failure or delay in its performance
under this Master Agreement due to causes beyond its reasonable control,
including, but not limited to, acts of God, acts of civil or military
authority, fires, epidemics, floods, earthquakes, riots, wars, sabotage,
labor shortages or labor disputes, and governmental actions; provided that
the delayed Party (i) gives the other Party prompt written notice of such
cause; and (ii) uses its reasonable efforts to correct such failure or
delay in its performance.
The duly authorized representatives of the parties have executed this Master
Agreement as of the date first set forth above.
META4, INC. COMDISCO, INC.
By: By: Allan J. Graham
Title: Title: Sr. Vice President, CCS
Date: ____________________ Date: ____________________
<PAGE>
EXHIBIT A
STATEMENT TO TEAM DATED ________________TO
THE MASTER AGREEMENT DATED______________
BETWEEN COMDISCO, INC. AND
------------------------------------
Customer:
Prime Contractor:
Subcontractor:
Joint Contractors:
Proposal Due Date:
1. By signing this Statement to Team, the parties agree to develop a Proposal
and to propose the Services which would be the basis for negotiation of a
subcontract agreement in the event Subcontractor's that the Prime
Contractor is awarded the Contract for the Project.
2. Responsibility of Prime Contractor during development of a Proposal:
3. Responsibility of Subcontractor during development of a Proposal:
4. Subcontractor proposed Services, fees and expenses:
5. Key Personnel:
6. Special Terms:
This Statement to Team is issued pursuant to the Master Agreement identified
above. All of the terms and conditions of the Master Agreement are incorporated
in and made a part of this Statement to Team. In the event of any conflict
between the Statement to Team and the Master Agreement the Statement to Team
shall govern.
META4, INC. COMDISCO, INC.
By:____________________________ By: Allan J. Graham
____________________________
Title:_________________________ Title: Sr. Vice President, CCS
___________________________
Date: _________________________ Date:____________________________
<PAGE>
EXHIBIT B
STATEMENT OF WORK DATED ________
TO THE MASTER AGREEMENT DATED________
BETWEEN COMDISCO, INC. AND
---------------------------
1. Customer:
2. Term: This Statement of Work shall be effective as of the date first
written above and shall continue for a period of _______ unless sooner
terminated as provided for in the Master Agreement.
3. Contract Performance: Subcontractor agrees to perform the following
Services:
(a) Description of Services
(b) Time for Completion
(i) Subcontractor will use best efforts to complete the
Services according to the following schedule:
Description Date Due
----------- --------
(ii) A Prime Contractor and Subcontractor representative
will meet one time each week [month] at an agreed upon
time to discuss the progress of the Services and the
Project.
(c) Fees
(i) Payment for the Services will be as follows:
Description Fee
----------- -----
Total Fee $_________
(d) Expenses
4. Key Personnel:
5. Special Terms:
This Statement of Work is issued pursuant to the Master Agreement identified
above. All of the terms and conditions of the Master Agreement are incorporated
in and made a part of this Statement of Work. In the event of any conflict
between the Statement of Work and the Master Agreement, the Statement of Work
shall govern.
META4, INC. COMDISCO, INC.
By:_________________________ By:___________________________
Title:______________________ Title:________________________
Date:_______________________ Date:_________________________
<PAGE>
EXHIBIT C
FLOWDOWN PROVISIONS TO THE STATEMENT OF WORK
DATED ______________
ISSUED PURSUANT TO THE MASTER AGREEMENT
DATED _______________
BETWEEN COMDISCO, INC. AND META4, INC.
This Exhibit C is issued pursuant to the Statement of Work and the Master
Agreement identified above. All of the terms and conditions of the Master
Agreement are incorporated in and made a part of this Exhibit C. In the event of
any conflict between Exhibit C and the Master Agreement, Exhibit C shall govern.
META4, INC. COMDISCO, INC.
By:___________________________ By:___________________________
Title:________________________ Title:________________________
Date:_________________________ Date:_________________________
<PAGE>
MASTER SERVICES AGREEMENT
BETWEEN
CLIENT
AND
METALOGICS, INC.
________, 1998
<PAGE>
CONSULTING AGREEMENT
BETWEEN
CLIENT
AND
METALOGICS, INC.
THIS AGREEMENT is made as this _______ day of ______, 1998, by and among
Metalogics, Inc., a for profit corporation incorporated under the laws of the
State of Delaware with its principal office at Riverview Historical Plaza 33-41
Newark Street, Hoboken, NJ 07030 (referred to hereafter as "Metalogics" or
Consultant") and Client a not-for-profit corporation incorporated under the laws
of the State of ______________, with an office at _____________
_______________________________________________________________________________
THEREFORE, in consideration of the promises and covenants contained in
this Agreement, and for good and valuable consideration, Client and Consultant,
intending to be legally bound, agree as follows:
1. DEFINITIONS
1.1. Affiliate(s). For purposes of this Agreement, the term(s)
"Affiliate(s)" shall mean any entity controlling, controlled by (directly or
indirectly) or under common control with Client, whether by means of shares,
limited liability interests, or memberships interests which are owned or held,
including, but not limited to, any not-for-profit entity of which Client is the
sole, direct or indirect, voting member or shareholder, and any professional
entity the majority equity, membership or voting interest of which is owned,
directly or indirectly, by physicians or other health care professionals who are
employees of Client or another Affiliate by virtue of their employment status.
1.2. Component. For purposes of this Agreement, the term "Component"
shall mean any part of any information system, biomedical or computer equipment,
or embedded device which Consultant modifies, enhances, or replaces in
connection with the Services provided hereunder.
<PAGE>
1.3. Confidential Information. For purposes of this Agreement,
"Confidential Information" shall mean (i) either party's product plans, designs,
costs, prices and names, non-published financial information, marketing plans,
business opportunities, clients, suppliers, personnel, inventions, past, present
and future research and development, intellectual property, know-how, trade
secrets, or any other proprietary information; (ii) any information designated
by the disclosing party as confidential in writing or, if disclosed orally,
designated as confidential at the time of disclosure and reduced to writing and
designated as confidential in writing within thirty (30) days; and (iii) the
terms and conditions of this Agreement; provided, however that "Confidential
Information" will not include information that: (a) is or becomes generally
known or available by publication, commercial use or otherwise through no fault
of the receiving party; (b) is known and has been reduced to tangible form by
the receiving party at the time of disclosure and is not subject to restriction;
(c) is independently developed by the receiving party without use of the
disclosing party's Confidential Information; (d) is lawfully obtained from a
third party who has the right to make such disclosure; (e) is released for
publication by the disclosing party in writing; or (f) is required to be
disclosed pursuant to law or court order. Client acknowledges that Consultant's
Confidential Information includes the pricing and terms of this Agreement,
Consultant's physical security system, access control system and documentation
manuals. Consultant specifically acknowledges that Client Confidential
Information includes all information identifying any of the patients and
residents of, or the care rendered thereto by, Client and any of its Affiliates,
and that Consultant and the Consultant Personnel (as defined in Section ___
hereof) shall hold all such information strictly confidential.
1.4. Consultant Personnel. For purposes of this Agreement, the term
"Consultant Personnel" shall mean all employees, agents, independent
contractors, and subcontractors of Metalogics.
1.5. Designated Affiliates. For purposes of this Agreement, the term
"Designated Affiliate" shall mean any Affiliate which desires to obtain the
Services (as defined in Section ___ hereof) under this Agreement. A list of
Designated Affiliates, as of the date of this Agreement, which list is subject
to modification by Client during the term of this Agreement, is attached hereto
as Exhibit ___. Client may, from time to time, add additional Affiliates to the
scope of this Agreement, any increased costs attributable thereto shall be
discussed and negotiated by the parties at the time that the additional
Affiliate is designated but shall in no event be greater than the per-bed costs
set forth in the Proposal.
1.6. Proposal. For purposes of this Agreement, the term "Proposal" shall
mean the document prepared by Metalogics, entitled "Proposal to Client for a
Year 2000 Compliance Inventory, Assessment, Remediation Planning, and
Remediation", dated [__________], and attached hereto at Exhibit __.
<PAGE>
1.7. Technology. For purposes of this Agreement, "Technology" shall mean
the information systems (including hardware, software, interfaces, and
networks), computers, biomedical equipment and other equipment (including, but
not limited to, all biomedical and other equipment which contains embedded
computer chips) owned, leased or licensed by Client and the Designated
Affiliates.
1.8. Work Product. For purposes of this Agreement, "Work Product" shall
mean the result(s) of all Services performed hereunder, including without
limitation, the inventory of the Technology, the "PRA" as described in the
Proposal, the development, modification, and remediation of the Technology; any
Components developed in connection with the Services; all documentation
developed as a deliverable in connection with the performance of the Services;
results of inventory or analysis performed by Consultant, including without
limitation comparison with any proprietary database of Consultant; any
deliverables prepared pursuant to this Agreement (whether or not such
deliverables are completed); and all modifications, revisions, copies, partial
copies, translations, and derivative works thereof.
1.9. Year 2000 Compliant. For purposes of this Agreement, "Year 2000
Compliant" shall mean that the Technology is capable of storing, retrieving,
interfacing, manipulating and processing completely and accurately dates, times
and all data related thereto or affected thereby independent of the century
year, or any leap year regardless of the format or separators used to express
such dates and regardless of whether such dates are read from an internal clock
of the Technology or entered by a user or otherwise. The parties agree that the
preferred method of achieving Year 2000 Compliance shall be compliance with
DICOM 3.0 and ISO 8601 standards and the HL7 interface standards (i.e., the
Technology shall use four digit annual date codes).
1.10. Probability Risk Assessment (PRA). For purposes of this Agreement,
"Probability Risk Assessment (PRA)" shall mean a process used to determine
acceptable levels of risk that identifies the probability and consequence of
failure. This process is used to develop remediation strategies that are
mutually agreeable between Metalogics and Client.
1.11. Remediation. For purposes of this Agreement, "Remediation" shall
mean the mutually agreed to, prioritized actions taken in response to issues
identified as a result of the Probability Risk Assessment. These actions
include: Upgrade (of existing hardware/software), Replacement (with a compliant
product), Conversion (for software), or replacement of chips (for firmware),
replace the system with manual procedures, or develop a coexistence plan to
tolerate the errors and correct them as necessary (mitigation).
<PAGE>
1.12. Failure Modes Effects Analysis (FMEA). For purposes of this
Agreement, "Failure Modes Effects Analysis (FMEA)" shall mean an engineering
process used to determine the kinds of ways that a system can fail, and the
possible effects of each type of failure.
1.13. Data Structure Audit. For purposes of this Agreement, "Data
Structure Audit" shall mean an engineering review of the source data structure,
(data types, and field widths) to determine if the date structure is Y2K
compliant.
1.14. Millennium Database. For purposes of this Agreement, "Millennium
Database" shall mean a Metalogics, Inc. database that contains configuration
data and Y2K status information relative to software, hardware, biomedical
devices, and embedded devices.
2. SERVICES AND SCOPE OF WORK
2.1. Consulting and Remediation Services. Consultant agrees to provide
to Client, and the Designated Affiliates (as Client may designate from time to
time) consulting, testing, remediation, and related services to render the
Technology Year 2000 Compliant including, but not limited to, a complete
inventory, assessment as to the current Year 2000 compliance of the Technology,
and remediation of any noncompliant Technology identified in a list prepared in
accordance with this Agreement and amended by the parties from time to time, as
well as unit and integrated testing of any Technology for Year 2000 Compliance,
all as more fully set forth below in this Master Services Agreement ("MSA"), the
Exhibits hereto and on such schedules as are executed from time to time by all
parties and attached hereto (the "Schedules") (such services, collectively, the
"Services").
<PAGE>
2.2. Schedules. All Services will be performed, and all Work Product
delivered, in accordance with the applicable Schedule(s). Each Schedule shall
contain a Statement of Scope of Work in substantially the format set forth as
Exhibit ___ hereto (the "Statement"). (This MSA, the Exhibits attached hereto,
and all Schedules are referred to collectively as the "Agreement".) If there is
any inconsistency between this MSA and any Exhibit or Schedule, this MSA shall
control.
2.3. Access and Cooperation. Client warrants that it will provide during
regular business hours, or as may otherwise be reasonably required, to
Consultant (a) access to office accommodations, facilities, equipment, and
relevant computer programs (collectively "Access"), and (b) assistance,
cooperation, complete and accurate information and data from its officers,
agents and employees (collectively "Cooperation"). Client agrees that such
Access and Cooperation are essential to performance of any services by
Consultant and that Consultant shall not be held liable for any deficiency in
performing services if such deficiency results from Client failure to provide
full Access and Cooperation.
2.4. Timely Performance. Consultant shall perform the Services according
to the timetable set forth in Exhibit ___ [or in a revised draft of the
Proposal] or in the applicable Schedule. The parties agree that it is their
mutual intention to render the Technology Year 2000 Compliant as soon as
possible, with priority given to that Technology which Client identifies as
being critical by January 1, 1999, and to devote such resources as are necessary
to reasonably achieve that timetable. Consultant acknowledges that Client's
ability to anticipate and resolve problems in a timely manner is crucial to
successful Year 2000 compliance and remediation and agrees to notify Client
promptly if, at any time, Consultant becomes aware that it may not be able to
meet any milestone or time requirement described in this Agreement, in a
Schedule or otherwise identified by the parties, on time or that additional
resources of Client are required to meet a particular milestone. At such time,
Consultant shall advise Client of the reason for the delay, the estimated delay
involved, and any additional Client resources needed to achieve the milestone.
Consultant shall use best efforts to rectify any slippage in the applicable
timetable which are not solely due to the fault of Client or an Affiliate. In
the event of slippage in the timetable as a result of shared fault, the parties
shall use their best efforts to jointly rectify the problem. Such efforts by
Consultant shall include (without limitation) making additional Consultant
Personnel available and/or the Consultant Personnel available outside of normal
business hours at daily rates no greater than those set forth in the Schedule.
Consultant agrees to cause the Consultant Personnel to participate in periodic
meetings to assess the status of the Services, their completion, and the ability
to achieve the milestones contained in the applicable Exhibits and Schedules.
<PAGE>
2.5. Preparation of Inventory. Promptly following execution of this
Agreement Client will provide Consultant with a copy of the information system
inventory which Client has gathered detailing the Year 2000 compliance status of
certain of the information system Technology for certain of the Client's
Affiliates. Consultant will promptly continue and complete a full inventory of
all of the Technology requiring correction, mitigation, or remediation in order
to render the Technology Year 2000 Compliant. In addition, Consultant shall
prepare a detailed work plan which will list all activities needed to prioritize
and remediate the Year 2000 problem with regard to the Technology and all data
transmitted, stored, or manipulated by means of the Technology. Such work plan
will be attached hereto as Schedule ___.
2.6. Prioritization of Tasks. Consultant acknowledges that Client has
advised Consultant that Client has only limited resources to assign to Year 2000
compliance review and remediation. In identifying those activities which the
parties deem to be of critical importance (using the PRA and FMEA methodology
described in the Proposal), they shall take into account the safety impact any
failure to make an item of Technology Year 2000 compliant may have on the
patients and staff of Client and its Affiliates. Notwithstanding any other
provision of this Agreement, Client shall have the right to determine, in its
sole discretion, the priority to be assigned to the analysis and/or remediation
of any item of Technology or Component thereof.
2.7. Change Control Procedure. From time to time during the performance
of the Services, Client [or a Designated Affiliate] may request in writing
adjustments to the scope of the Services. To the extent that such adjustments
can, in the reasonable business judgment of Consultant, be performed without an
increase in resources or fees, there will be no additional fees payable by
Client. Should the adjustments made by Client alter the scope of Services as
agreed to by both parties such that the Consultant determines, in the exercise
of its reasonable business judgment, the adjustments require an increase in
resources, the parties shall negotiate and agree to an appropriate adjustment in
the total compensation payable to the Consultant under the Agreement. The
parties agree that such compensation shall be at least as low as the most
favored rate that Consultant makes available to any other customer.
3. ACCEPTANCE TESTING PROCEDURE
3.1. Acceptance by Client. All Services, Work Product, and Components
will be subject to Client's review and acceptance, as determined by the criteria
set forth in the applicable Schedule(s). Client shall have the right to inspect
the work-in-progress from time to time and upon request Consultant shall provide
Client with written status reports regarding the Work.
3.2. Testing Equipment. ___________ shall make available resources at
____________ New Jersey facilities for the unit and integrated testing of the
Technology, as generally described in the Proposal and particularly described in
a Schedule, at no costs other than those set forth in the Proposal and any
applicable Schedule. In order to assure the accuracy of such testing with
respect to any particular item of Technology or Component thereof, __________
will replicate the Client's configuration and environment applicable to such
Technology. In the event that Client requires equipment or facilities outside
Client's or its Affiliates' premises for testing any Technology pursuant to this
Agreement, ___________ shall make its facilities and equipment available to
Client and Consultant for such testing. In the event that Client needs to obtain
additional equipment at one of its sites, either for testing of certain of its
Technology or to perform the function of the Technology while the Year 2000
issues relating to such Technology are either being tested or remediated,
___________ will make available to Client the appropriate equipment for such
function at the fees set forth in the Proposal and any applicable Schedule. Any
costs related thereto shall be billed to the entity identified in the applicable
Schedule.
3.3. Test Schedule. Within ___ days of the date of this Agreement;
Consultant shall deliver to Client a test schedule designed to identify when
such unit and integrated testing of the Technology shall occur in order to meet
the time frames identified by the parties. ____________ guarantees that it shall
make available to Client testing resources (including equipment and staff)
necessary to perform the testing identified in the Schedule at the identified
times.
<PAGE>
3.4. Acceptance Criteria. The acceptance criteria for the relevant
remediated Year 2000 Compliant Technology ("Acceptance Criteria") shall be
included in each Schedule and shall demonstrate to Client's (or the
applicable Designated Affiliate's) sole reasonable satisfaction that, with
respect to such remediated Technology: (1) all of the functions of the
remediated Technology set forth in the applicable Schedule have been provided
and the remediated Technology is Year 2000 Compliant; (2) all performance
standards for the remediated Technology set forth in the applicable Schedule
have been met or exceeded; and (3) volume and capacity testing for the
remediated Technology meets or exceeds the requirements of _____________ or the
applicable Designated Affiliate.
3.5. Failure to Meet Acceptance Criteria. If any remediated Technology
failure to meet the Acceptance Criteria within the time set forth in the
applicable Schedule, Client shall give Consultant written notice thereof.
Consultant shall cooperate with Client in identifying the deficiency, and shall
correct such deficiency at no additional cost to Client unless such deficiency
was caused solely by Client's act or omission. Upon completion of the corrective
action by Consultant, the acceptance test will be repeated until the remediated
Technology successfully meets the relevant Acceptance Criteria.
3.6. Final Acceptance. When the remediated Technology has successfully
satisfied the Acceptance Criteria, Client shall give Consultant written notice
thereof. At the completion of acceptance testing, the remediated Technology
shall operate in a production environment for a period of at least ninety (90)
days in full compliance with the Acceptance Criteria. Acknowledgment by Client
of the successful completion of such ninety (90) day period shall be deemed
"Final Acceptance" of that portion of the remediated Technology.
4. COMPENSATION AND PAYMENT
4.1. Invoices. Consultant shall perform the Services described in the
Schedules, and be compensated for the Services in accordance with the Schedules.
All invoices provided by Consultant shall be submitted according to the
following:
(a) Each Schedule shall have a designated total fee (the "Schedule
Fee"). The Schedule Fee will be reduced by ten percent (such percentage to be
known as the "Holdback") and divided by the number of months that it takes to
complete the Services described in the Schedule. The resulting figure will be
known as the "Monthly Fee". Consultant will invoice Client or the Affiliate
designated in the Schedule, for the preceding month's Monthly Fee on the __ day
of each month. The final 10% Holdback will be invoiced at the completion and
Client's Final Acceptance of the remediated Technology described in the
Schedule.
(b) The first Monthly Fee for the first Schedule will be invoiced
simultaneously with the execution of this Agreement; and the first Monthly Fee
for each subsequent Schedule will be invoiced simultaneously with the execution
of such Schedule.
(c) All invoices other than the initial invoice (which is due upon
execution of this Agreement) will be due within forty-five days of Client's
receipt of the invoice. All expenses will be invoiced in the month after they
are incurred and will be supported by appropriate documentation. Upon request of
Client, Consultant shall provide supporting documentation of any other item with
respect to any invoice submitted to Client.
4.2. Right to Withhold Payment. In the event that Consultant fails to
meet any milestone set forth in a Schedule for a month, or fails to meet any
milestone designated by Client in that Schedule as a critical milestone, and
such failure by Consultant is due to circumstances within the control of
Consultant or the Consultant Personnel, Client may withhold payment for that
invoice until such milestone is met. The remedies of Client under this Section
___ shall be in addition to, and not in lieu of, any other remedies available to
it under this Agreement.
4.3 Billing Address. Unless otherwise specified in a Schedule,
Consultant will send all invoices to: [CLIENT ADDRESS]
<PAGE>
5. RESOURCES
5.1. Consultant Personnel. Consultant shall assign to Client sufficient
experienced and qualified personnel to provide the Services described in this
Agreement. Consultant represents that the Consultant Personnel assigned to
perform any Services under this Agreement shall have the proper skill, training
and background so as to be able to perform their assignments and
responsibilities in a timely, competent and professional manner.
Client may designate as Key Consultant Personnel the Consultant
Personnel listed on Schedule __ to this MSA and in any other Schedule mutually
agreed upon by the parties with regard to any of the Services. Each of the Key
Consultant Personnel shall be dedicated to the Services for which he or she has
been designated in the applicable Schedule. If reassignment or replacement of
any Key Consultant Personnel would materially disrupt the performance of the
Services, Consultant shall not reassign or replace such Key Consultant Personnel
until the completion of the Services to which Key Consultant Personnel is
assigned. Should any Key Consultant Person leave the employ of, or otherwise
become unavailable, Metalogics shall, in consultation with Client, replace such
person.
5.2. Compliance with Client Policies. Consultant shall cause all
Consultant Personnel who are present on the premises of Client or any of its
Affiliates to adhere to all security, confidentiality and other policies of the
relevant entity. Client may at any time remove any of Consultant's personnel
from the premises of Client or any of its Affiliates upon Client's determination
that such personnel may have violated any such policy or obligation imposed
thereunder (i.e., confidentiality) or that such person(s) may in any way pose a
threat of disruption to the patients, visitors, employees of Client or any of
its Affiliates or to any Technology or other equipment utilized by Client or its
Affiliates in the operation of their business. If Client so removes any of
Consultant's personnel from its premises or the project, Client shall promptly
advise Consultant and inform Consultant of the basis of such action.
5.3. Equipment and Facilities. At the request of Client, and as
provided below and in the Proposal, Consultant will provide and make available
to Client all equipment needed to conduct any unit or integrated testing,
at a cost no greater than the charges set forth in the Proposal. Such equipment
shall include, without limitation, computer hardware and software and
telecommunications and networking equipment.
<PAGE>
5.4. Subcontractors. Consultant may not subcontract any Services to be
performed hereunder without the express prior written consent of Client in each
instance. Any permitted subcontract shall include (1) a representation that all
subcontractor personnel are employees of such subcontractor for tax purposes;
(2) the right for Consultant to terminate such subcontract upon request by
Client if any deficiency in such subcontractor's performance is not corrected to
the reasonable satisfaction of Client within 30 days of notice thereof; (3) a
provision requiring such subcontractor to protect the Confidential Information
(as defined in Section ___ hereof) of Client in the manner set forth in Section
___ hereof; (4) assignment of all rights in any work product, deliverables,
software, documentation, or other materials provided by such subcontractor, in
accordance with Section ___ hereof; and (5) any other terms specified by Client.
Consultant shall be solely responsible for all payments to its or their
subcontractors. Any subcontractor's performance or failure to perform hereunder
shall not release Consultant from its obligations under this Agreement, and
Consultant shall remain fully responsible for obligations performed by any
subcontractor to the same extent as if such obligations were performed by
Consultant.
6. OWNERSHIP
6.1. Improvement and Modifications. Except as may be otherwise provided
herein or in any particular Schedule(s), all Work Product produced or developed
by Consultant under this Agreement, shall be and remain the sole and exclusive
property of Client or the applicable Affiliate. Subject to the provisions
hereof, all applicable intellectual property rights, including without
limitation copyrights, shall vest in Client, and neither Consultant nor any
Consultant Personnel shall have any proprietary interest in the Work Product.
Upon the written request of Client, Consultant shall provide to Client all
copies of the Work Product. Client shall have the right to register the Work
Product and any portion thereof in its own name under the copyright law of any
jurisdiction, and Consultant shall perform, and cause all Consultant Personnel
to perform, all acts necessary to assist Client in connection with such
registration. All processes, methodologies, technologies or algorithms
(collectively "Processes") used by Consultant in implementing improvements and
modifications to Client's software, including any improvements and modifications
to the Processes used by Consultant developed under this Agreement, shall be the
exclusive property of Consultant. Upon request of Client, or termination of this
Agreement for any reason whatsoever, Consultant shall provide Client with all
reports prepared though the date of termination.
6.2. Consultant Tools: Consultant Software: Consultant hereby grants to
Client and the Affiliates a non-exclusive, transferable subject to the
provisions of paragraph 14.1 hereof, royalty-free, irrevocable, perpetual
license to use, modify, and maintain (i) any software development tools,
know-how, methodologies, processes, technologies, or algorithms used by
Consultant in developing the Work Product or Components or otherwise performing
the Services hereunder ("Consultant Tools"), and (ii) any proprietary software
programs or other software code owned by Consultant and incorporated into any
Components or Work Product or otherwise used in performing the Services
hereunder (the "Consultant Software"), in the form in which such Consultant Tool
or Consultant Software is provided to Client. A preliminary list of Consultant
Software is attached as Exhibit ___.
6.3. Third Party Intellectual Property. If Consultant believes that it
is necessary or desirable to incorporate any work embodying the intellectual
property of a third party ("Third Party Intellectual Property") in the Services,
Consultant will advise Client of the need or desirability of incorporating such
Third Party Intellectual Property in the Services and, except as may be
otherwise provided in the applicable Schedule, shall obtain all appropriate
consents. Unless otherwise provided by Client, Consultant shall procure on
behalf of Client and any Designated Affiliate a non-exclusive, fully assignable
and transferable, royalty-free, irrevocable, perpetual license to use, modify,
and maintain such Third Party Intellectual Property.
<PAGE>
6.4. Consistency with Other Provisions. Nothing herein shall alter the
Parties obligations under Section 13 of the Agreement.
7. INDEPENDENT CONTRACTOR STATUS
It is expressly agreed and understood that Consultant, including all Consultant
Personnel, will perform services under this Agreement as an independent
contractor for Client and the Designated Affiliates, and neither Consultant nor
any Consultant Personnel is or will be an employee or agent of Client or any
Affiliate. All liability to the persons actually providing services under this
Agreement or related to the providing of such services, including but not
limited to, payment of wages or other compensation, withholding of taxes and
similar charges related to such wages or other compensation, and worker's
compensation, shall be the sole responsibility of Consultant, and Consultant
shall indemnify, defend and hold harmless Client and its Affiliates (together
with their directors, officers and employees) from and against any and all
claims relating thereto.
8. TERM AND PERIOD OF PERFORMANCE
This Agreement shall commence on the date as indicated on the first Schedule
attached to this Agreement and, unless terminated earlier pursuant to Section __
below, shall continue in full force and effect thereafter until satisfactory
completion of the Services provided for in this Agreement and in all Schedules
is achieved, based on the Acceptance Criteria set forth in attached Schedules.
9. TERMINATION
9.1. Termination Events. Either party may, by written notice as set
forth below, terminate this Agreement without further obligation due to a
material default by the other party. Any default(s) will be stated in the notice
of termination. The notified party will have thirty (30) days from receipt of
the written notice of Termination to remedy the specific default(s). Failure to
cure the default(s) within this time period will give cause for immediate
termination. Upon the occurrence of a Client default, Client will
be liable for all bona fide undisputed amounts due as of the date of
termination, and the same will become immediately due and payable. Consultant
specifically disclaims any right to terminate this Agreement for any reason
other than cause or mutual agreement by the parties.
9.2. Actions Upon Termination. Upon receipt of a notice of termination
or as otherwise requested by Client, Consultant shall (1) transfer title to all
finished and unfinished Work Product produced in connection with the Services,
and deliver such Work Product to Client and/or any Designated Affiliate(s); (2)
return all copies of Confidential Information of Client or the Affiliates. In
the event of a material default by Client resulting in the termination of this
Agreement, Client shall return to Consultant the Consultant Software together
with all copies thereof.
<PAGE>
10. WARRANTIES
10.1. Warranties by Consultant. Consultant represents, warrants and
agrees that
(a) it has the right to enter into this Agreement, and that there is no
agreement or restriction which would interfere with or prevent Consultant from
entering into this Agreement or rendering the Services or performing the other
obligations contemplated hereunder;
(b) all Services provided hereunder shall be provided in a competent,
professional and workmanlike manner to remediate Client's Year 2000
problems;
(c) the Technology for which Consultant provides remediation Services
hereunder shall, upon completion of such remediation Services, be Year 2000
Compliant as agreed by the parties in the applicable Schedule;
(d) Consultant shall comply fully with all applicable laws, rules, and
regulations applicable to the Services, including without limitation obtaining
at Consultant's own expense any necessary permits;
(e) at the time of delivery to Client or any Designated
Affiliate, each item of Work Product and each Component shall be free and clear
of threats known as software and hardware viruses, time bombs, logic bombs,
Trojan horses, worms, or other malicious computer instructions, intentional
devices or techniques which may cause the Technology to become erased, damaged,
inoperable, or other incapable of being used in the manner to which it is
intended, or which would permit unauthorized access to the Technology
(collectively, "Disabling Devices"), and no Consultant Personnel, shall, during
the term of this Agreement, introduce into the Technology any Disabling Device;
(f) none of the Services, Work Product, or Components will have been
developed or will be performed or delivered (as applicable) in violation of any
intellectual property right or contractual right of any third party, including
without limitation patent, copyright, trademark, or trade secret of any third
party;
(g) no Consultant Personnel is a party to a contract or agreement that
contains any restraint on Consultant's present or future services that has or
will have any material effect on Client or on such Consultant Personnel's
performance of the Services hereunder; and
(h) in addition to the warranties set forth in this Agreement,
Consultant hereby assigns to Client, and Client shall have the benefit of, all
manufacturers' or suppliers' warranties, representations, service agreements,
and indemnities ("Third Party Warranties"), if any, with respect to any third
party product, to the extent assignable by Consultant; and to the extent that
such Third Party Warranties are not assignable, Consultant agrees to take all
reasonable actions to enforce such Third Party Warranties on Client's or any
Designated Affiliate's behalf.
10.2. Warranty Period. Until January 31, 2001, Consultant will, at no
charge to Client, furnish such materials and services as shall be necessary to
correct any noncompliance of the Technology with the representations and
warranties set forth in this Agreement, including without limitation any Exhibit
or Schedule hereto.
10.3. Disclaimer of Warranty. EXCEPT AS SPECIFICALLY SET FORTH IN THIS
AGREEMENT (INCLUDING WITHOUT LIMITATION THE EXHIBITS AND SCHEDULES HERETO),
CONSULTANT MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
<PAGE>
11. INDEMNIFICATION
11.1. By Client. Client agrees to indemnify, defend, and hold harmless
Metalogics, and its respective officers, directors, agents, and employees, from
and against any losses, liabilities, claims or expenses (including reasonable
attorney's fees and legal costs) incurred by them and arising out of or relating
to intentional or reckless conduct of Client which directly results in personal
injury, death or tangible property damage (including theft) .
11.2. By Consultant. Metalogics agrees to indemnify, defend and hold
harmless Client, its Affiliates, and Client's and its Affiliates' officers,
directors, agents, employees, from and against any losses, liabilities, claims
or expenses (including reasonable attorney's fees and legal costs) incurred by
them and arising out of or relating to
(a)intentional or reckless conduct of Consultant or Consultant Personnel
(including, but not limited to, the introduction of any computer virus into any
of Client's Resources by Consultant or any Consultant Personnel) in
connection with performance under this Agreement, which directly results in
personal injury, death or tangible property damage (including theft) caused by
Consultant or Consultant's personnel or subcontractors; or
(b)that this Agreement or the use, reproduction or distribution of any
Work Product or remediated Technology provided hereunder infringes any patent,
copyright, trade secret, or trademark, or violates the proprietary or
contractual rights of any third party. The foregoing warranty and indemnity
shall not apply to the extent, if any, that such violation or infringement was
embodied in the unmodified Client code, documentation or other materials
provided by Client to the Consultant and utilized by Consultant in preparing the
Work Product or remediating the Technology.
11.3. Remedies for Infringement. In the event that Client or any
Affiliate is enjoined from using any item of Work Product or any remediated
Technology, Consultant shall, at its option (1) procure for Client or such
Affiliate the right to use the Work Product or Technology without any
obligations, payment or liability; (2) replace such Work Product or Technology
with materials of at least equivalent functionality and Year 2000 Compliance
status. If neither of the foregoing remedies is available to Consultant, Client
shall receive a refund of all fees paid in connection with the infringing Work
Product or remediated Technology. The remedies of Client set forth in this
Section ___ are in addition to, and not in lieu of, any other remedies available
to Client at law or equity.
<PAGE>
12. LIMITATION ON LIABILITY
Except for the parties' indemnity obligations hereunder, or in the event
of a material and willful breach of confidentiality, the parties' liability to
each other for any losses or damages, direct or indirect, arising out of this
Agreement, will not in any event exceed the aggregate amounts payable by
Client and its Affiliates under this Agreement. EXCEPT FOR THE PARTIES'
INDEMNITY OBLIGATIONS HEREUNDER, OR IN THE EVENT OF A MATERIAL AND WILLFUL
BREACH OF CONFIDENTIALITY, NEITHER PARTY BE LIABLE FOR INDIRECT, SPECIAL,
EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES EVEN IF IT HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
13. CONFIDENTIALITY
13.1. Use of Confidential Information. The parties acknowledge that they
shall only use the Confidential Information learned under this Agreement to
perform under this Agreement. They shall each take reasonable steps to protect
the Confidential Information of the other party, and except as required to
perform hereunder or as may be authorized by the other party in writing, shall
not, except as required by law or legal process, transfer, license, lease, sell,
copy, include in any database or compilation of information, or otherwise
disclose to any third person(s) or make available any such Confidential
Information or use such Confidential Information for any unauthorized purpose,
or knowingly permit any other entity or individual to make such a disclosure.
13.2. Non-Disclosure Agreements. Consultant and Client will each
exercise the same standard of care to protect the Confidential Information of
the other party as is used to protect its own proprietary or confidential data
from unauthorized disclosures, but in no event less than reasonable care.
Consultant will cause all Consultant Personnel assigned to provide Services to
Client or any Affiliate to execute a confidentiality and non-disclosure
agreement at least as restrictive as Consultant's obligations set forth in
Section ___ hereof with regard to the Confidential Data of Client and each of
its Affiliates. At the request of Client or any Affiliates, Consultant will
provide Client or such Affiliate with copies of confidentiality agreements or
statements signed by the Consultant Personnel, acknowledging their
confidentiality obligations.
13.3. Required Disclosure. In the event that either party is served with
legal process to disclose any Confidential Information of the other party, the
party which was served will promptly advise the other party of the service, and
assist the other party in contesting any such disclosure.
13.4. Injunctive Relief. Consultant acknowledges that disclosure or
improper use of any Confidential Information of Client or any Affiliate will
give rise to irreparable injury to Client and/or such Affiliate, inadequately
compensable in damages. Accordingly, Client or such Affiliate may seek and
obtain injunctive relief against the breach or threatened breach of this Article
11, in addition to any other remedies available at law or equity.
<PAGE>
14. MISCELLANEOUS
14.1. Assignment. Any party may assign this Agreement or any of its
rights or obligations to a successor pursuant to a merger, consolidation or sale
of all or substantially all of its assets, upon notice to the other Parties to
this Agreement. Without limitation of the foregoing, Client may assign this
Agreement or any of its rights or obligations to one of its Affiliates upon
notice to the other Parties to this Agreement. Any other assignment shall be
void, unless made with the permission of Client in the case of Metalogics, or
Metalogics in the case of Client, which permission shall not be unreasonably
withheld. Metalogics specifically assumes and shall maintain complete
responsibility for all services rendered hereunder.
14.2. Waiver. The waiver by either party of a breach of any provision in
this Agreement will not be construed as a waiver of any subsequent breach.
14.3. Governing Law and Venue. This Agreement will be governed by and
construed in accordance with the laws of the State of New York without regard to
its conflict of laws provisions. Each Party agrees that the sole jurisdiction
and venue for any litigation arising out of this Agreement shall be an
appropriate federal or state court located in Nassau County, New York.
14.4. Notices. All notices provided hereunder shall be in writing and
effective upon receipt and shall be deemed duly given or made if delivered in
person or sent by U.S. registered mail, return receipt requested, postage
prepaid or by reputable overnight carrier, addressed to the party for which it
is intended at its address as follows:
If to Client or any Affiliate: [CLIENT ADDRESS]
If to Metalogics:
Metalogics, Inc.
Riverview Historical Plaza
Newark Street
Hoboken, NJ 07030
Attention: James J. Urbaniak
14.5. Records Retention. Consultant and organizations related to
Consultant providing services to or on behalf of Client or any individual
Affiliate of Client valued at $10,000 or more in any 12 month period shall, in
accordance with 42 CFR Part 420 (as the same may be amended from time to time),
until four (4) years after the termination of the services rendered under this
Agreement, (i) retain all such books and records as are necessary to verify the
nature and extent of the costs of the services provided under this Agreement,
and (ii) comply with any request by the Comptroller General of the United
States, the Secretary of Health and Human Services, and their duly authorized
representatives for access to contracts, agreements, books, documents and
records necessary to verify the cost of the services provided hereunder. In the
event that Consultant or an organization related to Consultant shall receive a
request described in clause (ii) of the preceding sentence, Consultant shall
promptly notify Client thereof.
<PAGE>
14.6. No Third Party Beneficiaries. Except for the Designated
Affiliates, no third party is intended to be, or will be construed to be, a
beneficiary of any provision of this Agreement nor have any right to enforce any
of its provisions or to pursue any remedy for its breach.
14.7. Severability. If any provision of this Agreement is held invalid,
illegal or unenforceable, the remaining provisions will remain unimpaired and
that provision will be replaced by a mutually acceptable valid, legal and
enforceable provision that is closest to the original intent of the parties.
14.8. Survival. Any provision of this Agreement which by its nature
would continue beyond a termination of this Agreement will survive any
termination, including, but not limited to, the parties' obligations under
Article 1 (Definitions), Section ___ (Acts Upon Termination), Article ___
(Warranties), Article ___ (Indemnification), Article ___(Confidentiality), and
Article ___ (Miscellaneous).
14.9. Force Majeure. Consultant will not be considered in default under
this Agreement due to any failure in its performance due to causes beyond its
control nor shall Client be responsible or liable for failure to perform
attributable to any cause or contingency beyond its reasonable control,
including without limitation; act of God; act or omission of civil or military
authority; fire; flood; tempest; epidemic; earthquake; volcanic activity;
quarantine restriction; labor dispute (e.g., lockout, strike or work stoppage or
slowdown); embargo; war; political strife; delay in transportation; scarcity or
inability to obtain raw materials or energy; compliance with any regulation or
directive of any national, state or local government, or any department or
agency thereof; or any other cause which by the exercise of reasonable diligence
such party is unable to overcome (each, a force majeure event); provided,
however that the affected party shall promptly notify the other party of the
occurrence of any such force majeure event, as well as the anticipated timing
that it expects the event to exist. The affect party(ies) shall resume
performance promptly upon the cessation of the force majeure event.
14.10. Entire Agreement. This Agreement, including the Schedules hereto,
contains the entire agreement between the parties and supersedes all other oral
or written agreements or understandings between the parties concerning the
Services. This Agreement may not be modified unless in writing and signed by the
party against whom enforcement of the modification is sought.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as the day,
month, and year first above written.
METALOGICS, INC. CLIENT
BY:_____________________________ BY:____________________________
TITLE:__________________________ TITLE:_________________________
<PAGE>
SCHEDULE ATTACHMENT
TO THE
CONSULTING AGREEMENT
BETWEEN
CLIENT
AND
METALOGICS, INC.
<PAGE>
SCHEDULE NO.____
Date:
STATEMENT OF SCOPE OF WORK
In accordance with the terms and conditions of the Agreement between Metalogics
Inc., and Client dated_________________, the following Statement of Scope of
Work ("Statement") as specified is agreed to by the parties as follows:
Scope
Tasks
Deliverables
Documentation
Acceptance Criteria
Schedule of Performance
Compensation Rates (if Services in addition to those set forth in the Proposal
are provided)
Equipment, if any, necessary to provide the Services
AGREED TO:
Metalogics, Inc. Client
BY:____________________________ BY:____________________________
TITLE:__________________________ TITLE:_________________________
<PAGE>
INTELLIGENT CONFIGURATION MANAGEMENT(TM)
SOFTWARE PRODUCT LICENSE
This agreement ("Agreement") is made on ____________, 1998 between
METALOGICS, INC., a Delaware corporation, with its principal place of business
at ___________________________ (the "Licensor"), and
____________________________, a _________ corporation, with its principal place
of business at ____________________________________________ (the "Licensee").
RECITALS
A. The Licensor has developed certain software products and accompanying
documentation (the "Software" and "Documentation" respectively, as
further defined below and in the attached Schedule) marketed by
Licensor under the trademark "INTELLIGENT CONFIGURATION MANAGMENT."
B. The Licensor wishes to grant to the Licensee, and the Licensee wishes
to accept from the Licensor, a license to use the Software and
Documentation on the terms and conditions set forth in this Agreement.
IN CONSIDERATION OF THE FOREGOING RECITALS and of the mutual promises contained
in this Agreement, the parties agree as follows:
1. DEFINITIONS
The following terms shall have the meanings set forth below:
1.1 "Access Codes" mean the security codes issued by the Licensor
to the Licensee to enable users to access the Software.
1.2 "Documentation" means the standard documentation developed by
the Licensor to support the Software available on the Internet
as of the date of this Agreement, and any updates thereto that
Licensor may make available from time to time.
1.3 "Fields of Use" means the fields of use set forth in the
Schedule, if any.
1.4 "Fees" means the amounts payable by the Licensee to the
Licensor as set forth in the Schedule.
1.5 "Permitted Number of Servers" means the maximum number of
computer servers upon which the Software and Documentation may
be loaded at any time, as set forth in the Schedule.
<PAGE>
1.6 "Permitted Number of Users" means the maximum number of users
who can concurrently access the Software and Documentation
using Access Codes at any time, as set forth in the Schedule.
1.7 "Program Concepts" means the techniques and ideas embodied and
expressed in the Software, including the structure, sequence
and organization of the Software.
1.8 "Proprietary Information" means the Software, Documentation
and Program Concepts, any archival or back-up copies thereof,
and any information which has been identified as proprietary
by the disclosing party. "Proprietary Information" shall not
include information which the disclosing party can show (1)
was in its possession prior to the disclosure made by the
non-disclosing party; (2) subsequently came into the
disclosing party's possession through channels independent of
the non-disclosing party and in a manner that was not in
violation of any obligation of confidentiality; (3) was
independently developed by employees of the non-disclosing
party who had not had access to the confidential information
or trade secret; (4) entered the public domain through no
fault of the disclosing party; or (5) is disclosed or used
with the prior written permission of the non-disclosing party.
1.9 "Schedule" means the schedule attached to this Agreement and
forming part of this Agreement.
1.10 "Software" means (a) all software components in machine
readable and/or printed form delivered by the Licensor to the
Licensee pursuant to this Agreement, as identified in the
Schedule together with such additional software components in
machine readable form that Licensor agrees in writing to
provide to Licensee from time to time; and (b) any full or
partial copies of the foregoing software.
1.11 "Technical Support" means the technical support and
maintenance services to be provided by the Licensor to the
Licensee as set forth in the Schedule and/or a separate
Software Support Agreement between the parties.
1.12 "Trademarks" means the trademarks, service marks and trade
names of the Licensor wherever used or registered.
1.13 "Use" means copying or loading any portion of any part of the
Software and Documentation from storage units or media into
any equipment for processing, or using the Software and/or
Documentation once so loaded, or the operation of any machine
instruction or procedure using any part of the Software and/or
Documentation, or using any of the Documentation supplied with
the Software, as may be further limited to Fields of Use set
forth in the Schedule, if any.
2. GRANT OF LICENSE.
2.1 Grant of License. Subject to the provisions contained herein,
the Licensor hereby grants to Licensee and Licensee hereby
accepts a non-exclusive, non-assignable (except as expressly
permitted in Section 11.4 below) license to Use the Software
and Documentation, or portions thereof, with respect to the
Permitted Number of Servers and Permitted Number of Users.
<PAGE>
2.2 Access Codes. The Licensor shall provide the Licensee with
Access Codes for the Permitted Number of Users.
3. TECHNICAL SUPPORT
3.1 Technical Support. During the warranty period the Licensor
shall provide the Licensee with such Technical Support as is
specified in the Schedule.
4. PRICE, PAYMENT AND DELIVERY
4.1 Fees. The Licensee shall pay to the Licensor the Fees at
such times and at such rates as are specified in the Schedule.
4.2 Delivery. Unless an alternative method of delivery of the
Software and the Documentation is specified in the Schedule,
the Software and Documentation will be deemed to be delivered
when the Licensee has physical possession of the Software and
Documentation and the Licensor has provided the Access Codes
to the Licensee for the Permitted Number of Users.
4.3 Taxes and other Imposts. The Licensee is responsible for all
taxes (except taxes based on the Licensor's income), duties,
levies, excises or tariffs, related to the Software and the
Documentation.
4.4 Late Payment. If any amounts due under this Agreement are not
paid when due, the Licensor may, at its option, without
further notice to the Licensee, and without limiting the
Licensor's other available remedies:
(a) suspend its further obligations to the Licensee
under this or any other agreement between the
Licensor and the Licensee; and
(b) in the event that such amounts remain unpaid thirty
(30) days after receipt by Licensee of written notice
from Licensor that such amounts are overdue, in its
discretion exercise any of its termination rights
under this Agreement. In such case the Licensee must
cooperate with the Licensor.
4.5 Survival of Obligations. The obligations of the Licensee under
this Article to pay all amounts accrued prior to the effective
date of termination will survive termination of this Agreement
and will continue in full force and effect thereafter.
<PAGE>
5. LIMITED WARRANTY
5.1 Limited Performance Warranty and Warranty Period. The Licensor
warrants that, for a period of one hundred and eighty (180)
days from the date of delivery (the "Warranty Period"), the
Software, if operated as directed in the Documentation, will
substantially achieve the functionality described in the
Documentation. The Licensor does not warrant, however, that
the Licensee's use of the Software will be uninterrupted or
that the operation of the Software will be error-free or
secure. Notwithstanding the foregoing, Licensee acknowledges
and agrees that complete Year 2000 compatibility depends on a
variety of factors, including without limitation, third party
software, hardware and data feeds over which neither Licensor
nor Licensee have control and that Licensee's systems may
therefore experience Year 2000 compatibility problems.
5.2 Title Warranty. The Licensor represents and warrants that, to
its knowledge, the Software and the Documentation do not
infringe any valid copyright, patent, trade secret or other
intellectual property right of any third party. In the event
of any such claimed infringement, Licensor will, at its own
expense, defend Licensee against such claim. If in any suit or
proceeding based on such claim, the Software and/or
Documentation is held to infringe the intellectual property of
any third party, Licensor shall, at its own option and
expense, (1) promptly procure the right for continued Use of
such Software and/or Documentation by Licensee, (2) promptly
replace or modify such Software and/or Documentation so that
it becomes non-infringing or (3) return to Licensee all
payments made under this Agreement and terminate the license
granted hereunder.
5.3 The Licensor's Obligation to Correct or Replace Defects. The
Licensor's sole liability for any breach of the Performance
Warranty in Article 5.1 shall be, in the Licensor's sole
discretion:
(a) to repair or replace the Licensee's defective
Software; or
(b) to advise the Licensee how to achieve substantially
the same functionality with the Software as described
in the Documentation through a procedure different
from that set forth in the Documentation; or
(c) if the above remedies are impracticable, to refund
the Fees that the Licensee paid for the Software.
5.4 Repaired or Replaced Software and Documentation. Repaired or
replaced Software and Documentation shall be covered by this
limited warranty for the period remaining under the warranty
that covered the original Software, or if longer, for thirty
(30) days after the date:
(a) of delivery to the Licensee of the repaired or
replaced Software; or
(b) the Licensor advised the Licensee how to operate the
Software so as to achieve the functionality described
in the Documentation.
5.5 Licensee Defect Reports The Licensor will have no warranty
obligation unless:
(a) the Licensee informs the Licensor, during the
applicable warranty period, of a failure of the
Software to achieve the functionality described in
the Documentation; and
(b) the Licensee provides evidence of the date the
Licensee purchased a license to the Software.
The Licensor will use reasonable commercial efforts to repair,
replace, advise or refund pursuant to the foregoing warranty
within five (5) days of being so notified.
<PAGE>
5.6 EXPRESS DISCLAIMER. THE WARRANTIES SET FORTH IN THIS ARTICLE 5
ARE LIMITED WARRANTIES AND ARE THE ONLY WARRANTIES MADE BY THE
LICENSOR. THE LICENSOR DISCLAIMS ALL OTHER WARRANTIES EXPRESS
OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, EXCEPT TO THE EXTENT THAT ANY WARRANTIES IMPLIED BY
LAW CANNOT BE VALIDLY DISCLAIMED. THE PROVISIONS OF THIS
SECTION SHALL SURVIVE ANY TERMINATION OR EXPIRATION OF THIS
AGREEMENT. NO LICENSOR DEALER, AGENT, OR EMPLOYEE IS
AUTHORIZED TO MAKE ANY MODIFICATIONS, EXTENSIONS, OR ADDITIONS
TO THIS WARRANTY.
5.7 Scope of Warranty. If any modifications are made to the
Software by the Licensee during the warranty period or if the
Licensee violates the terms of this Agreement, then this
warranty shall immediately be terminated. This warranty shall
not apply if the Software is used on or in conjunction with
hardware or software other than the unmodified version of
hardware and software with which the Software was designed to
be used as described in the Documentation.
5.8 Post-Warranty Maintenance and Upgrades. In the event that
Licensee wishes to receive technical support and upgrades
following the expiration of the Warranty Period, Licensee may
obtain Licensor's standard maintenance and upgrade services
upon payment of the annual fee set forth on the schedule.
5.9 Survival of Obligations. The obligations, rights and remedies
of the Licensee and the Licensor under this Article will
survive termination of this Agreement and will continue in
full force and effect thereafter.
6. LIMITATION OF LIABILITY
6.1 EXCLUSION OF DAMAGES. UNDER NO CIRCUMSTANCES AND UNDER NO
LEGAL THEORY, TORT, CONTRACT, OR OTHERWISE, SHALL THE LICENSOR
OR THE LICENSEE, OR THEIR RESPECTIVE SUPPLIERS OR RESELLERS,
BE LIABLE TO THE OTHER OR ANY OTHER PARTY FOR ANY INDIRECT,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER
INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL,
WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL
OTHER COMMERCIAL DAMAGES OR LOSSES. IN NO EVENT WILL THE
LICENSOR OR THE LICENSEE BE LIABLE FOR ANY DAMAGES IN EXCESS
OF THE AMOUNT THE LICENSOR RECEIVED FROM THE LICENSEE FOR A
LICENSE TO THE SOFTWARE, EVEN IF SUCH PARTY SHALL HAVE BEEN
INFORMED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM
BY ANY OTHER PARTY.
6.2 Survival of Obligations. The agreements of the Licensee and
the Licensor under this Article will survive termination of
this Agreement and will continue in full force and effect
thereafter.
<PAGE>
7. PROPRIETARY RIGHTS
7.1 Title and Ownership. Title and ownership of all proprietary
rights in the Software and Documentation, including any
copyright, patent, trade secret, Trademarks, trade name or
other intellectual property right, will at all times remain
the property of the Licensor or its licensors and/or
suppliers. This section shall survive termination of the
Agreement.
7.2 Modifications and Enhancements. This Agreement does not grant
the Licensee any right to any enhancement or update to the
Software and Documentation. The Licensor may from time to time
offer enhancements or updates to the Software and
Documentation as and when they become available at the
Licensor's then current list price. The Licensee is under no
obligation to accept such enhancements or updates.
7.3 Copyright and Copying. Unless otherwise provided for in the
Schedule, the Licensee shall not:
(a) knowingly or negligently permit other individuals to
Use the Software and Documentation except in
accordance with the terms and conditions of this
Agreement;
(b) modify, translate, reverse engineer, decompile,
disassemble (except to the extent applicable laws
specifically prohibit such restriction), or create
derivative works based on the Software;
(c) publish or provide any results of benchmark tests run
on the Software to a third party without the
Licensor's prior written consent;
(d) rent, lease, grant a security interest in, or
otherwise transfer rights to the Software or
Documentation except as specifically permitted herein
(e) exceed the Permitted Number of Users except as put
forth in the schedule.
The obligations of the Licensee and the Licensor under this
section will survive termination of this Agreement and will
continue in full force and effect thereafter.
7.4 Proprietary Notices. Subject to any express provision to the
contrary in the Schedule, the Licensee agrees not to remove or
obliterate any copyright, trademark or proprietary rights
notices of the Licensor or the Licensor licensors from the
Software or Documentation.
7.5 Use Audit Right. During normal business hours and any time
during which the Software and Documentation is in Use, the
Licensor or its authorized representative shall have the
right, upon one business day's notice, to audit and inspect
the Licensee's Use of the Software and Documentation for the
purpose of determining whether the Licensee is complying with
the provisions of this Agreement.
<PAGE>
8. U.S. GOVERNMENT END USERS
8.1 Government End Users. The Software is a "commercial item," as
that term is defined in 48 C.F.R. 2.101 (Oct. 1995),
consisting of "commercial computer software" and "commercial
computer software documentation," as such terms are used in 48
C.F.R. 12.212 (Sept. 1995). Consistent with 48 C.F.R. 12.212
and 48 C.F.R. 227.7202-1 through 227.7202-4 (June 1995), all
U.S. Government End Users acquire the Software with only those
rights set forth herein.
9. TERM AND TERMINATION
9.1 Term of Agreement. Unless sooner terminated as provided
herein, this Agreement and the licenses granted hereunder
shall become effective upon execution by the Licensor and the
Licensee and shall continue in effect for the duration of the
period set forth in the Schedule. If no period is specified in
the Schedule the Agreement will continue until such time as it
is terminated in accordance with the provisions of this
Agreement or otherwise by agreement of both parties in
writing.
9.2 Cause for Termination. This Agreement and the license provided
hereunder shall terminate upon the earlier to occur of the
following:
(a) upon thirty (30) days after either party gives the
other written notice of the other's material breach
of any provision of the Agreement (other than those
specific breaches specified below) unless the
breaching party has cured such breach during such 30
day period;
(b) immediately upon the Licensor giving the Licensee
notice of the Licensee's breaching Section 7.3 (a),
(b), (c)or (d); or
(c) immediately upon written notice from either party if
any one or more of the following events with respect
to the other party remain uncured for more than sixty
(60) days:
(i) entry of an order for relief under
Title 11 of the United States Code;
(ii) the making of a general assignment for the
benefit of creditors;
(iii) the appointment of a general receiver or
trustee in bankruptcy of a party's business
or property; or
(iv) action under any state insolvency or similar
law for the purpose of bankruptcy,
reorganization, or liquidation;
unless within the specified sixty (60) day period,
the party in bankruptcy (including its receiver or
trustee in bankruptcy) provides to the other party
adequate written assurances, reasonably acceptable to
such other party, of the party in bankruptcy's
continuing ability and willingness to fulfill all its
obligations under this Agreement.
<PAGE>
9.3 Effect of Termination In the event of any termination of this
Agreement in accordance with this Article, neither party shall
be liable to the other for any damages caused by such
termination for loss or prospective profits or anticipated
sales or for expenditures, inventories, investments, leases or
commitments in connection with the business or good will of
Licensee or the Licensor. Notwithstanding any termination, the
Licensee's obligations to pay all Fees accrued prior to the
date of termination shall continue. In the event of expiration
or termination by the Licensor for the Licensee's material
breach, the Licensee will return or destroy all copies of the
Software and Documentation provided to the Licensee by the
Licensor within thirty (30) days after the effective date of
such termination. The provisions of this Section shall survive
expiration or termination of this Agreement.
10. CONFIDENTIALITY.
10.1 Confidentiality Obligations. The Licensor and the Licensee
each shall hold in confidence all Proprietary Information.
Each party shall take precautions to prevent any unauthorized
disclosure or use of the other's Proprietary Information
consistent with precautions used to protect such party's own
confidential and trade secret information, but in no event
less than reasonable care.
10.2 Continuing Obligations. The Licensor and the Licensee each
will keep the Proprietary Information in confidence and trust
during the term of this Agreement and after termination, and
will not use the Proprietary Information other than as
permitted under the Agreement.
11. GENERAL PROVISIONS
11.1 Force Majeure. Neither party shall be responsible for delays
or failures in performance resulting from acts beyond the
reasonable control of such party. Such acts shall include but
not be limited to acts of God, strikes or other labor
disputes, riots, acts of war, governmental regulations
superimposed after the fact, communication line failures,
power failures, fires, earthquakes or other natural disasters.
11.2 Compliance with Laws. The Licensee shall act in strict
compliance with all applicable laws, ordinances, regulations
and other requirements of any and all national, federal,
state, county, municipal or other governmental authorities,
including without limitation all export regulations, and
obtain all permits, licenses or other consents necessary for
the performance of its duties under this Agreement. Further,
the Licensee shall indemnify and hold the Licensor harmless
from any claim or damages (inclusive of the Licensor's
reasonable attorney's fees) made against the Licensor as a
result of the Licensee's failure to act in compliance with the
foregoing.
11.3 Notices. All notices, demands, or consents required or
permitted hereunder will be in writing and will be sent by
personal delivery or facsimile, or mailed by certified or
registered mail to the respective parties at the addresses
first set forth above or at such other address as will have
been given to the other party in writing for the purpose of
this Section. Such notices and other communications will be
deemed effective upon the earliest to occur of (a) actual
delivery confirmed in person or by facsimile, or (b) five
business (5) days after mailing, postage prepaid, by certified
mail return receipt requested.
<PAGE>
11.4 Assignment. The Licensee shall not assign any rights or
delegate any obligations under this Agreement without the
prior written consent of the Licensor, provided, however,
that: (i) Licensor shall not unreasonably withhold its consent
to such assignment or delegation, and (ii) Licensee may make
such assignment or delegation without consent in connection
with a consolidation, merger, or sale of all or substantially
all of its assets. Subject to the above restriction on
assignment, this Agreement will inure to the benefit of and
bind the successors and assigns of the parties.
11.5 Non-Waiver. The failure of either party at any time to require
performance by the other party of any provisions of this
Agreement will not affect in any way the full right to require
such performance at any time thereafter. Nor will the waiver
by either party of a breach of any provision of this Agreement
be taken or held to be a waiver of the provision itself.
11.6 Governing Law. The validity, interpretation, and performance
of this Agreement will be controlled by and construed under
the laws of the State of New York. Any disputes between the
parties concerning this Agreement which cannot be resolved by
good faith negotiation shall be resolved through binding
arbitration under the Rules of the American Arbitration
Association ("AAA"). Such arbitration shall be conducted by a
single arbitrator knowledgeable about computer software and
fluent in the English language, who shall be mutually
agreeable to the Licensor and Licensee. If Licensor and
Licensee fail to agree on an acceptable arbitrator within
twenty (20) days of a demand for arbitration, then the AAA
shall make such appointment. The arbitration hereunder shall
be in accordance with the Rules of Commercial Arbitration of
the AAA, as amended and in effect as of the date of this
Agreement. Such arbitration, including the rendering of the
awarded, shall take place in New York City, and the language
of such proceeding (including written submissions by the
parties) shall be English. The arbitrator shall state the
reasons for his or her award. The award of any such proceeding
shall be final, conclusive and binding upon the parties.
Judgement upon such award may be entered in and executed upon
by the prevailing party in any competent court in any court
having jurisdiction thereof, or application may be made by the
prevailing party to any such court for judicial acceptance of
such award and an order of enforcement. The United Nations
Convention on Contracts for the International Sale of Goods is
specifically excluded from application to this Agreement.
11.7 Compliance with Export Laws. The Licensee acknowledges that
the laws and regulations of the United States restrict certain
export and re-export of commodities and technical data of
United States origin, including the Software. The Licensee
agrees that it will not export or re-export the Software in
any form without the appropriate United States and foreign
government licenses.
<PAGE>
11.8 Severability. If any provision of this Agreement is held
invalid or unenforceable for any reason, the parties agree
that such invalidity will not affect the validity of the
remaining provisions of this Agreement, and further agree to
substitute for the invalid provision a valid provision which
most closely approximates the intent and economic effect of
the invalid provision.
11.9 Attorneys' Fees. If any dispute arises between the Licensee
and the Licensor with respect to the matters covered by this
Agreement which leads to a proceeding to resolve such dispute
(including a dispute submitted to arbitration), the prevailing
party in such proceeding will be entitled to receive its
reasonable attorney fees and out-of-pocket costs incurred in
connection with such proceeding, in addition to any other
relief it may be awarded.
11.10 Independent Contractors. The relationship of the Licensor and
the Licensee established by this Agreement is that of licensor
and licensee, and nothing contained in this Agreement shall be
construed to create an agency relationship between the parties
or to allow the Licensee to create or assume any obligation on
behalf of the Licensor for any purpose whatsoever.
11.11 Equitable Relief. The Licensee hereby acknowledges that its
material breach of this Agreement including, without
limitation, unauthorized disclosure or use of the Licensor
Proprietary Information shall cause irreparable harm and
significant injury to the Licensor which may be difficult to
ascertain and that a remedy at law would be inadequate.
Accordingly, the Licensee agrees that the Licensor will be
entitled to immediate injunctive relief to enforce obligations
under this Agreement in addition to any other rights and
remedies it may have.
11.12 Complete Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject
matter hereof, and supersedes all prior or contemporaneous
proposals, oral or written, and all other communications
between them relating to the subject matter of this Agreement.
11.13 Section Headings. The section headings in this Agreement are
solely for convenience and will not be considered in its
interpretation.
11.14 Counterparts. This Agreement may be signed in one or more
counterparts, all of which together will constitute one and
the same original agreement.
11.15 Survival of Obligations. The obligations of the Licensee and
the Licensor under Article will survive termination of this
Agreement and will continue in full force and effect
thereafter.
<PAGE>
IN WITNESS WHEREOF, the Licensor and the Licensee have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
META4, INC. [LICENSEE]
By:______________________________ By:_______________________________
Signature Signature
_________________________________ __________________________________
Name Name
_________________________________ __________________________________
Date Date
<PAGE>
SCHEDULE
SOFTWARE
- --------
<TABLE>
<CAPTION>
Total Total
Number of Number of
Number Product Name Version Permitted Users Permitted Servers
<S> <C> <C> <C> <C>
1___ _______________________ ________ __________________ ___________________
2___ _______________________ ________ __________________ ___________________
3___ _______________________ ________ __________________ ___________________
4___ _______________________ ________ __________________ ___________________
</TABLE>
FIELDS OF USE
The Use of the Software and Documentation is not restricted to any Fields
of Use.
FEE STRUCTURE
X License Fee
The Licensee shall pay to the Licensor the following
license fee within 30 days of the date of delivery of the
Access Codes to the Licensee:
$ _____________ times the Permitted Number of Servers
$ _____________ times the Permitted Number of Users
X Annual Maintenance and Upgrade Fee
In the event that Licensee wishes to receive technical support and upgrades
following the expiration of the Warranty Period, Licensee may purchase such
services ("Maintenance and Support Services") on an annual basis (each
consecutive twelve (12) month period being hereinafter referred to as a
"Maintenance Period")for an amount equal to eighteen percent (18%) of Licensee's
standard list price for the Software at the commencement of the applicable
Maintenance Period (the "Annual Maintenance Fee"). To be eligible to purchase
Maintenance and Support Services, the Licensee shall pay to the Licensor the
Annual Maintenance Fee prior to the expiration of the 180-day Warranty Period.
Thereafter, Licensor shall invoice Licensee for the Annual Maintenance Fee
thirty (30) days prior to the expiration of each Maintenance Period and 11
months and such invoice is due and payable within 30 days.
<PAGE>
Maintenance and Support Services shall consist of "Error Correction," "Updates,"
"Telephone Assistance" and "Electronic Mail," all as set forth below. Licensor
agrees to support the current and one previous version of the Software Product.
Error Correction. Documented errors in that part of the Software
Product written by Licensor will be corrected by Licensor. Documented
errors found to exist in that part of the Software provided to Licensor
by third party vendors will be forwarded to the appropriate third party
vendor for resolution. Licensor will use reasonable efforts to obtain a
timely response from its third party vendors. If a reported error has
caused the licensed Software Product to become inoperable, Licensor
shall use reasonable efforts to correct the error or provide a bypass
around such error. Licensee shall give Licensor reasonable access to
the workstations, servers and network with remote access software and
to the Software including dial-up access of at least 56K Baud.
Updates. Licensor shall provide to Licensee at no additional cost, any
updates, error corrections, modifications, or enhancements of the
licensed Software options, which are developed or published by Licensor
and made generally available to other customers of the Software at no
additional cost. Any new products developed or published by Licensor
will be offered to Licensee at Licensor's then current published rates.
Any new versions of the Software will be made available upon payment of
the following year's Annual Maintenance Fee.
Telephone Assistance and Electronic Mail. Licensor shall provide
Licensee telephone assistance, including software error detection and
general software support, during normal business hours. 9:00 AM EST -
5:00 PM EST Monday through Friday. Licensor also shall provide
electronic mail support to Licensee during the aforementioned hours.
<PAGE>
COMMERCIAL LEASE
Landlord: Riverview Historical Plaza
P.O. Box M-2108
Hoboken, New Jersey 07030
Tenant: Meta 4 Inc., A Delaware Corporation
Coventry Square Suite 480
Pottstown, PA 19465
Term of Lease: 3 Years Lease Date: May 7, 1997
Beginning: June 1, 1997
Ending: May 31, 2000
Security $ 4,550.84 Base Annual Rent: $ 27,305.00
Initial Monthly Rent: $2,275.42
Payable on 1st of each month to Landlord.
Rental Space: A portion of the 4th Floor known as Suite C consisting of 1270
rentable square feet (+ or -).
Use of Space: Commercial Use Only.
Tenant agrees to lease the space from Landlord for the Term and
Rent stated according to the terms and conditions contained
herein and as follows:
1. Possession and Use
Landlord shall give possession of the Rental Space to Tenant for the Term.
Tenant shall take possession of and use the Rental Space for the purpose stated
above. Tenant may not use the Rental Space for any other purpose without the
prior written consent of Landlord.
Tenant shall not use the Rental Space for any unlawful or hazardous
purpose.
Tenant shall not use the Rental Space in any manner that results in (1) an
increase in the rate of fire or liability insurance or (2) cancellation of any
fire or liability insurance policy on the Rental Space. Tenant shall comply with
all requirements of the insurance companies insuring the Rental Space. Tenant
shall not abandon the Rental Space during the Term of this Lease or permit it to
become vacant in excess of 30 consecutive days.
If due to Tenant's use of the Rental Space, Landlord cannot obtain and
maintain fire insurance on the Building in an amount and form reasonably
acceptable to Landlord, Landlord
<PAGE>
may cancel this Lease on 30 days' notice to the Tenant. If due to
Tenant's use of the Rental Space the fire insurance rate is
increased, the Tenant shall pay the increase in the premium to the
Landlord on demand.
2. No Assignment or Subletting
Tenant may not do any of the following without the prior written consent of
Landlord: (a) assign this Lease (if the Tenant is a corporation, the sale of a
majority of its shares shall be treated as an assignment) (b) sublet all or any
of the rental part of rental space or (c) permit any other person or business to
use the rental space.
3. Rent
Tenant shall pay the rent to Landlord at Landlord's address without set-off
or abatement of any kind for any reason. If Tenant fails to comply with any
terms or conditions in this Lease, Landlord may do so on behalf of Tenant and
charge the cost to comply, including reasonable attorneys' fees, to Tenant as
"additional rent." The additional rent be due and payable immediately.
Non-payment of additional rent shall give Landlord the same rights against
Tenant as if Tenant failed to pay the rent.
4. Security
Tenant has given to Landlord the Security stated above which shall be held
by Landlord during the Term of this Law. Landlord may deduct from the security
any expenses incurred in connection with Tenant's violation of agreement in this
Lease.
At the end of Lease, if Tenant does not leave the rental space in good
condition, the Security may be used to put it in good condition. If the amount
of damage exceeds the Security, Tenant shall immediately upon demand pay the
additional amount to Landlord.
If Landlord uses the Security or any part of it during the Lease to cure
any Tenant deficiency, Tenant shall immediately on demand restore the amount
used. The amount of the Security is to remain constant throughout the Term.
Security is never to be used by Tenant for the payment of Rent. Landlord shall
repay to Tenant any balance remaining within a reasonable time after the end of
the Term. Tenant shall not be entitled to interest on the Security.
If the Landlord's interest in the Rental Space is transferred, the Landlord
shall turn over the Security to new Landlord and notify Tenant of the name and
address of new Landlord. Landlord shall then no longer be responsible to
the Tenant for the repayment of the Security. The new Landlord shall be
responsible to Tenant for the Security in accordance with the terms of this
Lease.
<PAGE>
5. Liability Insurance
Tenant shall obtain, pay for, and keep in effect for the benefit of
Landlord and Tenant, public liability insurance on the Rental Space. The
insurance company and the broker must be acceptable to the Landlord. This
coverage be in at least the minimum amounts of $1,000,000 per person personal
injury, $2,000,000 aggregate per incident and $1,000,000 property damage and
name Landlord as and additional insured.
All policies shall state that the insurance company cannot cancel or refuse
to renew without at least 30 days' written notice to Landlord.
Tenant shall deliver adequate proof of a valid policy to Landlord with
proof of payment of the first year's premiums. This shall be done not less than
15 days before the start of the Term. Tenant shall deliver a renewal policy to
Landlord with proof of payment not less than 15 days before the expiration date
of each policy. The policy shall contain a waiver of any subrogation against
Landlord by Tenant's insurance carrier.
6. Water Damage
The Landlord stall not be liable for any damage or injury to any persons or
property caused by the leak or flow of water from or into any part of the
Building from any cause or source whatsoever except for gross negligence of
Landlord.
7. Liability of Tenant
The Tenant is liable for any loss, injury or damage to any person or
property caused by the act or neglect of Tenant, Tenant's employees, agents or
invitees or occasioned by Tenants use or occupancy of the premise. Tenant shall
hold harmless and defend the Landlord from and reimburse the Landlord for any
claim, liability, damage and costs resulting from any injury or damage due to
the act or neglect of Tenant, Tenant's employees, agents or invitees.
8. Real Estate Taxes
Landlord shall pay the yearly Municipal Real Estate Taxes on the Building.
Tenant shall pay its pro-rata share (3%) of any Increase in the Municipal Real
Estate Taxes over the tax for the Base Year. Tenant shall pay this amount yearly
in one sum within 30 days of Landlord's written request as to any amount
notified. Any amounts not yet due shall be prorated monthly over the balance of
the year.
9. Acceptance of Rental Space
Tenant has inspected the Rental Space and agrees that the Rental Space is
in satisfactory condition. Tenant accepts the Rental Space "as is." Landlord is
to paint and re-carpet.
<PAGE>
10. Quiet Enjoyment
Landlord has the right to enter into this Lease. If Tenant complies with
this Lease, Landlord must provide Tenant with undisturbed possession of the
Rental Space.
11. Utilities and Services
Tenant shall arrange and pay for the following utilities
and services required for the Rental Space:
(a) Tenant Electric
(b) HVAC - after business hours/weekends/holidays
The Landlord shall pay for the following utilities and services:
(a) Base HVAC
(b) Water & Sewer
(c) Cleaning
The Landlord is not liable for any inconvenience or harm caused by any
stoppage or reduction of utilities and services. This does not excuse Tenant
from paying Rent except for gross negligence of Landlord.
12. Tenant Compliance and Maintenance
Tenant shall:
(a) Promptly comply with all laws, orders, rules and requirements of
governmental authorities, insurance carriers, board of fire underwriters, or
similar groups.
(b) Maintain the Rental Space and all equipment and fixtures in it in good
repair and appearance.
(c) Make all necessary repairs to the Rental Space and all equipment and
fixtures in it, except structural repairs.
(d) Maintain the Rental Space in a neat, clean, safe, and sanitary
condition, free of all garbage.
(e) Keep walks, entrances, hallways, and stairs clean and free from its
debris and trash.
(f) Use all electric, plumbing and other facilities in the Building safely.
(g) Use no more electricity than the wiring or feeders to the Rental space
can safely carry.
(h) Promptly replace all broken glass in the Rental Space.
(i) Do not destroy, deface, damage or remove any part of the Rental Space.
<PAGE>
(j) Keep nothing in the Rental Space which is hazardous, flammable,
dangerous or explosive or which might increase the danger of fire or other
casualty.
(k) Promptly notify the Landlord when there are conditions which need
repair.
(1) Do nothing to destroy the peace and quiet of Landlord, other tenants,
or persons in the neighborhood.
(m) Avoid littering in the building or on its grounds.
Tenant shall pay any expenses involved in complying with the above.
13. Landlord's Repairs and Maintenance
Landlord shall:
(a) Maintain the public areas, roof and exterior walls in good
condition.
(b) Make all structural repairs unless these repairs are made
necessary by the act or neglect of Tenant or Tenant's employees, agents or
invitees.
(c) Make necessary replacements of the plumbing, cooling, heating and
electrical systems, except when made necessary by the act or neglect of the
Tenant or the Tenant's employees, agents or invitees.
(d) Maintain the elevators in the Building.
14. Consent for Alterations
Tenant may not make any changes or additions to the Rental Space without
Landlord's prior written consent. Any changes or additions made without
Landlord's written consent shall be removed by Tenant on demand.
All changes or additions made with Landlord's written consent shall become
the property of the Landlord when completed and paid for by Tenant. They shall
remain as part of the Rental Space at the end of the Term. Landlord may demand
that Tenant remove any changes or additions at the end of the Tenn and restore
the Rental Space to its prior configuration and condition at Tenant's expense.
Tenant shall promptly pay for all costs of any permitted changes or additions.
Tenant shall not allow any mechanic's lien or other claim to be filed
against the Building. If any lien or claim is filed against the Building, Tenant
shall have it promptly removed.
15. Signs
The Tenant shall obtain the Landlord's prior written consent before placing
any sign on or about the Rental Space. Signs must conform with all applicable
municipal ordinances and regulations.
<PAGE>
16. Access to Rental Space
Landlord shall have access to the Rental Space on reasonable notice to
Tenant to (a) inspect the Rental Space and (b) show it to prospective buyers,
mortgage lenders, contractors or insurers.
Landlord shall maintain the right to have access to Tenant space to
install, repair, maintain, service or correct any system, service, utility or
component of the building whether said work is in connection with Tenant's space
or any other space in said building including adjoining portions of the same
floor as well as other floors in said building. Landlord shall use reasonable
care in connection with any said access. However, there shall not be any
diminution or abatement or withholding of any rent by Tenant based upon any
alleged interference by Landlord with the operation of its business. Any such
diminution, abatement, withholding or failure or refusal to allow timely access
to Tenant's space shall constitute a default under the lease and shall entitle
Landlord to exercise all rights upon default under this Lease and under
applicable law.
Landlord may show the Rental Space to rental applicants at reasonable
hours on notice to Tenant within 6 months before the end of the Term.
Landlord may enter the Rental Space at any time without notice to Tenant in
case of emergency.
17. Fire and Other Casualty
Tenant shall notify the Landlord at once of any fire or other casualty in
the Rental Space.
If the Rental Space is partially damaged by fire or other casualty,
Landlord shall repair it as soon as reasonably possible. Landlord need not
repair or replace anything installed by Tenant.
Either party may cancel this Lease if in Landlord's sole opinion the Rental
Space is so damaged by fire or other casualty that it cannot be repaired within
90 days.
This Lease shall end if the Rental Space is totally destroyed. Tenant shall
pay Rent to the date of destruction. The Lease shall continue if part of the
rental space is useable.
If the fire or other casualty is caused by the act or neglect of Tenant or
Tenant's employees, Tenant shall pay for all repairs and all other damage and
there shall be no abatement in rent.
18. Eminent Domain
Eminent Domain is the right to lawfully condemn and take private property
for public use. If any part of the Rental Space is taken by eminent domain,
Landlord may cancel this Lease on 30 days' notice to Tenant. The entire payment
for the taking shall belong to Landlord. Tenant shall make no claim for the
value of this Lease for the remaining part of the Term.
<PAGE>
19. Subordination to Mortgage
All mortgages which now or in the future affect the Building have priority
over this Lease. Tenant shall sign any papers needed to give any mortgage
priority over this Lease. If Tenant refuses, the Landlord may sign the papers on
behalf of Tenant.
20. Tenant's Certificate
At the request of Landlord, Tenant shall sign a certificate stating that
(a) this Lease is in effect and in good standing, (b) Landlord has fully
performed all of Landlord's agreements in this Lease, (c) Tenant has no rights
to the Rental Space except as stated in this Lease, (d) Tenant has paid all Rent
to date, and (e) Tenant has not paid Rent for more than one month in advance.
The Certificate shall also list all the property attached to the Rental Space
owned by the Tenant.
21. Violation, Eviction, Re-entry and Damages
Landlord reserves a right of re-entry which allows the Landlord to end this
Lease and re-enter the Rental Space if Tenant violates any agreement in this
Lease. This is done by eviction in Court which is started by filing a complaint
in Court and service of a summons on Tenant to appear in court. After a court
order of eviction and service of a warrant or removal, Landlord may re-enter and
take back possession of the Rental Space. If the cause for eviction is
non-payment of Rent, notice does not have to be given to Tenant before Landlord
files a complaint. Tenant is liable for all damages caused by the Tenant's
violation of any agreement in this Lease. This includes reasonable attorneys'
fees and costs.
After eviction Tenant shall pay Rent for the Term or until Landlord
re-rents the Rental Space, if sooner. If Landlord re-rents the Rental Space for
less than the Tenant's Rent, Tenant shall pay the difference until the end of
the Term. Tenant shall not be entitled to any excess resulting from the
re-renting. Tenant shall also pay (a) all reasonable expenses incurred by
Landlord in preparing the Rental Space for re-renting and (b) commissions paid
to a broker for finding a new tenant.
22. Notices
All notices given under this Lease must be in writing. Each party must
accept and claim the notices given by the other. Unless otherwise provided by
law, they may be given by (a) personal delivery, or (b) certified mail, return
receipt requested. Notices shall be addressed to the Landlord at the address
written at the beginning of this Lease and to the Tenant at the Rental Space.
23. No Waiver
Landlord's failure to enforce any agreement in this Lease shall not prevent
the Landlord from enforcing the agreement for any violations occurring at a
later time.
<PAGE>
24. Survival
If any agreement in this Lease is contrary to law, the rest of the Lease
shall remain in effect.
25. End of Term
At the end of the Term Tenant shall (a) leave the Rental Space clean,(b)
remove all of the Tenant's property, (c) remove all signs and restore the
portion of the Rental Space on which they were placed (d) repair all damage
including any caused by moving, and (e) return the Rental Space to Landlord in
the same configuration and condition as it was at the beginning of the Term
except for normal wear and tear.
If the Tenant leaves any property in the Rental Space, Landlord may (a)
dispose of it and charge Tenant for the cost of disposal, or (b) keep it as
abandoned property.
26. Binding
This Lease binds Landlord and Tenant and all parties who lawfully succeed
to their rights or take their places.
27. Tenant Maintenance
Tenant shall be responsible for malfunction, damage, or misuse in, or to
any utility system caused by Tenant, its employees, agents or invitees.
28. Lease Execution
Each of the persons executing this Lease on behalf of Tenant represents
that its execution is properly authorized by the entity on whose behalf the
person has signed and, furthermore, that the entity exists, is in good standing,
and is authorized to enter into this Lease. The persons executing the Lease are
personally liable pursuant to the Lease Terms in the event those representations
are not correct. Any entity or corporation on whose behalf this Lease is
executed shall provide Landlord with appropriate documents evidencing its
existence and good standing as well as its authority to enter into and execute
this Lease.
29. Commencement of Rent Payment
If Tenant cannot or will not commence occupancy on the date of notice to
commence possession provided by Landlord to Tenant, payment of rent shall be due
and owing as of the notice date to commence possession just as if Tenant were
actually occupying the premises.
<PAGE>
30. Utility Surcharge
Tenant shall pay a utility charge for all utilities including H.V.A.C.,
immediately upon billing by Landlord for all its use of said utilities before
7:30 a.m. and after 6:30 p.m. weekdays and all day Saturday and Sunday and
Holidays.
31. Property Insurance
Tenant shall carry fire, multi-peril and property insurance insuring
Tenant's property against loss or damage from any cause whatsoever from an
insurance company licensed and qualified to do business in the State of New
Jersey in an amount sufficient to adequately insure Tenant's property. The
policy shall include a waiver of any subrogation claim against Landlord by
Tenant's insurance carrier.
32. Glass Damage
Damage to glass in areas leased by Tenant shall be repaired by Tenant at
its own cost and expense. Tenant is responsible for the cost to repair damage to
any glass anywhere else on the premises caused by Tenant, its employees, agents
or invitees.
33. Default
In the event of any violation of Lease conditions, terms or requirements,
Tenant shall be in default under the Lease agreement. If such default is not
cured within 10 days after notice by Landlord, this Lease at the option of
Landlord may be declared null and void. Tenant shall be liable to Landlord for
all expenses and any damages incurred in connection with or arising out of
Tenant's violation of the Lease terms. Neither failure to act, nor lapse of time
after breach of a Lease condition, shall constitute a waiver or operate to
defeat the right of Landlord under law and the terms of this Lease in connection
with any lease violation by Tenant.
34. Mechanic's Lien
If any mechanic's or other liens shall be created or filed against the
Leased premises by reason of labor performed or materials furnished for Tenant
in the erection, construction, completion, alteration, repair or addition to any
building or improvement, the Tenant shall within 30 days thereafter, at the
Tenant's own cost and expense, cause such lien or liens to be satisfied and
discharged of record together with any Notices of Intention that may have been
filed. Failure to do so shall entitle the Landlord to resort to such remedies as
are provided herein in the case of any default of this Lease, in addition to
such as are permitted by law.
35. Rent Payment
In the event Tenant fails to pay its rent by the 10th day of the month,
there shall be due and owing as a late charge an amount equal to 10% of the
unpaid rent. Thereafter, unpaid rent shall bear interest on the basis of 18% per
annum applied to the monthly rental payment.
<PAGE>
Nothing in this article shall detract from Landlord's right to evict Tenant,
re-enter the premises and terminate the Lease for failure or refusal to make
timely rental payments on the first day of each month. Neither shall any
failure to evict for any specific non-payment or acceptance of a late payment
constitute a waiver of Landlord's right to each and every remedy upon any
particular default under the Lease terms.
36. Disclaimer
Landlord shall not be responsible for loss or damages to property or injury
to person occurring in or about the premises because of any existing or future
condition or defect or for acts, omissions or negligence of other persons or
other tenants.
37. Insurance Disclaimer
The Tenant waives all rights of recovery against the Landlord or Landlord's
agents, employees or other representatives, for any loss, damages or injury of
any nature whatsoever to property or persons for which the Tenant is required to
be insured under this Lease.
38. Operating Cost Increase
Subsequent to 1997 and for each year thereafter, based upon square footage
occupied, Tenant shall be responsible for its pro-rata share of building
operating cost increases, if any, such as increases in the cost, expense,
charges or rents for building utilities, janitorial and service contracts, waste
disposal services or charges, building management and the like. Increases
preceding billing shall be due and payable within 20 days of billing by
Landlord. Prospective increases shall be prorated monthly over the balance of
the year. Failure or refusal to make timely payment of said increases shall
constitute a default and be the equivalent of the failure or refusal to pay
rent.
39. Nonperformance for Outside Cause
This Lease and the obligation of Tenant to pay rent and perform all of the
other covenants and agreements hereunder shall in no way be affected, impaired
or excused because Landlord is unable to fulfill any of its obligations under
this Lease to supply or is delayed in supplying any service expressly or
implicitly to be supplied or is unable to make or is delayed in making any
repairs or is unable to supply or is delayed from so doing by reason of strike
or labor troubles or any outside cause whatsoever, including, without
limitation, Governmental pre-exemption or by reason of any rule, order or
regulation of any department or subdivision thereof or of any Government agency
or by reason of the conditions of supply and demand which have been or are
affected by war or other emergency or an act of God, or any outside or
unanticipated cause whatsoever.
40. Bankruptcy-Insolvency
<PAGE>
If, during the term of this Lease (a) the Tenant shall make an assignment
for the benefit of creditors or (b) a voluntary or involuntary petition to be
filed by or against the Tenant under any law having for its purpose the
adjudication of the Tenant as bankrupt, or the extension of time of payment,
composition, adjustment, modification, settlement or satisfaction of the
liabilities of the Tenant or the reorganization or liquidation of the Tenant
pursuant to any Federal or State law now or hereafter enacted, (c) a receiver be
appointed for the property of the Tenant by reason of the insolvency or
alleged insolvency of the Tenant, or (d) any department of the State or Federal
Government, or any officer thereof duly authorized, shall take possession of the
business or property of the Tenant by reason of the insolvency or alleged
insolvency of the Tenant, then the occurrence of any such contingency shall be
deemed a breach of this Lease and this shall ipso facto _________________ upon
the happening of any of said contingencies be terminated and the same shall
expire as if the day of the happening of such contingency were the date herein
specifically fixed for the expiration of the term, and the Tenant will then quit
and surrender the demised premises to the Landlord, but the Tenant shall remain
liable as hereinafter provided. Upon such termination Landlord shall have the
immediate right to re-enter the demised premises and to remove all persons and
property therefrom. This Lease shall not be treated as an asset of the Tenant's
estate, and neither the Tenant nor anyone claiming by, through or under Tenant
by virtue of any law or any order of any Court shall be entitled to the
possession of the demised premises or to remain in the possession thereof. Upon
the termination of the Lease, as aforesaid, Landlord shall have the right to
retain as partial damages, and not as a penalty, any prepaid rents and any
security deposited by Tenant hereunder. Landlord shall also be entitled to
exercise such rights and remedies to recover from Tenant as damages such amounts
as are specified in this Lease, unless any statute or rule of law governing the
proceedings in which such damages are to be proved shall lawfully limit the
amount of such claims capable of being so proved, in which case Landlord shall
be entitled to recover, as and for liquidated damages, the maximum amount which
may be allowed under any statute or rule of law. Landlord's right of re-entry
and Lease termination shall be by Order of a Court of competent jurisdiction.
41. Landlord's Liability
Tenant shall look solely to the equity of the then owner of the demised
premises in the demised premises (or if the interest of the Landlord is a
leasehold interest Tenant shall look solely to such leasehold interest) for the
satisfaction of any remedies of Tenant in the event of a breach by Landlord of
any or its obligations.
42. Holding over
If Tenant holds over after the expiration or earlier termination of this
Lease, and if Tenant is not otherwise in default hereunder, such holding over
shall not be deemed to extend the term or renew this Lease, but the tenancy
thereafter shall continue as a tenancy from month to month at the sufferances of
Landlord upon the terms and conditions herein contained and at two (2) times the
rent in effect immediately preceding the said expiration date, including the
applicable pass through charges, if any.
<PAGE>
43. Rules and Regulations
Reasonable rules and regulations regarding the demised premises, the
building and the use thereof, which are now or may hereinafter be promulgated by
Landlord, shall be observed by Tenant and Tenant's employees and agents.
Landlord reserves the right to rescind any rule promulgated hereafter, and to
make such other and further rules and regulations as in its reasonable judgment
may from time to time be desirable for the safety, care and cleanliness of the
demised premises and the building, and for the preservation of good order
therein, which rules, when so made and reasonable notice given to Tenants, shall
have the same force and effect as if originally made a part of this Lease. Such
order and further reasonable rules shall not, however, be inconsistent with the
proper and rightful enjoyment by Tenants of the demised premises in the conduct
of its business.
44. Lease Term Modification
Provided the Lease is not otherwise in default, Tenant shall have the
Option to modify the end date of this Lease at the end of years one (1) and two
(2) of the Lease. To do so Tenant must notify Landlord in writing four months'
prior to the end of the year and include with said Notice a payment equal to
four (4) month's rent for year one (1) and two (2) month's rent for year two (2)
for the Lease modification and, thereafter, pay the balance of the rent in a
timely manner until the modified termination date. Time and term modification
payment are of the essence of this lease modification Option or this Option is
void and of no effect.
45. Choice of Law
This Lease, and the rights and obligations of the parties hereto, shall be
interpreted and construed in accordance with the laws of the State of New
Jersey.
46. Full Agreement
<PAGE>
The parties have read this Lease. It contains their full agreement. It may
not be changed except in writing signed by Landlord and Tenant.
Signatures Landlord and Tenant agree to the terms of this
Lease by signing below. If a party is a
corporation, this Lease is signed by its proper
corporate officers and its corporate seal is
affixed
Witnessed or attested by:
- --------------------------------- -----------------------------------
As to Landlord Riverview Historical Plaza
- --------------------------------- -----------------------------------
As to Tenant Meta4, a Delaware Corporation
<PAGE>
Exhibit 11.1
Computation of loss per share
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
1996 1997 1997 1998
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Basic:
Net loss ($19,263) ($606,399) ($64,192) ($244,461)
Net loss applicable to common
stockholders ($19,263) ($606,399) ($64,192) ($244,461)
=========== =========== =========== ===========
Basic weighted average shares
outstanding 3,700,000 3,700,000 3,700,000 3,700,000
=========== =========== =========== ===========
Basic loss per common share ($0.01) ($0.16) ($0.02) ($0.07)
=========== =========== =========== ===========
Diluted:
Net loss applicable to common
stockholders ($19,263) ($606,399) ($64,192) ($244,461)
=========== =========== =========== ===========
Basic weighted average shares
outstanding 3,700,000 3,700,000 3,700,000 3,700,000
Net effect of dilutive securities 0 0 0 0
----------- ----------- ----------- -----------
Diluted weighted average shares
outstanding 3,700,000 3,700,000 3,700,000 3,700,000
=========== =========== =========== ===========
Diluted loss per common share ($0.01) ($0.16) ($0.02) ($0.07)
=========== =========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
None
<PAGE>
Exhibit 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Metalogics, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Selected Financial Data" and "Experts" in the
Prospectus. Our report dated May 15, 1998, except for note 7, which is as of
July 27, 1998, contains an explanatory paragraph that states that the Company's
recurring losses from operations since inception, working capital deficiency and
net capital deficiency raise substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainity.
KPMG PEAT MARWICK LLP
New York, New York
July 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,572
<SECURITIES> 0
<RECEIVABLES> 68,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,211
<PP&E> 186,880
<DEPRECIATION> (31,964)
<TOTAL-ASSETS> 189,839
<CURRENT-LIABILITIES> 815,001
<BONDS> 0
0
0
<COMMON> 370
<OTHER-SE> 130
<TOTAL-LIABILITY-AND-EQUITY> 189,839
<SALES> 1,649,699
<TOTAL-REVENUES> 1,649,699
<CGS> 1,079,495
<TOTAL-COSTS> 1,242,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (671,708)
<INCOME-TAX> (65,309)
<INCOME-CONTINUING> (606,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (606,399)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> 0
</TABLE>
