<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 2000.
FILE NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTEGRITY SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 84-1424647
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
CAMDEN LOCK, SOUTH DOCK ROAD, DUBLIN 4, IRELAND, TEL: 011-353-1-665-2002
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER D. NAGLE, CHIEF EXECUTIVE OFFICER AND CHAIRMAN
C/O DONALD S. RADCLIFFE, RADCLIFFE AND ASSOCIATES, INC., 575 MADISON AVE., NEW
YORK, NY 10022, TEL. (212) 605-0100
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
ANTHONY J. RENZI, JR. PETER DIIORIO
CLIFFORD CHANCE ROGERS & WELLS LLP HELLER EHRMAN WHITE & MCAULIFFE LLP
607 FOURTEENTH STREET, NW 711 FIFTH AVENUE
WASHINGTON, DC 20005 NEW YORK, NY 10022
TEL: (202) 434-0700 TEL: (212) 832-8300
FAX: (202) 434-0800 FAX: (212) 832-3353
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the 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 of the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following 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
under the Securities Act, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value $0.0025 per
share................................... 3,450,000(1) $21.56(2) $74,390,625(2) $19,640
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</TABLE>
(1) Includes 450,000 shares subject to the underwriters' overallotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON 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 DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
3,000,000 SHARES
LOGO
COMMON STOCK
------------------------
We are offering 3,000,000 shares of our common stock for sale. A limited
number of shares of our common stock currently is traded over the counter. On
, 2000, the bid price of our common stock on the Pink Sheets of the
National Quotation Bureau, LLC was $ per share. We have filed an
application to qualify our common stock for quotation on the Nasdaq National
Market under the symbol "INTY."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 4 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
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PER SHARE TOTAL
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<S> <C> <C>
Public Price................................................ $ $
Underwriting Discount....................................... $ $
Proceeds, before expenses, to Integrity Software............ $ $
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</TABLE>
We and a group of selling stockholders have granted the underwriters an
option for a period of 30 days to purchase additional shares of common stock at
the offering price, less the underwriting discount, solely to cover
over-allotments. We will not receive any of the proceeds from the sale of shares
by selling stockholders. Of the shares subject to the over-allotment option,
210,000 will be sold by the selling stockholders and 240,000 will be sold by
Integrity Software.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this prospectus
is truthful or complete. It is illegal for any person to tell you otherwise.
------------------------
NEEDHAM & COMPANY, INC. A.G. EDWARDS & SONS, INC.
The date of this prospectus is , 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Price Range of Common Stock................................. 15
Dilution.................................................... 16
Selected Consolidated Financial Data........................ 17
Exchange Rates.............................................. 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 30
Management.................................................. 40
Principal and Selling Stockholders.......................... 45
Related Party Transactions.................................. 46
Description of Capital Stock................................ 47
Shares Eligible for Future Resale........................... 49
Underwriting................................................ 50
Where You Can Find Additional Information................... 52
Legal Matters............................................... 52
Experts..................................................... 52
Enforcement of Civil Liabilities............................ 52
Index to Financial Statements............................... F-1
</TABLE>
------------------------
All amounts listed in this prospectus are stated in U.S. dollars, unless
otherwise noted. In this prospectus, references to "Pounds," "Pounds Sterling"
or "L" are to British pounds, references to "IRL" or "Irish Pounds" are to Irish
pounds and references to "U.S. dollars" or "$" are to United States dollars. Any
discrepancy between the amounts listed and their totals in the tables included
in this prospectus are due to rounding.
References in this prospectus to "we," "our," "us," "our company,"
"Integrity" and "Integrity Software" are to Integrity Software, Inc. On March
13, 2000, we changed our name to Integrity Software, Inc., from Integrity
Holdings, Ltd. and reincorporated from Nevada to Delaware. Accordingly,
references to Integrity Software, Inc. for periods prior to March 13, 2000, or
where the context otherwise requires, are to Integrity Holdings, Ltd.
------------------------
In this prospectus, we rely on and refer to information regarding the
enterprise-wide software market that has been prepared by independent industry
research firms, including Forrester Research, or compiled from market research
reports and other publicly available information. Although we believe this
information is reliable, we cannot guarantee the accuracy and completeness of
the information and we have not independently verified it.
We have not, and the underwriters have not, authorized any person to
provide you with information not contained in this prospectus. If anyone
provides you with different or inconsistent information, you should not rely on
it. This prospectus is not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information contained in this
<PAGE> 4
prospectus is accurate only as of the date on the front of this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
ii
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and the financial statements,
before making an investment decision.
INTEGRITY SOFTWARE
We are a Dublin-based software company that develops, markets, implements
and supports web-enabled, enterprise-wide software applications for smaller to
mid-sized organizations in the distribution and contracting industries. Our
products enable organizations to optimize the efficiency of internal and
external information flow by integrating business-to-business modules with
mission-critical, enterprise-wide software applications. These applications
include core accounting functions as well as key, industry-specific
functionality. The modular design of our products enables us to provide
customers with cost-effective, tailored solutions that can be easily implemented
and integrated with existing business systems. We conduct our operations
primarily in the United Kingdom, Ireland and South Africa, where we currently
have approximately 3,800 customers under contract using software applications.
According to Forrester Research, an independent market research firm,
global license revenues from packaged enterprise-wide applications are expected
to grow from $14 billion in 1998 to over $41 billion by 2003, representing a
compound annual growth rate of 24%. The non-U.S. portion of this market is
projected to grow even faster from $6 billion to over $20 billion during this
same period, representing a compound annual growth rate of 27%. However, the
market for enterprise-wide software applications for smaller to mid-sized
organizations has historically been under-served because vendors have targeted
large organizations with expensive, large-scale packages. We believe that this
market will generate a significant portion of the growth for enterprise-wide
software applications due to smaller to mid-sized organizations' unique
requirements. These organizations generally do not have the information
technology resources to purchase, implement and support large-scale,
enterprise-wide systems. We believe that our products, Vision and Legerdemain
for the distribution industry, and Evolution and Foundation for the contracting
industry, offer greater functionality, faster implementation and integration and
lower cost of ownership solutions for customers in our targeted markets.
Our primary business objective is to be the leading provider of
web-enabled, enterprise-wide software applications to our target markets. To
achieve our objective, we intend to pursue the following strategies:
- focus our research and development on next-generation web-enabled,
mission-critical software products
- accelerate growth and achieve economies of scale through strategic
acquisitions
- leverage our legacy customer base by selling our new products to them
- expand our value added reseller, or VAR, channel
- further penetrate targeted markets
- enhance our service and support functions
We have four integrated business areas: business-to-business, or B2B,
enterprise-wide software, general accounting and technical services, or GATS,
and computer finance services, or CFS. We support our four business areas with
cross-company resources in sales and marketing, research and development,
training and support. Our research and development investment is focused on
creating web-enabled, enterprise-wide, mission-critical applications to address
the requirements of customers across all of our business areas.
We are incorporated in Delaware. Our principal executive offices are
located at Camden Lock, South Dock Road, Dublin 4, Ireland, and our telephone
number is 011-353-1-665-2002. Our corporate web site is www.integrity-us.com.
Information on our web site is not part of this prospectus.
1
<PAGE> 6
THE OFFERING
Except as otherwise indicated, all information in this prospectus reflects
a 2-for-5 reverse stock split of our common stock on March 20, 2000 and assumes
no exercise of the underwriters' over-allotment option.
Common stock offered by Integrity... 3,000,000 shares
Common stock to be outstanding after
this offering....................... 16,957,808 shares
Use of proceeds..................... We intend to use the net proceeds of
this offering to finance research and
development activities, as well as
potential future acquisitions. We will
use the balance of the net proceeds for
general corporate and working capital
purposes.
Listing............................. Our common stock is currently traded
over the counter and quoted in the Pink
Sheets. We have applied to have our
common stock quoted on the Nasdaq
National Market effective upon
completion of this offering.
Proposed Nasdaq National Market
symbol.............................. INTY
Unless otherwise indicated, all information in this prospectus, including
the outstanding share information above, is based on the number of shares
outstanding as of March 22, 2000 and:
- excludes 1,650,000 shares of common stock reserved for issuance under our
stock option plan
- excludes currently exercisable options to purchase 40,000 shares of
common stock
- assumes no issuance of 240,000 shares by us pursuant to the
over-allotment option granted to the underwriters
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read our summary consolidated financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included elsewhere in
this prospectus. Our consolidated financial statements for the years ended
December 31, 1997, 1998 and 1999 have been audited by BDO International,
independent accountants, and our financial statements for the years ended
December 31, 1998 and 1999 have been restated to reflect our December 7, 1999
merger with Jyris Limited, which has been accounted for as a pooling of
interests. Our consolidated financial statements for the years ended December
31, 1997, 1998 and 1999 have been prepared and presented in accordance with
generally accepted accounting principles in the United States, or U.S. GAAP. The
financial statements for the years ended December 31, 1995 and 1996 (not
included herein) are the statements of the Wyse Group plc, which is considered
to be our predecessor for accounting purposes, and have been prepared and
presented in accordance with generally accepted accounting principles in the
United Kingdom. These financial statements have not been reconciled to U.S.
GAAP; however, in the opinion of our management, there is no material difference
in these presentations. The pro forma financial data summarizes our Unaudited
Pro Forma Condensed Consolidated Financial Information included elsewhere in
this prospectus, which includes the results of operations of each of the
companies acquired in 1999 (including companies acquired by Jyris) as if all
companies had been acquired on January 1, 1999.
The as adjusted balance sheet data gives effect to the sale of 3,000,000
shares of common stock in this offering at an assumed offering price of
$ per share and the application of the net proceeds therefrom, after
deducting underwriting commissions and discounts and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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PRO FORMA
1995 1996 1997 1998 1999 1999
------ ------ ------ ------- ------- -----------
CONSOLIDATED STA(UNAUDITED)PERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Total revenues....................... $4,755 $2,726 $2,002 $10,403 $49,158 $59,695
Gross profit......................... 446 597 445 3,173 24,026 31,688
Amortization of goodwill............. -- -- -- 59 1,857 2,366
Income (loss) from operations........ 113 114 64 757 (2,771) (3,176)
Net income (loss).................... $ 71 $ 73 $ 45 $ 640 $(2,387) $(2,881)
====== ====== ====== ======= ======= =======
Basic earnings (loss) per common
share............................. $ 3.55 $ 3.65 $ 0.19 $ 0.32 $ (0.21) $ (0.25)
====== ====== ====== ======= ======= =======
Diluted earnings (loss) per share.... $ 3.55 $ 3.65 $ 0.19 $ 0.20 $ (0.21) $ (0.25)
====== ====== ====== ======= ======= =======
Weighted average shares outstanding:
Basic........................... 20 20 238 2,027 11,510 11,570
Diluted......................... 20 20 238 3,142 11,510 11,570
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 1,965 $
Working capital........................................... (12,556)
Total assets.............................................. 38,303
Long-term debt, (excluding current maturities)............ 450
Total stockholders' equity................................ 9,250
</TABLE>
3
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. This
prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. Our actual results could differ materially from those anticipated in
the forward-looking statements for many reasons, including the factors described
below and elsewhere in this prospectus. You should not place undue reliance on
these forward-looking statements.
IF OUR PRODUCTS DO NOT PERFORM ADEQUATELY OR ARE NOT ACCEPTED IN OUR MARKETS,
OUR RESULTS OF OPERATIONS AND PROFITABILITY WILL SUFFER.
We cannot assure you that our products will perform adequately to suit our
customers or that they will be accepted in the markets in which we operate. We
cannot assure you that proposed new products will be completed and ready to ship
on schedule or that we will not be beaten to market by one of our competitors.
If our products fail to function properly, satisfy our customers' needs or
remain competitive with our competitors' new products, our business and future
operating results will suffer.
In addition, a significant part of our growth strategy is to sell
web-enabled, enterprise-wide software applications that meet the increasing
needs of customers to conduct business on the Internet. The market for web-based
applications is characterized by rapidly changing technologies, evolving
industry standards and changing customer demands. We have only recently begun to
market our web-enabled software products, and our applications may not achieve
broad market acceptance.
OUR TECHNOLOGY MAY BECOME OBSOLETE OR MAY BE INCOMPATIBLE WITH OTHER SOFTWARE
AND HARDWARE PRODUCTS.
The markets in which we operate are constantly changing through rapid
development of new products, evolving industry standards and frequent new
product introductions and enhancements. In order to succeed, we will have to
continually develop and market new products and services that satisfy evolving
technologies, customer preferences and industry requirements. We cannot
guarantee that our products will not become obsolete or that we will be able to
develop new products that meet the changing needs of our customers.
In addition, our ability to sell our products depends on the compatibility
of our products with other software and hardware products. These products may
change or new products may appear that are incompatible with our products. If we
fail to adapt our products to remain compatible with other vendors' software and
hardware, we may be unable to sell our products.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE, AND SOME OF OUR
COMPETITORS HAVE MORE RESOURCES AND ARE MORE ESTABLISHED THAN WE ARE, WHICH MAY
HARM OUR ABILITY TO SUCCESSFULLY COMPETE.
Our industry, the software industry, is highly competitive. It includes
major domestic and international companies, many of which have financial,
technical, marketing, sales, distribution and other resources substantially
greater than ours. Many of our competitors also have greater brand recognition.
In addition, new competitors may emerge, and they or existing competitors may
begin offering lower-cost products, enhancements and/or additional features that
we are unable to offer. As competition increases, competitors can be expected to
aggressively price their products and offer new products and services that we do
not currently offer. If new competitors emerge, and if they or existing
competitors begin offering lower-cost products, enhancements and/or additional
features, we may not be able to compete effectively and our margins may suffer
as a result.
Our principal competitors in the software market for the distribution
industry as well as for GATS are Sage, Great Plains and Pegasus Software. In the
software market for the contracting industry, our main competitors are Red Sky
Software, CSB/Coins and Mentor. Our competitors in the B2B market are
4
<PAGE> 9
generally the same competitors that we face in the contracting and distribution
software markets, in addition to dedicated Internet solution vendors.
WE HAVE EXPERIENCED LOSSES IN THE PAST AND MAY CONTINUE TO INCUR LOSSES IN THE
FUTURE.
We began our current business in July 1998 and generated net losses in our
most recent fiscal year. Our net loss for 1999 was $2.4 million, a large part of
which was attributable to amortization of goodwill.
We may continue to incur net losses for the coming years in connection with
implementing our business plan. We cannot assure you that our operating
activities will ever provide a revenue base adequate to achieve or sustain
profitability or that we will begin to generate positive cash flow in the near
future. Our ability to provide products and services on a profitable scale and
to generate positive operating results will depend on our ability to, among
other things:
- develop our operational and support systems
- integrate our chosen technological solutions and remain current with
technological advances
- market our products successfully throughout our selected markets
- attract and retain a sufficient customer base
- raise additional capital as required
- retain and attract qualified management and personnel
- assimilate the operations of businesses that we have acquired and plan to
acquire in the future
We cannot assure you that we will be able to accomplish all of these tasks
well enough to regain profitability.
WE HAVE A LIMITED OPERATING HISTORY, WHICH MAY MAKE EVALUATION OF OUR BUSINESS
DIFFICULT.
Although some of our subsidiaries have been operating for considerably
longer than Integrity itself has, we as Integrity have offered our consolidated
range of products and services only since July 1998. Our limited operating
history as a consolidated entity makes it difficult to evaluate our future
prospects. Our prospects are subject to risks and uncertainties frequently
encountered by early-stage companies, particularly in the rapidly evolving
markets that we serve. Many of the risks associated with the markets in which we
operate are unknown. If we fail to identify the challenges and risks in these
markets or to address these risks effectively, our business will be harmed.
IF OUR PRODUCT SUPPORT SERVICES FAIL TO SATISFY OUR CUSTOMERS' NEEDS, IT COULD
DETER CUSTOMERS FROM PURCHASING OUR SOFTWARE OR THESE SERVICES.
While we believe that our ongoing reorganization of our service and support
operations will enable us to offer improved services and support to our
customers, we cannot guarantee that we will achieve this goal. Our efforts to
enhance our service and support offerings could fail if we are unable to
successfully integrate our service and support operations throughout our
business areas or if we are unable to retain and attract highly qualified
service and support personnel.
If we fail to provide high-quality service and support, customers could be
deterred from purchasing our software. This type of failure could also prevent
us from building long-term relationships with our customers, which could lead to
a reduction in new or repeat business. Any of these events could cause our
revenues from product sales or service and support to decline.
ERRORS IN OUR PRODUCTS MAY INCREASE OUR COSTS AND IMPAIR THE MARKET ACCEPTANCE
OF OUR PRODUCTS.
Our software products are complex and may contain errors that can cause
malfunctions at any point in a product's life cycle. While we attempt to
identify and correct errors in our software, we expect that errors will continue
to be found in the future. In the past, we have discovered errors in some of our
products. To date, none of these errors has materially affected our business.
However, product errors or delays in the future could be material, including any
product errors or delays associated with the
5
<PAGE> 10
introduction of our new products or the versions of our products that support
Windows 2000, itself a recent product. The appearance of any significant errors
may:
- hinder market acceptance and sales of our products
- divert personnel and resources required to address the errors
- injure our reputation
- increase maintenance costs
These problems could harm our business and future operating results.
WE COULD BE SUED BY OUR CUSTOMERS OR WE COULD HAVE TO REFUND MONEY TO OUR
CUSTOMERS IF OUR PRODUCTS HAVE ERRORS OR FAIL.
Our software typically performs functions that are critical for our
customers' businesses. As a result, an error in our software could cause
significant disruption to our customers' operations. Any errors in our software
could lead to claims by our customers for refunds or lawsuits by our customers
for damages. Our agreements with customers typically contain provisions intended
to limit our exposure to liability claims. However, these provisions may be held
unenforceable and may not preclude all potential claims. Liability claims could
require us to spend significant time and money in litigation or to pay
substantial damages. Any claims of that type, whether or not successful, could
seriously damage our reputation and our business.
WE MAY NOT BE SUCCESSFUL IN OUR ATTEMPTS TO ACQUIRE ATTRACTIVE COMPANIES IN
ORDER TO PURSUE OUR GROWTH STRATEGY.
We cannot assure you that we will be able to locate or acquire suitable
acquisition candidates, or that any operations that are acquired can be
effectively and profitably integrated into our existing operations. Even if we
are able to identify companies that complement our strategy, we may be unable to
acquire an interest in those companies for many reasons, including:
- a failure to agree on the structure or terms of the acquisition
- incompatibility between us and management of the target
- being outbid by companies that have significantly greater financial and
other resources
- a lack of available capital
If we are not successful in acquiring complementary businesses or product
lines, we may not succeed in our growth strategy.
IF WE ARE UNABLE TO SUCCESSFULLY OBTAIN THE EXPECTED BENEFITS FROM OUR PAST
ACQUISITIONS, OR FROM ANY FUTURE ACQUISITIONS THAT WE MAKE, OUR GROWTH AND
FINANCIAL PERFORMANCE MAY BE HARMED.
Acquisitions have been, and will continue to be, a key part of our growth
strategy. Since August 1998, we have acquired eight companies. If we are unable
to successfully assimilate the operations, or integrate and retain the key
personnel, of acquired companies, we may be unable to achieve the anticipated
benefits from these acquisitions. In addition, our failure to successfully
integrate any acquired companies may result in the following specific risks to
our company:
- our management may need to dedicate a great deal of time and attention to
the acquisition and to the subsequent integration of the new business,
which may harm our existing operations
- we may not be able to achieve expected synergies between our current
businesses and new businesses that we have acquired or may acquire,
including research and development and sales and marketing efforts
- it may be difficult to integrate personnel with disparate business
backgrounds and to combine different corporate cultures
- we may acquire companies in business or geographic markets in which we
have little experience
- we may incur debt or issue dilutive equity securities to pay for future
acquisitions
6
<PAGE> 11
- acquisitions may result in a variety of accounting charges that would
increase our reported expenses, including amortization of goodwill and
the write-off of in-process research and development
The occurrence of any of these risks could harm our business and financial
results.
IF WE ARE UNABLE TO MANAGE OUR GROWTH SUCCESSFULLY, IT MAY DIVERT OUR RESOURCES
AND HARM OUR OPERATING RESULTS.
We have experienced, and are continuing to experience, a period of rapid
growth, which may be difficult to manage. Our growth has placed, and any further
growth is likely to continue to place, a significant strain on our managerial,
operational, financial and other resources. This growth will require us to
implement additional management information systems, to further develop our
operating, administrative, financial and accounting systems and controls and to
maintain close coordination among our research and development, accounting,
finance, sales and marketing and customer service and support departments. In
addition, we may be required to add and retain additional personnel to
adequately support our growth. If we cannot effectively manage our expanding
operations, we may not be able to continue to grow, or we may grow at a slower
pace. Our failure to successfully manage growth and to develop financial
controls and accounting and operating systems or to add and retain personnel
that adequately support our growth would harm our business and financial
results.
WE DEPEND ON THE SERVICES OF OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL,
WHOSE TECHNICAL EXPERTISE AND KNOWLEDGE OF OUR BUSINESS WOULD BE DIFFICULT TO
REPLACE.
Our success depends to a significant degree upon the continuing
contributions of key personnel, including our management team of chief executive
officer Peter D. Nagle, chief financial officer Paul C. Carroll, and chief
operating officer Paul B. Nagle. In addition, we rely heavily on key sales and
marketing, research and development and support personnel. We have employment
contracts with most of our key personnel, but we cannot guarantee that all of
these personnel will remain with us for any period in the future. If we are
unable to retain our senior management team, we may not be able to execute our
growth strategy and our results of operations may be harmed.
WE MAY BE UNABLE TO HIRE AND RETAIN SOFTWARE DEVELOPMENT AND SALES AND MARKETING
PERSONNEL NECESSARY TO EXECUTE OUR BUSINESS STRATEGY.
We believe that our future success will depend in part upon our ability to
attract and retain highly skilled software developers, as well as sales and
marketing personnel, particularly as we continue to grow. Competition for this
type of personnel is intense, and we cannot ensure that we will be successful in
attracting and retaining personnel of adequate quality and in sufficient numbers
to meet our needs in the future. If we fail to attract and retain key personnel,
it could harm our business, limit our growth, and damage our competitiveness.
WE DEPEND ON PROPRIETARY TECHNOLOGY FOR WHICH WE DO NOT HAVE PATENTS OR OTHER
PROPRIETARY PROTECTION; WE ALSO RUN THE RISK OF THIRD-PARTY INFRINGEMENT CLAIMS.
Our success is substantially dependent upon the protection of our
proprietary technologies, and our profitability could suffer if third parties
infringe upon our intellectual property rights or misappropriate our
technologies. We presently have no patents or patent applications with respect
to our proprietary technologies. Instead, we currently rely upon copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary products. All of these afford only limited
protection. We cannot be certain that we will be able to prevent unauthorized
parties from copying or otherwise obtaining and using our products or
technology, particularly in foreign countries where the laws may not protect
proprietary rights as fully as those in the United States. Furthermore, actions
by us to enforce our intellectual property rights, protect our trade secrets or
determine the validity and scope of the proprietary rights of others could
result in our incurring substantial costs and diversion of our resources.
7
<PAGE> 12
Our competitors may independently develop or patent technologies that are
substantially equivalent or superior to our technologies.
In addition, we cannot be sure that third parties will not assert
infringement claims against us or with respect to products and technologies
which we license from third parties. These claims could require us to pay
extensive damages or enter into costly settlement agreements. In addition, any
claims, with or without merit, could:
- be time-consuming to defend
- result in costly litigation
- divert our management's attention and resources
- cause product shipment delays
- require us to enter into royalty or licensing agreements which may not be
available on terms acceptable to us, if at all
If we are unable to license or otherwise use products and technologies in
which third parties have rights, we will have to redevelop these products or
incur substantial additional expenses in order to sell these products, which
could harm our business.
WE MAY HAVE DIFFICULTY RAISING ADDITIONAL CAPITAL NECESSARY TO EXECUTE OUR
STRATEGY.
Executing our strategy may require the commitment of substantial amounts of
capital. If our business operations do not provide enough capital to fund our
expansion and achieve our goals, we will have to raise additional funding
through the issuance of debt or equity. Other than our L4.0 million revolving
credit facility for acquisitions and our L1.0 million working capital credit
facility, we have no current commitments or arrangements with respect to, or
readily available sources of, additional funding. We cannot ensure that we will
be able to raise additional funds by issuing debt or equity securities under
satisfactory terms at the time we need funds. As a result, we may not be able to
take advantage of market opportunities or potential acquisition opportunities.
IF WE CANNOT MAINTAIN AND EXPAND OUR INDIRECT SALES CHANNEL TO SELL OUR
PRODUCTS, OUR ABILITY TO GENERATE REVENUES MAY BE HARMED.
We intend to market and sell our products and services both directly
through our internal sales force and indirectly through VARs. Until recently, we
marketed and sold our products exclusively through our direct sales force, and
we may not be able to maintain and expand our sales channel with the VARs.
Regardless of our efforts, VARs may not devote sufficient resources to marketing
and supporting our products and could discontinue selling our products at any
time in favor of our competitors' products or for any other reason.
OUR GLOBAL OPERATIONS AND ANY FUTURE EXPANSION EXPOSES US TO LESS DEVELOPED
MARKETS, UNFAMILIAR LEGAL REGIMES, POTENTIAL POLITICAL INSTABILITY AND OTHER
ECONOMIC AND POLITICAL RISKS.
We currently conduct operations predominantly in the United Kingdom,
Ireland and South Africa. We intend to evaluate opportunities to expand our
business by seeking new customers and acquiring complementary businesses or
products in other foreign countries, including the rest of Europe, the United
States and Australia. These international operations expose us to various
economic, political and other risks, including the following:
Less developed markets. We may attempt to sell our products in countries
with software markets that are less developed than the markets we currently
serve. If any of these new markets do not mature, our business activities
may fail.
Compliance with laws. As we expand internationally, we will become
increasingly subject to the laws and regulations of foreign countries and
the costs of complying with such laws. We may not be familiar with these
laws and regulations, and these laws and regulations may change at any time.
8
<PAGE> 13
Accordingly, it may be difficult for us to foresee risks and costs
associated with compliance with those laws at the time of our entry into
those countries.
Political instability. We may purchase interests in foreign companies that
are located, or that transact business, in parts of the world that
experience political instability. Political instability may have a negative
impact on the subject country's economy, and may limit or eliminate a
subsidiary company's ability to conduct business.
Economic policy changes. Changes in policies by foreign governments
resulting in, among other things, increased duties, higher taxation,
currency conversion limitations, restrictions on the transfer or
repatriation of funds or limitations on imports or exports could damage our
business.
Lack of developed infrastructure. The countries in which we may do business
may not have developed a communication and/or transportation infrastructure
sufficient to support the needs of our current or future business. A lack of
developed infrastructure could limit our ability to conduct our business in
such countries and may harm our business.
Management of a multi-national organization. As we expand globally,
management of employees, accounting, taxation and other organizational
elements of our business will become increasingly complex. Any failure to
manage the international implications of global expansion may harm our
business.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL TRADE AND CURRENCY EXCHANGE.
Because of our international operations, all of our sales are denominated
in currencies other than U.S. dollars. We do not currently engage in currency
hedging activities. Although exposure to currency fluctuations to date has been
insignificant, future fluctuations in currency exchange rates may harm our
operating results. To the extent that we also sell products and services in
currencies other than the local currency, we may also be less competitive than a
vendor whose products are sold in the local currency during times of exchange
rate instability. In addition, although all of our revenues are denominated in
currencies other than U.S. dollars, we report our operating results in U.S.
dollars. These reports may therefore be affected by exchange rate fluctuations
and may not accurately reflect operating results. We expect that our
international sales operations will increase substantially, and that we will
continue to be subject to currency exchange risk.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY AFFECT OUR STOCK PRICE.
Our operating results can vary, sometimes substantially, from quarter to
quarter. These fluctuations may be due to a number of factors, many of which are
beyond our control. These factors include:
- the varying length of the sales cycles for our products
- the size and timing of our licensing transactions
- the timing of release, proper operation and market acceptance of our
products
- changes in the budget cycles of our customers
- seasonality of our customers' technology purchases
- economic recessions in the geographic markets we serve
- foreign currency exchange rates
The timing of our revenue recognition can be affected by many factors,
including the timing of a contract's execution and delivery, a customer's
acceptance and our post-delivery obligations with respect to the installation
and implementation of our products. As a result, the time between contract
execution and the satisfaction of the criteria necessary for revenue recognition
can be lengthy and unpredictable and, consequently, may affect our revenues. As
a result, it is possible that in some future quarters our results of operations
may fall below the expectations of some securities analysts and investors. In
that event, the trading price of our stock may likely be materially and
adversely affected.
9
<PAGE> 14
THE TAX BENEFITS THAT WE CURRENTLY RECEIVE IN IRELAND MAY BE LOST IF WE FAIL TO
SATISFY SPECIFIED CONDITIONS.
We maintain our principal headquarters in Ireland. As a means of
encouraging foreign investment, the Irish government provides tax incentives and
exemptions from regulatory restrictions. Among the benefits that directly affect
us are a reduced tax rate applicable to certain companies operating from
Ireland. To be eligible for these tax benefits, we must continue to meet
specified conditions including developing software in Ireland. Our failure to
meet these conditions could result in cancellation of these tax benefits or
these tax benefits could be discontinued or modified in the future. If either of
these situations were to occur, our profitability could be harmed.
OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD SUFFER FROM THE
RESIDUAL IMPACT OF THE YEAR 2000 TRANSITION.
We have executed a plan designed to make our software applications Year
2000 ready. To date, none of our applications have experienced material
difficulties from the transition to Year 2000. During the Year 2000, it is
possible that material difficulties could still be discovered or could arise.
Computer experts have warned that there may still be residual consequences of
the change in century date. Any such difficulties could result in a decrease in
the purchase of our software products, interruptions of data or other critical
information, an increase in allocation of resources to address Year 2000
problems or an increase in litigation costs relating to losses due to such Year
2000 problems. Any of these events could materially harm our business or
financial results.
OUR TRADING PRICE MAY BE VOLATILE, AND AN ACTIVE PUBLIC MARKET FOR OUR COMMON
STOCK MAY NOT DEVELOP.
Currently our common stock trades over the counter. Although we have
applied to have our common stock approved for quotation and trading on the
Nasdaq National Market upon completion of this offering, an active public market
may not develop. If our daily stock trading remains limited, one large purchase
or sale can affect our stock price more than it would a more widely traded
stock. Additionally, the price of our common stock that will prevail in the
market after the offering may be higher or lower than the price you pay and
could fluctuate widely due to factors beyond our control. Significant factors
that may affect our stock price include:
- actual or anticipated fluctuation in our operating results
- announcements of major new products by us or our competitors
- changes in security analysts' expectation of us
- general market conditions
AFTER THIS OFFERING, OUR EXECUTIVE OFFICERS, DIRECTORS AND ENTITIES AFFILIATED
WITH THEM WILL STILL CONTROL ALL MATTERS REQUIRING A STOCKHOLDER VOTE.
Currently, our existing officers, directors and entities affiliated with,
and immediate family members of, our officers and directors in the aggregate
beneficially own approximately 61% of our outstanding capital stock. Upon
consummation of this offering, they will continue to own a majority of our
outstanding capital stock. As a result, those persons, acting together, will
have the ability to control the vote on all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions, and might act in a manner inconsistent with the wishes
of our other stockholders. This concentration of ownership may have the effect
of delaying, deferring or preventing a change in control.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE
OF THE SHARES YOU PURCHASE.
As a purchaser of our stock, you will incur immediate substantial dilution
in net tangible book value per share from the public offering price in the
amount of $ , assuming an offering price as set forth on the cover
page. Additionally, your ownership interest will be further diluted if
outstanding or
10
<PAGE> 15
future stock options to purchase our stock are exercised or if we issue
additional shares in connection with acquisitions or for other purposes. For a
more detailed discussion of how you will be affected by dilution, see
"Dilution."
SALES OF OUTSTANDING COMMON STOCK MAY DEPRESS THE STOCK PRICE AFTER THE
OFFERING.
A substantial number of shares of our common stock could be sold into the
public market after this offering. The occurrence of such sales, or the
perception that such sales could occur, could materially lower our stock price
or could impair our ability to obtain capital through an offering of equity
securities. After this offering, we will have outstanding 16,957,808 shares of
common stock, or 17,197,808 shares if the underwriters exercise in full their
option to purchase additional shares of common stock in the offering. In
addition, 1,650,000 shares of common stock may be issued under our stock option
plan.
The shares of common stock being sold in this offering will be freely
transferable under the securities laws immediately after issuance, except for
any shares sold to "affiliates" of Integrity. In connection with this offering,
our directors, executive officers and stockholders holding 10,797,617 shares of
our common stock will agree under written "lock-up" agreements that, for a
period of 180 days from the date of this prospectus, they will not sell their
shares. As a result, upon the expiration of the lock-up agreements 180 days
after the date of this prospectus, these shares of common stock will be eligible
for sale on the first anniversary of their respective dates of issuance,
subject, in most cases, to certain volume and other restrictions under the
federal securities laws. The remaining shares of common stock that are not
subject to these lock-up agreements are, or will become on the first anniversary
of their respective dates of issuance, eligible for resale under the federal
securities laws, subject to these same restrictions. We have also entered into a
registration rights agreement that requires us to register for resale 1,536,000
shares of common stock held by a stockholder.
OUR MANAGEMENT AND BOARD OF DIRECTORS MAY FAIL TO USE THE OFFERING PROCEEDS
EFFECTIVELY.
We have not designated any specific use for the net proceeds of this
offering. As a result, our management and board of directors will have broad
discretion in spending the proceeds of this offering. We cannot assure you that
we will use the proceeds in a way that will ultimately lead to profitability.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND IN OUR
CERTIFICATE OF INCORPORATION WHICH MAY AFFECT THE VALUE OF OUR STOCK.
As a Delaware corporation, we are subject to Section 203 of the General
Corporation Law of the State of Delaware. In general, Section 203 restricts the
ability of a public 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. As a result of the application of Section 203, potential acquirors
may be discouraged from attempting to acquire us, which could possibly deprive
our stockholders of acquisition opportunities to sell or otherwise dispose of
our stock at above-market prices typical of acquisitions.
In addition, our certificate of incorporation divides our board of
directors into three classes whose terms are staggered to begin in successive
years. This and other provisions of our certificate of incorporation and bylaws
could delay or prevent a change of control or sale of Integrity.
The existence of these provisions of Delaware law and our certificate of
incorporation could depress our stock price below that which would otherwise
prevail in a marketplace where in the absence of those limits, stockholders
wishing to accumulate large positions or assume control of our board of
directors would be free to bid up the price of our stock.
11
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. You may find these statements under the sections entitled
"Prospectus Summary," "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" or "Risk Factors,"
or by the use of forward-looking terminology such as "believe," "expect,"
"anticipate," "estimate," "plan," "project," "may," "will" or other similar
words. We have based these forward-looking statements on our own information and
on information from other sources that we believe are reliable. These
forward-looking statements include, without limitation, statements about our
market opportunities, strategies, competition, expected activities and
expenditures as we pursue our business plan. Many factors could cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by these
forward-looking statements, including:
- any failure of our products to perform adequately or claims by customers
for errors in our products
- our inability to acquire companies necessary to pursue our growth
strategy
- our inability to assimilate the operations of past or future acquisitions
- the loss of the right to use proprietary technology and any third-party
claims against us for infringement
- difficulty in raising additional capital funds
- our inability to hire or retain senior management and other key personnel
- our failure to develop new channels to sell our products or to
successfully compete in our chosen markets or to expand into new markets
- unanticipated downturns in the markets in which we operate
- our inability to achieve positive operating results
These factors are not exhaustive. Factors that could cause our actual
results, performance or achievements to differ include, but are not limited to,
those discussed in "Risk Factors." Given this level of uncertainty, you should
not place undue reliance on these forward-looking statements, which speak only
as of the date of this prospectus.
12
<PAGE> 17
USE OF PROCEEDS
The net proceeds to us from the sale of our shares of common stock in the
offering are expected to be approximately $ , based on an assumed
offering price of $ per share, after deducting the underwriting discount and
estimated offering expenses that we will have to pay. The principal purpose of
the offering is to finance our research and development activities, and to
finance future acquisitions. The balance of the net proceeds will be used for
general corporate and working capital purposes. Pending these uses, we intend to
invest the net proceeds to us from the offering in short-term, investment-grade,
interest-bearing securities.
We will not receive any proceeds from the sale of shares by selling
stockholders pursuant to the exercise of the over-allotment option.
DIVIDEND POLICY
We have not previously paid any cash or other dividends with respect to our
common stock. We do not expect to pay any dividends for the foreseeable future.
We intend to retain our earnings to finance our operations and any future
investments and business combinations. Our Board of Directors will decide from
year to year whether dividends will be paid based on factors such as our results
of operations, general business conditions, capital requirements, overall
financial condition and any other factors that the Board considers relevant.
13
<PAGE> 18
CAPITALIZATION
The following table sets forth our consolidated capitalization at December
31, 1999 and as adjusted to reflect our receipt of the estimated net proceeds of
$ from the sale of 3,000,000 shares offered by this prospectus at an
assumed offering price of $ per share, after deducting underwriting
discounts, commissions and our portion of estimated net offering expenses as
described under "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt
Loans payable............................................. $ 1,285 $
Current portion of long-term debt......................... 387
Note payable.............................................. 162
------- -------
Total short-term debt.................................. 1,834
------- -------
Long-term debt, (excludes current maturities)
Long-term capital lease................................... 450
-------
Stockholders' equity(1):
Shares of common stock, par value $0.0025; 40,000,000
shares authorized, actual and adjusted; 11,784,473
shares issued and outstanding actual and 14,784,473
shares issued and outstanding as adjusted.............. 29
Capital in excess of par value............................ 12,078
Accumulated deficit....................................... (1,659)
Accumulated other comprehensive loss...................... (954)
Receivable from exercise of stock options................. (244)
------- -------
Total stockholders' equity............................. 9,250
------- -------
Total capitalization................................. $11,534 $
======= =======
</TABLE>
- ---------------
(1) This table excludes, at December 31, 1999, 2,128,734 shares issuable upon
the exercise of outstanding stock options.
14
<PAGE> 19
PRICE RANGE OF COMMON STOCK
A limited number of shares of our common stock currently is traded over the
counter. The following table sets forth, for the periods indicated, the high and
low bid prices per share of our common stock, as reported in the OTC Bulletin
Board from August 1998 to January 2000 and as reported in the Pink Sheets by the
National Quotation Bureau, LLC since January 2000. The prices listed below
reflect bid prices only and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Third Quarter (from August 21, 1998)...................... $ 20.625 $13.750
Fourth Quarter............................................ 20.781 5.000
YEAR ENDED DECEMBER 31, 1999:
First Quarter............................................. 25.625 7.500
Second Quarter............................................ 24.375 11.875
Third Quarter............................................. 14.688 5.000
Fourth Quarter............................................ 29.688 7.500
YEAR ENDING DECEMBER 31, 2000:
First Quarter (through March 20, 2000).................... 21.875 10.000
</TABLE>
As of March 17, 2000, we had 295 holders of record of our common stock. On
March 21, 2000, the last reported bid price for our common stock as reported in
the Pink Sheets was $21.250.
15
<PAGE> 20
DILUTION
Purchasers of our common stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of the common stock from
the public offering price. The deficit in net tangible book value of our company
as of December 31, 1999 was approximately $9.2 million or approximately $0.78
per share of common stock. The deficit in net tangible book value per share
represents the amount by which our total liabilities exceed our net tangible
assets divided by the number of outstanding shares of common stock. After giving
effect to the sale of the 3,000,000 shares of common stock offered by us at the
assumed public offering price of $ per share, and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value at December 31, 1999 would have
been approximately $ million or approximately $ per share. This
represents an immediate and substantial increase in net tangible book value of
approximately $ per share to existing stockholders and an immediate and
substantial dilution of approximately $ per share to new investors
purchasing the shares in this offering. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Public offering price....................................... $--
Deficit in net tangible book value before the offering.... $(0.78)
Increase in net tangible book value attributable to new
investors.............................................. --
------
Pro forma net tangible book value after the offering...... --
---
Dilution to new investors................................... $--
===
</TABLE>
The following table sets forth as of December 31, 1999 the number of shares
of common stock purchased from us, the total consideration paid and the average
price per share paid by existing stockholders and the new investors purchasing
shares of common stock from us in this offering (before deducting underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 11,784,473 79.7% $7,243,126 % $0.615
New investors......................... 3,000,000 20.3 $
---------- ----- ---------- -----
Total................................. 14,784,473 100.0% $ 100.0%
========== ===== ========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of the underwriters'
over-allotment option or of any outstanding stock options after December 31,
1999.
16
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this prospectus. Our consolidated financial statements for
the years ended December 31, 1997, 1998 and 1999 have been audited by BDO
International, independent accountants, and our financial statements for the
years ended December 31, 1999 and 1998 have been restated to reflect our
December 7, 1999 merger with Jyris Limited, which has been accounted for as a
pooling of interests. Our consolidated financial statements for the years ended
December 31, 1997, 1998 and 1999 have been prepared and presented in accordance
with generally accepted accounting principles in the United States, or U.S.
GAAP. The financial statements for the years ended December 31, 1995 and 1996
(not included herein) are unaudited and are the statements of the Wyse Group
plc, which is considered to be our predecessor for accounting purposes, and have
been prepared and presented in accordance with generally accepted accounting
principals in the United Kingdom. These financial statements have not been
reconciled to U.S. GAAP; however, in the opinion of our management, there is no
material difference in these presentations. The pro forma financial data
summarizes our Unaudited Pro Forma Condensed Consolidated Financial Information
included elsewhere in this prospectus, which includes the results of operations
of each of the companies acquired in 1999 (including companies acquired by
Jyris) as if all companies had been acquired on January 1, 1999.
The as adjusted balance sheet data gives effect to the sale of 3,000,000
shares of common stock in this offering at an assumed offering price of
$ per share and the application of the net proceeds therefrom, after
deducting underwriting commissions and discounts and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
------ ------ ------ ------ ------- -----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
License and systems sales..................... -- -- -- $1,275 $23,283 $29,065
Support and maintenance....................... -- -- -- 1,106 10,983 11,832
Services...................................... $4,755 $2,726 $2,002 8,022 14,892 18,798
------ ------ ------ ------ ------- -------
Total revenues.............................. 4,755 2,726 2,002 10,403 49,158 59,695
COST OF REVENUES:
License and systems sales..................... -- -- -- 641 11,505 12,704
Support and maintenance....................... -- -- 218 2,212 2,376
----
Services...................................... 4,309 2,129 1,558 6,372 11,415 12,926
------ ------ ------ ------ ------- -------
Total cost of revenues...................... 4,309 2,128 1,558 7,231 25,132 28,007
------ ------ ------ ------ ------- -------
Gross profit.................................... 446 597 445 3,173 24,026 31,688
OPERATING EXPENSES:
Sales and marketing........................... 19 21 20 60 5,748 6,429
General and administrative.................... 314 462 351 2,277 16,955 22,922
Research and development...................... -- -- 7 20 2,477 3,387
Amortization of goodwill...................... -- -- -- 59 1,857 2,366
(Profit) loss on sale of fixed assets......... -- -- 3 -- (240) (240)
------ ------ ------ ------ ------- -------
Total operating expenses.................... 333 483 381 2,416 26,797 34,864
------ ------ ------ ------ ------- -------
Income (loss) from operations................... 113 114 64 757 (2,771) (3,176)
Interest income (expense)....................... -- (2) 4 (2) (92) (18)
Other income.................................... -- -- -- 75 745 745
------ ------ ------ ------ ------- -------
INCOME (LOSS) BEFORE INCOME TAX................. 113 112 68 829 (2,118) (2,449)
Taxation........................................ 42 39 22 189 269 432
------ ------ ------ ------ ------- -------
NET INCOME (LOSS)............................... $ 71 $ 73 $ 45 $ 640 $(2,387) $(2,881)
====== ====== ====== ====== ======= =======
Basic earnings (loss) per common share.......... $ 3.55 $ 3.65 $ 0.19 $ 0.32 $ (0.21) $ (0.25)
====== ====== ====== ====== ======= =======
Diluted earnings (loss) per share............... $ 3.55 $ 3.65 $ 0.19 $ 0.20 $ (0.21) $ (0.25)
====== ====== ====== ====== ======= =======
Weighted average number of shares outstanding
Basic......................................... 20 20 238 2,027 11,510 11,570
Diluted....................................... 20 20 238 3,142 11,510 11,570
</TABLE>
17
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999
----------- ----------- ----------- ----------- ----------- -----------
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS) AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents...... $ 91 $1,471 $ 91 $ 1,070 $ 1,965
Working capital................ 15 99 152 (1,762) (12,556)
Total assets................... 402 1,806 595 15,358 38,303
Long-term debt, (excluding
current maturities).......... 2 -- -- 206 450
Total stockholders' equity..... 84 159 191 6,146 9,250
</TABLE>
18
<PAGE> 23
EXCHANGE RATES
The following table contains certain information regarding the exchange
rates between Irish pounds and British pounds and U.S. dollars for the periods
indicated. All exchange rates presented below represent the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York (the Noon Buying Rate), except
for the Irish pound exchange rates for 1999. Those rates were calculated based
on the Noon Buying Rate for euros and the fixed euro-Irish pound exchange rate.
BRITISH POUND
<TABLE>
<CAPTION>
AT END AVERAGE
PERIOD ENDED DECEMBER 31, OF PERIOD RATE(1) HIGH(2) LOW(3)
------------------------- --------- ------- ------- ------
($ PER L1.0)
<S> <C> <C> <C> <C>
1995.............................................. $1.55 $1.58 $1.62 $1.53
1996.............................................. $1.71 $1.57 $1.71 $1.51
1997.............................................. $1.64 $1.64 $1.69 $1.60
1998.............................................. $1.66 $1.66 $1.70 $1.63
1999.............................................. $1.62 $1.62 $1.65 $1.58
</TABLE>
- ---------------
(1) Average of month-end exchange rates.
(2) Highest month-end exchange rate for the year.
(3) Lowest month-end exchange rate for the year.
IRISH POUND
<TABLE>
<CAPTION>
AT END AVERAGE
PERIOD ENDED DECEMBER 31, OF PERIOD RATE(1) HIGH(2) LOW(3)
------------------------- --------- ------- ------- ------
($ PER IR L1.0)
<S> <C> <C> <C> <C>
1995.............................................. $1.60 $1.61 $1.64 $1.56
1996.............................................. $1.69 $1.61 $1.69 $1.56
1997.............................................. $1.42 $1.51 $1.59 $1.42
1998.............................................. $1.49 $1.42 $1.50 $1.36
1999.............................................. $1.28 $1.34 $1.44 $1.28
</TABLE>
- ---------------
(1) Average of month-end exchange rates.
(2) Highest month-end exchange rate for the year.
(3) Lowest month-end exchange rate for the year.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the financial statements and related
notes included elsewhere in this prospectus. This discussion contains certain
forward-looking statements that involve risks and uncertainties. See "Forward-
Looking Statements." Our actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors" as well as those discussed elsewhere
in this prospectus. Our financial statements are reported in U.S. dollars and
prepared in accordance with U.S. GAAP. Unless otherwise stated, the data
presented in this discussion is derived from our actual statements of financial
condition and results of operation, and not from pro forma financial statements.
In the following discussion, the period to period comparisons of our operating
results do not include information regarding percentage increases or decreases
in items such as revenues. Our history of acquisitions, described below, has
caused wide variations in these items and management believes that the resulting
percentage increases and decreases are not meaningful. The pro forma financial
data summarizes our Unaudited Pro Forma Consolidated Financial Information
included elsewhere in this prospectus, which includes the results of operations
of each of the companies acquired in 1999 (including companies acquired by Jyris
Limited) as if all companies had been acquired on January 1, 1999.
OVERVIEW
We are a provider of web-enabled, enterprise-wide software applications for
smaller to mid-sized organizations. We operate our business as four integrated
business areas:
- business-to-business, or B2B
- software
- general accounting and technical services, or GATS
- computer finance services, or CFS
We recognize revenues from three sources:
- license and systems sales
- support and maintenance
- services
Our company was originally incorporated under the laws of the State of
Nevada on July 27, 1977, and was inactive from 1980 to 1998. On July 13, 1998,
our company issued 4,000,000 shares to its then-current owners for $0.0025 per
share, along with options to acquire an additional 2,511,800 shares at an
exercise price of $2.50 per share. At that time, we put a management team in
place to institute our strategic plan to develop our company into an information
technology company through the acquisition of existing businesses. Pursuant to
our strategic plan, on August 4, 1998 we acquired The Wyse Group plc. For
accounting purposes, Wyse is treated as our predecessor entity for all periods
prior to August 4, 1998. Until October 1998, the time of our next acquisition
after Wyse, our only source of revenues was Wyse's computer finance agency
services. On March 13, 2000, we reincorporated in Delaware and changed our name
to Integrity Software, Inc.
ACQUISITION HISTORY. To date, a substantial part of our growth has been
achieved through acquisitions. For the period from August 4, 1998 to December
31, 1999, we completed eight strategic acquisitions, including the acquisition
of Jyris Limited, a provider of enterprise-wide software applications, on
December 7, 1999. In exchange for all of the outstanding capital stock of Jyris,
we issued 6,365,064 shares of our common stock. Like our company, Jyris was
engaged in a strategy of growth through strategic acquisitions. Jyris was
incorporated in November of 1998 and completed seven acquisitions prior to being
acquired by us. The first acquisition Jyris made as part of its strategy was the
acquisition of Ibis Systems Limited on January 1, 1999.
We accounted for our acquisition of Jyris as a pooling of interests, and
have restated our consolidated financial statements for 1999 and 1998 to reflect
the consummation of the Jyris transaction. As a result,
20
<PAGE> 25
our financial position, results of operations and cash flows are presented as if
the pooled companies had been consolidated since November 1998 (the
incorporation date of Jyris). Our other seven acquisitions were accounted for
using the purchase method. Given the number of acquisitions in the periods
presented and the impact that those acquisitions have had on our financial
condition and operating results, the comparisons of our operating results from
period to period may not necessarily be meaningful.
The table below sets forth all of our acquisitions from August 1998 to
December 1999.
<TABLE>
<CAPTION>
ACQUISITION DATE NAME AND LOCATION BUSINESS DESCRIPTION
- ----------------- ------------------------------ --------------------------------------
<S> <C> <C>
December 7, 1999 Jyris Ltd., Software for distribution, general
United Kingdom accounting, technical services and web
technology
December 2, 1999 Computer Foundations Ltd., Software for the contracting industry
United Kingdom
July 16, 1999 Net Results, Software application/web technology
Ireland
July 16, 1999 Datasoft Ltd., Software for the distribution industry
Ireland
December 23, 1998 Premier Computer Group Ltd., Software applications for credit
Ireland unions, construction and print and
packaging
October 12, 1998 Information Support Ltd., Computer maintenance and networking
United Kingdom services
October 1, 1998 Saracen Computer Systems Ltd., Software applications for industrial
United Kingdom cleaning management
August 4, 1998 The Wyse Group plc, Computer and information technology
United Kingdom finance agency
</TABLE>
The table below sets forth all of the acquisitions that Jyris completed in
1999, prior to the time we acquired it.
<TABLE>
<CAPTION>
ACQUISITION DATE NAME AND LOCATION BUSINESS DESCRIPTION
- ----------------- ------------------------------ --------------------------------------
<S> <C> <C>
December 6, 1999 Softly Aware Ltd., Software applications for the
United Kingdom distribution industry
December 3, 1999 Outsource Ltd., Software applications for the
Ireland distribution industry
December 2, 1999 Webbed Feet, Web technology; B2B software design
United Kingdom
December 1, 1999 Total Asset Ltd., Computer and information technology
United Kingdom finance agency
November 30, 1999 Multisoft SA, GATS software applications
South Africa
August 1, 1999 Todds of Lincoln Ltd., United Software for the distribution industry
Kingdom
January 1, 1999 Ibis Systems Ltd., GATS software applications; support
United Kingdom and maintenance services
</TABLE>
21
<PAGE> 26
REVENUES. We derive revenues from three principal sources, which are:
License and systems sales -- License and systems sales revenues are derived
from initial software licensing, business-to-business software,
implementation services and hardware sales related to turnkey solutions.
Support and maintenance -- Support and maintenance revenues are derived
from annual contracts that automatically renew unless terminated, to
provide on-site maintenance and technical support for our software and
systems, and access to our help desk hotlines. These contracts typically
provide for fees that amount to approximately 20% of the initial license
fees we receive from our software sales to customers.
Services -- Services revenues are derived from the training, consultancy
and computer finance services we offer in connection with our systems and
on a stand-alone basis.
The following table sets forth the percentages of our 1999 total revenue
attributable to each of our revenue sources, broken out by business area.
<TABLE>
<CAPTION>
B2B SOFTWARE GATS CFS
--- -------- ---- ---
<S> <C> <C> <C> <C>
License and systems sales................................... 98% 71% 61% --
Support and maintenance..................................... 1 25 31 --
Services.................................................... 1 4 8 100%
--- --- --- ---
Totals................................................. 100% 100% 100% 100%
=== === === ===
</TABLE>
All of our revenues for all periods to December 31, 1997 consisted of
services revenues and reflect the fact that all of the revenues of Wyse, our
predecessor company, were derived from computer finance services. Since July
1998, the various acquisitions we have consummated have caused our revenue
sources to change significantly. In the future, we expect the proportion of our
revenues attributable to license and systems sales and support and maintenance
to continue to grow.
GROSS PROFIT. We generally derive different gross profit margins from our
three principal revenue sources. For 1999, they were as follows:
License and systems sales -- The gross profit margin was 51%. The costs of
revenues for license and systems sales consist primarily of personnel
costs, third-party software licenses, hardware costs and related expenses
for implementation and training.
Support and maintenance -- The gross profit margin was 80%. Costs of
revenues for support and maintenance primarily consist of personnel costs.
Support and maintenance is typically supplied on a contract basis, for a
period of one or more years.
Services -- The gross profit margin was 23%. The costs of services revenues
consist of personnel and outsourcing costs.
SALES AND MARKETING. These expenses consist primarily of sales personnel
costs, advertising, promotional literature and other public relations expenses.
GENERAL AND ADMINISTRATIVE. These expenses consist of salaries and
benefits for administration, executive, finance, legal, human resources and
associated overheads as well as bad debts, accounting and legal expenses. Our
general and administrative expenses also include depreciation of fixed assets.
RESEARCH AND DEVELOPMENT. These expenses include personnel costs,
facilities and overheads associated with the development of new products and
technologies.
AMORTIZATION OF GOODWILL. These expenses are derived solely from the
goodwill arising as a result of the seven acquisitions that we made and the
seven acquisitions that Jyris made using the purchase method of accounting.
Goodwill is amortized on a straight-line basis over 10 years. The total
amortization for the year ended December 31, 1999 was $1.9 million.
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<PAGE> 27
SEASONALITY. In our limited operating history we have experienced some
seasonal fluctuations in revenues, with less revenue recognition occurring in
the first and fourth quarters of our fiscal years, particularly in the months of
January and December. We believe that these seasonal fluctuations are
attributable to our customers being less inclined to make purchasing decisions
regarding products and services such as ours during these particular months.
CURRENCY TRANSLATION AND TRANSACTIONS. All of our business is conducted in
currencies other than U.S. dollars, the currency into which the historical
consolidated financial statements have been translated. Historically, we have
recorded substantially all of our operating expenses in British and Irish
pounds. Our consolidated balance sheets are translated into U.S. dollars at the
respective exchange rates prevailing on the balance sheet dates, and the
statements of operations and cash flows are translated into U.S. dollars at the
average exchange rates for the relevant periods. Gains and losses resulting from
the translation are accumulated as a separate component of stockholders' equity.
Increase in the exchange rates from British and Irish pounds to U.S. dollars
from one year to the next negatively impact stockholders' equity.
Net gains and losses resulting from currency exchange transactions are
included in our statement of operations. We did not incur material net foreign
exchange transaction losses in 1997, 1998 or 1999. Because of the currencies
involved, the constant exposures and the substantial volatility of exchange
rates, we may experience currency losses in the future, and we cannot predict
the effect of exchange fluctuations on our future operating results. We have not
previously undertaken hedging transactions to cover possible currency exposure,
but may implement such a program in the future if appropriate.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues represented by each item in our statement of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999 1999
---- ---- ---- -----------
(PRO FORMA)
<S> <C> <C> <C> <C>
REVENUES:
(Percentage of Total Revenue)
License and systems sales................................. -- 12% 47% 49%
Support and maintenance................................... -- 11 22 20
Services.................................................. 100% 77 30 31
--- --- --- ---
Total revenues......................................... 100 100 100 100
COST OF REVENUES:
(Percentage of Each Revenue Item)
License and systems sales................................. -- 50 49 44
Support and maintenance................................... -- 20 20 20
Services.................................................. 78 79 77 69
Total cost of revenues................................. 78 70 51 47
GROSS PROFIT:
(Percentage of Each Revenue Item)
License and systems sales................................. -- 50 51 56
Support and maintenance................................... -- 80 80 80
Services.................................................. 22 21 23 31
Total gross profit..................................... 22 31 49 53
</TABLE>
23
<PAGE> 28
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999 1999
---- ---- ---- -----------
(PRO FORMA)
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Sales and marketing....................................... 1 1 12 11
General and administrative................................ 18 22 34 38
Research and development.................................. -- -- 5 5
Amortization of goodwill.................................. -- 1 4 4
--- --- --- ---
Total operating expenses............................... 19 24 55 58
Income (loss) from operations............................... 3 7 (6) (5)
Other income................................................ -- 1 2 1
--- --- --- ---
INCOME (LOSS) BEFORE INCOME TAX............................. 3 8 (4) (4)
Taxation.................................................... 1 2 1 1
--- --- --- ---
NET INCOME (LOSS)........................................... 2% 6% (5)% (5)%
=== === === ===
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
REVENUES. Our total revenues for the year ended December 31, 1999 were
$49.2 million, representing an increase of $38.8 million compared to total
revenues of $10.4 million in 1998. This increase was primarily attributable to
the inclusion of revenues from Saracen Computer Systems Limited, Information
Support Limited, or ISL, and Premier Computer Group Limited -- companies that we
acquired in 1998 -- for the full 1999 fiscal year. In addition, because our 1999
and 1998 financial statements are restated for the acquisition of Jyris,
revenues from Jyris are included for the full year of 1999. Jyris contributed
$14.4 million in revenues in 1999 and had no revenues in 1998. No single
customer accounted for more than 5% of our total revenues for 1999 or 1998.
License and Systems Sales
Our revenues from license and systems sales for the year ended December 31,
1999 were $23.3 million, representing an increase of $22.0 million over revenues
of $1.3 million for the year ended December 31, 1998. This increase was due to
the inclusion of full-year financials for acquired businesses, including
Saracen, ISL and Premier, all of which were acquired in the latter part of 1998.
The combined revenues from these three businesses included in our 1999 revenues
were $14.2 million. Because these companies were acquired in 1998, only part of
their revenues, $1.3 million in the aggregate, were included in our 1998
results. Our license and systems sales revenues for 1999 also include $9.1
million from Jyris. Jyris had no 1998 revenues.
We expect that license and systems sales revenues will constitute a larger
portion of our total revenues as we begin to upgrade customers from legacy
products to our next-generation products and as we include full-year revenues
from businesses that we acquired in 1999.
Our license and systems sales revenues generated from our B2B business in
1999 were $868,000, all of which were generated from previously existing
customers. These revenues were from sales of software products that allow our
customers to conduct business over the Internet. There were no revenues from B2B
in previous years because we implemented this line of business in 1999. We
expect that the proportion of our total revenues derived from the B2B business
will increase significantly in the future as our customers increasingly require
e-business solutions.
Support and Maintenance
Revenues from support and maintenance for the year ended December 31, 1999
were $11.0 million, representing an increase of $9.9 million over revenues of
$1.1 million in 1998. This increase resulted from the inclusion of revenues from
Saracen, ISL and Premier for the full year of 1999, as opposed to part-year
24
<PAGE> 29
inclusion from their respective dates of acquisition in 1998. Support and
maintenance revenues for 1999 also include full-year revenues from Jyris and
$199,000 generated in December 1999 by two companies that they acquired in that
month. We anticipate that the proportion of revenues derived from support and
maintenance will increase in the future with the inclusion of full year revenues
of acquired businesses and as our customers convert from legacy products to
next-generation products.
Services
Revenues for services were $14.9 million for the year ended December 31,
1999, which represents an increase of $6.9 million, as compared to $8.0 million
in 1998. As a percentage of total revenues, services decreased to 30% in 1999
from 77% in 1998. This decrease in revenues from services as a percentage of
total revenues is attributable to the fact that until October 1998, our only
revenues were from Wyse's computer finance agency services. The overall decline
in services revenues as a percentage of total revenues is consistent with our
strategy of reducing our emphasis on lower-margin services, particularly
computer finance services. In addition to the revenues from computer finance
services, $1.9 million of services revenues for 1999 were attributable to
consultancy and training services. This represented an increase of $1.6 million
from 1998, when we derived approximately $298,000 of revenues from consultancy
and training services. This increase is attributable to the inclusion of Jyris
in our 1999 revenues for the full year.
GROSS PROFIT.
License and Systems Sales
The gross profit margin for license and systems sales was 51% for the year
ended December 31, 1999, compared to 50% for 1998. The increase of 1% is
attributable to the inclusion of Jyris's results of operations in our financial
statements for 1999, as Jyris was able to achieve slightly higher margins on its
sales. If we are able to develop and commercialize more of our own software
products, rather than resell products that have been developed by others, we
expect the gross profit margins from license and systems sales to continue to
increase.
Support and Maintenance
The gross profit margin for support and maintenance was 80% for the years
ended December 31, 1999 and December 31, 1998.
Services
The gross profit margin for services was 23% for the year ended December
31, 1999, compared to 21% for the year ended December 31, 1998. This 2% increase
is attributable to the increase in consultancy and training services, which
accounted for $1.9 million of revenues in 1999 and only $298,000 of revenues in
1998. We expect the gross profit margin from services to continue to increase as
a result of our strategy of increasing our emphasis on higher margin business
lines such as consultancy and training.
SALES AND MARKETING. Our sales and marketing expenses were $5.7 million
for the year ended December 31, 1999, compared to $60,000 for the year ended
December 31, 1998. Sales and marketing expenses as a percentage of total
revenues were 12% for year ended December 31, 1999, compared to less than 1% for
the year ended December 31, 1998. The increase in sales expenses reflects
significant personnel-related expenses such as salaries and commissions,
recruiting fees and other costs of hiring. In addition, we experienced an
increase in marketing expenses associated with trade exhibitions and advertising
in trade publications. The increase also reflects the significant shift in our
business from providing computer finance services to providing web-enabled,
enterprise-wide software applications. Sales and marketing expenses increased as
a percentage of total revenues in 1999 as a result of our acquisition of higher
margin software businesses with correspondingly higher sales costs. We
anticipate that our sales and marketing expenditures will continue to rise for
the foreseeable future as we expand our sales force.
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<PAGE> 30
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses were
$17.0 million for the year ended December 31, 1999, representing an increase of
$14.7 million over general and administrative expenses for the year ended
December 31, 1998. General and administrative expenses as a percentage of total
revenues were 34% for the year ended December 31, 1999, compared to 22% for the
year ended December 31, 1998. The increase in general and administrative
expenses was due to the cumulative effect of the general and administrative
costs of the eight companies acquired by Integrity and the seven companies
acquired by Jyris in 1998 and 1999 and the hiring of related professional
accounting and legal advisors. The general and administrative expenses for Jyris
Limited for the year ended 1999 was $7.9 million. We expect that general and
administrative costs as a percentage of revenues will decrease in the future as
we realize anticipated synergies from our acquisitions and consolidation of our
administrative functions.
RESEARCH AND DEVELOPMENT. Our research and development expenses were $2.5
million for the year ended December 31, 1999, as compared to $20,000 for the
year ended December 31, 1998. Research and development expenses as a percentage
of licensing and systems sales revenues were 11% for the year ended December 31,
1999. The increase in our research and development expenses for 1999 is
attributable to the increases in personnel we have made among software
engineers, quality assurance personnel and outside contractors in order to
support the product development, documentation and testing activities related to
the development and release of our next-generation product versions. Until
October 1998, all of our operations consisted of Wyse's computer finance
services, which did not require research and development expenditures.
AMORTIZATION OF GOODWILL. Goodwill amortization for the year ended
December 31, 1999 was $1.9 million compared to $60,000 in the year ended
December 31, 1998. This increase was due to our continued growth through
acquisitions, most of which have been accounted for using the purchase method.
We amortize goodwill on a straight-line basis over 10 years. The total gross
amount of intangible assets at December 31, 1999 was $20.4 million, compared to
$6.9 million for the year ended December 31, 1998.
OPERATING INCOME (LOSS). We had an operating loss of $2.8 million in 1999,
compared to operating income of $757,000 in 1998. This change resulted from a
number of factors, including increased general and administrative costs, sales
and marketing costs, research and development costs and amortization of
goodwill, all of which resulted from the inclusion of acquired companies in our
results of operations.
PRE-TAX INCOME (LOSS). Our pre-tax loss for 1999 was $2.1 million,
compared to pre-tax income of $829,000 in 1998. Net interest expense was $92,000
for the year ended December 31, 1999, compared to $2,000 for the year ended
December 31, 1998. These charges were incurred as a result of financing our
short-term debt and working capital needs. As of December 31, 1999, we had no
long-term debt other than capital lease commitments. Other income for the year
ended December 31, 1999 amounted to $745,000, compared to $75,000 for the year
ended December 31, 1998. This income came from our sale of two businesses that
were not core to our future strategy.
TAXES. Taxes on income increased to $268,000 for the year ended December
31, 1999 from $189,000 for the year ended December 31, 1998. The charge for 1999
was due entirely to capital gains tax on the sales of two non-core businesses.
For 1999, no taxes were paid on income. The effective tax rate for 1998 was
22.8%. The effective tax rate is lower than the statutory rate because we take
advantage of the special 10% tax rate applicable to some companies operating in
Ireland.
NET INCOME (LOSS). We had a net loss of $2.4 million for the year ended
December 31, 1999, or $0.21 per diluted share, as compared with net income of
$640,000, or $0.20 per diluted share for the year ended December 31, 1998. The
loss for 1999 is partially attributable to amortization expenses of $1.9 million
associated with our various acquisitions that have been accounted for using the
purchase method. In addition, Jyris had net losses for fiscal 1999 of $1.7
million, which are included in our operating results. Of Jyris's net loss, $1.1
million is attributable to an amortization charge related to its prior
acquisitions.
26
<PAGE> 31
Pro Forma for the Year Ended December 31, 1999 and Actual Year Ended December
31, 1999
Our pro forma revenues for the year ended December 31, 1999 were $59.7
million as compared to $49.2 million of actual revenues. This increase in
revenues is a result of the inclusion of full-year revenues of the companies
acquired during the year. The pro forma net loss for 1999 was $2.9 million, or
$0.25 per share, as compared to actual net losses for 1999 of $2.4 million, or
$0.21 per share.
The pro forma results include amortization of goodwill of $2.4 million for
the year ended December 31, 1999, as compared to $1.9 million actual. This
difference reflects the amortization of goodwill as if our acquisitions had
taken place at January 1, 1999.
These results are not necessarily indicative of the results that would have
been achieved had the acquisitions occurred on January 1, 1999.
Years Ended December 31, 1998 and December 31, 1997
REVENUES. Our total revenues for the year ended December 31, 1998 were
$10.4 million, representing an increase of $8.4 million from total revenues in
1997. This increase is partially attributable to the inclusion in our operating
results of three months of revenues from Saracen and ISL, which we acquired in
the fourth quarter of 1998. No single customer accounted for more than 5% of our
total revenues for 1998 or 1997.
License and Systems Sales
Our revenues from license and systems sales for the year ended December 31,
1998 were $1.3 million. These revenues are attributable to the inclusion in our
operating results of three months of revenues from Saracen and ISL. We had no
revenues from our B2B business in 1998.
Support and Maintenance
Revenues from support and maintenance for the year ended December 31, 1998
were $1.1 million. These revenues are attributable to the inclusion in our
operating results of three months of revenues from Saracen and ISL.
Services
Revenues from services were $8.0 million for the year ended December 31,
1998, which represents an increase of $6.0 million over revenues in 1997 of $2.0
million. This increase is attributable to the growth in the computer finance
industry and the wider availability of innovative financing methods for both
hardware and software.
GROSS PROFIT.
License and Systems Sales
The gross profit margin from license and systems sales was 50% for the year
ended December 31, 1998. We had no revenue from license and systems sales in
1997.
Support and Maintenance
The gross profit margin for support and maintenance for the year ended
December 31, 1998 was 80%. We had no revenue from support and maintenance in
1997.
Services
The gross profit margin from services for the year ended December 31, 1998
was 21%, as compared with 22% for the year ended December 31, 1997.
27
<PAGE> 32
SALES AND MARKETING. Our sales and marketing expenses were $60,000 for the
year ended December 31, 1998, representing an increase of $40,000 over our sales
and marketing expenses for the year ended December 31, 1997. Sales and marketing
expenses as a percentage of total revenues were 1% for both the year ended
December 31, 1998 and the year ended December 31, 1997.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses were
$2.3 million for the year ended December 31, 1998, representing an increase of
$1.9 million over our general and administrative expenses for the year ended
December 31, 1997. General and administrative expenses as a percentage of total
revenues were 22% for the year ended December 31, 1998, compared to 18% for the
year ended December 31, 1997. This increase represents the inclusion of expenses
related to acquisitions that we consummated in the fourth quarter of 1998. In
addition, we experienced higher general and administrative expenses associated
with the increased sales volume of our computer finance agency business.
RESEARCH AND DEVELOPMENT. Our research and development expenses were
insignificant for the years ended December 31, 1998 and 1997.
AMORTIZATION OF GOODWILL. Goodwill amortization in the year ended December
31, 1998 was $59,000. There was no goodwill amortization charge in 1997. The
total gross amount of intangible assets at December 31, 1998 was $6.9 million,
which arose from the acquisitions of Saracen, ISL and Premier.
INTEREST EXPENSE. Net interest expense was $2,000 for the year ended
December 31, 1998. These charges were incurred as a result of financing our
short-term debt and working capital needs. As of December 31, 1998 and 1997 we
had no long-term debt, except for capital lease commitments.
TAXES. Taxes on income increased to $189,000 for the year ended December
31, 1998 from $22,000 for the year ended December 31, 1997. The effective tax
rate for the year ended December 31, 1998 was 22.7%, as compared to 33% for
1997. The effective tax rate is lower than the statutory rate because we take
advantage of the special 10% tax rate applicable to some companies operating in
Ireland.
NET INCOME. Our net income was $640,000 for the year ended December 31,
1998, or $0.20 per diluted share, as compared to $45,000, or $0.19 per diluted
share for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements to date have been to fund:
- acquisitions
- working capital needs
- research and development
- sales and marketing
- capital expenditures
We have met our liquidity needs over the past three years through funds
provided by operating activities, private equity placements, short-term
borrowings and capital leases.
Net cash provided by operating activities for the year ended December 31,
1999 was $3.0 million, compared to net cash used for operating activities of
$59,000 for the year ended December 31, 1998 and $1.4 million for the year ended
December 31, 1997. The cash provided by operations in 1999 arose as a result of
accounts payable increases associated with the acquisition of Jyris completed in
late 1999.
Our accounts receivable at December 31, 1999 were $11.3 million, compared
to $4.2 million at December 31, 1998, representing an increase of $7.1 million.
This reflects the significant growth we experienced during this period and our
acquisition of businesses with high levels of accounts receivable. As of
December 31, 1999, our receivables accounted for 84 days of average revenues as
compared with 148 days in 1998. This reduction is attributable to benefits that
companies we acquired have realized from efficiencies in our receivables
collection process.
We had provisions for doubtful debts of $808,000 at December 31, 1999 and
of $463,000 at December 31, 1998. Due to our growth, we do not consider the
historical write-off of receivables to be
28
<PAGE> 33
indicative of future trends. We review the adequacy of our doubtful debt
provision based on a review of the aged receivables. We believe that the
provision of $808,000 is adequate to cover the receivables balance at December
31, 1999.
Net cash used in investing activities for the years ended December 31,
1999, 1998 and 1997 were $4.2 million, $1.8 million and $13,000, respectively.
Of these amounts, cash used in the acquisition of businesses, net of cash
acquired, amounted to $3.6 million in 1999, $1.8 million in 1998 and none in
1997. In 1999, $1.3 million was received from the sale proceeds of two non-core
businesses.
Net cash flows from financing activities for the years ended December 31,
1999 and 1998 were $2.2 million and $2.9 million, respectively. In 1999 and
1998, proceeds from the sale of our common stock amounted to $1.6 million and
$2.8 million. In 1999, we retired two short-term loans made to us by one of our
directors, in an aggregate amount of $1.0 million. This same director made an
additional short-term loan of $1.3 million to us in 1999, which we repaid in
2000. We incurred no such borrowings in 1998. Bank overdraft facilities were
increased in 1999 by $433,000, in 1998 by $126,000 and in 1997 by $13,000.
Our financing activities include equity offerings and borrowings. In
February 2000, we entered into an agreement for a L4.0 million revolving credit
facility from Barclays Bank plc, which will bear interest at an annual rate of
1.75% over the London Interbank Offered Rate (LIBOR). We have drawn down L1.1
million from this facility and the balance may be used only to finance future
acquisitions. We have also entered into an agreement for a L1.0 million working
capital facility from Barclays, which will bear interest at an annual rate of
1.75% over LIBOR. We believe that we will be able to fund our future short-term
cash needs through cash from operations and these two credit facilities. The
credit facilities are secured by a lien on substantially all of our assets and
contain covenants that restrict, among other things, our ability to borrow,
acquire businesses, guarantee debts of others and lend funds to affiliated
companies.
We intend to continue to fund our acquisition strategy and the promotion of
our new web-enabled, enterprise-wide applications software through cash from
operations, our credit facilities and other financing arrangements that we deem
appropriate. We believe that our anticipated cash flows from operations,
together with our credit facilities and the net proceeds of the offering
described in this prospectus, will provide us with sufficient liquidity to meet
our currently foreseeable cash needs for at least the next two years.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities"
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair market value. Gains or losses resulting from
changes in the values of those derivatives are accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. SFAS
No.133 is effective for fiscal years beginning after June 15, 2000. We believe
that the adoption of SFAS No.133 will have no material effect on our financial
statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RATES. All of our business is transacted in
currencies other than the U.S. dollar. Our functional currency is the British
pound and the functional currencies of our non-U.K. subsidiaries are their local
currencies. As a result, we are subject to exposure from movements in foreign
currency exchange rates, specifically the U.S. dollar/British pound, the U.S.
dollar/Irish pound and the British pound/Irish pound exchange rates. We do not
use derivative financial instruments for speculative trading purposes, nor do we
hedge our foreign currency exposure to manage our foreign currency fluctuation
risk.
INTEREST RATE SENSITIVITY. We do not believe that we currently have any
material exposure to any market risks related to interest rate sensitivity.
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BUSINESS
OVERVIEW
We are a Dublin-based software company that develops, markets, implements
and supports web-enabled, enterprise-wide software applications for smaller to
mid-sized organizations in the distribution and contracting industries. Our
products enable organizations to optimize the efficiency of internal and
external information flow by integrating business-to-business modules with
mission-critical, enterprise-wide software applications. These applications
include core accounting functions as well as key, industry-specific
functionality. The modular design of our products enables us to provide
customers with cost-effective, tailored solutions that can be easily implemented
and integrated with existing business systems. We conduct our operations
primarily in the United Kingdom, Ireland and South Africa, where we currently
have approximately 3,800 customers under contract using software applications.
INDUSTRY BACKGROUND
Businesses of all sizes recognize the value of information and the need to
distribute information across their respective enterprises to improve their
competitive positions and better serve their customers. Mission-critical systems
from core accounting functions through sales and marketing, order processing,
inventory control and human resources must be capable of generating and
disseminating critical information quickly and efficiently. Enterprise-wide
software applications are designed to help a business manage and execute its
mission-critical operations, as well as enable it to respond rapidly to changing
market environments and customer needs.
The flexibility currently demanded by enterprise users as a result of the
rapid expansion of local and wide area networks, distributed computing, and a
greater investment in critical systems, is creating increasing demand for
high-quality, flexible, enterprise-wide software applications. Historically,
organizations' information systems were based on proprietary mainframe and mini
computers that focused on security, scalability, and performance but offered
limited flexibility. The inflexible nature of these systems has created an
opportunity for web-enabled, enterprise-wide software applications. This
opportunity has driven the trend toward more flexible, open systems.
Key developments of this trend include:
Migration from inflexible legacy systems. Organizations relying on legacy
systems are now evaluating flexible, user-friendly, enterprise-wide
platforms that address their mission-critical system requirements,
including networking and e-business.
Increasing dependence on outsourced software. We believe that businesses
are increasingly outsourcing their requirements for enterprise-wide
software applications principally because of the increased complexity and
expense of in-house development.
Increasing demand for web-enabled software applications. Organizations of
all sizes are seeking Internet and electronic commerce technologies that
can extend the availability of information to employees across their
enterprises and allow them to interact with customers and suppliers through
the Internet.
According to Forrester Research, an independent market research firm,
global license revenues from packaged applications are expected to grow from $14
billion in 1998 to over $41 billion by 2003, representing a compounded annual
growth rate of 24%. The non-U.S. portion of this market is projected to grow
even faster from $6 billion to over $20 billion over the same period,
representing a compounded annual growth rate of approximately 27%.
Organizations with revenues greater than $1 billion were the first to adopt
flexible enterprise-wide applications. Several large vendors like PeopleSoft and
SAP have historically targeted and dominated this large market. Although these
solutions have undergone significant evolution since their introduction, they
remain very expensive and require significant resources because they involve
lengthy implementation cycles
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and can demand substantial customization. Accordingly, the solutions provided by
these large vendors are not appropriate for smaller to mid-sized organizations.
OUR MARKET
We target the market for web-enabled, enterprise-wide software applications
for smaller to mid-sized organizations. Because this market has been
under-served by vendors who traditionally target large organizations, we believe
that this market will generate a significant portion of the growth in demand for
enterprise-wide software applications. In addition, we believe that smaller to
mid-sized organizations have a number of key business requirements that differ
from those of large organizations, including:
Cost effectiveness and ease of use. Smaller to mid-sized organizations
generally have fewer information technology resources. They require
cost-effective solutions from vendors that can provide the essential
assistance needed during the implementation process, as well as ongoing
support and service. They also require systems that can be rapidly
implemented and are easy to learn, use and modify.
Flexibility and scalability. As they grow, smaller to mid-sized
organizations require business software applications that are modular and
configurable to meet their evolving business needs.
Integrated e-business solutions. Because smaller to mid-sized
organizations generally have fewer internal resources available to address
their Internet and electronic commerce requirements, they increasingly rely
on their enterprise software vendors for applications that address these
needs and easily integrate with their existing business systems.
We believe that there is a substantial and growing market for flexible,
web-enabled, enterprise-wide software applications. Great opportunity exists for
smaller to mid-sized organizations to take advantage of the technological
developments and efficiencies available to them because of the lower cost of
ownership of these applications. In addition, the faster implementation and
integration of these applications minimizes the costs and business disruptions
normally associated with changing mission-critical software systems.
THE INTEGRITY SOLUTION
Our web-enabled, enterprise-wide software applications address the
information requirements of our customers. Our solutions provide the following
benefits:
OUR PRODUCTS OFFER EASE OF MIGRATION FROM LEGACY SYSTEMS.
Many organizations in our target markets have made substantial investments
in mission-critical software applications. These applications are often legacy
products that do not incorporate the latest technologies such as web-enabling
functions. Many of these organizations are evaluating their system requirements
in light of their need to address these new technologies. We believe we offer
our current and potential customers utilizing legacy products the most
cost-effective, mission-critical software for them to purchase and implement.
Our new products are designed to access and convert legacy data and, as a
result, they can be implemented more quickly and less expensively. Additionally,
because of our products' modular design, customers need only purchase those
modules that they require.
OUR WEB-ENABLED SOLUTIONS ARE DESIGNED TO MEET OUR CUSTOMERS' NEEDS.
Using Quikbild, our web-enabling technology, we satisfy our customers'
requirements for integrated commercial web applications. Quikbild delivers the
following benefits:
- online transaction processing integrated with back office and customer
relationship management systems
- fast development of tailored applications
- creation of front-end interfaces, intranets and industry portals
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Because our clients operate in dynamic, competitive industries, they must
react quickly to their customers' needs. Using our web products, our customers
can offer a fully functioning commercial interface that provides a competitive
advantage through faster processing, more reliable information, better services
and reduced operating costs.
WE OFFER COMPREHENSIVE SERVICE AND SUPPORT.
We believe that high-quality customer service and support are critical to
our success. We believe the key to high-quality service and support is
well-motivated, highly trained personnel, constantly attuned to customer needs.
To meet those needs, we have made significant investments to develop a
comprehensive service and support organization throughout our areas of
operation. We provide ongoing training for our service and support staff and
organize user groups of our customers to encourage feedback about our products
and services in order to enhance our customers' satisfaction. We expect to
provide an increasing level of support as our products are deployed across a
wider range of customers and locations and become increasingly sophisticated,
incorporating web-based functionalities.
OUR PRODUCTS ALLOW OPEN SYSTEM INTEGRATION.
Our products are designed around open system architecture to offer
customers fully integrated web-enabled, enterprise-wide applications which allow
interoperability with most platforms, including Unix, Windows, Novell and Linux.
Because we utilize Open Database Connectivity standards in our products, data
can be accessed through Oracle, Progress, SQL server, Informix and other
databases and the data can be easily retrieved by external programs.
STRATEGY
Our primary business objective is to be the leading provider of
mission-critical, web-enabled, enterprise-wide software applications to our
target markets. Key elements of our strategy include:
FOCUS OUR RESEARCH AND DEVELOPMENT ON NEW WEB-ENABLED, MISSION-CRITICAL SOFTWARE
PRODUCTS.
Utilizing Quikbild, our web-enabling technology, we are focusing a
significant portion of our research and development resources towards the goal
of creating a software product which addresses the mission-critical needs of
smaller to mid-sized organizations. In particular, it is our intent to create a
modular suite of web-based software products which can be tailored to a specific
client's needs across any number of vertical markets.
ACCELERATE GROWTH AND ACHIEVE ECONOMIES OF SCALE THROUGH STRATEGIC ACQUISITIONS.
We believe we have a successful record of growing our company by acquiring
complementary businesses. From August 1998 to December 1999 we completed eight
strategic acquisitions. We plan to continue our consolidation of overlapping
functions and elimination of redundant costs from our acquired businesses. We
will continue to focus on acquiring businesses that provide us with one or more
of the following strategic benefits:
- new products or technologies
- larger customer base
- expansion into new geographic markets
- expansion into new vertical markets
- key personnel
- economies of scale
We believe that our experience in identifying, structuring, completing and
integrating acquisitions will enable us to effectively capitalize on
opportunities to use acquisitions as a vehicle for future growth. We believe
that, through the further integration and consolidation of our operations, we
will achieve significant additional savings in our general and administrative
expenses.
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LEVERAGE OUR EXISTING LEGACY CUSTOMER BASE BY SELLING OUR NEW PRODUCTS.
We have contracts with approximately 3,800 customers relying on legacy
mission-critical software products. We believe there is significant opportunity
to migrate these customers to our next-generation software products which offer
enterprise-wide applications that are web-enabled, cost-effective and integrate
with customers' existing platforms. To that end, we have put in place a new
company-wide sales initiative to aggressively target legacy users in order to
migrate them to our next-generation products. This initiative involves both
customer and sales force incentives.
EXPAND OUR VALUE ADDED RESELLER CHANNEL.
Through our CFS business area, we have developed close relationships with a
significant number of VARs. We are currently evaluating these relationships in
order to identify the most technically competent VARs to market and sell our
software products to their customers. We intend to further leverage our existing
relationships with VARs with the goal of creating an efficient way of marketing
and selling our software products to their customer bases. We believe that the
accelerated development of this VAR channel would improve our competitive
position and lead to greater market penetration of our products.
FURTHER PENETRATE OUR TARGET MARKETS.
We believe there are substantial opportunities to increase our presence and
expand our customer base in the distribution and contracting markets. We plan to
apply our expertise in these markets to take advantage of common functionalities
across these industries, enabling us to efficiently and quickly meet our
customers' unique industry requirements.
ENHANCE OUR SERVICE AND SUPPORT FUNCTIONS.
In order to cultivate and strengthen long-term relationships with our
customers, we plan to continue to invest in the enhancement of our service and
support functions. We are currently consolidating our customer support functions
throughout our areas of operation and plan to use the resulting cost savings to
increase the number and quality of our service and support personnel. We believe
these actions will allow us to continue to provide high-quality service and
support, which is essential to the successful marketing and sale of our
products.
OUR BUSINESS
We have four integrated business areas: business-to-business, or B2B;
software; general accounting and technical services, or GATS; and computer
finance services, or CFS.
<TABLE>
<CAPTION>
B2B SOFTWARE GATS CFS
<S> <C> <C> <C> <C>
PRODUCTS/ Quikbild, our web- Legerdemain and Legacy accounting Computer financing
SERVICES enabling technology Evolution, our software packages agency
targeted at enterprise-wide
applications for software
our software and applications
GATS customers
- -----------------------------------------------------------------------------------------------------
OPPORTUNITY Cross-sell to Further market our Migrate existing Expand and leverage
existing customer next-generation customers to next- our VAR channel for
base and through software generation software sales of our
the developing VAR applications to new and B2B products software and B2B
channel and existing products
customers
- -----------------------------------------------------------------------------------------------------
GEOGRAPHIC FOCUS UK, Ireland UK, Ireland, South UK, Ireland, South UK, Ireland
Africa Africa
- -----------------------------------------------------------------------------------------------------
CUSTOMERS 50 1,000 2,800 7,000
- -----------------------------------------------------------------------------------------------------
COMPANY-WIDE
FUNCTIONS Sales and marketing, research and development, training, service and support
</TABLE>
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BUSINESS-TO-BUSINESS
OVERVIEW
We recently began to market web-enabling software modules that allow our
customers to interact with their customers and suppliers over the Internet. We
believe that our customers can realize several benefits by interacting with
their customers through this medium, including:
- faster transaction processing
- lower operating costs
- better information and access to information
- better customer service
Our development efforts are particularly focused on modules that can be
easily integrated with our Vision, Evolution and legacy products by individual
functions, offering a seamless transition for customers to a web-based
environment. We believe there is significant demand among our approximately
3,800 customers that currently use legacy products. In addition, the opportunity
exists to exploit the developing VAR channel to gain access to their end-users.
PRODUCTS
Our Quikbild development technology allows us to produce web-enabling
modules that we sell as a tailored solution to customers through our direct
sales force and our VARs. Each of these modules is designed to perform a
specific function and can be integrated into our customers' existing software
and combined with other Quikbild modules to meet each customer's unique
requirements. Quikbild modules require little technical expertise for our
customers to use, manage and maintain.
Quikbild uses a common source code to develop modules, which are reused
repeatedly and tailored for each customer's specific needs. We believe this will
enable us to produce high-quality, scalable products with substantially reduced
implementation and maintenance costs.
Our currently available Quikbild modules include:
Order Management Module. This module allows users to offer their customers
direct access through the web for the ordering of products, account
inquiries and order processing 7 days a week, 24 hours a day, saving time
and money for both parties to the transactions.
E-commerce Module. This module allows businesses to conduct transactions
directly with customers over the Internet. It provides for online catalog
functionality and order taking with the ability to take credit card details
via the web site and to allow online bank clearance and settlement.
Web Site Administration. This module enables our customers to
automatically update the contents of their web sites, incorporate the
latest news headlines (scrolling or static) and issue special bulletins
displayed as text in the news flash area. This allows customers to develop,
modify and maintain their web sites on a real-time basis. In addition, this
module includes a site search engine to locate content based on a variety
of categories.
We believe there is significant demand for our web-based solutions,
because, in addition to providing a high-quality, scalable product, they are
also competitively priced. The initial licensing fee for our introductory
modules starts at approximately $40,000, and the price of the solution increases
in proportion to the level of sophistication required. Our most sophisticated
solutions include e-commerce and order management modules which integrate
front-end user interfaces with back-end core enterprise software. In keeping
with our pricing policy, we generate recurring revenues from the licensing of
our Quikbild modules. Typically, annual licensing fees amount to approximately
20% of the initial licensing fee.
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SOFTWARE BUSINESS
OVERVIEW
Our software business area focuses on developing solutions to meet the
needs of our customers for enterprise-wide, integrated applications that are
reliable and can address the needs of our customers' particular industries.
Our software business serves approximately 300 customers in the
distribution industry and approximately 700 customers in the contracting market.
In addition, approximately 2,500 distribution industry customers and 300
contracting industry customers of our GATS business are currently utilizing
legacy products. We are seeking to migrate these customers from legacy products
to our next-generation distribution and contracting software products. We
believe the combination of functionality and price of our software products are
their key selling points and allow us to target companies in our chosen markets.
PRODUCTS
Distribution Industry
Our distribution software is Legerdemain, which is an enterprise-wide
application that is being enhanced with Internet communication protocols to take
advantage of our B2B order management module. We believe this product offers
significant advantages over many legacy systems currently being employed by
distribution customers in our GATS division as well as potential customers who
are using similar legacy systems. We are currently developing and testing a
next-generation Windows-based software suite, called Vision, that will offer the
same functionalities as Legerdemain and will use the same web-enabled B2B
technology already under development. We expect to launch Vision during the
second quarter 2000.
Our distribution software is built on our proprietary accounting platform
and provides the components necessary to fulfill core accounting as well as
industry-specific functions. Specific advantages of our distribution software
include:
Order management solutions. Our software provides real-time sales and
inventory management for distributors, wholesalers and manufacturers in
demanding supply chain environments.
Stock control management. Our software maintains a detailed description of
all items inventoried in the distributor's stockroom, including location,
quantity and all information related to fulfillment.
Electronic links to wholesalers and manufacturers. Our software allows all
communications between distributors and their customers to take place
through dedicated networks or through the Internet.
Telesales management. Our software offers a comprehensive solution for
businesses that need the ability to take customer orders over the phone by
giving operators instant access to full online account details, including
sales history, discounts, special deals, promotions and pricing.
Contracting Industry
Our current software product, Evolution, is the next-generation of our
Foundation product, specifically designed for the contracting market. Evolution
was released in September 1999, and our developers are currently creating
Internet communication protocols for this product.
Our contracting software is built on our proprietary accounting platform
and provides the components necessary to fulfill core accounting, as well as
industry-specific functions. Specific advantages of our Evolution product
include:
Project costing solutions. Our software delivers detailed cost estimate
analysis that allows the user to record and evaluate the costs of each job.
Sub-contractors management. Our software allows the process of measuring
and paying sub-contractors to be completed without duplication of entries.
The module can be fully integrated into our project costing module.
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Contractors payroll management. Our software allows control of up to
10,000 employees and the calculation of tax and insurance for the
appropriate region. The module can be fully integrated into our project
costing module.
Initial license fees for our contracting and distribution software starts
at approximately $20,000 and can cost as much as $150,000 depending on the level
of sophistication and the number of modules employed. Typically, annual
licensing fees amount to approximately 20% of the initial fee.
GENERAL ACCOUNTING AND TECHNICAL SERVICES
OVERVIEW
Our GATS business area, currently the largest in our company, supplies
legacy applications and turnkey business solutions to a broad base of customers.
Businesses in the general accounting market are increasingly seeking
enterprise-wide software applications and we anticipate that they will be
shifting from legacy systems to more sophisticated, enterprise-wide software
applications. We expect that many of our GATS customers will migrate to our
Vision and Evolution products. We will also continue to maintain our customers'
legacy systems, offer these customers our other products which offer
enterprise-wide solutions for their businesses, and where appropriate, seek new
customers for these systems.
We provide professional services for our customers through our GATS
division to fulfill their networking and information technology needs.
PRODUCTS AND SERVICES
Our GATS software provides the components necessary to fulfill core
accounting as well as industry specific functions:
We license these software programs under the brand names Multisoft, Quest,
Premier, Datasoft and Saracen. The software programs vary in their complexity
and sophistication from the most basic core accounting programs (Quest) to more
advanced products that offer greater functionality (Multisoft). Unlike Quest,
Premier, Datasoft, and Saracen, which are our proprietary products, we license
Multisoft from the Sage Group plc. under agreements giving us the right to sell
Multisoft in the United Kingdom and South Africa. In the United Kingdom, we have
exclusive distribution rights through March 2003 to market and sell Multisoft to
approximately 1,800 Multisoft users, of which approximately 800 currently are
under maintenance and support contracts with us. Under this agreement, we pay
Sage a royalty based on 40% of product sales, and 30% of recurring revenues. In
South Africa, we have the exclusive right through 2002 to market and sell
Multisoft, for which we pay Sage a nominal monthly fee.
In addition, we have extensive experience in and knowledge of fiber optic
communication, mass data storage solutions, operating environments (Unix,
Windows NT, Novell, Linux, DOS), communications protocols, fault tolerant system
design, secure Internet service provider (ISP) and hardware engineering.
Our GATS software products range in price from $2,000 to $120,000,
depending on the level of sophistication and complexity of the product.
COMPUTER FINANCE SERVICES
Our CFS business acts as an agent for the delivery of lease and rental
plans over one to five years to commercial organizations in the United Kingdom
and Ireland. Financial institutions such as GE Capital and Schroeders underwrite
all lease and rental plans. These institutions pay us a commission based on the
total transaction size. As agent, we do not assume any of the credit risk for
these leases.
Our CFS business works through VARs in the United Kingdom and Ireland who
distribute hardware and software solutions to end-users. Through our agency
agreement with Compaq Capital Finance, we have access to a significant number of
VARs. Our primary focus in our CFS business is to use the relationships that we
have already developed with key contacts in the VARs' sales forces in order to
cultivate these VARs as an additional distribution channel for our own software
products. We have formed
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a special sales and marketing team that is focused on promoting sales of our
software products and services through this VAR channel.
RESEARCH AND DEVELOPMENT
Research and development continues to be a key focus for our company. We
have two major enterprise-wide applications whose development is complete or
entering the final stages prior to product launch: Vision and Evolution. We are
continually designing new generations of software applications to provide
improved performance and enhanced functionality to our customers. We also have
numerous web-based applications at various stages of development focused on
addressing our customers' unique needs. We believe our software engineers to be
of the highest competence, and they have proven their ability to deliver
technically advanced, intuitive, user-friendly software.
We have integrated and consolidated our research and development
departments in the United Kingdom and Ireland to focus on our new product
offerings.
CUSTOMER SERVICE AND SUPPORT
We provide service and support to our customers to promote rapid and
efficient implementation and reliable, ongoing management of our products. In
addition, we periodically sell services on a stand-alone basis. This may lead to
future product sales by establishing and maintaining customer relationships. Our
service and support offerings include:
Project management. This service is designed to deliver to the customer
their expectations in a timely and cost effective manner.
Consulting and training. We consult on system evaluations, design,
programming, and implementation and offer extensive training in the use of
our products.
Problem solving and hot line access. Once the installation and training is
complete, customers receive ongoing support through our 24-hour help desk.
On-site support is available when appropriate.
Infrastructure support. Our technical service teams are trained to
implement and support all areas of the computer infrastructure, including
fiber optic communication, mass data storage solutions, operating
environments (Unix, Windows NT, Novell, Linux, DOS), communications
protocols, fault tolerant system design, secure ISP and hardware
engineering.
IT strategy. Our customers rely on us to advise them on the ever-changing
landscape of information technology.
Network management services. Our managed services allow us to remotely
monitor our customers' networks and conduct preventive maintenance and fast
diagnostics, resulting in greater network reliability and availability.
This is particularly important to our customers interested in using
e-commerce based applications.
SALES AND MARKETING
We market our products primarily through a direct sales force organized
around our target markets, enabling us to address the specialized needs of our
customers in each of these markets. As of March 20, 2000, our direct sales force
consisted of 90 sales representatives. Telemarketing augments our direct sales
effort where appropriate.
To supplement the efforts of our direct sales organization, we also sell
our products through marketing and distribution arrangements with VARs. As of
March 20, 2000, we had entered into agreements with approximately 20 VARs who
are selling our products. We intend to further leverage our existing
relationships with VARs with the goal of creating an efficient way of marketing
and selling our software products to their customer base.
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Our sales cycles for our products vary across each target market, typically
ranging from one to four months. For some of our more sophisticated
applications, the sales cycle can be up to 12 months. Our sales cycles depend on
many factors, including the size of the customer's organization, the number of
individuals involved in the purchasing decision, the status of a customer's
hardware system, and the degree of implementation, consulting and training
required.
Our marketing is targeted at existing and new customers in order to
position our company and our products in the forefront of the buying customer's
mind. We achieve this through interaction between our customers and all our
staff, industry specific advertising and exhibitions, direct mailing and
targeting industry associations. We produce marketing literature covering both
corporate and product information.
CUSTOMERS
We have approximately 3,800 customers who license products that generate
recurring revenues. No single customer accounted for more than 5% of our total
revenues in 1999. In addition, we are a major agent of lease and rental finance
in the U.K. market and have provided our agency leasing services to over 7,000
customers with existing leases, financed predominantly by GE Capital and
Schroeder.
COMPETITION
The web-enabled, enterprise-wide software applications market is intensely
competitive and rapidly changing. The competition that we encounter varies
across and within each vertical market depending upon, among other things, the
customer's size and specific system requirements. There are many factors that
affect competition in the software applications market, including a vendor's
responsiveness to customer needs and the quality of customer support as well as
a product's architecture, functionality, speed of implementation, ease of
integration, performance, features, reliability, breadth of distribution and
price.
Our principal competitors in the software market for the distribution
industry as well as for GATS are Sage, Great Plains and Pegasus Software. In the
software market for the contracting industry, our main competitors are Red Sky
Software, CSB/Coins and Mentor. Our competitors in the B2B market are
essentially the same competitors that we face in the contracting and
distribution software markets. Our CFS business competes with others in the
industry based primarily upon price. Our main competitor in this business area
is System Finance.
PROPRIETARY RIGHTS AND LICENSING
Our business is dependent upon our proprietary technology and other
intellectual property. We have not registered any copyrights nor received or
applied for any patents for our products, technologies or other intellectual
property. We typically enter into license arrangements with our customers that
grant them a nonexclusive license to use our software products. Our license
agreements generally allow the use of our software solely by the customer for
internal purposes without the right to sublicense or transfer the software to
third parties. Licenses usually are annual, but subject to termination for
breach or on notice, and contain confidentiality and nondisclosure provisions, a
limited warranty covering the software, and indemnification for the customer
from any infringement action related to the software. We have in the past and
may in the future resell some software products that we license from third
parties.
EMPLOYEES
As of March 20, 2000 we had 393 full-time employees. Of that number, 306
are based in our offices in the United Kingdom, 67 are based in Ireland, and 20
are based in South Africa. We have 90 employees in our sales force and 50 in
research and development. None of our employees are party to a collective
bargaining agreement, and we have never experienced a work stoppage. We consider
our relationship with our employees to be good and have not experienced any
interruptions of operations due to labor disagreements.
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PROPERTIES
We lease various facilities in the United Kingdom, Ireland and South Africa
which house our administrative, sales and marketing, service and support and
research and development functions. We also own two facilities in the United
Kingdom. The following table sets forth our principal facilities as of December
31, 1999:
<TABLE>
<CAPTION>
LOCATION BUSINESS AREA LEASE EXPIRATION
-------- ------------- ----------------
<S> <C> <C>
UNITED KINGDOM
High Wycombe Software, GATS and B2B 2015
Lincoln Software, GATS and B2B 2013
IRELAND
Dublin Software and GATS 2025
</TABLE>
We believe that our current facilities will be sufficient to meet our needs for
the next 12 months.
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not party to any material legal
proceedings. From time to time, we may be involved in legal proceedings relating
to our operations in the normal course of business.
39
<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our directors
and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Peter D. Nagle............................ 39 Chief Executive Officer, Chairman of the
Board
Paul C. Carroll........................... 38 Chief Financial Officer, Secretary and
Director
Paul B. Nagle............................. 40 Chief Operations Officer, Director
Kenneth F. Butler......................... 60 Commercial Director, Director
Philip L. Wood............................ 45 Vice President Sales
Barry M. Schechter(1)..................... 46 Director
Ivan M. Epstein(1)........................ 39 Director
Donald S. Radcliffe(1).................... 54 Director
</TABLE>
- ---------------
(1) Members of the Audit and Compensation Committees.
PETER D. NAGLE has been our Chief Executive Officer and Chairman of our
Board of Directors since December 1999. He served as chief executive officer of
Jyris Ltd. from November 1998 to December 1999, at which time Jyris was acquired
by our company. From August 1997 to September 1999, Mr. Nagle was a director of
Ibis Systems, Ltd., where he had held several management-level positions since
1988. Ibis was acquired by Jyris in January 1999 and is now a subsidiary of our
company. Mr. Nagle started in the software industry in 1986 and has been
responsible for several successful software businesses, including Siteman
Software Ltd., for which he served as operations director from October 1992 to
August 1997. Mr. Nagle is the brother of Paul B. Nagle, our Chief Operations
Officer.
PAUL C. CARROLL has served as Chief Financial Officer, Secretary and a
director since July 1998. Prior to joining our company, Mr. Carroll ran his own
accountancy and international business consultancy practice, Paul Carroll & Co.,
for 15 years. During this time, he provided services in connection with numerous
mergers and acquisitions, particularly in the computer industry. Prior to the
commencement of his accountancy and consultancy practice, he was the chief
financial officer of Allied Leasing Limited in Dublin, Ireland. Mr. Carroll was
qualified as a Chartered Certified Accountant (FCCA) in 1984, and is an
Associate of the Institute of Arbitrators and a Fellow of the Institute of
Directors.
PAUL B. NAGLE has served as our Chief Operations Officer since December
1999 and as a director since April 1999. Mr. Nagle served as Chief Executive
Officer of our company from June 1999 until December 1999. From May 1995 through
March 1999, Mr. Nagle was managing director of Multisoft South Africa, a
computer software business. From August 1997 to March 1998, he was also managing
director of Brilliant Business Systems, an affiliate of Softline Ltd., a large
technology group listed on the Johannesburg Stock Exchange. Mr. Nagle is the
brother of Peter D. Nagle, our Chief Executive Officer.
KENNETH F. BUTLER has served as our Commercial Director since January 2000
and as a director since July 1998. From July 1998 to December 1999, Mr. Butler
was also our Chairman. Mr. Butler has over 35 years' experience in computer
software development, including acting as commercial director from October 1979
to May 1997 of Andrews Weatherfoil Ltd., a subsidiary of Powell Duffryn Group,
which is a company listed on the London Stock Exchange. Mr. Butler served as
director in the Kvaerner Construction Group from May 1997 until December 31,
1999.
PHILIP L. WOOD has been our Vice President of Sales since March 2000. Mr.
Wood is responsible for directing our VAR sales channel and overseeing our
direct sales force. Mr. Wood was managing director of Open Support Ltd., a value
added reseller of computer software and hardware, from June 1988 to July 1998.
From July 1998 to December 1999, Mr. Wood was the sales manager of Ibis Systems
Ltd., a
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<PAGE> 45
value added reseller of computer software and hardware. Mr. Wood has 20 years'
experience in the computer software industry.
BARRY M. SCHECHTER has been a director of our company since December 1999.
Mr. Schechter is the chief executive officer and founder of SVI Systems Inc., an
AMEX-listed company which is a focused developer and implementor of end-to-end
software solutions for the retail industry. He has been with SVI since 1991.
Currently, Mr. Schechter is a director of Softline Limited, a South African
software company. He is also chairman of the board of directors of Applied
Retail Systems, Island Pacific Systems and Divergent Technologies.
IVAN M. EPSTEIN has served as a director of our company since December
1999. Mr. Epstein is co-founder of Softline Limited and has been its chief
executive officer since February 1997. Softline is listed in the Information
Technology sector of the Johannesburg Stock Exchange and has operations located
throughout South Africa, Australia, the United States and the United Kingdom.
Prior to joining Softline Limited, Mr. Epstein was an accountant at Price
Waterhouse for five years. Mr. Epstein is also a director of SVI Systems.
DONALD S. RADCLIFFE has served as a director of our company since December
1999. Mr. Radcliffe is currently chief operating officer of World-Wide Business
Centers, an office services provider, and has been in its employ since 1984.
Since 1993, Mr. Radcliffe has also been president of Radcliffe & Associates,
which provides financial consulting services to public companies. Currently Mr.
Radcliffe serves on the board of directors of SVI Systems, Inc., Pallet
Management Systems, Inc. and Complete Wellness Centers, Inc.
COMMITTEES OF OUR BOARD OF DIRECTORS
Our Board of Directors established an Audit Committee and a Compensation
Committee on March 15, 2000. The functions of the Audit Committee include
recommending to the Board of Directors the retention of independent auditors,
reviewing the scope of the annual audit undertaken by our company's independent
auditors and the progress and results of their work, and reviewing our company's
financial statements, internal accounting and auditing procedures and corporate
program to ensure compliance with applicable laws. The functions of the
Compensation Committee include reviewing and approving executive compensation
policies and practices, reviewing salaries and bonuses for some of our officers,
administering our 2000 Stock Option Plan and other benefit plans, and
considering other matters as may from time to time be referred to the committee
by our Board of Directors. The Board has appointed the following directors to
serve as members of the Audit Committee and the Compensation Committee: Ivan M.
Epstein, Barry M. Schechter and Donald S. Radcliffe.
ELECTION OF DIRECTORS AND OFFICERS
Our Board of Directors consists of seven directors, divided into three
classes, all of whom are elected for three-year terms, and one class of whom is
elected at each successive annual meeting of stockholders. Holders of shares of
common stock have no right to cumulative voting in the election of directors.
Consequently, at each annual meeting, a majority of the stockholders will be
able to elect all of the directors included in the class up for election. Our
executive officers are elected by the Board of Directors and may be removed at
any time by the Board of Directors. Our executive officers do not serve fixed
terms of office.
BOARD COMPENSATION
Our directors who are not also employees of our company or one of its
subsidiaries will receive $5,500 per year plus $500 for each meeting of the
Board of Directors attended and $500 for each committee meeting attended. No
other director will receive cash compensation for services as a director. All
directors will, however, be reimbursed for their expenses incurred in attending
meetings.
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and the two other executive officers of our
company whose annual salary and bonus exceeded $100,000 in 1999 for services
rendered in all capacities. In accordance with the rules of the SEC, other
compensation in the form of perquisites and other personal benefits has been
omitted for the named executive officers because the aggregate amount of
perquisites and other personal benefits was less than the lesser of $50,000 or
10% of the total of annual salary and bonuses for each of the named executive
officers in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------
YEAR SALARY BONUS
---- -------- ------------
<S> <C> <C> <C>
Peter D. Nagle, Chief Executive Officer(2).................. 1999 $244,600 --
Paul C. Carroll, Chief Financial Officer.................... 1999 $162,000 --
Paul B. Nagle, Chief Operations Officer(3).................. 1999 $121,500 --
</TABLE>
- ---------------
(1) The amounts in this table have been translated to U.S. dollars from British
pounds based upon the average exchange rates in effect during 1999.
(2) Peter D. Nagle was chief executive officer of Jyris at the time it was
acquired by Integrity on December 7, 1999. He became Chief Executive Officer
of Integrity on December 7, 1999. All of Mr. Nagle's compensation referred
to in this table was paid by Jyris.
(3) Paul B. Nagle was our Chief Executive Officer from June 1999, to December 7,
1999, at which time he became our Chief Operations Officer.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The following table sets forth, for the named executive officers, the
shares acquired and the value realized on each exercise of stock options during
the year ended December 31, 1999, and the number and value of securities
underlying unexercised options held by the named executive officers at December
31, 1999. The value of unexercised in-the-money options at December 31, 1999 has
been calculated using $17.813 per share, the closing bid price of our common
stock on December 31, 1999 as reported in the Pink Sheets.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE NONEXERCISABLE EXERCISABLE NONEXERCISABLE
- ---- ----------- -------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Peter D. Nagle....... -- -- -- -- -- --
Paul C. Carroll...... 113,000 $468,750 147,000 -- $2,618,511 --
Paul B. Nagle........ -- -- -- -- -- --
</TABLE>
2000 STOCK OPTION PLAN
Our 2000 stock option plan was adopted by our Board of Directors and
approved by our stockholders in March 2000. A total of 1,650,000 shares of
common stock have been reserved for issuance under this plan.
The 2000 stock option plan provides for grants of stock options to our
employees and directors. The purposes of our stock option plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to our employees and to promote
the success of our business. At the request of the Board of Directors, the
Compensation Committee administers our stock option plan and determines the
optionees and the terms of options granted, including the exercise price, number
of shares subject to the option and the exercisability thereof.
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<PAGE> 47
The term of options granted under the 2000 stock option plan is stated in
the relevant option agreement but may not exceed 10 years. Options granted under
the 2000 stock option plan vest and become exercisable as set forth in each
option agreement.
The 2000 stock option plan will terminate in March 2010, unless our Board
of Directors terminates it sooner.
Over the 10-year life of the plan, we may not grant any person options to
purchase more than 500,000 shares.
As of the date of this prospectus, we had no outstanding options to
purchase shares of common stock under the 2000 stock option plan, and the
reserved 1,650,000 authorized shares remain available for future option grants.
EMPLOYMENT AGREEMENTS
We have employment agreements with each of the executive officers listed in
the summary compensation table above.
Peter D. Nagle, our Chief Executive Officer, entered into an employment
agreement with us on December 7, 1999. Under the agreement, Mr. Nagle will be
employed for a period of one year from the date of the agreement, at an annual
salary of L150,000. Mr. Nagle is also entitled to an annual bonus and use of a
vehicle. The agreement contains non-compete provisions prohibiting Mr. Nagle
from competing with us during the term of employment and for nine months
following the term.
Paul C. Carroll, our Chief Financial Officer, entered into an employment
agreement with us on July 15, 1998. Under the agreement, Mr. Carroll will be
employed for a period of three years from the date of the agreement, at an
annual salary of L70,000 subject to an annual review and adjustment of his
salary at our discretion. Mr. Carroll is also entitled to an annual bonus and
use of a vehicle. The agreement contains non-compete provisions prohibiting Mr.
Carroll from competing with us during the term of employment and for nine months
following the term.
Paul B. Nagle, our Chief Operations Officer, entered into an employment
agreement with us on April 1, 1999. Under the agreement, Mr. Nagle will be
employed for a period of three years from the date of the agreement, at an
annual salary of L75,000 subject to an annual review and adjustment of his
salary at our discretion. Mr. Nagle is also entitled to an annual bonus and use
of a vehicle. The agreement contains non-compete provisions prohibiting Mr.
Nagle from competing with us during the term of employment and for nine months
following the term.
Each of these agreements contains confidentiality restrictions, as well as
provisions recognizing that we own all intellectual property rights to any
software that the named executive officer may work on during the term of his
employment agreement.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our Certificate of Incorporation that limit
the liability of our directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the Delaware General Corporation Law (DGCL). In addition, we have taken
out directors and officers insurance with a maximum coverage of $5 million per
claim. The DGCL provides that directors of a company will not be personally
liable for monetary damages for breach of their fiduciary duty as directors,
except for liability (i) for any breach of their duty of loyalty to the company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) that arises
under Section 174 of the DGCL for unlawful payment of dividends or unlawful
stock repurchases or redemptions, or (iv) for any transaction from which the
director derived an improper personal benefit. Our Certificate of Incorporation
and bylaws also provide for indemnification of our directors and officers to the
fullest extent permitted by the DGCL. We intend to enter into separate
indemnification agreements with our directors and some of our officers that
could
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<PAGE> 48
require us, among other things, to indemnify these persons against liabilities
that may arise by reason of their status or service as directors or officers and
to advance their expenses as a result of any proceeding against them as to which
they could be indemnified. We believe that the limitation of liability provision
in our Certificate of Incorporation and the indemnification agreements will
facilitate our ability to continue to attract and retain qualified individuals
to serve as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
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<PAGE> 49
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of March 20, 2000, based on an aggregate of 13,957,808
shares outstanding as of that date, and as adjusted to reflect this offering,
by:
- each person (or group of affiliated persons) who is known by us to
beneficially own five percent or more of the outstanding shares of our
common stock
- each of our directors and executive officers
- all of our directors and executive officers as a group
- each selling stockholder
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting and/or
investment power with respect to securities. Unless otherwise noted, we believe
that all persons named in the table have sole voting and sole investment power
with respect to all shares shown as beneficially owned by them. Shares of common
stock subject to options currently exercisable or exercisable within 60 days of
March 20, 2000 are deemed outstanding for purposes of computing the percentage
beneficially owned by the person holding options but are not deemed outstanding
for purposes of computing the percentages beneficially owned by any other
person.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING(1)
-------------------- NUMBER ---------------------
NUMBER OF OF SHARES NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Peter D. Nagle(2)................................ 2,762,389 19.8% -- 2,762,389 16.1%
Paul C. Carroll.................................. 366,614 2.6 -- 366,614 2.1
Paul B. Nagle(3)................................. 2,953,807 21.2 -- 2,953,807 17.2
Kenneth F. Butler................................ 80,000 * -- 80,000 *
Philip L. Wood(4)................................ 48,000 * -- 48,000 *
Donald S. Radcliffe.............................. 0 -- -- 0 --
Ivan M. Epstein.................................. 0 -- -- 0 --
Barry M. Schechter............................... 0 -- -- 0 --
All executive officers and directors as a group
(8 persons)(2)(3)(4)........................... 6,210,810 44.5 -- 6,210,810 36.1
FIVE PERCENT OR GREATER STOCKHOLDERS
Patrick G. Nagle(5).............................. 1,951,414 14.0 -- 1,951,414 11.3
Kielduff Investments Limited(6).................. 1,536,000 11.0 -- 1,536,000 8.9
SELLING STOCKHOLDERS
Arion Enterprises Limited........................ 520,000 3.7 94,000 426,000 2.5
Jeremy Hall(7)................................... 520,512 3.7 80,000 440,512 2.6
Kelvin Bell(7)................................... 104,640 * 10,000 94,640 *
Mario Macari..................................... 14,000 * 14,000 0 --
Robert Smith..................................... 6,560 * 3,000 3,560 *
Elaine Smith..................................... 6,560 * 3,000 3,560 *
Simon Shaw....................................... 6,560 * 3,000 3,560 *
Caroline Shaw.................................... 6,560 * 3,000 3,560 *
</TABLE>
- ---------------
* Less than 1%
(1) Assumes the issuance of 3,000,000 common shares and that the underwriters'
over-allotment option is fully exercised.
(2) Includes 2,762,388 shares held in a trust set up by Mary Higgins (a sister
of Peter Nagle) for the benefit of her nieces and nephews, including Peter
Nagle's children. Mr. Nagle exercises dispositive power over the shares in
this trust and therefore may be deemed to be the beneficial owner of the
shares.
(3) Includes 1,920,000 shares held through the Paul Nagle Trust, and 713,722
shares held through Caldwell Limited, a corporation controlled by Mr. Paul
Nagle. In addition, the amount includes 56,362 shares held in the name of
Patrick G. Nagle, and 43,734 held in the names of P. Doe, G. Spurgeon, S.
Goldsworthy, C. Thompson, M. Thompson and G. King.
(4) Includes 24,000 shares held by Caroline Wood, Philip Wood's spouse.
(5) Includes 1,460,000 shares held through the Framewood Trust, 42,278 shares
held through Caldwell Limited, and 8,000 shares held by Sabina Cassidy,
Patrick G. Nagle's spouse. The address for Patrick G. Nagle is 64 Barks
Road, Beaconsfield, Buckinghamshire, England HP9 1PN.
(6) The address of Kielduff Investments Limited is the Marello Tower
Portmarnock Dublin, Ireland.
(7) Messrs. Hall and Bell are employees of subsidiaries of our company.
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<PAGE> 50
RELATED PARTY TRANSACTIONS
On December 7, 1999, Integrity Software acquired Jyris Limited, a software
services group based in the United Kingdom and incorporated in the Republic of
Ireland. In order to make the acquisition, Integrity Software issued 6,365,064
shares of common stock, and exchanged them for all of the outstanding shares of
Jyris Limited stock. Peter D. Nagle, one of our directors, was chief executive
officer and a stockholder of Jyris Limited. The stockholders of Jyris Limited
that exchanged shares included Peter D. Nagle, who received one share of our
common stock, and Mary J. Higgins, Peter D. Nagle's sister, who received 160,000
shares of our common stock. In addition, Bushell Investments, Inc., a company
established by a trust set up by Mary J. Higgins of which Peter D. Nagle may be
deemed to be a beneficial owner, exchanged shares of Jyris Limited for 2,796,386
shares of our common stock in the transaction.
As part of the Jyris acquisition, Peter D. Nagle replaced his brother, Paul
B. Nagle, as Chief Executive Officer of Integrity Software, and Paul B. Nagle
became Chief Operations Officer of Integrity Software.
On January 1, 1999, prior to its acquisition by Integrity, Jyris Limited
issued 1,536,000 shares of Jyris Limited to Kielduff Investments Limited to
acquire all outstanding shares in Ibis Systems, Ltd. Peter D. Nagle, director of
Jyris Limited at the time of the transaction, was director of Ibis Systems.
In addition, on November 30, 1999, also prior to its acquisition by
Integrity, Jyris Limited acquired Multisoft SA, organized in South Africa. Mark
B. Nagle, a brother of Peter D. Nagle, the then director of Jyris Limited and
the current Chief Executive Officer of Integrity, and Paul B. Nagle, the current
Chief Operations Officer of Integrity, was and remains the managing director of
Multisoft. Mark Nagle was not a shareholder of Multisoft, but he held, and
continues to hold, 15,320 shares of our common stock.
In December 1999, Paul B. Nagle, one of our directors, granted a short-term
loan with an interest rate of 9.5% for a total of $1,284,640 to Integrity, for
the purpose of making acquisitions. The loan was repaid in full in February 2000
when we entered into a revolving credit facility with Barclays Bank. In 1999,
Paul B. Nagle made two additional short-term loans to us in the aggregate amount
of $1.0 million, both of which were repaid by us in 1999. The interest rate on
these loans was 9.5%.
In July 1998, we granted stock options, for a total of 2,511,800 shares of
common stock, to the then current owners of Integrity, at an exercise price of
$2.50 per share. These stock options were granted to, among others: Kenneth F.
Butler, a director of Integrity; Paul C. Carroll, Chief Financial Officer of
Integrity, and Caldwell Limited, a company beneficially owned by Patrick G.
Nagle and Paul B. Nagle. Paul B. Nagle is Chief Operations Officer of Integrity.
Patrick G. Nagle is the brother of Paul and Peter Nagle. All of these options
have been exercised. At the time the options were exercised, the grantees paid
an amount equal to the par value of the shares, and the remainder of the
consideration must be paid to us by December 31, 2000.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
The following statements summarize several provisions of our certificate of
incorporation and by-laws and Delaware law. These summaries do not purport to be
complete and are qualified in their entirety by reference to the certificate of
incorporation and by-laws which have been filed as exhibits to this registration
statement, of which this prospectus forms a part, and to the provisions of
applicable law.
GENERAL
As of the date of this prospectus, we are authorized to issue 40,000,000
shares of common stock, par value $.0025 per share.
COMMON STOCK
As of March 22, 2000, there were 13,957,808 shares of our common stock
outstanding. Upon completion of this offering, we will have 16,957,808 shares
(17,197,808 shares if the underwriters' over-allotment option is exercised in
full) of common stock issued and outstanding.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
We estimate that following this offering we will have 23,042,192 (or
22,802,192 if the underwriters' over-allotment option is exercised in full)
shares of authorized but unissued stock. Delaware law does not require
stockholder approval for the issuance of authorized shares. However, the listing
requirements of the Nasdaq National Market, which apply so long as the common
stock remains included in that inter-dealer quotation system, require prior
stockholder approval of specific issuances, including issuances of shares
bearing voting power equal to or exceeding 20% of the pre-issuance outstanding
voting power or pre-issuance outstanding number of shares of common stock. These
additional shares could be used for a variety of corporate purposes, including
future public offerings to raise additional capital or to facilitate corporate
acquisitions. We currently do not have any plans to issue additional shares of
common stock other than in connection with employee stock option plans. One of
the effects of the existence of issued and unreserved common stock may be to
enable the Board to issue shares to persons who may agree or be inclined to vote
in concert with current management on issues put to consideration of
stockholders, which issuance could render more difficult or discourage an
attempt to obtain control of us by means of a merger, tender offer, proxy
contest or otherwise, and protect the continuity of our management and possibly
deprive the stockholders of the opportunity to sell their shares of common stock
at prices higher than prevailing market prices.
VOTING
The holders of our common stock are entitled to one vote for each share on
all matters to be voted on by stockholders. Our certificate of incorporation
does not provide for cumulative voting in connection with the election of
directors, and accordingly, holders of more than 50% of the shares voting will
be able to elect all of the directors.
DIVIDENDS
Holders of shares of common stock are entitled to share ratably in
dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion, from available funds. Upon any voluntary or
involuntary liquidation, dissolution, or winding up of our affairs, the holders
of shares of our common stock are entitled to share ratably in all assets
remaining after payment in full of creditors. All of the outstanding shares of
common stock are, and the shares offered by us will be, fully paid and non-
assessable.
PREEMPTIVE RIGHTS
Our common stock does not have preemptive rights.
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<PAGE> 52
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law could make the
acquisition of Integrity Software and the removal of its officers and directors
difficult. The statute is expected to discourage specific types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of Integrity Software to negotiate with it first. We believe
that the benefits of increased protection of our potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure Integrity Software outweigh the disadvantages of discouraging
proposals, because, among other things, negotiation of proposals could result in
an improvement in their terms.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this statute 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 that the person became
an interested stockholder unless (with some exceptions) the business combination
the transaction in which the person became an interested stockholder is approved
in a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change of control of us
without further action by our stockholders.
REGISTRATION RIGHTS
In December 1999, we entered into a registration rights agreement with
Kielduff Investments Limited. Kielduff is the holder of 1,536,000 shares of our
common stock (approximately 11% of the outstanding shares), which it acquired in
exchange for its shares in Jyris Limited. At any time after August 2000,
Kielduff has the right to demand that we file a registration statement under the
Securities Act with respect to its shares, and we are required to use our best
efforts to effect up to a maximum of three of these registrations. Kielduff is
also entitled to demand that we register their shares under the Securities Act
on Form S-3 or any similar short form registration statement then available to
us, provided the aggregate offering price of the shares registered exceeds
$500,000. We are not required to effect more than two demand registrations on
Form S-3 in any calendar year. In addition, if, after August 2000, we propose to
register any of our securities under the Securities Act, Kielduff is entitled to
notice of the registration and is entitled to include its shares in the
registration. These registration rights are subject to various conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares that may be included in the offering. In addition, Kielduff
will be restricted from selling its shares until 180 days after the date of this
prospectus. We are generally required to bear all of the expenses of these
registrations, except underwriting discounts and selling commissions.
Registration of any of Kielduff's shares will result in these shares becoming
freely tradable without restriction under the Securities Act immediately upon
the effectiveness of such registration.
We have not entered into registration rights agreements with any other
stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the shares is Interwest Transfer.
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<PAGE> 53
SHARES ELIGIBLE FOR FUTURE RESALE
Upon completion of the offering, we will have 16,957,808 shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options and based upon the number of
shares outstanding as of March 22, 2000. Of these shares, the 3,000,000 shares
sold in this offering and 275,480 shares issued prior to this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless such shares are purchased or held by our "affiliates," as that term
is defined in Rule 144 under the Securities Act. The remaining 13,682,328 shares
held by existing stockholders, and any shares purchased by affiliates in this
offering, will be "restricted securities" as that term is defined in Rule 144
under the Securities Act. Our affiliates will hold 8,574,883 of the restricted
shares. Restricted shares may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rule 144, 144(k) or 701
under the Securities Act, which are summarized below.
Following August 2000, the holders of 1,536,000 shares of common stock, or
their transferees, will be entitled to rights to require the registration of
such shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by our
affiliates, immediately upon the effectiveness of such registration.
Our officers, directors and stockholders holding approximately 10,797,617
shares of common stock will agree under written lock-up agreements not to,
without the prior written consent of Needham & Company, Inc., sell any shares of
common stock for 180 days after the date of this prospectus. See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, stockholders who have beneficially owned restricted
shares for at least one year will be entitled to sell in any three-month period
a number of shares that does not exceed the greater of one percent of the then
outstanding shares of our common stock or the average weekly trading volume of
our common stock in the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
SEC. Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about
Integrity. A person, or persons whose shares may be aggregated, who is not
deemed to have been one of our affiliates at any time during the 90 days
immediately preceding the sale and who has beneficially owned restricted shares
for at least two years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above.
Any of our employees, directors or consultants who purchased, or was
awarded shares or options to purchase shares pursuant to a written compensatory
plan or contract is entitled to rely on the resale provisions of Rule 701 under
the Securities Act, which permits stockholders to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after the date of this prospectus. In addition, holders
who are not affiliates may sell Rule 701 shares without complying with the
public information, volume and notice provisions of Rule 144.
49
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 2000, the underwriters named below, for whom Needham &
Company, Inc. and A.G. Edwards & Sons, Inc. are acting as representatives, have
severally agreed to purchase, and we and the selling stockholders have severally
agreed to sell to them, an aggregate of shares of common stock. The
number of common shares that each underwriter has agreed to purchase is set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
----------------
<S> <C>
Needham & Company, Inc.................................
A.G. Edwards & Sons, Inc...............................
----------
Total............................................. 3,000,000
==========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares and subject to prior sale. The underwriting agreement provides that the
obligations of the underwriters to purchase shares are subject to the approval
of some legal matters by counsel and to some other conditions. If any of the
shares are purchased by the underwriters pursuant to the underwriting agreement,
all of the shares, other than the shares covered by the over-allotment option
described below, must be purchased.
The underwriters propose to offer the shares directly to the public at the
public offering price set forth on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per share. The
underwriters may allow, and any dealers may reallow, a concession not in excess
of $ per share to other dealers. After the offering of the shares, the
offering price and other selling terms may be changed from time to time by the
underwriters.
We and the selling stockholders have granted to the underwriters an option
to purchase up to 450,000 additional shares of common stock on the same terms
and conditions solely to cover over-allotments. We have agreed to sell up to
240,000 shares, and the selling stockholders have agreed to sell up to 210,000
shares. The option may be exercised during the 30-day period after the date of
this prospectus. If the underwriters' option is exercised in full, the total
price to the public would be $ , the total underwriting discounts and
commissions would be $ , the total proceeds to us would be $
, before deducting $ in expenses and the total proceeds to
the selling stockholders, before expenses, would be $ .
We and the selling stockholders have agreed to indemnify the underwriters
against specified liabilities, including liabilities under the Securities Act,
and to contribute to payments that the underwriters may be required to make in
connection with liabilities.
We, our officers, directors and certain stockholders (including all of the
selling stockholders) holding an aggregate of 10,797,617 shares of common stock
have agreed not to, without the prior written consent of Needham & Company,
Inc., for a period of 180 days after the date of this prospectus:
- offer, pledge, announce the intention to sell, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of common
stock or any securities of Integrity Software which are substantially
similar to the shares including but not limited to any securities that
are convertible into or exercisable or exchangeable for, or that
represent the right to receive shares or any substantially similar
securities
- enter into any swap, option, future, forward or other agreement that
transfers, in whole or in part, any of the economic consequences of
ownership of common stock or any securities substantially similar to the
shares.
We may, however, issue shares of common stock upon the exercise of stock
options that are currently outstanding and may grant additional options under
our stock option plans, provided that, without the prior
50
<PAGE> 55
written consent of Needham & Company, Inc., additional options shall not be
exercisable during a period of 180 days after the date of this prospectus.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares. Specifically, the underwriters may overallot the offering, creating a
syndicate short position. In addition, the underwriters may bid for and purchase
shares of common stock in the open market to cover syndicate short positions or
to stabilize the price of the shares. Finally, the underwriting syndicate may
reclaim selling concessions allowed for distributing the shares in the offering,
if the syndicate repurchases previously distributed shares in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the shares of common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
Prior to this offering, there has been only a limited public market for our
common stock. A limited number of shares of our common stock trades over the
counter and is quoted in the Pink Sheets. Due to the small number of our shares
that trade publicly and the limited trading information available with respect
to those shares, we and the underwriters believe that the pricing information
reported in the Pink Sheets does not necessarily represent an accurate market
valuation of our common stock. Accordingly, the public offering price for the
shares of common stock offered in this offering will be determined by
negotiation among us, the selling stockholders and the underwriters. In addition
to the pricing information reported in the Pink Sheets, the other factors to be
considered in determining the public offering price are our revenues and
earnings, market valuations of other companies engaged in activities similar to
ours, estimates of our business potential and prospects, the present state of
our business operations, our management, the general condition of the securities
markets at the time of the offering and other factors deemed relevant. The
estimated public offering price range set forth in the cover of this preliminary
prospectus is subject to change as a result of market conditions and other
factors. We cannot assure you that an active trading market will develop for our
common stock or that our common stock will trade in the public market at or
above the public offering price.
51
<PAGE> 56
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a Form S-1 registration statement with the Commission. This
prospectus, which is a part of the registration statement, does not contain all
of the information included in the registration statement. You should refer to
our registration statement and its exhibits if you would like to find out more
about us and about the common stock. If a contract or document has been filed as
an exhibit to the registration statement, we refer you to the copy of the
contract or other document that has been filed. Each statement in this
prospectus relating to a contract or document filed as an exhibit is qualified
in all respects by the filed exhibit.
Upon completion of this offering, we will be subject to the periodic
reporting and other information-supplying requirements of the Securities
Exchange Act of 1934. In accordance with those requirements, we will file
reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and other information with the Commission. You may
inspect copies of the registration statement, its accompanying exhibits, and any
other document that we file with the Commission, without charge. You also may
copy or obtain any of these documents at prescribed rates at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may obtain information on the operation of the Commission Public Reference
Room by calling the Commission at 1-800-SEC-0330. Our filings with the
Commission, including this prospectus, are or will be available to the public at
the Commission's web site at www.sec.gov.
We will furnish our stockholders with annual reports. These reports will
include a review of operations and annual audited combined financial statements
prepared in conformity with U.S. GAAP. We also will furnish our stockholders
with unaudited financial information prepared in conformity with U.S. GAAP for
each quarter of each fiscal year as soon as practicable following the end of
each quarter.
LEGAL MATTERS
The validity of the shares of our common stock under Delaware law will be
passed upon for us by Clifford Chance Rogers & Wells LLP. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Heller Ehrman White & McAuliffe LLP.
EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by BDO International, independent
accountants, and BDO Simpson Xavier; Haslam Tunstall; Karia Owen & Company;
Moore Stephens; Hayes & Co.; Levy Gee; Wilkins Kennedy and Scrutton Bland, each
independent auditors, to the extent and for the periods set forth in their
reports appearing elsewhere herein and in the registration statement, and are
included in reliance upon such reports given upon the authority of said firms as
experts in auditing and accounting.
ENFORCEMENT OF CIVIL LIABILITIES
Most of our directors and executives and all of the experts named in this
prospectus reside in the United Kingdom or other countries other than the United
States. All or a substantial portion of our assets and the assets of these
persons are located outside the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon these persons or to enforce, in U.S. courts or outside the United States,
judgements obtained against these persons in jurisdictions outside the United
States. In addition, it may be difficult for investors to enforce, in original
actions brought in courts in jurisdictions located outside the United States,
liabilities predicated upon the civil liability provisions of the U.S.
securities laws.
52
<PAGE> 57
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTEGRITY SOFTWARE, INC.
Report of Independent Accountants......................... F-4
Consolidated Balance Sheets as at December 31, 1999 and
1998................................................... F-5
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997....................... F-6
Consolidated Statements of comprehensive (loss)/income for
the years ended December 31, 1999, 1998 and 1997....... F-6
Consolidated Statements of changes in Stockholders' Equity
(for the years ended) December 31, 1999, 1998 and
1997................................................... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-9
Notes to the Consolidated Financial Statements............ F-10
Unaudited Pro Forma Condensed Consolidated Financial
Information for the year ended December 31, 1999....... F-28
Unaudited Pro Forma Condensed Consolidated Statements of
Operations year ended December 31, 1999................ F-29
Footnote to the Unaudited Pro Forma Condensed
Consolidated Statement of Operations.................. F-30
COMPUTER FOUNDATIONS LTD.
Unaudited Interim Financial Statements September 30, 1999
and 1998
Directors, Officers and Advisers.......................... F-31
Unaudited Profit and Loss Account......................... F-32
Unaudited Balance Sheet................................... F-33
Unaudited Statement of Cash Flows......................... F-34
Notes to the Unaudited Financial Statements............... F-35
Audited Financial Statements December 31, 1998 and 1997
Directors, Officers and Advisers.......................... F-41
Statement of Directors Responsibilities................... F-42
Auditors Report........................................... F-43
Profit and Loss Accounts.................................. F-45
Balance Sheets............................................ F-46
Statement of Cash Flows................................... F-47
Notes to the Financial Statement.......................... F-48
</TABLE>
<TABLE>
<S> <C>
PREMIER COMPUTER GROUP, LTD.
Audited Consolidated Financial Statements for the year
ended December 31, 1998 and 1997
Directors and other information........................... F-54
Statement of Directors' Responsibilities.................. F-55
Auditors' Report.......................................... F-56
Consolidated Profit & Loss Accounts....................... F-57
Consolidated Balance Sheets............................... F-58
Consolidated Cash Flow Statements......................... F-59
Notes Forming Part of these Financial Statements.......... F-60
</TABLE>
F-1
<PAGE> 58
<TABLE>
<S> <C>
INFORMATION SUPPORT LTD.
Audited Financial Statements for the years ended March 31, 1998 and 1997
Auditors' Report................................................................................... F-69
Profit & Loss Accounts............................................................................. F-70
Balance Sheets..................................................................................... F-71
Statement of Cash Flows............................................................................ F-72
Notes to the Financial Statements.................................................................. F-73
SARACEN COMPUTER SYSTEMS LTD.
Audited Financial Statements for the years ended October 31, 1997 and 1996
Directors and Officers............................................................................. F-80
Directors' Responsibilities........................................................................ F-81
Auditors' Report................................................................................... F-82
Profit & Loss Account.............................................................................. F-83
Balance Sheets..................................................................................... F-84
Cash Flow Statements............................................................................... F-85
Notes to the Financial Statements.................................................................. F-87
Unaudited Interim Financial Statement for the periods ended April 30, 1997 & 1998
Profit & Loss Accounts............................................................................. F-94
Balance Sheets..................................................................................... F-95
Cash Flow Statements............................................................................... F-96
Notes to the Financial Statements.................................................................. F-98
SOFTLY AWARE LTD.
Audited Financial Statements for the years ended February 28, 1999 and 1998
Company Information................................................................................ F-105
Auditors' Report................................................................................... F-106
Profit & Loss Accounts............................................................................. F-107
Balance Sheets..................................................................................... F-108
Cash Flow Statements............................................................................... F-109
Notes to the Financial Statements.................................................................. F-110
TOTAL ASSET LTD.
Audited Financial Statements for the year ended October 31, 1999
Company Information................................................................................ F-115
Statement of Directors' Responsibilities........................................................... F-116
Auditors' Report................................................................................... F-117
Profit & Loss account.............................................................................. F-118
Balance Sheet...................................................................................... F-119
Notes to the Financial Statements.................................................................. F-120
TOTAL ASSET LTD.
Audited Financial Statements for the year ended October 31, 1998
Company Information................................................................................ F-124
Directors' Report.................................................................................. F-125
Auditors' Report................................................................................... F-127
Profit & Loss Accounts............................................................................. F-128
Balance Sheets..................................................................................... F-129
Notes to the Financial Statements.................................................................. F-130
</TABLE>
F-2
<PAGE> 59
<TABLE>
<S> <C>
IBIS SYSTEMS LTD.
Audited Financial Statements for the period ended March
31, 1998
Company Information....................................... F-136
Directors' Report......................................... F-137
Auditors' Report.......................................... F-139
Profit & Loss Account..................................... F-140
Balance Sheet............................................. F-141
Cash Flow Statement....................................... F-142
Notes to the Financial Statements......................... F-143
</TABLE>
F-3
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
INTEGRITY SOFTWARE, INC.
DUBLIN, IRELAND
We have audited the accompanying consolidated balance sheets of Integrity
Software, Inc. (formerly known as "Integrity Holdings, Limited") and
Subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations, comprehensive (loss)/income, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with US 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
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Integrity
Software, Inc. and Subsidiaries at December 31, 1999 and 1998 and the results of
its operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles
in the United States of America.
DATE MARCH 23, 2000 BDO INTERNATIONAL
DUBLIN
IRELAND
F-4
<PAGE> 61
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN US DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,965,313 $ 1,070,492
Accounts receivable, net.................................. 11,324,955 4,218,228
Inventories -- finished goods............................. 532,241 207,016
Prepaid and other......................................... 2,115,846 1,657,408
Deferred tax asset........................................ 107,644 53,900
Income tax refund receivable.............................. -- 37,215
----------- -----------
Total current assets................................... 16,045,999 7,244,259
Property and equipment, net................................. 3,727,595 1,292,513
Deferred tax asset.......................................... 5,065 --
Goodwill, net............................................... 18,523,922 6,821,430
----------- -----------
Total assets........................................... $38,302,581 $15,358,202
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $13,067,547 $ 3,482,847
Accrued expenses.......................................... 4,434,267 1,374,875
loans payable............................................. 1,284,640 --
Deferred revenue.......................................... 5,695,145 1,835,861
Current installments on capital leasing................... 386,520 191,025
Bank overdraft............................................ 572,941 140,410
Income taxes.............................................. 1,190,611 301,635
Other taxes............................................... 1,808,558 711,221
Note payable.............................................. 161,590 968,620
----------- -----------
Total current liabilities.............................. 28,601,819 9,006,494
Long term capital lease................................... 450,441 206,058
----------- -----------
Total liabilities...................................... 29,052,260 9,212,552
----------- -----------
Shareholders' equity:
Common stock
1999: 40,000,000 shares authorized, at $0.0025 par value;
issued and outstanding 11,784,473 shares............... 29,462 --
1998: 40,000,000 shares authorized at $0.0025 par value;
issued and outstanding 9,760,860....................... -- 24,403
Capital in excess of par value............................ 12,078,282 5,984,635
(Accumulated deficit)/retained earnings................... (1,658,755) 727,811
Accumulated other comprehensive (loss)/income............. (954,509) 19,626
Receivable from exercise of stock options and share
issues................................................. (244,159) (610,825)
----------- -----------
Total stockholders' equity............................. 9,250,321 6,145,650
----------- -----------
Total liabilities and stockholders' equity............. $38,302,581 $15,358,202
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 62
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN US DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Revenues
License and systems sales........................ $ 23,282,519 $ 1,275,162 --
Support and Maintenance.......................... 10,983,252 1,105,750 --
Services......................................... 14,892,328 8,022,219 $ 2,002,210
------------ ----------- -----------
Total revenues................................ 49,158,099 10,403,131 2,002,210
Cost of revenues
License and systems sales........................ (11,505,183) (640,653) --
Support and Maintenance.......................... (2,211,789) (218,040) --
Services......................................... (11,415,014) (6,371,826) (1,557,510)
------------ ----------- -----------
Total cost of revenues........................ (25,131,986) (7,230,519) (1,557,510)
Gross profit.................................. 24,026,113 3,172,612 444,700
Operating expenses
Sales and marketing.............................. (5,748,225) (59,957) (19,501)
General administration........................... (16,954,606) (2,277,152) (351,348)
Research and development......................... (2,477,340) (19,986) (6,500)
Amortization of goodwill......................... (1,856,544) (58,551) --
Profit/(loss) on sale of fixed assets............ 239,917 -- (3,436)
------------ ----------- -----------
Total operating expenses........................... (26,796,798) (2,415,646) (380,785)
------------ ----------- -----------
Operating (loss)/income............................ (2,770,685) 756,966 63,915
Other income/(expense)
Profit on sale of product lines.................. 728,597 -- --
Management fee income............................ 16,178 74,589 --
Interest income.................................. 20,814 9,616 4,260
Interest expense and debt costs.................. (113,162) (12,000) (583)
------------ ----------- -----------
652,427 72,205 3,677
------------ ----------- -----------
(Loss)/income before provision for income taxes.... (2,118,258) 829,171 67,592
Provision for income taxes......................... (268,308) (189,012) (22,121)
------------ ----------- -----------
Net (loss)/income applicable to common
stockholders..................................... $ (2,386,566) $ 640,159 $ 45,471
============ =========== ===========
Net (loss)/income per common share
Basic............................................ $ (0.21) $ 0.32 $ 0.19
============ =========== ===========
Diluted.......................................... $ (0.21) $ 0.20 $ 0.19
============ =========== ===========
Weighted average number of shares outstanding:
Basic............................................ 11,510,375 2,027,377 237,780
Diluted.......................................... 11,510,375 3,141,748 237,780
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
(IN US DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
----------- -------- -------
<S> <C> <C> <C>
Net (loss)/income......................................... $(2,386,566) $640,159 $45,471
Foreign currency translation adjustment................. (974,135) 9,748 4,935
----------- -------- -------
Comprehensive (loss)/income............................... $(3,360,701) $649,907 $50,406
=========== ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 63
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED (ACCUMULATED
COMMON STOCK CAPITAL OTHER DEFICIT)/
------------------------- IN EXCESS COMPREHENSIVE RETAINED CONTRA
SHARES AMOUNT OF PAR VALUE INCOME/(LOSS) EARNINGS EQUITY
---------- ------------ ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance as at January 1,
1997..................... 20,000 $ 76,560 -- $ 4,943 $ 75,367 --
Net income for the year ended
December 31, 1997............ -- -- -- -- 45,471 --
Currency translation
adjustment................... -- -- -- 4,935 -- --
Dividend declared.............. -- -- -- -- (16,386) --
Recapitalization to Integrity
Software, Inc. .............. 217,780 (75,966) $ 75,966 -- -- --
---------- -------- ----------- --------- ----------- ---------
Stockholders' Equity as at
December 31, 1997........ 237,780 594 75,966 9,878 104,452 --
---------- -------- ----------- --------- ----------- ---------
Issue of common stock for cash
at $0.0025 on July 13,
1998......................... 4,000,000 10,000 90,000 -- -- --
Issue of common stock for
acquisition of The Wyse Group
plc shares on August 4, 1998
at a fair value of $2.50..... 73,350 183 183,192 -- -- --
Issue of common stock for cash
at $5.00 on October 23,
1998......................... 180,000 450 899,550 -- -- --
Issue of common stock for
acquisition
of Saracen Computer Systems
Limited on October 1, 1998 at
a fair value of $17.50....... 4,225 11 73,923 -- -- --
Issue of common stock for
acquisition of Premier
Computer Group Limited shares
on December 23, 1998 at a
fair value of $17.50......... 59,069 148 1,033,556 -- -- --
Stock options granted for
acquisition
of Premier Computer Group
Limited on December 23, 1998
at a fair value of $15.00.... -- -- 1,326,000 -- -- --
Issue of common stock for cash
at $7.00 on December 7,
1998......................... 243,520 609 1,704,031 -- -- --
Net income for the year ended
December 31, 1998............ -- -- -- -- 640,159 --
Issue of common stock in
connection with the exercise
of options................... 196,666 492 491,174 -- -- $(491,666)
Issue of common stock on
November 25, 1998 for cash at
$0.025 in Jyris Limited...... 1 -- -- -- -- --
Issue of common stock on
December 11, 1998 for cash at
$0.025 in Jyris Limited...... 4,293,138 10,733 96,598 -- -- (107,331)
Issue of common stock on
December 11, 1998 for cash at
$0.025 in Jyris Limited...... 473,111 1,183 10,645 -- -- (11,828)
Currency translation
adjustment................... -- -- -- 9,748 -- --
Dividend declared.............. -- -- -- -- (16,800) --
---------- -------- ----------- --------- ----------- ---------
Stockholders' Equity as at
December 31, 1998........ 9,760,860 $ 24,403 $ 5,984,635 $ 19,626 $ 727,811 $(610,825)
========== ======== =========== ========= =========== =========
</TABLE>
F-7
<PAGE> 64
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED (ACCUMULATED
COMMON STOCK CAPITAL OTHER DEFICIT)/
------------------------- IN EXCESS COMPREHENSIVE RETAINED CONTRA
SHARES AMOUNT OF PAR VALUE INCOME/(LOSS) EARNINGS EQUITY
---------- ------------ ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Forgiveness of debt by
stockholder of Jyris
Limited...................... -- -- $ 3,294,459 -- -- --
Issue of common stock of Jyris
Limited for acquisition of
Ibis Systems Limited for
$0.025 on January 1, 1999.... 1,536,000 $ 3,840 34,560 -- -- --
Issue of common stock for
acquisition of Datasoft
Limited on July 16, 1999 at a
fair value of $14.375........ 60,000 150 862,350 -- -- --
Issue of common Stock for
acquisition of NetResults on
July 16, 1999 at a fair value
of $14.375................... 50,000 125 718,625 -- -- --
Issue of common stock of Jyris
Limited for cash at $6.25 at
August 18, 1999.............. 60,991 152 381,046 -- -- --
Issue of common stock of Jyris
Limited for cash at $9.00 at
August 18, 1999.............. 1,822 5 16,394 -- -- --
Proceeds from issuance of
common stock in connection
with stock options exercised
in 1998...................... -- -- -- -- -- $ 491,666
Issue of common stock in
connection with the exercise
of stock options............. 314,800 787 786,213 -- -- (125,000)
Net (loss) for the year ended
December 31, 1999............ -- -- -- -- $(2,386,566) --
Currency translation
adjustment................... -- -- -- $(974,135) -- --
---------- -------- ----------- --------- ----------- ---------
Stockholders' Equity as at
December 31, 1999........ 11,784,473 $ 29,462 $12,078,282 $(954,509) $(1,658,755) $(244,159)
========== ======== =========== ========= =========== =========
</TABLE>
F-8
<PAGE> 65
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN US DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss)/income................................... $(2,386,566) $ 640,159 $ 45,471
----------- ----------- -----------
Adjustments to reconcile net cash provided by (used
for) operating activities:
Amortization of goodwill....................... 1,856,544 58,551 --
(Profit)/loss on sale of fixed assets.......... (239,917) -- 3,436
(Profit) on sale of product lines.............. (728,597) -- --
Depreciation of property and equipment......... 881,146 61,516 31,745
Changes in current assets and liabilities net of
effects from acquisition of businesses:
(Increase)/decrease in accounts receivable,
net.......................................... (3,246,832) 228,368 47,909
(Increase) in prepaid expenses and other
receivables.................................. (517,247) (1,589,493) (201,330)
Increase/(decrease) in accounts payable,
accrued expenses and other current
liabilities.................................. 7,408,031 591,422 (1,279,687)
(Increase) in inventories...................... (63,400) -- --
(Increase) in tax refund due................... -- -- (4,113)
----------- ----------- -----------
Total adjustments.............................. 5,349,728 (649,636) (1,402,040)
----------- ----------- -----------
Net cash provided/(used) by operating activities.... 2,963,162 (9,477) (1,356,569)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditure............................ (1,411,460) (73,789) (12,832)
Proceeds from sale of product lines............ 1,325,038 -- --
Proceeds from sale of tangible fixed assets.... 43,544 34,149 --
Acquisitions of businesses net of cash
acquired..................................... (3,647,014) (1,798,354) --
Acquisition of intangibles..................... (508,286) -- --
----------- ----------- -----------
Net cash used by investing activities............... (4,198,178) (1,837,994) (12,832)
----------- ----------- -----------
Cash flows from financing activities:
Increase in directors' loan.................... 1,284,640 -- --
Proceeds from common stock issued.............. 1,551,258 2,704,640 --
Capital lease repayments....................... (128,504) -- --
Dividends paid................................. -- (16,800) (16,386)
Repayment of note payable...................... (968,620) -- --
Increase in bank overdraft..................... 432,531 126,199 13,056
----------- ----------- -----------
Net cash provided/(used) by financing activities.... 2,171,305 2,814,039 (3,330)
Foreign exchange effect on cash and cash
equivalents.................................. (41,468) 12,451 (45,898)
----------- ----------- -----------
Net increase/(decrease) in cash and cash
equivalents....................................... 894,821 979,019 (1,418,629)
Net cash and cash equivalents at beginning of
year.............................................. 1,070,492 91,473 1,510,102
----------- ----------- -----------
Net cash and cash equivalents at end of year........ $ 1,965,313 $ 1,070,492 $ 91,473
=========== =========== ===========
</TABLE>
F-9
<PAGE> 66
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The Company was incorporated under the laws of the State of Nevada on July
27, 1977 with authorized common stock of 40,000 shares at $0.625 par value with
the name of Culver City Studios Records, Inc.
On December 9, 1997 the name of the Company was changed to Birds Eye, Inc.
and the authorized common stock was increased to 40,000,000 shares with a par
value of $0.0025.
On July 13, 1998 the founders of Integrity acquired the issued and
outstanding stock of 237,780 shares of Birds Eye Inc., an inactive public shell
with no assets. On the same day, 4,000,000 common shares were issued to the
founders for $0.0025 per share and 2,511,800 share options with an exercise
price of $2.50 per share were also granted to the founders.
The Company had been engaged in the activity of exploration of mining
properties until 1980. The Company was inactive until 1998 when it acquired The
Wyse Group plc.
On July 13, 1998 the company changed its name to Integrity Holdings,
Limited. On March 13, 2000 Integrity Holdings, Limited changed its name to
Integrity Software, Inc. and reincorporated from Nevada to Delaware. Integrity
Software, Inc. is engaged in the acquisition of software development and
computer services companies.
Beginning in August 1998, Integrity Software, Inc. made the following
acquisitions of businesses. These are:
<TABLE>
<CAPTION>
ACQUISITION DATE NAME AND LOCATION BUSINESS DESCRIPTION
- ----------------- -------------------------- ----------------------------------------------
<S> <C> <C>
December 7, 1999 Jyris Ltd., United Kingdom Software for distribution, general accounting,
technical services and web technology
December 2, 1999 Computer Foundations Ltd., Software for the contracting industry
United Kingdom
July 16, 1999 Net Results, Ireland Software application/web technology
July 16, 1999 Datasoft Ltd., Ireland Software for the distribution industry
December 23, 1998 Premier Computer Group Software applications for credit unions,
Ltd., Ireland construction and print and packaging
October 12, 1998 Information Support Ltd., Computer maintenance and networking services
United Kingdom
October 1, 1998 Saracen Computer Systems Software applications for industrial cleaning
Ltd., United Kingdom management
August 4, 1998 The Wyse Group plc, Computer and information technology finance
United Kingdom agency
</TABLE>
On December 7, Integrity Software, Inc. merged with Jyris Ltd. The table
below sets forth all of the acquisitions that Jyris completed in 1999, prior to
the time the merger with Integrity Software, Inc.
<TABLE>
<CAPTION>
ACQUISITION DATE NAME AND LOCATION BUSINESS DESCRIPTION
- ----------------- -------------------------- ---------------------------------------------
<S> <C> <C>
December 6, 1999 Softly Aware Ltd., Software applications for the distribution
United Kingdom industry
December 3, 1999 Outsource Ltd., Ireland Software applications for the distribution
industry
</TABLE>
F-10
<PAGE> 67
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION -- CONTINUED
<TABLE>
<CAPTION>
ACQUISITION DATE NAME AND LOCATION BUSINESS DESCRIPTION
- ----------------- -------------------------- ---------------------------------------------
<S> <C> <C>
December 2, 1999 Webbed Feet, Web technology; B2B software design
United Kingdom
December 1, 1999 Total Asset Ltd., Computer and information technology finance
United Kingdom agency
November 30, 1999 Multisoft SA, South Africa GATS software applications
August 1, 1999 Todds of Lincoln Ltd., Software for the distribution industry
United Kingdom
January 1, 1999 Ibis Systems Ltd., GATS software applications; support and
United Kingdom maintenance services
</TABLE>
2. DISPOSALS
Premier Computer Group Limited disposed of two of its wholly owned
subsidiaries during 1999 -- Techsonix Limited was disposed of on April 19, 1999
and Premier Veterinary Limited was disposed of on November 22, 1999.
Both of these businesses operated in the general accounting and technical
services segment in the United Kingdom.
The assets disposed of in each instance are as follows:
<TABLE>
<CAPTION>
PREMIER
TECHSONIX VETERINARY
LIMITED LIMITED
--------- ----------
<S> <C> <C>
Accounts receivable, net............................ $ 89,480 $ 487,162
Cash and cash equivalents........................... 3,358 130,410
Inventories......................................... 1,184 --
Tangible fixed assets............................... 58,152 411,655
Accounts payable.................................... (289,630) (803,616)
Intellectual property rights........................ -- 508,286
--------- ----------
(137,456) 733,897
Proceeds from disposal.............................. $ 193,908 $1,131,130
========= ==========
Profit on disposal.................................. $ 331,364 $ 397,233
========= ==========
</TABLE>
These businesses contributed to the group during the year ended December
31, 1999 as follows:
<TABLE>
<S> <C>
Revenues.................................................... $ 805,781
Net (Loss).................................................. $(237,066)
=========
</TABLE>
3. BASIS OF PRESENTATION
On December 7, 1999 Integrity Software, Inc. merged with Jyris Limited
through the exchange of 6,365,064 of its common shares for the 6,365,064 common
shares of Jyris Limited. Jyris Limited is engaged in the acquisition of software
development and computer services companies. This transaction has been accounted
for using the pooling of interests method. As a result, the financial position,
results of operations and cash flows are presented as if the combining companies
had been consolidated for 1999 and
F-11
<PAGE> 68
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. BASIS OF PRESENTATION -- CONTINUED
1998. Additionally the statements of stockholders' equity reflect the accounts
of Integrity Software, Inc. as if the additional common stock had been issued
for all periods since Jyris's incorporation in November 1998.
Jyris Limited was incorporated on November 25, 1998 as Hastvale
Construction Limited. It changed its name to Jyris Limited on August 6, 1999.
These financial statements have been drawn up on the basis that The Wyse
Group plc is the predecessor entity of Integrity Software, Inc. (the only entity
with operations at the time of its acquisition on August 4, 1998).
The Consolidated Balance Sheet as at December 31, 1999 and Consolidated
Statements of Operations for the year ended December 31, 1999 include the
results of Integrity Software, Inc. and all of its wholly owned subsidiaries
together with the consolidated results of Jyris Limited for the same period.
All intercompany transactions have been eliminated. These financial
statements have been prepared in conformity with US Generally Accepted
Accounting Principles.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the company
and all of its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make 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 revenues and expenses during the
reported period. Actual results could differ from those estimates.
Revenue Recognition
Licence and systems sales
Revenues arising from software installation contracts represent invoiced
sales over the period of the contract. Revenue recognition is determined by
contracts or at stages by customers. All installation contracts contain clearly
defined benchmarks against which revenues are recognized.
Revenues arising from the sale of hardware products represent invoiced
sales during the period, net of valued added taxation and are recognized as the
products are shipped.
Deferred income arises when either a portion of a contract period, for
which an invoice has been issued in advance, falls after the year end or where
work invoiced has not been completed.
Support and Maintenance
Revenues arising from annual maintenance and support contracts are
recognized over the period of the contract.
Deferred income arises when either a portion of a contract period, for
which an invoice has been issued in advance, falls after the year end or where
work invoiced has not been completed.
F-12
<PAGE> 69
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Services
The group's subsidiaries which are engaged in computer finance services
derive their revenues acting as an agent for the delivery of lease and rental
plans with respect of hardware and software products. These revenues are
entirely commission-based. These revenues are recognized on an earned basis when
the lessee of equipment signs a contract with the finance provider.
Inventories
Inventories are stated at the lower of cost or market value using the
first-in first-out (FIFO) convention.
Tangible Fixed Assets
Depreciation is provided straight-line at the following annual rates in
order to write-off each asset over its estimated useful life:
<TABLE>
<S> <C>
Helicopter................................................. Over life of lease
Fixtures and Fittings...................................... 5 Years
Office Equipment........................................... 5 Years
Motor Vehicles............................................. 4 Years
Computer Equipment......................................... 3 Years
Improvements to premises................................... 5 Years
</TABLE>
The land and buildings are not depreciated as it is considered that the
residual value and life of the property is such that the depreciation would be
immaterial.
Intangibles
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased. These costs are being amortized over
ten years on a straight-line basis.
Long-Lived Assets
Long-lived assets, such as goodwill and property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flow resulting from the use of these assets. When any
such impairment exists, the related assets will be written down to fair value.
No impairment losses have been incurred through December 31, 1999.
Research and Development
Research and Development costs are expensed as incurred.
F-13
<PAGE> 70
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Income Taxes
The company accounts for its income tax on the liability method, under
which deferred taxes are determined based on the difference between the
financial statements and tax bases of assets and liabilities, using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce the deferred tax
assets to the amount expected to be realised.
Foreign Currency Translation
The functional currencies of foreign subsidiaries are their local
currencies, and accordingly, the assets and liabilities of these foreign
subsidiaries are translated at the rate of exchange at the balance sheet date.
Revenues and expenses have been translated at the average rate of exchange in
effect during the periods. To date, Integrity has not entered into hedging
transactions to protect against changes in foreign currency exchange rates.
Other comprehensive income represents the translation difference arising when
the assets and liabilities, of the company's foreign subsidiaries are translated
from their functional currencies to US dollars.
Stock-Based Compensation
The company applies Accounting Principles Board Opinion ("APB") 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for all stock option plans. Under APB 25, compensation cost is
recognized for stock options granted at prices below market price of the
underlying common stock on date of grant.
SFAS No. 123, "Accounting for Stock Based Compensation." requires Integrity
to provide pro forma information regarding net income as if compensation cost
for the stock options plans had been determined in accordance with the fair
value method prescribed in SFAS No. 123.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distribution to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The only item of comprehensive (loss)/income is foreign
currency translation adjustments.
Post Retirement Benefits
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Post Retirement Benefits," which standardizes the
disclosure requirements for Pensions and other post retirement benefits. The
adoption of SFAS 132 did not have a material impact on Integrity's disclosures.
Cost of Start-Up Activities
Statement of Position (SOP) 98-5, "Reporting on the Cost of Start-Up
Activities," requires that the costs of start-up activities, including
organisation costs, be expensed as incurred. This statement was
F-14
<PAGE> 71
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
effective for financial statements issued for fiscal years beginning after
December 15, 1998 and had no effect on the financial statements.
Development of Computer Software
In March 1998, The American Institute of Certified Public Accountants
(AICPA) issued SOP 98-1, "Accounting for the Cost of Computer Software Developed
or Obtained for Internal Use". SOP 98-1 is effective for financial statements
for years beginning after December 15, 1998. This statement provides guidance
over accounting for computer software developed or obtained for internal use
including the requirements to capitalize specified cost and amortization of such
costs. The adoption of this standard does not have a material effect on these
financial statements.
Statement of Cash Flows
For the purpose of the statements of cash flows, Integrity considers all
highly liquid debt instruments and other short-term investments purchased with
an initial maturity of three months or less to be cash equivalents.
Impact of recently Issued Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair market value. Gains or losses resulting
from changes in the values of those derivatives are accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. SFAS No.
133 is effective for fiscal years beginning after June 15, 2000. Management
believes that the adoption of SFAS No. 133 will have no material effect on its
financial statements.
5. ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Trade receivables.......................................... $12,132,456 $4,681,014
Less: allowance for doubtful accounts...................... (807,501) (462,786)
----------- ----------
Trade receivables, net..................................... $11,324,955 $4,218,228
----------- ----------
</TABLE>
Allowance for doubtful accounts consists of the following:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ALLOWANCES
BEGINNING OF ARISING ON COSTS AND WRITTEN BALANCE AT END
PERIOD ACQUISITION EXPENSES BACK OF PERIOD
------------ ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997.......... -- -- -- -- --
-------- ------- -------- --------- --------
Year ended December 31, 1998.......... -- $95,752 $367,034 -- $462,786
-------- ------- -------- --------- --------
Year ended December 31, 1999.......... $462,786 -- $707,141 $(362,426) $807,501
-------- ------- -------- --------- --------
</TABLE>
F-15
<PAGE> 72
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Helicopter................................................. $ 316,304 --
Land and buildings......................................... 943,888 $ 306,127
Improvements to premises................................... -- 13,750
Fixtures and fittings...................................... 1,432,627 --
Office equipment........................................... 869,477 497,865
Motor vehicles............................................. 1,381,460 392,447
Computer equipment......................................... 1,818,391 227,324
----------- ----------
6,762,147 1,437,513
Less: accumulated depreciation and amortization............ (3,034,552) (145,000)
----------- ----------
Property and equipment, net................................ $ 3,727,595 $1,292,513
=========== ==========
</TABLE>
7. BUSINESS ACQUISITIONS
Acquisitions Accounted for Using the Pooling of Interest Method
On December 7, 1999 Integrity completed the acquisition of Jyris Limited
which provided for the exchange of all the outstanding stock of Jyris Limited
for shares of Integrity Software, Inc. stock and is accounted for as a pooling
of interests.
Jyris Limited is involved in the acquisition of software development and
computer services companies. 6,365,064 shares of common stock in Integrity
Software, Inc. were issued for the acquisition subsequent to December 31, 1999
but have been reflected in the financial statements as if issued on the
acquisition date.
Revenues, net (loss)/income and net (loss)/income per common share of the
combining entities for the three years ending December 31, are as follows:
Revenues
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Integrity Software, Inc...................... $34,792,035 $10,403,131 $2,002,210
Jyris Limited................................ 14,366,064 -- --
----------- ----------- ----------
Integrity Software, Inc. as restated......... $49,158,099 $10,403,131 $2,002,210
=========== =========== ==========
</TABLE>
Net (loss)/income applicable to common stockholders
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
----------- -------- -------
<S> <C> <C> <C>
Integrity Software, Inc........................... $ (704,591) $640,159 $45,471
Jyris Limited..................................... (1,681,975) -- --
----------- -------- -------
Integrity Software, Inc. as restated.............. $(2,386,566) $640,159 $45,471
=========== ======== =======
</TABLE>
F-16
<PAGE> 73
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. BUSINESS ACQUISITIONS -- CONTINUED
Net (loss)/income per common share
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
BASIC
Integrity Software, Inc.................................... $(0.06) $0.32 $0.19
====== ===== =====
Jyris Limited.............................................. $(0.15) -- --
====== ===== =====
Integrity Software, Inc. as restated....................... $(0.21) $0.32 $0.19
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
DILUTED
Integrity Software, Inc.................................... $(0.06) $0.20 $0.19
====== ===== =====
Jyris Limited.............................................. $(0.15) -- --
====== ===== =====
Integrity Software, Inc. as restated....................... $(0.21) $0.20 $0.19
====== ===== =====
</TABLE>
Merger costs incurred with pooling of interest's transactions
In connection with this pooling of interests the company has expensed
merger related costs of $35,200 in respect of legal and advisory fees.
Acquisitions accounted for using the purchase method
On August 4, 1998, the company acquired The Wyse Group plc ("Wyse") a
leading computer leasing company with four offices in the UK. Prior to this,
Integrity Software Inc. had been engaged in the activity of exploration of
mining properties until 1980. The business combination has been accounted for
under the purchase method. The acquisition cost of $183,375 was based on the
fair value of common stock and was funded by way of the issue of shares in
Integrity Software, Inc.
On October 12, 1998, the company acquired all of the issued and outstanding
shares of Information Support Limited ("ISL") a major computer support services
business based in Wokingham, England with regional support centres throughout
the UK. ISL is engaged in providing maintenance services to the computer
industry and also engages in reselling of computer systems. The business
combination has been accounted for under the purchase method. The results of the
company from the date of acquisition have been included in the consolidated
statement of operations. The cost of acquisition was $561,000 and was funded by
way of a cash payment. The goodwill arising on the transaction of $1,918,717 is
being amortized over 10 years. The goodwill arose as a result of the net
liabilities at the date of acquisition.
On October 1, 1998, the company acquired all of the issued and outstanding
shares of Saracen Computer Systems Limited ("Saracen") a leading computer
software company based in Uttoxeter in the UK. The business combination has been
accounted for under the purchase method. The results of the company from the
date of acquisition have been included in the consolidated statement of
operations. The cost of acquisition $1,558,938 was funded by way of a cash
payment of $1,485,000 and issue of 4,225 shares in Integrity Software, Inc. at
fair value $17.50 based on the quoted market price of the company's shares on
the date of acquisition. The goodwill arising on the transaction of $1,229,645
is being amortized over 10 years.
F-17
<PAGE> 74
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. BUSINESS ACQUISITIONS -- CONTINUED
On December 23, 1998, the company acquired the Dublin based Premier
Computer Group Limited ("Premier"). Premier provides software services to the
Credit Union, printing and packaging, cleaning and construction management
sectors. The business combination has been accounted for using the purchase
method. The results of the company from the date of acquisition have been
included in the consolidated statement of operations. The cost of acquisition
was $3,587,324 and was funded by way of a cash payment of $259,000, the issue of
59,069 shares in Integrity Software Inc. at fair value $17.50 based on the
quoted market price of the company's shares on the date of acquisition, a note
payable of $968,620 and the granting of 88,400 stock options at an exercise
price of $2.50 each. These options have been included as additional paid in
capital based on a fair value of $17.50 at December 23, 1998. The goodwill of
$3,731,614 arising on the transaction is being amortized over 10 years.
On March 26, 1999, Premier Computer Group Limited acquired the Intellectual
Property Rights of Axon Veterinary ("Axon"). Axon supplies software and related
information technology services to veterinary practices in the UK and Ireland.
It had over 800 customers. This business was carried on by Premier through its
wholly owned subsidiary, Premier Veterinary Services Limited. The intellectual
property rights of Axon were purchased for $508,286 and was funded by way of a
cash payment. This amount has been capitalized as "Intellectual Property Rights"
(as part of goodwill, net) in the financial statements.
On April 19, 1999, Integrity disposed of Techsonix Ltd as it was considered
non-core to the Companys' business.
On November 22, 1999 Integrity disposed of Premier Veterinary Services
Limited. This disposal included the disposal of the Intellectual Property Rights
purchased from Axon. Consequently the carrying value of these Intellectual
Property Rights have been fully written off at December 31, 1999.
On July 16, 1999, Premier acquired all of the issued and outstanding shares
of Datasoft Limited ("Datasoft"), which supplies accounting and distribution
software to 110 customers throughout Ireland and the UK. This business
combination has been accounted for under the purchase method. The results of the
company from the date of acquisition have been included in the consolidated
statement of operations. The cost of the acquisition, $1,149,518, was funded by
way of a cash payment of $287,018 and the issue of 60,000 shares in Integrity
Software, Inc. at a fair value of $14.375 based on the quoted market price of
the company's shares on the date of acquisition. The goodwill arising on the
transaction of $1,191,384 is being amortized over 10 years.
On July 16, 1999, Premier acquired the business of NetResults which
comprised Intellectual Property Rights and other business assets including
principally working capital assets. This transaction was completed by acquiring
all of the issued and outstanding shares of Westcorr Limited, which held the
Intellectual Property Rights and by entering into a business asset purchase
agreement with Flickswitch Limited, which traded as NetResults. NetResults is an
Internet Connectivity product. This business combination has been accounted for
under the purchase method. The results of NetResults from July 16, 1999 have
been included in the consolidated statement of operations. The cost of this
acquisition was $973,672 and was funded by way of a cash payment of $254,922 and
the issue of 50,000 shares in Integrity Software, Inc. at a fair value of
$14.375 based on the quoted market price of the company's shares on the date of
acquisition. The goodwill of $1,086,889 arising on the transactions is being
amortized over 10 years.
On December 2, 1999, Integrity acquired all of the issued and outstanding
shares of Computer Foundations Limited ("Computer Foundations") which trades as
computer programmers and consultants and also sells computer hardware with
particular emphasis on the construction industry market sector. This business
combination has been accounted for under the purchase method. The results of
Computer
F-18
<PAGE> 75
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. BUSINESS ACQUISITIONS -- CONTINUED
Foundations have been included in the consolidated statement of operations from
December 2, 1999. The cost of acquisition of $2,368,894 was funded by way of a
cash payment. The goodwill arising on the transaction of $1,864,466 is being
amortized over 10 years.
On January 1, 1999, Jyris Limited acquired all of the issued and
outstanding shares of Ibis Systems Limited ("Ibis") which is a provider of open
systems software in the UK. This business combination has been accounted for
under the purchase method. The results of Ibis have been included in the
consolidated statement of operations from January 1, 1999. The cost of
acquisition of $38,400 was funded by way of the issue of 1,536,000 shares in
Jyris Limited at a fair value of $0.025. The goodwill arising on the transaction
of $6,570,293 is being amortized over 10 years.
Jyris Limited entered into an acquisition agreement with Kielduff
Investments Limited to acquire all of the issued and outstanding common stock of
Ibis Systems Limited on January 1, 1999. Previously Kielduff Investments Limited
had acquired Ibis from SVI Holdings Limited. In connection with the acquisition,
Jyris assumed a loan of $3,294,459 to SVI Holdings Limited. In March of 1999,
SVI Holdings Limited (a subsidiary of Softline, a shareholder of Jyris) forgave
the loan.
On August 1, 1999, Jyris Limited acquired the business assets of Todds of
Lincoln Limited ("Todds") which trade in the provision of software services.
This business combination has been accounted for under the purchase method. The
results of Todds have been included in the consolidated statement of operations
from August 1, 1999. The cost of the acquisition was represented by the
assumption of liabilities at August 1, 1999. The goodwill arising on the
transaction of $151,895 is being amortized over 10 years.
On November 30, 1999, Jyris Limited acquired the business assets of
Multisoft South Africa ("Multisoft SA") which develops in accounting, payroll
and retail software solutions. This business combination has been accounted for
under the purchase method. The results of Multisoft SA have been included in the
consolidated statement of operations from November 30, 1999. The cost of
acquisition was represented by the assumption of net liabilities at November 30,
1999. The goodwill arising on the transaction of $379,739 is being amortized
over 10 years.
On December 1, 1999, Jyris Limited acquired all of the issued and
outstanding shares of Total Asset Limited ("Total Asset") which provides
tailor-made finance and leasing Plans. This business combination has been
accounted for under the purchase method. The results of Total Asset have been
included in the consolidated statement of operations from December 1, 1999. The
cost of acquisition of $807,950 was funded by way of a cash payment of $646,360
and a note payable of $161,590 to be paid on June 1, 2000. The goodwill arising
on the transaction of $1,200,614 is being amortized over 10 years. This goodwill
arose following fair value adjustments made by Integrity Software, Inc to reduce
the net assets to net liabilities. These adjustments principally included
provisions for deferred income and bad debts.
On December 2, 1999, Jyris Limited acquired all of the issued and
outstanding shares of Webbed Feet Limited ("Webbed Feet") which develops
e-commerce software solutions. This business combination has been accounted for
under the purchase method. The results of Webbed Feet have been included in the
consolidated statement of operations from December 2, 1999. The cost of the
acquisition was represented by the assumption of net liabilities at December 2,
1999. The goodwill arising on the transaction of $121,193 is being amortized
over 10 years.
On December 3, 1999, Jyris Limited acquired all of the issued and
outstanding shares of Outsource Limited ("Outsource") which is involved in the
provision of software services. This business combination has been accounted for
under the purchase method. The results of Outsource have been included in the
F-19
<PAGE> 76
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. BUSINESS ACQUISITIONS -- CONTINUED
consolidated statement of operations from December 3, 1999. The cost of
acquisition of $382,968 was funded by way of a cash payment of $382,968. There
was no goodwill resulting from this transaction.
On December 6, 1999, Jyris Limited acquired all of the issued and
outstanding shares of Softly Aware Limited ("Softly Aware"). This business
combination has been accounted for under the purchase method. The results of
Softly Aware have been included in the consolidated statement of operations from
December 6, 1999. The cost of acquisition of $581,724 was funded by way of a
cash payment. The goodwill arising on the transaction of $959,845 is being
amortized over 10 years. There is also deferred consideration based on the
achievement of predetermined profit levels by Softly Aware management. The
maximum amount of deferred consideration payable is $2,423,850. This will be
funded by way of a cash payment of $807,950 and the issue of shares equal to
$1,615,900 at fair value in Integrity Software, Inc.
The summarised unaudited pro forma results of operations set forth below
for the years ended December 31, 1999 and 1998 assume that acquisitions in 1999
and 1998 occurred as of January 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.......................................... $59,694,657 $46,430,891
Net (loss) after provision for income taxes....... (2,881,374) (1,941,081)
Net (loss) per common share:
Basic........................................... $ (0.25) $ (0.52)
=========== ===========
Diluted......................................... $ (0.25) $ (0.52)
=========== ===========
Weighted Average Shares
Basic........................................... 11,569,745 3,734,461
Diluted......................................... 11,569,745 3,734,461
</TABLE>
The pro forma results of operations are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed at the
beginning of each of the years presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
8. GOODWILL, NET
Goodwill, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- AMORTIZATION
1999 1998 PERIOD
----------- ---------- ------------
(YEARS)
<S> <C> <C> <C>
Excess of cost of investments over
fair value of net assets acquired,
net of accumulated amortization of
$1,915,095 and $58,551
respectively........................ $18,523,922 $6,821,430 10
----------- ----------
$18,523,922 $6,821,430
=========== ==========
</TABLE>
F-20
<PAGE> 77
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------------ ----------- ----
<S> <C> <C> <C>
Interest................................. $ 77,299 $ 12,000 $583
Income taxes............................. $ 291,488 $ 45,511 --
</TABLE>
In conjunction with business acquisitions, Integrity Software, Inc. used
cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
Fair value of assets acquired, excluding cash.... $ 23,038,066 $10,845,953
Less: liabilities assumed and created upon
acquisition.................................... (17,771,402) (6,430,586)
Stock and options issued......................... (1,619,650) (2,617,013)
------------ -----------
Net cash paid.................................... $ 3,647,014 $ 1,798,354
============ ===========
</TABLE>
SUPPLEMENTAL NON CASH INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
Capital leases................................... $ 568,382 $ 187,452
------------ -----------
</TABLE>
10. COMMITMENTS
Integrity Software, Inc. leases its facilities and certain equipment under
operating leases and certain equipment under capital leases. Future minimum
commitments under both non-cancellable operating leases and capital leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES LEASES
- ------ -------- ---------
<S> <C> <C>
2000................................................... $439,112 $318,342
2001................................................... 314,697 275,471
2002................................................... 143,612 108,104
2003................................................... 46,557 --
2004................................................... 1,440 --
Thereafter............................................. -- --
-------- --------
Gross minimum commitments 945,418 701,917
========
Less: amount representing interest..................... (108,457) --
--------
Present value of minimum lease payments................ 836,961
Less: current portion.................................. (386,520)
--------
Long term portion...................................... $450,441
========
</TABLE>
The annual rent expense for the Integrity Software, Inc. and its
subsidiaries was
<TABLE>
<S> <C>
1997........................................................ $ 35,531
1998........................................................ 193,467
1999........................................................ 551,266
</TABLE>
F-21
<PAGE> 78
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK OPTIONS
Stock options were granted to the founders of the company on July 13, 1998.
Stock options were granted to various key employees on September 23, 1999. The
total number of shares reserved for issues under these agreements amounted to
2,511,800 and 40,000. Each option granted to the Founders expires on July 13,
2002 with those granted to employees expiring on September 23, 2003. These
options were fully vested at the grant date with certain restrictions on the
sale of the shares once the options were exercised.
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, requires companies to either (a) record an expense
related to its stock option plans based on the estimated fair value of stock
options as of the date of the grant or (b) disclose pro forma net income and
earnings per share data as if Integrity had recorded an expense.
The fair value of each option as of the date of grant was computed using
the Black-Scholes pricing model and the following weighted average assumptions:
expected volatility 59%, no dividend, risk free interest rate of 5% and expected
life of four years. The compensation expense, as computed was nominal and there
was no effect on net (loss) / income per share.
Stock options were granted in connection with the acquisition of Premier
Computer Group Limited on December 23, 1998. These options amounted to 88,400
shares. These options were fully vested at the grant date and expire on December
23, 2002. The fair value of the Integrity Software, Inc.'s stock on the date of
grant was $17.50. All of these options were exercised during 1999.
Various stock options were granted to employees on September 23, 1999.
These options amounted to 40,000 shares. These options were fully vested at the
grant date and expire on September 23, 2003. The market value of Integrity
Software, Inc.'s stock on the date of grant was $9.6875.
A summary of the Integrity Software, Inc.'s stock option activity and
related information as of December 31, 1999, 1998 and 1997, and changes during
the years ending on those dates is as follows:
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
$2.50 $10.00
Options at Exercise Price --------- ---------
<S> <C> <C>
Outstanding at beginning of year...................... 2,403,534 --
Granted during the year............................... -- 40,000
Exercised during the year............................. (314,800) --
--------- ---------
Outstanding at end of year............................ 2,088,734 40,000
--------- ---------
Exercisable at end of year............................ 2,088,734 40,000
--------- ---------
Options at $2.50 are exercisable up to July 13, 2002 and options at $10 are
exercisable up to September 23, 2003.
</TABLE>
F-22
<PAGE> 79
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK OPTIONS -- CONTINUED
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
$2.50
Options at Exercise Price ---------
<S> <C>
Outstanding at beginning of year............................ --
Granted during the year..................................... 2.600,200
Exercised during the year................................... (196,666)
---------
Outstanding at end of year.................................. 2,403,534
---------
Exercisable at end of year.................................. 2,403,534
---------
</TABLE>
12. INCOME TAX
(Loss)/income before provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
----------- -------- -------
<S> <C> <C> <C>
Ireland........................................... $ 1,641,954 -- --
United Kingdom.................................... (3,760,212) $829,171 $67,592
----------- -------- -------
Total............................................. $(2,118,258) $829,171 $67,592
=========== ======== =======
</TABLE>
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
Current tax provision:
Ireland.......................................... $ 379,288 -- --
United Kingdom................................... (52,171) $242,912 $22,121
--------- -------- -------
Total current.................................... 327,117 242,912 22,121
--------- -------- -------
Deferred tax (benefit)/provision
Ireland.......................................... 92,183 (53,900) --
United Kingdom................................... (150,992) -- --
--------- -------- -------
Deferred......................................... (58,809) (53,900) --
--------- -------- -------
Total provision for income tax................... $ 268,308 $189,012 $22,121
========= ======== =======
</TABLE>
F-23
<PAGE> 80
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAX -- CONTINUED
The provision for income taxes, differs from the amount computed by
applying the statutory income tax rate to income before taxes. The sources and
tax effects of the differences are as follows:
IRELAND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Income tax computed at the Irish statutory income
tax rate of 10% for manufacturing operations...... $147,429 -- --
Income tax computed at the Irish statutory income
tax rate of 25% for non-manufactured operations... 11,665 -- --
Income tax on disposal of assets.................... 220,194 -- --
-------- -------- -------
Total provision for income taxes.................... $379,288 -- --
======== ======== =======
</TABLE>
UNITED KINGDOM
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Income tax computed at the statutory income tax rate
of 31% in United Kingdom.......................... -- $257,043 $20,953
(Over) provision in previous year................... $(52,171) (14,131) --
Other items including non-deductible expenses in the
United Kingdom.................................... -- -- 1,168
-------- -------- -------
Total provision for income taxes.................... $(52,171) $242,912 $22,121
======== ======== =======
</TABLE>
The tax effects of temporary differences that give rise to the Integrity's
deferred tax asset are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Current deferred tax assets
Property and equipment................................ $ 5,065 -- --
Tax loss carryforwards................................ 107,644 $53,900 --
-------- ------- ------
Net deferred tax assets............................... $112,709 $53,900 --
-------- ------- ------
</TABLE>
At December 31, 1999 the company has net operating losses to carryforward
for UK Income tax purposes of approximately $358,000. The company has concluded
that, based on expected future results, it is more likely than not that the
deferred tax assets will be realised.
13. EARNINGS PER SHARE
During 1997, the FASB issued SFAS No. 128, "Earning per Share", which
provides for the calculation of "basic" and "diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in periods in
which they have a dilutive effect, the effect of common shares issuable upon
exercise of common stock options.
F-24
<PAGE> 81
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation for basic and diluted
earnings per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- --------
<S> <C> <C> <C>
NUMERATOR
Numerator for basic EPS and diluted EPS -- net
(loss)/income................................ $(2,386,566) $ 640,159 $ 45,471
=========== ========== ========
DENOMINATOR
Denominator for basic EPS -- weighted average
shares....................................... 11,510,375 2,027,377 237,780
Effect of dilutive securities -- stock
option....................................... -- 1,114,371 --
----------- ---------- --------
Denominator for diluted EPS.................... 11,510,375 3,141,748 237,780
----------- ---------- --------
Basic EPS...................................... $ (0.21) $ 0.32 $ 0.19
=========== ========== ========
Diluted EPS.................................... $ (0.21) $ 0.20 $ 0.19
=========== ========== ========
</TABLE>
Options of 2,128,374 have not been included in 1999 as they are
antidilutive.
On March 13, 2000 the company declared a 2-for-5 reverse stock split. The
EPS amount has been retroactively restated.
14. RELATED PARTY TRANSACTIONS
At December 31, 1999 the group owed $1,284,640 to Mr. Paul B. Nagle, a
stockholder and officer of Integrity Software, Inc. These funds were provided by
Mr. Nagle to the group in order to fund acquisitions during the year. Interest
is charged on this loan at a rate of 9.5% per annum. The interest charge for the
year ended December 31, 1999 amounted to $28,782.
15. NOTES PAYABLE
Integrity Software Inc. acquired Premier Computer Group Limited on December
23, 1998. The purchase was part funded by means of a note payable of $968,620.
The note was paid during 1999.
On December 1, 1998 Jyris Limited acquired Total Asset Limited. The
purchase was part funded by means of a note payable of $161,590. This is to be
paid on June 1, 2000.
16. SUBSEQUENT EVENTS
On March 13, 2000 Integrity Software, Inc. declared and effected a 2-for-5
reverse stock split. The share information for all periods presented has been
restated to retroactively reflect the split.
17. BUSINESS SEGMENT AND GEOGRAPHIC DATA
Integrity Software, Inc. has four business segments is engaged in four
segments business-to-business (B2B), software (Software), general accounting and
technical services (GATS), and Computer finance services (CFS). Operations are
conducted in several geographic regions: Ireland, United Kingdom and South
Africa. The following is a summary of Integritys' operation by business segment
and geographic segment, as of and for the years ended December 31, 1999, 1998
and 1997.
F-25
<PAGE> 82
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BUSINESS SEGMENT AND GEOGRAPHIC DATA -- CONTINUED
INFORMATION BY BUSINESS SEGMENT -- DECEMBER 31, 1999
<TABLE>
<CAPTION>
B2B SOFTWARE GATS CFS TOTAL
--------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 868,094 $ 603,294 $ 34,800,111 $ 12,886,600 $ 49,158,099
Cost of sales........... (151,011) (171,827) (14,638,203) (10,170,945) (25,131,986)
Depreciation............ (736) (2,518) (792,814) (85,078) (881,146)
Amortization of
goodwill.............. (12,119) (516,816) (1,207,548) (120,061) (1,856,544)
Operating
income/(loss)......... 7,000 (503,000) (3,074,685) 800,000 (2,770,685)
Interest expense........ -- -- (113,162) -- (113,162)
Interest income......... -- 20,814 20,814
Capital expenditure..... (103,110) (19,890) (1,732,833) (124,009) (1,979,842)
Total assets............ 175,326 614,042 36,445,813 1,067,400 38,302,581
</TABLE>
INFORMATION BY BUSINESS SEGMENT -- DECEMBER 31, 1998
<TABLE>
<CAPTION>
B2B SOFTWARE GATS CFS TOTAL
-------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues..................... -- -- $ 2,611,786 $ 7,791,345 $10,403,131
Cost of sales................ -- -- (1,095,686) (6,134,833) (7,230,519)
Depreciation................. -- -- (33,754) (27,762) (61,516)
Amortization of goodwill..... -- -- (58,551) -- (58,551)
Operating income............. -- -- 50,133 706,833 756,966
Interest expense............. -- -- (12,000) -- (12,000)
Interest income.............. -- -- -- 9,616 9,616
Capital expenditure.......... -- -- (35,900) (145,341) (181,241)
Total assets................. -- -- 13,137,292 2,220,910 15,358,202
</TABLE>
INFORMATION BY BUSINESS SEGMENT -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
B2B SOFTWARE GATS CFS TOTAL
------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues............................ -- -- -- $2,002,210 $2,002,210
Cost of sales....................... -- -- 1,557,510 1,557,510
Depreciation........................ -- -- (31,745) (31,745)
Amortization of goodwill............ -- -- -- -- --
Operating income.................... -- -- -- 63,915 63,915
Interest expense.................... -- -- -- (583) (583)
Interest income..................... -- -- -- 4,260 4,260
Capital expenditure................. -- -- -- (12,832) (12,832)
Total assets........................ -- -- -- 634,252 $ 634,252
</TABLE>
F-26
<PAGE> 83
INTEGRITY SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BUSINESS SEGMENT AND GEOGRAPHIC DATA -- CONTINUED
INFORMATION BY GEOGRAPHIC REGION BASED ON LOCATION OF SUBSIDIARIES:
<TABLE>
<CAPTION>
IRELAND UNITED KINGDOM SOUTH AFRICA TOTAL
---------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999:
Revenues............................... $9,983,827 $38,938,073 $236,199 $49,158,099
Income (loss) before taxes............. 1,641,954 (3,760,212) -- (2,118,258)
Long-lived assets, net................. 9,641,723 12,181,580 428,214 $22,251,517
-----------
DECEMBER 31, 1998:
Revenues............................... -- 10,403,131 -- $10,403,131
Income before taxes.................... -- 829,171 -- 829,171
Long-lived assets, net................. -- 8,113,943 -- $ 8,113,943
-----------
DECEMBER 31, 1997:
Revenues............................... -- 2,002,210 -- $ 2,002,210
Income before taxes.................... -- 67,592 -- 67,592
Long-lived assets, net................. -- 39,136 -- $ 39,136
-----------
</TABLE>
F-27
<PAGE> 84
INTEGRITY SOFTWARE INC., AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial information
reflects financial information with respect to (a) three companies acquired by
Integrity in 1999 for an aggregate purchase price of $4,492,000 and (b) six
companies acquired by Jyris in 1999 for an aggregate purchase price of
$1,812,000. The acquisitions completed in 1999 included above have been
accounted for under the purchase method of accounting. The merger with Jyris has
been accounted for under the pooling of interests method of accounting and its
operations have been reflected in the restated financial statements of Integrity
for the year ended December 31, 1999.
The financial statements of the companies acquired (all of which are
foreign companies) and included in the Pro Forma Condensed Consolidated
Financial Information were translated at the following exchange rates: British
pound Sterling were translated to US dollars at the rate of 1.6178; Irish pounds
were translated to US dollars at the rate of 1.3546; and the South African rand
were translated to US dollars at the rate of 0.1634.
The financial statements of Computer Foundations, Total Asset and Softly
Aware included in the Pro Forma Condensed Consolidated Financial Information are
on the basis of US GAAP. The financial statements of the remaining acquired
companies (none of which are considered significant) are on the basis of either
generally accepted accounting principles in the United Kingdom or in the
Republic of Ireland, and differences between such basis and US GAAP are not
considered to be material.
The Pro Forma Condensed Consolidated Statement of Operations was prepared
as if the above acquisitions occurred as of January 1, 1999. They combine the
results of Integrity for the year ended December 31, 1999 with the results of
the acquired companies for the periods from January 1, 1999 through the
acquisition dates. The Pro Forma Condensed Consolidated Financial Information
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Prospectus.
The Pro Forma Condensed Consolidated Statement of Operations does not
include any potential cost savings. Integrity believes that it may be able to
reduce salaries and related costs and office and general expenses as it
eliminates duplication of overhead. However, there can be no assurance that
Integrity will be successful in effecting any such cost savings.
The Pro Forma Condensed Consolidated Financial Information is unaudited and
is not necessarily indicative of the consolidated results which actually would
have occurred if the above transactions had been consummated at the beginning of
the period presented; nor does it purport to present the results of operations
for future periods.
F-28
<PAGE> 85
INTEGRITY SOFTWARE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN US DOLLARS)
<TABLE>
<CAPTION>
INTEGRITY COMPUTER TOTAL SOFTLY INTEGRITY JYRIS
CONSOLIDATED FOUNDATIONS ASSET AWARE OTHER OTHER ADJUSTMENT(1)
------------ ----------- ---------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
License and systems sales... $23,282,519 $2,654,236 -- $1,980,692 $ 436,493 $ 711,018 --
Maintenance and support..... 10,983,252 123,993 -- 221,455 8,977 494,097 --
Services.................... 14,892,328 241,498 2,621,602 276,000 8,399 758,098 --
----------- ---------- ---------- ---------- --------- ---------- ---------
49,158,099 3,019,727 2,621,602 2,478,147 453,869 1,963,213 --
----------- ---------- ---------- ---------- --------- ---------- ---------
Cost of Revenues
License and systems sales... 11,505,183 384,888 -- 477,799 150,800 185,264 --
Maintenance and support..... 2,211,789 164,385 -- -- -- -- --
Services.................... 11,415,014 194,384 1,317,000 -- -- -- --
----------- ---------- ---------- ---------- --------- ---------- ---------
25,131,986 743,657 1,317,000 477,799 150,800 185,264 --
----------- ---------- ---------- ---------- --------- ---------- ---------
Gross profit.................. 24,026,113 2,276,070 1,304,602 2,000,348 303,069 1,777,949 --
Costs and expenses
Sales and marketing......... 5,748,225 158,298 64,083 89,683 84,457 284,213 --
General administration...... 16,954,606 1,694,952 1,128,712 1,960,341 385,303 797,870 --
Research and development.... 2,477,340 244,642 187,114 265,114 52,195 160,541 --
Amortization of intangible
assets.................... 1,856,544 -- -- -- -- -- $ 509,871
(Profit)/loss on sale of
assets.................... (239,917) -- -- -- -- -- --
----------- ---------- ---------- ---------- --------- ---------- ---------
Total operating expenses...... 26,796,798 2,097,872 1,379,909 2,315,138 521,955 1,242,624 509,871
----------- ---------- ---------- ---------- --------- ---------- ---------
Operating (loss)/income....... (2,770,685) 178,178 (75,307) (314,790) (218,886) 535,325 (509,871)
Other income/(expense) --
Profit on sale of product
lines..................... 728,597 -- --
Management fee income....... 16,178 -- -- -- --
Interest income............. 20,814 24,508 -- 75,089 --
Interest expense and debt
costs..................... (113,162) (14,157) (8,357) (2,849) --
----------- ---------- ---------- ---------- --------- ---------- ---------
652,427 24,508 (14,157) (8,357) (2,849) 75,089 --
----------- ---------- ---------- ---------- --------- ---------- ---------
(Loss)/income before provision
for income taxes............ (2,118,258) 202,686 (89,464) (323,147) (221,735) 610,414 (509,871)
Provision for income taxes.... (268,308) (127,394) -- 883 -- (37,180) --
----------- ---------- ---------- ---------- --------- ---------- ---------
Net (loss)/income............. $(2,386,566) $ 75,292 $ (89,464) $ (322,264) $(221,735) $ 573,234 $(509,871)
=========== ========== ========== ========== ========= ========== =========
Earnings per share
Basic....................... $ (0.21)
===========
Diluted..................... $ (0.21)
===========
Weighted Average no. of shares
Basic....................... 11,510,375
Diluted..................... 11,510,375
<CAPTION>
TOTAL
-----------
<S> <C>
Revenue
License and systems sales... $29,064,958
Maintenance and support..... 11,831,774
Services.................... 18,797,925
-----------
59,694,657
-----------
Cost of Revenues
License and systems sales... 12,703,934
Maintenance and support..... 2,376,174
Services.................... 12,926,398
-----------
28,006,506
-----------
Gross profit.................. 31,688,151
Costs and expenses
Sales and marketing......... 6,428,959
General administration...... 22,921,784
Research and development.... 3,386,946
Amortization of intangible
assets.................... 2,366,415
(Profit)/loss on sale of
assets.................... (239,917)
-----------
Total operating expenses...... 34,864,187
-----------
Operating (loss)/income....... (3,176,036)
Other income/(expense)
Profit on sale of product
lines..................... 728,597
Management fee income....... 16,178
Interest income............. 120,411
Interest expense and debt
costs..................... (138,525)
-----------
726,661
-----------
(Loss)/income before provision
for income taxes............ (2,449,375)
Provision for income taxes.... (431,999)
-----------
Net (loss)/income............. $(2,881,374)
===========
Earnings per share
Basic....................... $ (0.25)
===========
Diluted..................... $ (0.25)
===========
Weighted Average no. of shares
Basic....................... 11,569,745
Diluted..................... 11,569,745
</TABLE>
- ------------------------
(1) For footnote please refer to the following page.
F-29
<PAGE> 86
FOOTNOTE TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
(1) To record amortization of goodwill arising from the acquisitions for
the portion of 1999 prior to acquisition. Such amortization expense is based on
a 10 year life and is computed as follows:
<TABLE>
<CAPTION>
ACQUISITION AMORTIZATION
COMPANY GOODWILL DATE MONTHS EXPENSE
- ------- ---------- ----------------- ------ --------------------
<S> <C> <C> <C> <C>
Datasoft $1,191,384 July 16, 1999 6.5 $ 56,260
Net Results 1,086,889 July 16, 1999 6.5 40,746
Computer Foundations 1,864,466 December 2, 1999 11 164,690
Multisoft 379,739 November 30, 1999 11 34,809
Todds of Lincoln 151,895 August 1, 1999 11 8,860
Webbed Feet 121,193 December 2, 1999 11 11,109
Softly Aware 959,845 December 6, 1999 11 83,386
Total Asset 1,200,614 December 1, 1999 11 110,011
Outsource 0 December 3, 1999 11 0
--------
$509,871
========
</TABLE>
F-30
<PAGE> 87
COMPUTER FOUNDATIONS LIMITED
DIRECTORS, OFFICERS AND ADVISERS
DIRECTORS T P K Milmo
P A Doe
S Goldsworthy
G King
G Spurgeon
SECRETARY C Milmo
REGISTERED OFFICE Foundation House
10 The Avenue
Colchester
CO3 5AL
AUDITORS Scrutton Bland
Sanderson House
Museum Street
Ipswich
IP1 1HE
BANKERS National Westminster Bank plc
13 Stratheden Parade
Old Dover Road
London
SE3 7SY
SOLICITORS Thompson Smith & Puxon
4/5 North Hill
Colchester
CO1 1EB
F-31
<PAGE> 88
COMPUTER FOUNDATIONS LIMITED
UNAUDITED PROFIT AND LOSS ACCOUNT 9 MONTHS ENDED 30 SEPTEMBER
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
NOTES 30 SEPT 99 30 SEPT 98
----- ---------- ----------
<S> <C> <C> <C>
TURNOVER.................................................... 1 1,529,227 1,280,166
Cost of sales............................................... (607,779) (504,159)
---------- ----------
GROSS PROFIT................................................ 921,448 776,007
Administrative expenses..................................... (710,116) (611,244)
---------- ----------
OPERATING PROFIT............................................ 2 211,332 164,763
Provision for diminution in value of property............... (51,626) --
Interest receivable and similar income...................... 3 12,438 23,431
Interest payable and similar charges........................ 4 -- --
---------- ----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 172,144 188,194
Tax on profit on ordinary activities........................ 5 (61,000) (44,037)
---------- ----------
PROFIT FOR THE FINANCIAL PERIOD............................. 111,144 144,157
Dividends................................................... 6 (100,750) --
---------- ----------
RETAINED PROFIT FOR THE FINANCIAL PERIOD.................... 11 L 10,394 L 144,157
========== ==========
</TABLE>
TOTAL RECOGNIZED GAINS AND LOSSES
The company has no recognized gains or losses other than the profit for the
above two financial periods.
CONTINUING OPERATIONS
None of the company's activities were acquired or discontinued during the
above two financial periods
F-32
<PAGE> 89
COMPUTER FOUNDATIONS LIMITED
UNAUDITED BALANCE SHEET AS AT 30 SEPTEMBER
<TABLE>
<CAPTION>
30 SEPTEMBER
NOTES 1999
----- ------------
L
<S> <C> <C>
FIXED ASSETS
Tangible assets............................................. 7 246,986
CURRENT ASSETS
Stocks...................................................... 9,130
Debtors..................................................... 8 150,415
Cash at bank and in hand.................................... 550,869
--------
710,414
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR.............. 9 (349,208)
--------
NET CURRENT ASSETS.......................................... 361,206
--------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... L608,192
========
CAPITAL AND RESERVES
Called up share capital..................................... 10 10,075
Profit and loss account..................................... 11 598,117
--------
SHAREHOLDERS' FUNDS -- EQUITY INTERESTS..................... 12 L608,192
</TABLE>
F-33
<PAGE> 90
COMPUTER FOUNDATIONS LIMITED
UNAUDITED STATEMENT OF CASH FLOWS 9 MONTHS ENDED 30 SEPTEMBER
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
30 SEPT 99 30 SEPT 98
---------- ----------
L L
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income.................................................. 111,144 144,157
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss/(profit) on disposal of tangible fixed assets.......... 275 (2,066)
Depreciation................................................ 68,012 37,616
Amount written off freehold property........................ 51,626 --
Decrease/(increase) in debtors.............................. 85,773 (21,362)
(Increase)/decrease in stocks............................... (5,421) (2,244)
Increase/(decrease) in creditors............................ (135,410) (69,639)
Increase/(decrease) in corporation taxes payable............ 34,706 31,443
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 210,705 117,905
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (12,500) (99,449)
Proceeds from sale of assets................................ 2,000 8,123
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.............................................. (100,750) (50,375)
-------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........ 99,455 (23,796)
Cash and cash equivalents at beginning of period............ 451,414 570,087
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. L550,869 L546,291
======== ========
SUPPLEMENTAL NON-CASH INFORMATION:
Taxes paid.................................................. L 25,039 L 9,434
======== ========
</TABLE>
F-34
<PAGE> 91
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
9 MONTHS ENDED 30 SEPTEMBER
1. ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the historical cost
convention, and in accordance with the applicable accounting standards.
Basis of preparation
These unaudited interim financial statements have been prepared by the
directors of Computer Foundations Limited in accordance with generally accepted
accounting principles in the UK.
These unaudited interim financial statements reflect all adjustments,
consisting of normal recurring adjustments, which in the opinion of management
are necessary for fair presentation of the information contained therein.
Results of operations for the unaudited interim periods may not be
indicative of annual results.
Tangible fixed assets
Depreciation is provided at the following annual rates in order to write
off each asset over its estimated useful life:
<TABLE>
<S> <C> <C>
Fixtures and fittings -- 15% on written down value
Plant and equipment -- 30% on written down value
Motor vehicles -- 25% on cost of vehicles or 25% on written
down value of vehicles purchased before
1.1.93
Freehold property -- 2% on cost
Portable buildings -- Straight line over 3 years
</TABLE>
Any permanent diminution in the value of properties is charged to the
profit and loss account.
Stocks
Stocks are valued at the lower of cost and net realisable value, after
making due allowance for obsolete and slow moving items.
Capitalised leases
Assets held under capitalized leases are capitalized in the balance sheet
with an equivalent liability included under creditors. An asset held under a
capitalized lease is depreciated over the shorter of the lease term and its
useful life. The interest element of the amount payable is charged to the profit
and loss account and the capital element reduces the liability in the balance
sheet.
Rentals applicable to operating leases where substantially all of the
benefits and risks of ownership remain with the lessor are charged against
profit as incurred.
Income from maintenance and support contracts
Income from hardware maintenance and training contracts is recognized in
the profit and loss account on an earned basis with receipts in advance taken to
accruals at the year end. Income from software
F-35
<PAGE> 92
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
support contracts of one year or less are taken as turnover at the date of
invoice, contracts of more than one year are accounted for on an earned basis.
Turnover
Turnover represents the amount receivable for goods sold during the period,
exclusive of VAT.
All turnover arises in the United Kingdom and in relation to the principal
activity of the company.
2. OPERATING PROFIT
The operating profit is stated after (crediting)/charging:
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
30 SEPT 99 30 SEPT 98
---------- ----------
L
<S> <C> <C>
Loss/(profit) on disposal of tangible fixed assets.......... 275 (2,066)
Depreciation of tangible fixed assets....................... 68,012 37,616
========== ==========
</TABLE>
3. INTEREST RECEIVABLE
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
30 SEPT 99 30 SEPT 98
---------- ----------
L L
<S> <C> <C>
Bank Interest receivable.................................... L12,438 L23,431
</TABLE>
4. INTEREST PAYABLE
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
30 SEPT 99 30 SEPT 98
---------- ----------
L L
<S> <C> <C>
Bank interest payable....................................... L -- L --
======= =======
</TABLE>
5. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
30 SEPT 99 30 SEPT 98
---------- ----------
L L
<S> <C> <C>
Based on the profit for the period
Corporation tax at 22.9% (1998: 23.4%)...................... L61,000 L44,037
======= =======
</TABLE>
6. DIVIDENDS
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
30 SEPT 99 30 SEPT 98
---------- ----------
L L
<S> <C> <C>
Interim dividend paid....................................... 100,750 --
Final dividend proposed..................................... -- --
-------- --------
L100,750 L --
======== ========
</TABLE>
F-36
<PAGE> 93
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
7. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD FIXTURES
LAND AND PORTABLE AND PLANT AND MOTOR
PROPERTY BUILDINGS FITTINGS EQUIPMENT VEHICLES TOTAL
-------- --------- -------- --------- -------- --------
L L L L L L
<S> <C> <C> <C> <C> <C> <C>
COST OF VALUATION
At 1 January 1999.................... 248,724 6,063 20,883 86,533 230,234 592,437
Additions............................ -- -- -- -- 12,500 12,500
Disposals............................ -- -- -- -- (15,308) (15,308)
Provision for diminution............. (51,626) -- -- -- -- (51,626)
-------- ------ ------- ------- -------- --------
At 30 September 1999................. 197,098 6,063 20,883 86,533 227,426 538,003
-------- ------ ------- ------- -------- --------
DEPRECIATION
At 1 January 1999.................... 43,368 6,063 13,384 58,090 115,133 236,038
On disposals......................... -- -- -- -- (13,033) (13,033)
Charge for the period................ 3,730 -- 844 6,400 57,038 68,012
-------- ------ ------- ------- -------- --------
At 30 September 1999................. 47,098 6,063 14,228 64,490 159,138 291,017
-------- ------ ------- ------- -------- --------
NET BOOK VALUES
At 30 September 1999................. L150,000 L -- L 6,655 L22,043 L 68,288 L246,986
======== ====== ======= ======= ======== ========
</TABLE>
8. DEBTORS
<TABLE>
<CAPTION>
30 SEPTEMBER
1999
------------
L
<S> <C>
Trade debtors............................................... 127,901
Other debtors............................................... 22,514
--------
L150,415
========
</TABLE>
9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
30 SEPTEMBER
1999
------------
L
<S> <C>
Bank loans.................................................. 1
Trade creditors............................................. 82,364
Corporation tax............................................. 61,000
Other taxes and social security costs....................... 78,495
Other creditors............................................. 10,775
Accruals and deferred income................................ 116,573
--------
L349,208
========
</TABLE>
F-37
<PAGE> 94
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
10. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
30 SEPTEMBER
1999
------------
<S> <C>
Authorised:
100,000 ordinary shares of L1 each........................ L100,000
========
Allotted, called up and fully paid:
10,075 ordinary shares of L1 each......................... L 10,075
========
</TABLE>
11. RESERVES
<TABLE>
<CAPTION>
PROFIT
AND LOSS
ACCOUNT
--------
L
<S> <C>
At 1 January 1999........................................... 587,723
Retained profit for the period.............................. 10,394
--------
At 30 September 1999........................................ L598,117
========
</TABLE>
12. RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
L
<S> <C>
Profit for the financial period after taxation.............. 111,144
Dividends................................................... (100,750)
---------
10,394
Opening shareholders' funds at 1 January 1999............... 597,798
---------
Closing shareholders' funds at 30 September 1999............ L 608,192
=========
</TABLE>
13. RELATED PARTIES
The company is controlled by a director and shareholder, Mr. T P K Milmo.
Dividends paid (see note 6) include amounts payable to directors who are
also shareholders of the company as follows:
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
30 SEPT 99 30 SEPT 98
---------- ----------
L L
<S> <C> <C>
T P K Milmo................................................. L65,250 L --
------- -------
P A Doe..................................................... L20,000 L --
------- -------
S Goldsworthy............................................... L 3,000 L --
------- -------
G King...................................................... L 3,000 L --
------- -------
G Spurgeon.................................................. L 3,000 L --
------- -------
</TABLE>
14. US/UK GAAP RECONCILIATION
The financial statements of the Company as set out from the profit and loss
account to note 13 but excluding the cash flow statement and notes thereto have
been prepared in accordance with generally
F-38
<PAGE> 95
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
accepted accounting principles applicable in the UK ("UK GAAP"), which differ in
certain significant respects from those applicable in the US ("US GAAP"). The
material differences as they apply to the Company's financial statements are, as
follows:
PROVISION FOR DIMINUTION IN VALUE
At 30 September 1999, there is a shortfall between the valuation of the
freehold property occupied by the company and its net book value (based upon
historic cost less depreciation) of L51,626. In the opinion of the directors,
this represents a permanent diminution in value and, under UK GAAP, has been
charged in the profit and loss account for the 9 months ended 30 September 1999.
This would not represent an impairment in a long lived asset under US GAAP.
INCOME RECOGNITION
The accounting policy of the company for the recognition of income from
maintenance and support contracts, as detailed in note 1 to the financial
statements, is: --
"Income from maintenance and support contracts
Income from hardware maintenance and training contracts is recognized in
the profit and loss account on an earned basis with receipts in advance taken to
accruals at the year end. Income from software support contracts of one year or
less are taken as turnover at the date of invoice, contracts of more than one
year are accounted for on an earned basis."
This is inconsistent with US GAAP in respect of the treatment of income
from software support contracts of one year or less. SOP 97-2 requires that
support contract services should be recognized on a pro-rata basis over the term
of the arrangement.
The following tables also record the tax effect on the profits of the
company on the adoption of SOP 97-2. The application of SOP 97-2 has the effect
of reducing the taxable profits of the company. These tax effects are based on
an effective rate of 22.9% for the 9 months to 30 September 1999 and 23.4% for
the 9 months to 30 September 1998. The cumulative effect for 1999 in the table
on the "effect on Shareholders Equity" is based on a cumulative tax effect from
prior accounting periods and does not represent the actual tax effect under UK
taxation rules had the principles of SOP 97-2 been adopted under UK GAAP.
EFFECT ON SHAREHOLDERS' EQUITY:
<TABLE>
<CAPTION>
AT 30 SEPT AT 30 SEPT
1999 1998
---------- ----------
L L
<S> <C> <C>
Shareholders' equity as stated under UK GAAP................ 608,192 674,975
US GAAP adjustments:
Reversal of provision for diminution in value............. 51,626 --
Increase in deferred income under US GAAP................. (267,470) (217,868)
Reduction in tax charge arising from the adjustment to
deferred income........................................ 58,565 50,981
--------- ---------
Shareholders equity as stated under US GAAP............... L 450,913 L 508,088
========= =========
</TABLE>
F-39
<PAGE> 96
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
EFFECT ON PROFIT FOR THE PERIOD:
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDED ENDED
30 SEPT 99 30 SEPT 98
---------- ----------
L L
<S> <C> <C>
Profit for the period as stated under UK GAAP............... 111,144 144,157
US GAAP adjustments:
Adjustment for movement on deferred income................ (45,503) (13,620)
Impairment on long lived asset............................ 51,626 --
Reduction in tax charge arising from the movement in
deferred income........................................ 10,420 3,187
-------- --------
Profit for the period as stated under US GAAP............. L127,687 L133,724
======== ========
</TABLE>
F-40
<PAGE> 97
COMPUTER FOUNDATIONS LIMITED
DIRECTORS, OFFICERS AND ADVISERS
DIRECTORS T P K Milmo
P A Doe
S Goldsworthy
G King
G Spurgeon
SECRETARY C Milmo
REGISTERED OFFICE Foundation House
10 The Avenue
Colchester
Essex
CO3 5AL
REGISTERED NUMBER 1699194
AUDITORS Scrutton Bland
18 Sir Isaac's Walk
Colchester
CO1 1JL
BANKERS National Westminster Bank plc
13 Stratheden Parade
Old Dover Road
London
SE3 7SY
SOLICITORS Thompson Smith & Puxon
4/5 North Hill
Colchester
CO1 1EB
F-41
<PAGE> 98
COMPUTER FOUNDATIONS LIMITED
STATEMENT OF DIRECTORS RESPONSIBILITIES
DIRECTORS' RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the accounts,
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that the financial statements comply with the
Companies Act 1985. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
F-42
<PAGE> 99
AUDITORS' REPORT TO THE MEMBERS OF
COMPUTER FOUNDATIONS LIMITED
We have audited the financial statements set out from the profit and loss
account following this report to note 14 but excluding the cash flow statement
and notes thereto, which have been prepared under the Historical Cost Convention
and the Accounting Policies set out in note 1.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS:
As described, the company's directors are responsible for the preparation
of financial statements in accordance with generally accepted accounting
principles in the United Kingdom. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board, which are substantially similar to US GAAS. An audit
includes examination, on a test basis, of evidence relevant to the amounts
disclosed in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatements, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the
state of the company's affairs at 31 December 1998 and 31 December 1997 and of
its profit for the years then ended and have been properly prepared in
accordance with the Companies Act 1985, applicable to small companies.
Scrutton Bland
Chartered Accountants and
Registered Auditors
Colchester
3 August 1999
ADDENDUM TO THE AUDITORS' REPORT TO THE MEMBERS OF COMPUTER FOUNDATIONS LIMITED
Since the preparation of the financial statements of Computer Foundations
Limited for United Kingdom statutory purposes, which were approved by the
directors on 3 August 1999 and which are referred to in the above audit report,
the information contained within this document has been amended as follows: --
- the removal of the directors report which would be required under the
Companies Act 1985
- the inclusion of a cash flow statement and notes thereto prepared in
accordance with generally accepted accounting principles in the United
States; and
- the inclusion of note 15 which provides information on the adjustments
which would be required if these financial statements, which have been
prepared under generally accepted accounting principles
F-43
<PAGE> 100
in the United Kingdom, had been prepared under generally accepted
accounting principles in the United States.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
It is the responsibility of the directors of the company to prepare the
additional information included in this document. It is our responsibility to
form an independent opinion, based on our audit, on note 15 and the cash flow
statement and notes thereto and to report our opinion to you.
OPINION
In our opinion the information contained within note 15 and the cash flow
statement and notes thereto fairly presents the adjustments which would be
required if these financial statements, which have been prepared under generally
accepted accounting principles in the United Kingdom, had been prepared under
generally accepted accounting principles in the United States.
Scrutton Bland
Chartered Accountants and
Registered Auditors
Colchester
10 March 2000
F-44
<PAGE> 101
COMPUTER FOUNDATIONS LIMITED
PROFIT AND LOSS ACCOUNT YEAR ENDED 31 DECEMBER
<TABLE>
<CAPTION>
NOTES 1998 1997
----- ---------- ----------
L L L
<S> <C> <C> <C>
TURNOVER.................................................... 1 1,890,431 1,455,017
Cost of sales............................................... 761,831 594,748
---------- ----------
GROSS PROFIT................................................ 1,128,600 860,269
Administrative expenses..................................... (992,864) (790,748)
---------- ----------
OPERATING PROFIT............................................ 2 135,736 69,521
Interest receivable and similar income...................... 4 30,582 21,254
Interest payable and similar charges........................ 5 -- (1,198)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 166,318 89,577
Tax on profit on ordinary activities........................ 6 38,889 20,935
---------- ----------
PROFIT FOR THE FINANCIAL YEAR............................... 127,429 68,642
Dividends................................................... 7 60,450 50,375
---------- ----------
RETAINED PROFIT FOR THE FINANCIAL YEAR...................... 12 L 66,979 L 18,267
========== ==========
</TABLE>
TOTAL RECOGNIZED GAINS AND LOSSES
The company has no recognized gains or losses other than the profit for the
above two financial years.
CONTINUING OPERATIONS
None of the company's activities were acquired or discontinued during the
above two financial years.
F-45
<PAGE> 102
COMPUTER FOUNDATIONS LIMITED
BALANCE SHEET AS AT 31 DECEMBER
<TABLE>
<CAPTION>
NOTES 1998 1997
----- -------- --------
L L
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets............................................. 8 356,399 256,474
-------- --------
CURRENT ASSETS
Stocks...................................................... 3,709 2,448
Debtors..................................................... 9 236,188 93,455
Cash at bank and in hand.................................... 451,414 570,087
-------- --------
691,311 665,990
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR.............. 10 449,912 391,645
-------- --------
NET CURRENT ASSETS.......................................... 241,399 274,345
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... L597,798 L530,819
======== ========
CAPITAL AND RESERVES
Called up share capital..................................... 11 10,075 10,075
Profit and loss account..................................... 12 587,723 520,744
-------- --------
SHAREHOLDERS' FUNDS -- EQUITY INTERESTS..................... 13 L597,798 L530,819
======== ========
</TABLE>
Advantage is taken in the preparation of the financial statements of the
special provisions contained in Part VII of the Companies Act 1985 relating to
small companies.
The financial statements were approved by the directors on 3 August 1999.
T P K MILMO
Director
F-46
<PAGE> 103
COMPUTER FOUNDATIONS LIMITED
STATEMENT OF CASH FLOWS YEAR ENDED 31 DECEMBER
<TABLE>
<CAPTION>
1998 1997
--------- --------
L L
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income.................................................. 127,429 68,642
Adjustments to reconcile net income to net cash provided by
operating activities:
Profit on disposal of tangible fixed assets................. (11,514) (3,600)
Depreciation................................................ 69,551 38,477
(Increase)/decrease in debtors.............................. (142,733) 146,623
(Increase)/decrease in stocks............................... (1,261) 4,149
Increase/(decrease) in creditors............................ 104,375 (50,578)
Increase/(decrease) in corporation taxes payable............ 4,267 (43,504)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 150,114 160,209
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (181,884) (16,999)
Proceeds from sale of assets................................ 23,922 3,600
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.............................................. (110,825) (50,375)
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... (118,673) 96,435
Cash and cash equivalents at beginning of year.............. 570,087 473,652
--------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... L 451,414 L570,087
========= ========
SUPPLEMENTAL NON-CASH INFORMATION:
Interest paid............................................... L -- L 1,198
========= ========
Taxes paid.................................................. L 9,434 L 52,938
========= ========
</TABLE>
F-47
<PAGE> 104
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER
1. ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the historical cost
convention, and in accordance with applicable accounting standards.
Tangible fixed assets
Depreciation is provided at the following annual rates in order to write
off each asset over its estimated useful life:
<TABLE>
<S> <C> <C>
Fixtures and -- 15% on written down value
fittings
Plant and equipment -- 30% on written down value
Motor vehicles -- 25% on cost of vehicles or 25% on
written down value of vehicles
purchased before 1.1.93
Freehold property -- 2% on cost
Portable buildings -- Straight line over 3 years
</TABLE>
Any permanent diminution in the value of properties is charged to the
profit and loss account.
Stocks
Stocks are valued at the lower of cost and net realisable value, after
making due allowance for obsolete and slow moving items.
Capitalised leases
Assets held under capitalized leases are capitalized in the balance sheet
with an equivalent liability included under creditors. An asset held under a
capitalized lease is depreciated over the shorter of the lease term and its
useful life. The interest element of the amount payable is charged to the profit
and loss account and the capital element reduces the liability in the balance
sheet.
Rentals applicable to operating leases where substantially all of the
benefits and risks of ownership remain with the lessor are charged against
profit as incurred.
Income from maintenance and support contracts
Income from hardware maintenance and training contracts is recognized in
the profit and loss account on an earned basis with receipts in advance taken to
accruals at the year end. Income from software support contracts of one year or
less are taken as turnover at the date of invoice, contracts of more than one
year are accounted for on an earned basis.
Turnover
Turnover represents the amount receivable for goods sold during the year,
exclusive of VAT.
All turnover arises in the United Kingdom and in relation to the principal
activity of the company.
F-48
<PAGE> 105
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. OPERATING PROFIT
The operating profit is stated after (crediting)/charging:
<TABLE>
<CAPTION>
1998 1997
-------- --------
L L
<S> <C> <C>
Profit on disposal of tangible fixed assets................. (11,514) (3,600)
Depreciation of tangible fixed assets....................... 69,551 36,321
Depreciation of assets held under capitalized leases........ -- 2,156
Operating lease rentals -- other............................ 18,680 24,367
Auditors' remuneration...................................... 3,600 3,600
Directors' emoluments (see below)........................... 303,397 185,341
======== ========
DIRECTORS' REMUNERATION
Aggregate emoluments........................................ 303,397 185,341
Contributions to money purchase pension schemes............. 22,554 22,548
-------- --------
L325,951 L207,889
======== ========
</TABLE>
Contributions to a money purchase pension scheme are made on behalf of 4
directors.
The highest paid director received aggregate emoluments of L101,454
(1997: L49,075) and contributions of L1,560 (1997: L4,829) were made to a money
purchase pension scheme on his behalf.
3. STAFF COSTS
<TABLE>
<CAPTION>
1998 1997
-------- --------
L L
<S> <C> <C>
Wages and salaries.......................................... 798,467 616,361
Social security costs....................................... 80,735 60,300
Other pension costs......................................... 31,586 31,021
-------- --------
L910,788 L707,682
======== ========
The average monthly number of employees, including directors
during the year was made up as follows:
Office and management....................................... 4 4
Production and sales staff.................................. 25 26
-------- --------
29 30
======== ========
</TABLE>
4. INTEREST RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Bank interest receivable.................................... L30,582 L21,254
======= =======
</TABLE>
5. INTEREST PAYABLE
<TABLE>
<CAPTION>
1998 1997
------ ------
L L
<S> <C> <C>
Bank interest payable....................................... L -- L1,198
====== ======
</TABLE>
F-49
<PAGE> 106
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
6. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Based on the profit for the year
Corporation tax at 21% (1997: 24%/21%)...................... L38,889 L20,935
======= =======
</TABLE>
7. DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Interim dividend paid....................................... 60,450 --
Final dividend proposed..................................... -- 50,375
------- -------
L60,450 L50,375
======= =======
</TABLE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES
FREEHOLD PORTABLE AND PLANT AND MOTOR
PROPERTY BUILDINGS FITTINGS EQUIPMENT VEHICLES TOTAL
-------- --------- -------- --------- -------- ---------
L L L L L L
<S> <C> <C> <C> <C> <C> <C>
COST
At 1 January 1998................... 238,724 6,063 18,003 87,850 170,010 520,650
Additions........................... 10,000 -- 2,880 38,749 130,255 181,884
Disposals........................... -- -- -- (40,066) (70,031) (110,097)
-------- ------ ------- -------- -------- ---------
At 31 December 1998................. 248,724 6,063 20,883 86,533 230,234 592,437
-------- ------ ------- -------- -------- ---------
DEPRECIATION
At 1 January 1998................... 38,194 6,063 12,584 80,552 126,783 264,176
On disposals........................ -- -- -- (38,153) (59,536) (97,689)
Charge for the year................. 5,174 -- 800 15,691 47,886 69,551
-------- ------ ------- -------- -------- ---------
At 31 December 1998................. 43,368 6,063 13,384 58,090 115,133 236,038
-------- ------ ------- -------- -------- ---------
NET BOOK VALUES
At 31 December 1998................. L205,356 L -- L 7,499 L 28,443 L115,101 L 356,399
======== ====== ======= ======== ======== =========
At 31 December 1997................. L200,530 L -- L 5,419 L 7,298 L 43,227 L 256,474
======== ====== ======= ======== ======== =========
</TABLE>
The charge for depreciation of motor vehicles includes LNil (1997: L2,156)
in respect of assets held under capitalized leases. At 31 December 1998 the net
book value of these assets was LNil (1997: L6,457).
9. DEBTORS
<TABLE>
<CAPTION>
1998 1997
-------- -------
L L
<S> <C> <C>
Trade debtors............................................... 194,383 78,971
Other debtors............................................... 41,805 14,484
-------- -------
L236,188 L93,455
======== =======
</TABLE>
F-50
<PAGE> 107
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
-------- --------
L L
<S> <C> <C>
Bank loans.................................................. 1 1
Trade creditors............................................. 160,745 101,693
Corporation tax............................................. 11,182 9,434
Other taxes and social security costs....................... 119,101 72,741
Other creditors............................................. 12,490 21,796
Accruals and deferred income................................ 131,280 123,011
Proposed dividend........................................... -- 50,375
Advance corporation tax..................................... 15,113 12,594
-------- --------
L449,912 L391,645
======== ========
</TABLE>
11. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Authorised:
100,000 ordinary shares of L1 each........................ L100,000 L100,000
======== ========
Allotted, called up and fully paid:
10,075 ordinary shares of L1 each......................... L 10,075 L 10,075
======== ========
</TABLE>
12. RESERVES
<TABLE>
<CAPTION>
PROFIT
AND LOSS
ACCOUNT
--------
L
<S> <C>
At 1 January 1998........................................... 520,744
Retained profit for the year................................ 66,979
--------
At 31 December 1998......................................... L587,723
========
</TABLE>
13. RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
-------- --------
L L
<S> <C> <C>
Profit for the financial year after taxation................ 127,429 68,642
Dividends................................................... 60,450 50,375
-------- --------
66,979 18,267
Opening shareholders' funds at 1 January 1998............... 530,819 512,552
-------- --------
Closing shareholders' funds at 31 December 1998............. L597,798 L530,819
======== ========
</TABLE>
14. RELATED PARTIES
The company is controlled by a director and a shareholder, Mr. T P K Milmo.
F-51
<PAGE> 108
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Dividends paid and proposed (see note 7) include amounts payable to
directors who are also shareholders of the company as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
L L
<S> <C> <C>
T P K Milmo................................................. 39,150 32,625
------ ------
P A Doe..................................................... 12,000 10,000
------ ------
S Goldsworthy............................................... 1,800 1,500
------ ------
G King...................................................... 1,800 1,500
------ ------
G Spurgeon.................................................. 1,800 1,500
------ ------
</TABLE>
Included within other debtors is an amount of L12,807 (1997: Lnil) due from
Foundation Accounting Systems Limited, a company which is also controlled by Mr.
T P K Milmo.
15. US/UK GAAP RECONCILIATION
The financial statements of the Company as set out from the profit and loss
account to note 14 but excluding the cash flow statement and notes thereto have
been prepared in accordance with generally accepted accounting principles
applicable in the UK ("UK GAAP"), which differ in certain significant respects
from those applicable in the US ("US GAAP"). The material differences as they
apply to the Company's financial statements are, as follows:
INCOME RECOGNITION
The accounting policy of the company for the recognition of income from
maintenance and support contracts, as detailed in note 1 to the financial
statements, is: --
"Income from maintenance and support contracts
Income from hardware maintenance and training contracts is recognized in
the profit and loss account on an earned basis with receipts in advance taken to
accruals at the year end. Income from software support contracts of one year or
less are taken as turnover at the date of invoice, contracts or more than one
year are accounted for on an earned basis."
This is inconsistent with US GAAP in respect of the treatment of income
from software support contracts of one year or less. SOP 97-2 requires that
support contract services should be recognized on a pro-rata basis over the term
of the arrangement.
The following tables also record the tax effect on the profits of the
company on the adoption of SOP 97-2. The application of SOP 97-2 has the effect
of reducing the taxable profits of the company. These tax effects are based on
an effective rate of 21% for 1998 and 21.75% for 1997. The cumulative effect for
1998 in the table on the "effect on Shareholders Equity" is based on a
cumulative tax effect from prior accounting periods and does not represent the
actual tax effect under UK taxation rules had the principles of SOP 97-2 been
adopted under UK GAAP.
F-52
<PAGE> 109
COMPUTER FOUNDATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
EFFECT ON SHAREHOLDERS' EQUITY:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
L L
<S> <C> <C>
Shareholders' equity as stated under UK GAAP................ 597,798 530,819
US GAAP adjustments:
Increase in deferred income under US GAAP................... (221,967) (204,248)
Reduction in tax charge arising from the adjustment to
deferred income........................................... 48,145 44,424
--------- ---------
Shareholders equity as stated under US GAAP................. L 423,976 L 370,995
========= =========
</TABLE>
EFFECT ON PROFIT FOR THE FINANCIAL YEAR:
<TABLE>
<CAPTION>
1998 1997
-------- --------
L L
<S> <C> <C>
Profit for the financial year as stated under UK GAAP....... 127,429 68,642
US GAAP adjustments:
Adjustment for movement in deferred income.................. (17,719) (25,182)
Reduction in tax charge arising from the movement in
deferred income........................................... 3,721 5,477
-------- --------
Profit for the financial year as stated under US GAAP....... L113,431 L 48,937
======== ========
</TABLE>
F-53
<PAGE> 110
PREMIER COMPUTER GROUP LIMITED
DIRECTORS AND OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
DIRECTORS Brian Kearney (resigned 23/12/98)
Mark Howell
William Reid
Leo McCarthy (appointed 1/5/98)
Paul Carroll (appointed 23/12/98)
SECRETARY Mark Howell
REGISTERED OFFICE 13/16 Dame Street,
Dublin 2.
BANKERS Allied Irish Bank plc.,
24 Arran Quay,
Dublin 7.
AUDITORS BDO Simpson Xavier,
Chartered Accountants
and Registered Auditors,
Simpson Xavier Court,
Merchants Quay,
Dublin 8.
SOLICITORS Patrick Donaghy & Company,
Solicitors,
13/16 Dame Street,
Dublin 2.
</TABLE>
F-54
<PAGE> 111
PREMIER COMPUTER GROUP LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Acts, 1963 to 1990. They are also responsible for safeguarding the
assets of the company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
F-55
<PAGE> 112
AUDITORS' REPORT
TO THE MEMBERS OF PREMIER COMPUTER GROUP LIMITED
We have audited the attached financial statements which have been prepared
under the historical cost convention and the accounting policies set in note 1.
Respective responsibilities of directors and auditors
The company's directors are responsible for the preparation of the
financial statements in accordance with generally accepted accounting principles
in the Republic Of Ireland. It is our responsibility to form an independent
opinion, based on our audit, on those statements and to report our opinion to
you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board which are substantially similar to US GAAS. An audit
includes an examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgements made by the directors in the
preparation of the financial statements, and of whether the accounting policies
are appropriate to the company's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatements, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion, the financial statements give a true and fair view of the
state of the group's affairs as at 31 December 1998 and 31 December 1997 and of
its results for the year's then ended and have been properly prepared in
accordance with the Companies Acts, 1963 to 1990.
In our opinion, there did exist at 31 December 1998 a financial situation
which, under Section 40(1) of the Companies (Amendment) Act 1983, does require
the convening of an extraordinary general meeting of the company.
We have obtained all the information and explanations we considered
necessary for the purposes of our audit. In our opinion, proper books of account
have been kept by the company. The financial statements are in agreement with
the books of account.
BDO SIMPSON XAVIER
Chartered Accountants
& Registered Auditors
1 MAY 1999
F-56
<PAGE> 113
PREMIER COMPUTER GROUP LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER
<TABLE>
<CAPTION>
NOTE 1998 1997
---- ---------- ----------
IRL IRL
<S> <C> <C> <C>
TURNOVER.................................................... 2 3,775,749 3,056,218
---------- ----------
GROSS PROFIT................................................ 1,924,282 1,960,171
Operating costs............................................. (2,447,851) (1,826,825)
---------- ----------
OPERATING (LOSS)/PROFIT..................................... (523,569) 133,346
Interest receivable......................................... 6 -- 7,484
Interest payable and similar charges........................ 7 (16,967) (30,254)
---------- ----------
(LOSS)/PROFIT BEFORE TAXATION............................... 3 (540,536) 110,576
Taxation.................................................... 8 -- (3,382)
---------- ----------
(LOSS)/PROFIT AFTER TAXATION................................ (540,536) 107,194
Minority interests.......................................... (3,415) (6,525)
---------- ----------
(LOSS)/PROFIT FOR THE YEAR.................................. (543,951) 100,669
Redemption of shares........................................ -- (114,196)
Transfer to capital redemption reserve fund................. -- (9,149)
---------- ----------
Retained loss for the financial year........................ (543,951) (22,676)
Balance at beginning of year................................ 397,716 420,392
---------- ----------
BALANCE AT END OF YEAR...................................... (146,235) 397,716
---------- ----------
</TABLE>
- ---------------
All recognized gains and losses have been included in the profit and loss
account.
<TABLE>
<S> <C>
Mark Howell Paul Carroll
- ----------------------------------------------------- -----------------------------------------------------
Director Director
1 May 1999
- -----------------------------------------------------
Date
</TABLE>
F-57
<PAGE> 114
PREMIER COMPUTER GROUP LIMITED
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER
<TABLE>
<CAPTION>
ASSETS EMPLOYED NOTES 1998 1997
- --------------- ----- ---------- ---------
IRL IRL
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets............................................. 9 287,253 147,396
Financial assets............................................ 10 -- 149,585
Intangible assets........................................... 11 -- 83,774
---------- ---------
287,253 380,755
CURRENT ASSETS
Stocks...................................................... 12 58,875 220,867
Debtors..................................................... 13 996,587 718,782
Bank........................................................ 277,514 208,751
---------- ---------
1,332,976 1,148,400
CREDITORS (amounts falling due within one year)............. 14 (1,658,948) (982,458)
---------- ---------
NET CURRENT (LIABILITIES)/ASSETS............................ (325,972) 165,942
---------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... (38,719) 546,697
CREDITORS (amounts falling due after more than one year).... 15 (58,464) (91,095)
---------- ---------
(97,183) 455,602
---------- ---------
CAPITAL AND RESERVES
Called up share capital..................................... 16 2,220 2,220
Share premium............................................... 17 199,267 199,267
Profit and loss account..................................... (146,235) 397,716
Other reserves.............................................. 18 (152,435) (140,071)
---------- ---------
Shareholders' funds......................................... (97,183) 459,132
Minority interest........................................... 19 -- (3,530)
---------- ---------
(97,183) 455,602
---------- ---------
</TABLE>
<TABLE>
<S> <C>
Mark Howell Paul Carroll
- ----------------------------------------------------- -----------------------------------------------------
Director Director
1 May 1999
- -----------------------------------------------------
Date
</TABLE>
F-58
<PAGE> 115
PREMIER COMPUTER GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER
<TABLE>
<CAPTION>
NOTE 1998 1997
-------- --------- --------
IRL IRL
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)\income.......................................... (543,951) 100,669
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Depreciation and Amortization.............................. 227,627 159,485
Provision for losses on investment......................... 149,585 --
Loss on sale of facility................................... 2,178 --
Foreign currency adjustment................................ (9,980) --
CHANGE IN ASSETS AND LIABILITIES
Increase/Decrease in accounts receivable................... (277,805) 29,426
Decrease/Increase in inventory............................. 161,992 (29,218)
Increase in accounts payable and accrued expenses.......... 760,860 70,768
--------- --------
TOTAL ADJUSTMENTS.......................................... 1,014,457 230,461
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 470,506 331,130
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of facility............................. 5,038 36,770
Capital expenditures....................................... (233,138) (164,783)
Payments for acquisition of subsidiary net of cash
acquired................................................. -- (61,134)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES...................... (228,100) (189,147)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital lease repayments................................... (32,960) (40,277)
Movement on bank overdraft................................. (52,391) (29,682)
Repayment of borrowings.................................... (88,292) (31,277)
Redemption of Common Stock................................. -- (123,345)
--------- --------
NET CASH USED IN FINANCING ACTIVITIES...................... (173,643) (224,581)
--------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS....... 68,763 (82,598)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 208,751 291,349
--------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... 277,514 208,751
--------- --------
SUPPLEMENTAL NON CASH INFORMATION
Capital expenditure financed by debt....................... 59,702 59,156
--------- --------
</TABLE>
F-59
<PAGE> 116
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
a) Basis of preparation
These financial statements have been prepared under the historical cost
convention in accordance with best accounting practice in the Republic of
Ireland (Irish GAAP). The Cash Flow Statement is presented in accordance with US
GAAP. Note 25 sets out a reconciliation of Irish GAAP to US GAAP showing the
effect on Shareholders Equity and results for the year.
b) Revenue Recognition
Revenue arising from the sale of hardware products represents invoiced
sales during the year, net of valued added taxation and is recognized as the
products are shipped. Revenue arising from annual maintenance, support and
software contracts is recognized over the period of the contract.
Deferred income arises when either a portion of a contract period, for
which an invoice has been issued in advance, falls after the year end or where
work invoiced has not been completed.
c) Depreciation
Depreciation is calculated to write off the cost of tangible assets over
their expected useful lives at the following annual rates:
<TABLE>
<S> <C> <C>
Improvements to premises 20% straight line
Fixtures and fittings 20% straight line
Equipment 20% straight line
Software 20% straight line
Motor vehicles 20% - 33.3% straight line
</TABLE>
d) Capitalised Leases
Assets held under leasing arrangements that transfer substantially all the
risks and rewards of ownership ("finance leases") to the company are
capitalized. The capital element of the related rental obligations is included
in creditors. The interest element of the rental obligations is charged to the
profit and loss account so as to produce a constant periodic rate of charge.
Rebates of rentals received on disposal of leased assets are treated as proceeds
on disposal.
All other leases are operating leases and the annual rentals are charged to
the profit and loss account.
e) Stocks
Stocks are valued at the lower of cost and net realisable value.
Cost comprises invoice cost exclusive of value added tax, together with
freight and carriage costs incurred.
Net realisable value comprises the actual or estimated selling price (net
of trade discounts) less all further costs to be incurred in marketing, selling
and distribution.
f) Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are
translated at the exchange rates ruling at the balance sheet date and revenues,
costs and non-monetary assets at the exchange rates ruling at the dates of the
transactions.
F-60
<PAGE> 117
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Profits and losses arising from foreign currency transactions and on
settlement of amounts receivable and payable in foreign currency are dealt with
through the profit and loss account.
g) Pensions
Amounts paid to fund defined contribution schemes are charged to the profit
and loss account as incurred.
h) Research and development
Research and development costs are expensed as incurred.
i) Consolidated statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
2. TURNOVER
The turnover of the company for the period has been derived from its
principle activity.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
IRL IRL
<S> <C> <C>
Republic of Ireland......................................... 3,473,214 2,811,336
United Kingdom.............................................. 302,535 244,882
--------- ---------
3,775,749 3,056,218
--------- ---------
</TABLE>
3. (LOSS)/PROFIT BEFORE TAXATION
The (Loss)/profit before taxation has been arrived at after charging the
following items;
<TABLE>
<CAPTION>
1998 1997
------- ------
IRL IRL
<S> <C> <C>
Auditors' remuneration...................................... 24,992 7,808
Depreciation................................................ 144,608 99,691
Amortization of software development costs.................. 83,019 59,794
------- ------
</TABLE>
4. EMPLOYEES AND REMUNERATION
The average number of persons (including directors) employed by the group
during the financial year was 45 (1997: 39) and is analysed into the following
categories;
<TABLE>
<CAPTION>
1998 1997
---- ----
IRL IRL
<S> <C> <C>
Sales....................................................... 6 5
Administration.............................................. 9 10
Technical................................................... 30 24
-- --
45 39
-- --
</TABLE>
F-61
<PAGE> 118
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
--------- -------
IRL IRL
<S> <C> <C>
Staff costs comprised:
Wages and salaries........................................ 1,113,821 858,311
Social welfare costs...................................... 97,643 90,751
Pension costs............................................. 25,468 11,769
--------- -------
1,236,932 960,831
--------- -------
</TABLE>
5. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
1998 1997
------- -------
IRL IRL
<S> <C> <C>
Remuneration and other emoluments........................... 225,064 112,393
Pension costs............................................... 14,829 8,743
------- -------
239,892 121,136
======= =======
</TABLE>
6. INTEREST RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
---- -----
IRL IRL
<S> <C> <C>
Interest received and receivable............................ -- 7,484
== =====
</TABLE>
7. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1998 1997
------ ------
IRL IRL
<S> <C> <C>
This interest was in respect of:
Borrowings wholly repayable within five years
-- bank loan and overdraft................................ 11,855 20,743
-- capitalized leases..................................... 5,111 9,511
------ ------
16,967 30,254
====== ======
</TABLE>
8. TAXATION
<TABLE>
<CAPTION>
1998 1997
---- ------
IRL IRL
<S> <C> <C>
Corporation tax principally at 10%.......................... -- 9,000
Overprovision in prior year................................. -- (5,618)
-- ------
-- 3,382
== ======
</TABLE>
No tax liability arises in the current year due to loss relief.
F-62
<PAGE> 119
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. TANGIBLE ASSETS
GROUP
<TABLE>
<CAPTION>
IMPROVEMENTS FIXTURES MOTOR
TO PREMISES & FITTINGS EQUIPMENT SOFTWARE VEHICLES TOTAL
------------ ---------- --------- -------- -------- ---------
IRL IRL IRL IRL IRL IRL
<S> <C> <C> <C> <C> <C> <C>
COST
At 1 January 1998............. 33,194 341,667 238,352 133,731 40,951 787,895
Additions..................... -- 3,037 168,315 36,273 85,215 292,840
Disposals..................... -- (6,029) -- -- (14,240) (20,269)
Translation adjustments....... -- (9,627) (3,034) -- (1,349) (14,010)
------ ------- ------- ------- ------- ---------
AT 31 DECEMBER 1998........... 33,194 329,048 403,633 170,004 110,577 1,046,456
====== ======= ======= ======= ======= =========
DEPRECIATION
At 1 January 1998............. 17,427 327,114 168,131 109,529 18,298 640,499
Charge for year............... 6,492 889 97,004 22,223 18,000 144,608
Disposals..................... -- -- -- -- (13,053) (13,053)
Translation adjustments....... -- (9,207) (3,045) -- (599) (12,851)
------ ------- ------- ------- ------- ---------
At 31 December 1998........... 23,919 318,796 262,090 131,752 22,646 759,203
------ ------- ------- ------- ------- ---------
NET BOOK VALUE
AT 31 DECEMBER 1998........... 9,275 10,252 141,543 38,252 87,931 287,253
====== ======= ======= ======= ======= =========
At 1 January 1998............. 15,767 14,553 70,221 24,202 22,653 147,396
====== ======= ======= ======= ======= =========
</TABLE>
Tangible assets with a net book amount of IRL 102,051 (1997: IRL 47,014)
are held by the group under capitalized leases. The depreciation charge on these
assets amounts to IRL 38,459 (1997: IRL 21,032).
10. FINANCIAL ASSETS
GROUP
<TABLE>
<CAPTION>
1998 1997
---- --------
IRL IRL
<S> <C> <C>
Leasehold interest.......................................... -- 149,585
== ========
</TABLE>
The directors have decided to make a full provision against the value of
this investment due to doubt over group's legal ownership of the lease hold
interest.
F-63
<PAGE> 120
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INTANGIBLE ASSETS
GROUP
<TABLE>
<CAPTION>
SOFTWARE
DEVELOPMENT
COSTS
-----------
IRL
<S> <C>
COST
At 1 January 1998........................................... 362,689
Translation adjustments..................................... (3,128)
-------
AT 31 DECEMBER 1998......................................... 359,561
=======
DEPRECIATION
At 1 January 1998........................................... 278,915
Charge for year............................................. 83,019
Translation adjustments..................................... (2,373)
-------
At 31 December 1998......................................... 359,561
=======
NET BOOK AMOUNT
AT 31 DECEMBER 1998......................................... --
-------
At 1 January 1998........................................... 83,774
=======
</TABLE>
12. STOCKS
<TABLE>
<CAPTION>
1998 1997
---- ----
IRL IRL
<S> <C> <C>
Goods for resale............................................ 58,875 215,297
Other stock................................................. -- 5,570
------- --------
58,875 220,867
======= ========
</TABLE>
In the opinion of the directors, the replacement cost of stock does not
differ significantly from the figures shown above.
13. DEBTORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
GROUP
<TABLE>
<CAPTION>
1998 1997
---- ----
IRL IRL
<S> <C> <C>
Trade debtors and prepayments............................... 996,587 718,782
======= =======
</TABLE>
F-64
<PAGE> 121
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
GROUP
<TABLE>
<CAPTION>
1998 1997
---- ----
IRL IRL
<S> <C> <C>
Trade creditors............................................. 714,095 360,908
Bank overdraft.............................................. 42,738 95,129
Corporation tax............................................. 333 9,000
PAYE/PRSI................................................... 56,115 20,955
VAT......................................................... 92,026 53,698
Accruals and deferred income................................ 692,969 353,207
Obligations under capitalized leases........................ 60,672 37,717
Unsecured loan.............................................. -- 50,000
Secured loan................................................ -- 1,844
--------- -------
1,658,948 982,458
========= =======
</TABLE>
The bank overdraft is secured by fixed and floating charges over the fixed
assets of Techsonix Limited.
15. CREDITORS (AMOUNT FALLING DUE AFTER MORE THAN ONE YEAR)
GROUP
<TABLE>
<CAPTION>
1998 1997
---- ----
IRL IRL
<S> <C> <C>
Bank loan................................................... -- 36,448
Capitalised leases -- repayable within five years........... 58,464 54,647
------ ------
58,464 91,095
====== ======
</TABLE>
16. SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
---- ----
IRL IRL
<S> <C> <C>
AUTHORISED
100,000 ordinary shares of IRL1 each........................ 100,000 100,000
------- -------
ALLOTTED, CALLED UP AND FULLY PAID
Equity Shares
2,220 ordinary shares of IRL1 each.......................... 2,220 2,220
------- -------
</TABLE>
17. SHARE PREMIUM
<TABLE>
<CAPTION>
1998 1997
---- ----
IRL IRL
<S> <C> <C>
At 31 December 1998 and 31 December 1997.................... 199,267 199,267
------- -------
</TABLE>
F-65
<PAGE> 122
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. OTHER RESERVES
<TABLE>
<CAPTION>
GOODWILL CAPITAL
WRITE-OFF TRANSLATION REDEMPTION
RESERVE RESERVES RESERVE TOTAL
--------- ----------- ---------- -----
IRL IRL IRL IRL
<S> <C> <C> <C> <C>
At 1 January 1998.............................. (175,885) 1,665 34,149 (140,071)
Translation differences arising during the
year......................................... -- (399) -- (399)
Goodwill on acquisition........................ (11,965) -- -- (11,965)
-------- -------- -------- --------
AT 31 DECEMBER 1998............................ (187,850) 1,266 34,149 (152,435)
======== ======== ======== ========
</TABLE>
19. MINORITY INTEREST
<TABLE>
<CAPTION>
1998 1997
---- ----
IRL IRL
<S> <C> <C>
At 1 January 1998........................................... (3,530) (8,810)
Share of profit after taxation.............................. (3,415) 6,525
Foreign currency translation................................ (1,114) (1,245)
Acquisition of minority interest by holding company......... 8,059 --
------ ------
AT 31 DECEMBER 1998......................................... -- (3,530)
====== ======
</TABLE>
20. FINANCIAL COMMITMENTS
At 31 December 1998 the Group had annual commitments of IRL3,384 (1997:
IRL5,076) under non-cancellable operating leases. These leases were due to
expire in the following periods after 31 December:
<TABLE>
<CAPTION>
1998 1997
----- -----
IRL IRL
<S> <C> <C>
Within one year............................................. 1,128 1,692
Between two and five years.................................. 2,256 3,384
----- -----
3,384 5,076
===== =====
</TABLE>
21. CONTROLLING PARTY
As from 23 December 1998 Premier Computer Group Limited was controlled by
Integrity Holdings Limited, a company incorporated in the U.S.A. and operating
in Europe. There were no transactions by Premier Computer Group Limited between
December 23, 1998 and December 31, 1998.
Consequently, a separate profit and loss account for the period between
December 23 and December 31 has not been presented.
22. RELATED PARTY TRANSACTIONS
The company has availed of the exemptions under FRS 8 (Related Party
Disclosure) which allows non-disclosure of transactions with other group
companies.
F-66
<PAGE> 123
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23. GROUP UNDERTAKINGS
Premier Computer Group Limited had the following subsidiary undertakings at
31 December 1998:
<TABLE>
<CAPTION>
COMPANY % HELD REGISTERED OFFICE PRINCIPLE ACTIVITY
- ------- ------ ----------------- ------------------------------------------
<S> <C> <C> <C>
INCORPORATED IN THE
REPUBLIC OF IRELAND
Premier Information 100% (a) Modification, sale and support of computer
Systems Ltd. systems and software
Premier Software Ltd. 100% (a) Manufacture and sale of software
Progress Systems Ltd. 100% (a) Manufacture, sale and support of computer
systems and software
Premier Services Ltd. 100% (a) Dormant
Premier Distribution Ltd. 100% (a) Dormant
</TABLE>
<TABLE>
<CAPTION>
COMPANY % HELD REGISTERED OFFICE PRINCIPLE ACTIVITY
- ------- ------ ----------------- ------------------------------------------
<S> <C> <C> <C>
INCORPORATED IN THE
UNITED KINGDOM
Ravplot Ltd 100% (b) Investment holding company
Techsonix Ltd 100% (b) Supply of computer based cost and
management information systems, together
with associated training and support
services to the construction industry
</TABLE>
- ---------------
(a) 13/16 Dame Street, Dublin 2, Ireland
(b) 5 Ashted Lock, Dartmouth Middleway, Birmingham, B7 4AZ
24. CAPITAL COMMITMENTS
The company does not have any capital commitments at 31 December 1998.
25. RECONCILIATION OF IRISH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("IRISH
GAAP") TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF
AMERICA ("US GAAP")
The financial statements of the Company set out on pages 5 to 20 have been
prepared in accordance with generally accepted accounting principles applicable
in the Republic of Ireland ("Irish GAAP"), which differ in certain significant
respects from those applicable in the US ("US GAAP"). The material differences
as they apply to the Company's financial statements are, as follows:
Goodwill
Under Irish GAAP the company has written off goodwill arising on
acquisitions against shareholders equity. Goodwill recognized in accordance with
US GAAP purchase accounting requirements is capitalized on the balance sheet and
amortized over it's estimated remaining useful life through the income
statement. The useful life of goodwill as considered by the directors is 10
years.
Financial Assets
This Financial Asset was written off during the year ended 31 December 1998
due to doubt over the groups legal ownership of the leasehold interest (which
was acquired in the year ended 31
F-67
<PAGE> 124
PREMIER COMPUTER GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 1997) in accordance with Irish GAAP. This amount has been treated as a
correction of an error under US GAAP and consequently written off in its year of
acquisition.
Deferred Tax
Under Irish GAAP, provision is made for deferred tax under the liability
method where it is probable that a deferred tax liability will become payable or
a tax asset will crystallise within the foreseeable future. Under US GAAP
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes" requires deferred tax to be provided on a full liability basis and
a valuation adjustment is established against deferred tax assets where
valuation it is more likely than not that some portion will not be realised.
Research & Development
In accordance with Irish GAAP certain Research & Development costs are
capitalized and written off through the income statement over the period in
which the benefits from these activities arise. The amounts would be expensed to
the income statement under US GAAP as technological feasibility has not been
established.
The tables below set out the effect on shareholders funds and profit for
the year on the results of the company.
EFFECT ON LOSSES:
<TABLE>
<CAPTION>
1998 1997
-------- --------
IRL IRL
<S> <C> <C>
Loss as stated under Irish GAAP............................. (543,951) (100,669)
US GAAP adjustments:
Goodwill amortization....................................... (17,588) (17,588)
Research & Development costs written off.................... 83,019 59,794
Deferred tax asset.......................................... 44,000 --
Leasehold interest written off.............................. 149,585 (149,585)
NET LOSS AS STATED UNDER US GAAP............................ (284,935) (208,048)
OTHER COMPREHENSIVE LOSS.................................... (399) (6,580)
COMPREHENSIVE LOSS.......................................... (285,334) (214,628)
</TABLE>
EFFECT ON SHAREHOLDERS' EQUITY:
<TABLE>
<CAPTION>
AT 31 DECEMBER, AT 31 DECEMBER,
1998 1997
--------------- ---------------
IRL IRL
<S> <C> <C>
Shareholders' equity as stated under Irish GAAP............. (97,183) 459,132
US GAAP adjustments:
Goodwill written off........................................ 162,245 167,868
Deferred Tax Asset.......................................... 44,000 --
Research & Development costs written off.................... (755) (83,774)
Leasehold interest written off.............................. -- (149,585)
SHAREHOLDERS' EQUITY AS STATED UNDER US GAAP................ 108,307 393,641
</TABLE>
26. APPROVAL OF FINANCIAL STATEMENTS
The board approved the financial statements on 1 May 1999.
F-68
<PAGE> 125
INFORMATION SUPPORT LTD
AUDITORS' REPORT TO THE SHAREHOLDERS YEAR ENDED 31ST MARCH
We have audited the attached financial statements which have been prepared
under the historical cost convention and the accounting policies set out on note
1.
RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS AND THE AUDITORS
The company's directors are responsible for the preparation of the
financial statements in accordance with generally accepted accounting principles
in the U.K. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board, which are substantially similar to US GAAS. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the
state of the company's affairs at 31 March 1998 and 31 March 1997 and of its
profit for the years then ended and have been properly prepared in accordance
with the Companies Act, 1985.
<TABLE>
<S> <C>
45 Long Lane KARIA OWEN & CO.
London Chartered Certified Accountants
N3 2PY & Registered Auditors
10/7/1998
</TABLE>
F-69
<PAGE> 126
INFORMATION SUPPORT LTD
PROFIT AND LOSS ACCOUNT YEAR ENDED 31st MARCH
<TABLE>
<CAPTION>
NOTE 1998 1997
---- --------- ---------
L L
<S> <C> <C> <C>
TURNOVER.................................................... 2 4,667,813 4,235,112
Cost of sales............................................... 3,643,500 3,322,141
--------- ---------
GROSS PROFIT................................................ 1,024,313 912,971
DISTRIBUTION COSTS.......................................... 367,235 239,858
Administrative expenses..................................... 601,228 670,110
Other operating income...................................... 3 (39,517) (40,151)
--------- ---------
OPERATING PROFIT............................................ 4 95,367 43,154
INTEREST PAYABLE............................................ 7 14,256 19,428
--------- ---------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 81,111 23,726
TAX ON PROFIT ON ORDINARY ACTIVITIES........................ 8 28,042 21,742
--------- ---------
RETAINED PROFIT FOR THE FINANCIAL YEAR...................... 53,069 1,984
BALANCE BROUGHT FORWARD..................................... (94,695) (96,679)
--------- ---------
Balance carried forward..................................... (41,626) (94,695)
========= =========
</TABLE>
The company has no recognized gains or losses other than the results for the
year as set out above.
All of the activities of the company are classed as continuing.
F-70
<PAGE> 127
INFORMATION SUPPORT LTD
BALANCE SHEET 31st MARCH
<TABLE>
<CAPTION>
NOTE 1998 1997
---- ---------------------- ----------------------
L L L L L
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets.................... 9 265,716 288,235
Tangible assets...................... 10 76,753 99,268
Investments.......................... 11 2 --
-------- --------
342,471 387,503
CURRENT ASSETS
Stocks............................... 12 236,253 410,417
Debtors.............................. 13 1,433,161 1,035,843
Cash at bank and in hand............. 1,131 918
---------- ----------
1,670,545 1,447,178
CREDITORS: AMOUNTS FALLING DUE WITHIN
ONE YEAR........................... 14 (1,938,700) (1,813,434)
---------- ----------
NET CURRENT LIABILITIES.............. (268,155) (366,256)
-------- --------
TOTAL ASSETS LESS CURRENT
LIABILITIES........................ 74,316 21,247
======== ========
CAPITAL AND RESERVES
Called-up equity share capital....... 17 115,942 115,942
Profit and loss account.............. 18 (41,626) (94,695)
-------- --------
SHAREHOLDERS' FUNDS.................. 19 74,316 21,247
======== ========
</TABLE>
These financial statements were approved by the directors on the 9/7/1998 and
are signed on their behalf by:
- ---------------------------------------------------------
MR. A GROVER
F-71
<PAGE> 128
INFORMATION SUPPORT LTD
STATEMENT OF CASH FLOWS YEAR ENDED 31ST MARCH
<TABLE>
<CAPTION>
1998 1997
--------------------- ----------------------
L L L L
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers.................. 4,270,495 3,895,983
Cash paid to suppliers and employees.......... (4,282,155) (3,845,400)
Rent received................................. 39,517 40,151
Corporation tax paid.......................... (25,150) (21,354)
Interest paid................................. (14,256) (19,428)
---------- ----------
NET CASH PROVIDED/(USED) BY OPERATING
ACTIVITIES.................................. (11,549) 49,952
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (18,255) (58,073)
Payments to acquire subsidiary................ (2) --
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES......... (18,257) (58,073)
CASH FLOWS FROM FINANCING ACTIVITIES:
Movement in Bank Overdraft.................... 30,019 46,014
Repayment of debenture loan................... -- (38,020)
---------- ----------
NET CASH PROVIDED/(USED) BY FINANCING
ACTIVITIES.................................. 30,019 7,994
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS..... 213 (127)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR........................................ 918 1,045
------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR...... 1,131 918
------- --------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---------- ----------
L L
<S> <C> <C> <C> <C>
Net income.................................... 53,069 1,984
Adjustments to reconcile net income to net
cash Provided by operating activities:
Amortization.................................. 22,519 46,223
Depreciation.................................. 40,770 28,020
Decrease/(Increase) in stock.................. 174,164 (117,554)
Increase in debtors........................... (397,319) (339,129)
Increase in creditors......................... 95,248 430,408
---------- ----------
NET CASE PROVIDED/(USED) BY OPERATING
ACTIVITIES.................................. (11,549) 49,952
========== ==========
</TABLE>
F-72
<PAGE> 129
INFORMATION SUPPORT LTD
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDING 31ST MARCH
1. ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the historical cost
convention, and in accordance with applicable accounting standards.
Consolidation
In the opinion of the directors, the company and its subsidiary
undertakings comprise a medium-sized group. The company has therefore taken
advantage of the exemption provided by Section 248 of the Companies Act 1985 not
to prepare group accounts.
Goodwill
Purchased goodwill is written off to the profit & loss account over its
estimated useful life. This year the directors have increased to write off
period to 20 years from 10 years.
Amortization
Amortization is calculated so as to write off the cost of an asset, less
its estimated residual value, over the useful economic life of that asset as
follows:
Goodwill -- Over 20 years -- Straight Line
Depreciation
Depreciation is calculated so as to write off the cost of an asset, less
its estimated residual value, over the useful economic life of that asset as
follows:
Equipment -- 20% Straight Line
Stocks
Stocks are valued at the lower of cost and net realisable value, after
making due allowance for obsolete and slow moving items.
Operating lease agreements
Rentals applicable to operating leases where substantially all of the
benefits and risks of ownership remain with the lessor are charged against
profits as incurred.
Pension costs
The company operates a defined contribution pension scheme for employees.
The assets of the scheme are held separately from those of the company. The
annual contributions payable are charged to the profit and loss account.
2. INCOME REVENUE RECOGNITION
Revenue arising from the sale of hardware products represents invoiced
sales during the period, net of value added taxation and is recognized as the
products are shipped. Revenue arising from annual maintenance and support
contracts is recognized over the period of the contract.
F-73
<PAGE> 130
INFORMATION SUPPORT LTD
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income arises when a portion of a contract period, for which an
invoice has been issued in advance, falls after the year end.
3. OTHER OPERATING INCOME
<TABLE>
<CAPTION>
1998 1997
------ ------
L L
<S> <C> <C>
Rent receivable............................................. 39,517 40,151
====== ======
</TABLE>
4. OPERATING PROFIT
Operating profit is stated after charging:
<TABLE>
<CAPTION>
1998 1997
------ ------
L L
<S> <C> <C>
Amortization................................................ 22,519 46,223
Depreciation................................................ 40,770 28,020
Auditors' remuneration -- as auditors....................... 5,500 5,400
====== ======
</TABLE>
5. PARTICULARS OF EMPLOYEES
The average number of staff employed by the company during the financial
year amounted to:
<TABLE>
<CAPTION>
1998 1997
NO. NO.
---- ----
<S> <C> <C>
Number of field/workshop staff.............................. 31 33
Number of distribution staff................................ 13 7
Number of administrative staff.............................. 7 7
-- --
51 47
== ==
</TABLE>
The aggregate payroll costs of the above were:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
L L
<S> <C> <C>
Wages and salaries & Social security costs.................. 1,302,750 967,943
Other pension costs......................................... 40,470 46,487
--------- ---------
1,343,220 1,014,430
========= =========
</TABLE>
6. DIRECTORS' EMOLUMENTS
The directors' aggregate emoluments in respect of qualifying services were:
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Emoluments receivable....................................... 158,730 161,447
Pension contributions....................................... 14,080 14,040
------- -------
172,810 175,487
======= =======
</TABLE>
F-74
<PAGE> 131
INFORMATION SUPPORT LTD
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The number of directors who are accruing benefits under the company pension
schemes were as follows:
<TABLE>
<CAPTION>
1998 1997
NO. NO.
---- ----
<S> <C> <C>
Defined contribution schemes................................ 3 3
==== ====
</TABLE>
7. INTEREST PAYABLE
<TABLE>
<CAPTION>
1998 1997
------ ------
L L
<S> <C> <C>
Interest payable on bank borrowing.......................... 14,256 16,412
Other similar charges payable............................... -- 3,016
------ ------
14,256 19,428
====== ======
</TABLE>
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
------ ------
L L
<S> <C> <C>
In respect of the year:
Corporation tax based on the results for the year at 21%
(1997 -- 24%).......................................... 25,067 18,334
Adjustment in respect of previous years:
Corporation tax........................................... 2,975 (3,408)
------ ------
28,042 21,742
====== ======
</TABLE>
9. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
GOODWILL
--------
L
<S> <C>
COST
AT 1ST APRIL 1997 AND 31ST MARCH 1998....................... 450,376
=======
AMORTIZATION
At 1st April 1997........................................... 162,141
Charge for the year......................................... 22,519
-------
184,660
=======
AT 31ST MARCH 1998
NET BOOK VALUE
AT 31ST MARCH 1998.......................................... 265,716
=======
At 31st March 1997.......................................... 288,235
=======
</TABLE>
F-75
<PAGE> 132
INFORMATION SUPPORT LTD
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES
FITTING &
EQUIPMENT
---------
L
<S> <C>
COST
At 1st April 1997........................................... 203,851
Additions................................................... 18,255
-------
AT 31ST MARCH 1998.......................................... 222,106
=======
DEPRECIATION
At 1st April 1997........................................... 104,583
Charge for the year......................................... 40,770
-------
AT 31ST MARCH 1998.......................................... 145,353
=======
NET BOOK VALUE
AT 31ST MARCH 1998.......................................... 76,753
=======
At 31st March 1997.......................................... 99,268
=======
</TABLE>
11. INVESTMENTS
Shares in Group Undertaking
<TABLE>
<CAPTION>
L
<S> <C>
COST
Additions................................................... 2
---------
At 31st March 1998.......................................... 2
=========
NET BOOK VALUE
AT 31ST MARCH 1998.......................................... 2
=========
</TABLE>
The company owns 100% of the issued share capital of ISL Software Solutions
Ltd and the aggregate amount of its capital and reserves and the results for the
period ended 31st March 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
AGGREGATE CAPITAL AND RESERVES
Capital & reserves........................................ (43,911) --
Profit and (loss) for the year............................
Results................................................... (43,913) --
</TABLE>
Under the provision of section 248 of the Companies Act 1985 the company is
exempt from preparing consolidated accounts and has not done so, therefore the
accounts show information about the company as an individual entity.
12. STOCKS
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Finished goods.............................................. 236,253 410,417
======= =======
</TABLE>
F-76
<PAGE> 133
INFORMATION SUPPORT LTD
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. DEBTORS
<TABLE>
<CAPTION>
1998 1997
--------- ---------
L L
<S> <C> <C>
Trade debtors............................................... 1,072,818 872,538
Amounts owed by group undertakings.......................... 131,195 --
Other debtors............................................... 20,000 --
Prepayments and accrued income.............................. 209,148 163,305
--------- ---------
1,433,161 1,035,843
========= =========
</TABLE>
14. CREDITORS: Amounts failing due within one year
<TABLE>
<CAPTION>
1998 1997
--------- ---------
L L
<S> <C> <C>
Bank loans and overdrafts................................... 89,983 59,964
Trade creditors............................................. 639,622 607,212
Other creditors including taxation and social security:
Corporation tax............................................. 28,042 25,150
PAYE and social security.................................... 46,781 56,990
VAT......................................................... 148,443 171,688
--------- ---------
223,266 253,828
Accruals and deferred income................................ 985,829 892,430
--------- ---------
1,938,700 1,813,434
========= =========
</TABLE>
The bank overdraft is secured by fixed and floating charge on the assets of
the company.
15. COMMITMENTS UNDER OPERATING LEASES
At 31st March 1998 the company had annual commitments under non-cancellable
operating leases as set out below.
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
LAND & OTHER LAND & OTHER
BUILDINGS ITEMS BUILDINGS ITEMS
--------- ------- --------- -------
L L L L
<S> <C> <C> <C> <C>
Operating leases which expire:
Within 1 year............................... 70,125 130,089 70,125 92,386
Within 2 to 5 years......................... 87,656 95,276 157,781 75,936
------- ------- ------- -------
157,781 225,365 277,906 168,322
======= ======= ======= =======
</TABLE>
16. RELATED PARTY TRANSACTIONS
During the year the company paid consultancy fees to Mr C Williams of
L14,689 (1997 L7,823) in the normal course of business. Mr C Williams is a
shareholder of the company and ex-director.
F-77
<PAGE> 134
INFORMATION SUPPORT LTD
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
17. SHARE CAPITAL
AUTHORISED SHARE CAPITAL:
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
1,600,000 Ordinary shares of L0.05 each..................... 80,000 80,000
718,840 Ordinary "A" shares of L0.05 each................... 35,942 35,942
------- -------
115,942 115,942
======= =======
</TABLE>
ALLOTTED, CALLED UP AND FULLY PAID:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
NO. L NO. L
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Ordinary shares.......................... 1,600,000 80,000 1,600,000 80,000
Ordinary "A" shares...................... 718,840 35,942 718,840 35,942
--------- ------- --------- -------
2,318,840 115,942 2,318,840 115,942
========= ======= ========= =======
</TABLE>
18. PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Balance brought forward..................................... (94,695) (96,679)
Retained profit for the financial year...................... 53,069 1,984
------- -------
Balance carried forward..................................... (41,626) (94,695)
======= =======
</TABLE>
19. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
------ ------
L L
<S> <C> <C>
Profit for the financial year............................... 53,069 1,984
Opening shareholders' equity funds.......................... 21,247 19,263
------ ------
Closing shareholders' equity funds.......................... 74,316 21,247
====== ======
</TABLE>
20. RECONCILIATION BETWEEN UK AND US ACCOUNTING PRINCIPLES
The financial statements of the company set out on pages 2 to 13 have been
prepared in accordance with generally accepted accounting principles applicable
in the UK ("UK GAAP"), which differ in certain significant respects from those
applicable in the US ("US GAAP"). The material differences as they apply to the
company's financial statements are, as follows:
Consolidation
The company has availed of specific exemptions (available under UK GAAP)
from the requirement to prepare consolidated financial statements to incorporate
the results of its wholly owned subsidiary, ISL Software Solutions Limited.
F-78
<PAGE> 135
INFORMATION SUPPORT LTD
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The tables below set out the effect on shareholders funds and profit for
the year on the results of the company on the inclusion of ISL Software
Solutions Limited in its results for the year.
Effect on the Retained Profit:
<TABLE>
<CAPTION>
1998 1997
------- ------
L L
<S> <C> <C>
Profit as stated under UK GAAP.............................. 53,069 1,984
US GAAP adjustments:
Consolidation of ISL Software Solutions Limited............. (43,913) --
------- ------
Net (loss)/income as stated under US GAAP................... 9,156 1,984
------- ------
</TABLE>
Effect on Shareholders' Equity:
<TABLE>
<S> <C> <C>
Shareholders' equity as stated under UK GAAP................ 74,316 21,247
US GAAP adjustments:
Inclusion of ISL Software Solutions Limited................. (43,913) --
------- ------
Shareholders' equity as stated under US GAAP................ 30,403 21,247
======= ======
</TABLE>
F-79
<PAGE> 136
SARACEN COMPUTER SYSTEMS LIMITED
<TABLE>
<S> <C>
DIRECTORS J. D. Swingler
Mrs. D. J. Swingler
D. M. Billinge
A. P. Stephens
SECRETARY Mrs. D. J. Swingler
AUDITORS Moore Stephens,
Chartered Accountants,
Charterhouse,
165 Newhall Street,
Birmingham B3 1SW
BANKERS Barclays Bank plc,
15 Market Square,
Stafford ST16 2BE
REGISTERED OFFICE St. Mary's House,
Church Street,
Uttoxeter,
Staffordshire ST14 8AG
Company number :
1930247
</TABLE>
F-80
<PAGE> 137
SARACEN COMPUTER SYSTEMS LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently.
- make judgments and estimates that are reasonable and prudent.
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
F-81
<PAGE> 138
AUDITORS' REPORT TO THE MEMBERS OF
SARACEN COMPUTER SYSTEMS LIMITED
We have audited the financial statements set out on the following pages
which have been prepared under the historical cost convention and the accounting
policies set out in note 1.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on the preceding page, the company's directors are responsible
for the preparation of financial statements in accordance with generally
accepted accounting principles in the UK. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board which are substantially similar to US GAAS. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the company's affairs at 31st October 1997 and 31st October 1996 and of
its profit for the years then ended and have been properly prepared in
accordance with the Companies Act 1985.
MOORE STEPHENS
CHARTERED ACCOUNTANTS
AND REGISTERED AUDITOR
Charterhouse
165 Newhall Street
Birmingham B3 1SW
15TH JANUARY 1998
ADDENDUM
In our opinion the information contained within note 19 and the cash flow
statement and notes thereto fairly presents the adjustments which would be
required if these financial statements, which have been prepared under generally
accepted accounting principles in the United Kingdom, had been prepared under
generally accepted accounting principles in the United States.
MOORE STEPHENS
CHARTERED ACCOUNTANTS
24TH JANUARY 2000
F-82
<PAGE> 139
SARACEN COMPUTER SYSTEMS LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEARS ENDED
31ST OCTOBER
<TABLE>
<CAPTION>
NOTES 1997 1996
----- --------- -------
L L
<S> <C> <C> <C>
TURNOVER.................................................... 3 1,063,160 970,374
Cost of sales............................................... 417,434 371,818
--------- -------
GROSS PROFIT................................................ 645,726 598,556
Administrative expenses..................................... 520,724 509,393
--------- -------
OPERATING PROFIT............................................ 4 125,002 89,163
Interest payable............................................ 5 5,472 5,986
--------- -------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 119,530 83,177
Taxation.................................................... 6 25,462 22,845
--------- -------
PROFIT FOR THE FINANCIAL YEAR............................... 94,068 60,332
Proposed dividends.......................................... 90,000 --
--------- -------
TRANSFER TO RESERVES........................................ 15 4,068 60,332
========= =======
</TABLE>
There are no recognized gains or losses other than those included in the profit
and loss account.
Notes 1 to 18 form part of these financial statements.
F-83
<PAGE> 140
SARACEN COMPUTER SYSTEMS LIMITED
BALANCE SHEET
AS AT 31ST OCTOBER
<TABLE>
<CAPTION>
NOTES 1997 1996
----- -------- -------
L L
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets........................................... 7 54,824 9,964
Tangible assets............................................. 8 313,893 305,161
-------- -------
368,717 315,125
CURRENT ASSETS
Stock....................................................... 9 20,570 35,825
Debtors..................................................... 10 222,647 158,348
Taxation.................................................... 11 22,500 --
Directors loans............................................. 25,000 --
Cash at bank and in hand.................................... 200 15
-------- -------
290,917 194,188
-------- -------
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loans and overdrafts (Secured)......................... 12 58,503 48,431
Creditors................................................... 13 203,890 180,690
Dividends payable........................................... 90,000 --
Taxation.................................................... 49,500 17,290
-------- -------
401,893 246,411
-------- -------
NET CURRENT LIABILITIES..................................... (110,976) (52,223)
-------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 257,741 262,902
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR..... 13 13,771 23,000
-------- -------
243,970 239,902
======== =======
CAPITAL AND RESERVES
Share capital............................................... 14 5,000 5,000
Profit and loss account..................................... 15 238,970 234,902
-------- -------
243,970 239,902
======== =======
</TABLE>
Notes 1 to 18 form part of these financial statements.
These financial statements were approved by the Board on 15th January 1998
J. D. Swingler
Director
F-84
<PAGE> 141
SARACEN COMPUTER SYSTEMS LIMITED
CASH FLOW STATEMENT
FOR THE YEARS ENDED
31ST OCTOBER
<TABLE>
<CAPTION>
1997 1996
---------- ----------
L L
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers.............................. 1,158,045 1,084,032
Cash paid to suppliers and employees...................... (1,044,209) (1,019,713)
Interest paid............................................. (5,472) (5,986)
UK Corporation tax paid................................... (15,752) --
========== ==========
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 92,612 58,333
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of tangible fixed assets............... 7,414 2,700
Capital expenditures...................................... (64,864) (32,858)
========== ==========
NET CASH USED IN INVESTING ACTIVITIES....................... (57,450) (30,158)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obligations........ (25,049) (16,628)
Repayment of loans........................................ (20,000) --
Increase/(Decrease) in short-term bank borrowing.......... 10,072 (11,591)
========== ==========
NET CASH USED BY FINANCING ACTIVITIES....................... (34,977) (28,219)
---------- ----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........ 185 (44)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 15 59
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... 200 15
========== ==========
SUPPLEMENTAL NON CASH INFORMATION
Capital expenditures financed by debt..................... 36,314 7,500
========== ==========
</TABLE>
F-85
<PAGE> 142
SARACEN COMPUTER SYSTEMS LIMITED
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
------- -------
IRL IRL
<S> <C> <C>
PROFIT FOR THE FINANCIAL YEAR............................... 94,068 60,332
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Depreciation.............................................. 45,461 39,441
Profit on sale of tangible fixed assets................... (5,289) (1,548)
Change in assets and liabilities Increase in debtors...... (85,634) (2,957)
Decrease/(Increase) in stock........................... 15,255 (4,325)
Increase in prepaid expenses........................... (3,665) (4,461)
Increase/(decrease) in creditors and accrued
expenses.............................................. 22,706 (50,994)
Increase in corporation tax payable.................... 9,710 22,845
======= =======
TOTAL ADJUSTMENTS........................................... (1,456) (1,999)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 92,612 58,333
======= =======
</TABLE>
F-86
<PAGE> 143
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31ST OCTOBER 1996 & 1997
1. PRINCIPAL ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost convention.
REVENUE RECOGNITION
Revenue arising from the sale of hardware products represents invoiced
sales during the period, net of value added taxation and is recognized as the
products are shipped. Revenue arising from annual maintenance support and
software contracts is recognized over the period of the contract.
Deferred income arises when either a portion of a contract period, for
which an invoice has been issued in advance, falls after the year end or where
work invoiced has not been completed.
FIXED ASSETS AND DEPRECIATION
Fixed assets are depreciated over their estimated useful lives using the
following rates:--
<TABLE>
<S> <C>
Freehold property.......................................... Nil
Office equipment........................................... 10% Straight line
Motor vehicles............................................. 25% Straight line
Computers.................................................. 20% Straight line
Research and development................................... Nil
</TABLE>
Freehold property is not depreciated as it is considered that the residual
value and life of the property is such that depreciation would not be material.
RESEARCH AND DEVELOPMENT
Research and development expenditure is charged against profit in the year
in which it is incurred, except insofar as it relates to a clearly defined
project and the benefits therefrom can reasonably be regarded as assured.
Expenditure so deferred is limited to the value of future benefits and is
amortized through the profit and loss account on a systematic basis over the
period expected to benefit from the project.
STOCKS
Stocks have been consistently valued at the lower of cost and net
realisable value.
DEFERRED TAXATION
Deferred taxation is calculated under the liability method. Taxation
deferred or accelerated by reason of material timing differences is accounted
for if such liability is expected to arise in the foreseeable future. Advance
corporation tax is carried forward to the extent that it is expected to be
recovered.
F-87
<PAGE> 144
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. DIRECTORS AND EMPLOYEES
<TABLE>
<CAPTION>
1997 1996
----------- -------
L L
<S> <C> <C>
DIRECTORS' EMOLUMENTS
Aggregate emoluments........................................ 193,218 173,937
Company pension contributions to money purchase schemes..... 21,493 51,140
----------- -------
214,711 225,077
=========== =======
</TABLE>
The number of directors to whom retirement benefits are accruing under the
following schemes are:--
<TABLE>
<CAPTION>
NUMBER NUMBER
----------- -------
<S> <C> <C>
MONEY PURCHASE SCHEMES...................................... 4 4
========= =======
</TABLE>
STAFF
Staff costs, including directors, during the year were as follows:--
<TABLE>
<CAPTION>
L L
----------- -------
<S> <C> <C>
Wages and salaries.......................................... 308,729 296,350
Social security costs....................................... 32,932 30,587
Other pension costs......................................... 21,493 51,140
--------- -------
363,154 378,077
========= =======
</TABLE>
The average number of persons employed by the company in the year was:--
<TABLE>
<CAPTION>
NUMBER NUMBER
----------- -------
<S> <C> <C>
Creative.................................................... 7 6
Administration.............................................. 2 2
Directors................................................... 4 4
--------- -------
13 12
========= =======
</TABLE>
3. TURNOVER
<TABLE>
<CAPTION>
1997 1996
----------- -------
L L
<S> <C> <C>
Geographical analysis:--
United Kingdom............................................ 888,680 666,372
Rest of Europe............................................ 122,640 295,937
South Africa.............................................. 51,840 8,065
--------- -------
1,063,160 970,374
========= =======
</TABLE>
F-88
<PAGE> 145
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. OPERATING PROFIT
<TABLE>
<CAPTION>
1997 1996
--------- -----------
L L
<S> <C> <C>
Operating profit is stated after charging:--
Depreciation and amounts written off tangible fixed
assets.................................................... 45,461 39,441
(Profit) on disposal of assets.............................. (5,289) (1,548)
Research and development Current year's expenditure......... -- 4,249
Directors' emoluments (note 2).............................. 214,711 225,077
Auditors' remuneration...................................... 3,000 3,000
========= =======
</TABLE>
5. INTEREST PAYABLE
<TABLE>
<CAPTION>
1997 1996
----------- -------
L L
<S> <C> <C>
Bank loans and overdrafts................................... 3,054 3,447
Finance lease charges....................................... 2,418 2,539
--------- -------
5,472 5,986
========= =======
</TABLE>
6. TAXATION ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
----------- -------
L L
<S> <C> <C>
Corporation tax at 24% (1996 25%)........................... 27,000 23,000
Under/(over)provision for previous years.................... (1,538) (155)
--------- -------
25,462 22,845
========= =======
</TABLE>
7. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
RESEARCH &
DEVELOPMENT
-----------
L
<S> <C> <C>
COST
At 31st October 1996........................................ 9,964
Additions................................................... 44,860
---------
At 31st October 1997........................................ 54,824
=========
</TABLE>
F-89
<PAGE> 146
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD OFFICE MOTOR
PROPERTY EQUIPMENT VEHICLES COMPUTERS TOTAL
-------- --------- -------- --------- -------
L L L L L
<S> <C> <C> <C> <C> <C>
COST
31st October 1996...................... 183,281 77,967 87,469 152,052 500,769
Additions.............................. 1,800 2,234 38,814 13,470 56,318
Disposals.............................. -- -- (20,414) -- (20,414)
------- ------ ------- ------- -------
31st October 1997...................... 185,081 80,201 105,869 165,522 536,673
------- ------ ------- ------- -------
AMOUNTS WRITTEN OFF
31st October 1996...................... -- 30,656 57,422 107,530 195,608
Disposal adjustment.................... -- -- (18,289) -- (18,289)
Charge for the year.................... -- 7,800 23,194 14,467 45,461
------- ------ ------- ------- -------
31st October 1997...................... -- 38,456 62,327 121,997 222,780
------- ------ ------- ------- -------
NET BOOK VALUE
31st October 1997...................... 185,081 41,745 43,542 43,525 313,893
======= ====== ======= ======= =======
31st October 1996...................... 183,281 47,311 30,047 44,522 305,161
======= ====== ======= ======= =======
</TABLE>
The net book value includes an amount of L37,301 (1996 L25,625) in respect
of assets held under finance leases. The depreciation charge for the year was
L5,109 (1996 L14,868) in respect of these assets.
The cost of depreciable assets included above is L351,592.
9. STOCKS
<TABLE>
<CAPTION>
1997 1996
------ ------
L L
<S> <C> <C>
Stocks comprise:
Consumable stock............................................ 8,024 24,000
Work in progress............................................ 4,850 5,375
Computer equipment.......................................... 7,696 6,450
------ ------
20,570 35,825
====== ======
</TABLE>
10. DEBTORS
<TABLE>
<CAPTION>
1997 1996
------- -------
L L
<S> <C> <C>
Trade debtors............................................... 212,054 151,420
Prepayments and accrued income.............................. 10,593 6,928
------- -------
222,647 158,348
======= =======
</TABLE>
11. TAXATION
Advance corporation tax of L22,500 is recoverable in more than one year.
F-90
<PAGE> 147
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12. BANK LOANS AND OVERDRAFTS
Bank loans and overdrafts are secured by a fixed and floating charge on the
assets of the company.
13. CREDITORS
<TABLE>
<CAPTION>
AMOUNTS FALLING
DUE WITHIN ONE YEAR
--------------------
1997 1996
------- -------
L L
<S> <C> <C>
Trade creditors............................................. 153,731 149,736
Other taxation and social security payable.................. 20,899 16,123
Capitalised leases.......................................... 10,423 9,929
Accruals and deferred income................................ 18,837 4,902
------- -------
203,890 180,690
======= =======
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS FALLING DUE
AFTER MORE THAN ONE YEAR
------------------------
1997 1996
--------- ---------
L L
<S> <C> <C>
Capitalised leases.......................................... 13,771 3,000
Other creditors............................................. -- 20,000
------- -------
13,771 23,000
======= =======
</TABLE>
14. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
------- -------
L L
<S> <C> <C>
Ordinary shares of L1 each:--
Authorised.................................................. 100,000 100,000
======= =======
Allotted, called up and fully paid.......................... 5,000 5,000
======= =======
</TABLE>
15. PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
1997 1996
------- -------
L L
<S> <C> <C>
At 31st October 1996........................................ 234,902 174,570
Transfer for the year....................................... 4,068 60,332
------- -------
At 31st October 1997........................................ 238,970 234,902
======= =======
</TABLE>
16. PENSION SCHEMES
The company operates defined contribution pension schemes for the directors
by way of payments to insurance companies. The pension cost charge represents
contributions payable by the company to the funds and amounted to L21,493 (1996
L51,140).
F-91
<PAGE> 148
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
17. TRANSACTIONS WITH DIRECTORS
During the year non-interest bearing loans, repayable on demand were made
to the following directors:--
<TABLE>
<CAPTION>
J.D. SWINGLER MRS. D.J. SWINGLER
------------- ------------------
L L
<S> <C> <C>
Amount at beginning of year................................. -- --
------ ------
Amount at end of year....................................... 12,000 13,000
------ ------
Maximum amount in the year.................................. 12,000 18,000
------ ------
</TABLE>
18. CONTROL OF COMPANY
The company was controlled throughout the current and previous period by J.
D. Swingler and Mrs. D. J. Swingler by virtue of them holding a majority of the
issued ordinary share capital of the company.
19. RECONCILIATION BETWEEN UK AND US ACCOUNTING PRINCIPLES
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles applicable in the United Kingdom
("UK GAAP") which differ in certain significant respects from those applicable
in the US ("US GAAP"). The material differences as they apply to the Company's
financial statements are as follows:
INTANGIBLE FIXED ASSETS -- RESEARCH AND DEVELOPMENT
Under US GAAP the capitalized research & development costs would be
expensed through the income statement as technological feasibility has not yet
been established.
The following is a summary of the material adjustments to profit and
shareholders' equity which would be required had the financial statements been
prepared with US GAAP:
(i) EFFECT ON RETAINED PROFIT
<TABLE>
<CAPTION>
1997 1996
------- -------
L L
<S> <C> <C>
Profit as stated under UK GAAP.............................. 94,068 60,332
US GAAP adjustments
Research and development costs.............................. (44,860) (1,754)
Corporation tax relief on the above......................... 10,000 400
------- -------
Net income as stated under US GAAP.......................... 59,208 58,978
======= =======
</TABLE>
F-92
<PAGE> 149
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(ii) EFFECT ON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
31ST OCT. 31ST OCT.
1997 1996
--------- ---------
L L
<S> <C> <C>
Shareholders Equity as stated under UK GAAP................. 243,970 239,902
US GAAP adjustments
Research and development.................................... (54,824) (9,964)
Corporation tax relief on the above......................... 12,400 2,400
------- -------
Shareholders' Equity as stated under US GAAP................ 201,546 232,338
======= =======
</TABLE>
F-93
<PAGE> 150
SARACEN COMPUTER SYSTEMS LIMITED
UNAUDITED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
30TH APRIL 30TH APRIL
NOTES 1998 1997
----- ---------- ----------
L L
<S> <C> <C> <C>
TURNOVER.................................................... 3 489,128 510,126
Cost of sales............................................... 140,579 208,148
------- -------
GROSS PROFIT................................................ 348,549 301,978
Administrative expenses..................................... 340,495 272,557
------- -------
OPERATING PROFIT............................................ 4 8,054 29,421
Interest payable............................................ 5 1,550 3,854
------- -------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 6,504 25,567
Taxation.................................................... 6 -- 5,000
------- -------
PROFIT FOR THE FINANCIAL YEAR............................... 6,504 20,567
Proposed dividends.......................................... -- --
------- -------
TRANSFER TO RESERVES........................................ 15 6,504 20,567
======= =======
</TABLE>
There are no recognized gains or losses other than those included in the profit
and loss account.
F-94
<PAGE> 151
SARACEN COMPUTER SYSTEMS LIMITED
UNAUDITED BALANCE SHEET
30TH APRIL 1998
<TABLE>
<CAPTION>
NOTES 1998
----- -------
L
<S> <C> <C>
FIXED ASSETS
Intangible assets........................................... 7 --
Tangible assets............................................. 8 297,151
-------
297,151
CURRENT ASSETS
Stock....................................................... 9 17,760
Debtors..................................................... 10 242,281
Taxation.................................................... 11 22,500
Directors loans............................................. --
Cash at bank and in hand.................................... 200
-------
282,741
-------
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loans and overdrafts (Secured)......................... 12 61,179
Creditors................................................... 13 220,990
Dividends payable........................................... --
Taxation.................................................... 37,000
-------
319,169
-------
NET CURRENT LIABILITIES..................................... (36,428)
-------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 260,723
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR..... 13 10,249
-------
250,474
=======
CAPITAL AND RESERVES
Share capital............................................... 14 5,000
Profit and loss account..................................... 15 245,474
-------
250,474
=======
</TABLE>
F-95
<PAGE> 152
SARACEN COMPUTER SYSTEMS LIMITED
UNAUDITED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
30TH APRIL 30TH APRIL
1998 1997
---------- ----------
L L
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers.............................. 575,136 660,192
Cash paid to suppliers and employees...................... (465,827) (643,599)
Interest paid............................................. (1,550) (3,854)
UK Corporation tax paid................................... (12,500) (21,146)
======== ========
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES............ 95,259 (8,407)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of tangible fixed assets............... -- --
Capital expenditures...................................... (4,038) (31,763)
======== ========
NET CASH USED IN INVESTING ACTIVITIES....................... (4,038) (31,763)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obligations........ (3,897) (10,662)
Dividends paid............................................ (90,000) --
Increase in short-term bank borrowing..................... 2,676 50,832
======== ========
NET CASH USED BY FINANCING ACTIVITIES....................... (91,221) 40,170
-------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........ -- --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 200 15
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. 200 15
======== ========
SUPPLEMENTAL NON CASH INFORMATION
Capital expenditures financed by debt..................... -- 11,900
======== ========
</TABLE>
F-96
<PAGE> 153
SARACEN COMPUTER SYSTEMS LIMITED
UNAUDITED RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
30TH APRIL 30TH APRIL
---------- ----------
1998 1997
---------- ----------
L L
<S> <C> <C>
PROFIT FOR THE FINANCIAL PERIOD............................. 6,504 20,567
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Depreciation.............................................. 20,780 22,500
Amounts written off intangible assets..................... 54,824 --
Change in assets and liabilities
Decrease/(Increase) in debtors......................... 37,457 (100,394)
Decrease in stock...................................... 2,810 10,825
Increase in prepaid expenses........................... (8,576) (24,467)
(Decrease)/Increase in creditors and accrued
expenses.............................................. (6,040) 78,708
(Decrease) in corporation tax payable.................. (12,500) (16,146)
======= ========
TOTAL ADJUSTMENT............................................ 88,755 (28,974)
------- --------
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES............ 95,259 (8,407)
======= ========
</TABLE>
F-97
<PAGE> 154
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE
UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
30TH APRIL 1997 & 1998
1. PRINCIPAL ACCOUNTING POLICIES
BASIS OF PREPARATION
These unaudited interim financial statements have been prepared by the
directors of Saracen Computer Systems Limited in accordance with generally
accepted accounting principles in the UK, and reflect all adjustments which are,
in the opinion of the management, necessary to present a fair statement of the
results for the interim periods presented.
Results of operations for the unaudited interim periods may not be
indicative of annual results.
REVENUE RECOGNITION
Revenue arising from the sale of hardware products represents invoiced
sales during the period, net of value added taxation and is recognized as the
products are shipped. Revenue arising from annual maintenance support and
software contracts is recognized over the period of the contract.
Deferred income arises when either a portion of a contract period, for
which an invoice has been issued in advance, falls after the year end or where
work invoiced has not been completed.
FIXED ASSETS AND DEPRECIATION
Fixed assets are depreciated over their estimated useful lives using the
following rates:-
<TABLE>
<S> <C>
Freehold property NIL
Office equipment 10% STRAIGHT LINE
Motor vehicles 25% STRAIGHT LINE
Computers 20% STRAIGHT LINE
Research and development NIL
</TABLE>
Freehold property is not depreciated as it is considered that the residual
value and life of the property is such that depreciation would not be material.
RESEARCH AND DEVELOPMENT
Research and development expenditure is charged against profit in the year
in which it is incurred, except insofar as it relates to a clearly defined
project and the benefits therefrom can reasonably be regarded as assured.
Expenditure so deferred is limited to the value of future benefits and is
amortized through the profit and loss account on a systematic basis over the
period expected to benefit from the project.
STOCKS
Stocks have been consistently valued at the lower of cost and net
realisable value.
DEFERRED TAXATION
Deferred taxation is calculated under the liability method. Taxation
deferred or accelerated by reason of material timing differences is accounted
for if such liability is expected to arise in the foreseeable future. Advance
corporation tax is carried forward to the extent that it is expected to be
recovered.
F-98
<PAGE> 155
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE
UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
2. DIRECTORS AND EMPLOYEES
<TABLE>
<CAPTION>
30TH APRIL 30TH APRIL
1998 1997
---------- ----------
L L
<S> <C> <C>
DIRECTORS' EMOLUMENTS
Aggregate emoluments........................................ 92,040 92,350
Company pension contributions to money purchase schemes..... 7,838 13,440
------ -------
99,878 105,790
====== =======
</TABLE>
The number of directors to whom retirement benefits are accruing under the
following schemes are:
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
Money purchase schemes...................................... 4 4
== ==
</TABLE>
STAFF
Staff costs, including directors, during the period were as follows:-
<TABLE>
<CAPTION>
L L
------- -------
<S> <C> <C>
Wages and salaries.......................................... 171,190 155,796
Social security costs....................................... 17,072 13,369
Other pension costs......................................... 8,713 13,440
------- -------
196,975 182,605
======= =======
</TABLE>
The average number of persons employed by the company in the period was:-
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
Creative.................................................... 7 6
Administration.............................................. 2 2
Directors................................................... 4 4
-- --
13 12
== ==
</TABLE>
3. TURNOVER
<TABLE>
<CAPTION>
L L
------- -------
<S> <C> <C>
Geographical analysis:-
United Kingdom.............................................. 420,291 460,352
Rest of Europe.............................................. 68,837 49,774
------- -------
489,128 510,126
======= =======
</TABLE>
F-99
<PAGE> 156
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE
UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
4. OPERATING PROFIT
<TABLE>
<CAPTION>
30TH APRIL 30TH APRIL
1998 1997
---------- ----------
L L
<S> <C> <C>
Operating profit is stated after charging:-
Depreciation and amounts written off tangible fixed
assets.................................................... 20,780 22,500
Research and development
Amount written off.......................................... 54,824 --
Directors' emoluments (note 2).............................. 99,878 105,790
------ -------
Auditors' remuneration...................................... 2,000 1,635
====== =======
</TABLE>
5. INTEREST PAYABLE
<TABLE>
<CAPTION>
L L
----- -----
<S> <C> <C>
Bank loans and overdrafts................................... 451 1,189
Other loans............................................... -- 1,060
Finance lease charges..................................... 1,099 1,605
----- -----
1,550 3,854
===== =====
</TABLE>
6. TAXATION ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
L L
--- -----
<S> <C> <C>
Corporation tax at 21% (1997 24%)........................... -- 5,000
--- -----
</TABLE>
7. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
RESEARCH &
DEVELOPMENT
-----------
L
<S> <C>
COST
At 31st October 1997........................................ 54,824
Amounts written off......................................... (54,824)
-------
At 30th April 1998.......................................... --
=======
</TABLE>
F-100
<PAGE> 157
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE
UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD OFFICE MOTOR
PROPERTY EQUIPMENT VEHICLES COMPUTERS TOTAL
-------- --------- -------- --------- -------
L L L L L
<S> <C> <C> <C> <C> <C>
COST
31st October 1997...................... 185,081 80,201 105,869 165,522 536,673
Additions.............................. -- -- -- 4,038 4,038
Disposals.............................. -- -- -- -- --
------- ------ ------- ------- -------
30th April 1998........................ 185,081 80,201 105,869 169,560 540,711
======= ====== ======= ======= =======
AMOUNTS WRITTEN OFF
31st October 1997...................... -- 38,456 62,327 121,997 222,780
Disposal adjustment.................... -- -- -- -- --
Charge for the period.................. -- 4,008 8,924 7,848 20,780
------- ------ ------- ------- -------
30th April 1998........................ -- 42,464 71,251 129,845 243,560
======= ====== ======= ======= =======
NET BOOK VALUE
30th April 1998........................ 185,081 37,737 34,618 39,715 297,151
======= ====== ======= ======= =======
</TABLE>
The net book value includes an amount of L31,977 in respect of assets held
under finance leases. The depreciation charge for the year was L5,325 in respect
of these assets.
The cost of depreciable assets included above is L355,630.
9. STOCKS
<TABLE>
<CAPTION>
30TH APRIL
----------
1998
----------
L
<S> <C>
Stocks comprise:
Consumable stock............................................ 7,000
Work in progress............................................ 2,760
Computer equipment.......................................... 8,000
------
17,760
------
</TABLE>
10. DEBTORS
<TABLE>
<CAPTION>
30TH APRIL
1998
----------
L
<S> <C>
Trade debtors............................................... 199,597
Prepayments and accrued income.............................. 42,684
-------
242,281
=======
</TABLE>
11. TAXATION
Represents advance corporation tax recoverable.
12. BANK LOANS AND OVERDRAFTS
Bank loans and overdrafts are secured by a fixed and floating charge on the
assets of the company.
F-101
<PAGE> 158
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE
UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
13. CREDITORS
<TABLE>
<CAPTION>
AMOUNTS FALLING
DUE WITHIN ONE YEAR
-------------------
L
<S> <C>
Trade creditors............................................. 58,861
Other taxation and social security payable.................. 18,649
Capitalised leases.......................................... 10,048
Accruals and deferred income................................ 133,432
-------
220,990
=======
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS FALLING DUE
AFTER MORE THAN ONE YEAR
------------------------
L
<S> <C>
Capitalised leases.......................................... 10,249
Other creditors............................................. --
-----
10,249
=====
</TABLE>
14. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
30TH APRIL
1998
----------
L
<S> <C>
Ordinary shares of L1 each: --
Authorised................................................ 100,000
==========
Allotted, called up and fully paid........................ 5,000
==========
</TABLE>
15. PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
30TH APRIL
1998
----------
L
<S> <C>
At 31st October 1997........................................ 238,970
Transfer for the period..................................... 6,504
-------
30th April 1998............................................. 245,474
=======
</TABLE>
16. PENSION SCHEMES
The company operates defined contribution pension schemes for the directors
by way of payments to insurance companies. The pension cost charge represents
contributions payable by the company to the funds and amounted to L8,713.
F-102
<PAGE> 159
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE
UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
17. TRANSACTIONS WITH DIRECTORS
During the year non-interest bearing loans, repayable on demand were made
to the following directors: --
<TABLE>
<CAPTION>
J.D. SWINGLER MRS. D.J. SWINGLER
------------- ------------------
L L
<S> <C> <C>
Amount at beginning of period.......................... 12,000 13,000
------ ------
Amount at end of period................................ -- --
------ ------
Maximum amount in the period........................... 12,000 13,000
------ ------
</TABLE>
18. CONTROL OF COMPANY
The company was controlled throughout the current and previous period by J.
D. Swingler and Mrs. D. J. Swingler by virtue of them holding a majority of the
issued ordinary share capital of the company.
19. RECONCILIATION BETWEEN UK AND US ACCOUNTING PRINCIPLES
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles applicable in the United Kingdom
("UK GAAP") which differ in certain significant respects from those applicable
in the US ("US GAAP"). The material differences as they apply to the Company's
financial statements are as follows:
INTANGIBLE FIXED ASSETS -- RESEARCH AND DEVELOPMENT
Under US GAAP the capitalized research & development costs would be
expensed through the income statement as technological feasibility has not yet
been established.
The following is a summary of the material adjustments to profit and
shareholders' equity which would be required had the financial statements been
prepared with US GAAP:
(i) EFFECT ON RETAINED PROFIT
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
30TH APRIL 30TH APRIL
1998 1997
---------- ----------
L L
<S> <C> <C>
Profit as stated under UK GAAP.............................. 6,504 20,567
US GAAP adjustments
Research and development costs.............................. 54,824 (19,430)
Corporation tax on the above................................ (12,400) 4,300
------- -------
Net income as stated under US GAAP.......................... 48,928 5,437
======= =======
</TABLE>
F-103
<PAGE> 160
SARACEN COMPUTER SYSTEMS LIMITED
NOTES TO THE
UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) EFFECT ON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
30TH APRIL 30TH APRIL
1998 1997
---------- ----------
L L
<S> <C> <C>
Shareholders Equity as stated under UK GAAP................. 250,474 260,469
US GAAP adjustments
Research and development.................................... -- (29,394)
Corporation tax relief...................................... -- 6,700
------- -------
Shareholders' Equity as stated under US GAAP................ 250,474 233,775
======= =======
</TABLE>
F-104
<PAGE> 161
SOFTLY AWARE LIMITED
COMPANY INFORMATION
FOR THE YEAR ENDED 28 FEBRUARY 1999 & 28 FEBRUARY 1998
<TABLE>
<S> <C>
DIRECTORS: J P Frederick
A R Billingham
Mrs E V Frederick
SECRETARY: Mrs E V Frederick
REGISTERED OFFICE: 2 Longden Court
Spring Gardens
Buxton
Derbyshire
SK17 6DE
REGISTERED NUMBER: 2086719 (England and
Wales)
AUDITORS: HAYES & CO
Chartered Accountants
Registered Auditors
4 St Andrews Place
BLACKBURN
Lancashire
BB1 8AL
</TABLE>
F-105
<PAGE> 162
SOFTLY AWARE LIMITED
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF
SOFTLY AWARE LIMITED
We have audited the financial statements commencing with the profits and
loss account and finishing with note 11, which have been prepared in accordance
with the Financial Reporting Standard for Smaller Entities (effective March
1999), under the historical cost convention and the accounting policies set out
in note 1.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the statement of directors' responsibilities, the company's
directors are responsible for the preparation of financial statements in
accordance with generally accepted accounting principles in the UK. It is our
responsibility to form an independent opinion, based on our audit, on those
statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board which are substantially similar to US GAAS. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements and of whether the accounting policies are appropriate
to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the company's affairs as at 28 February 1999 and 28 February 1998 and
of its results for the year then ended and have been properly prepared in
accordance with the Companies Act 1985.
HAYES & CO
Chartered Accountants
Registered Auditors
4 St Andrews Place
BLACKBURN
Lancashire
BB1 8AL
Dated 26 July 1999
F-106
<PAGE> 163
SOFTLY AWARE LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEARS ENDED 28 FEBRUARY 1999 & 28 FEBRUARY 1998
<TABLE>
<CAPTION>
NOTES 1999 1998
----- ---------- ----------
L L
<S> <C> <C> <C>
TURNOVER.................................................... 1,512,146 1,473,304
Cost of Sales............................................... 558,242 547,943
---------- ----------
GROSS PROFIT................................................ 953,904 925,361
Administrative expenses..................................... 957,435 867,717
---------- ----------
OPERATING (LOSS)/PROFIT..................................... 2 (3,531) 57,644
Interest payable and similar charges........................ (5,805) (8,429)
---------- ----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION........ (9,336) 49,215
Tax on (loss)/profit on ordinary activities................. 3 (797) 10,067
---------- ----------
(LOSS)/PROFIT FOR THE FINANCIAL YEAR AFTER TAXATION......... (8,539) 39,148
Dividends................................................... 4 -- 8,000
---------- ----------
(8,539) 31,148
Retained profit brought forward............................. 138,093 106,945
---------- ----------
RETAINED PROFIT CARRIED FORWARD............................. L 129,544 L 138,093
========== ==========
</TABLE>
The notes form part of these financial statements.
F-107
<PAGE> 164
SOFTLY AWARE LIMITED
BALANCE SHEET AT
28 FEBRUARY 1999 & 28 FEBRUARY 1998
<TABLE>
<CAPTION>
NOTES 1999 1998
----- -------- --------
L L L L
<S> <C> <C> <C> <C> <C>
FIXED ASSETS:
Tangible assets.................................... 5 96,691 96,249
CURRENT ASSETS:
Stocks............................................. 111,007 63,568
Debtors............................................ 6 209,946 193,622
Cash in hand....................................... 216 81
------- -------
321,169 257,271
CREDITORS: Amounts falling due within one year..... 7 280,243 196,838
------- -------
NET CURRENT LIABILITIES............................ 40,926 60,433
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES:............. 137,617 156,682
CREDITORS: Amounts falling due after more than one
year............................................. 8 7,963 18,489
-------- --------
L129,654 L138,193
======== ========
CAPITAL AND RESERVES:
Called up share capital............................ 10 100 100
Profit and loss account............................ 129,554 138,093
-------- --------
Shareholders' Funds................................ L129,654 L138,193
======== ========
</TABLE>
STATEMENT OF DIRECTORS RESPONSIBILITIES
Company law require the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
These financial statements have been prepared in accordance with the
special provisions of Part VII of the Companies Act 1985 relating to small
companies and with the Financial Reporting Standards for Smaller Entities
(effective March 1999).
ON BEHALF OF THE BOARD:
P FREDERICK
A BILLINGHAM
Approved by the Board on 22 July 1999
The notes form part of these financial statements.
F-108
<PAGE> 165
SOFTLY AWARE LIMITED
CASH FLOW STATEMENT
FOR THE YEARS ENDED 28 FEBRUARY 1999 & 28 FEBRUARY 1998
<TABLE>
<CAPTION>
RESTATED
1999 1998
-------- --------
L L L L
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income........................................ (8,539) 39,148
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation Charges.............................. 29,105 15,151
Profit on sale of fixed assets.................... (3,788) --
Increase in stock................................. (47,439) (10,543)
Increase in debtors............................... (14,421) (2,189)
Increase in creditors and accrued expenses........ 66,135 9.829
------- -------
29,592 12,248
-------- --------
TOTAL ADJUSTMENTS
Net Cash provided by operating activities......... 21,053 51,396
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of tangible fixed assets................. (32,266) (3,277)
Sale of tangible fixed assets..................... 53,019 20,753 -- (3,277)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid.................................... -- (8,000)
Loan payments in year............................. (21,487) (3,587)
Capital lease payments in year.................... (24,665) (12,626)
Decrease/(Increase) in bank overdraft............. 4,481 (24,313)
(41,671) (48,526)
-------- --------
Net increase in cash and cash equivalents......... 135 (407)
Cash and cash equivalents at beginning of year.... 81 488
-------- --------
Cash and cash equivalents at end of year.......... L 216 L 81
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
New capital leases................................ 46,512 --
Interest paid..................................... 3,385 5,252
Interest element of capitalized lease payments.... 2,420 3,177
Taxation paid..................................... 10,824 5,444
</TABLE>
F-109
<PAGE> 166
SOFTLY AWARE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED 28 FEBRUARY 1999 & 28 FEBRUARY 1998
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The financial statements have been prepared under the historical cost
convention and in accordance with the Financial Reporting Standard for Smaller
Entities (effective March 1999).
REVENUE RECOGNITION
Revenue arising from the sale of hardware products represents invoiced
sales during the period, net of value added taxation and is recognized as the
products are installed. Revenue arising from annual maintenance, support and
software contracts is recognized when invoiced.
TANGIBLE FIXED ASSETS
Depreciation is provided at the following annual rates in order to write
off each asset over its estimated useful life or, if held under a finance lease,
over the lease term, whichever is the shorter.
Plant and machinery -- 20% on reducing balance
Fixtures and fittings -- 15% on reducing balance
Motor vehicles -- 25% on reducing balance
STOCKS
Stock is valued at the lower of cost and net realisable value, after making
due allowance for obsolete and slow moving items.
CAPITALISED LEASING
Assets obtained under hire purchase contracts or finance leases are
capitalized in the balance sheet. Those held under hire purchase contracts are
depreciated over their estimated useful lives. Those held under finance leases
are depreciated over their estimated useful lives or the lease term, whichever
is the shorter.
The interest element of these obligations is charged to the profit and loss
account over the relevant period. The capital element of the future payments is
treated as a liability.
PENSIONS
The company operates a defined contributions pension scheme. Contributions
payable for the year are charged in the profit and loss account.
F-110
<PAGE> 167
SOFTLY AWARE LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. OPERATING (LOSS)/PROFIT
The operating loss is stated after charging/(crediting):
<TABLE>
<CAPTION>
1999 1998
------ -------
L L
<S> <C> <C>
Depreciation -- owned assets................................ 8,789 7,573
Depreciation -- assets on capitalized leases................ 20,316 7,578
Profit on disposal of fixed assets.......................... (3,788) --
Auditors' remuneration...................................... 4,692 2,150
Pension costs............................................... 81,922 112,446
====== =======
Directors' emoluments and other benefits etc................ 87,800 84,167
====== =======
</TABLE>
3. TAXATION
The tax (credit)/charge on the loss on ordinary activities for the year was
as follows:
<TABLE>
<CAPTION>
1999 1998
---- ------
L L
<S> <C> <C>
UK Corporation tax.......................................... -- 10,067
Overprovision in earlier years.............................. (797) --
---- ------
(797) 10,067
==== ======
</TABLE>
4. DIVIDENDS
<TABLE>
<CAPTION>
1999 1998
---- -----
L L
<S> <C> <C>
Final dividend.............................................. -- 8,000
== =====
</TABLE>
5. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES
LEASEHOLD PLANT AND AND MOTOR
PROPERTY MACHINERY FITTINGS VEHICLES TOTALS
--------- --------- -------- -------- -------
L L L L L
<S> <C> <C> <C> <C> <C>
COST:
At 1 March 1998.......................... 41,750 43,316 26,049 81,857 192,972
Additions................................ -- -- 4,025 74,753 78,778
Disposals................................ (41,750) -- -- (31,825) (73,575)
------- ------ ------ ------- -------
At 28 February 1999...................... -- 43,316 30,074 124,785 198,175
------- ------ ------ ------- -------
DEPRECIATION:
At 1 March 1998.......................... 126 33,668 11,414 51,515 96,723
Charge for year.......................... -- 1,930 2,802 24,373 29,105
Eliminated on disposals.................. (126) -- -- (24,218) (24,344)
------- ------ ------ ------- -------
At 28 February 1999...................... -- 35,598 14,216 51,670 101,484
------- ------ ------ ------- -------
NET BOOK VALUE:
At 28 February 1999...................... -- 7,718 15,858 73,115 96,691
======= ====== ====== ======= =======
At 28 February 1998...................... 41,624 9,648 14,635 30,342 96,249
======= ====== ====== ======= =======
</TABLE>
F-111
<PAGE> 168
SOFTLY AWARE LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Fixed assets, included in the above, which are capitalized lease contracts
are as follows:
<TABLE>
<CAPTION>
MOTOR
VEHICLES
--------
L
<S> <C>
COST:
At 1 March 1998............................................. 50,032
Additions................................................... 74,753
Transferred to ownership.................................... (38,455)
-------
At 28 February 1999......................................... 86,330
-------
DEPRECIATION:
At 1 March 1998............................................. 27,297
Charge for year............................................. 20,316
Transferred to ownership.................................... (22,232)
-------
At 28 February 1999......................................... 25,381
-------
NET BOOK VALUE:
At 28 February 1999......................................... 60,949
=======
At 28 February 1998......................................... 22,735
=======
</TABLE>
6. DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
------- -------
L L
<S> <C> <C>
Trade debtors............................................... 207,873 193,469
Prepayments................................................. 170 153
Taxation recoverable........................................ 1,903 --
------- -------
209,946 193,622
======= =======
</TABLE>
7. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
------- -------
L L
<S> <C> <C>
Bank loans and overdrafts................................... 35,823 35,164
Capitalised lease contracts................................. 22,671 7,963
Trade creditors............................................. 184,574 106,043
Other creditors............................................. -- 1,547
Social security & other taxes............................... 31,730 23,366
Taxation.................................................... 500 10,218
Accrued expenses & deferred income.......................... 4,945 12,537
------- -------
280,243 196,838
======= =======
</TABLE>
F-112
<PAGE> 169
SOFTLY AWARE LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
----- ------
L L
<S> <C> <C>
Bank loans.................................................. -- 17,665
Capitalised lease contracts................................. 7,963 824
----- ------
7,963 18,489
===== ======
</TABLE>
9. SECURED DEBTS
The following secured debts are included within creditors:
<TABLE>
<CAPTION>
1999 1998
------ ------
L L
<S> <C> <C>
Bank overdrafts............................................. 35,823 31,342
Bank loans.................................................. -- 21,487
------ ------
35,823 52,829
====== ======
</TABLE>
10. CALLED UP SHARE CAPITAL
Authorised, allotted, issued and fully paid:
<TABLE>
<CAPTION>
NOMINAL
NUMBER: CLASS: VALUE: 1999 1998
- ------- -------- ------- ---- ----
L L
<S> <C> <C> <C> <C>
100 Ordinary 1 100 100
=== ===
</TABLE>
11. US/UK GAAP RECONCILIATION
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles applicable in the UK ("UK GAAP")
which differ in certain significant respects from those applicable in the US
("US GAAP"). The material differences as they apply to the Company's financial
statements are, as follows:
Revenue Recognition
In accordance with US GAAP revenue arising from annual maintenance, support
and software contracts is recognized over the period of the contract. Similarly,
deferred income arises when either a portion of a contract period, for which an
invoice has been issued in advance, falls after the year end or where work
invoiced has not been completed.
EFFECT ON RETAINED PROFIT:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Profit as stated under UK GAAP.............................. (8,539) 39,148
------- ------
US GAAP ADJUSTMENTS:
Revenue deferred to future accounting periods............... (8,045) (7,960)
Taxation.................................................... 1,850 1,831
------- ------
(Loss)/profit as stated under US GAAP....................... (14,734) 33,019
------- ------
</TABLE>
F-113
<PAGE> 170
SOFTLY AWARE LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
EFFECT ON SHAREHOLDERS' EQUITY:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Shareholders' equity as stated under UK GAAP................ 129,654 138,193
-------- --------
US GAAP ADJUSTMENTS:
Revenue deferred to future accounting periods............... (160,078) (152,033)
Taxation.................................................... 3,681 1,831
-------- --------
Shareholders' equity as stated under US GAAP................ (26,743) (12,009)
-------- --------
</TABLE>
F-114
<PAGE> 171
TOTAL ASSET LIMITED
COMPANY INFORMATION FOR THE YEAR ENDED 31 OCTOBER 1999
DIRECTORS: S J Dartnell
W Tadden
J S Hall
SECRETARY: S J Dartnell
REGISTERED OFFICE: Maxdov House
337/341 Chapel Street
Manchester
M3 5JY
REGISTERED NUMBER: 2607671 (England and Wales)
AUDITORS: Haslam Tunstall
Registered Auditors
Chartered Accountants
14 Bold Street
Warrington
WA1 1DL
F-115
<PAGE> 172
TOTAL ASSET LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE
YEAR ENDED 31 OCTOBER 1999
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
F-116
<PAGE> 173
TOTAL ASSET LIMITED
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF TOTAL ASSET LIMITED
We have audited the financial statements commencing with the profit and
loss account and ending with note 14 to the financial statements which have been
prepared in accordance with the Financial Reporting Standard for Smaller
Entities (effective March 1999), under the historical cost convention and the
accounting policies set out in note 1.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on the previous page, the company's directors are responsible
for the preparation of financial statements in accordance with UK GAAP. It is
our responsibility to form an independent opinion, based on our audit, on those
statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board which are substantially similar to US GAAS. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the company's circumstances consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the company's affairs as at 31 October 1999 and of its loss for the
year then ended and have been properly prepared in accordance with the Companies
Act 1985.
/s/ Haslam Tunstall
Haslam Tunstall
Registered Auditors
Chartered Accountants
14 Bold Street
Warrington
WA1 IDL
Dated: 28 January 2000
F-117
<PAGE> 174
TOTAL ASSET LIMITED
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 OCTOBER 1999
<TABLE>
<CAPTION>
NOTES L
----- ----------
<S> <C> <C>
TURNOVER.................................................... 7,148,583
Cost of sales............................................... 5,418,998
----------
GROSS PROFIT................................................ 1,729,585
Administrative expenses..................................... 1,901,591
----------
(172,006)
Other operating income...................................... 14,280
----------
OPERATING LOSS.............................................. 2 (157,726)
Interest receivable and similar income...................... 186
----------
(157,540)
Interest payable and similar charges........................ 8,468
----------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION................. (166,008)
Tax on loss on ordinary activities.......................... 3 --
----------
LOSS FOR THE FINANCIAL YEAR AFTER TAXATION.................. (166,008)
Retained profit brought forward............................. 14,634
----------
DEFICIT CARRIED FORWARD..................................... L (151,374)
==========
</TABLE>
F-118
<PAGE> 175
TOTAL ASSET LIMITED
BALANCE SHEET 31 OCTOBER 1999
<TABLE>
<CAPTION>
NOTES L L
----- --------- ---------
<S> <C> <C> <C>
FIXED ASSETS:
Tangible assets............................................. 4 365,135
CURRENT ASSETS:
Debtors..................................................... 5 3,044,044
Cash at bank and in hand.................................... 84,987
---------
3,129,031
CREDITORS: Amounts falling due within one year.............. 6 3,221,782
---------
NET CURRENT LIABILITIES:.................................... (92,751)
---------
TOTAL ASSETS LESS CURRENT LIABILITIES:...................... 272,384
CREDITORS: Amounts falling due after more than one year..... 7 (126,965)
PROVISIONS FOR LIABILITIES AND CHARGES:..................... 10 (261,793)
---------
L(116,374)
=========
CAPITAL AND RESERVES:
Called up share capital..................................... 11 11,696
Share premium............................................... 12 23,304
Profit and loss account..................................... (151,374)
---------
Shareholders' funds......................................... L(116,374)
=========
</TABLE>
These financial statements have been prepared in accordance with the
special provisions of Part VII of the Companies Act 1985 relating to small
companies and with the Financial Reporting Standard for Smaller Entities
(effective March 1999).
ON BEHALF OF THE BOARD:
S J Dartnell -- Director
Approved by the Board on 28 January 2000
F-119
<PAGE> 176
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1999
1. ACCOUNTING POLICIES
Accounting convention
The financial statements have been prepared under the historical cost
convention and in accordance with the Financial Reporting Standard for Smaller
Entities (effective March 1999).
Turnover
Turnover represents the following:
Commissions and consultancy fees receivable from third parties in respect
of leases signed up by the company as agents.
Proceeds from finance houses for leases brokered on where the ultimate risk
and reward has been passes on by the company.
Gross rental income for leases brokered on to third parties.
First rental installment received for leases brokered on to third parties.
Tangible fixed assets
Depreciation is provided at the following annual rates in order to write
off each asset over its estimated useful life or, if held under a finance lease,
over the lease term, whichever is the shorter.
<TABLE>
<S> <C>
Helicopter -- over the life of the
lease
Fixtures and fittings -- 15% on reducing
balance
Motor vehicles -- 25% on reducing
balance
</TABLE>
Deferred taxation
Provision is made at current rates for taxation deferred in respect of all
material timing differences except to the extent that, in the opinion of the
directors, there is reasonable probability that the liability will not arise in
the foreseeable future.
Capitalised leases
Assets obtained under capitalized leases are capitalized in the balance
sheet and are depreciated over their estimated useful lives or the lease term,
whichever is the shorter.
The interest element of these obligations is charged to the profit and loss
account over the relevant period. The capital element of the future payments is
treated as a liability.
Rentals paid under operating leases are charged to the profit and loss
account as incurred.
Pensions
The company operates a defined contribution pension scheme. Contributions
payable for the year are charged in the profit and loss account.
Leasing
The company purchases assets which it then leases out to third parties. The
rental streams of these leases are brokered on to finance institutions. For
those leases where the company retains title to the asset,
F-120
<PAGE> 177
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
the risks and rewards of the lease revert to the company at the end of the
primary period of the lease. For those leases where the company does not retain
title to the asset the company has no further claim on that asset after the
point of sale. Income from the sale is included in turnover, whilst the cost of
the assets is included in cost of sales.
2. OPERATING LOSS
The operating loss is stated after charging:
<TABLE>
<CAPTION>
L
<S> <C>
Depreciation -- owned assets................................ 18,288
Depreciation -- assets on capitalized lease contracts....... 25,134
Loss on disposal of fixed assets............................ 9,945
Auditors' remuneration...................................... 3,000
Pension costs............................................... 16,010
Operating lease rentals..................................... 134,373
=======
Directors' emoluments and other benefits etc................ 260,775
=======
The number of directors to whom retirement benefits were
accruing was as follows:
Money purchase schemes...................................... 1
=======
</TABLE>
3. TAXATION
No liability to UK corporations tax arose on ordinary activities for the
year ended 31 October 1999.
4. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES
AND MOTOR
HELICOPTER FITTINGS VEHICLES TOTALS
---------- -------- -------- -------
L L L L
<S> <C> <C> <C> <C>
COST:
At 1 November 1998......................... -- 96,485 107,648 204,133
Additions.................................. 195,745 68,427 70,260 334,432
Disposals.................................. -- (3,938) (63,152) (67,090)
------- ------- ------- -------
At 31 October 1999......................... 195,745 160,974 114,756 471,475
------- ------- ------- -------
DEPRECIATION:
At 1 November 1998......................... -- 39,055 39,820 78,875
Charge for year............................ 2,411 18,288 22,723 43,422
Eliminated on disposals.................... -- -- (15,957) (15,957)
------- ------- ------- -------
At 31 October 1999......................... 2,411 57,343 46,586 106,340
------- ------- ------- -------
NET BOOK VALUE:
At 31 October 1999......................... 193,334 103,631 68,170 365,135
======= ======= ======= =======
</TABLE>
F-121
<PAGE> 178
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Fixed assets, included in the above, which are held under capitalized lease
contracts are as follows:
<TABLE>
<CAPTION>
MOTOR
HELICOPTER VEHICLES TOTALS
---------- -------- -------
L L L
<S> <C> <C> <C>
COST:
At 1 November 1998.................................... -- 107,648 107,648
Additions............................................. 195,745 70,260 266,005
Disposals............................................. -- (63,152) (63,152)
------- ------- -------
At 31 October 1999.................................... 195,745 114,756 310,501
------- ------- -------
DEPRECIATION:
At 1 November 1998.................................... -- 39,820 39,820
Charge for year....................................... 2,411 22,723 25,134
Eliminated on disposals............................... -- (15,957) (15,957)
------- ------- -------
At 31 October 1999.................................... 2,411 46,586 48,997
------- ------- -------
NET BOOK VALUE:
At 31 October 1999.................................... 193,334 68,170 261,504
======= ======= =======
</TABLE>
5. DEBTORS
<TABLE>
<CAPTION>
L
<S> <C>
Amounts falling due within one year:
Trade Debtors............................................... 2,726,811
Other Debtors............................................... 103,540
Prepayments................................................. 13,568
Directors Current Accounts.................................. 43,935
Corporation Tax Debtor...................................... 6,190
---------
2,894,044
=========
Amounts falling due after more than one year:
Amounts due from Related Party.............................. 150,000
=========
Aggregate amounts........................................... 3,044,044
=========
</TABLE>
6. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
L
<S> <C>
Bank loans and overdrafts................................... 175,348
Capitalised leases.......................................... 70,892
Trade Creditors............................................. 2,535,961
Other Creditors............................................. 1,472
Other Taxes & PAYE.......................................... 29,996
Corporation Tax Liability................................... 21,357
Accruals & Deferred Income.................................. 386,756
---------
3,221,782
=========
</TABLE>
F-122
<PAGE> 179
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
L
<S> <C>
Capitalised leases.......................................... 126,965
=======
</TABLE>
8. OPERATING LEASE COMMITMENTS
The following payments are committed to be paid within one year:
<TABLE>
<CAPTION>
L
<S> <C>
Expiring:
Between one and five years.................................. 98,479
======
</TABLE>
9. SECURED DEBTS
The following secured debts are included within creditors:
<TABLE>
<CAPTION>
L
<S> <C>
Bank overdrafts............................................. 175,348
Capitalised leases.......................................... 197,857
-------
373,205
=======
</TABLE>
10. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
L
<S> <C>
Provision for Rentals Payable............................... 261,793
=======
</TABLE>
11. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
AUTHORISED: NOMINAL
NUMBER: CLASS: VALUE: L
<S> <C> <C> <C>
100,000 Ordinary 1 100,000
=======
</TABLE>
<TABLE>
<CAPTION>
ALLOTTED, ISSUED AND FULLY PAID: NOMINAL
NUMBER: CLASS: VALUE: L
<S> <C> <C> <C>
11,696 Ordinary 1 11,696
=======
</TABLE>
12. SHARE PREMIUM
<TABLE>
<CAPTION>
L
<S> <C>
Share Premium Account -- bal b/f............................ 23,304
======
</TABLE>
13. ULTIMATE PARENT COMPANY
Subsequent to 31 October 1999, the company was acquired by Jyris Limited, a
company incorporated in Ireland and whose ultimate holding company is Integrity
Holdings Limited.
14. LEASES
The cost of the assets acquired for the purpose of letting under capital
lease contracts in the year was L2,788,060.
F-123
<PAGE> 180
TOTAL ASSET LIMITED
COMPANY INFORMATION
DIRECTORS S J Dartnell
J E Dartnell
W Tadden
SECRETARY S J Dartnell
COMPANY NUMBER 2607671
REGISTERED OFFICE St. James Court
Wilderspool Causeway
Warrington
Cheshire
WA4 6PS
AUDITORS Levy Gee
Maxdov House
337/341 Chapel Street
Salford
Manchester
M3 5JY
BUSINESS ADDRESS St. James Court
Wilderspool Causeway
Warrington
Cheshire
WA4 6PS
BANKERS Barclays Bank Plc
25 Sankey Street
Warrington
WA1 1XQ
F-124
<PAGE> 181
TOTAL ASSET LIMITED
DIRECTORS' REPORT FOR THE YEAR ENDED 31 OCTOBER 1998
The directors present their report and financial statements for the year
ended 31 October 1998.
PRINCIPAL ACTIVITIES
The principal activity of the company continued to be that of arranging
leasing and rental finance of capital equipment.
Results
The company has once again traded successfully throughout the past year,
building on the profits and secure foundations laid in previous years.
The results can be summarised as follows
<TABLE>
<S> <C>
Operating profit............................................ L197,000
Transfer to deferred income................................. L189,000
Net operating profit........................................ L 8,000
</TABLE>
It is the company's practice to retain turnover and subsequent profit on
payments of lease rentals received past the termination date of the lease. The
directors consider it prudent to make provision for these amounts by
transferring them to deferred income. In the directors' opinion any such amounts
will be available for transfer back to profit in due course.
Significant progress has been made installing, developing and updating
management information systems, an improved office facilities at Warrington and
Milton Keynes provide a sound base on which to expand the company and capitalize
fully on the foundations previously laid.
Major business negotiations are under way with large commercial and
technological companies that will introduce joint marketing opportunities,
assisting the company to achieve the planned sales expansion.
The company is poised to move forward and is confident that the business
plans for the year will be achieved.
YEAR 2000
The directors have considered whether the company's operations could be
adversely affected by malfunctions in computer or other equipment arising from
errors in processing dates in the year 2000 and beyond.
No part of the company's current operations is critically dependent on
computer or other equipment which could be affected by year 2000 problems.
DIRECTORS
The following directors have held office since 1 November 1997:
SJ Dartnell
JE Dartnell
M Hogg
W Tadden
(Resigned 8 October 1999)
F-125
<PAGE> 182
TOTAL ASSET LIMITED
DIRECTORS' REPORT FOR THE YEAR ENDED 31 OCTOBER 1998
DIRECTORS' INTERESTS
The directors' beneficial interests in the shares of the company were as
stated below:
<TABLE>
<CAPTION>
ORDINARY SHARES OF L1 EACH
----------------------------------
31 OCTOBER 1998 1 NOVEMBER 1997
--------------- ---------------
<S> <C> <C>
S J Dartnell.......................................... 10,525 10,525
J E Dartnell.......................................... 1 1
M Hogg................................................ 1,170 1,170
W Tadden.............................................. -- --
</TABLE>
AUDITORS
Levy Gee were appointed auditors to the company and in accordance with
section 385 of the Companies Act 1985, a resolution proposing that they be
re-appointed will be put to the Annual General Meeting.
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
This report has been prepared in accordance with the special provisions of
Part VII of the Companies Act 1985 relating to small companies.
By order of the board
S J Dartnell
Director
4 November 1999
F-126
<PAGE> 183
TOTAL ASSET LIMITED
AUDITORS' REPORT TO THE SHAREHOLDERS OF TOTAL ASSET LIMITED
We have audited the financial statements commencing with the Profit & Loss
account and ending with Note 15 which have been prepared under the historical
cost convention and the accounting policies set out on note 1.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on the preceeding page the company's directors are responsible
for the preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board which are substantially similar to US GAAS. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statement.
FUNDAMENTAL UNCERTAINTY
In forming our opinion, we have considered the adequacy of the disclosures
made in note 1 of the financial statements concerning the possible outcome of
the contingent liability referred to in note 14. In view of the significance of
this uncertainty we consider that it should be drawn to your attention but our
opinion is not qualified in this respect.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the company's affairs as at 31 October 1998 and of its profit for the
year then ended and have been properly prepared in accordance with the Companies
Act 1985.
Levy Gee
Registered Auditor
4 November 1999
Maxdov House
337/341 Chapel Street
Salford
Manchester
M3 5JY
F-127
<PAGE> 184
TOTAL ASSET LIMITED
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 OCTOBER 1998
<TABLE>
<CAPTION>
NOTES 1998 1997
----- ---------- ----------
L L
<S> <C> <C> <C>
TURNOVER.................................................... 6,643,751 4,643,777
Cost of sales............................................... (5,448,860) (3,760,803)
---------- ----------
GROSS PROFIT................................................ 1,194,891 882,974
Administrative expenses..................................... (1,187,030) (542,431)
---------- ----------
OPERATING PROFIT............................................ 2 7,861 340,543
Other interest receivable and similar income................ 3 10,251 13,571
Interest payable and similar income......................... 4 (4,391) (5,600)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 13,721 348,514
Tax on profit on ordinary activities........................ 5 -- (114,278)
-- ---------- ----------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 13,721 234,236
Dividends................................................... 6 -- (213,000)
---------- ----------
RETAINED PROFIT FOR THE YEAR................................ 12 13,721 21,236
========== ==========
</TABLE>
The profit and loss account has been prepared on the basis that all
operations are continuing operations.
There are no recognized gains and losses other than those passing through
the profit and loss account.
F-128
<PAGE> 185
TOTAL ASSET LIMITED
BALANCE SHEET AS AT 31 OCTOBER 1998
<TABLE>
<CAPTION>
NOTES 1998 1997
----- ------------------- -------------------
L L L L
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets........................... 7 125,258 84,627
Investments............................... -- 900
------- -------
125,258 85,527
CURRENT ASSETS
Debtors: amounts falling due within one
year.................................... 8 390,224 731,345
Debtors: amounts falling due after more
than one year........................... 8 235,395 --
Cash at bank and in hand.................. 152,367 70,162
-------- --------
777,986 801,507
-------- --------
CREDITORS: AMOUNTS FALLING DUE WITHIN
ONE YEAR................................ 9 (833,519) (838,738)
NET CURRENT LIABILITIES................... (55,533) (37,231)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES..... 69,725 48,296
CREDITORS: AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR........................... 10 (20,091) (12,383)
------- -------
49,634 35,913
======= =======
CAPITAL AND RESERVES
Called up share capital................... 11 11,696 11,696
Share premium account..................... 12 23,304 23,304
Profit and loss account................... 12 14,634 913
------- -------
SHAREHOLDERS' FUNDS -- EQUITY INTERESTS... 13 49,634 35,913
======= =======
</TABLE>
These financial statements have been prepared in accordance with the
special provisions of Part VII of the Companies Act 1985 relating to small
companies.
The financial statements were approved by the Board on 4 November 1999.
W Tadden
Director
F-129
<PAGE> 186
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1998
1. ACCOUNTING POLICIES
1.1 Accounting convention
The financial statements are prepared under the historical cost convention.
As noted in 1.3 below, the company has a policy of retaining the first
rental installment of the majority of the leases that it enters into. There is
uncertainty as noted in note 14 as to whether these installments would be
repayable. In the event that the whole liability becomes payable, the company
may not be in a position to meet all of the demands. The directors consider it
unlikely that this liability will crystallise and therefore deem it appropriate
to prepare the financial statements on the going concern basis. The financial
statements do not include any adjustments that would result from a realisation
of these liabilities.
1.2 Compliance with accounting standards
The accounts have been prepared in accordance with applicable accounting
standards.
1.3 Turnover
Turnover represents the following --
Commissions and consultancy fees receivable from third parties in respect
of leases signed up by the company as agents.
Proceeds from finance houses for leases brokered on where the ultimate risk
and reward has been passed on by the company.
Gross rental income for leases brokered on to third parties.
First rental installment received for leases brokered on to third parties.
1.4 Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less depreciation. Depreciation is
provided at rates calculated to write off the cost less estimated residual value
of each asset over its expected useful life, as follows:
Office fixtures and equipment 15% reducing balance
Motor vehicles 25% reducing balance
1.5 Leasing and hire purchase commitments
Assets obtained under hire purchase contracts and finance leases are
capitalized as tangible assets and depreciated over the shorter of the lease
term and their useful lives. Obligations under such agreements are included in
creditors net of the finance charge allocated to future periods. The finance
element of the rental payment is charged to the profit and loss account so as to
produce a constant periodic rate of charge on the net obligation outstanding in
each period.
Rentals payable under operating leases are charged against income on a
straight line basis over the lease term.
1.6 Investments
Fixed asset investments are stated at cost less provision for diminution in
value.
F-130
<PAGE> 187
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
1.7 Pensions
The pension costs charged in the financial statements represent the
contributions payable by the company during the year in accordance with SSAP 24.
1.8 Deferred taxation
Deferred taxation is provided at appropriate rates on all timing
differences using the liability method only to the extent that, in the opinion
of the directors, there is a reasonable probability that a liability or asset
will crystallise in the foreseeable future.
1.9 Leasing
The company purchases assets which it then leases out to third parties. The
rental streams of these leases are brokered on to finance institutions. For
those leases where the company retains title to the asset, the risks and rewards
of the lease revert to the company at the end of the primary period of the
lease. For those leases where the company does not retain title to the asset the
company has no further claim on that asset after the point of sale. Income from
the sale of leases is included in turnover, whilst the cost of the assets is
included in cost of sales.
The aggregate rentals received by the company in respect of finance leases
for payment to third parties was L2,156,597, finance income received by the
company in respect of finance leases was L3,677,432, and the cost of the assets
acquired for the purpose of letting under finance lease contracts in the year
was L3,150,272.
2. OPERATING PROFIT
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Operating profit is stated after charging:
Depreciation of tangible assets............................. 35,786 28,519
Operating lease rentals..................................... 112,137 37,845
Auditors' remuneration...................................... 6,000 5,000
Directors' emoluments....................................... 246,696 131,944
======= =======
</TABLE>
Included in directors remuneration is L12,513 (1997 L8,895) paid to a
director's personal pension scheme.
The number of directors for whom retirement benefits are accruing under
money purchase pension schemes amounted to 1 (1997 - 1).
3. OTHER INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Bank interest............................................... 10,251 13,571
======= =======
</TABLE>
F-131
<PAGE> 188
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. INTEREST PAYABLE
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
On bank loans and overdrafts................................ -- 594
Hire purchase interest...................................... 4,391 3,914
On overdue tax.............................................. -- 1,092
------- -------
4,391 5,600
======= =======
</TABLE>
5. TAXATION
<TABLE>
<CAPTION>
1998 1997
---- -------
L L
<S> <C> <C>
U.K. CURRENT YEAR TAXATION
U.K. corporation tax at 21% (1997 -- 24%)................... -- 106,394
PRIOR YEARS
U.K. corporation tax........................................ -- 7,884
-- -------
-- 114,278
== =======
</TABLE>
On the basis of these financial statements no provision has been made for
corporation tax.
6. DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
---- -------
L L
<S> <C> <C>
Ordinary final proposed..................................... -- 213,000
== =======
</TABLE>
7. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
OFFICE
FIXTURES AND MOTOR
EQUIPMENT VEHICLES TOTAL
------------ -------- -------
L L L
<S> <C> <C> <C>
COST
At 1 November 1997..................................... 61,435 77,345 138,780
Additions.............................................. 35,050 63,153 98,203
Disposals.............................................. -- (32,850) (32,850)
------ ------- -------
At 31 October 1998 96,485 107,648 204,133
------ ------- -------
DEPRECIATION
At 1 November 1997..................................... 26,028 28,125 54,153
On disposals........................................... -- (11,064) (11,064)
Charge for the year.................................... 13,027 22,759 35,786
------ ------- -------
At 31 October 1998..................................... 39,055 39,820 78,875
------ ------- -------
NET BOOK VALUE
At 31 October 1998..................................... 57,430 67,828 125,258
====== ======= =======
At 31 October 1997..................................... 35,407 49,220 84,627
====== ======= =======
</TABLE>
F-132
<PAGE> 189
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Included above are assets held under finance leases or hire purchase
contracts as follows:
<TABLE>
<CAPTION>
OFFICE
FIXTURES AND MOTOR
EQUIPMENT VEHICLES TOTAL
------------ -------- -------
L L L
<S> <C> <C> <C>
NET BOOK VALUES
At 31 October 1998..................................... -- 67,828 67,828
At 31 October 1997..................................... -- 43,087 43,087
====== ======= =======
DEPRECIATION CHARGE FOR THE YEAR
31 October 1998........................................ -- 22,759 22,759
31 October 1997........................................ -- 14,363 14,363
====== ======= =======
</TABLE>
8. DEBTORS
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Trade debtors............................................... 301,392 462,629
Other debtors............................................... 324,227 268,716
------- -------
625,619 731,345
======= =======
</TABLE>
Amounts falling due after more than one year included in the debtors above
are:
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Other debtors............................................... 235,395 --
======= =======
</TABLE>
9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Bank loans and overdrafts................................... 331 37,360
Net obligations under hire purchase contracts............... 32,233 16,458
Trade creditors............................................. 508,474 479,320
Taxation and social security................................ 90,495 285,519
Other creditors............................................. 201,986 20,081
------- -------
833,519 838,738
======= =======
</TABLE>
The bank overdraft is secured by a fixed and floating charge dated 7 August
1998, over the assets of the company, and a personal guarantee from one of the
directors.
Included within other creditors is L188,798 in respect of potential
deferred income.
F-133
<PAGE> 190
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
Net obligations under finance leases and hire purchase
agreements................................................ 20,091 12,383
======= =======
NET OBLIGATIONS UNDER FINANCE LEASES AND HIRE PURCHASE
CONTRACTS
Repayable within one year................................... 28,482 18,578
Repayable between one and five years........................ 29,130 13,582
------- -------
57,612 32,160
Finance charges and interest allocated to future accounting
periods................................................... (5,288) (3,319)
------- -------
52,324 28,841
Included in liabilities falling due within one year......... (32,233) (16,458)
------- -------
20,091 12,383
======= =======
</TABLE>
The aggregate amount of creditors for which security has been given
amounted to L52,655 (1997 -L-).
11. SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
------- -------
L L
<S> <C> <C>
AUTHORISED
100,000 Ordinary shares of L1 each.......................... 100,000 100,000
======= =======
ALLOTTED, CALLED UP AND FULLY PAID
11,696 Ordinary shares of L1 each........................... 11,696 11,696
======= =======
</TABLE>
12. STATEMENT OF MOVEMENTS ON RESERVES
<TABLE>
<CAPTION>
SHARE
PREMIUM PROFIT AND
ACCOUNT LOSS ACCOUNT
------- ------------
L L
<S> <C> <C>
Balance at 1 November 1997.................................. 23,304 913
Retained profit for the year................................ -- 13,721
------- -------
Balance at 31 October 1998.................................. 23,304 14,634
======= =======
</TABLE>
13. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
------ --------
L L
<S> <C> <C>
Profit for the financial year............................... 13,721 234,236
Dividends................................................... -- (213,000)
------ --------
Net additions to shareholders' funds........................ 13,721 21,236
Opening shareholders' funds................................. 35,913 14,677
------ --------
Closing shareholders' funds................................. 49,634 35,913
====== ========
</TABLE>
F-134
<PAGE> 191
TOTAL ASSET LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
14. CONTINGENT LIABILITIES
The company has a policy of retaining the first rental installment received
on certain leases as income, on the assumption that rentals are received beyond
the lease term. At 31 October 1998 L163,460 had been retained by the company. At
31 October 1998 it was uncertain as to whether the company would be required to
repay any of these installments.
15. FINANCIAL COMMITMENTS
At 31 October 1998 the Company had annual commitments under non-cancellable
operating leases as follows:
<TABLE>
<CAPTION>
LAND AND BUILDINGS
------------------ OTHER
1998 1997 1998 1997
------- ------- ------ ------
L L L L
<S> <C> <C> <C> <C>
Expiry date:
Within one year................................. -- -- 34,710 --
Between two and five years...................... 30,080 -- 32,985 46,327
In over five years.............................. -- 10,880 -- --
------ ------ ------ ------
30,080 10,880 67,695 46,327
====== ====== ====== ======
</TABLE>
TRANSACTIONS WITH DIRECTORS
The following directors had interest free loans during the year. The
movements on these loans are as follows:
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
------------- MAXIMUM
1998 1997 IN YEAR
------ ----- -------
L L
<S> <C> <C> <C>
S J Dartnell............................................... 45,198 8,144 154,686
====== ===== =======
</TABLE>
Included within administrative expenses are L70,000 of costs incurred by
the director, Mr S Dartnell, on behalf of the company.
During the year cash transfers and other items to the value of L50,768
occurred between the company and Total Bloodstock Limited, a company controlled
by the director, Mr S Dartnell. The balance due to the company from Total
Bloodstock Limited at 31 October 1998 was L235,395. This balance is not
considered by the directors to be repayable in the foreseeable future, and has
therefore been included in debtors due in more than one year.
The bank overdraft is secured by a personal guarantee from the director, Mr
S Dartnell.
CONTROL
The company is controlled by the director, Mr S Dartnell.
F-135
<PAGE> 192
IBIS SYSTEMS LIMITED
COMPANY INFORMATION
COMPANY NO: 3410598
CHAIRMAN
Mr. B.M. Schechter
REGISTERED OFFICE
66 Wigmore Street
London
W1H 0HQ
DIRECTORS
Mr. B.M. Schechter
Mr. P.D. Nagle
Mr. I. Epstein
SECRETARY
Bexhill Registrars Limited
AUDITORS
Wilkins Kennedy
Risborough House
38/40 Sycamore Road
Amersham
Bucks
HP6 5DZ
BANKERS
The Royal Bank of Scotland PLC
4 Pauls Row
High Wycombe
Buckinghamshire
HP11 2XL
F-136
<PAGE> 193
IBIS SYSTEMS LIMITED
DIRECTORS' REPORT FOR THE PERIOD ENDED 31ST MARCH 1998
The directors submit their report together with the audited financial
statements for the period ended 31st March 1998.
DIRECTORS' STATEMENT
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit for that period. In preparing those financial
statements the directors are required to:
Select suitable accounting policies and then apply them consistently;
Make judgements and estimates that are reasonable and prudent;
State whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
Prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose, with reasonable accuracy at any time, the financial position of the
company and to enable them to ensure the financial statements comply with the
Companies Act 1985. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
RESULTS AND DIVIDENDS
The profit on the ordinary activities of the company before taxation
amounted to L971,186. After deducting taxation, the profit of L691,379 has been
transferred to reserves.
The directors do not recommend a dividend.
PRINCIPAL ACTIVITY AND BUSINESS REVIEW
The company was incorporated on 28th July 1997 and commenced trading on
26th August 1997.
The principal activity of the company is the development, implementation,
support and maintenance of computer software and the sale of ancillary hardware.
In the directors' opinion, the company made good progress during the period
and remains in a strong position to take advantage of future opportunities.
DIRECTORS
The directors, none of whom is beneficially interested in the shares of the
company, who served during the period were as follows:
Mr. B.M. Scechter -- appointed 1st October 1997
Mr. P.D. Nagle -- appointed 28th July 1997
Mr. I. Epstein -- appointed 28th July 1997
Mr. S. Cohen -- appointed 28th July 1997/resigned 1st October 1997
F-137
<PAGE> 194
AUDITORS
The Auditors, Wilkins Kennedy Chartered Accountants, have indicated that
they are willing to be reappointed at the forthcoming Annual General Meeting.
By Order of the Board:
Mr. P.D. Nagle, Director
17th June 1998
F-138
<PAGE> 195
IBIS SYSTEMS LIMITED
AUDITORS' REPORT TO THE SHAREHOLDERS ON THE FINANCIAL
STATEMENTS FOR THE PERIOD ENDED 31st MARCH 1998
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
We have audited the attached financial statements commencing with the
profit and loss account and ending with note 27 which have been prepared under
the historical cost convention and the accounting policies set in note 1.
As described on the preceding page, the directors are responsible for the
preparation of financial statements in accordance with generally accepted
accounting principles in the United Kingdom. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board, which are substantially similar to US GAAS. An audit
includes examination, on a test basis, of evidence relevant to the amounts
disclosed in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatements, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the
state of the company's affairs at 31st March 1998 and of its results for the
period then ended and have been properly prepared in accordance with the
Companies Act 1985.
<TABLE>
<S> <C>
WILKINS KENNEDY Risborough House
Chartered Accountants and 38/40 Sycamore Road
Registered Auditors Amersham
Bucks
HP6 5DZ
</TABLE>
17th June 1998
F-139
<PAGE> 196
IBIS SYSTEMS LIMITED
PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 31st MARCH 1998
<TABLE>
<CAPTION>
NOTES 1998
----- ----------
L
<S> <C> <C>
TURNOVER.................................................... 2 3,679,892
Cost of sales............................................... (2,078,617)
----------
GROSS PROFIT................................................ 1,601,275
Administrative expenses..................................... (643,988)
Other operating income...................................... 5 16,133
----------
OPERATING PROFIT............................................ 3 973,420
Interest payable............................................ 4 (2,234)
----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 971,186
Tax on profit on ordinary activities........................ 7 (279,807)
----------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 691,379
==========
</TABLE>
All amounts relate to continuing activities.
There have been no recognized gains or losses, other than the results for the
financial period, and all profits or losses have been accounted for on an
historical cost basis.
The notes on pages 7 to 14 form part of these financial statements.
F-140
<PAGE> 197
IBIS SYSTEMS LIMITED
BALANCE SHEET AS AT 31ST MARCH 1998
<TABLE>
<CAPTION>
NOTES 1998 1998
----- ---------- ----------
L L
<S> <C> <C> <C>
FIXED ASSETS
Intangible fixed assets................................... 8 3,770,825
Tangible fixed assets..................................... 9 304,782
----------
4,075,607
CURRENT ASSETS
Stock..................................................... 10 23,056
Debtors................................................... 11 1,106,907
Cash at bank and in-hand.................................. 730,578
----------
1,860,541
CREDITORS:
Amounts falling due within one year....................... 12 (5,230,659)
NET CURRENT (LIABILITIES)................................. (3,370,118)
----------
TOTAL ASSETS LESS CURRENT LIABILITIES..................... 705,489
CREDITORS:
Amounts falling due after more than one year.............. 13 (14,108)
----------
691,381
==========
CAPITAL AND RESERVES
Share capital............................................. 18 2
Profit and loss account................................... 691,379
----------
Equity Shareholders' Funds................................ 19 691,381
==========
</TABLE>
These accounts were approved by the board on 17th June 1998.
Mr. P.D. Nagle
DIRECTOR
The notes on pages 7 to 14 form part of these financial statements.
F-141
<PAGE> 198
IBIS SYSTEMS LIMITED
CASH FLOW STATEMENTS FOR THE PERIOD ENDED 31ST MARCH 1998
<TABLE>
<CAPTION>
NOTES 1998
----- ----------
L
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES......................... 23 4,815,398
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE............. 22 (2,234)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT................ 22 (4,082,588)
----------
Cash inflow before use of liquid resources and financing.... 730,576
FINANCING................................................... 22 2
----------
Increase in cash in the period.............................. 24 730,578
==========
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
INCREASE IN CASH IN THE PERIOD.............................. 730,578
New finance leases.......................................... 24 (33,788)
----------
MOVEMENT IN NET DEBT IN THE PERIOD.......................... 696,790
Net debt at 28th July 1997.................................. --
----------
NET DEBT AT 31ST MARCH 1998................................. 24 696,790
==========
</TABLE>
The notes on pages 7 to 14 form part of these financial statements.
F-142
<PAGE> 199
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31ST MARCH 1998
1. PRINCIPAL ACCOUNTING POLICIES
Accounting Convention
The Financial Statements have been prepared in accordance with applicable
Accounting Standards under the historical cost convention.
Turnover
Turnover is the total amount receivable by the company for goods supplied
and services provided, excluding VAT and trade discounts. Maintenance fee income
is recognized on the date the invoice is raised and provision is made for the
future costs of servicing the unexpired element of such contracts.
Depreciation
Depreciation is calculated to write down the cost, less estimated residual
value, of all tangible fixed assets over their expected useful lives. The rates
generally applicable are:
<TABLE>
<S> <C>
Leasehold land and buildings straight line over the period of the lease.
Motor vehicles 25% straight line.
Office fixtures, fittings and furniture 25% straight line.
Computer equipment and software 25% straight line.
</TABLE>
Research and Development
Research and development expenditure is charged to profits in the period in
which it is incurred.
Goodwill
Purchased goodwill is amortized on a straight-line basis over its estimated
useful economic life of 20 years as shown in the note to intangible fixed
assets.
Stocks
Stocks are stated at the lower of cost and net realisable value. Cost is
computed on a first in first out basis. The cost of work in progress and
finished goods includes all production overheads and depreciation and the
attributable proportion of indirect overheads based on the normal level of
activity. Net realisable value is based on estimated selling price less the
estimated cost of disposal.
Deferred Taxation
Deferred tax is provided for under the liability method using the tax rates
estimated to arise when the timing differences reverse and is accounted for to
the extent that it is probable that a liability or asset will crystallise.
Unprovided deferred tax is disclosed as a contingent liability.
Debit balances arising in respect of advanced corporation tax on dividends
payable or proposed are carried forward to the extent that they are expected to
be recoverable.
Foreign Currencies
Transactions in foreign currencies are translated at the exchange rate
ruling at the date of the transaction. Monetary assets and liabilities in
foreign currencies are translated at the rates of exchange
F-143
<PAGE> 200
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
ruling at the balance sheet date. All exchange differences are dealt with
through the profit and loss account.
Contribution to Pension Funds
The pension costs charged against profits represent the amount of the
contributions payable to the scheme in respect of the accounting period.
Leased Assets
Assets held under finance leases and hire purchase contracts are
capitalized in the Balance Sheet and depreciated over their expected useful
lives. The interest element of leasing payments represents a constant proportion
of the capital balance outstanding and is charged to the Profit and Loss Account
over the period of the lease.
All other leases are regarded as operating leases and the payments made
under them are charged to the Profit and Loss Account on a straight-line basis
over the lease term.
2. TURNOVER
The turnover and operating profit for the period was derived from the
company's principal activity.
The geographical analysis of turnover is as follows:
<TABLE>
<CAPTION>
1998
---------
L
<S> <C>
United Kingdom.............................................. 3,659,649
Europe...................................................... 8,750
America..................................................... 11,493
---------
3,679,892
=========
</TABLE>
3. OPERATING PROFIT
The operating profit is stated after charging or crediting:
<TABLE>
<CAPTION>
1998
------
L
<S> <C>
Hire of plant and machinery -- operating leases............. 1,688
Other operating lease rentals............................... 5,830
Amounts payable to the auditors in respect of audit
services.................................................. 13,500
Depreciation -- owned assets................................ 23,050
Depreciation -- assets held under hire purchase or finance
lease contracts........................................... 838
Amortization of intangible assets........................... 16,881
======
</TABLE>
4. INTEREST PAYABLE
<TABLE>
<CAPTION>
1998
-----
L
<S> <C>
Bank loans and overdrafts................................... 1,907
Hire purchase & finance lease interest...................... 327
-----
2,234
=====
</TABLE>
F-144
<PAGE> 201
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER OPERATING INCOME
<TABLE>
<CAPTION>
1998
------
L
<S> <C>
Other operating income...................................... 16,133
======
</TABLE>
6. DIRECTORS AND EMPLOYEES
Staff costs during the period were as follows:
<TABLE>
<CAPTION>
1998
-------
L
<S> <C>
Wages and salaries.......................................... 329,749
Other pension costs......................................... 2,238
-------
331,987
=======
</TABLE>
The average monthly number of employees, including directors, during the
period was as follows:
<TABLE>
<CAPTION>
1998
------
NUMBER
<S> <C>
Administration, production, selling and distribution........ 27
======
</TABLE>
Remuneration in respect of directors was as follows:
<TABLE>
<CAPTION>
1998
------
L
<S> <C>
Aggregate amount of emoluments paid in respect of qualifying
services.................................................. 52,238
======
</TABLE>
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998
-------
L
<S> <C>
Based on the profit for the period:
U.K. Corporation tax at 31%................................. 279,807
=======
</TABLE>
8. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
GOODWILL
---------
L
<S> <C>
COST
Increase during the period.................................. 3,787,706
---------
At 31st March 1998.......................................... 3,787,706
=========
AMORTIZATION
Provided during the period.................................. 16,881
---------
At 31st March 1998.......................................... 16,881
=========
NET BOOK VALUE
At 31st March 1998.......................................... 3,770,825
=========
</TABLE>
F-145
<PAGE> 202
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
OFFICE
FIXTURES,
LEASEHOLD FITTINGS
LAND AND MOTOR AND COMPUTER
BUILDINGS VEHICLES FURNITURE EQUIPMENT TOTAL
--------- -------- --------- --------- -------
L L L L L
<S> <C> <C> <C> <C> <C>
COST
Additions........................ 18,220 63,192 55,321 191,937 328,670
--------- ------ --------- --------- -------
At 31st March 1998............... 18,220 63,192 55,321 191,937 328,670
========= ====== ========= ========= =======
DEPRECIATION
Charged for the period........... 607 1,317 7,642 14,322 23,888
--------- ------ --------- --------- -------
At 31st March 1998............... 607 1,317 7,642 14,322 23,888
========= ====== ========= ========= =======
NET BOOK VALUE
Owned assets..................... 17,613 22,559 47,679 177,615 265,466
Leased assets.................... -- 39,316 -- -- 39,316
--------- ------ --------- --------- -------
At 31st March 1998............... 17,613 61,875 47,679 177,615 304,782
========= ====== ========= ========= =======
</TABLE>
10. STOCKS
<TABLE>
<CAPTION>
1998
------
L
<S> <C>
Raw Materials............................................... 23,056
======
</TABLE>
11. DEBTORS
<TABLE>
<CAPTION>
1998
---------
L
<S> <C>
Trade debtors............................................... 1,008,030
Amounts owed by related undertakings........................ 2
Prepayments and accrued income.............................. 98,875
---------
1,106,907
=========
</TABLE>
12. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1998
---------
L
<S> <C>
Net obligations under hire purchase and finance lease
contracts................................................. 19,680
Trade creditors............................................. 1,091,773
Amounts owed to undertakings in which the company has a
participating interest.................................... 2,879,983
Corporation tax............................................. 279,807
Other taxes and social security............................. 360,316
Other creditors............................................. 70,184
Accruals and deferred income................................ 528,916
---------
5,230,659
=========
</TABLE>
Obligations under hire purchase and finance lease contracts are secured on
the assets concerned.
F-146
<PAGE> 203
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR
<TABLE>
<CAPTION>
1998
---------
L
<S> <C>
Net obligations under hire purchase and finance lease
contracts................................................. 14,108
=========
</TABLE>
Obligations under hire purchase and finance lease contracts are secured on
the assets concerned.
14. OBLIGATIONS UNDER HIRE PURCHASE & FINANCE LEASES
<TABLE>
<CAPTION>
1998
---------
L
<S> <C>
Obligations under finance leases and hire purchase contracts
are analysed as follows:
Within one year........................................... 19,680
Between one and two years................................. 14,108
---------
33,788
=========
</TABLE>
Obligations under finance leases and hire purchase contracts are secured on
the assets concerned.
15. DEFERRED TAXATION
Deferred taxation provided and unprovided for in the financial statements
is set out below. The amount unprovided represents a contingent liability at the
Balance Sheet date and is calculated using a tax rate of 31%.
<TABLE>
<CAPTION>
AMOUNT AMOUNT
PROVIDED UNPROVIDED
1998 1998
-------- ----------
L L
<S> <C> <C>
Accelerated capital allowances.............................. -- 34,033
------ ------
-- 34,033
====== ======
</TABLE>
16. PENSIONS -- DEFINED CONTRIBUTION SCHEME
The company operates a defined contribution pension scheme for the benefit
of the employees. The assets of the scheme are administered by trustees in a
fund independent from those of the company.
17. OPERATING LEASE COMMITMENTS
Financial commitments under non-cancellable operating leases will result in
the following payments falling due in the next financial year.
<TABLE>
<CAPTION>
1998
LAND AND 1998
BUILDINGS OTHER
--------- ------
L L
<S> <C> <C>
Expiring:
Within one year........................................... -- --
Within two to five years.................................. 25,046 41,945
After five years.......................................... -- --
------ ------
25,046 41,945
====== ======
</TABLE>
F-147
<PAGE> 204
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
18. SHARE CAPITAL
<TABLE>
<CAPTION>
1998
-----
L
<S> <C>
AUTHORISED
1,000 Ordinary shares of L1 each............................ 1,000
=====
</TABLE>
<TABLE>
<CAPTION>
1998
----
L
<S> <C>
ALLOTTED AND FULLY PAID
2 Ordinary shares of L1 each................................ 2
==
</TABLE>
MOVEMENTS DURING THE YEAR
<TABLE>
<CAPTION>
ORDINARY
SHARES OF L1
EACH
------------
<S> <C>
At 28th July 1997........................................... --
Issues during the period.................................... 2
--
At 31st March 1998.......................................... 2
==
</TABLE>
On 28th July 1997 2 Ordinary L1 shares were issued at par value to form the
company.
19. RECONCILIATION OF THE MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998
-------
L
<S> <C>
Profit for the financial period............................. 691,379
New share capital subscribed................................ 2
-------
Closing shareholders' funds................................. 691,381
=======
</TABLE>
20. RELATED PARTY TRANSACTIONS
Details of related party transactions occurring during the year are as
follows:
<TABLE>
<CAPTION>
NATURE OF AMOUNTS
NAME OF RELATED PARTY RELATIONSHIP TRANSACTION DETAILS AMOUNT BALANCE WRITTEN OFF
--------------------- --------------- ------------------- ---------- ---------- -----------
L L L
<S> <C> <C> <C> <C> <C>
SVI Holdings Inc....... Holding company Loan to the company (2,879,983) (2,879,983) --
</TABLE>
Ultimate controlling party
The company was throughout the period controlled by Softline Holdings (Pty)
Limited (a company incorporated in South Africa).
21. ULTIMATE PARENT UNDERTAKING
The directors consider that Softline Holdings (Pty) Limited (a company
incorporated in South Africa) is the company's ultimate parent undertaking.
F-148
<PAGE> 205
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
22. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 1998
----------------------------------------------- ------
L
<S> <C>
Interest paid............................................... (1,907)
Interest element of finance lease rental payments........... (327)
------
NET CASH (OUTFLOW) FOR RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE................................................ (2,234)
======
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 1998
-------------------------------------------- ----------
L
<S> <C>
Purchase of intangible fixed assets......................... (3,787,706)
Purchase of tangible fixed assets........................... (294,882)
----------
NET CASH (OUTFLOW) FOR CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT................................................ (4,082,588)
==========
</TABLE>
<TABLE>
<CAPTION>
1998
FINANCING ----
L
<S> <C>
Issue of share capital...................................... 2
--
NET CASH INFLOW FROM FINANCING.............................. 2
==
</TABLE>
23. RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1998
----------
L
<S> <C>
Operating profit............................................ 973,420
Depreciation and amortization charges....................... 40,769
(Increase) in stocks........................................ (23,056)
(Increase) in debtors....................................... (1,106,907)
Increase in creditors....................................... 4,931,172
----------
Net Cash Inflow from Operating Activities................... 4,815,398
==========
</TABLE>
24. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT OTHER AT
28TH JULY NON-CASH 31ST MARCH
1997 CASHFLOWS CHANGES 1998
--------- --------- -------- ----------
L L L L
<S> <C> <C> <C> <C>
Cash in hand, at bank..................... -- 730,578 -- 730,578
Finance leases............................ -- -- (33,788) (33,788)
-- ------- ------- -------
Total..................................... -- 730,578 (33,788) 696,790
== ======= ======= =======
</TABLE>
25. MAJOR NON-CASH TRANSACTIONS
During the period the company entered into finance lease arrangements in
respect of assets with a total capital value at the inception of the leases of
L33,788.
26. POST BALANCE SHEET EVENTS
With effect from 1st April 1998 the company purchased the computer services
division of Todds of Lincoln Limited.
F-149
<PAGE> 206
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
27. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED
KINGDOM ("UK GAAP") TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED
STATES OF AMERICA ("US GAAP")
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles applicable in the United Kingdom
("UK GAAP"), which differ in certain significant respects from those applicable
in the US ("US GAAP"). The material differences as they apply to the Company's
financial statements are as follows:
INCOME RECOGNITION
The accounting policy of the Company for the recognition of income from
maintenance and support contracts, as detailed in note 1 to the financial
statements, is inconsistent with US GAAP in respect of the treatment of income
from software support contracts of one year or less. SOP 97-2 requires that
support contract services should be recognized on a pro-rata basis over the term
of the arrangement.
DEFERRED TAX
Under UK GAAP, provision is made for deferred tax under the liability
method where it is probable that a tax liability will become payable. Under US
GAAP Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for
Income Taxes", requires deferred tax to be provided for on a full liability
basis.
The table below sets out the effect on profit for the year.
<TABLE>
<CAPTION>
1998
----------
STG L
<S> <C>
EFFECT ON PROFITS
Net Profit as stated under UK GAAP.......................... 691,379
US GAAP adjustments:
Deferral of income under SOP 97-2........................... (1,049,968)
Tax effect on deferred income adjustment.................... 279,807
Deferred tax not provided under UK GAAP..................... (34,033)
----------
NET LOSS AS STATED UNDER US GAAP............................ (112,815)
==========
</TABLE>
<TABLE>
<CAPTION>
AT 31ST MARCH
1998
-------------
STG L
<S> <C>
EFFECT ON SHAREHOLDERS' EQUITY:
Shareholders' equity as stated under UK GAAP................ 691,381
US GAAP adjustments:
Deferral of income under SOP 97-2........................... (1,049,968)
Tax effect on deferred income adjustment.................... 279,807
Deferred tax not provided under UK GAAP..................... (34,033)
----------
SHAREHOLDERS' EQUITY AS STATED UNDER US GAAP................ (112,813)
==========
</TABLE>
CASH FLOW STATEMENT
The cash flow statement prepared and presented in accordance with UK GAAP
presents substantially the same information as that required under US GAAP.
However there are certain differences from UK GAAP with regard to the
classification of items within the cash flow and with regard to the definition
of cash and cash equivalents.
F-150
<PAGE> 207
IBIS SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Under UK GAAP, cash flows are presented separately for trading activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisitions and disposals, equity dividends paid,
management of liquid resources and financing activities.
Under US GAAP, however, only three categories of cash flow activities are
reported, being operating activities, investing activities and financing
activities. Cash flows from taxation and returns on investments and servicing of
finance would be included under operating activities under US GAAP.
Under US GAAP, cash and cash equivalents do not include overdrafts but do
include investments repayable within three months of maturity when acquired.
Set out below is a cash flow statement under US GAAP:
<TABLE>
<CAPTION>
1998
---------
STG L
<S> <C>
Net cash provided by operating activities................... 1,927,655
Net cash used in investing activities....................... (289,354)
Net cash used in financing activities....................... (907,723)
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 730,578
Cash and cash equivalents at beginning of period............ --
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. 730,578
=========
</TABLE>
SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
1998
---------
STG L
<S> <C>
Capital leases entered into during the period............... 39,316
Interest paid............................................... 1,907
Taxes paid.................................................. --
Parent company loan provided during the period.............. 2,897,983
</TABLE>
F-151
<PAGE> 208
[LOGO]
<PAGE> 209
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets out the estimated expenses in connection with the
issuance and distribution of the securities being registered under this
Registration Statement, other than the underwriting discount payable by
Integrity Software. All amounts shown are estimates except the Securities and
Exchange Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee. Integrity Software will pay all of the expenses of
issuance and distribution set out below.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 19,640
National Association of Securities Dealers, Inc. filing
fee....................................................... 8,000
Nasdaq National Market listing fee.......................... 95,000
Blue sky qualification fees and expenses.................... 5,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 200,000
Transfer agent and registrar fees........................... 1,000
Printing and engraving expenses............................. 300,000
Miscellaneous expenses and administrative costs............. 1,360
----------
Total.................................................. $1,030,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of Integrity Software will be personally
liable to us or our stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of duty of loyalty to us or to our stockholders
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
- under Section 174 of the Delaware General Corporation Law
- for any transaction from which the director derived an improper personal
benefit
We intend to enter into indemnification agreements with each of our
directors and officers. These agreements, among other things, are expected to
require us to indemnify certain directors and officers for expenses including
attorneys' fees, judgments, fines and settlement amounts incurred by any of
these persons in any action or proceeding, including any action by or in the
right of Integrity Software, arising out of that person's services as our
director or officer, any subsidiary of ours or any other company or enterprise
to which the person provides services at our request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification
by the underwriters of Integrity Software, our directors, our officers who sign
the registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
For the period from March 17, 1997 to March 17, 2000, we issued and sold
the following unregistered securities:
1. Between July and October, 1998, we sold an aggregate of 4,180,000 shares
of our common stock to investors in two phases with an aggregate offering price
for both phases together of $1,000,000. This offering was
II-1
<PAGE> 210
deemed exempt from registration under the Securities Act in reliance upon
Regulation D, Rule 504, as an issuance of not more than $1,000,000.
2. In August 1998, pursuant to the terms of a share sale agreement, we
issued 73,350 shares of our common stock to the sole stockholder of the Wyse
Group, Plc., in consideration for all outstanding shares of Wyse. This offering
was deemed exempt from registration under the Securities Act in reliance upon
Section 4(2) of the Act, as a transaction by an issuer not involving any public
offering.
3. In October 1998, we issued 4,225 shares to the four stockholders of
Saracen Computer Systems, Ltd. in consideration for all outstanding shares of
Saracen.
4. In December 1998, we issued 243,520 shares of our common stock to 54
investers not resident in the U.S. with an aggregate offering price of
$1,753,521. This offering was deemed exempt from registration under the
Securities Act in reliance upon Regulation S, as an issuance to non-U.S.
investors, offered and sold solely outside the United States.
5. In the period from February 1999 until March 21, 2000, pursuant to stock
options granted to the then current owners of Integrity, 2,511,800 shares of our
common stock were issued, with an aggregate exercise price of $6,279,500.
6. In December 1998, we sold 88,080 shares, pursuant to options granted to
several holders of shares of common stock of Premier Computer Group, in partial
consideration for their shares of Premier stock, in order to acquire all
outstanding shares of Premier. The aggregate exercise price for these shares was
$1,326,000.
7. In July 1999, we issued an aggregate of 110,000 shares of our common
stock to four individuals who held all outstanding shares of Net Results and
Datasoft, in consideration for the acquisition of both businesses.
8. In December 1999, pursuant to a share sale agreement executed in
December, 1999, we sold 6,365,064 shares of our common stock to the stockholders
of Jyris Ltd., as consideration for all outstanding shares of Jyris Ltd.
9. In March 2000, we issued 43,734 shares of our common stock to six key
employees of Computer Foundations, as an inducement to continue their employment
with our company.
The issuances described in paragraphs 3., 5., 6. and 7. were deemed exempt
from registration under the Securities Act in reliance upon Section 4(2) of the
Act, as transactions by the issuer not involving a public offering. The
issuances described in paragraphs 8. and 9. were deemed exempt from registration
under the Securities Act in reliance upon Regulation S, as an issuance to
non-U.S. investors, offered and sold solely outside the United States.
There were no underwritten offerings in connection with any of the
transactions set forth above.
II-2
<PAGE> 211
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) EXHIBITS
The following exhibits are filed as a part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Integrity Software, Inc., as
amended.
3.2 By-laws of Integrity Software, Inc., as amended.
4.1 Specimen certificate for Common Shares, par value $0.0025
per share, of Integrity Software, Inc.*
5.1 Opinion of Clifford Chance Rogers & Wells LLP as to the
legality of the common shares offered in this offering.*
10.1 Sale of Business Agreement and Amendment Agreement among
Multisoft Financial Systems Limited, The Sage Group PLC and
Ibis Systems Limited dated March 9, 1998.
10.2 Multisoft Reseller Agreement between Multisoft Financial
Systems Limited and Ibis Systems Limited dated June 17,
1993.*
10.3 Compaq Agency Agreement between Compaq Capital Finance
Company and Total Asset Limited dated June 17, 1999.
10.4 Agreement between Barclays Bank Plc and Jyris Ltd., dated
February 15, 2000, regarding L4,000,000 acquisition credit
facility.
10.5 Agreement between Barclays Bank Plc and Jyris Ltd., dated
February 15, 2000, regarding L1,000,000 overdraft facility.
10.6 Sub-lease agreement between Ibis Group plc. and British Sky
Broadcasting Ltd. concerning property located in High
Wycombe, England, dated January 15, 1998.
10.7 Lease agreement between Premier Computer Group and J.
Cosgrove, dated November 20, 1992.
10.8 Lease agreement between Todds of Lincoln, Ltd. and Ibis
Systems Ltd. concerning property located in Lincoln,
England, dated April 24, 1998.
10.9 Option Plan for directors, officers and key employees,
approved March 21, 2000.
10.10 Employment Agreement dated December 7, 1999 between the
Registrant and Peter D. Nagle.*
10.11 Employment Agreement dated July 15, 1998 between the
Registrant and Paul C. Carroll.*
10.12 Employment Agreement dated April 1, 1999 between the
Registrant and Paul B. Nagle.*
21.1 List of subsidiaries.*
23.1 Consent of BDO International, Independent Accountants.
23.2 Consent of BDO Simpson Xavier, Independent Auditors.
23.3 Consent of Levy Gee, Independent Auditors.
23.4 Consent of Wilkins Kennedy, Independent Auditors.
23.5 Consent of Scrutton Bland, Independent Auditors.
23.6 Consent of Moore Stephens, Independent Auditors.
23.7 Consent of Hayes & Co., Independent Auditors.
23.8 Consent of Haslam Tunstall, Independent Auditors.
23.9 Consent of Karia Owen & Company, Independent Auditors.
23.10 Consent of Clifford Chance Rogers & Wells LLP (included in
Exhibit 5.1).*
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
II-3
<PAGE> 212
b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are not required or because the
required information is given in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) 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.
(b) The undersigned registrant hereby undertakes that:
(i) 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 a 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.
(ii) For the purpose of determining any liability under the Act, 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the provisions of Item 14, or otherwise, the registrant
has been informed 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, 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 of 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.
II-4
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of New York, New York, on the 22 day of March, 2000.
INTEGRITY SOFTWARE, INC.
By: /s/ PETER D. NAGLE
------------------------------------
Name: Peter D. Nagle
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ PETER NAGLE Chairman of the Board and Chief March 22, 2000
- --------------------------------------------------- Executive Officer (Principal
Peter Nagle Executive Officer)
/s/ PAUL CARROLL Chief Financial Officer March 22, 2000
- --------------------------------------------------- (Principal Financial Officer
Paul Carroll and Principal Accounting
Officer)
/s/ PAUL NAGLE Director March 22, 2000
- ---------------------------------------------------
Paul Nagle
/s/ KENNETH BUTLER Director March 22, 2000
- ---------------------------------------------------
Kenneth Butler
/s/ IVAN EPSTEIN Director March 22, 2000
- ---------------------------------------------------
Ivan Epstein
/s/ BARRY SCHECHTER Director March 22, 2000
- ---------------------------------------------------
Barry Schechter
/s/ DONALD RADCLIFFE Director (United States March 22, 2000
- --------------------------------------------------- Representative)
Donald Radcliffe
</TABLE>
II-5
<PAGE> 214
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Integrity Software, Inc., as
amended.
3.2 By-laws of Integrity Software, Inc., as amended.
4.1 Specimen certificate for Common Shares, par value $0.0025
per share, of Integrity Software, Inc.*
5.1 Opinion of Clifford Chance Rogers & Wells LLP as to the
legality of the common shares offered in this offering.*
10.1 Sale of Business Agreement and Amendment Agreement among
Multisoft Financial Systems Limited, The Sage Group PLC and
Ibis Systems Limited dated March 9, 1998.
10.2 Multisoft Reseller Agreement among Multisoft Financial
Systems Limited and Ibis Systems Limited dated June 17,
1993.*
10.3 Compaq Agency Agreement between Compaq Capital Finance
Company and Total Asset Limited dated June 17, 1999.
10.4 Agreement between Barclays Bank Plc and Jyris Ltd., dated
15th February, 2000, regarding L4,000,000 acquisition credit
facility.
10.5 Agreement between Barclays Bank Plc and Jyris Ltd., dated
15th February, 2000, regarding L1,000,000 overdraft
facility.
10.6 Sub-lease agreement between Ibis Group plc. and British Sky
Broadcasting Ltd. concerning property located in High
Wycombe, England, dated January 15, 1998.
10.7 Lease agreement between Premier Computer Group and J.
Cosgrove, dated November 20, 1992.
10.8 Lease agreement between Todds of Lincoln, Ltd. and Ibis
Systems Ltd. concerning property located in Lincoln,
England, dated April 24, 1998.
10.9 Option Plan for directors, officers and key employees,
approved March 21, 2000.
10.10 Employment Agreement dated December 7, 1999 between the
Registrant and Peter D. Nagle.*
10.11 Employment Agreement dated July 15, 1998 between the
Registrant and Paul C. Carroll.*
10.12 Employment Agreement dated April 1, 1999 between the
Registrant and Paul B. Nagle.*
21.1 List of subsidiaries.*
23.1 Consent of BDO International, Independent Accountants.
23.2 Consent of BDO Simpson Xavier, Independent Auditors.
23.3 Consent of Levy Gee, Independent Auditors.
23.4 Consent of Wilkins Kennedy, Independent Auditors.
23.5 Consent of Scrutton Bland, Independent Auditors.
23.6 Consent of Moore Stephens, Independent Auditors.
23.7 Consent of Hayes & Co., Independent Auditors.
23.8 Consent of Haslam Tunstall, Independent Auditors.
23.9 Consent of Karia Owen & Company, Independent Auditors.
23.10 Consent of Clifford Chance Rogers & Wells LLP (included in
Exhibit 5.1).*
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
INTEGRITY SOFTWARE, INC.
THE UNDERSIGNED, for the purpose of forming a corporation
pursuant to Section 102 of the Delaware General Corporation Law, has executed
the following Certificate of Incorporation:
FIRST: The name of the corporation is: INTEGRITY SOFTWARE,
INC. (hereinafter the "Corporation")
SECOND: The address of the Corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The name of the registered agent at such address is
the Corporation Trust Company.
THIRD: The purposes to be conducted or promoted are to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH: The aggregate number of shares of stock which the
Corporation shall have authority to issue is 100,000,000; each of such shares
shall be with a par value of $0.001 per share.
FIFTH: The name and mailing address of the sole incorporator
is: Julie A. Goldman, c/o Clifford Chance Rogers & Wells LLP, 607 14th Street
NW, Washington DC 20005.
SIXTH: In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to make,
alter, or repeal the By-Laws of the Corporation.
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SEVENTH: No director will have any personal liability to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except (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 Delaware General Corporation Law, as amended, or
(iv) for any transaction from which the director obtained an improper personal
benefit.
EIGHTH: The number of directors constituting the Board shall
be not less than three nor more than nine as fixed from time to time by vote of
a majority of the entire Board, provided, however, that the number of directors
shall not be reduced so as to shorten the term of any director at the time in
office, and provided further, that the number of directors constituting the
entire Board shall be 7 until otherwise fixed by a majority of the entire Board.
The Board of Directors shall be divided into three classes, as nearly equal in
numbers as the then total number of directors constituting the entire Board
permits with the term of office of one class expiring each year. At the annual
meeting of stockholders in July, 2000, directors of the first class shall be
elected to hold office for a term expiring at the next succeeding annual
meeting, directors of the second class shall be elected to hold office for a
term expiring at the second succeeding annual meeting and directors of the third
class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Any vacancies in the Board of Directors for any
reason, and any directorships resulting from any increase in the number of
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, even if less than a quorum, and any directors so
chosen shall hold office until the next election of the class for which such
directors shall have been chosen and until their successors shall be elected and
qualified.
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NINTH: Pursuant to Section 211(e) of the Delaware General
Corporation Law, directors shall not be required to be elected by written
ballot.
TENTH: The powers of the incorporator are to terminate upon
the filing of this Certificate of Incorporation. The names and mailing addresses
of the persons who are to serve as the initial directors of the Corporation
until the first annual meeting of stockholders of the Corporation, or until
their successors are elected and qualified are:
Peter Nagle
c/o Jyris Ltd.
2 Twyford Place, Lincolns Inn
High Wycombe, Bucks., England
Paul Carroll
c/o Integrity Holdings, Ltd.
Camden Lock, South Dock Road
Dublin 4, Ireland
Paul Nagle
c/o Jyris Ltd.
2 Twyford Place, Lincolns Inn
High Wycombe, Bucks., England
Kenneth Butler
c/o Jyris Ltd.
2 Twyford Place, Lincolns Inn
High Wycombe, Bucks., England
Donald Radcliffe
Radcliffe and Associates, Inc.
575 Madison Avenue
New York, NY 10022
Ivan Epstine
c/o Integrity Holdings, Ltd.
Camden Lock, South Dock Road
Dublin 4, Ireland
Barry Schechter
c/o Integrity Holdings, Ltd.
Camden Lock, South Dock Road
Dublin 4, Ireland
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IN WITNESS WHEREOF, the incorporator named above has executed
this Certificate of Incorporation this 2nd day of February, 2000.
/s/ Julie A. Goldman
--------------------
Julie A. Goldman
Sole Incorporator
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<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTEGRITY SOFTWARE, INC.
Integrity Software, Inc., a corporation organized and existing under and by
virtue of the Delaware General Corporation Law (herein after called the
"Corporation"), for the purposes of decreasing the capital stock of the
corporation, does hereby certify that:
FIRST: The Certificate of Incorporation of the corporation is amended by
striking out Article Fourth thereof and inserting in lieu thereof the following:
"FOURTH: The aggregate number of shares of stock which the Corporation
shall have authority to issue is 40,000,000; each of such shares shall
be with a par value of $0.0025 per share".
SECOND: The Board of Directors of the Corporation, acting by written
consent, adopted resolutions declaring advisable the above stated amendment to
the Certificate of Incorporation. In lieu of a special meeting of stockholders,
a majority of the stockholders approved by written consent the proposed
amendment, whereupon such consents were placed with the minutes of the
Corporation and became the evidence of the stockholders action so taken.
THIRD: The amendment is hereby duly adopted, executed and filed in
accordance with Sections 242 and 103, respectively, of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its Secretary, this 17th day of March, 2000.
INTEGRITY SOFTWARE, INC.
/s/ Paul Carroll
----------------------------
Paul Carroll
Secretary
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
INTEGRITY SOFTWARE, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meetings. An annual meeting of
stockholders of Integrity Software, Inc. (the "Corporation")
shall be held for the election of directors during the first week of July, at
10:00 a.m., at a place either within or without the State of Delaware as may be
designated by the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of
stockholders may be called at any time by the Chairman of the Board, if any, the
Vice Chairman of the Board, if any, the President or the Board of Directors, to
be held at such date, time and place either within or without the State of
Delaware as may be stated in the notice of the meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, the written
notice of any meeting shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual
or special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except
where otherwise provided by law or the certificate of incorporation or these
by-laws, the holders of a majority of the outstanding shares of each class of
stock entitled to vote at the meeting, present in person or represented by
proxy, shall constitute a quorum. For purposes of the foregoing, two or more
classes or series of stock shall be considered a single class if the holders
thereof are entitled to vote together as a single class at the meeting. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided by Section 1.4 of these
by-laws until a quorum shall attend. Shares of its own capital stock belonging
on the record date for the meeting to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to, its own stock, held by it in a fiduciary
capacity.
Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or, in the absence of the
Chairman of the Board, by the Vice Chairman of the Board, if any, or, in the
absence of the Vice Chairman of the Board, by the President, or,
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<PAGE> 2
in the absence of the President, by a Vice President, or, in the absence
of the foregoing persons, by a chairman designated by the Board of
Directors, or, in the absence of such designation, by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, or, in the absence
of the Secretary, an Assistant Secretary shall act as secretary of the meeting,
or, in the absence of the Secretary and the Assistant Secretary, the chairman of
the meeting may appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such stockholder by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation. Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors unless the holders of a majority
of the outstanding shares of all classes of stock entitled to vote thereon
present in person or by proxy at such meeting shall so determine. At all
meetings of stockholders for the election of directors, a plurality of the votes
cast shall be sufficient to elect. With respect to other matters, unless
otherwise provided by law or by the certificate of incorporation or these
by-laws, the affirmative vote of the holders of a majority of the shares of all
classes of stock present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders,
provided that (except as otherwise required by law or by the certificate of
incorporation) the Board of Directors may require a larger vote upon any such
matter. Where a separate vote by class is required, the affirmative vote of the
holders of a majority of the shares of each class present in person or
represented by proxy at the meeting shall be the act of such class, except as
otherwise provided by law or by the certificate of incorporation or these
by-laws.
Section 1.8. Fixing Date for Determination of Stockholders of
Record. 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 change,
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. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board is necessary, shall be the day on which the first written consent
is expressed; and (3) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto. 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 may fix a new
record date for the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote. The
Secretary shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be
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<PAGE> 3
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 in which the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place in which the meeting is to be
held. The list shall also 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 1.10. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the certificate of incorporation, any action
required by law to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a 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 entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Powers; Number; Qualifications. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors, except as may be otherwise provided by law or in the
certificate of incorporation. The Board shall consist of one or more members,
the number thereof to be determined from time to time by the Board, except as
otherwise provided in the certificate of incorporation, provided that a minimum
of two members of the Board shall not be employees or officers of the
Corporation or any of its subsidiaries, or have a relationship which, in the
opinion of the majority of the Board then serving, would interfere with the
exercise of independent judgement in carrying out the responsibilities of a
director. Directors need not be stockholders.
Section 2.2. Election; Term of Office; Resignation; Removal;
Vacancies. Each director shall hold office, according to their classification
and as provided in the Certificate of Incorporation or until his or her earlier
resignation or removal. Any director may resign at any time upon written notice
to the Board of Directors or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and, unless otherwise specified therein, no acceptance of such resignation shall
be necessary to make it effective. Any director or the entire Board of Directors
may be removed, with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors. Unless otherwise provided in the
certificate of incorporation or these by-laws, vacancies and newly created
directorships resulting from any increase in the authorized number of directors
elected by all of the stockholders having the right to vote as a single class or
from any other cause may be filled by a vote of a majority of the directors then
in office, although less than a quorum, or by the sole remaining director.
Section 2.3. Regular Meetings. Regular meetings of the Board
of Directors may be held at such places within or without the State of Delaware
and at such times as the Board may from time to time determine, and, if so
determined, notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board
of Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President, any Vice President or by any
two directors. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
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Section 2.5. Participation in Meetings by Conference Telephone
Permitted. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated by
the Board may participate in a meeting of the Board or of such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings
of the Board of Directors one-third of the entire Board shall constitute a
quorum for the transaction of business. The vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
unless the certificate of incorporation or these by-laws shall require a vote of
a greater number. In case at any meeting of the Board a quorum shall not be
present, the members of the Board present may adjourn the meeting from time to
time until a quorum shall attend.
Section 2.7. Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in the absence
of the Chairman of the Board by the Vice Chairman of the Board, if any, or in
the absence of the Vice Chairman of the Board by the President, or in their
absence by a chairman chosen at the meeting. The Secretary, or, in the absence
of the Secretary, an Assistant Secretary, shall act as secretary of the meeting,
but in the absence of the Secretary and any Assistant Secretary, the chairman of
the meeting may appoint any person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless
otherwise restricted by the certificate of incorporation or these by-laws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 2.9. Compensation of Directors. The Board of Directors
shall have the authority to fix the compensation of directors.
ARTICLE III
COMMITTEES
Section 3.1. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of such committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in the resolution of the Board, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have power or authority in reference to amending the certificate
of incorporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, removing or
indemnifying directors or amending these by-laws; and, unless the resolution
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
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<PAGE> 5
Section 3.2. Audit Committee. Without limiting the foregoing,
the Board of Directors shall establish an Audit Committee with a minimum of
three members, all of whom shall be independent directors. In addition, the
Board will adopt a formal written charter that specifies the scope of the Audit
Committee's responsibilities and the means by which the Audit Committee carries
out such responsibilities, the outside auditor's accountability to the Board and
Audit Committee and the Audit Committee's responsibility to ensure the
independence of the outside auditor.
Section 3.3. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board may adopt, amend and
repeal rules for the conduct of its business. In the absence of a provision by
the Board or a provision in the rules of such committee to the contrary, a
majority of the entire authorized number of members of such committee shall
constitute a quorum for the transaction of business, the vote of a majority of
the members present at a meeting at the time of such vote if a quorum is then
present shall be the act of such committee, and in other respects each committee
shall conduct its business in the same manner as the Board conducts its business
pursuant to Article II of these by-laws.
ARTICLE IV
OFFICERS
Section 4.1. Officers; Election. As soon as practicable after
the annual meeting of stockholders in each year, the Board of Directors shall
elect a President and a Secretary, and it may, if it so determines, elect from
among its members a Chairman of the Board and a Vice Chairman of the Board. The
Board may also elect one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person.
Section 4.2. Term of Office; Resignation; Removal; Vacancies.
Except as otherwise provided in the resolution of the Board of Directors
electing any officer, each officer shall hold office until the first meeting of
the Board after the annual meeting of stockholders next succeeding his or her
election, and until his or her successor is elected and qualified or until his
or her earlier resignation or removal. Any officer may resign at any time upon
written notice to the Board or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. The Board may remove any officer with or
without cause at any time. Any such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation, but the
election of an officer shall not of itself create contractual rights. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by the
Board at any regular or special meeting.
Section 4.3. Powers and Duties. The officers of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in these by-laws or in a resolution of the Board
of Directors which is not inconsistent with these by-laws and to the extent not
so stated, as generally pertain to their respective offices, subject to the
control of the Board. The Secretary shall have the duty to record the
proceedings of the meetings of the stockholders, the Board of Directors and any
committees in a book to be kept for that purpose. The Board may require any
officer, agent or employee to give security for the faithful performance of his
or her duties.
ARTICLE V
STOCK
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<PAGE> 6
Section 5.1. 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 or Vice Chairman of the Board of Directors, if
any, 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 such holder in the Corporation. If such
certificate is manually signed by one officer or manually countersigned by a
transfer agent or by a registrar, any other signature on the 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 such
person were such officer, transfer agent or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative, to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 6.2. Seal. The Corporation may have a corporate seal
which shall have the name of the Corporation inscribed thereon and shall be in
such form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Whenever notice is required to be given by law or
under any provision of the certificate of incorporation or these by-laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting 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. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these by-laws.
Section 6.4. Indemnification of Directors, Officers and
Employees. The Corporation shall indemnify to the full extent authorized by law
any person made or threatened to be made a party to any action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that such person or such person's testator or intestate is or was a
director, officer or employee of the Corporation or serves or served at the
request of the Corporation any other enterprise as a director, officer or
employee. For purposes of this by-law, the term "Corporation" shall include any
predecessor of the Corporation and any constituent corporation (including any
constituent of a constituent) absorbed by the Corporation in a consolidation or
merger; the term "other enterprise" shall include any corporation, partnership,
joint venture, trust or employee benefit plan; service "at the request of the
Corporation" shall include service as a director, officer or employee of the
Corporation which imposes duties on, or involves services by, such director,
officer or employee with respect to an employee benefit plan, its participants
or beneficiaries; any excise taxes assessed on a person with respect to an
6
<PAGE> 7
employee benefit plan shall be deemed to be indemnifiable expenses; and action
by a person with respect to an employee benefit plan which such person
reasonably believes to be in the interest of the participants and beneficiaries
of such plan shall be deemed to be action not opposed to the best interests of
the Corporation.
Section 6.5. Interested Directors; Quorum. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
her or their votes are counted for such purpose, if: (1) the material facts as
to his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger
books or account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be
amended or repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
7
<PAGE> 1
DATED 9th MARCH, 1998
MULTISOFT FINANCIAL SYSTEMS LIMITED
and
THE SAGE GROUP PLC
and
IBIS SYSTEMS LIMITED
-------------------
AMENDMENT AGREEMENT
-------------------
ALLEN & OVERY
LONDON
C3:117758.1
<PAGE> 2
THIS AGREEMENT is made on , 1998
BETWEEN:
(1) MULTISOFT FINANCIAL SYSTEMS LIMITED (registered number 2488578) whose
registered office is at Cross & Pillory House, Cross & Pillory Lane,
Alton, Hants GU34 1HL (the "Seller");
(2) THE SAGE GROUP PLC (registered number 2231246) whose registered office is
at Sage House, Benton Park Road, Newcastle-upon-Tyne NE7 712 (the
"Guarantor"); and
(3) IBIS SYSTEMS LIMITED (registered number 3410598) whose registered office
is at 2 Twyford Place, Lincoln's Inn, Cressex, High Wycombe.
Buckinghamshire HP12 3RE (the "Purchaser")
WHEREAS:
The Seller, the Guarantor and the Purchaser have today entered into an agreement
(the "Agreement) for the sale of the Business (as defined in the Agreement) and
have agreed to make certain amendments to the terms of the Agreement.
1T IS AGREED as follows:
1. All words and expressions defined in the Agreement shall have the same
meaning in this agreement unless the context otherwise requires.
2. In consideration of the payment of (pound) 1 by the Purchaser to the
Seller, receipt of which is acknowledged by execution of this agreement,
the parties agree that the Agreement shall be amended as follows:
(i) the definition of "Contracts" in the Agreement shall be deleted and
the following definition shall be substituted:
"Contracts" means all contracts and engagements entered into or
orders made before the Effective Time by or on behalf of the Seller
with customers in connection with the Business relating to software
support (but not sale or supply) and to bespoke modifications (other
than as provided under clause 2(5)) which remain (in whole or in
part) to be performed at or after the Effective Time;"
(ii) the word "Completion" in the definition of "Debts" shall be deleted
and substituted by the words "the Effective Time".
(iii) the words "an irrevocable royalty-free" shall be added after the
word "Purchaser" in clause 2(4) of the Agreement.
(iv) additional sub-clauses (9) and (10) be added to clause 5 of the
Agreement in the following terms:
<PAGE> 3
2
"5(9) Save for such liabilities as the Purchaser agrees expressly to
assume under this agreement, the Purchaser shall not assume
any liability of or relating to the Business in existence at
the Effective Time and the Seller agrees to indemnify the
Purchaser in respect of any such liability
5(10) The Purchaser agrees to indemnify the Seller in respect of
any liability of or relating to the Business which the
Purchaser assumes under this Agreement or which arises after
the Effective Time."
(v) an additional sentence be added to clause 7(2) as follows:
"For the avoidance of doubt the Purchaser shall not be precluded
from providing services to customers and selling software supplied
by parties other than the Seller's Group."
(vi) an additional sub-clause (9) be added to clause 7 of the Agreement
in the following terms:
"7(9) The Seller undertakes that, so far as it is aware (other than
John Jackman, a former employee of the Seller), it has not,
and undertakes that it will not in the future, disclose to any
third party the list or any part thereof) of Direct Customers
and that it will keep confidential such information as the
Seller maintains concerning the direct Customers (Save as
required by law or regulation or for the purposes of any form
of audit or disclosure to authority)."
(vii) an additional sub-clause (10) be added to clause 7 of the Agreement
in the following terms:
"The RRP used to calculate the amount payable by the Purchaser
to the Seller in respect of the Computer Software and Products
under this Agreement shall not include any amount payable in
respect of NRG report writing software and, for the avoidance
of doubt, sub-clause 7(3) shall not apply to the NRG report
writing software.'
(viii) an additional paragraph 7.2 be added to section 7 of Schedule 5 to
the Agreement:
"7-2 Litigation
The Seller is not engaged in any litigation or arbitration
proceedings as plaintiff or defendant and no such proceedings
have been threatened in the past 12 months in writing against
the Seller, in each case. relating to the Business and which
would be material in the context of the Business taken as a
whole."
3. the provisions of clauses 18 and 19 of the Agreement shall be
deemed to apply mutatis mutandis to this agreement as if set
out in full in this agreement
(4.) This agreement shall be construed in accordance with English
law. The parties submit to the jurisdiction of the English
courts for all purposes relating to this agreement
3
AS WITNESS the hands of the duly authorised representatives of the
parties on the date which first appears on page one.
<PAGE> 4
SIGNED BY )
for and On behalf of )
MULTISOFT FINANCIAL ) [ILLEGIBLE]
SYSTEMS LIMITED )
in the presence of: )
SIGNED BY )
for and on behalf of ) [ILLEGIBLE]
IBIS SYSTEMS LIMITED )
in the presence of: )
SIGNED BY )
for and on behalf of ) [ILLEGIBLE]
THE SAGE GROUP PLC )
in the presence of: )
<PAGE> 5
DATED 9th March, 1998
MULTISOFT FINANCIAL SYSTEMS LIMITED
and
THE SAGE GROUP PLC
and
IBIS SYSTEMS LIMITED
--------------------------
SALE OF BUSINESS AGREEMENT
--------------------------
ALLEN & OVERY
London
<PAGE> 6
CONTENTS
Clause Page
1. Interpretation .................................................. 1
2. Sale of Business ................................................ 3
3. Excluded Assets ................................................. 5
4. Consideration ................................................... 5
5. Apportionments .................................................. 6
6. Contracts ....................................................... 7
7. Reseller Agreement .............................................. 8
8. Product Warranty Claims ......................................... 9
9. Debts and Creditors ............................................. 10
10. Completion ...................................................... 10
11. Warranty ........................................................ 11
12. Employees ....................................................... 12
13. Pensions ........................................................ 16
14. Sales Literature ................................................ 16
15. Announcements ................................................... 16
16. Value Added Tax ................................................. 16
17. Interest ........................................................ 16
18. Notices ......................................................... 17
19 General ......................................................... 18
20. Whole Agreement ................................................. 19
21. Governing Law ................................................... 19
22. Guarantee ....................................................... 19
23. Source Code Deposit ............................................. 19
Schedules
1. Computer Equipment and Computer Software ........................ 20
2. Transferred Equipment and Licensed Software ..................... 22
3. Direct Customers ................................................ 23
4. Employees ....................................................... 24
5. Warranties ...................................................... 26
6. Orphan Customers ................................................ 29
Appendices
1. Reseller Agreement .............................................. 30
2 Licence to Occupy ............................................... 31
3. Guarantee ....................................................... 32
Signatories ........................................................... 33
<PAGE> 7
THIS AGREEMENT is made on , 1998
BETWEEN:
(1) MULTISOFT FINANCIAL SYSTEMS LIMITED (registered number 2488578) whose
registered office is at Cross & Pillory House, Cross & Pillory Lane,
Alton, Hants GU34 1HL (the "Seller");
(2) THE SAGE GROUP PLC (registered number 2231246) whose registered office is
at Sage House, Benton Park Road, Newcastle-upon-Tyne, NE7 7LZ (the
"Guarantor"); and
(3) IBIS SYSTEMS LIMITED (registered numbered 3410598) whose registered office
is at 2 Twyford Place, Lincoln's Inn, Cressex, High Wycombe,
Buckinghamshire HP12 3RE (the "Purchaser").
WHEREAS:
(A) The Seller carries on the Business (as defined below)
(B) The Seller wishes to sell and the Purchaser wishes to purchase the
goodwill and certain assets of the Business with a view to carrying on the
Business as a going concern in succession to the Seller on the terms and
subject to the conditions set out in this agreement.
(C) The Guarantor is the parent company of the Seller and has agreed to
guarantee the Seller's obligations hereunder in accordance with the
Guarantee (as defined below).
IT IS AGREED as follows:
1. INTERPRETATION
(1) In this agreement:
"Accounts Date" means the date to which the Seller's last filed accounts
have been prepared namely 30th September, 1996;
"Agreed Form" means the documents in the form agreed between the parties
and initialled by them or on their behalf on or before the date of this
agreement;
"Assets" means the several assets to be sold by the Seller to the
Purchaser under this agreement and described in clause 2(1);
"Business" means the business of supplying computer software and support
services exclusively to the Direct Customers and the business of supplying
bespoke software modifications to customers whether or not such customers
are Direct Customers carried on by the Seller at the Effective Time;
"Completion" means completion of the sale and purchase of the Assets in
accordance with clause 10;
<PAGE> 8
2
"Computer Equipment" means that equipment listed in part A of Schedule
other than that equipment which is not used in the Business;
"Computer Software" means that computer software listed in part B of
Schedule 1;
"Consideration" means (pound)3,863,000;
"Contracts" means all contracts and engagements entered into or orders
made before Completion by or on behalf of the Seller in connection with
the Business which remain (in whole or in part) to be performed at
Completion;
"Creditors" means the aggregate amount owing by the Seller in connection
with the Business to or in respect of trade creditors and accrued charges
as recorded in the books of account of the Business at the Effective Time;
"Debts" means (i) any debts or other sums due or payable to the Seller in
connection with the Business at Completion, (ii) any debts or other sums
which become due or payable to the Seller after Completion in connection
with goods supplied or services performed in connection with the Business
prior to Completion; and (iii) any interest payable on those debts or
other sums,
"Direct Customers" means those customers listed in Schedule 3;
"Disclosure Letter" means the letter of the same date as this agreement
from the Seller to the Purchaser in which certain matters are disclosed
that relate to the Warranties in Schedule 5;
"Effective Time" means the close of business on 2nd March, 1998;
"Employees" means those individuals employed by the Seller in the Business
and named in Schedule 4;
"Employment Regulations" means the Transfer of Undertakings (Protection of
Employment) Regulations 1981;
"Goodwill" means the goodwill of the Seller in relation to the Business
with the exclusive right for the Purchaser or its assignee to represent
itself as carrying on the Business in succession to the Seller, but
excluding any goodwill attaching to Intellectual Property in the Business;
"Guarantee" means the deed in the form attached as Appendix 3;
"Information" means all information owned by the Seller and in the
Seller's possession and reasonably required for the operation of the
Business including information relating to the supply of materials to the
Business and to the marketing of any products or services supplied by the
Business, including (to the extent they exist) customer names and lists,
sales targets. sales statistics, marketing surveys and reports, marketing
research, all training manuals and other materials relating to training of
customers or Employees on the Computer Software and any advertising or
other promotional materials and all material records and the database
relating exclusively to material modifications to the Computer Software
carried out for Direct Customers:
<PAGE> 9
3
"Intellectual Property" means all patents, design rights, copyrights,
trade marks, service marks, trade names and all other intellectual
property rights of any nature whatsoever throughout the world whether
registered or unregistered and including all applications and rights to
apply for any of the same;
"Liabilities" means the liabilities of the Business (other than the
Creditors) in respect of a matter relating to the Business which has
arisen before the Effective Time but excluding any liability arising
after the Effective Time;
"Licence to Occupy" means the agreement in the form attached as Appendix
2;
"Licensed Software" means the software licensed from third parties,
required for the Business and used exclusively in the Business set out in
Schedule 2, Part B;
"License Codes" means the codes issued by the Seller required by the
Direct Customers in order to obtain access to and use the Computer
Software;
"Orphan Customers" means the customers set out in Schedule 6;
"Purchaser's Solicitors" means Beale & Co of Garrick House, 27-32 King
Street, Covent Garden, London, WC2E 8JD; 5
"Reseller Agreement" means the agreement in the form attached as
Appendix I;
"Seller's Group" means The Sage Group plc and its subsidiaries;
"Seller's Solicitors" means Allen & Overy of One New Change, London EC4M
9QQ;
"subsidiary" means a subsidiary as defined in the Companies Act 1985
(s.736);
"Transferred Equipment" means the equipment set out in Schedule 2, Part A;
"VAT" means value added tax; and
"Warranties" means the warranties of the Seller contained in this
agreement.
(2) Words denoting a person shall include a body corporate, and vice versa;
words denoting the singular include the plural and vice versa;
(3) Subclauses (1) and (2) above apply unless the contrary intention appears.
(4) The headings in this agreement do not affect its interpretation.
2. SALE OF BUSINESS
(1) Subject to the terms and conditions of this agreement the Seller shall
sell with full title guarantee (save in respect of the Transferred
Equipment which is subject to hire purchase and I the Contracts) and the
Purchaser shall purchase the following assets with a view to the Purchaser
carrying on the Business from the Effective Time as a going concern in
succession to the Seller:
<PAGE> 10
4
(a) the Goodwill;
(b) the Transferred Equipment;
(c) the benefit (subject to the burden) of the Contracts;
(d) the Information;
(e) copies of all records and other documents relating exclusively to
the Business (other than the value added tax records referred to in
clause 16) including copies of payroll records, income records,
records of national insurance and PAYE relating to all Employees
duly completed and up to date; and
(f) the Computer Equipment.
(2) The Seller shall sell the Assets and property and risk in those Assets
shall vest in the Purchaser as from the Effective Time.
(3) The Seller and the Purchaser agree that, for the duration of the Licence
to Occupy, the Seller I shall be granted by the Purchaser reasonable
access to the Computer Equipment (and any Computer Software used on it) to
the extent that such Computer Software and Computer Equipment is required
by the Seller to operate its business. The Seller and Purchaser agree to I
co-operate fully to ensure that any computer equipment which is not used
in the Business is identified before the termination of the Licence to
Occupy and (without cost to the Purchaser) that the Purchaser co-operates
to ensure that the Seller is able to continue its remaining business
after the end of this access period.
(4) The Seller shall grant the Purchaser a non exclusive non-transferable
licence in the UK to use, copy and modify the training manuals relating
to the Computer Software contained in the Information.
(5) The Seller agrees that, notwithstanding anything in this agreement it will
provide the services relating to training, consultancy, installation and
data conversion (the "Services") to Direct I Customers to the extent that:
(a) it has agreed with Direct Customers before the Effective Time that
such Services will be provided;
(b) those Services have not been fully provided before the Effective
Time; and
(c) those Services are due to be provided in the 3 month period
following the Effective Time.
(6) In relation to the Services which the Seller is to provide pursuant to
subclause 2(5) above the Seller agrees it will pay the cost of providing
the Services, including the costs, if any, in relation to subcontracted
work carried out for this purpose.
<PAGE> 11
5
(7) For the avoidance of doubt, any additional Services which are required by
the Direct Customers which are not within the terms of subclause 2(5)
above shall be provided at the Purchaser's expense and the Seller agrees
to refer any requests for such Services promptly to the Purchaser.
3. EXCLUDED ASSETS
Nothing in this agreement shall operate to transfer any assets or rights
of the Seller or any of its subsidiaries other than those specifically
referred to in clause 2(1) and without limiting the generality of the
foregoing there shall be expressly excluded and excepted from the sale and
purchase and nothing in this agreement shall operate to transfer to:
(a) the statutory books and records of the Seller; or
(b) the Debts; or
(c) any prepayments or debts or other sums to become due to the Seller
after Completion in connection with goods invoiced prior to such
time including, for the avoidance of doubt, any accrued income
provisions; or
(d) any cash in hand or at bank or bills receivable; or
(e) any Intellectual Property of the Seller including, without
limitation, any Intellectual Property rights in the Computer
Software; or
(f) without prejudice to (e) above, the right to use the names
"Multisoft", "Sage" and "Sage Multisoft"; or
(g) the benefit of any insurance effected by or on behalf of the Seller;
or
(h) the premises, land or buildings of the Seller.
4. CONSIDERATION
(1) The Consideration shall be allocated as follows:
(a) for the Goodwill, the sum of (pound)3,766,033;
(b) for the Transferred Equipment and Computer Equipment, the sum
of (pound)96,966;
(c) for the benefit (subject to the burden) of the Contracts, the
Purchaser's covenant in clause 6(1);
(d) for the remaining items in clause 2(1) the sum of (pound)l.
(2) The Consideration shall be paid in full on Completion in immediately
available funds to the account of the Seller at:
<PAGE> 12
6
Bank: Lloyds Bank plc, Haymarket, Newcastle-upon-Tyne
sort code: 30-90-50
account number: 0649109
or such other account as the Seller may specify.
5. APPORTIONMENTS
(1) Subject to the provisions of the Licence to Occupy, all rents, rent
charges, rates, insurance premiums, gas, water, electricity and telephone
charges, royalties and other outgoings relating to or payable or accruing
in respect of the Business down to the Effective Time shall be borne by
the Seller and as from the Effective Time shall be borne by the Purchaser
and all maintenance and support charges, lease payments, royalties and
other periodical payments receivable or accruing in respect of the
Business down to and including the Effective Time shall belong to the
Seller and as from the Effective Time shall belong to the Purchaser. Those
outgoings and amounts receivable shall if necessary be apportioned
accordingly provided that all outgoings specifically referable to the
extent of the use of any property or rights shall be apportioned according
to the extent of such user.
(2) The Seller and the Purchaser agree that the amount of prepayments paid by
the Direct Customers or invoiced by the Seller prior to the Effective Time
under Contracts in respect of renewal periods of Contracts where the
maintenance obligation has started before the Effective Time and which are
continuing in whole or in part after the Effective Time or where the
maintenance obligation commences after the Effective Time is
(pound)863,000 (net of VAT) ("Prepayments"). The Purchaser shall, on
Completion, issue an invoice to the Seller for the Prepayments (including
a valid VAT invoice) and the Prepayments and VAT thereon shall be paid by
the Seller to the Purchaser on receipt of that invoice at the same time as
payment is made by the Purchaser under clause 4(2).
(3) If the Seller pays the Purchaser an amount in respect of VAT under clause
5(2) and Customs determine at any time that all or part of it was not
properly chargeable, the Purchaser shall repay the amount or relevant part
of it to the Seller. The Purchaser shall make the repayment promptly after
the determination. For the purposes of this clause, Customs shall be taken
to have determined that an amount of VAT was not properly chargeable if
the Seller or the representative member of the group of companies of which
the Seller is a member for the purposes of VAT is unable to obtain credit
for such VAT as input tax (whether by way of credit or actual repayment)
in the relevant VAT accounting period of the Seller in which the invoice
is raised and the Seller agrees to use the invoice in its current VAT
period. The Purchaser shall also pay to the Seller forthwith any interest,
penalty, charge or other amount required to be paid by Customs as a result
of its determination that any VAT paid under clauses 5(2) was not properly
chargeable.
(4) All salaries, wages and other emoluments and all contributions for which
the Seller is liable as an employer in respect of any employee under any
contractual or statutory obligation (including all income tax deductible
under P.A.Y.E. for which the Seller is accountable and all employer's
contributions to the Seller's Pension Scheme and all other normal
employment costs in respect of the Employees) shall be borne by the Seller
down to the Effective Time and thereafter by the Purchaser and shall if
necessary be apportioned accordingly.
(5) Sums payable periodically shall be apportioned by charging or allowing:
<PAGE> 13
7
(a) for any payment period entirely attributable to one party, the whole
of the instalment payable for that period;
(b) for any part of a payment period, a proportion on an annual basis.
(6) If any sum payable in respect of any period falling wholly or partly prior
to the Effective Time has not been quantified or has not been notified to
the Seller, a reasonable provisional apportionment shall be made on the
basis of the best estimate available.
(7) Upon the amount referred to in subclause 5(6) being quantified or notified
a final apportionment shall be made and the relevant party shall, within 7
days, make an appropriate balancing payment to the other party.
(8) The net amount (if any) payable by or to either party under this clause
shall be agreed between the parties within 7 days after the Effective Time
and failing such agreement shall be determined by an independent
accountant to be agreed between the parties or, if they cannot agree on
one within 14 days after the end of such period, to be appointed on
application of either party by the President for the time being of
Institute of Chartered Accountants in England and Wales.
6. CONTRACTS
(1) As part of the consideration for the sale and purchase of the Assets the
Purchaser shall:
(a) accept assignments from the Seller of or join with the Seller in
procuring a novation of the Contracts;
(b) carry out, perform and discharge all the obligations and liabilities
created by or arising under the Contracts except for any material
obligations and liabilities attributable to a breach on the part of
the Seller prior to the Effective Time and except in relation to
those obligations and liabilities to carry out the work referred to
under clause 2(5).
(2) The Purchaser shall indemnify the Seller against all actions, proceedings,
costs, damages, claims and demands in respect of any failure on the part
of the Purchaser to carry out, perform and discharge all the obligations
and liabilities created by or arising under the Contracts (except as
provided under 6(1)(b)) to the extent that they fall to be carried out,
performed and discharged after the Effective Time. The Seller shall
indemnify the Purchaser against all actions, proceedings, costs, damages,
claims and demands in respect of any failure on the part of the Seller to
carry out, perform and discharge all the obligations and liabilities
created by or arising under the Contracts in the period up to the
Effective Time to the extent that they fall to be carried out, performed
and discharged up to the Effective Time.
(3) Insofar as the benefit or burden of any of the Contracts cannot
effectively be assigned to the Purchaser except by an agreement or
novation with, or consent to the assignment from, the person, firm or
company concerned:
(a) the Seller shall at the Purchaser's request and expense use all
reasonable endeavours with the co-operation of the Purchaser to
procure such novation or assignment;
<PAGE> 14
8
(b) until the Contract is novated or assigned the Seller shall hold it
and also the benefits arising under it in trust for the Purchaser
absolutely and the Purchaser shall (if such sub-contracting is
permissible and lawful under the Contract), as the Seller's
subcontractor, perform all the obligations of the Seller under the
Contract to be discharged after Completion and shall indemnify the
Seller against all actions, proceedings, costs, damages, claims and
demands in respect of any failure on the part of the Purchaser to
perform those obligations; and
(c) until the Contract is novated or assigned the Seller shall (so far
as it lawfully may) give all reasonable assistance to the Purchaser
(at the Purchaser's request and expense) to enable the Purchaser
to enforce its rights under the Contract.
(4) For the purpose of obtaining the effective assignment of the Contracts to
the Purchaser the Seller and the Purchaser agree to notify together in
writing the Direct Customers on or as soon as practicable after the
Effective Time (in such form as both parties shall agree) of the
assignment of each Direct Customer's Contracts to the Purchaser to the
extent the same are assignable to the Purchaser without the relevant
Direct Customer's prior written consent.
(5) The Seller agrees that it shall, at the Purchaser's request and expense,
use all reasonable endeavours with the co-operation of the Purchaser to
procure the assignment to the Purchaser of the right to use the Licensed
Software following Completion to the extent that it is assignable and used
exclusively for the Business. Following any such assignment, the Purchaser
shall undertake to perform and discharge all of the obligations and
liabilities relating to the Licensed Software imposed by any third party
including the owner of Licensed Software save for any that relate to the
period up to the Effective Time. For the avoidance of doubt, clauses 6(2)
and 6(3) above shall apply mutatis mutandis to the Licensed Software.
7. RESELLER AGREEMENT
(1) The Seller and the Purchaser agree that from the Effective Time the
Reseller Agreement shall be deemed to apply mutatis mutandis in respect of
the Direct Customers as if those Direct Customers were "Customers" as
defined under the Reseller Agreement. In the event of any conflict or
inconsistency between the provisions of the Reseller Agreement and this
Agreement the provisions of this Agreement shall take precedence. The
following clauses 7(1) to 7(8) inclusive shall be read in conjunction with
the Reseller Agreement.
(2) After the Effective Time the Purchaser, in accordance with the Reseller
Agreement, undertakes to the Seller that the Purchaser will provide the
Direct Customers with services and software supplied by the Seller's
Group and provide the Direct Customers with a full and professional
service and will respond to all requests for information and assistance
from Direct Customers in an efficient and timely manner.
(3) The Purchaser and the Seller agree that with effect from the Effective
Time the Seller shall charge the Purchaser and the Purchaser shall pay the
Seller's recommended retail price ("PRP") in respect of the Computer
Software and the Products (as defined in the attached Reseller Agreement
(as amended)) less a discount as follows:
(a) 60% of the RRP in respect of the initial licence of any Computer
Software or the Products in respect of the Direct Customers.
<PAGE> 15
9
(b) 70% of the RRP in respect of annual licence fees payable in respect
of Direct Customers' continued use of the Computer Software or the
Products.
All payments shall be made by the Purchaser within 30 days of the Seller's
invoice in respect of the relevant amounts.
(4) All payments required to be made by the Purchaser to the Seller under the
Reseller Agreement shall be made in pounds sterling to a bank account
nominated by the Seller.
(5) The actual payment of all amounts due under the Reseller Agreement is of
the essence to the agreement. The Purchaser shall in addition pay to the
Seller interest on any overdue payment calculated on a daily basis at a
rate of 2 per cent. (2%) per annum above the National Westminster Bank
plc's base rate from time to time in force from the due date until the
date of actual payment, and interest shall accrue before as well as after
any payment.
(6) For the purpose of assuring to the Purchaser the full value and benefit of
the Business acquired under this agreement the Seller undertakes to the
Purchaser that for a period of 5 years after the Effective Time the Seller
will issue the License Codes only to the Purchaser or to one of its
subsidiaries and shall not issue nor purport to issue the License Codes to
anyone else during this period. The Seller and the Guarantor further agree
that during such period neither of them will deal direct with Direct
Customers or Orphan Customers or knowingly authorise any third party to
deal with Direct Customers or Orphan Customers in so far as such dealings
relate to software products or services provided by the Seller or the
Guarantor and shall promptly refer to the Purchaser all enquiries from
Direct Customers or Orphan Customers relating to the Business and assign
all orders relating to the Business which the Seller or the Guarantor may
in the 5 year period receive from Direct Customers or Orphan Customers.
(7) The Seller agrees that the RRP on which annual licence fees under claues
7(3)(b) above to Direct Customers have been calculated in the Business
immediately prior to the Effective Time shall for a period of 5 years from
the date of this Agreement not be reduced and, if increased, shall not be
increased above the percentage increase in the Retail Prices Index from
time to time.
(8) The Seller and the Purchaser agree that all the provisions of the Reseller
Agreement shall remain confidential between the parties and shall remain
confidential notwithstanding any termination of this agreement or the
Reseller Agreement.
8. PRODUCT WARRANTY CLAIMS
(1) If any warranty or guarantee claims arise after the Effective Time in
respect of any item of Computer Equipment supplied by the Seller to a
Direct Customer in connection with the Business before the Effective Time
(other than any equipment originally supplied by the Purchaser) then,
while the Seller shall be liable as against the relevant claimant and
shall indemnify the Purchaser accordingly, the Purchaser shall, if so
requested by the Seller, either: (a) carry out or provide any repairs or
replacements at the Purchaser's normal rates or price current at the time
of repair or replacement at the Seller's cost; or (b) allow provide any
repair or replacement to the claimant (either directly, subcontractors or
agents).
<PAGE> 16
10
(2) The Purchaser shall notify the Seller of any claim made after the
Effective Time to which subclause (1) applies and before taking any action
which may result in it claiming payment from the Seller under this clause
the Purchaser shall obtain the written approval of the Seller as to: (a)
the services to be supplied or goods to be provided to meet the claim; and
(b) the charge, if any, to be made by the Purchaser for those services or
goods.
(3) If any malfunctions in respect of any Computer Software supplied by the
Seller to a Direct Customer in connection with the Business before the
Effective Time arise after the Effective Time and require software
support or maintenance then the Seller shall provide to the Purchaser such
support or maintenance on the terms of the Reseller Agreement.
(4) Subject to the terms of this agreement and the Reseller Agreement, the
Purchaser shall be responsible for any warranty or guarantee claim arising
in respect of any item supplied in connection with the Business at any
time after the Effective Time and the Purchaser shall indemnify the Seller
against all actions, proceedings, costs, damages, claims and demands in
respect of every such claim.
(5) Subject to the terms of this agreement and the terms of the Reseller
Agreement, the Purchaser shall be responsible for all support services
required after the Effective Time in respect of any Computer Software
supplied in connection with the Business whether such supply was made
before or after the Effective Time and the Purchaser shall indemnify the
Seller against all actions, proceedings, costs, damages, claims and
demands in respect of the provision of, or failure to provide, such
support services.
9. DEBTS AND CREDITORS
(1) The Seller shall collect the Debts for its own account and the Purchaser
shall give all reasonable assistance to the Seller to enable the Seller to
collect the Debts.
(2) The Seller shall use all reasonable endeavours to collect promptly all
Debts.
(3) The Purchaser shall account to the Seller for any Debts paid to it within
14 days of receipt in accordance with subclause (4).
(4) Any sums received by the Purchaser in respect of any of the Debts shall be
held on trust by the Purchaser for the Seller. The Purchaser shall pay all
such sums to an account nominated by the Seller and shall provide the
Seller with a schedule setting out details of all Debts received by it, on
a fortnightly basis.
(5) The Seller shall discharge the Creditors and Liabilities and shall
indemnify the Purchaser against all costs, claims, demands and liabilities
in respect of them other than in each case any liabilities which the
Purchaser has agreed to perform or discharge expressly in this or in any
other agreement in writing with the Seller.
10. COMPLETION
(1) Completion shall take place at the Seller's Solicitor's offices on
Thursday, 5th March, 1998.
(2) On Completion:
<PAGE> 17
11
(a) the Seller shall let the Purchaser into possession of the Assets;
(b) the Purchaser shall pay to the Seller the sum of (pound)3,863,000;
and
(c) the parties shall execute the Licence to Occupy; and
(d) the Guarantor shall execute the relevant Guarantee; and
(e) the Seller shall, on receipt of the invoice outlined in clause 5(2)
above, pay to the Purchaser the sum of (pound)863,000 plus VAT.
(3) The Seller and the Purchaser shall each provide the other upon request
with full and free access (including the right to take copies) during
usual business hours to the books, accounts and records of the Business to
be held by each of them after Completion and which relate to the period
up to Completion.
11. WARRANTY
(1) The Purchaser shall take the Assets and the Licensed Software (to the
extent it is assigned) in the condition in which they are and no warranty
or assurance is given or implied as to their condition, quality or
fitness save as specified in this agreement.
(2) The Purchaser shall satisfy itself by carrying out such tests as are
necessary that the Assets are I safe and without risk to health before
they are put to use at work.
(3) Save as provided under clause 8 the Seller gives no warranty or
representation that the Direct Customers will remain customers of the
Business after the Effective Time.
(4) The Purchaser warrants that it has, or will have following Completion, the
capacity and facilities to service the Direct Customers in accordance with
the requirements of clause 7(2) and its obligations under the Reseller
Agreement.
(5) The Seller warrants to the Purchaser that, save, as fairly set out or
referred to in the Disclosure Letter, the Warranties set out in Schedule 5
are true and accurate in all material respects;
(6) The rights and remedies of the Purchaser in respect of any breach of the
Warranties shall not be affected by completion of the purchase of the
Business.
(7) The Purchaser acknowledges and agrees that:
(a) the Warranties set out in this clause and Schedule 5 to this
agreement are the only representations, warranties or other
assurances of any kind given by or on behalf of the Seller and on
which the Purchaser may rely in entering into this agreement;
(b) no other statement, promise or forecast made by or on behalf of the
Seller may form the basis of, or be pleaded in connection with, any
claim by the Purchaser under or in connection with this agreement;
<PAGE> 18
12
(c) any claim by the Purchaser or any person deriving title from it in
connection with the Warranties (a "Warranty Claim") shall be subject
to the following provisions of this clause; and
(d) at the time of entering into this agreement it is not aware of any
matter or thing which is inconsistent with the Warranties or
constitutes a breach of any of them.
(8) The liability of the Seller under or in respect of the Warranties shall be
limited as follows:
(a) there shall be disregarded for all purposes any breach of the
Warranties in respect of which the amount of the damages to which
the Purchaser would otherwise be entitled is less than (pound)7,500;
(b) the Purchaser shall not be entitled to recover any damages in
respect of any breach or breaches of the Warranties unless the
amount of damages in respect of such breach or breaches exceeds in
aggregate the sum of (pound)75,000;
(c) the maximum aggregate liability of the Seller in respect of all and
any Warranty Claims shall not exceed (pound)3,000,000.
(9) The Purchaser shall not be entitled to make any Warranty Claim in respect
of anything arising from any transaction, matter or thing fairly disclosed
in the Disclosure Letter;
(10) If the Purchaser or any of the Companies becomes aware of a matter which
could give rise to a Warranty Claim the Seller shall not be liable in
respect of it unless notice of the relevant facts is given by the
Purchaser to the Seller as soon as reasonably practicable and in any event
within 3 months of the Purchaser becoming aware of those facts.
(11) The Seller shall cease to have any liability under or in respect of the
Warranties 12 months after the Effective Time except in respect of a
Warranty Claim of which the Purchaser gives notice to the Seller before
the relevant date and in accordance with subclause (10) above but the
liability of the Seller in respect of any Warranty Claim shall absolutely
terminate if I proceedings in respect of it have not been commenced
within twelve months of service of notice of that Warranty Claim.
(12) Any payment made by the Seller in respect of a breach of the Warranties
shall be deemed to be a reduction in the consideration for the sale of the
Assets.
(13) The provisions of this clause shall have effect notwithstanding any other
provisions of this agreement.
12. EMPLOYEES
(1) The Seller and the Purchaser acknowledge and agree that under the
Employment Regulations the contracts of employment between the Seller
and the Employees will have effect after the Effective Time as if
originally made between the Purchaser and the Employees. On or as soon as
practicable after the Effective Time the Seller and the Purchaser shall
jointly issue to each Employee a notice in the Agreed Form.
<PAGE> 19
13
(2) The Seller shall discharge all its obligations in respect of the Employees
up to the Effective Time and shall indemnify the Purchaser against all
liabilities arising from the Seller's failure to do so.
(3) The Purchaser shall on and from the Effective Time discharge all the
obligations of the employer in relation to the Employees and shall
indemnify the Seller against all liabilities arising from the Purchaser's
failure to do so.
(4) The Seller shall indemnify the Purchaser against any liability relating to
an Employee which arises out of any act or omission by the Seller or any
other event, matter or circumstance occurring before the Effective Time
excluding:
(a) any liabilities which arise out of a complaint of failure to comply
with any requirement of Regulation 10 of the Employment Regulations
or in respect of an award of compensation under Regulation 11;
(b) any liability referred to in (5) below.
(5) The Purchaser shall (subject to the provisions of subclause (6) below)
indemnify the Seller against any liability relating to an Employee which
arises out of or in connection with:
(a) any provision of this agreement including (without limitation) the
change of employer occurring by virtue of the Employment Regulations
and/or this agreement;
(b) the termination of his employment, a change to a term of his
employment or working conditions (including, without limitation, any
term under an occupational pension scheme), any act or omission by
the Purchaser or any other event, matter or circumstance occurring
at or after Completion;
(c) any breach of Regulation 10 of the Employment Regulations.
(6) (a) The Seller agrees to pay the Purchaser the sums set out in clause
6(b) (the "Redundancy Costs") in respect of any Employee whose
employment is terminated by the Purchaser by reason of redundancy
(as defined in section 139(1) of the Employment Rights Act 1996),
subject to the following conditions:
(i) the Purchaser shall indicate on a confidential basis by
written notice to the Seller the financial terms on which it
proposes to make any Employee(s) redundant and the proposed
Redundancy Costs;
(ii) the Seller shall, within 7 days of receipt of such written
notice, confirm to the Purchaser whether it agrees to the
proposed Redundancy Costs being paid to such Employee. In the
absence of response to the contrary from the Seller within
such period the Purchaser shall be entitled to assume the
Seller's agreement thereto. In the event that the Seller does
not agree, it shall in its response state what other sum it
would agree to be paid to the Employee. The Purchaser agrees
to discuss with the Seller in good faith what sum it would be
fair and reasonable to pay but if agreement shall not be
reached within a further 7 days the Purchaser shall be
entitled to call on the Seller to make
<PAGE> 20
14
payment in such amount as the Purchaser in its reasonable
opinion considers represents a fair and reasonable amount;
(iii) within 7 days of receipt by the Seller of a properly drawn
invoice from the Purchaser, the Seller shall make payment to
the Purchaser in the amount agreed or considered by the
Purchaser to be reasonable in accordance with (ii) above
together with VAT thereon.
provided always that a payment shall only be paid to the Purchaser
pursuant to the terms of this clause if the dismissal of the
Employee takes place within two months of the Effective Time.
(b) The Redundancy Costs referred to in clause 6(a) above shall be
limited to:
(i) any statutory redundancy entitlement of an Employee calculated
in accordance with the provisions of sections 162(1) and (2)
of the Employment Rights Act 1996 and
(ii) any entitlement in respect of an Employee's contractual or
statutory notice period or unfair dismissal compensation and
such other sums as may be agreed by the Seller pursuant to 6
(a) (i) above, provided that the total sums payable to the
Purchaser by the Seller pursuant to this subclause (b)(ii)
shall not exceed (pound)20 000.
(7) In this clause:
"Beneficiary" means, in relation to an indemnity, the Purchaser or the
Seller (as appropriate) receiving the benefit of the indemnity;
"claim" includes a claim by any Purchaser or the Seller (as appropriate)
(including a trade union, a governmental or statutory or local authority
or commission),
"Covenantor" means, in relation to an indemnity, the person undertaking to
indemnify the Beneficiary; and
"liability" and "liabilities" includes any award, compensation, damages,
fine, loss, order, payment made by way of settlement, costs and expenses
(including legal expenses on an indemnity basis) properly incurred in
connection with a claim and also includes the costs and expenses of any
investigation by the Equal Opportunities Commission, the Commission for
Racial Equality or health and safety enforcement body and of implementing
any requirements which may arise from any such investigation.
(8) If the Beneficiary becomes aware of any matter which might give rise to a
claim for an indemnity from the Covenantor, the following provisions shall
apply:
(a) the Beneficiary shall immediately give written notice to the
Covenantor of the matter in respect of which the indemnity is being
claimed (stating in reasonable detail the nature of the matter and,
so far as practicable, the amount claimed) and shall consult with
the Covenantor with respect to the matter. If the matter has become
the subject of any proceedings the Beneficiary shall give the notice
within sufficient time to enable the
<PAGE> 21
15
Covenantor time to contest the proceedings before any first instance
judgement in respect of such proceedings is given;
(b) the Beneficiary shall:
(i) take such action and institute such proceedings, and give such
information and assistance, as the Covenantor or its insurers
may reasonably request to dispute, resist, appeal, compromise,
defend, remedy or mitigate the matter or enforce against any
person (other than the Covenantor) the rights of the
Beneficiary or its insurers in relation to the matter;
(ii) in connection with any proceedings related to the matter
(other than against the Covenantor) use professional advisers
nominated by the Covenantor or its insurers and, if the
Covenantor or its insurers so requests, allow the Covenantor
or its insurers the exclusive conduct of the proceedings in
each case on the basis that the Covenantor shall fully
indemnify the Beneficiary for all costs incurred as a result
of any request or nomination by the Covenantor or its
insurers; and
(iii) not admit liability in respect of or settle the matter without
the prior written consent of the Covenantor, such consent
not to be unreasonably withheld or delayed; and
(c) if the Covenantor has conduct of any litigation and negotiations in
connection with a claim, the Covenantor shall promptly take all
proper action to deal with the claim so as not, by any act or
omission in connection with the claim, to cause the Beneficiary to
be in breach of its obligations to its current or past employees
or to cause the Beneficiary's business interests to be materially
prejudiced.
(9) If the Covenantor does not elect to have conduct of any litigation and
negotiations in connection with a claim by notice in writing to the
Beneficiary within seven days of the Beneficiary giving notice of the
matter which might give rise to a claim for an indenimty under this clause
the Beneficiary shall be at liberty to take such action in relation to
that matter as it considers expedient
(10) If the Inland Revenue brings into any charge to taxation any sum payable
under any of the indemnities contained in this clause, the amount so
payable shall be grossed up by such amount (such amount being referred to
as the "gross-up amount") as will ensure that after deduction of the tax
so chargeable there shall remain a sum equal to the amount that would
otherwise have been payable under such indemnity. To the extent that the
Beneficiary subsequently obtains any tax credit, allowance, repayment or
relief as a result of the Covenantor paying to it the gross-up amount, it
shall pay to the Covenantor so much of the economic benefit from that tax
credit, allowance, repayment or relief which it has received as does not
exceed the gross-up amount (any question as to the accrual or amount of
any such economic benefit, the order and manner of making any claim for
any tax credit, allowance, repayment or relief, and the timing of any
payment, being determined by the Beneficiary's auditors).
(11) Any failure by any party to exercise any rights under this clause will
not operate as a waiver by that party of any such rights nor should it
prevent that party from exercising the same right. The liability of any
party under this clause shall not be released, impaired or affected by
<PAGE> 22
16
anything done by or arrangements or alterations of terms made with any of
the parties to this agreement.
(12) The indemnities given by the Covenantor in this clause are in addition to
any rights which the Beneficiary may have at law or otherwise including,
but not limited to, any right of contribution.
(13) The indemnities contained in this clause shall, for the avoidance of
doubt, extend to include all costs and expenses suffered or reasonably
incurred by the Beneficiary in connection with enforcing its rights under
this clause.
(14) No statement in the Disclosure Letter shall affect any of the indemnities
in this clause.
13. PENSIONS
The Seller shall be responsible for payments into the Seller's pension
fund in respect of Employees for the period up to the Effective Time but
not thereafter. Any contractual pension rights of the Employees for any
subsequent period are the responsibility of the Purchaser and the
Purchaser will not participate in the Seller's pension fund.
14. SALES LITERATURE
As from Completion the Purchaser shall not represent that the Seller
retains any connection with the Business as principal and shall ensure
that no catalogue or item of sales literature or publicity material
relating to the Business is distributed or issued by it after Completion
with any reference to the Seller or the Seller's Group other than in a
manner which accurately reflects the terms of the Reseller Agreement and
clause 7 of this Agreement.
15. ANNOUNCEMENTS
No party shall make or permit any member of the Seller's Group or the
Purchaser's Group or any person connected with it to make any announcement
concerning this sale and purchase or any ancillary matter before, on or
alter Completion except as required by law, The London Stock Exchange
Limited or any competent regulatory body or with the written approval of
the Purchaser and the Seller, such approval not to be unreasonably
withheld or delayed.
16. VALUE ADDED TAX
(1) The Seller and the Purchaser intend that article 5 of the Value Added Tax
(Special Provisions) Order 1995 ("article 5") shall apply to the sale of
the Assets under this agreement, so that the sale is treated as neither a
supply of goods nor a supply of services.
(2) If nevertheless any VAT is payable on any supply by the Seller under this
agreement, the Purchaser shall pay it the amount of that VAT in addition
to the consideration (and indemnify it for any interest and penalties
imposed by HM Customs & Excise ("Customs") arising out of the treatment by
the Seller and the Purchaser of the sale as described in (1) above) and
the Seller shall issue to the Purchaser a proper VAT invoice in respect of
that VAT.
(3) Without limiting subclause (2), VAT shall be treated as payable if Customs
rule that it is payable. If they have done so before Completion, the tax
shall be payable by the Purchaser on Completion. If they do so on or after
Completion, the tax shall be payable by the Purchaser
<PAGE> 23
17
within five days after the Seller gives the Purchaser written notice of
the ruling accompanied by the proper VAT invoice in respect of that VAT
or, if later, five days before the date on which the Seller is required to
account for the VAT to Customs.
(4) If the Purchaser (in breach of subclause (3)) fails to pay the amount of
the tax on the due date under sub-clause (3), it shall pay interest on
that amount from the due date for payment by the Seller to Customs of the
relevant VAT liability until actual payment (excluding any period for
which interest indemnified under subclause (2) runs) at the rate of two
per cent. per annum above the base rate for the time being of Lloyds Bank
plc compounded monthly.
(5) With a view to procuring that article 5 applies, the Purchaser:
(a) shall ensure that the Purchaser is registered for VAT not later than
the date of Completion; and
(b) warrants that the Assets are to be used by the Purchaser in carrying
on the same kind of business as that carried on by the Seller.
(6) The Seller and the Purchaser envisage that s. 49 of the Value Added Tax
1994 ("s. 49") will apply to the sale and purchase of the Assets under
this agreement but intend that the Seller should retain the records
referred to in that section, and accordingly:
(a) notwithstanding anything in this Agreement the Seller shall not be
required to deliver to the Purchaser the records referred to in s.
49;
(b) the Seller shall make a request to Customs under s. 49 for the
records to be preserved by the Seller;
(c) if or for so long as that request is not granted, the Seller shall
preserve the records on behalf of the Purchaser for such period as
may be required by law, and shall during that period permit the
Purchaser reasonable access to them to inspect or make copies of
them, and
(d) the Seller may fulfil its obligations under paragraph (c) by
procuring that a future transferee of its business or any other
person preserves the records and permits reasonable access as
mentioned in that paragraph, in which case the Seller shall notify
the Purchaser of the name of that person.
17. INTEREST
If any sum due for payment under this agreement is not paid on the due
date the party in default shall pay interest on that sum from the due date
until the date of actual payment calculated on a day to day basis of a
rate equal to the aggregate of 2 per cent. per annum and the base rate of
Lloyds Bank plc for the time being.
18. NOTICES
(1) Any notice or other document to be served under this agreement may be
delivered or sent by post or facsimile process to the party to be served
as follows:
<PAGE> 24
18
(a) To the Seller at
The Sage Group plc
Fax: 0191 255 0306
marked for the attention of
3 Steve Nelson
(b) To the Purchaser at
Ibis Systems Ltd.
Fax: 01494 44 3333
marked for the attention of
Peter Nagle
or at such other address or facsimile number as he may have notified to
the other party in accordance with this clause. Any notice or other
document sent by post shall be sent by prepaid first class recorded
delivery post.
(2) Any notice or document shall be deemed to have been served:
(a) if delivered, at the time of delivery; or
(b) if posted, at 10.00 a.m. on the second business day after it was put
into the post if sent within the United Kingdom, or at 10.00 am.
(local time at the place of destination) on the fifth business day
after it was put in the post if sent by airmail; or
(c) if sent by facsimile process, at the expiration of 2 hours after the
time of despatch, if despatched before 3.00 p.m. (local time at the
place of destination) on any business day, and in any other case
at 10.00 a.m. (local time at the place of destination) on the
business day following the date of despatch.
(3) In proving service of a notice or document it shall be sufficient to prove
that delivery was made or that the envelope containing the notice or
document was properly addressed and posted (either by prepaid first class
recorded delivery post or by prepaid airmail, as the case may be) or
that the facsimile message was properly addressed, despatched and
confirmation received from the recipient's fax machine or operator as the
case may be.
19. GENERAL
(1) Each of the obligations and undertakings set out in this agreement which
is not fully performed at Completion will continue in force after
Completion.
(2) None of the rights or obligations under this agreement may be assigned or
transferred without the prior written consent of all the parties.
(3) Each party shall pay the costs and expenses incurred by it in connection
with the entering into and completion of this agreement. For the avoidance
of doubt the Purchaser shall be responsible for any stamp duty payments
payable in connection with this agreement.
(4) This agreement may be executed in two counterparts which, taken together,
shall constitute one and the same agreement and either party may enter
into this agreement by executing a counterpart.
<PAGE> 25
19
20. WHOLE AGREEMENT
(1) This agreement and the documents referred to in it contain the whole
agreement between the parties relating to the transactions contemplated by
this agreement and supersede all previous agreements between the parties
relating to these transactions.
(2) Each of the parties acknowledges that in agreeing to enter into this
agreement it has not relied on any representation, warranty or other
assurance except those set out in this agreement.
(3) In entering into this agreement no party may rely on any representation,
warranty, collateral contract or other assurance (except those set out in
this agreement) made by or on behalf of any other party before the
signature of this agreement and each of the parties waives all rights and
remedies which, but for this subclause, might otherwise be available to
him in respect of any
such representation, warranty, collateral contract or other assurance;
provided that nothing in this subclause shall limit or exclude any
liability for fraud.
I2. GOVERNING LAW
This agreement is governed by and shall be construed in accordance with
English law. The parties submit to the jurisdiction of the English courts
for all purposes relating to this agreement.
22. GUARANTEE
For the purpose of assuring to the Purchaser the effectiveness of the
Seller's obligations herein the Guarantor has agreed to provide a
guarantee in the form set out in Appendix 3.
23. SOURCE CODE DEPOSIT
(1) The Seller as legal and beneficial owner of all Intellectual Property
rights in the Computer Software agrees to provide to the Purchaser at
Completion installed on a computer (being one of the Assets to be taken
over by the Purchaser under this agreement) at the Alton office a copy Iof
the source code in machine readable form relating to the Computer Software
and to provide the source code to all upgrades thereof issued by the
Seller or the Seller's Group and, only to the extent needed to continue to
operate the Business in the same manner as it is being operated at the
date of this agreement, the Seller grants the Purchaser a non-exclusive,
non-transferable licence to copy, use or modify such source code in the UK
for any customer with a valid License Code. For the avoidance of doubt,
the Purchaser shall not be entitled to distribute the source code or
disclose the source code or any part thereof to any third party.
(2) The Licence granted in this Clause 23 shall be for an initial period of 5
years from the date of this Agreement and shall terminate on termination
of the Reseller Agreement or in the event of the Purchaser's insolvency
winding-up, appointment of a liquidator or administrator over all or part
of the Purchaser's assets or if the Purchaser or any subsidiary of the
Purchaser ceases to carry on the Business. On termination of this Licence
the Purchaser shall forthwith return to the Seller the source code
supplied by the Seller under this Agreement.
AS WITNESS the hands of the duly authorised representatives of the parties
on the date which first appears on page 1.
<PAGE> 1
Exhibit 10.3
[Compaq Letterhead]
Memorandum
To All Compaq Channel Partners
From: Compaq Capital
Date: 1/6/99
Dear Partner
In order to provide you with a more efficient and proactive finance service,
aimed at supporting your Compaq Equipment sales we have appointed Total Asset
Finance Ltd (TAF) as our agents.
TAF will operate as a sales extension of Compaq Capital and will carry and use
Compaq Capital badged business cards and contracts and will be linked in through
our hotline number for any enquiries.
Please therefore treat them as Compaq Capital as they will be making full use of
our facilities and offerings.
Kind regards
Yours faithfully
/s/ Paul Crook
Paul Crook
Indirect Reseller Finance Manager
Compaq Capital
<PAGE> 2
AGENCY AGREEMENT
This Agreement is made this 17th day or June 1999 between TOTAL ASSET LIMITED,
St James Court, Wilderspool Causeway, Warrington, WA4 6PS (hereinafter called
"Total") and Compaq Capital Finance Company, Unit 65 Blackrock Business Park,
(Carysfort Avenue, Blackrock, Dublin, Republic of Ireland (hereinafter called
"Compaq Capital").
WHEREAS. Total is a purchaser and lessor of equipment, software and services,
manufactured or supplied by various manufacturers, suppliers and licensors and
Compaq Capital is engaged in the equipment leasing business and purchases
equipment for lease to others;
WHEREAS Total Is willing to negotiate with Resellers and to purchase certain
Equipment and Software as agents for Compaq Capital subject to the terms herein,
which concurrently with such purchase, shall be leased by Compaq Capital to
Lessees pursuant to the terms of this Agreement. Now it is hereby agreed that":
1. DEFINITIONS AND INTERPRETATIONS
In this Agreement the following expressions shall have the meanings respectfully
assigned to them:
Definitions
(a) "Account" shall mean a bank account controlled end designated by Compaq
Capital.
(b) "Contract" shall mean a Contract to purchase Equipment and Software from a
Supplier or third party previously approved by Compaq Capital in writing.
(c) "Equipment" shall mean equipment sold to Compaq Capital under any
Contract.
(d) "Lease" shall mean a Lease Agreement substantially in the form of
attachment A.
(e) "Lease Payments" shall mean the amounts that a Lessee is required to pay
periodically under the provisions of a Lease as charges for the use of
Equipment and Software purchased hereunder net or (1) value added tax and
any other taxes on such amounts, the Lease, the Equipment or Software, or
the use, possession or license thereof, (2) Service Charge and (3) any
charges for freight or installation.
(f) "Lessee" shall mean any third party business end user which is party to a
Lease and which is obligated to pay rent under such a Lease.
(g) "Licensor" shall have the meaning set forth in Clause 5(a).
(h) "Manufacturers" shall mean various manufacturers or Suppliers of Equipment
approved from lime to time by Compaq Capital.
(i) "Purchases Commission" shall mean the monies, if any, payable to Total
pursuant to clause 9.1.
(j) "Purchase Price" shall mean the price which Compaq Capital shall pay Total
for purchase of Equipment and assignment of Software license fees
hereunder. The Purchase Price for Equipment (including features attached
or connected thereto, initially and subsequently) and assignment of
Software license fees shall be as set forth in Suppliers invoice.
(k) "Reimbursement Date" shall mean the date when Compaq Capital must
reimburse the Purchase Price to Total pursuant to clause 2.6.2
(l) "Remarketing Commission" shall mean the monies, if any, payable to Total
pursuant to clause 9.8.
(m) "Remarketing Event" shall mean Totals obligations and rights detailed in
clause 9.2.1.
<PAGE> 3
(n) "Return on Compaq Capital Investment" means an amount sufficient to
maintain Compaq Capital's after tax return in relation to its purchase and
lease of Equipment and Software.
(o) "Sales Commission" shall mean the monies, if any, payable to Total
pursuant to clause 9.7
(p) "Service Charges" shall mean the sums payable by a Lessee under any
separate contract for maintenance of Equipment or Software (unless such
contract Is specifically included on the invoice required under Clause
2.2.2.) and any Software license fees or other amounts payable under a
Lease which are specifically excluded.
(q) "Software" shall mean the copies of computer programs and instructions (in
whatever form), firmware, microcode and documentation duly licensed by the
Licensor to the Lessee.
(r) "Term" shall mean the period which commences on the date of this Agreement
and expires one (1) year after such date. A formal business review shall
be conducted between the parties 3 months before the expiry date and, by
mutual agreement of both parties this Agreement may be renewed for a
further period of 12 months or as otherwise agreed between the parties.
(s) "Transferee" shall mean a person or entity (including a corporation,
trust, partnership or association) to whom a transfer is made by Compaq
Capital as provided in Clause 4.
2. PURCHASE AGENCY
2.1 Appointment
Compaq Capital appoints Total to be its non exclusive agent in the
United Kingdom subject to the provisions of Clause 2.2 below:
2.1.1 to negotiate agree and conclude the term and conditions of
Contracts for the purchase of Equipment and Software from such
Suppliers and Resellers as Compaq Capital considers
appropriate;
2.1.2 to enter into Contracts and other documents incidental thereto
relating to the purchase and delivery of the Equipment and
Software;
PROVIDED that Total is not authorised as non exclusive agent
of Compaq Capital to incur any obligations under a Contract
other than payment of the Purchase Price for the Equipment and
Software which form the subject thereof, and any other
obligations otherwise incurred under a Contract will be
incurred by total as principal.
2.2 Limits on the authority of Total as Agent
2.2.1 the agency granted by clause 2.1 above shall not authorise
Total to enter Into any Contract for the acquisition of any
Equipment and Software to the extent that the purchase price
therefor to be reimbursed by Compaq Capital pursuant to
clause 2.6.2 would cause the total amount to be reimbursed on
the relevant Reimbursement Date as per the relevant Offer
Letter substantially in the form of Attachment C to be
exceeded.
2.2.2 before making any contract to purchase Equipment and Software
or any part of it. Total shall submit to Compaq Capital
details of the individual items of the Equipment and Software
for Compaq Capital's approval. Total will then only have
authority to purchase such Equipment and Software provided
Compaq Capital grants such approval in writing. If no such
authority is granted then, should Total proceed with such
purchase of Equipment and Software, Total will do so as
principal and not agent.
<PAGE> 4
2.2.3 Total shall not hold itself out as having authority other than
that which is expressly contained in the terms of this
Agreement and to the extent that Total acts or agrees to act
in relation to any Contract otherwise than in accordance with
the terms of the agency hereunder, Total shall be acting as
principal on its own account and not as agents.
2.3 Conditions of Contracts
2.3.1 So far as Total is aware, after making appropriate enquiries
at the time it enters into the relevant Contract, the
Equipment and Software to be purchased thereunder as agents
for Compaq Capital will constitute Equipment and Software in
respect of which writing down allowances are available
pursuant to the Capital Allowances Act 1990 (as amended):
2.3.2 all the Equipment and Software shall be purchased In the
United Kingdom unless otherwise agreed by Compaq Capital, and
shall be either newly manufactured or bought as new from bona
fide third parties;
2.3.3 the relevant Contract will provide for Total or Compaq Capital
to be invoiced for the amounts which Total pays in its own
name depending upon whether Compaq Capital is disclosed or
undisclosed.
2.4 Alterations
Total must not, nor does it have authority to agree to the
alteration, extension or variation of any Contract or the terms and
conditions of any Lease without Compaq Capitals prior written
consent.
2.5 Title
Total shall ensure that upon completion of any Contract in
accordance with the terms and conditions thereof, title to the
Equipment and the right to receive Software Licence Fees shall pass
directly to Compaq Capital free and clear of all mortgages, liens,
security Interests or other encumbrances. Total will sign on behalf
of Compaq Capital any acceptance certificate or similar documents
required by the Supplier for the Equipment and Software.
2.6 Payments
2.6.1 Total will promptly settle all invoices relating to the
Equipment and Software In accordance with the terms and
conditions of the Contract thereof;
26.2 Compaq Capital shall be required to reimburse Total with the
Purchase Price of the Equipment and Software, but only if
Total have complied with all of the following Conditions to
the reasonable satisfaction of Compaq Capital;
a) Total have entered into a Lease or Leases of the
Equipment and Software as agent for Compaq Capital with
Lessees and such Lease or Leases have been signed and
completed by the Lessee (including without limitation
acceptance certificates) and such Leases have been
executed by Total on behalf of Compaq Capital and
delivered to Compaq Capital by Total;
b) all the Equipment and Software has been delivered to and
accepted by the Lessee and both the Supplier and Total
have complied fully with the terms of the Contract;
<PAGE> 5
c) the Purchase Price of the Equipment end Software has
been paid in full either by Total or Compaq Capital to
the Supplier of the Equipment whether or not
contractually due;
d) Total has delivered to Compaq Capital copies of all
Value Added Tax invoices relating to the Equipment and
Software receipted by the Supplier of the Equipment and
Software;
e) Total has provided Compaq Capital with evidence that
insurance required by the Lease in respect of the
Equipment and Software has been obtained by the Lessee;
f) a notification letter in the form of attachment B (the
"Notice Letter"), undated but executed by Total has been
provided to Compaq Capital in respect of the Lease which
the Equipment and Software purchased relates.
2.6.3 Total waive all and any right they have or may have to recover
or seek a credit In respect of Input Value Added Tax relating
to any Equipment and Software purchased by them as agents on
behalf of Compaq Capital.
3. AGENCY TO LEASE
3.1. Compaq Capital appoints Total to be its non-exclusive agent to
negotiate, agree, conclude and execute on Compaq Capital's behalf.
Leases in respect of the Equipment and Software in the form of
attachment A as agent on behalf of Compaq Capital with Lessees.
Such agency authority is only granted to Total in respect of
Equipment and Software validly purchased by Total as agent for
Compaq Capital. Such authority will apply to potential Contracts and
Leases valued at (pound)75,000 or less on a general basis. All
potential Contracts and Leases valued at more than (pound)75,OOO
will require individual pre approval by Compaq Capital in order for
this agency authority to apply.
3.2 Before executing any Lease in respect of Equipment and Software,
Total shall submit to Compaq Capital details of the Equipment
Software, duration and rentals of the Lease and such other financial
information in respect of the Lessee as Compaq Capital In Its
absolute discretion may request for Compaq Capital's approval. Total
will only have agency authority to execute Leases on behalf of
Compaq Capital pursuant to clause 3.1 provided Compaq Capital grant
such authority in writing to Total.
3.3 If Total execute Leases otherwise than in accordance with this
clause 3, then Total shell be acting as principal on its own account
and not as agents.
4. ASSIGNMENT OF BUYER's RIGHTS
Total hereby agrees that Compaq Capital may sell, convey, assign,
lease, grant a security interest in, or otherwise dispose of all or
any portion of Its rights, title and interest In, to and under this
Agreement, the Leases and the Equipment and Software covered thereby
or any item thereof, together or separately (individually or
collectively, a "transfer), to one or more Transferee,, without
notice to or consent of Total. Unless otherwise expressly agreed by
Transferee, a transfer will not include any of the obligations of
Compaq Capital under this Agreement or any other agreement
concerning the Leases. Equipment or Software: and Compaq Capital
shall retain all such obligations Total shall not assert against
Transferee, any defense, counterclaim or offset that Total may have
against Compaq Capital Total will not require Transferees to perform
any obligation or covenant of Compaq Capital hereunder
5. SOFTWARE
<PAGE> 6
(a) The Lessee's rights to user the Software shall be determined by its
licence with the Licensor or any third party having the right to
licence use therefor (licensor or such third party, as applicable,
being refered to hereafter as the "Licensor"); and Compaq Capital's
rights in any Software are limited to the right to receive Lease
Payments related to the Software leased by Total as Compaq Capital's
agent to Lessee.
(b) Total represents, covenants and agrees that as far as is reasonably
possible (i) all necessary licences for use of the Software have
been obtained from the Supplier having the right to grant such
licence, and (ii) the Lessee shall be entitled to use such Software
so long as it complies with the terms of the licene (without
additional payment to Total or any other Licensor).
(c) Compaq Capital shall, without additional charge, receive with the
Equipment purchased hereunder all Software furnished by Licensor or
Manufacturer (without separate charge) to its end user purchasers of
Equipment.
(d) Total covenants not to make any claims or take any legal action
against Compaq Capital receiving Leaser Payments in respect of the
Equipment and Software.
6. TOTAL'S REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) Total represents, warrants and covenants as of the date hereof and
again upon payment of the Purchase Price, that:
(i) Compaq Capital will acquire good and marketable title to all
Equipment and Software, purchased by Total on its behalf and
the Lease Payments related to the Equipment and Software, free
and clear of all liens, claims, interests and
encumbrances(except the rights of Llessee under the lease).
(ii) Each Lease is as set forth in the documents provided to Compaq
Capital and has not been modified or revoked; each Lease
represents the valid and binding obligation of Lessee,
enforceable against the Lessee in accordance with its terms;
Lessee has not breached or violated the Lease, has not
objected to the Lease, the Equipment or the Software, and has
not stated its intention to withhold payments under the Lease
or to otherwise challenge its obligations under the Lease;
Total has not made and will not at any time make any
agreements, representations, or warranties with or to Lessee
which would (or which attempt to ) amend, modify or affect the
Lease or Lessee's obligations thereunder or waive any
provisions thereof; and Total has not received any payments
from Leesee under the Lease except those,if any, paid or
credited to Compaq Capital upon payment of the Purchase Price.
For the avoidance of doubt Total shall prior to payment by
Compaq Capital of the Purchase Price furnish Compaq Capital
with the original Lease and supporting documentation.
(iii) Total shall use all reasonable endeavours to ensure that
Compaq Capital will acquire good and marketable title to all
Equipment and the right to receive Software, Licence fees
purchased by Total on its behalf, and Software licensed for
use on, in or with such Equipment will conform to its
Manufacturer's or Licensor's published specifications and will
be free from defects in material, workmanship and design under
normal use and service. In addition Total shall also use all
reasonable endeavbours to ensure that such Equipment and
Software will conform to Manfacturer's or Licensor's standard
published warranty, if any, to purchasers of Equipment and
licensees of Software.
With respect to all Equipment purchased hereunder and the
Software provided on, with or for such Equipment, including
but not limited to Software
<PAGE> 7
provided under clause 5(c). Compaq Capital may exercise (for
its own benefit) all product warranties and indemnities of the
Manufacturer, Licensor and other suppliers of the Equipment
and Software, including without limitation (i) any applicable
warranty, express or implied, issued on or applicable thereto,
concerning condition, fitness, quality or performance, (ii)
warranty of good and marketable title to the Equipment and the
right to licence the /Software, free and clear of all liens,
interest and encumbrances, (iii) warranty indemnifictions
related thereto, (iv) product liability indemnification;s with
respect to the Equipment or Software, and (v) any rights
concerning copies of Software. To the extent any warranties or
indemnititas concerning the Equipment or Software may not, by
applicable law, be enforceable by Compaq Capital in its own
name, Total agrees to enforce them for the benefit of Compaq
Capital or at Compaq Capital's request to permit Compaq
Capital to enforce them in Total's name for the benefit of
Compaq Capital at the sole cost of Compaq Capital.
(b) Total represents that no representations, warranties or convenants
have been made to the Lessee by Total concerning the Equipment or
the Software, except what is set forth in the Lease and the
marketing literature of the Manufacturer, Supplier or Licensor.
(b) Total will not relocate or assist in relocating the Equipment for a
Lessee without prior notice to and consent of Compaq Capital.
7. WARRANTIES OF COMPAQ CAPITAL AND TOTAL
Compaq Capital and Total each hereby represent and warrant to the other that:
(a) The party making such representation and warranty is duly
incorporated and existing and in good standing under the laws of the
jurisdiction of its in corporation and has the power and authority
to enter into and perform its obligations under this Agreement; and
(b) The person executing and delivering this Agreement on behalf of such
party is duly authorized to make such execution and delivery an d,
upon the execution and delivery hereof, this Agreement will
constitute a valid obligation binding upon and enforceable against
the party so representing and warranting in accordance with its
terms.
8. TOTAL ADMINISTRATION
(a) Billing and Collection
(i) With respect to Equipment purchased by Compaq Capital and
Software for which Compaq Capital is entitled to Lease
Payments, Total shall invoice, in Total's name each of the
Lessees for the Lease Payments and all other charges due under
the Leases. The invoices will direct the Lessees to make such
payments to the Account. Total will execute a Deed of
Assignment in respect of the Account assigning the monies in
the Account to Compaq capital in the form of Attachment D. If
Total receives any such amounts, it shall receive such amounts
in trust for Compaq Capital and remit such amounts immediately
to Compaq Capital. Total will not declare a default under a
Lease without Compaq Capital's prior appoval. If litigation is
required to collect any such monies or proceeds, such
litigation shall be conducted by Compaq Capital, however,
Total agrees to provide all reasonable co-operation and
assistance with respect to such litigation at no cost to
Compaq Capital.
<PAGE> 8
(ii) Compaq Capital and Total each agree to advise the other of any
delinquencies in Lease Payments or other Lease defaults,
immediately that Compaq Capital or Total become aware of it
forthwith and after such notice is given Compaq Capital may
date the Notice Letter provided by Total with respect to such
Lease and deliver it to the Lessee, together with any other
appropriate notices or directions. At the sole discretion of
Compaq Capital, the Notice Letter may be dated and delivered
immediately to Lessee, but only after providing Total with
prior written notification.
(iii) Total hereby appoints Compaq Capital as Total's agent to make
claim for, recieve payment of and execute and endorse (in
Total's name or otherwise) all documents, cheques or drafts
with respect to the Equipment, its maintenance, the Software
and Software licensing and support, with the same force and
effect as if done by Total.
(b) With respect to any Equipment and Software purchased, Total shall
make no modification of amendment of any Lease or Waiver of any
provision thereof, or consent to any action of Lessee which results
in a reduction of Lease Payments payable thereunder or which may
otherwise adversely affect Compaq Capital's rights thereunder or
hereunder, without the prior written approval of Compaq Capital's
rights and any Transferees of which Total has notice. Total shall
promptly provide Compaq Capital with copies of any documents
relating to the foregoing.
9. COMMISION
9.1 Purchases Commission
Compaq Capital agrees to pay to Total a Purchase Commission in the
amount of one per cent of the Supplier invoiced value of all
Equipment purchased in respect of leases sighned hereunder, in
consideration of Total acting as agent on behalf of Compaq Capital
for purchasing Equipment and complying with the terms of this
Agreement. Total will only be entitled to receive Purchase
Commission from Compaq Capital if Total has fully complied with the
terms of this Agreement and in particular this clause 9. Compaq
Capital will pay such Purchase Commission to Total within 5 days of
the Reimbursement date but only after receipt of a valid tax invoice
from Total in respect of such Purchase Commission.
9.2 Agency Powers
9.2.1 Total shall act as Compaq capital's non exclusive agent to
negotiate and conclude the renewal or extension of any Leaser
or Leases entered into under the terms of this Agreement
subject to the following terms:
9.2.2 Total will have no authority pursuant to clause 9.2.1 in
relation to any Lease or Equipment and Software subject to any
Lease where the Lessee of such Lease has defaulted in relation
to any default terms within the lease or breached any term
whatsoever of the Lease unless the Lessee has remedied such
default(s) and such defaults(s) is remediable and not a
continuing default(s) or Compaq Capital, at their own absolute
discretion, grant such authority in writing.
9.2.3 If Total breaches any term of this Agreement whatsoever,
including, without limitation, being liable for default
pursuant to the terms of clause 10 for this Agreement then
Total will have no authority to act as Compaq Capital's agent
pursuant to clause 9.2.1 above unless Compaq Capital at their
own absolute discretion, grant such authority in writing.
9.2.4 Without prejudice to the above, Total will have no authority
to act as Compaq Capital's agents pursuant to clause 9.2.1.
unless in relation to a Lease, it is renewed, extended or
terminated pursuant to the terms of the Lease and so
<PAGE> 9
that Compaq Capital receive the Return on Compaq Capital
Investment in respect of such Lease together with any monies
owed pursuant to the terms of such Lease to Compaq Capital.
9.2.5 Without prejudice to the above, Total will not have authority
to act as Compaq Capital's agent to sell, assign, lease,
transfer or otherwise dispose of any Equipment and Software.
10. EVENTS OF DEFAULT AND REMEDIES
(a) The following events, if occurring during the Term of this
Agreement, shall constitute Events of Default hereunder:
(i) Total or Compaq Capital fails to make any payment required or
it hereunder within ten (10) days after notice that such
payment is past due: or
(ii) Total or Compaq Capital fails in any material respect to
perform or observe any other covenant, condition, or agreement
to be performed or observed by it under this Agreement or any
document or certificate delivered by it in connection herewith
unless the breach of such covenant, condition or agreement has
been cured within twenty (20) days after written notice
thereof from the other party; or
(iii) Any representation or warranty made by Total or Compaq Capital
herein or in any document furnished or to be furnished by
Total or Compaq Capital in connection herewith or any
transaction hereunder proves incorrect or misleading in any
material respect; or
(iv) A petition in bankruptcy or for insolvency or administration
proceedings is filed by Total or Compaq Capital, or Total or
Compaq Capital makes a general assignment (excluding
assignments as provided for in this Agreement) for the benefit
of creditors or consents to the appointment of a trustee or
receiver; or a trustee or a receiver is appointed for it or
its assets without its consent and is not dismissed within a
period of sixty (60) days; or bankruptcy, reorganisation or
insolvency proceedings are instituted against it and are not
dismissed for a period of sixty (60) days, or
(v) Total shall fail to achieve the Minimum Volume Targets
specified in Appendix 2 hereto.
(b) Upon the occurrence of an Event of Default, the non-defaulting party
may, in addition to all other remedies it may have under this
Agreement, exercise all of the remedies afforded under applicable
law. No exercise of any right or remedy by the non-defaulting party
shall limit or restrict its right to exercise any other right or
remedy available at law or hereunder, all of which are cumulative.
(c) In any action for damages hereunder by either party, consequential
and incidental damages are excluded. This exclusion includes but is
not limited to, loss of business, lost profits and other economic
loss even if the other party had advance notice of the possibility
that such loss will or may occur. This paragraph does not apply to
any indemnification under this Agreement.
11. INDEMNIFICATION
Notwithstanding any other provision hereof, Total agrees that it will at
its own expense defend Compaq Capital and Transferees against any claims
and suits and indemnify and hold them harmless from and against any
claims, loss, costs, damage or expense (including, without limitation,
settlement, payments, reasonable legal fees) resulting, from or relating
to breaches, violations or misrepresentations by Total of matters set
forth in Clauses 2,4,5,6,7,8,9 or 10 above. The claims hereby indemnified
against include, without limitation claims by Lessees
<PAGE> 10
for forgiveness of Lease Payments or termination of Leases based on
breaches, violations or misrepresentations of Total identified in the
preceding sentence. Compaq Capital agrees to promptly notify Total in
writing of any matters of which Compaq Capital has knowledge in respect to
which this indemnity may apply and shall permit Total through its counsel
to defend all actions and claims covered by this Clause (including appeals
and negotiations for settlement) and provide to Total, at Total's expense,
all available information, assistance and authority (which Total requests)
to enable Total to do so. Total, at all times during the course of any
actions or claims, shall keep Compaq Capital informed of all developments
relating thereto.
12. GENERAL
This Agreement is for the benefit of the parties hereto and shall, to the
extent permitted hereby, be binding upon and inure to the benefit of their
successors, assigns and surviving entities of any merger, sale,
consolidation or reorganization. In the event that any of the terms of
this Agreement are or become illegal or unenforceable, such terms shall be
null and void and shall be deemed deleted from this Agreement, and all the
remaining terms of this Agreement shall remain in full force and effect.
This Agreement shall be construed and interpreted in accordance with the
laws of England. Seller and Buyer agree to perform acts and to execute and
deliver any further documents as may be reasonably necessary to carry out
the intent and provisions of this Agreement. This Agreement constitutes
the entire agreement between the parties hereto concerning the matter
covered herein and supersedes all prior agreements and/or understandings,
between the parties, whether written or oral, with respect thereto. There
are no understandings, agreements, representations or warranties, express
or implied, which are not specified in writing and signed by the parties
thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
duly authorised officers as of the date first above written.
Total Compaq Capital
TOTAL ASSET LIMITED COMPAQ CAPITAL FINANCE COMPANY
By: __[ILLEGIBLE]____________ By: _________________________
Title:__DIRECTOR_______________ Title:_________________________
Dan McCarthy
European Finance Director
Compaq Capital Europe
<PAGE> 11
ATTACHMENT C
OFFER LETTER
To: Compaq Capital
Gardner House
Wilton Place
Dublin 1
Ireland
Date
Dear Sirs
Agency Agreement dated ("the Agreement")
We refer to the Agreement and hereby offer to purchase as your agents and on
your behalf the Equipment and the right to receive all license fees and other
payments relating to the use of software, at the Purchase Price of plus VAT.
Equipment As per Schedule
Software As per Schedule
Upon your acceptance of the Offer we shall enter into a Lease, as agents on your
behalf, for the Equipment and Software with the Lessee identified below and on
the following terms (and in any event in the form of the draft Lease Agreement
attached hereto):
Lessee:
Term:
Lease Payments: Beginning
Other material provisions:
Equity investment by Total based on Cost of Funds
Purchases Commission based on Cost of Funds
Signed ___________________________
Title_____________________________
For and on behalf of TOTAL ASSET LTD
We hereby accept the above mentioned offer subject to the terms and conditions
of the Agreement.
Signed_____________________________
Title______________________________
For and on behalf of Compaq Capital.
<PAGE> 12
ATTACHMENT B
NOTIFICATION LETTER
LESSEE NAME AND ADDRESS
Attn:
Subject: Schedule No. ____to MASTER LEASE AGREEMENT No. _____ dated ______ (the
"Lease") between you and Total Asset Limited ("TOTAL")
Ladies and Gentlemen:
This letter constitutes notice by Total to you of the identity of the Principal.
This Lease was originally executed and administered by Total as agent of Compaq
Capital ("Compaq Capital"). Compaq Capital now wishes to directly administer the
Lease. Therefore, all payments due under the Lease, are to be directly remitted
to Compaq Capital at its address set forth below, unless or until Compaq Capital
provides different instructions. The next periodic payment is due _______
(Compaq Capital billings under the Lease will be issued directly to you by
Compaq Capital)
Please acknowledge receipt of this notification letter by signing and returning
the enclosed copy to Compaq Capital (see previous address).
_________________________________
Total Asset Ltd
By ____________________________
Title ___________________________
Received:
___________________________________
(LESSEE)
By: _____________________________
Title: ____________________________
<PAGE> 1
Exhibit 10-4
Your Ref:
Our Ref: ROD/WD
15th February 2000
PRIVATE & CONFIDENTIAL
The Directors
Jyris Limited
2 Twford Place
Lincolns Inn
Cressex
High Wycombe
l-1P12 3RE
Birmingham
Corporate Banking Centre
P0 Box 5960
15 Colmore Row
Birmingham
B3 2EP
Tel 0121 480 5484
Fax 0121 480 5495
BARCLAYS
Dear Sirs
We are pleased to advise you that Barclays Bank Plc ("the Bank") has agreed to
provide a sterling money market loan facility of up to (pound)4,000,000 four
million pounds sterling (the "Facility") to Jyris Ltd ("the Borrower") as
detailed below.
Following completion of the acceptance formalities detailed below, the Facility
will be available for drawing by the Borrower, subject to the following terms
and conditions:
1. Utiiisation of the Facility
The Facility may be drawn in one or more amounts, each drawing to be a
minimum amount of (pound)250k and multiples of (pound)250k thereafter for
periods up to a maximum of 12 months at the Borrower's option.
When wishing to draw under the Facility, the Borrower should telephone the
Colmore Row Branch of the Bank (the "Branch") no later than 4.00 pm on or
shortly before the business day on which the funds are required, stating
the amount of the drawing, the period required and giving instructions for
payment of the funds. In the event these instructions do not stipulate
that the funds must be credited to the Borrower's current account with the
Colmore Row, Birmingham branch of the Bank (the "Branch"), such
instructions must be confirmed by letter to the Branch at the earliest
opportunity.
The rate of interest on each drawing will include the Bank's margin of
1.75% per annum added to the cost of funds to the Bank (such cost of funds
to be conclusively determined by the Bank which will be dependent upon the
conditions prevailing in the London financial markets and shall include
any mandatory costs to compensate the Bank for the cost resulting from the
imposition from time to time under the Bank of England Act 1998 and/or by
the Bank of England and/or the Financial Services Authority (the "FSA")
(or other United Kingdom governmental authorities or agencies) of a
requirement to place non-interest bearing cash ratio deposits or Special
Deposits (whether interest bearing or not) with the Bank of England and/or
pay fees to the FSA calculated by reference to liabilities used to fund
the sum) for the period of the drawing. Interest will be payable without
deduction at six monthly Intervals, if appropriate and at the maturity of
each drawing, and calculated on the basis of actual days elapsed over a
365 day year (or on such other day count basis as the Bank considers is
consistent with then applicable market practice for a facility of this
kind).
<PAGE> 2
Each drawing, together with interest thereon, will be repaid on its
maturity date by debit to the Borrower's current account at the Branch.
2. Availability
All monies owing under the Facility are repayable upon written demand by
the Bank and/or any undrawn portion of the Facility may be cancelled by
the Bank, at any time. Following demand and/or cancellation, no further
utilisation may be made under the Facility.
The Borrower shall indemnify the Bank on demand against any loss or
expense which the Bank may reasonably sustain or incur as a consequence of
making such demand.
Any monies not paid following a demand under this clause shall continue to
bear interest in respect of any outstanding interest period under the
FacilIty current on the date of demand. Following maturity of each
outstanding drawing under the Facility the amounts of such drawings will
continue to bear interest at 1.75% per annum over the Bank's Base Rate
current from time to time until payment is made. Interest shall, if
unpaid, be compounded on the Bank's quarterly charging dates. Interest
will continue to be charged and compounded on this basis after as well as
before demand or judgement.
In the absence of demand or cancellation by the Bank, the Facility is
available for utilisation until 15th February 2001. However, the Bank will
be pleased to discuss the Borrower's future requirements shortly before
that date.
3. Drawdown
Prior to each drawdown under the Facility the Bank will require:
- completion of legal, financial and environmental (if appropriate)
due diligence on target(s) to the Bank's satisfaction.
- "Financial Assistance" gateway procedures to be undertaken and
supported by legal opinion confirmation in order to bring the assets
of target(s) into the Bank's security net.
4. Security
The repayment of the Borrower's obligations hereunder will be guaranteed
and secured by cross guarantees and debentures which are to be/have
already been executed by the Borrower and the following subsidiaries of
Integrity Holdings Limited.
Jyris Limited
Saracen Computer Systems Limited
The Wyse Group Plc
Softly Aware Limited
Evesham Finance Limited
Webbed Feet Productions Limited
Outsource Software (Int) Limited
Jyris Technology Limited
Premier Software Limited
Datasoft Limited
Digital Network Printing Limited
Total Asset Limited
Computer Foundations Limited
Hoki Newmedia Limited
<PAGE> 3
Ibis Systems Limited
Information Support Limited
Integrity Financial Services Limited
Network Solutions Support Limited
Premier Information Systems Limited
Todds of Lincoln Limited
Wyse Leasing Limited
Opus Leasing Limited
Tiny Finance Limited
Progress Systems Limited
together referred to as the "Guarantors".
The Bank reserves the right to require the Borrower to procure that any
company hereafter becoming a subsidiary (as defined by Section 736 of the
Companies Act 1985 as amended by Section 144 of the Companies Act 1989 or
any statutory modification or re-enactment thereof with effect from the
date on which it comes into force) of the Borrower will become a Guarantor
by executing a cross guarantee and debenture for the Facility in the form
required by the Bank with such period as the Bank may then specify.
A Downstream Guarantee executed by Integrity Holdings Limited in favour of
all its subsidiaries.
Such guarantee(s) will be secured by all security, which is now held, or
hereafter may be held, b~ the Bank to secure all monies and liabilities
which shall from time to time be due, owing or incurred by the
Guarantor(s) to the Bank, whether actually or contingently.
Intellectual Property Rights in respect of:
Jyris Technology Limited
Premier Information Systems Limited
Information Support Limited
The Borrower's obligations hereunder will be secured by any security which
is now held, or hereafter may be held by the Bank to secure all monies and
liabilities which shall from time to time be due, owing or incurred to the
Bank by the Borrower, whether actually or contingently.
5. Negative Pledge
Neither Jyris Limited nor any of the subsidiaries of Integrity Holdings
Limited listed above as "Guarantors" will create or permit to subsist
other than to the Bank any lien (except a lien arising solely by operation
of law), mortgage or charge or other encumbrance on the whole or any part
of its undertaking or assets, present or future, including uncalled
capital, or any contingent right on the part of any person to call for any
such mortgage or charge.
6. Fees
(a) Negotiation Fee
A negotiation fee of (pound)70,000 will be payable by the Borrower to the
Bank on acceptance of this offer.
(b) Legal and Valuation Costs
Any legal and valuation fees and expenses and other out of pocket expenses
(including VAT)
<PAGE> 4
incurred by the Bank in connection with the negotiation and granting of
the Facility will be reimbursed by the Borrower on demand by the Bank.
7. Information
The Borrower undertakes to provide the Bank with copies of its audited
Consolidated Profit and Loss account and Balance Sheet as soon as they are
available and not later than 180 days from the end of each accounting
reference period together with any other information which the Ban may
reasonably request from time to time.
8. Change of Circumstances
In the event of any change in applicable law or regulation or the existing
requirements of, or any new requirements being imposed by, the Bank of
England or any central bank, governmental, fiscal, monetary, regulatory or
other authority the result of which, in the sole opinion of the Bank, is
to increase the cost to it of funding, maintaining or making available the
Facility (or any undrawn amount thereof) or to reduce the effective return
to the Bank, then the Borrower shall pay to the Bank such sum as may be
certified by the Bank to the Borrower as shall compensate the Bank for
such increased cost or such reduction.
9. Governing Law and Jurisdiction
This facility letter shall be governed by and construed in with English
law.
The English court is to have jurisdiction to settle any disputes which may
arise in connection with this facility letter (and the documents referred
to herein) and each Borrower hereby irrevocably submits, for the Bank's
exclusive benefit, to the jurisdiction of the English court (but without
prejudice to the Bank's right to commence proceedings against any Borrower
in any other jurisdiction) and irrevocably waives any objections on the
ground of venue or forum non conveniens or any similar grounds.
Any writ, judgment or notice of legal process shall be sufficiently served
on a Borrower which is ~ Company registered outside England and Wales if
delivered to the Agent at its registered office its existing or last known
place of business in England and each such Borrower irrevocably appoints
Jyris Limited to act as its agent for service of such process.
10. Power to make changes to the letter
If the UK moves to the third stage of Economic Monetary Union, the Bank
shall be entitled to make such changes to this letter as it reasonably
considers are necessary to reflect the changeover to the euro (including,
without limitation, the rounding (up or down) of fixed monetary amounts to
convenient fixed amounts in the euro and amending any provisions to
reflect the market conventions for a facility of the kind contemplated in
this letter).
11. Acceptance
Prior to the Facility being utilised, the Borrower shall provide the
Branch with the following:
(a) the enclosed duplicate of this letter duly signed on the Borrowers
behalf as evidence of acceptance of the terms and conditions stated
herein, and
(b) a certified true copy of a resolution of the Borrower's Board of
Directors:
(i) accepting the Facility on the terms and conditions stated
herein,
<PAGE> 1
Exhibit 10.5
Birmingham
Corporate Banking Centre
P0 5ox 5960
15 Colmore Row
Birmingham
B3 2EP
Tel 0121 480
Fax 0121 480 5495
15th February 2000
PRIVATE & CONFIDENTIAL
The Directors
Jyris Limited
2 Twford Place
Lincolns Inn
Cressex
High Wycombe
HP12 3 RE
AND
Saracen Computer Systems Limited
The Wyse Group PLC
Softly Aware Limited
Evesham Finance Limited
Webbed Feet Productions Limited
Outsource Software (Int.) Limited
Jyris Technology Limited
Premier Software Limited
Datasoft Limited
Digital Network Printing Limited
Total Asset Limited
Computer Foundations Limited
Hoki Newmedia Limited
Information Support Limited
Integrity Financial Services Limited
Network Solutions Support Limited
Premier Information Systems Limited
Todds of Lincoln Limited
Wyse Leasing Limited
Opus Leasing Limited
Capital Focus Limited
Tiny Finance Limited
Tansai Limited
Progress Systems Limited
BARCLAYS
Dear Sirs
Barclays Bank PLC ("the Bank") is pleased to offer an overdraft facility ("the
Facility") up to a gross limit of (pound)1,000,000 (One million pounds sterling)
and a net limit of (pound)1,000,000 (one million pounds sterling) to Jyris
Limited ("the Agent") and the other subsidiaries with-in the Integrity Holdings
Limited Group ("the Parent") named below. The Agent and each subsidiary named
below (including any additional subsidiary admitted under paragraph 8 below) are
referred to individually as a "Borrower" and collectively as the "Borrowers".
After completion of the acceptance formalities specified in paragraph 14 below,
the Facility will be available for drawing by the Borrowers, subject to the
terms and conditions stated below.
<PAGE> 2
1. The Facility
The Facility will be availabic under the Composite Accounting System
(`CAS") in accordance with a Composite Accounting Agreement made between the
Borrowers and the Bank, subject to the sub-limits stated below. Interest will be
chargeable at a margin of 1.75% per annum over the Bank's Base Rate current from
time to time. Interest will be calculated on the net indebtedness for the time
being owing by the Borrowers under the Facility (after deduction of any credit
balances on the CAS Accounts).
Accrued interest will be debited to the relevant CAS Accounts quarterly in
arrear on the Bank's normal quarterly charging dates in March, June, September
and December of each year, or at such other times as may be determined by the
Bank. Interest will accrue from day to day (after as well as before judgment)
and be calculated on the basis of actual days elapsed over a 365 day year (or on
such other day count basis as the Bank considers is consistent with the then
applicable market practice for facilities of this kind).
2. Facility Limits
The gross indebtedness owing by the Borrowers under the Facility (before
deduction of any credit balances on the CAS Accounts) shall not at any time
exceed the gross facility limit stated above and the net indebtedness owing by
the Borrowers under the Facility (after deduction of any such credit balances)
shall not at any time exceed the net facility limit stated above.
Each Borrower may utilise the Facility only up to the amount of the
individual sub-limit stated below opposite its name:
Name of Borrower: Sub-Limit:
----------------- ---------
Jyris Limited NIL
Saracen Computer Systems Limited (pound)200,000
The Wyse Group PLC NIL
Softly Aware Limited NIL
Evesham Finance Limited NIL
Webbed Feet Productions Limited NIL
Outsource Software (Int.) Limited NIL
Jyris Technology Limited (pound)650,000
Premier Software Limited NIL
Datasoft Limited NIL
Digitat Network Printing Limited NIL
Total Asset Limited (pound)50,000
Computer Foundations Limited NIL
Hoki Newmedia Limited NIL
Information Support Limited NIL
Integrity Financial Services Limited NIL
Network Solutions Support Limited NIL
Premier Information Systems Limited (pound)100,000
Todds of Lincoln Limited NIL
Wyse Leasing Limited NIL
Opus Leasing Limited NIL
Capital Focus Limited NIL
Tiny Finance Limited NIL
Tansai Limited NIL
Progress Systems Limited NIL
<PAGE> 3
3. Availability
All money owing by each Borrower under the Facility is repayable upon
written demand by the Bank at any time. Any undrawn amount of the Facility may
be cancelled by the Bank at any time. After such demand or cancellation, no
further drawing may be made by any Borrower under the Facility.
Any money not paid following a demand under this paragraph shall continue
to carry interest as calculated in accordance with paragraph 1. Interest shall,
if unpaid, be compounded on the Bank's normal quarterly charging dates. Interest
will continue to be charged and compounded on this basis after as well as before
judgment.
The Borrowers jointly and severally agree to indemnify the Bank on demand
against any loss or expense which the Bank may sustain or incur as a consequence
of any such cancellation or demand or any default or delay by a Borrower in the
payment of any amount when due under this facility letter.
In the absence of demand or cancellation by the Bank, the Facility is
available for utilisation until 15 February 2001 ("the Review Date"). The Bank
will be pleased to discuss the Borrowers' future requirements shortly before the
Review Date and the Facility may continue for a further period if expressly
agreed in writing by the Bank (in its entire discretion without any obligation
to do so).
The rights of set-off conferred on the Bank by each Borrower under the CAS
Agreement and the CAS Guarantee to which it is a party may be exercised by the
Bank without the Bank first making a demand for payment of any liability
represented by the debit balance which is to be satisfied by the exercise of
such right. The amount for the time being standing to the debit or credit of
each CAS Account will be treated, for all purposes of such CAS Agreement and
each such CAS Guarantee, as immediately due and payable.
4. CAS Accounts
Each Borrower represents and warrants to the Bank that it is and will
remain the beneficial owner of all amounts for the time being standing to the
credit of its CAS Account with the Bank. Each Borrower also undertakes that it
will not at any time assign, charge or otherwise alienate or encumber any of its
rights to such amounts (except in favour of the Bank) or permit any charge or
other encumbrance to subsist over such rights.
5. Information
The Agent undertakes to provide the Bank with copies of the audited
consolidated profit and loss account and balance sheet for Integrity Holdings
Limited as soon as they are available and not later than 180 days from the end
of each accounting reference period together with any other information which
the Bank may request from time to time.
<PAGE> 4
6. Circumstances
In the event of any change in applicable law or regulation or in the
existing requirements of, or any new requirements being imposed by, any central
bank, governmental, fiscal, monetary, regulatory or other authority in any
applicable jurisdiction (whether or not having the force of law) including,
without limitation, any resulting from (he introduction or operation of the
euro, the result of which, in the sole opinion of the Bank, is to increase the
cost (directly or indirectly) to it of funding, maintaining or making available
amounts drawn under the Facility (or any undrawn amount of the Facility) or to
reduce the effective return to the Bank, then each Borrower shall pay to the
Bank such sum as may be certified by the Bank to such Borrower as being
necessary to compensate the Bank for such increased cost or such reduction.
7. Authority of Agent to agree changes to the composition of the Borrowers and
to extend, renew and/or vary the Facility
By countersigning this facility letter, each Borrower (other than the
Agent) irrevocably authorises the Agent from time to time (i) to agree with the
Bank in writing to add any further subsidiary or subsidiaries as a Borrower or
Borrowers, and/or (ii) to remove any subsidiary as a Borrower, and/or (iii) to
extend or renew the Facility, or increase or reduce the limit and (if
applicable) sub-limits and the interest margin applicable to the Facility and/or
to vary the other terms applicable to the Facility as the Agent may
determine,and/or (iv) to sign any document and perform any act on behalf of the
Borrowers (or any of them) required to effect or implement any of the foregoing
or to record or restate the terms for the time being applicable to the Facility
(as extended or renewed if applicable). Each change so agreed by the Agent shall
be binding on each Borrower and the Bank may assume that all requisite approvals
(if any) have been obtained by (he Agent from the other Borrowers. The authority
hereby conferred on the Agent shall continue after the Review Date. The terms
applicable to the Facility will continue in full force and effect, save as
expressly amended thereby.
Any demand for payment or any other demand or notice to a Borrower may be
sufficiently made or given by the Bank to such Borrower by posting it to or
leaving it at the Agent's last known place of business or (at the Bank's option)
at the Agent's registered office.
8. Admission of a New Participating Subsidiary
The admission of a new subsidiary (a New Participating Subsidiary") shall
take effect at the commencement of the business day after the delivery to the
Bank of the following documents in form and substance satisfactory to the Bank:
(a) an agreement supplemental to this facility letter signed by the Agent
and the New Participating Subsidiary;
(b) an agreement supplemental to the CAS Agreement signed by the Agent and
the New Participating Subsidiary, together with a CAS Guarantee signed by the
New Participating Subsidiary and a CAS Guarantee signed by the Agent;
<PAGE> 5
(c) a certified true copy of a resolution of the New Participating
Subsidiary's Board of Directors:
(i) accepting the Facility on the terms and conditions stated
herein, approving the terms of the documents referred to in sub-paragraph (a)
and (b) above to which the New Participating Subsidiary is a party and
authorising a specified person, or persons, to sign and return to the Bank each
such document on its behalf;
(ii) authorising the Bank to accept instructions and confirmations
in connection with the operation of the Facility signed in accordance with the
Bank's mandate current from time to time;
(iii) appointing the Agent to act on behalf of the New Participating
Subsidiary for the purposes contemplated in paragraph 7 above and paragraph 12
below;
(d) a certified true copy of a resolution of the Agent's Board of
Directors, approving the admission of the new Participating Subsidiary and
approving the terms of the documents referred to in sub-paragraphs (a) and (b)
above to which the Agent as a party and authorising a specified person, or
persons, to sign and return to the Bank each such document on its behalf.
The Bank shall not be bound to admit a new subsidiary under the above
procedure if the Bank considers that its admission might result in a breach of
Section 151 of the Companies Act 1985 (prohibition of financial assistance by a
company for acquisition of its own shares).
9. Fees and Expenses
The Borrowers jointly and severally undertake to reimburse to the Bank on
demand on a full indcmnity basis (whether or not the Facility is utilised) all
valuation and legal fees and other out-of-pocket expenses (including VAT), if
any, incurred or chargeable by the Bank in connection with the valuation or
revaluation of any security held by the Bank or the enforcement and preservation
by the Bank of its rights under this facility letter (and the documents referred
to herein) and the Bank may debit such fees and expenses to such accounts of the
Borrowers with the Bank as the Bank may determine without further authority from
the Borrowers.
10. Miscellaneous
If the UK moves to the third stage of EMU, the Bank shall be entitled to
make such changes to this facility letter as it reasonably considers are
necessary to reflect the changeover to the euro (including, without limitation,
the rounding (up or down) of fixed monetary amounts to convenient fixed amounts
in the euro and amending any provisions to reflect the market conventions for a
facility of the kind contemplated in this facility letter).
11. Interpretation
In this facility letter:
(a) `business day" means a day (excluding Saturdays) on which the Bank is
ordinarily open to effect transactions of the kind contemplated in this Facility
Letter and, if a payment is to be made in euros, on which such payment system as
the Bank chooses is operating for the transfer of funds for the same day value,
<PAGE> 6
(b) "CAS Account" means an account of a Borrowcr with the Bank within a
CAS arrangement for the time being in force between them;
(c) "EMU" means Economic and Monetary Union as contemplated in the Treaty
establishing the European Community, as amended from time to time
(d) "euro" and "(euro symbol)" means the single currency of the
participating Member States adopted under Council Regulation (EC) No 974/98,
(e) "indebtedness" includes any obligation for the payment or repayment of
money, whether present or future, actual or contingent;
(f) "subsidiary" has the meaning attributed to the expression "subsidiary
undertaking" in Section 258 of the Companies Act 1985;
(g) "UK" means the United Kingdom of Great Britain and Northern Ireland.
Reference to any statutory provision includes any amended, extended or
re-enacted version of it with effect from the date on which it comes into force.
Reference to this facility letter or any other document includes this facility
letter or such document as amended, extended, supplemented or restated in any
manner from time to time and/or any document which amends, extends, supplements
or restates this facility letter or such document.
12. Governing Law and Jurisdiction
This facility letter shall be governed by and construed in with English
law.
The English court is to have jurisdiction to settle any disputes which may
arise in connection with this facility letter (and the documents referred to
herein) and each Borrower hereby irrevocably submits, for the Bank's exclusive
benefit, to the jurisdiction of the English court (but without prejudice to the
Bank's right to commence proceedings against any Borrower in any other
jurisdiction) and irrevocably waives any objections on the ground of venue or
forum non convenlens or any similar grounds.
Any writ, judgment or notice of legal process shall be sufficiently served
on a Borrower which is a company registered outside England and Wales if
delivered to the Agent at its registered office or its existing or last known
place of business in England and each such Borrower irrevocably appoints Jyris
Limited to act as its agent for service of such process.
13. Period for Acceptance of this Offer
This offer will remain available for a period of one month from the date
of this facility letter, after which it will lapse if not accepted by the
Borrowers.
14. Acceptance
Before the Facility may be utilised, the Agent shall provide the Bank with
the following in form and substance satisfactory to the Bank:
(a) the enclosed duplicate of this facility letter, together with a CAS
Agreement and a
CAS Guarantee, duly signed on each Borrower's behalf;
<PAGE> 7
b) a certified true copy of a resolution of the Board of Directors of the
Agent:
(i) accepting the Facility on the terms and conditions stated above
and approving the terms of the CAS Agreement and the CAS Guarantee to be given
by it;
(ii) authorising a specified person or persons to sign and return to
the Bank the duplicate of this facility letter;
(iii) authorising the Bank to accept instructions in connection with
the operation of the Facility signed in accordance with the Bank's signing
mandate current from time to time;
(iv) accepting the appointment of Jyris Limited as agent of the
Borrowers for the purposes set out in paragraph 7 and paragraph 12 above; and
(c) a certified true copy of a resolution of the Board of Directors of
each Borrower (except the Agent):
(i) accepting the Facility on the terms and conditions stated herein
and approving the terms of the CAS Agreement and the CAS Guarantee to be given
by it;
(ii) authorising a specified person, or persons, to sign and return
to the Bank the duplicate of this facility letter;
(iii) authorising the Bank to accept instructions in connection with
the operation of the Facility signed in accordance with the Bank's signing
mandate current from time to time,
(iv) appointing Jyris Limited to act as agent of the Borrower for
the purposes contemplated in paragraph 7 and paragraph 12 above.
Yours faithfully
for and on behalf of
BARCLAYS BANK PLC
RELATIONSHIP DIRECTOR
Accepted on the terms and conditions stated herein, pursuant to a resolution of
the Board of Directors (a certified true copy of which is attached hereto).
For and on behalf of
Jyris Limited
By
------------------
Director
Date:
<PAGE> 8
For and on behalf of
Saracen Computer Systems Limited
By
-----------------------
Director
Date:
For and on behalf of
The Wyse Group PLC
By
-----------------------
Director
Date:
For and on behalf of
Softly Aware Limited
By
-----------------------
Director
Date:
For and on behalf of
Evesham Finance Limited
By
-----------------------
Director
Date:
For and on behalf of
Webbed Feet Productions Limited
By
-----------------------
Director
Date:
For and on behalf of
Outsource Software (Int.) Limited
By
-----------------------
Director
Date:
<PAGE> 9
For and on behalf of
Jyris Technology Limited
By
-----------------------
Director
Date:
For and on behalf of
Premier Software Limited
By
-----------------------
Director
Date:
For and on behalf of
Datasoft Limited
By
-----------------------
Director
Date:
For and on behalf of
Digital Network Printing Limited
By
-----------------------
Director
Date:
For and on behalf of
Total Asset Limited
By
-----------------------
Director
Date:
For and on behalf of
Computer Foundations Limited
By
-----------------------
Director
Date:
<PAGE> 10
For and on behalf of
Hoki Newmedia Limited
By
-----------------------
Director
Date:
For and on behalf of
Information Support Limited
By
-----------------------
Director
Date:
For and on behalf of
Integrity Financial Services Limited
By
-----------------------
Director
Date:
For and on behalf of
Network Solutions Support Limited
By
-----------------------
Director
Date:
For and on behalf of
Premier Information Systems Limited
By
-----------------------
Director
Date:
For and on behalf of
Todds of Lincoln Limited
By
-----------------------
Director
Date:
<PAGE> 11
For and on behalf of
Wyse Leasing Limited
By
-----------------------
Director
Date:
For and on behalf of
Opus Leasing Limited
By
-----------------------
Director
Date:
For and on behalf of
Capital Focus Limited
By
-----------------------
Director
Date:
For and on behalf of
Tiny Finance Limited
By
-----------------------
Director
Date:
For and on behalf of
Tansai Limited
By
-----------------------
Director
Date:
For and on behalf of
Progress Systems Limited
By
-----------------------
Director
Date:
<PAGE> 12
FORM OF SUPPLEMENTAL AGREEMENT FOR THE ADMISSION OF A NEW BORROWER UNDER A CAS
FACILITY AGREEMENT
To: Barclays Bank PLC
In consideration of your admitting us as a Borrower under the facility letter
dated [ ] ("the Facility Agreement") addressed by you to Jyris Limited ("the
Agent") and certain subsidiaries of Integrity Holdings Limited, we, Limited,
with the Agent's consent, hereby agree to be bound by the terms of the Facility
Agreement as a Borrower (as defined therein) and duly to perform all our
obligations as a Borrower with effect from the date on which our admission as a
party becomes effective under the Facility Agreement.
In addition, we hereby irrevocably appoint the Agent for the purposes specified
in paragraph 7 and paragraph l2of the Facility Agreement and authorise it on our
behalf to take all or any of the steps and to sign all or any of the documents
referred to therein for such purposes.
Dated 199.
For and on behalf of
Limited
- ---------------------
Director
We, [*insert the Agent's name*], hereby consent to [ ] Limited being
admitted as Borrower under the above Facility Agreement.
Dated 199.
For and on behalf of PLC
- ---------------------
Director
<PAGE> 13
SPECIMEN RESOLUTION
At a meeting of the Board of Directors of Limited at
On the day of 2000.
IT WAS RESOLVED
(1) That the Company accept the offer of an Overdraft Facility ("the
Facility") made by Barclays Bank PLC (the Bank) as detailed in a facility
letter dated the day of 2000 and
(2) That Mr. is empowered to sign and return to the Bank a copy of the
said facility letter
Chairman
Secretary
<PAGE> 1
Exhibit 10.6
THIS LEASE is made the day of One thousand nine hundred and
ninety seven
BETWEEN:
(1) BRITISH SKY BROADCASTING LIMITED whose registered office is at Grant Way
Islewortli, Middlesex, TW7 5Q5. (hereinafter called "the Lessor")
(2) IBIS GROUP PLC. whose registered office is at
(hereinafter called "the Lessee")
WITNESSES as follows:
1. IN this Lease the following expressions shall have the meanings ascribed
to them
hereunder viz:--
(a) "the Lessor" shall include the successors in title of the Lessor or other
the reversioner for the time being immediately expectant on the Term
hereby created and where appropriate shall be deemed to include any
superior lessor
(b) "the Lessee" shall include the successors In title and permitted assigns
of the Lessee
(c) "the Superior Lease" shall mean the lease dated 21st August 1990 and made
between (1) Questsun Limited and (2) British Satellite Broadcasting
Limited
(d) "the Superior Lessor" shall mean Wyndham Investments Limited and their
successors in title or other reversioner for the time being immediately
expectant on the term created by the Superior Lease
(e) "the Term" shall mean the term of years hereby granted
(f) "the Plans" shall mean the plans annexed hereto
(g) "the Estate" shall mean the property more particularly described in Part I
of the First Schedule hereto
(h) "the Building" shall mean the building forming part of the Estate and more
<PAGE> 2
1
particularly described in Part II of the First Schedule hereto and (where
the context so admits) each and every part thereof and all access ways
leading thereto and therefrom garden and amenity areas thereof and all
yards car parks and other areas used in connection therewith exclusively
by the occupiers thereof for the time being
(i) "the demised premises" shall mean the premises demised by this Lease
forming part of the Building and more particularly described in Part III
of the First Schedule hereto and which expression shall where the context
admits include each and every part thereof and all appurtenances and
services thereof and all buildings and erections thereon together with all
alterations additions and improvements at any time and from time to time
thereto and all landlord's fixtures and fittings of every kind which shall
from time to time be in or upon the demised premises whether originally
affixed or fastened to or upon the same or otherwise
(j) "the full reinstatement value" shall mean the cost (including Value Added
Tax) which in the reasonable opinion of the Superior Lessor would be
likely to be incurred (including all professional fees and fees payable to
the Local Authority) in reinstating the Building and any access thereto in
accordance with the requirements of the Superior Lease at any time during
the period in which any insurance policy or policies shall be in force
including (but without prejudice to the generality of the foregoing) the
anticipated increase (if any) in the cost of labour and/or materials
during such period and any additional cost which in the reasonable opinion
of the Superior Lessor might be incurred in reinstating the Building in
accordance with the Planning Acts (as hereinafter defined) building
regulations and bye--laws in force at the time of reinstatement
(k) "the insured risks" shall mean such risks as may at the discretion of the
Superior
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<PAGE> 3
Lessor from time to time be included in any policy of insurance effected
under the terms of the Superior Lease including (but without prejudice to
the generality of the foregoing) risks in respect of loss or damage by
fire lightning explosion aircraft (other than hostile aircraft) and other
aerial devices or articles dropped therefrom earthquake riot and civil
commotion and malicious damage storm or tempest bursting or overflowing of
water tanks apparatus or pipes flood impact by road vehicles subsidence
landslip settlement and heave architect's surveyor's and other
professional fees demolition and site clearance and related costs incurred
in shoring up any land or building damage to or breakage of plate glass
property owners liability and public and third party liabilities and
insurance against personal injury and damage to property under the
Defective Premises Act 1972 and any other similar statute for the time
being in force and such other risks or insurance as may from time to time
be required by the Superior Lessor in order to safeguard the Superior
Lessor's the Lessor's and the Lessee's respective interests in the demised
premises the Estate and/or the Building
(1) "the loss of rent" shall mean the loss of rent and Service Charge (as
hereinafter defined) payable under this Lease for such period (being not
less than three years) as may be reasonably required by the Lessor from
time to time having regard to the likely period required for reinstatement
in the event of either partial or total destruction of the Building or any
part thereof or of any access thereto in an amount which would take into
account potential increases of rent in accordance with the rent review
provisions hereinafter contained
(m) "the Planning Acts" shall mean the Town and Country Planning Acts 1971 to
1990 or any statutory modification replacement or re--enactment thereof
for the time being in force and any regulations or orders made or having
effect thereunder
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<PAGE> 4
(n) "planning permission" shall mean any permission consent or approval given
or deemed to be given under the Planning Acts
(o) "development" shall bear the same meaning as in the Planning Acts
(p) "event of corporate insolvency" shall mean where a Company shall enter
into liquidation whether compulsory or voluntary (save for the purpose of
reconstruction or amalgamation) or it shall suffer an Administration Order
to be made under the Insolvency Act 1986 or if a Receiver or an
Administrative Receiver or an Administrator shall be appointed over all or
any of its assets
(q) "event of personal insolvency" shall mean where an individual shall become
insolvent or bankrupt or have a Receiving Order or a Bankruptcy Order or
an Interim Order made against him or her under Part VIII of the Insolvency
Act 1986 or such individual shall be unable (or have no reasonable
prospect of being able) to pay a debt with the meaning of Section 267 and
or Section 268 and/or Section 269 of the said Act
(r) "the Services" shall mean any services provided any works carried out and
any obligations undertaken by the Lessor hereunder or by the Superior
Lessor for the benefit of the Lessee for or in respect of the Estate and
the Building or any part or parts thereof and the occupiers thereof or
otherwise for the upkeep repair maintenance decoration replacement
reinstatement management lighting heating cleaning security and control of
the Estate and/or the Building save in respect of any parts of the Estate
and/or Building hereby demised to the Lessee or demised to any other
occupiers thereof
(s) "the Lessor's Expenses" shall mean the cost incurred by the Lessor in the
supply and provisions of the Services under the heads of expenditure set
out in the Third
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<PAGE> 5
Schedule hereto
(t) "the Principal Charge" shall mean the proportion of the Lessor's Expenses
incurred by the Lessor in the provision of the Services which benefit or
are intended to benefit the Estate calculated and payable according to the
provisions of the Third Schedule hereto
(u) "the Supplementary Charge" shall mean an amount equal to twenty--five per
centum (25%) of the Lessor's Expenses incurred by the Lessor in the
provision of the Services which benefit or are intended to benefit the
Building calculated and payable according to the provisions of the Third
Schedule hereto
(v) "the Lessor's Financial Year" shall mean such annual period as the Lessor
may in its discretion determine as being that to which the accounts of the
Lessor's Expenses relate
(w) "the Certificate" shall mean a certificate prepared annually and served by
the Lessor or (at the discretion of the Lessor) by the Lessor's auditors
surveyors accountants or managing agents as soon after the end of the
Lessor's Financial Year as may be practicable certifying the amounts of
the Lessor's Expenses and the Principal Charge and the Supplementary
Charge
(x) except where the context otherwise requires covenants given by more than
one person shall be deemed to have been given jointly and severally and
(where by an individual) shall be binding on and enforceable against such
individual's personal representatives
2. IN consideration of the rents hereinafter reserved and of the Lessee's
covenants hereinafter contained the Lessor HEREBY DEMISES unto the Lessee ALL
THOSE the demised premises TOGETHER with the rights set out in Part I of the
Second Schedule hereto insofar as the Lessor is entitled to grant the same but
EXCEPTING AND RESERVING unto the Lessor or the Lessor's tenants or occupiers of
the Building and the Estate for the time
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<PAGE> 6
being and any adjoining or neighbouring premises and to all others persons now
or during the Term entitled thereto as set out in Part II of the Second Schedule
hereto insofar as the Lessor is empowered to do so TO HOLD the demised premises
(subject to all rights and easements affecting the same) unto the Lessee for the
term commencing on 7th January 1998 and expiring on 20th August 2015 YIELDING
ANTD PAYING THEREFOR yearly and proportionately for any fraction of a year FIRST
(a) for the period from 7th January 1998 to 6th January 2000 the annual rent of
FORTY ONE THOUSAND NINE HUNDRED AND FORTY FIVE POUNDS ((pound)41,945.00) (b)
thereafter during the Term the Clear yearly rent of EIGHTY THREE THOUSAND EIGHT
HUNDRED AND NINETY FIVE POUNDS ((pound)83,895.0O) (subject to variation as
hereinafter mentioned) SUCH rent to be paid by equal quarterly payments in
advance by means of a Bankers Standing Order if so required by the Lessor on the
usual quarter days in every year during the Term without any deduction
whatsoever and SECONDLY by way of additional or further rent on demand the
moneys referred to in Clauses 3(2)(4) and (34) hereof all such sums being
recoverable as rent AND IT IS hereby agreed and declared that the rents the
Principal Charge the Supplementary Charge and all other monies payable by the
Lessee hereunder and which may at any time during the Term be subject to Value
Added Tax shall be considered to be tax exclusive sums and that Value Added Tax
at the current rate shall (where applicable) be payable by the Lessee in
addition thereto (but excluding any payable by the Lessor occasioned by receipt
of the rents and charges hereby made payable or by any disposition or dealing
with or ownership of any interest reversionary to the interest created by this
Lease)
3. THE Lessee to the intent that such covenants shall (where the context so
allows) apply during the Term and any period of holding over or any extension or
continuance thereof whether by statute or at common law HEREBY COVENANT'S with
the Lessor as follows:
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<PAGE> 7
(1) to pay the rents hereby reserved at the times and in the manner aforesaid
without any deduction whatsoever
(2) to pay to the Lessor the Principal Charge and the Supplementary Charge
(3) to bear pay and discharge (in addition to the said rents) all existing and
future rates taxes duties charges assessments impositions and outgoings
whatsoever whether parliamentary parochial or of any description which are
now or which may at any time during the Term be assessed charged or
imposed upon or payable in respect of the demised premises or on the owner
or occupier in respect thereof (but excluding any payable by the Lessor
occasioned by receipt of the rents and charges hereby made payable or by
any disposition or dealing with or ownership of any interest reversionary
to the interest created by this Lease)
(4) to reimburse the Lessor forthwith for any sums paid or payable in respect
of the demised premises by the Lessor for any such rates taxes charges
assessments impositions and outgoings whatsoever whether parliamentary
parochial local or of any other description which now are or which may at
any time during the Term be payable by the owner or occupier of the
demised premises PROVIDED ALWAYS that if any such amount so paid by the
Lessor includes any sum in respect of the Building and/or the Estate as a
whole with or without other premises then the proportion of such amount
applicable to the demised premises for the purpose of ascertaining the
liability of the Lessee hereunder shall be conclusively certified save in
the case of arithmetical or other manifest errors by the Lessor's surveyor
acting as an expert and not as arbitrator
(5) at the cost of the Lessee from time to time and at all times during the
Term to put and keep the demised premises both inside and outside
including the fixtures fittings and
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<PAGE> 8
additions thereto and water and sanitary apparatus and all electrical
systems therein and the central heating and air conditioning systems (if
any) sewers drains (including those up to the point of connection with the
public sewer or common drain) conduits and pipes exclusively serving the
demised premises gutters and roofs foundations walls timbers doors windows
internal passageways walls easements and appurtenances thereof in good and
substantial repair condition and decoration and safe working order And the
liability of the Lessee in this respect shall not be affected or qualified
by reason of the present age or state of repair of the existing building
comprising the demised premises or any part thereof or the services
thereof (damage by any of the insured risks excepted save and only to the
extent that any policy or policies of insurance relating to the demised
premises shall be vitiated in whole or in part by reason of any act by the
Lessee) and if at any time during the Term whether by reason of its age or
state of dilapidation or requirement of any competent authority or
otherwise it shall become necessary for the purpose of complying with the
covenant on the part of the Lessee herein contained or otherwise for the
purpose of maintaining such existing building in a proper condition to
rebuild renew or replace the said building or any part thereof or any
service or system as aforesaid then the Lessee shall at the Lessee's own
expense and with all practical speed and under the inspection and to the
reasonable satisfaction of the Lessor's surveyors and in accordance with
the plans and specifications to be previously approved by them such
approval not to be unreasonably withheld refused or delayed carry out such
rebuilding replacement or renewal AND to deliver up the demised premises
to the Lessor together with all additions and improvements made thereto in
the meantime and all fixtures and fittings of any kind in or upon the
demised premises and which may during the Term be
8
<PAGE> 9
affixed or fastened to or upon the same (except tenant's fixtures and
fittings which may be removed by the Lessee and if required by the Lessor
are to be removed by the Lessee who shall in either such event make good
any damage caused thereby) in such good and substantial repair condition
and decoration and working order as are in accordance with the covenants
on the Lessee's part herein contained with vacant possession at the
expiration or sooner termination of the Term And if so reasonably required
by the Lessor at the expiration or sooner determination of the Term at the
Lessee's own cost to reinstate and make good the demised premises and
restore the same as if any improvements carried out at the cost of the
Lessee during the Term had not been made
(6) in the year 2000 and thereafter in every subsequent fifth year of the Term
and in the last year of the Term (however it may be terminated) to paint
all the inside wood and iron and stucco and cement parts usually painted
of the demised premises with three coats of good quality paint whereso
usually treated in a proper and workmanlike manner and after every
internal painting to stop grain varnish wash and apply three coats of
paint to and on all such parts as have previously been so treated and to
repaper with paper of as good quality as would be equivalent at least to
the painting as aforesaid such parts as were previously papered and to the
approval of the Lessor such approval not to be unreasonably withheld
refused or delayed Provided that in the last year of the Term the tints
colours and patterns of all such works of internal decoration shall be
approved by the Lessor in writing such approval not to be unreasonably
withheld refused or delayed
(7) at all times during the Term to keep the demised premises sufficiently
supplied and equipped with fire fighting and extinguishing apparatus and
appliances which shall
9
<PAGE> 10
have been notified in writing to the Lessee as reasonably required from
time to time by the Lessor or the Local Authority or the insurers of the
demised premises which shall be open to inspection by the Lessor or other
authorised persons on demand and maintained to their reasonable
satisfaction and also not to obstruct the access to or means of working
such apparatus and appliances by the Lessee's operations at or connected
with the demised premises and at all times during the Term to comply with
all reasonable recommendations which shall be notified in writing to the
Lessee from time to time by the Lessor and the insurers of the Building
and the Local and Fire Authorities as to fire precautions relating to the
demised premises
(8) at all times during the Term to keep the demised premises in a clean and
tidy condition and clear of all rubbish and to clean at least once every
month the inside and outside of the windows and window frames and any
plate glass of the demised premises and all glass (if any) in the entrance
doors thereto
(9) (a) at all times during the Term to comply in all respects with the
provisions and requirements of the Planning Acts and of all planning
permissions so far as the same respectively relate to or affect the
demised premises or any part thereof or any operations works acts or
things already or hereafter during the Term to be carried out
executed done or omitted thereon or the use thereof for any purpose;
and
(b) during the Term so often as occasion shall require at the expense in
all respects of the Lessee to obtain all such planning permissions
and serve all such notices as may be required for the carrying out
of any operations on the demised premises or the institution or
continuance thereon of any use thereof which may constitute
development but so that no application for planning
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<PAGE> 11
permission shall be made without the previous written consent of the
Lessor which shall not be unreasonably withheld refused or delayed
in respect of any such operation or use which is either permitted
hereunder or for which the Lessor's consent has been obtained; and
(c) subject only to any statutory direction to the contrary to pay and
satisfy any charge or levy that may now or hereafter be imposed
under the Planning Acts or any Finance Act now or during the Term in
force in respect of the carrying out or maintenance of any such
operations or the institution or continuance of any such use as
aforesaid; and
(d) notwithstanding any consent which may be granted by the Lessor under
this Lease not to carry out or make any alteration or addition to
the demised premises or any change of use thereof (being an
alteration or addition or change of use which is prohibited by or
for which the Lessor's consent is required to be obtained under this
Lease and for which a planning permission needs to be obtained)
before all necessary notices under the Planning Acts in respect
thereof have been served or before all such notices and all such
necessary planning permissions have been produced to the Lessor and
acknowledged by the Lessor in writing as satisfactory to the Lessor
But so that the Lessor may refuse so to express satisfaction with
any such notice or planning permission on the ground that anything
contained therein or omitted therefrom or (as regards planning
permission) the period thereof would in the reasonable opinion of
the Lessor's surveyor be prejudicial to the Lessor's interest in the
demised premises whether during the Term or following the
determination or expiration thereof; and
11
<PAGE> 12
e) unless the Lessor shall otherwise direct to carry out and complete
before the expiration or sooner determination of the Term:
(i) any works stipulated to be carried out to the demised premises
by a date subsequent to the expiration or sooner determination
as a condition of any planning permission granted to the Lessee
for any development begun by the Lessee before such expiration
or determination; and
(ii) any development begun by the Lessee upon the demised premises
in respect of which the Lessor shall or may be or become liable
for any charge or levy under the Planning Acts or any Finance
Act as aforesaid; and
(f) if and when called upon so to do to produce to the Lessor or the
Lessor's Surveyor all such plans documents and other evidence as the
Lessor may reasonably require in order to satisfy the Lessor that
the provisions of this covenant have been complied with in all
respects
(10) at all times during the Term to observe and comply in all respects with
the provisions and requirements of any and every enactment (which
expression in this covenant includes as well any and every Act of
Parliament already or hereafter during the Term to be passed and any and
every order regulation and bye--law already or hereafter during the Term
to be made under or in pursuance of any such Act) so far as they relate to
or affect the demised premises or any additions or improvements thereto or
the user thereof for any purpose for which the demised premises are
actually used or the use or employment therein of any person or persons or
any fixtures machinery plant or chattels for the time being affixed
thereto or being thereupon or used for the purposes thereof and to execute
all works and provide and maintain all arrangements
12
<PAGE> 13
which by or under any enactment or by any government department local
authority or other public authority or duly authorised officer or Court of
competent jurisdiction acting under or in pursuance of any enactment are
or may be directed or required to be executed provided and maintained at
any time during the Term upon or in respect of the demised premises or any
additions or improvements thereto or in respect of any such user thereof
or employment therein of any person or persons or fixtures machinery plant
or chattels as aforesaid whether by the owner or occupier thereof and to
indemnify the Lessor at all times against all costs charges and expenses
incidental to the execution of any works or the provision or maintenance
of any arrangements so directed or required as aforesaid and not at any
time during the Term to do or omit or suffer to be done or omitted on or
about the demised premises any act or thing by reason of which the Lessor
may under any enactment incur or have imposed upon the Lessor or become
liable to pay any penalty damages compensation costs levy charges or
expenses
(11) without prejudice to any other provision of this Lease to comply in all
respects with the requirements of the Public Health Acts and the Offices
Shops and Railway Premises Act 1963 or any act or acts amending or
replacing the same or any of them or any rules or regulations made
thereunder whether imposed upon the Lessor or on the Lessee relating to
the Lessee's use and occupation of the demised premises and at all times
during the Term to indemnify and keep indemnified the Lessor against the
consequence of any breach or non--observance thereof and without prejudice
to the generality of the foregoing not to permit or suffer to be working
in the demised premises at any time such a number of persons that the
requirements as to sanitary conveniences and washing facilities prescribed
by any of the said Acts will in any way
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<PAGE> 14
be infringed
(12) forthwith to notify the Lessor or the Lessor's agents of any defect in the
demised premises or any part or parts thereof which might give rise to a
duty under the Defective Premises Act 1972 or any similar Act or any
statutory modification or re--enactment thereof for the time being in
force
(13) within seven days of receipt thereof by the Lessee to give the Lessor full
particulars of any notice or order or proposal for a notice or order
served upon the demised premises or upon the Lessee by the local authority
or any body or corporation under any statute and if so reasonably required
by the Lessor to produce the same and at the reasonable request and cost
of the Lessor make or join in making such objections or representations in
respect of any proposal as the Lessor may reasonably require PROVIDED THAT
the Lessee shall not be obliged to join in any such objections or
representations in circumstances where it is of the reasonable opinion
that the same are not in its interests
(14) not to use the demised premises other than as offices or any use as
referred to in Class B(1) of the Town and Country Planning (Use Classes)
Order 1987 and not to use the demised premises nor permit or allow them to
be used for any other purpose whatsoever
(15) not to carry on or permit or suffer to be carried on upon the demised
premises any trade or occupation or do or suffer any act or thing which
may increase the premium payable for insurance of the Building and/or the
Estate against any of the insured risks or the loss of rent or which may
make void or voidable any policy for any such insurance and in case of any
increase in any such premium caused by the Lessee or any servant agent or
visitor of the Lessee as aforesaid the same shall be deemed to be
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<PAGE> 15
included in and recoverable as part of the rent hereby reserved but such
provisions shall be without prejudice to the Lessor's right of action
against the Lessee in respect of any contravention of this sub--clause
(16) not at any time to use the demised premises or any part thereof or allow
the be used for any public meeting public exhibition or public
entertainment or for any illegal or immoral purpose or for any noisy
noxious or offensive trade manufacture business or occupation nor shall
the Lessee commit any wilful or voluntary waste spoil or destruction in
or upon the demised premises nor allow any sale by auction to be held on
the demised premises nor permit any musical instrument gramophone wireless
loudspeaker television or similar apparatus to be played or used thereon
so as to be audible from outside the demised premises nor permit or suffer
the demised premises to be used as a residence or sleeping place for any
person or persons nor for the purpose of any betting transaction within
the meaning of the Betting Gaming and Lotteries Act 1963 or for gaming
within the meaning of the Gaming Act 1968 or any statutory modifications
or re--enactment's thereof with or between persons resorting to the
demised premises or for a club where intoxicating liquor is supplied to
members or their guests and not to make or permit or suffer to be made any
application for a betting office licence or a licence or registration
under the Gaming Act 1968 or any statutory modification or re--enactment
thereof in respect of the demised premises or any part thereof
(17) not to do or knowingly to permit or suffer to be done in or upon the
demised premises or any part thereof anything which shall or may be or
become or cause a nuisance damage annoyance inconvenience disturbance
injury or danger to the Lessor or the owners lessees or occupiers of the
Building or the Estate or any adjoining or
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<PAGE> 16
neighbouring premises and to keep the Lessor fully and effectually
indemnified against all actions proceedings damages costs expenses claims
and demands whatsoever arising out or of in consequence of any breach or
non--observance of this covenant
(18) not knowingly to permit or suffer any encroachment to be made or easement
to be acquired on or over the demised premises and in particular not to
allow any right of access of light or air from or over the demised
premises or from the Building to any neighbouring property outside the
Estate to be acquired and if any encroachment or easement shall be made or
threatened to be made or if any window or opening shall be made threatened
to be opened or made in any neighbouring building (whether already or
hereafter during the Term to be erected) which if not obstructed might by
lapse of time confer the right to such access of light or air in favour of
any such neighbouring property upon the same coming to the attention of
the Lessee forthwith to give notice to the Lessor and at the cost of the
Lessee to do all such things as may be proper for the purpose of
preventing the making of such encroachment or the acquisition of such
easement or right
(19) (1) (a) not to assign or underlet or part with possession or share the
occupation of part or parts only of the demised premises save
by way of underletting or permitted by the provisions of
sub--clause 19(5) hereof PROVIDED ALWAYS that nothing in this
sub--clause shall preclude the Lessee from sharing possession
or occupation of the demised premises with any Associated
Company of the Lessee on condition (i) that no relationship of
landlord and tenant shall be created thereby between the
Lessee and any such Associated Company and in particular (but
without prejudice to the generality of the foregoing) that
16
<PAGE> 17
such sharing of possession or occupation shall be in such a
manner as to ensure that any such Associated Company does not
acquire any rights under Part II of the Landlord and Tenant
Act 1954 or any Act amending or replacing the same and (ii)
that the Lessor shall be given prior written notice with full
relevant particulars of any such sharing of possession or
occupation proposed to take place and (iii) that upon any such
Associated Company ceasing to be an Associated Company of the
Lessee for the time being of the demised premises any such
sharing of possession or occupation shall immediately cease
and determine and the Associated Company shall forthwith
vacate the demised premises For the purpose of this proviso
the expression "Associated Company" means any Subsidiary
Company of the Lessee or any company of which the Lessee is a
Subsidiary Company or any company whose Holding Company is the
Holding Company of the Lessee and the expressions "Subsidiary
Company" and "Holding Company" shall have the meanings
assigned to them by Section 736 of the Companies Act 1985; and
(b) (i) not to assign underlet or part with or share possession
or occupation of the demised premises as a whole except
subject to the conditions hereinafter appearing and not
without the previous consent in writing of the Lessor
such consent not to be unreasonably withheld or delayed
PROVIDED THAT (and the parties hereto agree and declare
that) it shall not be unreasonable for the Lessor to
withhold the consent where
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<PAGE> 18
(a) there exists a material subsisting breach of the
covenants on the part of the Lessee contained in this
Lease or
(b) the intended assignee does not meet the requirements of
sub--clause (c) hereof unless the Lessee guarantees the
performance by the intended assignee in the form of the
Authorised Guarantee Agreement contained in the Fifth
Schedule hereto
(c) (i) On any assignment of the Lease by the Lessee PROVIDED
THAT either:
(a) any assignee is at that time of comparable financial
standing to that of the Lessee as at the date hereof and
without prejudice to the generality of the foregoing
meets the minimum criteria specified in sub--clause
(iii) hereof ("the minimum criteria") or
(b) a guarantor of the intended assignee (hereinafter called
"the Guarantor") is of comparable financial standing to
that of the Lessee at the date hereof and without
prejudice to the generality of the foregoing meets the
minimum criteria so that the Lessor is in its reasonable
discretion satisfied that by releasing the Lessee from
its obligations contained in this Lease the value and
marketability of the Lessor's interest in the demised
premises would not be materially prejudiced and
(ii) the Lessor's formal licence to the assignment has been
obtained
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<PAGE> 19
in accordance with the provisions of this Lease and the
Guarantor of the intended assignee covenants with the Lessor
in the terms as set out in the Guarantor's covenant contained
in the Fourth Schedule of this Lease
then the Lessor will in such circumstances on formal application and
at the reasonable cost of the Lessee release the Lessee from its
covenants contained in this Lease
(iii) the minimum criteria for the purposes of paragraph (c)(i)(a)
hereof means that
(a) at the time of the application for the Lessor's Licence
("the Application Date") to the intended assignment its
annual profits before tax in each of the three
consecutive and complete trading years immediately
preceding the Application Date exceed an amount
representing the Rent at the Application Date multiplied
by three and that its net shareholders funds (as shown
in its latest individual audited accounts) were not less
than five times the Rent as evidenced by a set of
properly audited accounts the latest set of which was
dated not earlier than nine months before the
Application date;
(b) such audited accounts have been prepared in each case on
a consistent basis in accordance with the standard and
criteria of accounting practice most commonly adopted by
UK Companies in the area of business in
19
<PAGE> 20
which the said assignee or Lessee operates; and
(c) a letter confirming and evidencing the above
requirements is issued and addressed to the Lessor by
the auditors who have prepared the most recent set of
published accounts
(2) Upon every application for consent required by this clause 3(19) to
disclose to the Lessor such information relevant to the application
and as to the terms proposed as the Lessor may reasonably require
(3) the Lessor may in the Lessor's absolute discretion require as a
condition of the grant of any consent to any such permitted
assignment or sub--letting or other dealing with the demised
premises an express covenant by the proposed assignee or sub--tenant
directly with the Lessor to observe and perform the covenants by the
Lessee and the conditions herein contained including a covenant not
further to assign or underlet or part with or share the possession
of the whole or any part or parts of the demised premises except as
aforesaid and (in the case of an assignee) to pay the rents the
Principal Charge and the Supplementary Charge and other moneys
payable hereunder PROVIDED FURTHER that any such sub--letting must
be made subject to the like provisions of those contained in this
sub--clause
(4) not to underlet or agree to underlet the demised premises or any
part or parts thereof except at the rack rental market value for the
time being without taking a fine or premium such rent not being less
than the rents then reserved and made payable by the Lessee under
this Lease
(5) not to underlet any part (as opposed to the whole) of the demised
premises
20
<PAGE> 21
have (i) for a term of less than five years and (ii) for a single
underletting of a whole floor of the demised premises and (iii) with
the Lessor's prior written consent such not to be unreasonably
withheld refused or delayed and (iv) in such manner as to procure
that prior to the grant of such underletting and prior to the taking
by such sub--tenant of any possession or occupation of that part of
the demised premises proposed to be underlet the Lessee and the
proposed sub--tenant shall obtain from a Court of competent
jurisdiction an Order excluding the application of Sections 24--28
of the Landlord and Tenant Act 1954 to such sub--tenancy
(6) within one calendar month after any permitted dealings as aforesaid
(save any sharing of possession or occupation with any associated
company) or of any devolution on death or any licence or permission
given by the Lessor to any person or company to occupy or use the
demised premises to give without any demand by any person to the
Lessor's Solicitors notice in writing with particulars of the name
and address in whose favour such dealing or other matter shall have
been effected and of the terms period and rent payable in respect
thereof paying at the same time to the Lessor's solicitors a fee of
Twenty--five Pounds or such greater fee as may from time to time be
reasonable for dealing with such registration and any fee payable to
any superior lessor produce to such solicitors for registration a
certified copy of the original instrument effecting the dealing or
disposition
(20) (a) not to load nor to use or permit or suffer to be loaded or used the
structure of the demised premises or the Building in any manner
which will in any way strain or interfere with or in the reasonable
opinion of the Lessor cause
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damage to the main members or structure thereof
(b) not to place or cause to be placed or suffer to remain any goods
parcels refuse or rubbish in or about the staircases lifts corridors
landings passages entrances forecourts service areas or courtyards
(if any) of or within the curtilage of the Building and/or the
Estate nor otherwise obstruct the same nor knowingly to allow or
permit persons to loiter or congregate therein or thereon and in all
respects to conform to such reasonable rules and regulations
(including regulations as to the method of bringing and carrying
telephone and other wires into the demised premises) as the Lessor
may from time to time make and notify to the Lessee in writing for
the orderly convenient and healthy management of the Building and
the Estate and of any convenience thereof or outside the same
(c) not to stop up or obstruct in any way whatsoever or permit oil
grease or other deleterious matter or substance to enter the drains
and sewers serving the demised premises and to employ such plant for
treating any deleterious effluent before permitting the same to
enter such drains and sewers as may be reasonably required from time
to time in accordance with the best modern practice
(d) not to keep or permit or suffer to be kept upon any part of the
demised premises any animals or livestock whatsoever
(21) (a) not any time knowingly to permit or cause goods to be deposited or
placed outside the Building or the demised premises nor upon any
part of the loading and unloading areas (if any) at the Estate save
temporarily so far as is necessary to load and unload goods to the
demised premises nor knowingly to
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permit or cause vehicles to park in any such areas except so far as
is necessary to load and unload goods to the demised premises and
not to knowingly permit or cause any obstruction whatsoever to or in
any such areas and in case of any breach of the conditions contained
in this sub--clause contained the Lessor shall at any time without
notice to the Lessee have the right by the Lessor's servants agents
or workmen to remove such obstruction and if necessary for this
purpose the like right to enter into upon the demised premises or
any part thereof
(b) not to do or knowingly permit any act or thing whereby any road yard
forecourt path or passage appurtenant to the demised premises or to
the Building or to the Estate may be damaged or obstructed or the
fair use thereof by others may be impeded or hindered in any manner
whatsoever and not to exhibit place or put any articles of any kind
whatsoever outside the demised premises or the Building or permit
any trading therein or thereon except inside the demised premises
(22) (a) not at any time during the Term without the Lessor's consent which
shall not be unreasonably withheld refused or delayed to make any
alteration or addition to the electrical installation of the demised
premises and then only in accordance with the terms and conditions
laid down by the Institution of Electrical Engineers and the
Regulations of the Electricity Supply Authority
(b) not at any time during the Term without the consent of the Lessor
which shall not be unreasonably withheld refused or delayed and of
any insurers of the demised premises or of the Building to store or
permit to be stored in the demised premises or any part thereof any
petrol or other specially inflammable
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explosive or combustible substance
(c) not to install or permit or suffer to be installed any machinery in
or on the demised premises nor any fire burning apparatus except of
a type to be first approved by the Lessor such approval not to be
unreasonably withheld refused or delayed
(23) not at any time during the Term to set up any bill placard poster
signboard advertisement or lettering on the exterior of the demised
premises or in such a position so visible from the exterior of the demised
premises (including any model sign placard board or notice whether
illuminated or not) Provided that this covenant shall not apply to notices
or advertisements in regard to any businesses carried on upon the demised
premises as aforesaid if such notices are indicated in a manner provided
for the Building and/or the Estate and which shall not in the reasonable
opinion of the Lessor prejudice the amenities of the Building and the
Estate and provided the design and position of lettering and the position
and general character of the notices advertisements or signs shall have
previously been approved in writing by the Lessor such approval not to be
unreasonably withheld refused or delayed
(24) not at any time or times during the Term without the prior written consent
of the Lessor such consent not to be unreasonably withheld refused or
delayed to make or permit or suffer to be made any alterations
modifications or additions to the demised premises or any of its services
or make or permit or suffer to be made any change or addition whatsoever
in or to the demised premises or to the Building or make or change the
existing design or appearance or the external decorative scheme of the
demised premises
(25) in case at any time during the Term any dispute shall arise between the
Lessee and
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<PAGE> 25
any other person relating to the demised premises at the Estate
respectively vested in them or as to party or other walls rights drains
watercourses or other easements rights or appurtenances whatsoever
relating or belonging thereto or any repairs thereto or any nuisance or
annoyance arising therefrom then and in every such case such dispute shall
be referred to the determination and award of the Surveyor for the time
being of the Lessor whose decision (save as to any matter of law) shall be
final and binding upon the Lessee and whose costs and expenses shall be
borne by the Lessee and any other such person in such manner as the said
surveyor shall determine and award
(26) to permit the Lessor and all persons authorised by the Lessor with or
without workmen and others at all reasonable times during the Term at
reasonable hours during the daytime upon prior appointment and subject to
supervision (except in case of emergency) to enter the demised premises:
(a) to view their state and condition and to give to the Lessee notice
in writing of all defects and defaults in repair for which the
Lessee may be liable hereunder and the Lessee shall at the Lessee's
own cost forthwith after such notice commence and diligently proceed
with all works necessary to well and substantially repair and make
good all such defects and defaults in repair to the demised premises
according to the covenants in that behalf hereinbefore contained
PROVIDED THAT if the Lessee shall neglect properly to execute such
repairs it shall be lawful for the Lessor (but without prejudice to
the right of re--entry hereinafter contained) at any time after the
expiration of two months from the date of such notice as aforesaid
(or immediately in case of emergency) to enter the demised premises
and repair and make good all such defects and defaults in repair at
the expense of the Lessee and the costs and
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<PAGE> 26
expenses of such repairs together with interest thereon at the rate
hereinafter specified from the date of expenditure to the date of
payment shall be repaid by the Lessee to the Lessor on demand as
liquidated damages and be recoverable forthwith by action or by
distress as if such monies formed part of the rent payable hereunder
(b) only to the extent that the same cannot be effectively or
economically carried out from outside the demised premises for the
purpose of carrying out the Lessor's obligations hereunder and
cleansing amending decorating and repairing any adjoining premises
and the Estate and all other things used in common with the demised
premises and for the purpose of measuring the demised premises or
inspecting the same for the purposes of rent review or for the
preparation of sale or letting particulars
(27) to permit the Lessor during the last six months before the expiration of
the Term if the Lessor so desires to fix in a conspicuous position on the
demised premises which shall not unreasonably interfere with the Lessee's
use and/or enjoyment and/or occupation of the demised premises in
accordance with the terms of this Lease a notice board for the re--letting
of the same and not to take down or obscure the said notice board and to
permit all persons authorised by the Lessor to view the demised premises
at reasonable hours in the daytime by prior appointment
(28) to indemnify the Lessor in respect of all actions proceedings costs claims
and demands which might be made by any adjoining owner tenant occupier or
any other person whatsoever or any competent authority and all liability
which may be incurred by the Lessor by reason of:
(a) any defect in the demised premises or in the execution of any
alteration or
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addition to the demised premises carried out by the Lessee
(b) any interference or alleged interference or obstruction by the
Lessee of any right or alleged right of light air drainage or other
right or alleged right now existing for the benefit of the Building
and/or the Estate or of any adjoining or neighbouring property
(c) any stoppage by the Lessee of the drains used in common with the
owner or occupier of any other part of the Building and/or the
Estate or of any adjoining or neighbouring property
(d) all damage occasioned to the demised premises or to the Building
and/or the Estate or to any adjacent or neighbouring premises or to
any person caused by any act default or negligence of the Lessee the
occupier or their respective servants agents or visitors
(29) to indemnify and keep indemnified the Lessor from and against legal
liability in respect of all loss damage actions proceedings suits claims
demands costs damages liabilities and expenses in respect of any injury to
or death of any person or damage to any property movable or immovable by
reason of or arising in any way directly or indirectly out of:
(a) the non--performance or non--observance of any of the Lessee's
covenants agreements conditions and stipulations on the Lessee's
part herein contained or the repair or state of repair condition or
existence or any alteration of or to the demised premises or to the
user of the demised premises; and
(b) anything now or hereafter during the Term erected by the Lessee and
attached to or projecting from the demised premises; and
(c) in respect of any act or default or omission of any person entering
or
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occupying the demised premises and authorised by the Lessee to be
there unless the same be occasioned by or result from the negligence
or default of the Lessor's agents or employees
(30) to pay all costs charges and expenses (including solicitors' costs and
surveyors' fees) properly incurred by the Lessor in all of the following
cases:
(a) for the purpose of or incidental to the preparation and service of
any notice under Sections 146 or 147 of the Law of Property Act 1925
or any statutory re--enactment or modification thereof
notwithstanding forfeiture for such breach shall be avoided
otherwise than by relief granted by the Court; and
(b) for the purpose of and incidental to the preparation and service of
any notice relating to the repair and decoration of the demised
premises in connection with delivery up thereof at the expiration or
sooner termination of the Term; and
(c) for the purpose of and incidental to the preparation and service of
any notice relating to the repair and decoration of the demised
premises at any time during the Term in accordance with the
provision of Clauses 3(5) to 3(7) inclusive hereof
the above costs charges and expenses (without prejudice to the generality
of the foregoing) shall include all professional or other fees (including
legal and surveyors' fees) incurred in the preparation of any schedules of
dilapidation's and all subsequent fee properly incurred for the reasonable
supervision of the works of repair and decoration to be carried out
pursuant thereto
(31) to pay all costs charges and expenses incurred by the Lessor in abating a
nuisance at the demised premises arising out of the act or default of the
Lessee and executing all
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<PAGE> 29
such works as may be necessary for abating such nuisance in compliance
with a notice served by the Local Authority or otherwise
(32) to pay all reasonable and proper legal costs and Value Added Tax payable
thereon incurred by the Lessor attendant upon or application made by the
Lessee for a consent or licence here in before required or made necessary
whether the same be granted or reasonably refused or granted subject to
any lawful qualification or condition or whether the application be
withdrawn
(33) to pay in addition to the rents the Principal Charge the Supplementary
Charge and all other monies payable hereunder by or on behalf of the
Lessee to the Lessor or any person acting on its behalf any Value Added
Tax which is or may at any time hereafter become payable in respect
thereof whether as a result of an election made by the Lessor pursuant to
Clause 5(7) hereof or otherwise
(34) if the Lessee shall fail to pay any rent or insurance premium or any other
money due hereunder or any Value Added Tax payable thereon within fourteen
days of its due date then the Lessee shall (in addition to any sums
outstanding) pay to the Lessor interest on any such sum or balance thereof
so due at the rate of four per centum per annum above Barclays Bank PLC
base lending rate for the time being in force from the date such sum or
balance was originally due and payable until actual payment thereof
4. THE Lessor HEREBY COVENANTS with the Lessee that:--
(1) the Lessee shall and may peaceably and quietly hold and enjoy the demised
premises and all rights granted hereunder throughout the Term without any
interruption from or by the Lessor or any person lawfully claiming through
under or in trust for the Lessor or by title paramount
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<PAGE> 30
(2) the Lessor will use all reasonable endeavors to procure that the Superior
Lessor complies with the covenants on its part contained in the Superior
Lease as follows:
(i) to insure and (unless the insurance so effected shall become void or
voidable through or by any reason of any act neglect or default of
the Lessee or the Lessee's servants agents licensees or visitors) to
keep insured the demised premises against loss or damage by the
insured risks in some insurance office or with underwriters of
repute in the full reinstatement value thereof and for the loss of
rent AND
(a) with note of the Lessee's and any mortgagee's or charge's
interest noted thereon
(b) the Lessor will produce to the Lessee on demand (but not more
often than once in any period of 12 months) and at the Lessee's
expense a copy of the policy with a Schedule of the insurances
and evidence of the payment of the last premium due AND
in case of destruction or damage by fire or other insured risk
(unless payment of any monies payable under any policy of insurance
shall be refused either in whole or in part by reason of any act
neglect or default of the Lessee or the Lessee's services agents
licensees or visitors) to apply all policy monies (other than for
loss of rent) received under or by virtue of any such insurance as
aforesaid in rebuilding or reinstating the demised premises with all
possible speed subject to the necessary labour and materials being
procurable and subject to all statutory consents being obtained AND
ALSO PROVIDED THAT if rebuilding or reinstatement shall (at the
relevant time) prove to be legally impossible or impracticable and
the insurance monies are paid out by
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the insurers such monies shall be paid to and retained by the Lessor
the Lessor's own benefit
(ii) at such times as the Lessor shall in its absolute discretion think
fit it shall paint the rendered area on the front exterior fascia of
the Building
(iii) unless prevented by strikes lock--outs or other causes beyond the
Lessor's control to use reasonable endeavours to provide the
Services PROVIDED ALWAYS that the Lessor:
(a) may from time to time in the Lessor's absolute discretion
withhold add to extend vary and make any alterations in the
provision of the Services or any of them if the Lessor at the
Lessor's like discretion deems it desirable so to do for the
more efficient conduct and management of the Building and/or
the Estate
(b) shall not be responsible for any inconvenience occasioned by
the non--supply failure or breakdown of the Services or for an
loss or damage suffered by the Lessee as a result thereof or
occasioned by negligence or default of the Lessor's agents or
employees in regard to the Services or the fulfillment or
non--fulfillment of the Lessor's obligations hereunder in
regard thereto unless the Lessor after having received
notification of such failure non--supply or breakdown or
negligence or default shall have failed to take prompt action
to remedy the same and
(c) shall not be under any liability hereunder by reason of any
defect in or want of repair to the Building or any other part
of the Estate unless notice of such defect or want of repair
shall have been brought to the Lessor's attention and the
Lessor shall for an unreasonable period have
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failed to remedy or repair the same
AND the Lessor shall be free to make such alterations as it thinks fit to
the layout of the Estate to the internal arrangement of the Building
(other than the demised premises) and the access to the demised premises
PROVIDED THAT such alterations shall not unreasonably interfere with the
Lessee's use occupation or enjoyment of the demised premises
(3) the Lessor will comply with the covenants on the part of the tenant
contained in the Superior Lease
5. IT IS HEREBY AGREED THAT:
(1) Notwithstanding and without prejudice to any other remedies and powers
herein contained or otherwise available to the Lessor if the rents the
Principal Charge and the Supplementary Charge or any other payments hereby
reserved or any part thereof shall be unpaid for fourteen days after
becoming payable (whether formally demanded or not) or if any covenant on
the Lessee's part herein contained shall not be performed or observed or
if there shall be an event of corporate insolvency when the Lessee for the
time being hereunder or the Surety thereof (if any) is a company or if
there shall be an event of personal insolvency when the Lessee for the
time being hereunder is an Individual or being more than one individual an
event of personal insolvency in respect of any one of them or the Surety
of any-one of them (if any) or if the Lessee or if there shall be more
than one any one of them shall enter into any composition with his or
their creditors or suffer any distress or execution to be levied on his or
their goods then and in any such case it shall be lawful for the Lessor at
any time thereafter to re--enter upon the demised premises or any part
thereof in the name of the whole and thereupon this demise shall
absolutely determine but without prejudice
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to any antecedent claim by the Lessor against the Lessee
(2) if the demised premises and/or the Building and/or the Estate or any part
thereof shall at any time be destroyed or so damaged by the insured risks
or any of them hereof so as to render the demised premises or the means of
access thereto unfit for Occupation or use and the relevant policy or
policies effected by the Lessor shall not have been vitiated or payment of
the policy monies or in part in consequence of some act or default by the
Lessee or the tenants licensees or visitors of the Lessee then and in such
case the rents hereby reserved or a fair proportion thereof according to
the nature and extent of the damage sustained shall be suspended and cease
to be payable until the demised premises or the access shall again be
rendered fit for Occupation and/or use or until the expiry of the period
or such longer period for which the Lessor may have insured against loss
of rent whichever shall be the sooner and in case of dispute as to the
proportion or period of such abatement the same shall be referred to
arbitration pursuant to the Arbitration Act 1996 or any statutory
modification or re--enactment being in force Provided THAT if the Lessor
shall for whatever reason have failed to substantially complete any works
of repair or reinstatement of the demised premises and/or the Estate as
the case may be or any part thereof 36 months from such damage or hall
have the right at any time in writing served on the Lessor to terminate
the Term but without prejudice to. any claim by the Lessee against the
Lessor in respect of any antecedent breach of covenant or other claim
(3) nothing herein contained shall by implication of law or otherwise operate
to confer on the Lessee any easement right or privilege whatsoever over or
against the Building the Estate or any adjoining or other property
belonging to the Lessor which might restrict or prejudicially affect the
future re--building alteration or development of the Building
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the Estate or such adjoining or other property nor shall the Lessee be
entitled to compensation for any damage or disturbance caused by or
suffered through any such rebuilding alteration or development
(4) the Lessor shall not be responsible to the Lessee or any servants agents
licensees or visitors of the Lessee or other persons in the demised
premises or calling upon the Lessee for any accident happening or injury
suffered or damage to or loss of any chattel or property sustained on or
about the demised premises or in or about the Building or the Estate or
the curtilages thereof unless occasioned by the negligence or default of
the Lessor's agents or employees
(5) no acceptance of or demand or receipt for rent or the Principal Charge or
the Supplementary Charge by the Lessor after knowledge or notice received
by the Lessor or the Lessor's agents of any breach of any of the Lessee's
covenants herein contained or implied shall operate as a waiver in whole
or in part of any such breach or of the Lessor's rights of forfeiture or
re--entry in respect thereof but any such breach shall for all the
purposes of these presents be a continuing breach of covenant so long as
such breach shall be subsisting and neither the Lessee nor any person
taking any estate or interest under the Lessee shall be entitled to set up
any such acceptance of or demand or receipt for rent or the Principal
Charge or the Supplementary Charge as a defence in any action or
proceeding by the Lessor
(6) insofar as Value Added Tax may not at the date hereof be charged by the
Lessor on the rents and other monies payable by the Lessee hereunder the
Lessor shall have the right at any time during the Term to elect that such
rents and monies shall henceforth be subject to Value Added Tax at the
rate or rates from time to time applicable thereto
(7) any wall dividing the demised premises from any other part of the Building
shall be
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deemed to be a party wall within the meaning of Section 38 of the Law of
Property Act 1925 and shall be repaired and maintained as such by the
Lessee and the tenant and/or occupier of such other part of the Building
6. IT IS HEREBY FURTHER AGREED that:
(1) at the expiration of the fifth year and each successive period of five
years thereafter of the Term (the time in each case being computed from
the date of the commencement of the Term and the date of expiration of
each such successive period being hereinafter referred to as "the date of
review") the yearly rent first hereinbefore reserved and for the time
being payable hereunder shall be increased to an amount which shall
represent the rack rental market value of the demised premises at each
date of review
(2) the rack rental market value of the demised premises at each date of
review shall be such an amount as may (either before or after the date of
review) be agreed between the Lessor and the Lessee (or in default of such
agreement determined in accordance with sub--clause (3) of this Clause) as
representing the open market rental value of the demised premises let
without premium for the residue of the original term hereby granted
unexpired at the date of review or ten years whichever shall be the longer
containing the same terms and conditions herein contained (mutatis
mutandis other than the amount of rent hereby reserved but including the
provision for rent review) as between a willing lessor and a willing
lessee with vacant possession at the commencement of the said Term AND
upon the assumptions (if not the facts) that:
(i) the Lessor and the Lessee have complied with all the obligations on
their respective parts imposed by these presents including in
particular the repairing and decorating covenants as if these
applied immediately prior to the date of
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<PAGE> 36
review as though such date was at the termination of the Lease (but
without prejudice to any rights of the Lessor in regard thereto)
(ii) the demised premises are fit for immediate occupation and use and are
fully occupied with tenant's fixtures and fittings
(iii) no work has been carried out thereon by the Lessee or any underlessee or
their predecessors in title during the Term which has diminished the
rental value of the demised premises
(iv) in case the demised premises have been destroyed or damaged they have been
fully restored
(v) the demised premises may be used for any purpose under the Planning Acts
and without limitation
(vi) the Lessor has irrevocably undertaken not to charge Value Added Tax on the
rent firstly reserved hereunder
AND there being disregarded any effect on rent of
(i) any goodwill attributable to the demised premises by reason of any trade
or business carried on therein by the Lessee or any underlessee
(ii) the fact that the Lessee or any underlessee may have been in occupation of
the demised premises
(iii) any rent free or reduced rent periods or premiums or other concessions
which a willing lessor might give to a willing lessee in the open market
at the relevant date of review
(iv) the fact that the Lessor has the right to elect that Value Added Tax be
charged on the rent firstly reserved hereunder whether or not such right
shall have been exercised
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(v) any effect on rent of any improvement to the demised premises or any
part thereof approved by the Lessor in writing and carried out by
the Lessee otherwise than in pursuance of any obligation on its part
contained in this Lease
(3) (i) if the Lessor and the Lessee shall be unable to agree on the amount
of the rack rental market value as aforesaid then the same shall be
decided by a surveyor (who shall act and be deemed to act as an
expert and not as an arbitrator) to be agreed upon by the parties
hereto or in the event of failure so to agree by a surveyor to be
nominated at the request at any time of either the Lessor or the
Lessee by or on behalf of the President for the time being of the
Royal Institution of Chartered Surveyors and either party may at any
time from three months prior to the relevant review date without
notice have the right to refer the matter to the said President or
to such person on his behalf and the decision of such surveyor shall
be binding on both the Lessor and the Lessee and the fees payable to
any such surveyor in respect of any decision made by him shall be
borne and paid by the parties hereto in such shares and such manner
as he shall determine and such surveyor shall afford to each of the
parties hereto an opportunity to make representations to him and if
such surveyor shall die delay or become unwilling or incapable of
acting or if for any other reason the President for the time being
of the Royal Institution of Chartered Surveyors or the person acting
on his behalf shall in his absolute discretion think fit he may by
writing discharge such surveyor and appoint another in his place
(ii) in the event of the determination of such surveyor not having been
made and
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communicated to both parties hereto prior to the commencement of the
review period for any reason whatever then in respect of the period
of time (hereinafter called "the said interval") beginning with the
said commencement and ending on the quarter day immediately
following the date on which such determination shall have been made
and communicated as aforesaid the rent payable hereunder shall
continue to be paid at the rate payable immediately prior to the
commencement of the review period (hereinafter called "the Rent")
PROVIDED that at the expiration of the said interval there shall be
due as additional rent payable by the Lessee to the Lessor on demand
a sum of money equal to the amount whereby the reviewed rent shall
exceed the Rent but duly apportioned in respect of the said interval
TOGETHER with interest thereon calculated at the base lending rate
for the time being in force of Barclays Bank PLC for the period from
the relevant review date to the date of payment
(4) notwithstanding the decision of the expert hereinbefore referred to in no
event shall the Rent payable by the Lessee to the Lessor after each date
of review be less than the Rent payable by the Lessee to the Lessor
immediately before such date of review
(5) if at any date of review the Lessor shall be obliged to comply with any
Act of Parliament dealing with the control of rent and which shall
restrict or modify the Lessor's right to revise or receive the Rent in
accordance with the terms of these presents then the Lessor shall on each
occasion that any such enactment is removed relaxed or modified be
entitled on giving not less than one month's notice in writing to the
Lessee expiring after the date of each such removal relaxation or
modification to introduce an intermediate review date (hereinafter called
"the intermediate review
38
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date") which shall be the date of expiration of such notice and the Rent
payable hereunder from an intermediate review date to the next succeeding
date of review or intermediate review date (whichever shall first occur)
shall be determined in like manner as the Rent payable from each date of
review as hereinbefore provided Save that only one intermediate review
date notice may be served during any one period of review and save that no
such notice may be served in respect of a period of review after the date
of the next review period has been reached (but this shall not prevent
further notices being served for subsequent review periods)
(6) if upon any such review as aforesaid it shall be agreed or determined that
the Rent previously payable hereunder shall be increased the Lessor and
Lessee shall enter into a written memorandum to be prepared by the Lessor
signed by both parties recording the increased rent thenceforth payable
and each party shall bear their own costs in connection therewith
7. IT IS HEREBY FURTHER AGREED that both the Lessor or the Lessee shall have
the right to terminate this Lease on the fifth anniversary of the Term by one
party giving to the other party not less than six months prior written notice of
an intention to terminate the Lease any such termination shall be without
prejudice to any claim that either party may have against the other for breaches
of the provisions of this Lease
I N W I T N E S S whereof the parties hereto have executed this deed the day
and year first before written
THE FIRST SCHEDULE
PART I
("the Estate")
ALL THAT property known as Lincolns Inn Lincoln Road High Wycombe
Buckinghamshire
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shown edged yellow and green on the Plans but excluding any buildings thereon
let to any other tenant
PART II
("the Building")
ALL THAT building known as Twyford Place Lincolns Inn aforesaid shown edged blue
on the Plans
PART III
("the demised premises")
ALL THOSE premises known as Unit 2 Twyford Place Lincolns Inn aforesaid shown
edged red on the Plans
THE SECOND SCHEDULE
PART I
(Rights granted)
The right (in common with the Lessor and all others now or hereafter during the
Term entitled to the like right):
1. to use all drains sewers channels and watercourses and water gas and
electric conduits mains pipes wires and cables or conducting media and all
or any other services now or hereafter provided for the demised premises
("the demised premises services") and laid in or over the demised
premises and adjoining or neighbouring parts of the Building the Estate or
in under or over any other property across which the Lessor shall have
rights to carry the same for the passage of surface water and sewage from
and water gas electricity and other services to and from the demised
premises
2. to use such common roads and pathways as may from time to time be on the
Estate for the purpose of access to and from the Building
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3. to use seventeen car parking spaces on the Estate which shall be allocated
from time to time in its absolute discretion by the Lessor
4. to use any loading bays or forecourt adjacent to the demised premises
which may be made available by the Lessor for use by the Lessee from time
to time during the Term whether within the curtilages of the Building or
the Estate
5. of support shelter and protection for the demised premises from such parts
of the remainder of the Building as presently afford the same
6. on giving reasonable notice (except in emergency) with or without workmen
equipment and materials to enter so far as may be necessary or required
and remains on other parts of the Building and/or the Estate adjoining the
demised premises for the purposes of fulfilling its obligations hereunder
and of repairing maintaining and rebuilding the demised premises and the
demised premises' services including erecting any scaffolding which may be
necessary or required PROVIDED THAT the persons exercising such rights
shall cause as little inconvenience and interference as possible shall
carry out any work expeditiously and shall forthwith make good any damage
caused to any part of the Building and/or the Estate to the reasonable
satisfaction of the owner for the time being thereof AND PROVIDED FURTHER
THAT any scaffolding erected in the exercise of such rights shall be
removed as soon as reasonably practicable
PART II
(Exceptions and reservations)
1. The right to erect or consent hereafter to any person erecting a new
building or to rebuild or to alter the Building or any building for the
time being on the Estate or on any land adjoining neighbouring or opposite
to the Estate and to let the same for any
41
<PAGE> 42
purpose or otherwise deal therewith notwithstanding that such may diminish
or prejudicially affect the access of light or air or the right of support
and shelter or any other liberty easement right or advantage enjoyed by
the demised premises And the right to deal with the Building and any
property adjoining opposite or near to the demised premises as the Lessor
or other persons as aforesaid may think fit
2. The right on giving reasonable prior notice in writing (except in
emergency) to enter and remain upon the demised premises with all
necessary workmen tools appliances and materials (making good all damage
occasioned thereby to the demised premises to the reasonable satisfaction
of the Lessee and causing as little inconvenience and interference as
possible) for the purpose of:
(i) carrying out any of the Lessor's obligations hereunder
(ii) laying down and/or connecting to any sewers drains pipes wires
cables and other apparatus in on under over across or through the
demised premises to serve any part or parts of the Estate and/or
such adjoining or neighbouring property
(iii) maintaining repairing renewing and relaying the common roads and
pathways where the same abut the demised premises
(iv) repairing maintaining and rebuilding the parts of the Building
immediately adjoining the demised premises including erecting any
scaffolding which may be necessary or required provided that any
such scaffolding shall be removed as soon as reasonably practicable
3. The right of passage and running of water and soil gas and electricity and
other services or supplies from and to the remainder of the Building the
Estate and/or such adjoining or neighbouring property through such of the
sewers drains conduits gutters
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<PAGE> 43
watercourses pipes cables wires and mains serving the Building the Estate
or such adjoining and neighbouring property which now are or may before
the expiration of a period of 21 years after the death of the last
survivor of the descendants now living of His Late Majesty King George VI
hereafter be in on or under the demised premises
4. All rights of light air and other easements liberties rights or advantages
now or hereafter belonging to or enjoyed by the Building the Estate and
any such property adjoining neighbouring or opposite from or over the
demised premises
5. The right of support shelter and protection for the remainder of the
Building from the demised premises
THE THIRD SCHEDULE
PART 1
("the Lessor's Expenses")
All costs and expenses whatsoever incurred by the Lessor in and about the
provision of the Services which without prejudice to the generality thereof
subject to the proviso hereinafter contained shall include those under the heads
of expenditure charge or allowance set out hereunder
1. The expense of maintaining and as necessary repairing rebuilding
redecorating and renewing replacing amending repointing sanding polishing
painting graining varnishing colouring cleaning heating or lighting:
(i) any parts of the Building which may be used in common by the Lessee
and the other occupiers of the Building (including the drainpipes)
or which may be for the mutual benefit and protection of the
Building and the occupiers thereof other than any such parts as may
be specifically demised to the occupiers of the Building or intended
to be so demised; and
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<PAGE> 44
(ii) the whole or any part of any buildings (including multi-storey car
parks) on the Estate provided or to be provided by the Lessor for
the mutual benefit and protection of the occupiers of the Estate AND
all parts thereof and all additions thereto and all the
appurtenances plant (including without prejudice to the generality
of the foregoing any air conditioning plant and machinery) machinery
apparatus and other things thereto belonging (including any which
may be rendered necessary by any latent or inherent defect which the
Lessor is liable to repair) together with any sums which the Lessor
shall pay as a contribution in respect of the Estate or any part
thereof to any superior lessor
2. The cost of making renewing repairing maintaining rebuilding and cleansing
all roads accessways pavements landscaped areas external lighting sewers
drains pipes watercourses party walls party structures party fences
passages or other conveniences which may:
(i) belong to or be used for the Estate in common with other premises
near or adjoining thereto including any amounts which the Lessor
shall be called upon to pay as a contribution towards such costs
(ii) form part of the Estate and be used in common by the occupiers of
all of the buildings comprised in the Estate
3. The cost of all insurances taken out by the Landlord in respect of the
Estate the Building and the demised premises
4. The charges assessments meter rents and other outgoings (if any) payable
by the Lessor in respect of all parts of the Building and the Estate
insofar as the same are not paid direct by the tenants and occupiers
thereof
5. The reasonable fees of the Lessor's managing agents for the collection of
the rents the
44
<PAGE> 45
Principal Charge and the Supplementary Charge and such fees in respect of
and for the general management of the Building and the Estate
6. All fees and costs incurred in respect of the Certificate and of accounts
kept and audits made for the purpose thereof
7. The cost of taking all steps deemed desirable or expedient by the Lessor
for complying with making representations against or otherwise contesting
the incidence of the provisions of any legislation or orders or statutory
requirements thereunder concerning town planning public health highways
streets drainage or other matters relating or alleged to relate to the
Building and/or the Estate for which the Lessee is not directly liable
hereunder
8. The cost of providing fire fighting equipment appliances and fire alarm
systems at the Estate (other than such as are supplied in the demised
premises by the Lessee) including the cost of repair and maintenance of
the same
9. The cost of employing staff (including managing agents caretakers
maintenance personnel and/or security guards) either directly or
indirectly for the performance of duties in connection with the
maintenance and/or security of the Building and the Estate and the
provision of services thereto and to the lessees thereof and all other
incidental expenditure in relation to such employment including (but
without limiting the generality of such provision) the payment of the
statutory and such other insurance health pension welfare and other
payments contributions and premiums industrial training levies redundancy
and similar or ancillary payments that the Lessor may be required by
statute or otherwise to pay or may at the Lessor's absolute discretion
deem desirable or necessary in respect of such staff and uniforms working
clothes tools appliances cleaning and other material bins receptacles and
other equipment for the
45
<PAGE> 46
proper performance of their duties and of providing and maintaining
accommodation within the remainder of the Building and/or the Estate for
such staff
10. The cost of items properly attributable to the maintenance of the Building
and/or the Estate and provision of services not specifically dealt with
under the above paragraphs
11. The cost of any interest incurred by the Lessor on any money necessarily
provided or borrowed by the Lessor to enable the Lessor to provide the
Services
12. Any value added or other tax payable in respect of any costs expenses
outgoings or other matters falling within any paragraph of this Schedule
13. The cost of painting renewing repairing and maintaining the rendering on
the front fascia of the Building as referred to in Clause 4(3) hereof
14. Such provision ("the Reserve Fund") for anticipated expenditure in respect
of the future provision of the Services under the terms hereof as the
Lessor in the Lessor's reasonable discretion shall consider appropriate
PROVIDED THAT the Lessee shall not be entitled to be repaid any part of
the Reserve Fund at the expiry or sooner determination of this Lease AND
PROVIDED FURTHER THAT on any permitted transfer of this Lease the amount
in the Reserve Fund standing to the credit of the Lessee shall enure for
the benefit and credit of the permitted transferee
PART II
(Provisions for the calculation and payment
of the Service Charge)
1. The Lessor shall as soon as practicable after the end of each of the
Lessor's Financial Years procure the preparation of the Certificate
relating thereto and the delivery of a copy thereof to the Lessee
2. The Certificate shall provide for the Lessee to pay the following
proportions in respect
46
<PAGE> 47
of the Lessor's Expenses:
(i) 25% of the said Expenses incurred in respect of the Building
(ii) 11% of the said Expenses incurred in respect of that part of the
Estate edged yellow on the Plan
(iii) 3.3% of the said Expenses incurred in respect of that part of the
Estate edged green on the Plan
The Certificate shall save in respect of any arithmetical or other
manifest error be conclusive evidence for the purposes hereof of the
matters which it purports to certify
4. The Lessee shall on demand accompanied by a copy of the Certificate for
the Lessor's Financial Year to which such demand relates pay to the Lessor
the Principal Charge and the Supplementary Charge as shown in the
Certificate (or in the case of any period of less than a year a due
proportion thereof) subject however in each and every case to the
deduction of any interim payments previously made by the Lessee on account
thereof in pursuance of the provisions herein contained
5. The Lessee shall with every quarterly payment of rent pay to the Lessor
such sums in advance and on account of the amounts prospectively payable
under paragraph 3 hereof as the Lessor shall in the Lessor's discretion
consider to be fair and reasonable
6. If it shall be found upon the issue of the Certificate that the aggregate
of the interim payments made by the Lessee to the Lessor during the
relevant Lessor's Financial Year in pursuance of paragraph 4 hereof
exceeds the amounts payable pursuant to paragraph 3 hereof for the
Lessor's Financial Year the Lessor shall credit to the Lessee for the
following year the amount of such excess
7. PROVIDED ALWAYS that this Part H of this Schedule shall continue to apply
notwithstanding the termination of the Term but only in respect of the
period down
47
<PAGE> 48
to the termination of the Term
THE FOURTH SCHEDULE
(In this covenant the reference to the Lessee means the Lessee for the time
being or a proposed assignee under this Lease)
The Guarantor HEREBY COVENANTS with the Lessor:
(a) that the Lessee will pay the rent hereby reserved on the days and in
manner aforesaid and will perform and observe all the Lessee's covenants
hereinbefore contained and that in the case of default in such payment of
rent or in the performance or observance of such covenants as aforesaid
the Guarantor will pay and make good to the Lessor on demand all losses
damages costs and expenses thereby arising or incurred by the Lessor
PROVIDED ALWAYS AND IT IS HEREBY AGREED that any neglect or forbearance of
the Lessor in endeavouring to obtain payment of the rent hereby reserved
when the same becomes payable or to enforce performance of the several
stipulations herein on the Lessee's part contained and any time which may
be given to the Lessee by the Lessor shall not release or exonerate or in
any way affect the liability of the Guarantor under this covenant
(b) in the event of the Lessee (being a limited company) going into
liquidation either voluntary or otherwise or the winding up of the Lessee
Company and the Liquidator or Trustee in Bankruptcy disclaiming these
presents the Guarantor will (if so required by the Lessor enter into a
lease of the demised premises for a term equivalent to the residue of the
Term which shall then be unexpired in terms and subject to covenants and
rent in all respects similar to the terms rent and covenants of these
presents mutatis mutandis and will with due expedition seal a counterpart
of the new lease and complete the same with the Lessor's solicitors and
further will discharge the Lessor's
48
<PAGE> 49
solicitors' costs and disbursements of and arising out of the disclaimer
of these presents and the granting of the new lease
THE FIFTH SCHEDULE
Authorised Guarantee Agreement
THIS GUARANTEE is made on[ ]
BETWEEN:-
(1) [ ] ("Outgoing Lessee")
(2) [ ] ("Lessor")
WHEREAS:
(A) This Agreement is supplemental to a lease ("Lease") dated [ ] made
between [ }
(B) Words and expressions used in this Agreement shall have the meanings
ascribed to them in the Lease and "Guarantee Period" means the period from
the date upon which the benefit of the Term is assigned to the Incoming
Lessee until the date upon which the Incoming Lessee is effectively
released (by virtue of an assignment or transfer of the whole of the
demised premises to which the Lessor has given its consent) from its
obligations to perform the covenants on the part of the tenant contained
in the Lease and "Incoming Lessee" shall mean [ ]
(C) The Lessor is entitled to the reversion immediately expectant on the Term
(D) The Outgoing Lessee is entitled to the benefit of the Term
(E) The Outgoing Lessee has applied to the Lessor for consent to assign or
transfer the whole of the demised premises to the Incoming Lessee
(F) As a condition of its consent to the proposed assignment or transfer the
Lessor is entitled to require and has required the Outgoing Lessee to
guarantee the performance
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<PAGE> 50
by the Incoming Lessee of the covenants on the part of the tenant
contained in the Lease
NOW THIS GUARANTEE witnesses that:
1. To pay observe and perform
The Outgoing Lessee covenants with and guarantees to the Lessor that:--
1.1 the Incoming Lessee will throughout the Guarantee Period pay the
rents and or other sums reserved by the Lease in the manner and at
the times therein stipulated for payment
1.2 the Incoming Lessee will throughout the Guarantee Period fully
observe and perform the covenants on the part of the tenant set out
in the Lease
1.3 if the Incoming Lessee should at any time fail to pay such rents
and/or other sums and/or to observe and perform such covenants then
(in each such case and at each time) the Outgoing Lessee will:--
1.3.1 forthwith pay such rents and/or other sums and observe and
perform such covenants
1.3.2 forthwith make good to the Lessor all losses damages costs and
expenses suffered or incurred by the Lessor (whether directly
or indirectly) by reason of the Incoming Lessee's failure
1.3.3 indemnify and keep indemnified the Lessor from and against all
actions proceedings costs claims demands liabilities and
expenses arising (whether directly or indirectly) by reason of
the Incoming Lessee's failure
2. To take lease following disclaimer
The Outgoing Lessee further covenants with the Lessor that if at any time during
the
50
<PAGE> 51
Guarantee Period the Lease should be disclaimed by a competent person or
forfeited or if at any time during the Guarantee Period the Incoming Lessee
(being a company) should cease to exist the Outgoing Lessee shall (if the Lessor
by notice in writing given to the Outgoing Lessee within six (6) months after
such disclaimer or other event so requires) accept from and execute and deliver
to the Lessor a counterpart of a new lease of the demised premises for a term
commencing on the date of the disclaimer or other event and continuing for the
residue then remaining unexpired of the Term such new lease to be at the cost of
the Outgoing Lessee and to be at the same rents and subject to the same
covenants, conditions and provisions as are contained in the Lease
3. To make payments following disclaimer
If the Lessor shall not require the Outgoing Lessee to take a new lease of the
demised premises the Outgoing Lessee shall nevertheless pay to the Lessor on
demand a sum equal to the rent and other sums that would have been payable under
the Lease but for the disclaimer or other event until the expiration of six (6)
months therefrom or until the Lessor shall have granted a lease of the demised
premises to a third party (whichever shall first occur)
4. General
4.1 The Outgoing Lessee agrees that its obligations to the Lessor are
owed as principal debtor and primary obligor
4.2 The Outgoing Lessee further agrees that its obligations are and will
remain in full force and effect and that such obligations shall not
be discharged impaired or affected in any way by:--
4.2.1 any act event or omission which would or might otherwise have the
effect of discharging impairing or affecting such obligations
51
<PAGE> 52
4.2.2 (without prejudice to the generality of paragraphs 4.2.1.) any time
or indulgence granted by the Lessor to the Incoming Lesssee or any
neglect or forbearance of the Lessor in enforcing the payment of the
rents and/or other sums or the observance or performance of
covenants on the part of the tenant contained in the Lease
4.2.3 any refusal by the Lessor to accept rent tendered by or on behalf of
the Incoming Lessee at a time when the Lessor was (or would after
the service of a notice under Section 146 of the Law of Property Act
1925 have been entitled) to re-enter the demised premises
4.2.4 any incapacity or disability of either the Incoming Lessee or the
Outgoing Lessee (whether or not known to the Lessor at any time)
4.2.5 the Lease becoming vested in a third party pursuant to Section 181
of the Involvency Act 1986
4.2.6 the transfer or assignment of the reversion immediately expectant on
the termination of the Term or
4.2.7 any rent review
4.3 The Outgoing Lessee irrevocably and unconditionally waives:
4.3.1 any rights it may have of first requiring the Lessor to proceed
against or claim payment from the Incoming Lessee
4.3.2 any entitlement it may have to participate in any security at any
time held by the Lessor in respect of the Incoming Lessee's
52
<PAGE> 53
obligations under the Lease
4.3.3 any right to participate in any review of rent under the Lease
4.4 The Outgoing Lessee represents and warrants to the Lessor that it
has the full authority capacity and entitlement to enter into this
Agreement and to undertake its obligations to the Lessor
THE COMMON SEAL of BRITISH
SKY BROADCASTING LIMITED
was hereunto affixed
in the presence of:-
53
<PAGE> 54
HEADS OF TERMS BETWEEN
BRITISH SKY BROADCASTING (Tenant) &
WARDSWIFT GROUP PLC. &
IBIS GROUP PLC. (The Sub-tenants)
THE LANDLORD:
Allied Domecq Plc., Wyndham Investments Limited.
THE PROPERTIES:
Units 1 & 2 Twyford Place, Lincoln's Inn, High Wycombe, Bucks.
TENANT:
British Sky Broadcasting.
THE SUB-TENANTS:
Unit 1 Twyford Place - Wardswift Group Plc.
Unit 2 Twyford Place - Ibis Group Plc.
THE SUB-LEASES:
Two new sub-leases to be granted for each property to the above named
sub-tenants for a term commencing 7th January, 1998, up to 21st August 2015, on
full repairing and insuring items.
There to be provision inside of each lease for the tenant or the sub-tenant to
break either lease at the end of the fifth year of the term each having given
the other six months' prior written notice.
Further, subject to covenant at the time, should neither lease be broken by any
party, the sub-tenancy may simultaneously cease as the sub-tenants take
assignments of the tenants existing long lease, expiring on 21st August, 2015.
THE RENT UNIT 1:
Years l&2:(pound)41,520, Year 3 :(pound)83,040.
Year 4 (pound)83,040. Year 5 :(pound)83,040.
THE RENT UNIT 2:
Years l&2 : (pound) 41,945, Year 3 : (pound)83,895 Year 4 : (pound) 83,895. Year
5 : (pound)83,895.
THE LANDLORD'S SOLICITORS:
Ms. Jeanette Darby, Allied Domecq Plc., Conveyancing Dep., Wyndham Court,
Pritchard Street, Bristol. B52 8RH Tel: 01179 244244
THE TENANT'S SOLICITORS:
John Downing, Esq., Messrs. Davenport Lyons,
1.Old Burlington Street, London. WIX 2NL
Tel:0171 287 5353
THE SUB-TENANTS' SOLICITORS:
John G. Gabbitas, Esq., Messrs. Cripps & Shone,
The Old House, West Street, Marlow, Bucks. 8L7 2LX
Tel: 01628 482115
LEGALS:
Each party to bear their own costs and the sub-tenants to each pay (pound)150
towards the landlords licence to sub-let costs.
CIRCULATION:
1. British Sky Broadcasting, Richard Brooke, Esq.,
2. British Sky Broadcasting, Ms. Belinda Rengert
3. Messrs. Davenport Lyons, John Downing, Esq.,
4. Messrs. Cripps & Shone, John G. Gabbitas, Esq.,
5. Wardswift Group Plc., Peter Kelly, Esq.,
6. Ibis Group Plc.. Peter Nagle Esq.,
NB The commencement date and expiry of the lease between Wyndham Investments
and British Sky Broadcasting to be verified.
<PAGE> 55
[GRAPHIC REPRESENTATION OF
FLOOR PLANS OF THREE FLOORS OF TWYFORD PLACE AND BISHOPS COURT]
<PAGE> 56
[GRAPHIC REPRESENTATION OF
AREA MAP OF OVERALL SITE PLAN OF LINCOLN ROAD SHOWING CHICHESTER HOUSE,
NEWMANS ROW, TWYFORD PLACE AND BISHOPS COURT]
<PAGE> 57
applied immediately prior to the date of review as though such date
was at the termination of the Lease (but without prejudice to any
rights of the Lessor in regard thereto)
(ii) the demised premises are fit for immediate occupation and use
and are fully occupied with tenant's fixtures and fittings
(iii) no work has been carried out thereon by the Lessee or any
underlessee or their predecessors in title during the Term which has
diminished the rental value of the demised premises
(iv) in case the demised premises have been destroyed or damaged
they have been fully restored
(v) the demised premises may be used for an purpose under the
Planning Acts and without limitation
(vi) the Lessor has irrevocably undertaken not to charge Value Added
Tax on the rent firstly reserved hereunder
AND there being disregarded any effect on rent of:
(i) any goodwill attributable to the demised premises by reason of
any trade or business carried on therein by the Lessee or any
underlessee (ii) the fact that the Lessee or any underlessee may
have been in occupation of the demised premises (iii) any rent free
or reduced rent periods or reverse premiums or other concessions
which a willing lessor might give to a willing lessee in the open
market at the relevant date of review
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<PAGE> 58
(iv) the fact that the Lessor has the right to elect that Value
Added Tax be charged on the rent firstly reserved hereunder whether
or not such right shall have been exercised
(v) any effect on rent of any improvement to the demised premises or
any part thereof approved by the Lessor in writing and carried out
by the Lessee otherwise than in pursuance of any obligation on its
part contained in this Lease
(c) (i) if the Lessor and the Lessee shall be unable to agree on the
amount of the rack rental market value as aforesaid then the same
shall be decided by a surveyor (who shall act and be deemed to act
as an expert and not as an arbitrator) to be agreed upon by the
parties hereto or in the event of failure so to agree by a surveyor
to be nominated at the request at any time of either the Lessor or
the Lessee by or on behalf of the President for the time being of
the Royal Institution of Chartered Surveyors and either party may at
any time from three months prior to the relevant review date without
notice have the right to refer the matter to the said President or
to such person on his behalf and the decision of such surveyor shall
be binding on both the Lessor and the Lessee and the fees payable to
any such surveyor in respect of any decision made by him shall be
borne and paid by the parties hereto in such shares and such manner
as he shall determine
- 43 -
<PAGE> 59
and such surveyor shall afford to each of the parties hereto an
opportunity to make representations to him and if such surveyor
shall die delay or become unwilling or incapable of acting or if for
any other reason the President for the time being of the Royal
Institution of Chartered Surveyors or the person acting on his
behalf shall in his absolute discretion think fit he may by
writing discharge such surveyor and appoint another in his place
(ii) in the event of the determination of such surveyor not having
been made and communicated to both parties hereto prior to the
commencement of the review period for any reason whatever then in
respect of the period of time (hereinafter called "the said
interval") beginning with the said commencement and ending on the
quarter day immediately following the date on which such
determination shall have been made and communicated as aforesaid the
rent payable hereunder shall continue to be paid at the rate payable
immediately prior to the commencement of the review period
(hereinafter called "the Rent") PROVIDED that at the expiration of
the said interval there shall be due as additional rent payable by
the Lessee to the Lessor on demand a sum of money equal to the
amount whereby the reviewed rent shall exceed the Rent but duly
apportioned in respect of the said interval TOGETHER with interest
thereon calculated at the
- 44 -
<PAGE> 60
(but this shall not prevent further notices being served for
subsequent review periods)
(f) if upon any such review as aforesaid it shall be agreed or
determined that the Rent previously payable hereunder shall be
increased the Lessor and Lessee shall enter into a written
memorandum to be prepared by the Lessor signed by both parties
recording the increased rent thenceforth payable and each party
shall bear their own costs in connection therewith
I N W I T N E S S whereof the parties hereto have executed this deed the day
and year first before written
THE FIRST SCHEDULE
PART I
("the Estate")
ALL THAT property known as Lincolns Inn Lincoln Road High Wycombe
Buckinghamshire shown edged yellow and green on the Plans but excluding any
buildings thereon let to any other tenant
PART II
("the Building")
ALL THAT building known as Twyford Place Lincolns Inn aforesaid shown edged blue
on the Plans
PART III
("the demised premises")
- 46 -
ALL THOSE premises known as Unit 2 Twyford Place Lincoins Inn aforesaid shown
edged red on the Plans
THE SECOND SCHEDULE
PART I
(rights granted)
The right (in common with the Lessor and all others now or hereafter during the
Term entitled to the like right).
1. to use all drains sewers channels and watercourses and water gas and electric
conduits mains pipes wires and cables or conducting media and all or any other
services now or hereafter provided for the demised premises ("the demised
premises' services") and laid in or over the demised premises and adjoining or
neighbouring parts of the Building the Estate or in under or over any other
property across which the Lessor shall have rights to carry the same for the
passage of surface water and sewage from and water gas electricity and other
services to and from the demised premises
2. to use such common roads and pathways as may from time to time be on the
Estate for the purpose of access to and from the Building
3. to use seventeen car parking spaces on the Estate which shall be allocated
from time to time in its absolute discretion by the Lessor
4. to use any loading bays or forecourt adjacent to the demised premises which
may be made available by the Lessor for use by the Lessee from time to time
during the Term whether within the curtilages of the Building or the Estate
- 47 -
<PAGE> 61
5. of support shelter and protection for the demised premises from such parts
of the remainder of the Building as Presently afford the same
6. on giving reasonable notice (except in emergency) with or without workmen
equipment and materials to enter so far as may be necessary or required and
remains on other parts of the Building and/or the Estate adjoining the demised
premises for the purposes of fulfilling its obligations hereunder and of
repairing maintaining and rebuilding the demised premises and the demised
premises' services including erecting any scaffolding which may be necessary or
required PROVIDED THAT the persons exercising such rights shall cause as little
inconvenience and interference as possible shall carry out any work
expeditiously and shall forthwith make good any damage caused to any part of the
Building and/or the Estate to the reasonable satisfaction of the owner for the
time being thereof AND PROVIDED FURTHER THAT any scaffolding erected in the
exercise of such rights shall be removed as soon as reasonably practicable
PART II
(exceptions and reservations)
1. The right to erect or consent hereafter to any person erecting a new building
or to rebuild or to alter the Building or any building for the time being on the
Estate or on any land adjoining neighbouring or opposite to the Estate and to
let the same for any purpose or otherwise deal therewith notwithstanding In that
such may diminish or prejudicially affect the access of light or air or the
right of support and shelter or any other liberty easement right or advantage
enjoyed by the demised
- 48-
<PAGE> 62
[GRAPHIC REPRESENTATION OF
FLOOR PLANS OF THREE FLOORS OF TWYFORD PLACE AND BISHOPS COURT]
<PAGE> 63
[GRAPHIC REPRESENTATION OF
AREA MAP OF OVERALL SITE PLAN OF LINCOLN ROAD SHOWING CHICHESTER HOUSE,
NEWMANS ROW, TWYFORD PLACE AND BISHOPS COURT]
<PAGE> 64
premises And the right to deal with the Building and any Property adjoining
opposite or near to the demised Premises as the Lessor or other persons as
aforesaid may think fit
2. The right on giving reasonable prior notice in writing (except in emergency)
to enter and remain upon the demised premises with all necessary workmen tools
appliances and materials (making good all damage occasioned thereby to the
demised premises to the reasonable satisfaction of the Lessee and causing as
little inconvenience and interference as possible) for the purpose of:
(i) carrying out any of the Lessor's obligations hereunder
(ii) laying down and/or connecting to any sewers drains pipes wires cables
and other apparatus in on under over across or through the demised
premises to serve any part or parts of the Estate and/or such adjoining or
neighbouring property
(iii) maintaining repairing renewing and relaying the common roads and
pathways where the same abut the demised premises
(iv) repairing maintaining and rebuilding the parts of the Building
immediately adjoining the demised premises including erecting any
scaffolding which may be necessary or required provided that any such
scaffolding shall be removed ~s soon as reasonably practicable
3. The right of passage and running of water and soil gas and electricity and
other services or supplies from and to the remainder of the Building the Estate
and/or such adjoining or neighbouring property through such of the sewers
drains conduits
- 49 -
<PAGE> 65
gutters watercourses pipes cables wires and mains serving the Building the
Estate or such adjoining and neighbouring property which now are or may before
the expiration of a period of 21 years after the death of the last survivor of
the descendants now living of His Late Majesty King George VI hereafter be in
on or under the demised premises
4. All rights of light air and other easements liberties rights or advantages
now or hereafter belonging to or enjoyed by the Building the Estate and any such
property adjoining neighbouring or opposite from or over the demised premises
5. The right of support shelter and protection for the remainder of the Building
from the demised premises
THE THIRD SCHEDULE
PART I
(the Lessor's Expenses)
All costs and expenses whatsoever incurred by the Lessor in and about the
provision of the Services which without prejudice to the generality thereof
subject to the proviso hereinafter contained shall include those under the heads
of expenditure charge or allowance set out hereunder
1. The expense of maintaining and as necessary repairing rebuilding redecorating
and renewing replacing amending repointing sanding polishing painting graining
varnishing colouring cleaning heating or lighting:
(i) any parts of the Building which may be used in common by the Lessee
and the other occupiers of the Building (including the drainpipes)
or which may be for the mutual benefit and protection of the
Building and the
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<PAGE> 66
occupiers thereof other than any such parts as may be specifically
demised to the occupiers of the Building or intended to be so
demised; and
(ii) the whole or any part of any buildings (including multi-storey car
parks) on the Estate-provided or to be provided by the Lessor for
the mutual benefit and protection of the occupiers of the Estate
AND all parts thereof and all additions thereto and all the appurtenances plant
(including without prejudice to the generality of the foregoing any air
conditioning plant and machinery) machinery apparatus and other things thereto
belonging (including any which may be rendered necessary by any latent or
inherent defect which the Lessor is liable to repair) together with any sums
which the Lessor shall pay as a contribution in respect of the Estate or any
part thereof to any superior lessor
2. The cost of making renewing repairing maintaining rebuilding and cleansing
all roads accessways pavements landscaped areas external lighting sewers drains
pipes watercourses party walls party structures party fences passages or other
conveniences which may:
(i) belong to or be used for the Estate in common with other premises near or
adjoining thereto including any amounts which the Lessor shall be called
upon to pay as a contribution towards such costs
(ii) form part of the Estate and be used in common by the occupiers of all of
the buildings comprised in tbe Estate
3. The cost of all insurances taken out by the Landlord in respect of the
Estate the Building and the demised premises
- 51 -
<PAGE> 67
4. The charges assessments meter rents and other outgoings if any payable by the
Lessor in respect of all parts of the Building and the Estate insofar as the
same are not paid direct by the tenants and occupiers thereof
5. The reasonable fees of the Lessor's managing agents for the collection of the
rents the Principal Charge and the Supplementary Charge and such fees in respect
of and for the general management of the Building and the Estate
6. All fees and costs incurred in respect of the Certificate and of accounts
kept and audits made for the purpose thereof
7. The cost of taking all steps deemed desirable or expedient by the Lessor for
complying with making representations against or otherwise contesting the
incidence of the provisions of any legislation or orders or statutory
requirements thereunder concerning town planning public health highways streets
drainage or other matters relating or alleged to relate to the Building and/or
the Estate for which the Lessee is not directly liable hereunder
8. The cost of providing fire fighting equipment appliances and fire alarm
systems at the Estate (other than such as are supplied in the demised premises
by the Lessee) including the cost of repair and maintenance of the same --
9. The cost of employing staff (including managing agents caretakers maintenance
personnel and/or security guards) either directly or indirectly for the
performance of duties in connection with the maintenance and/or security of the
Building and the Estate and the provision of services thereto and to the lessees
thereof and all other incidental expenditure in relation to such employment
including (but without limiting the generality
- 52 -
<PAGE> 68
of such provision) the payment of the statutory and such other insurance health
pension welfare and other payments contributions and premiums industrial
training levies redundancy and similar or ancillary payments that the Lessor may
be required by statute or otherwise to pay or may at the Lessor's absolute
discretion deem desirable or necessary in respect of such staff and uniforms
working clothes tools appliances cleaning and other material bins receptacles
and other equipment for the proper performance of their duties and of providing
and maintaining accommodation within the remainder of the Building and/or the
Estate for such staff
10. The cost of items properly attributable to the maintenance of the Building
and/or the Estate and provision of services not specifically dealt with under
the above paragraphs
11. The cost of any interest incurred by the Lessor on any money necessarily
provided or borrowed by the Lessor to enable the Lessor to provide the Services
12. Any value added or other tax payable in respect of any costs expenses
outgoings or other matters falling within any paragraph of this Schedule
13. The cost of painting renewing repairing and maintaining the rendering on the
front fascia of the Building as referred to in Clause 4(3) hereof
14. Such provision ("the Reserve Fund") for anticipated expenditure in respect
of the future provision of the Services under the terms hereof as the Lessor in
the Lessor's reasonable discretion shall consider appropriate PROVIDED THAT the
Lessee shall not be entitled to be repaid any part of the Reserve Fund at the
expiry or sooner determination of this Lease AND PROVIDED
- 53 -
<PAGE> 69
FURTHER THAT on any permitted transfer of this Lease the amount in the Reserve
Fund standing to the credit of the Lessee shall enure for the benefit and credit
of the permitted transferee
PART II
(Provisions for the calculation and payment
of the Service Charge)
1. The Lessor shall as soon as practicable after the end of each of the Lessor's
Financial Years procure the preparation of the Certificate relating thereto and
the delivery of a copy thereof to the Lessee
2. The certificate shall provide for the Lessee to opay the following
proportions in respect of the Lessor's Expenses:
(i) 25% of the said Expenses incurred in respect of the Building
(ii) 11% of the said Expenses incurred in respect of that part of the
Estate edged yellow on the Plan
(iii) 3.3% of the said Expenses incurred in respect of that part of the
Estate edged green on the Plan
3. The Certificate shall save in respect of any arithmetical or other manifest
error be conclusive evidence for the purposes hereof of the matters which it
purports to certify
4. The Lessee shall on demand accompanied by a copy of the Certificate for the
Lessor's Financial Year to which such demand relates pay to the Lessor the
Principal Charge and the Supplementary Charge as shown in the Certificate (or in
the case of any period of less than a year a due proportion thereof) subject
however in each and every case to the deduction therefrom
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<PAGE> 70
any interim payments previously made by the Lessee on account thereof in
pursuance of the provisions herein contained
5. The Lessee shall with every quarterly payment of rent pay to the Lessor such
sums in advance and on account of the amounts prospectively payable under
paragraph 3 hereof as the Lessor shall in the Lessor's discretion consider to be
fair and reasonable
6. If it shall be found upon the issue of the Certificate that the aggregate. of
the interim payments made by the Lessee to the Lessor during the relevant
Lessor's Financial Year in pursuance of paragraph 4 hereof exceeds the amounts
payable pursuant to paragraph 3 hereof for the Lessor's Financial Year the
Lessor shall credit to the Lessee for the following year the amount of such
excess
7. PROVIDED ALWAYS that this Part II of this Schedule shall continue to apply
notwithstanding the termination of the Term but only in respect of the period
down to the termination of the Term
THE COMMON SEAL of BRITISH )
SATELLITE BROADCASTING ) [ILLEGIBLE]
LIMITED was hereunto affixed )
in the presence of:-- )
Director
[ILLEGIBLE]
Secretary
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<PAGE> 71
DATED___________________________________________ 1997
BRITISH SKY BROADCASTING LIMITED (1)
- and -
IBIS GROUP PLC. (2)
===================================
AGREEMENT FOR Lease
of
Unit Two,
Twyford Place, Lincolns Inn,
High Wycombe, Buckinghamshire.
===================================
Davenport Lyons
1 Old Burlington Street
London W1X 1LA
Tel: 0171-468 2600
Fax: 0171-437 8216
<PAGE> 72
THIS AGREEMENT FOR LEASE is made the day of 1997
BETWEEN:
(1) BRiTISH SKY BROADCASTING LIMITED whose registered office is at Grant Way,
Isleworth, Middlesex, TW7 5QF. ("the Landlord") and
(2) IBIS GROUP PLC. whose registered office is at ("the Tenant")
IT IS AGREED as follows:
1. LEASE COMPLETION
1.1 Fourteen days after the later of:
1.1.1 the date upon which the Superior Landlord's Licence to Underlet has
been granted in accordance with Clause 3.19 of the Superior Lease
and
1.1.2 the grant of an Order of the High Wycombe County Court pursuant to
Section 38(4) of the Landlord and Tenant Act 1954 (as amended) ("the
Act") by which the provisions of Sections 24 to 28 (inclusive) of
the Act are excluded in relation to the Lease
the Landlord shall grant and the Tenant shall take and execute a
counterpart of the Lease (in the attached form) ("the Lease") of the
Premises for a term of years expiring on 20th August 2015 and upon the
terms and conditions set out therein
1.2. Upon completion the Lease shall be granted free of all charges and
encumbrances but subject to the matters referred to in the title of the
Premises specified in Clause 4.1. hereof including for the avoidance of
doubt the Superior Lease (in respect of which the Tenant shall not raise
any requisitions or enquiries) save for any financial charges in respect
of which the Landlord shall procure the consent of any Superior Landlord
to the grant of the Lease to the Tenant
2. NO DEMISE
Until the grant of the Lease this agreement shall not be deemed to operate as a
demise of the Premises or any part thereof
3. NO ALIENATION
The Tenant shall not assign charge or part with its interest under this
Agreement or any part thereof nor shall the Landlord be required to grant the
Lease to any person other than the Tenant
4. TITLE
4.1 The title of the Premises (with other property) is registered at HM Land
Registry with
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<PAGE> 73
Title Absolute under Title No BM154874 and title shall be deduced in
accordance with S11O(1) of the Land Registration Act 1925
4.2 The completion of the grant of the Lease shall take place at the offices
of the Developer's Solicitors Messrs. Davenport Lyons of 1 Old Burlington
Street London W1X 1LA
4.3 Vacant possession of the Premises shall be provided upon completion of the
Lease
5. OUTSTANDING PROVISIONS AFTER LEASE
All the terms conditions and stipulations of this Agreement shall remain in full
force and effect to the extent that the same remain to be implemented
notwithstanding the grant of the Lease
6. SERVICE OF NOTICES
Any notice or demand required to be served hereunder may either be left at or
sent by ordinary prepaid post or by facsimile in the case of an individual or in
the case of a firm be left at or sent by ordinary prepaid post or facsimile to
the last known address the principal place of business and in the case of a
company any such notice or demand may be left at or sent by ordinary prepaid
post or facsimile to its registered office or principal place of business and
such notice or demand shall be deemed to be received on the day following the
date of such posting or facsimile thereof as aforesaid
7. ENTIRE AGREEMENT
The Agreement and the conditions herein contained constitute the entire
agreement between the parties and may only be varied or modified either by
correspondence between the parties' respective solicitors or collateral contract
or otherwise in writing under the hands of the parties
8. NO REPRESENTATIONS
Save for the written statements of the Landlord's solicitors in answer to
written preliminary enquiries prior to the making of this Agreement it is hereby
acknowledged by the Tenant that it has not entered into this Agreement in
reliance wholly or partly on any statement or representation made to the Tenant
or its agents provided that this condition shall not apply to any error
mis-statement or omission which is recklessly or fraudulently made
9. LOCAL LAND CHARGES
So far as the same relate thereto the Premises are subject to all local land
charges whether registered or not before the date hereof and all matters capable
of registration as local land charges whether or not actually so registered and
all notices charges orders resolutions
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<PAGE> 74
demands plans proposals requirements restrictions agreements conditions
directions or other matters whatsoever served or made by any local or other
competent authority before on or after the date hereof
10. STANDARD CONDITIONS
The Standard Conditions of Sale (3rd Edition) shall be deemed to be incorporated
herein except as varied by or inconsistent with the provisions of this Agreement
11. COURT ORDER
The Landlord and the Tenant shall make a joint application to the High Wycombe
County Court to obtain an Order pursuant to Section 38(4) of the Landlord and
Tenant Act 1954 (as amended) by which the provisions of Sections 24 to 28
(inclusive) of the Act are excluded in relation to the Lease
12. HEADINGS
The paragraph headings shall not affect the interpretation hereof
AS WITNESS the hands of the parties hereto
THE FIRST SCHEDULE ABOVE REFERRED TO
(Description of Premises).
Unit Two, Twyford Place, Lincolns Inn, Lincolns Road, High Wycombe,
Buckinghamshire, shown for identification purposes edged yellow and green on the
attached plan(s) but excluding any buildings thereon let to any other tenant
SIGNED by )
duly authorised on behalf of )
BRITISH SKY BROADCASTING LIMITED )
SIGNED by )
duly authorised on behalf of )
IBIS GROUP PLC. )
3
<PAGE> 75
MEMORANDUM
IT IS HEREBY AGREED AND DECLARED between:
1. WYNDHAM INVESTMENTS LIMITED whose registered office is at Wyndham Court
Pritchard Street Bristol BS2 8RH and
2. BRITISH SKY BROADCASTING LIMITED whose registered office is at 6 Centaurs
Business Park Grant Way Isleworth Middlesex TW7 5QD
the present Lessor and Lessee respecttively under a Lease ("the Lease") dated
21st August 1990 and made between Questsun Limited (1) and British Satellite
Broadcasting Limited (2) of premises situate at and known as Unit 2 Twyford
Place Lincolns Inn High Wycombe Buckinghamshire and more particularly described
in the Lease THAT pursuant to the provisions of Clause 6 thereof the yearly rent
firstly reserved by the Lease shall with effect from the 20th August 1995
continue of EIGHTY THREE THOUSAND AND EIGHT HUNDRED NINETY-FIVE POUNDS
((pound)83895) exclusive.
AND THAT this Memorandum shall be attached to the Lease and Counterpart thereof
and shall henceforth be conclusive evidence of the yearly rent payable pursuant
to the first rent review thereunder
DATED this 20th day of December 1995
SIGNED by
for and on behalf of
WYNDHAM INVESTMENTS LTM
<PAGE> 1
Exhibit 10.7
THIS INDENTURE made the 20th day of November One thousand nine hundred and
ninety two BETWEEN JOSEPH COSGRAVE, PETER COSGRAVE AND MICHAEL COSGRAVE of 13
Wentworth, Eblana Villas, Dublin 2 (hereinafter called "The Lessor") of the One
Part AND PREMIER GROUP LIMITED of 13\16 Dame Street, Dublin 2 (hereinafter
called "the Lessee" ) of the other part.
WITNESSETH as follows:-
A. IN THIS LEASE and in the Schedules hereto (save where the context
otherwise requires or implies) the following words and expressions shall
have the meanings assigned to them respectively hereunder:-
A.1. "The Lessor" shall include the above mentioned Lessor and where the
context so admits or requires include their and each of their executors,
administrators and assigns and the owner or owners for the time being of
the reversion immediately expectant on the term hereby granted;
A.2. "The Lessee" shall include the above mentioned Lessee and where the
context so admits or requires include its successors in title and
REGISTERED IN THE REGISTRY OF DEEDS (DUBLIN) at
36 MINUTES AFTER 2 O'CLOCK ON THE 19 DAY OF
JANUARY 1993 BOOK 10 NO. 16 [ILLEGIBLE]
<PAGE> 2
permitted assigns.
A.3. "The Demised Premises" means the premises hereby demised by the Lessor to
the Lessee as more particularly described in the First Schedule hereto and
where the context so admits includes all easements rights and Privileges
appurtenant thereto and all buildings thereon.
A.4. "Rent" means the Rent from time to time payable hereunder whether the same
shall be in the amount hereby initially reserved or as increased pursuant
to the provisions in that behalf hereinafter or in any Schedule hereto
contained,
A.5. "Insured Risks" means subject always to such exclusions, excesses and
limitations as are normally available and as may be imposed by the
Landlord's insurers for the time being in respect of all or any of the
following risks:-
All or any loss or damage or prospective loss or damage by fire flooding
water burst pipes storm tempest lightning explosion earthquake impact
aircraft and other aeriel devices and articles dropped therefrom malicious
damage civil commotion riot public liability and such further
2
<PAGE> 3
risks or perils to or in connection with the demised premises as the
Lessor may in its absolute discretion from time to time determine and the
Lessors fixtures and fittings thereof including glass (but excluding plate
glass) and such fees expenses charges and monies of and incidental to the
rebuilding reinstatement or loss (whether total or otherwise) of the
demised premises or any part thereof as the Lessor may from time to time
reasonably deem it desirable to insure against including (but not by way
of exception);
A.5.01. Three years loss of rent from time to time payable out of the
demised premises;
A.5.02. Expenditure or anticipated expenditure in the demolition and
clearance of the demised premises.
A.5.03 All stamp duties payable on any building or like Contract coming
within the provisions of any Act or Acts now or hereafter in force
which said Contract may be entered into relative to the
reconstruction reinstatement or repair in full or in part of the
demised premises resulting from the destruction
3
<PAGE> 4
loss or damage thereof or thereto from any of the risks or perils
aforesaid;
A.5.04 A sum equivalent to 12.5% of the full replacement and reinstatement
cost of the demised premises (determined in the manner hereinafter
provided) in respect of Architects' Quantity Surveyors' and other
professional and consultancy fees;
A.6. "Planning Legislation" means the Local Government (Planning and
Development) Acts, 1963 to 1990 and any Act or Acts for the time being in
force amending extending or replacing the same and any Orders Regulations
or Directions issued under or by virtue of the said Acts or any Act or
Acts for the time being in force amending or replacing the same.
A.7. "Month" means calendar month and words derived therefrom shall be
construed accordingly.
A.8. Each covenant by the Lessee not to do any act or thing shall be deemed to
include a covenant not to permit or suffer that act or thing to be done.
A.9. "Machinery" means all plant machinery, apparatus
4
<PAGE> 5
and equipment on in or under the Demised Premises and used and serving the
premises including without limitation, generators, equipment for air
conditioning, ventilation, heating, cooling, fire alarm, fire prevention
and fire control and any lifts, plant and machinery which may from time to
time be installed in the Demised Premises at any time within the term.
A.10. "The Term" means 35 years from the 20th day of November, 1992.
B. All rights of entry exercisable hereunder by the Lessor shall extend to
and include the Architects, Engineers, Surveyors, Servants, Contractors,
Agents, Licensees and Employees of the Lessor.
C. The several Schedules hereto shall be deemed to be incorporated in and
form part of these presents and the provisions thereof shall apply and
operate as though the same were set forth ad longum herein.
1.01 In consideration of the rents herein reserved (and the increases provided
herein) and the other payments and the covenants on the part of the
5
<PAGE> 6
Lessee hereinafter reserved and contained the Lessor hereby demises unto
the Lessee ALL THAT AND THOSE the premises described in the First Schedule
hereto EXCEPTING AND RESERVING unto the Lessor its Lessees Licensees and
all other persons authorised by the Lessor the rights, interests and
easements specified in the Second Schedule hereto TO HOLD the same unto
the Lessee from the 20th day of November 1992 for a term of 35 years
YIELDING AND PAYING by way of Bankers Order or such other manner as the
Lessor in its absolute discretion may specify therefor and thereout during
each of the first five years of the term ending on the 19th day of
November 1997 the yearly rent of IR(pound)60,000.00 without any deduction
payable quarterly in advance at the rate of (pound)15,000.00 per quarter
on the 20th day of November, 20th day of February, 20th day of May and
20th day of August in every year of the term and thereafter during each of
the successive periods of five years which the first shall begin on the
20th day of November 1997 a rent equal to (a) the rent payable hereunder
during the immediately preceding year or (b) such revised rent as may from
time to time be ascertained in accordance with the provisions in that
behalf contained in the Third Schedule hereto (whichever
6
<PAGE> 7
shall be the greater) and the rent throughout the entire of the term shall
be paid in advance without deductions, the first payment to be made on the
signing hereof.
1.02 AND ALSO PAYING by way of additional rent the amount or amounts payable by
the Lessor for insuring the Demised Premises against the Insured Risks and
other matters referred to in Clause 4.00 (including the cost of periodic
valuations for insurance purposes) the first such sum shall be payable on
the execution hereof and thereafter on demand.
2. The Lessee to the intent that the obligations hereby created shall (save
where otherwise stated) continue throughout the term hereby granted
covenants with the Lessor in manner following that is to say:
2.01. Covenants to Pay Rent, Rates, and Outgoings
2.01.01. To pay the rent and all other sums hereby reserved on the days and
in the manner herein provided without any deductions.
2.01.02. To pay and discharge all existing and future
7
<PAGE> 8
rates, taxes, duties, charges, assessments, outgoings and all
impositions whatsoever whether parliamentary, parochial local or any
other description which are now or may at any time be assessed taxed
charged imposed upon levied or be payable in respect of the demised
premises or any part thereof or upon or by the owner or occupier
thereof or any part thereof or any rent issuing thereout or any part
thereof or if the Lessor shall be liable to pay and shall pay any
such rate, tax, duty, charge, assessment, outgoing or imposition
then the Lessee shall on demand refund to the Lessor any sum or sums
so paid by it.
2.01.03. To pay and discharge all sums due for electricity, telephone, gas or
water (or other fuel or service) used or consumed on the demised
premises.
2.02 COMPLY WITH LOCAL AUTHORITY REQUIREMENTS
2.02.01 At the Lessees own expense observe and comply in all respects with
the provisions and requirements of any and every enactment for the
time being in force or any orders or
8
<PAGE> 9
regulations thereunder for the time being in force and to do and
execute or cause to be done and executed all such works as under or
by virtue of any such enactment or any orders or regulations
thereunder for the time being in force are or shall be properly
directed or necessary to be done or executed upon or in respect of
the demised premises or any part thereof whether by the owner,
Landlord, Lessee, Tenant or Occupier and at all times to keep the
Lessor indemnified against all claims, demands and liability in
respect thereof and without derogating from the generality of the
foregoing to comply with the requirements of any local or other
statutory authority and the order or orders of any Court of
competent jurisdiction.
2.02.02. At all times during the said term to comply with all the
recommendations or requirements of the appropriate Authority whether
notified or directed to the Lessor or the Lessee (who shall notify
expeditiously the other) in relation to fire precautions and to
indemnify the Lessor against any costs or expenses in complying with
such recommendations or requirements and not to
9
<PAGE> 10
obstruct the access to or means of working any apparatus and
appliances for the time being installed in the demised premises.
2.02.03. To execute all such works as may be necessary for abating any
nuisance in obedience to a notice lawfully served by a local or
public Authority or pursuant to any Court Order.
2.02.04. Not to obstruct the access to or the means of working of any fire
prevention or fire detection system and not obstruct any emergency
exit in the Demised Premises.
2.02.05. If required to comply with the recommendations of the insurers to
provide and install such safety devices as may be required and to
install same at the Lessor's direction and at the Lessee's expense.
2.02.06. To comply generally with all and requirements and recommendations of
insurers of the Demised Premises in so as they relate thereto and to
indemnify keep indemnified the Lessor against costs or expenses in
complying with all and
10
<PAGE> 11
any such requirements and recommendations.
2.03. COVENANTS TO REPAIR AND MAINTAIN.
2.03.01 At all times during the said term to keep clean and tidy and to
repair, replace, reinstate and put and keep in good order repair and
condition from time to time and at all times the entire of the
demised premises interior and exterior and all parts thereof and all
buildings now or hereafter erected thereon and every part thereof
(whatsoever their present condition) and all additions thereto and
without derogation from the generality of the foregoing the Lessor's
fixtures and fittings therein and all pipes, drains, wires, cables,
meters, channels, sewers, sanitary and water apparatus and all other
installations and other things within the demised premises and all
walls and fences roofs structures foundations timbers joists and
beams of the floors and ceilings chimney stacks gutters door locks
plate glass and other window fixtures in good and substantial order
repair and condition and when necessary renew and replace all
machinery therein AND
11
<PAGE> 12
in the like condition to surrender and quietly yield the demised
premises up at the expiration or sooner determination of the term
hereby granted.
2.03.02 At all times during the said term to keep the demised premises neat
and tidy and in good decorative order throughout and to maintain a
clean and attractive appearance in the same at all times during this
demise.
2.03.03. No Clause
2.03.04. Not to bring or keep or suffer to be brought or kept on the Demised
Premises or any part thereof any dump rubbish or scrap heap or
anything which in the opinion of the Lessor is or may become
unclean, unsightly, noisesome, offensive or dangerous or calculated
or liable to detract from the quality amenity or reputation of the
Demised Premises and so often as it shall be necessary or desirable
to remove from the Demised Premises all such refuse rubbish and
scrap which may accumulate or be placed thereon.
12
<PAGE> 13
2.03.05 To keep such part of the land forming part of the Demised premises
as is not built on and the forecourt car parking spaces grass
gardens and any trees shrubs and hedges in proper and neat order and
condition and any ditches streams culverts and watercourses properly
cleared and cleaned and the banks thereof in proper repair and
condition.
2.03.06 Not to place or deposit or allow to be placed or deposited for sale
or otherwise any goods articles or things so as to obstruct or allow
to be obstructed the forecourt or car parking areas surrounding or
comprised in the Demised Premises.
2.03.07. Once (at least) in every five years of the said term and in the last
year of the said term (whether determined by affluxion of time or
otherwise) to paint in a proper and workmanlike manner all the
internal wood metal and other internal parts of the demised premises
and all additions thereto usually or requiring to be painted or
which ought to be so painted with at least three coats of good oil
paint and in such colours as the Lessor shall have first approved of
13
<PAGE> 14
in writing and to prepare grain varnish french polish colour
distemper wash stop whiten in a proper and workmanlike manner and
repaper all the internal parts of the demised premises and all
additions thereto usually or requiring to be so treated or which
ought to be so treated with suitable materials and in such colour or
colours as the Lessor shall have first approved of in writing.
2.03.08 Once (at least) in every five years of the said term and in the last
year of the said term (whether determined by affluxion of time or
otherwise) to paint in a proper and workmanlike manner all the
external wood metal and other external parts of the demised premises
and all additions thereto usually or requiring to be painted or
which ought to be so painted with at least three coats of good oil
paint and in such colours as the Lessor shall have first approved of
in writing and to prepare grain varnish french polish colour
distemper wash down repoint whiten in a proper and workmanlike
manner all the external parts of the demised premises and all
additions thereon
14
<PAGE> 15
usually or requiring to be so treated or which ought to be treated
with suitable materials and in such colour as the Lessor shall have
first approved of in writing, and where necessary and wherever
appropriate treat with suitable preservative all stone work, brick
work, concrete and other finishes to the reasonable satisfaction of
the Lessor.
2.03.09 Concurrently with each such external painting to wash down and
cleanse all external services of the demised premises which are
usually or normally so dealt with.
2.03.10. To clean and treat the external and internal surfaces of the windows
of the demised premises at least once every two months.
2.03.11. As often as may be necessary to clean and treat all tiles, glazed
bricks, aluminium windows and doors and similar washable surfaces.
2.03.12. To install such curtains and blinds in or on the windows of the
demised premises or otherwise serving the same as the Lessor may
15
<PAGE> 16
from time to time reasonably require in that behalf.
2.03.13. Not to substitute any blinds, shutters or curtains in or on the
windows of the demised premises without first obtaining the consent
in writing of the Lessor nor to put or display on or in the demised
premises any unsightly object which shall be visible from the
exterior thereof.
2.03.14. To keep all parts of the demised premises upon which there are no
buildings erected in a neat and tidy condition and adequately
surfaced and free from weeds and further to ensure that all
landscaped areas are properly cultivated and maintained and all
trees (if any) preserved.
2.04. COVENANTS NOT TO MAKE ALTERATIONS WITHOUT THE CONSENT OF THE LESSOR
2.04.01. Not to erect or suffer to be erected any new buildings or erection
on the demised premises, or to alter, add to, cut, maim or injure or
suffer to be altered, added to, cut, maimed or injured the demised
premises
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or any part thereof to include, without prejudice to the generality
of the foregoing any of the ceilings roofs walls floors or timbers
or electric cables, switches, junctions or points or the pipes taps
or other apparatus of or the machinery on the demised premises,
without the prior consent in writing of the Lessor (which consent
shall not be unreasonably withheld however it will be reasonable to
withhold Consent if said alteration would detract from the value of
the Demised Premises).
2.04.02. No to make or suffer to be made thereto any structural alteration
addition or change or to make or suffer to be made any alteration,
addition or change in the internal lay-out thereof or alter or
change or suffer to be altered or changed the plan elevation or
architectural decorations thereof or alter add to cut maim injure or
change or suffer to be altered added to cut maimed or injured or
changed any of the Lessor's fixtures and fittings and appliances in
and about the demised premises without the prior consent in writing
of the Lessor (which Consent shall not be unreasonably withheld
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however it will be reasonable to withhold Consent if said alteration
would detract from the value of the Demised Premises).
2.04.03. To submit to the Lessor such Plans Drawings and Specifications as
may reasonably be required in the consideration of any proposed
alterations or additions and in respect of any alterations or
additions for which the Lessor's consent in writing has been granted
and to restore if so requested by the Lessor the demised premises to
their former state at the end or sooner determination of the term
hereby granted.
2.04.04 Not to erect any temporary partitions without the prior consent in
writing of the Lessor (which Consent shall not be unreasonably
withheld. It will be reasonable to withhold Consent if said
alteration would detract from the value of the Demised Premises)
PROVIDED HOWEVER that where such written consent shall be
forthcoming the Lessee shall comply with all statutory requirements
or requirements of any local or Statutory or Public or other
Authority and in particular the requirements of the Local
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Fire Authority.
2.04.05 Not without the consent in writing of the Lessor to carry out or
suffer to be carried out in over or under the demised premises any
development as defined by the Planning Legislation (which Consent
shall not be unreasonably withheld. It will be reasonable to
withhold Consent if said alteration would detract from the value of
the Demised Premises) nor to do or omit or suffer to be done or
omitted anything on or in connection with the demised premises the
doing or omission of which would be a contravention of the Planning
Legislation or of any notices, orders, licences, consents, or
permissions served made granted or imposed thereunder or under any
enactment repealed thereby and to indemnify the Lessor (as well
after the expiration of the said term of affluxion of time or
otherwise as during its continuance) and keep indemnified the Lessor
against all actions, proceedings, damages, penalties, costs,
charges, claims and demands in respect of such acts and omissions or
any of them and against the costs of any application for Planning
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Permission and the works and things done in pursuance thereof.
2.04.06. No Clause.
2.04.07 In the event of the Lessor giving written consent to any of the
matters in respect of which the provisions of this Lease or
otherwise and in the event of permission from any Planning Authority
under the Planning Legislation being necessary for any addition
alteration or change in or to the Demised Premises or for the change
of user thereof to apply at the cost of the Lessee to the Local and
Planning Authorities for all consents and permissions which may be
required in connection therewith and to give notice to the Lessor of
the granting or refusal (as the case may be) of all such consents
and permissions forthwith on the receipt thereof.
2.05. COVENANT TO NOTIFY LESSOR OF ALL NOTICES
2.05.01 Within seven days of the receipt of any notice, order or proposal
for a notice or order served on the Lessee or made, given or
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issued to the Lessee by any Government Department or Local or public
Authority by virtue of any statutory power to produce such
permission, notice or order or proposal for a Notice or Order to the
Lessor and also without delay to take all necessary Steps to comply
with any such notice or order and also at the request of the Lessor
but at the cost of the Lessee to make or join with the Lessor in
making objections or making representations against or in respect of
any such notice, order or proposal as aforesaid as the Lessor shall
deem expedient.
2.06. REMOVE ANY BREACH OF COVENANT
2.06.01. On the request in writing of the Lessor or its agents forthwith to
pull down and remove any building erection alterations or addition
erected placed or made in breach of any of the foregoing covenants
and if any portion of the demised premises has been altered pulled
down or removed in breach of any of the foregoing covenants upon
such request in writing as herein provided forthwith to amend
restore replace or rebuild the demised premises according to
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the original plans and elevations thereof.
2.07 COVENANTS NOT TO CREATE NUISANCES
2.07.01 No to do or suffer or bring in or upon the demised premises any
thing which shall be noisy or cause vibration or which shall be
either dangerous or a nuisance to the Lessor or to adjoining owners
or occupiers or to any other party or the neighbourhood.
2.07.02 Not to do or suffer to be done upon or in connection with the
demised premises or any part thereof anything which may be or become
a danger annoyance nuisance inconvenience or disturbance to the
Lessor.
2.07.03. To pay all costs, charges and expenses which may be incurred by the
Lessor in abating any danger, annoyance, nuisance, inconvenience or
disturbance in respect of the demised premises.
2.08. COVENANT NOT TO OVERLOAD THE DEMISED PREMISES
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2.08.01. Not to do or suffer or bring in or upon the demised premises any
thing which in the opinion of the Lessor shall be liable to damage
the structure of the demised premises or any adjoining premises or
cause any weight or strain in excess of that which the demised
premises are capable of bearing with due margin for safety and in
particular not to overload the floor area or the electrical
installations or the other services of in or to the demised premises
nor to suspend any excessive weight from the ceilings or walls
stanchions or the structure thereof.
2.08.02. The Lessee shall pay to the Lessor on demand all costs reasonably
incurred by the Lessor in obtaining the opinion of a qualified
structural engineer as to whether the structure of the demised
premises is being or is about to be overloaded such costs only to be
the liability of the Lessee in the event of overloading or likely
future overloading.
2.9. COVENANT TO GIVE NOTICE TO THE LESSOR OF ANY CLAIM AFFECTING THE
PREMISES
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2.9.01. To give immediate notice to the Lessor of any claim affecting the
demised premises or any part thereof.
2.10. COVENANTS IN RESPECT OF ASSIGNMENTS
2.10.01. Not without the consent of the Lessor (and subject as hereinafter
provided) to assign transfer or underlet or part with or share the
possession or occupation of the demised premises or any part thereof
or suffer any person to occupy the demised premises or any part
thereof as a Licensee or as concessionaire BUT THAT NOTWITHSTANDING
the foregoing the Lessor shall not unreasonably withhold its consent
to an Assignment transfer or underletting of the entire of the
demised premises PROVIDED ALWAYS that the Lessor shall be deemed to
be acting reasonably should it refuse to consent to the assignment
transfer or underletting of the demised premises to an Assignee or
undertenant which shall not have given the Lessor satisfactory proof
that it can meet the obligations to pay the rent and perform the
covenants and obligations provided in this Lease or pay the rent
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<PAGE> 25
reserved by the underlease or perform the covenants and obligations
provided in the underlease as the case may be.
2.10.02. In the following sub-sub-clauses of this sub-clause 2.10.02 the word
"assignment" shall include any transfer underletting parting with
possession or occupation of the demised premises and the word
"assignee" shall be construed accordingly.
2.10.03. The Lessee shall prior to any such assignment apply to the Lessor
and give all reasonable information concerning the proposed assignee
as the Lessor may require.
2.10.04. The Lessor's consent to any such assignment shall be given in
writing.
2.10.05. In the case of an under-lease (save by way of Mortgage) the same
shall be of the entire of the demised premises and the under-lessee
if required by the Lessor shall enter into a direct covenant with
the Lessor to perform and observe all the covenants (other than that
for payment of the rent hereby reserved) and conditions herein
contained
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<PAGE> 26
and every such under-lease shall also be subject to the following
conditions, that is to say that it shall contain:-
(a) an unqualified covenant on the part of the under-Lessee not to
assign transfer under-let or part with or share the possession or
occupation of part only of the premises thereby demised;
(b) a covenant on the part of the under-lessee not to assign transfer
under-let or part with or share the possession or occupation of the
whole of the premises thereby demised without obtaining the previous
consent in writing of the Lessor;
(c) a covenant condition or proviso under which the rent reserved by the
under-lease shall be reviewed at the same times and in the same
manner as provided in this Lease;
(d) a covenant condition or proviso under which the rent from time to
time payable under such under-lease shall not be less than the rent
from time to time payable hereunder;
(e) a covenant that any under-Leases granted out of such under-Lease
whether immediately or mediately shall contain provisions similar to
those hereinbefore in this paragraph
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<PAGE> 27
2.10.05 contained;
(f) covenants and conditions in the same terms as nearly as
circumstances admit as those contained in this Lease, which the
Lessee covenants to enforce at its own expense;
(g) A covenant not to vary the terms of any permitted Under-Lease
without the prior consent of the Lessor or accept any surrender
without the consent of the Lessor such consent not to be
unreasonably withheld.
2.10.06. The Lessee shall be entitled, but not without the consent of the
Lessor, to sublet part only of the premises provided that any such
sub-letting shall comprise an entire floor of the premises and shall
be for a period not greater than two years and nine months and under
no circumstances shall any sub-lessee or other party other than the
Lessee herein acquire any right to remain in the premises pursuant
to the Landlord & Tenant Acts and further that the provision as
contained in Clause 2.10 shall apply to any such sub-letting.
2.11. COVENANT NOT TO DISCHARGE DELETERIOUS MATTER
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2.11.01. Not to stop up obstruct or injure or suffer to be stopped up
obstructed or injured or to suffer oil grease or other noxious or
deleterious matters or substances to enter the drains sewers gutters
pipes channels and watercourses serving the demised premises and in
the event of the same becoming stopped up obstructed or injured to
make good as soon as practicable all such damage and any damage
thereby caused to the demised premises to the satisfaction of the
Lessor.
2.11.02 Not to discharge or allow to be discharged or passed any noxious
gases vapours or deleterious matters from the demised premises or
any solid matter from the demised premises into the drains or sewers
as aforesaid nor to discharge or allow to be discharged therein any
fluid of a poisonous or noxious nature or of a kind calculated to or
that does in fact destroy sicken or injure the fish or contaminate
or pollute the water or any stream or river and not to do or omit or
allow or suffer to be done or omitted any act or thing whereby the
waters of any stream or river may be polluted or the composition
thereof so changed as to
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render the Lessor liable to any action or proceedings by any person
whomsoever.
2.12. COVENANT NOT To ADVERTISE
2.12.01. Not without the consent in writing of the Lessor to affix or display
or suffer to be affixed or displayed to or upon any part of the
demised premises any sign hoarding poster placard or advertisement
whatsoever which shall be visible from the outside of the demised
premises except such as in the opinion of the Lessor shall be
reasonably necessary in connection with the trade or business
lawfully carried on upon the demised premises and as shall be
approved in writing by the Lessor PROVIDED HOWEVER that nothing
herein contained shall amount to a consent to the affixing to or the
display or retention on the demised premises of any sign hoarding
poster placard or advertisement without such permission approval or
consent as may be requisite pursuant to Planning Legislation.
2.13. COVENANT TO PERMIT LESSOR AFFIX NOTICES FOR THE RE-LETTING OR SALE
OF THE PREMISES
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2.13.01. To permit the Lessor during the six months immediately preceding the
expiration or sooner determination of the term hereby granted to
affix and retain without interference upon any part of the demised
premises notices for the re-letting or sale of the same.
2.13.02 At all convenient hours in the daytime on seventy-two hours notice
being given to permit all prospective purchasers or dealers in the
reversionary interests of the Lessor by order in writing of the
Lessor or his agents to view the demised premises without
interruption but so that no undue interference is caused to the
business of the Lessee.
2.14. COVENANTS AS TO USER
2.14.01. Not without the consent in writing of the Lessor to use or permit or
suffer the demised premises or any part thereof to be used for any
purpose other than offices, showrooms and car parking subject to the
conditions set out at paragraph 2.14.02 (c) and not without the
Lessor's consent in
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writing to use or permit or suffer the same or any part thereof to
be used for any other purpose. IT IS HEREBY AGREED that it would be
reasonable for the Lessor to refuse to grant such consent to a
change of user of the premises on the grounds that such change of
user sought would substantially increase the rate of insurance in
respect of the demised or neighbouring or adjoining premises owned
by the Lessor.
2.14.02. Without prejudice to the generality of the foregoing provisions;
(a) not to use or suffer the demised premises or any part thereof to be
used as a residence or permit any person to sleep on the demised
premises nor to use or suffer the demised premises or any part
thereof to be used for public charitable or institutional purposes
nor in a manner not consistent with the requirements for the time
being of Planning Legislation;
(b) not to keep or allow to remain in or upon the demised premises any
animal save such as may be necessary for the protection of the
demised premises and not to use the demised
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premises for any illegal purpose or to hold or permit any auction
(including any auction of motor vehicles of any description) on the
demised premises.
(c) not without the consent in writing of the Lessor to keep or suffer
to be kept on the demised premises any material of a dangerous
combustible explosive or offensive nature (including petrol) or the
keeping of which may in law constitute a nuisance or require a
licence of some Local Public or other Authority.
2.14.03. So long as and as often as the demised premises or any part thereof
shall be used for the purposes of offices to comply with all the
requirements of the Factories Acts and Office Premises Act and of
any Act or Acts amending extending or replacing same and of any
Rules or Regulations made or to be made thereunder and with any
other obligations imposed by law in regard to the demised premises
and the carrying on of the trade or business for the time being
carried on upon the demised premises and to indemnify the Lessor
against all liability in respect of any contravention of such
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requirements.
2.15. COVENANT TO PREVENT ENCROACHMENTS AND NEW EASEMENTS
2.15.01 Not knowingly to permit or suffer encroachment upon the demised
premises or the acquisition of any new right to light passage
drainage or other easement on or over under the demised premises and
if any encroachment or easement shall be made or acquired or
threatened to be acquired forthwith to give notice to the Lessor and
at the costs of the Lessee to do all such things as may be proper or
necessary for the purpose of preventing the making of such
encroachment or the acquisition of such easement or right PROVIDED
ALWAYS that if the Lessee shall omit or neglect to do all such
things as aforesaid it shall be lawful for the Lessor to enter upon
the demised premises for the purpose of protecting the same.
2.16 COVENANT TO PAY V.A.T. STAMP DUTY AND REGISTRATION FEES
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2.16.01 To pay all Value Added Tax on the granting of this Lease and to pay
the Stamp Duty on this Lease and Counterpart and the costs of
registration hereof and to pay any Value Added Tax or other
substituted similar tax due on any rents payable hereunder and to
keep the Lessor indemnified against same.
2.17. COVENANT TO INDEMNIFY LESSOR
2.17.01 To indemnify and keep indemnified the Lessor against all and any
expenses costs claims demands damages and other liabilities
whatsoever in respect of the injury or death of any person or damage
to any property however arising directly or indirectly out of:-
(a) the state of repair or condition of the demised premises;
(b) the existence of any alteration thereto or to the state of repair of
condition of such alteration;
(c) the user of the demised premises;
(d) any work carried out or in the course of being carried out to the
demised premises by the Lessee its servants agents sub-lessees or
sub-tenants;
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(e) anything now or hereafter attached to or projecting therefrom or any
other cause arising out of the demised premises.
2.18. NOT TO STORE DANGEROUS SUBSTANCES
2.18.01 Not to have store or keep upon the demised premises or any part
thereof any substance of an explosive or of an especially
inflammable or dangerous nature or such as might increase the risk
of fire or explosion or which might attack or in any way injure by
percolation corrosion or otherwise the demised premises or the
keeping or use whereof may contravene any statute or local
regulation or bye-law and not to house or operate or permit to be
housed or operated in or upon the demised premises or any part
thereof any engine or machinery of any kind other than the usual
machines relating to the Lessee's business and which are not likely
to cause any undue vibration or be or become a nuisance annoyance or
disturbance to any other tenants or occupiers in any adjoining or
neighbouring premises.
2.19. LESSOR'S ACCESS
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2.19.01. To permit the Lessor (on giving the Lessee reasonable notice) at all
reasonable times to enter the demised premises for the purpose of
viewing the state of repair and condition thereof and to take
Inventories of the Lessor's fixtures therein and to ensure that
nothing has been done that constitutes a breach of any of the
covenants herein contained.
2.19.02. To permit the Lessor to remedy, repair and make good all breaches
defects and wants of reparation for which the Lessee is liable
hereunder of which written notice shall be given by the Lessor to
the Lessee and of which the Lessee shall be liable to remedy repair
or make good under the covenants herein contained within one
calendar month after the giving of such notice.
2.19.03. Should the Lessee at any time make default in the performance of any
of the covenants herein contained for or in relation to the repair
maintenance or decoration of the demised premises it shall be lawful
for the Lessor or the Lessors agents and workmen but without
prejudice to the right of re-entry
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herein provided to enter upon the demised premises and to remedy
repair make good cleanse maintain and amend the same accordingly.
2.19.04. All expenses incurred thereby (including surveyors and other
professional fees) shall be a debt due and be repaid by the Lessee
to the Lessor on demand and if not so paid shall be recoverable by
the Lessor as liquidated damages.
2.19.05. To permit the Lessor or the Lessors agents and workmen and (if
authorised by the Lessor) the Tenants occupiers of any adjoining or
neighbouring premises or their respective agents and workmen at any
time or times on giving reasonable written notice to the Lessee
(except in cases of emergency) to enter upon the demised premises
for executing repairs or alterations in respect of adjoining or
neighbouring premises or for making repairing maintaining renewing
connecting or cleansing any pipes, drains, channels, watercourses,
sewers, wires or cables belonging to or leading to or from the same
(the Lessor or person so entering
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making good to the Lessee all damage thereby occasioned but without
compensation for any annoyance or inconvenience caused to the
Lessee).
2.19.06. The carrying out by the Lesser of any repairs pursuant to the
provisions of these Clauses shall not imply or be seemed to imply or
impute any liability on the Lessor to carry out any repairs of any
kind to the premises or to reduce or mitigate in any way whatever
the liability of the Lessee for carrying out all repairs to the
premises and which shall at all times remain the liability of the
Lessee.
2.20 INDEMNIFY LESSOR
2.20.01 Fully and effectually to indemify the Lessor against the breach
non-performance or non-observance by the Lessee of any of the
covenants and conditions on the part of the Lessee herein contained
and against any actions costs claims expenses and demands whatsoever
or howsoever arising in respect of or as a consequence (whether
direct or indirect) of any such breach non-performance
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or non-observance.
2.21. COVENANT TO YIELD UP
2.21.01. To yield up the demised premises unto the Lessor at the expiration
or sooner determination of the term hereby created together with all
the keys thereof and all fixtures of every kind in or upon the
demised premises or which during the term may be affixed or fastened
to or upon the same except Lessee's (or lawful under-Lessee's)
fixtures (including partitions and doors erected by the Lessee with
the written consent of the Lessor) having previously been removed
and all damage occasioned by such removal having been made good
except in the event of sale of such items to an incoming tenant.
3.00 LESSOR'S COVENANTS
3.01. The Lessor hereby covenants with the Lessee in the manner following:
3.01.01. That the Lessee paying the rents hereby reserved and performing and
observing the
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covenants and agreements on its part herein contained shall and may
peaceably hold and enjoy the demised premises during the said term
without any interruption by the Lessor or any person or persons
lawfully claiming under or through or in trust for the Lessor in
that behalf.
4.00. INSURANCE
4.01. Subject to the Lessor being able to effect insurance against any one
or more of the items referred to in this Sub-Clause and subject to
reimbursement by the Lessee of the sums referred to in paragraph 3.3
(ii) of the reddendum, the Lessor covenants to insure the following
in the name of the Lessor:-
4.01.01 The premises against loss or damage by the Insured Risks in the full
reinstatement cost thereof (to be determined from time to time by
the Lessor or the Lessor's Surveyor) including:
4.01.01.1 Architects, Surveyors, Consultants and other Professional fees
(including Value Added Tax
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thereon);
4.01.01.2 The costs of shoring up, demolishing, site clearing and similar
expenses;
4.01.01.3 All stamp duty and other taxes and duties exigible on any building
or like contract as may be entered into and all other incidental
expenses relative to the reconstruction, reinstatement or repair of
the Premises;
4.01.01.4 A provision for inflation as the Lessor in its absolute discretion
shall deem appropriate.
4.01.02. The loss of rent, from time to time payable, or reasonably estimated
to be payable under this Lease (taking account of any review of the
rent which may become due under this Lease) following loss or damage
to the Premises by the Insured Risks, for three (3) years or such
longer period as the Lessor may, from time to time, reasonably deem
to be necessary, having regard to the likely period required for
obtaining planning permission and bye-law approval (if applicable)
and any other consents and
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approval for reinstating the Premises.
4.01.03. Property owners and other liability of the Lessor arising out of or
in relation to the Premises; and
4.01.04. Such other insurances as the Lessor may, in its discretion from time
to time, deem necessary to effect.
4.01.05 The Lessor agrees that it shall effect such insurances as are
provided for in this Clause with an Insurance Company of repute and
at a rate similar to other rates pertaining in the City of Dublin
from time to time in respect of the insured risks as set out above.
5.00. LANDLORD TO PRODUCE EVIDENCE OF INSURANCE
5.01. At the request of the Lessee, the Lessor shall and hereby covenants
with the Lessee to produce to the Lessee a copy or extract duly
certified by the Lessor of the policy or policies of such insurance
and a copy of the receipt or receipts for the last premium or (as
the Lessor's option) reasonable
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evidence from the insurers of the terms of the insurance policy or
policies and the fact that the policy or policies is or are
subsisting and in effect.
6.00. NON-PAYMENT OF RENT
6.01.01 PROVIDED ALWAYS and it is hereby agreed that if the rent or
additional rent herby reserved or any part thereof shall at any time
be in arrears and unpaid for twenty one days after it becomes due
(whether legally demanded or not) or if the Lessee shall go into
liquidation (not being a voluntary liquidation for the purpose only
of reconstruction) or receivership or if the Lessee being an
individual or firm shall become bankrupt or make any arrangement or
composition with his or its Creditors or if any covenant condition
or agreement on the part of the Lessee herein contained shall not be
performed or observed then and in any such case it shall be lawful
for the Lessor or any person or persons duly authorised in that
behalf to enter into or upon the demised premises or any part
thereof in the name of the whole to hold and enjoy
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henceforth as if these presents had not been made.
6.01.02 Without prejudice to any right of action or remedy of the Lessor in
respect of any antecedent breach by the Lessee of any of the
stipulations herein contained and on the happening of any of the
said events it shall also be lawful for the Lessor to determine this
demise by serving on the Lessee a Notice to Quit and deliver up
possession of the demised premises within fourteen days of the
service of the said Notice to Quit the said Notice expiring on any
day not necessarily a gale day and any day of the week and upon the
expiration of such Notice the tenancy hereby created shall be deemed
to have been duly determined by such Notice to Quit and the Lessor
shall thereupon be entitled to possession of the demised premises as
of its former estate and as if the tenancy hereby created had never
existed such Notice to Quit must be served by the Lessor on the
Lessee by Registered Post addressed to the Lessee at the Demised
Premises.
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7.00. SUSPENSION OF RENT
If during the Term the Premises shall be destroyed or damaged by any
of the Insured Risks so as to be unfit for occupation or use and the
policy or policies of insurance effected by the Lessor shall not
have been vitiated or payment of the policy monies withheld or
refused in whole or in part in consequence of any act neglect or
default of the Lessee its servants agents or licensees the rent or a
fair proportion thereof according to the nature and extent of the
damage sustained shall be suspended until the Premises shall have
again been rendered fit for occupation or use by the Lessee or until
the expiration of three years from the date of the destruction or
damage whichever is the shorter and any dispute concerning the
provisions of this Clause shall be determined by a single arbitrator
in accordance with the provisions of the Arbitration Acts 1954 and
1980 or any statutory enactment in that behalf for the time being in
force.
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8.00 REBUILD
8.01. If the Premises or any part thereof are destroyed or damaged by any
of the Insured Risks then:-
8.01.1. Unless payment of the insurance monies shall be refused in whole or
in part by reason of any act, neglect, default of the Lessee or the
servants, agents, licensees or invitees of the Lessee or any under-
Lessee or any person under its or their control; and
8.01.2. Subject to the Lessor being able to obtain any necessary planning
permission and bye-law approval and all other necessary licences,
approvals and consents (in respect of which the Lessor shall use its
reasonable endeavours to obtain); and
8.01.3. Subject to the necessary labour and materials being and remaining
available (in respect of which the Lessor shall use its reasonable
endeavours to obtain as soon as practicable), the Lessor shall lay
out the proceeds of such insurance, (other than any
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in respect of the loss of rent) in the rebuilding and re-instating
of the Premises or the part or parts thereof so destroyed or
damaged, substantially as the same were prior to any such
destruction or damage (but not so as to provide accommodation
identical in layout and manner or method of construction if it would
not be reasonably practical to do so).
9.00. RE-INSTATEMENT PREVENTED
9.01. If the Lessor is prevented by circumstances outside its control from
rebuilding or reinstating the Premises, the Lessor shall be relieved
from such obligation and shall be solely entitled to all the
insurance moneys and if such rebuilding and reinstating shall
continue to be so prevented for three (3) years after the date of
the destrucction or damage and this Lease has not been terminated by
frustration, the Lessor may at any time after the expiry of such
three (3) years by written notice given to the Lessee determine this
Lease and the Lessor shall be solely entitled to all the insurance
monies (if not already in the possession of the Lessor) but without
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<PAGE> 48
prejudice to any claim by either party against the other in respect
of any antecedent breach of covenant.
10.00 NOTICES
10.01 Any Notice to be given hereunder or pursuant to the provisions
contained in any Schedule hereto shall be sufficiently served if
delivered or sent by Registered prepaid post to the Lessor at its
Registered Office for the time being or the Lessee at its registered
office for the time being or at the demised premises or in case the
Lessee shall be an individual at the premises or at his last known
address and such Notice shall be deemed to have been given when
delivered at the time of delivery or when posted at the expiration
of forty eight hours after the envelope containing same and properly
addressed was put in the post PROVIDED ALWAYS in the event of postal
services being suspended or curtailed within the State the Lessor
shall be entitled to serve such notice by advertisement in a daily
newspaper in Dublin in which case the notice shall be deemed to have
been served one week after
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the insertion of such advertisement.
10.02. In the event of the Lessor or the Lessee being a Company and not
having a Registered Office in the State it shall be lawful to serve
any Notice on the Registrar of Companies for the time being.
11.00. DEFINITIONS AND MEANINGS
11.01. In these presents and in the Schedules thereto where the context so
admits words importing the neuter gender only shall include the
masculine or feminine gender as appropriate and words the masculine
gender only shall include the feminine gender and words importing
the singular number only shall include the plural number and vice
versa and where the Lessee shall from time to time be or consist of
two or more persons the covenant herein expressed to be made by the
Lessee shall be deemed to be made by such persons jointly and
severally.
12.00 CONSENTS
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12.01. Any provisions requiring the consent of the Lessor shall be deemed
to require also the consent of any Mortgagees of the Lessor's
interest where necessary and any indemnity to be given to the Lessor
shall be deemed to include any Mortgagees of the Lessor's interest
where necessary and any such consent may be given by an Agent duly
authorised.
13.00 INTEREST
13.01. It is hereby agreed by and between the parties hereto and without
prejudice to any other rights or remedies of the Lessor on foot of
these presents that all sums payable by the Lessee to the Lessor
hereunder whether in respect of rent or otherwise shall bear
interest from the date on which they shall fall due at whichever is
the greater of the following rates:-
(i) eighteen per cent per annum or
(ii) three per cent over the then current "A.A." overdraft rate
charged by the Associated Banks AND all such interest shall be
recoverable as if the same
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were rent PROVIDED ALWAYS that no such interest shall be
eligible in respect of payments made within seven days after
the same shall have become due.
14.00 ADDRESS OF LESSEE
14.01. The Registered address in the state of the Lessee for service of
Notices and its description are:
FIRST SCHEDULE
"The Demised Premises"
ALL THAT AND THOSE the premises now known as Premier Group House situate at the
junction of Ringsend Road and South Dock Road, Dublin more particularly edged
red on the map annexed hereto comprising an office building and car parking
spaces.
SECOND SCHEDULE
1. Unto the Lessor its Lessees Licensees and all other persons authorised by
the Lessor the owners
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and occupiers for the time being of adjoining or adjacent lands and
premises the free passage and running of water soil gas electricity and
other services or supply through the drains sewers water gas electricity
mains pipes cables wires watercourses conduits and subways which are now
or may hereafter be laid down placed in over or under the demised premises
to and from any adjoining or adjacent land and premises or any part
thereof with power for such persons or any of them and the workmen of any
of them:-
(a) To enter on the demised premises and construct therein thereunder drains
sewers water gas and water gas and electric mains pipes and cables from
any other part of the said adjoining or adjacent lands and premises and to
connect the said drains sewers water gas and electric mains pipes and
cables doing as little damage as possible to the demised premises and not
interfering with any buildings erected or to be erected thereon and making
good their surface with all reasonable despatch at the cost and expense of
the person or corporation who shall have caused such works to be carried
out; and
(b) To enter on the demised premises for the purpose of cleansing repairing
and renewing the said
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drains sewers water gas and electric mains pipes and cables doing as
little damage as possible to the lands comprised in the demised premises
and making good the surface with all reasonable despatch at the cost and
expense of the person or corporation who shall have caused such works to
be carried out.
THIRD SCHEDULE
(Rent Review)
1. Definitions
In this Schedule, the following expressions shall have the following
meanings:-
1.1. "Review Date" means the 20th November 1997, 20th November 2002, 20th
November 2007, 20th November 2012, 20th November 2017 and 20th November
2022 and "Relevant Review Dates" shall be construed accordingly;
1.2. "Open Market Rent" means the full open market yearly rent at which the
Premises might reasonably be expected to be let in the open market with
vacant possession at the Relevant
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Review Date by a willing Lessor to a willing Lessee and without any
premium or any other consideration for the grant thereof for a term
commencing on the Relevant Review Date and equal in duration to the full
term granted by this Lease and otherwise on the same terms and conditions
and subject to the same covenants and provisions contained in this Lease
(other than the amount of the rent payable hereunder but including these
provisions for the review of rent) and having regard to other open market
rental values current at the Review Date in so far as the Surveyor may
deem same to be pertinent to the matters under consideration by him and
making the Assumptions but disregarding the Disregarded Matters;
1.3. "The Assumptions" mean the following assumptions (if not facts) at the
relevant Review Date:-
(a) that the premises are fitted out with the Lessor's fixtures and
fittings specified in the Fourth Schedule hereto (if any) and are
equipped and ready for immediate use and may be lawfully used as
offices with car parking;
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or its predecessors in title) carried out after the date of this
Lease with all necessary consents (where required) having first been
obtained by the Lessee or any permitted under-Lessee;
1.5. "the Surveyor" means an independent chartered surveyor of not less than
five (5) years standing, who is experienced in the valuation and leasing
of property similar to the Premises and is acquainted with the market in
the area in which the Premises are located, appointed from time to time to
determine the Open Market Rent pursuant to the provisions of this
Schedule;
1.6. "the Chairman" means the Chairman for the time being of the Society of
Chartered Surveyors in the Republic of Ireland and includes the duly
appointed deputy of the Chairman or any person authorised by the Chairman
to make appointments on his behalf;
1.7. "Rent Restrictions" means the restrictions imposed by any statute for the
control of rent in force on a Review Date or on the date on which any
increased rent is ascertained in accordance with this Schedule and which
operate to impose
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any limitation, whether in time or amount, on the collection of an
increase in the rent first reserved by this Lease or any part thereof.
2. Upwards only rent review
The rent first reserved by this Lease shall be reviewed at each Review
Date in accordance with the provisions of this Schedule and, from and
including each Review Date, the rent shall equal the higher of either the
rent payable immediately before the Relevant Review Date or the Open
Market Rent on the Relevant Review Date, as agreed or determined pursuant
to the provisions of this Schedule.
3. Agreement or determination of the reviewed rent
The Landlord may seek at any time, not more than twelve (12) months before
any Review Date and any time thereafter, by notice in writing to the
Tenant, a review of the rent in accordance with the provisions of this
Schedule. If the Landlord and the Tenant cannot agree on the Open Market
Rent, either party may (whether before or after the Relevant Review Date)
by notice in writing to the other party require the Open Market Rent to be
determined by the Surveyor.
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4. Appointment of Surveyor
In default of agreement between the Landlord and the Tenant on the
appointment of the Surveyor, the Surveyor shall be appointed by the
Chairman on the written application of the Landlord, such application to
be made in the case of the Landlord, not earlier than nine (9) months
before and not later than twelve (12) months after the Relevant Review
Date and in the case of the Tenant not more than three (3) months before
the date of the Landlord's notice seeking review of the rent herein and
not later than twelve (12) months after the Relevant Review Date.
5. Functions of the Surveyor
The Surveyor shall:-
(a) Act as an Arbitrator in accordance with the Arbitration Acts 1954 to
1980.
(b) Invite the Landlord and the Tenant to submit to him, within such
time limits (not being less than fifteen (15) working days) as he
shall consider appropriate, a valuation accompanied, if desired, by
a statement of
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reasons and such representations as to the amount of the Open Market
Rent with such supporting evidence as they may respectively wish;
(c) Within sixty (60) days of his appointment, or within such extended
period as the Landlord and the Tenant shall jointly agree in
writing, give to each of them written notice of the amount of the
Open Market Rent as determined by him.
(d) In any event not make an award at less than the full annual rent
then payable by the Tenant immediately prior to the Review Date.
6. Fees of Surveyor
The fees and expenses of the Surveyor (if acting as an expert) including
the costs of his nomination shall be in the award of the Surveyor (but
this shall not preclude the Surveyor from notifying both parties of his
total fees and expenses notwithstanding the non-publication at that time
of his award) and, failing such award, the same shall be payable by the
Landlord and the Tenant in equal shares who shall each bear their
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own costs, fees and expenses. Without prejudice to the foregoing, both the
Landlord and the Tenant shall each be entitled to pay the entire fees and
expenses, due to the Surveyor and thereafter recover as a simple contract
debt the amount (if any) due from the party who failed or refused to pay
same.
7. Appointment of new Surveyor.
If the Surveyor fails to give notice of his determination within the time
aforesaid, or if he dies, or is unwilling to act, or becomes incapable of
acting, or if, for any other reason, he is unable to act, either party may
request the Chairman to discharge the Surveyor and appoint another
Surveyor in his place to act in the same capacity, which procedure may be
repeated as many times as necessary.
8. Interim payments pending determination
In the event that by the Relevant Review Date the amount of the reviewed
rent has not been agreed or determined as aforesaid (the date of agreement
or determination being herein called "the Determination Date") then, in
respect of the
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period (herein called "the Interim Period") beginning with the Relevant
Review Date and ending on the day before the Quarterly Gale Day following
the Determination Date, the Tenant shall pay to the Landlord rent at the
yearly rate payable immediately before the Relevant Review Date, and on
the Determination Date, the Tenant shall pay to the Landlord, on demand as
arrears of rent, the amount (if any) by which the reviewed rent exceeds
the rent actually paid during the Interim Period (apportioned on a daily
basis) together with interest thereon at the Base Rate from the Relevant
Review Date to the date of actual payment.
9. Rent Restrictions
On each and every occasion during the Term that Rent Restrictions shall be
in force, then and in each and every case:
(i) the operation of the provisions herein for review of the rent shall
be postponed to take effect on the first date or dates thereafter
upon which such operation may
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occur, and
(ii) the collection of any increase or increases in the rent shall be
postponed to take effect on the first date or dates thereafter that
such increase or increases may be collected and\or retained in whole
or in part and on as many occasions as shall be required to ensure
that collection of the whole increase,
AND until the Rent Restrictions shall be relaxed either partially or
wholly the rent reserved by this Lease (which if previously reviewed shall
be the rent payable under this Lease immediately prior to the imposition
of the Rent Restrictions) shall (subject always to any provision to the
contrary appearing in the Rent Restrictions) be the maximum rent from time
to time payable hereunder.
10. Memoranda of reviewed rent
As soon as the amount of any reviewed rent has been agreed or determined,
memoranda thereof shall be prepared by the Landlord or its Solicitors and
thereupon shall be signed by or on behalf of the Landlord and the Tenant
shall be responsible for and shall pay to the Landlord the
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stamp duty (if any) payable on such memoranda and any counterparts thereof
but the parties shall each bear their own costs in respect thereof.
11. Time not of the essence
For the purpose of this Schedule, time shall not be of the essence.
FOURTH SCHEDULE
(Landlords Fixtures & Fittings)
Reception Area - 1 Reception Desk complete with drawers.
Teak Stairs with Brass Handrail.
Landing - 2 Landing Railings with Brass Handrail.
GROUND FLOOR - Small Reception Area \ Demonstration \ Meeting Room \
Office. Carpets fitted throughout.
Managers Office - Carpet Tiles.
Computer Service
Department - Lino. Total 9 Doors in the Ground Floor Area. Partitions
and False Ceilings throughout.
Sales Directors
Office - Carpet.
Demonstration
Room\Showroom - Carpet.
Corridors and
Landings - Carpet throughout.
Sales Manager - Carpet Tiles.
General Sales Office - Carpet Tiles.
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General Sales - Carpet Tiles.
Company Secretary
Office - Carpet Tiles.
MEZZANINE FLOOR - Total 22 Doors. Partitions and False Ceilings throughout
Ladies Toilets - 4 Cubicles, 4 Basins, 4 Pans, Tiled throughout.
Gents Toilets - 4 Cubicles, 4 Basins, 4 Pans, Tiled throughout.
Canateen Area - Wall Units, 1 Mini Kitchen Unit (Fridge, Sink and 2 Ring
Cooker).
Backstairs - Carpeted throughout.
1ST FLOOR
Ladies Toilets - 4 Cubicles, 4 Basins, 4 Pans, Tiled throughout.
Gents Toilets - 4 Cubicles, 4 Basins, 4 Pans, Tiled throughout.
Canteen Area - Wall Units, 1 Mini Kitchen Unit (Fridge, Sink and 2 Ring
Cooker).
2 General
Offices - Carpet tiles.
Implementation
Room - Carpet Tiles.
Software - Carpet Tiles.
Software Manager
Office - Carpet Tiles.
Financial
Controller - Carpet Tiles.
M\D Office - Carpet.
Main Corridor
and Landing - Carpet. Total 19 Doors.
1 Fire Alarm throughout Building.
1 Alarm System througout Building.
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IN WITNESS whereof the Lessor has hereunto signed his name and affixed his seal
and the Lessee has hereunto affixed its Common Seal the day and year first
herein written.
SIGNED SEALED AND DELIVERED /s/ Joseph Cosgrave
by the said JOSEPH COSGRAVE, /s/ Peter Cosgrave
PETER COSGRAVE AND MICHAEL /s/ Michael Cosgrave
COSGRAVE in the presence of:
/s/ [ILLEGIBLE]
/s/ [ILLEGIBLE]
/s/ [ILLEGIBLE]
PRESENT when the Common Seal
of PREMIER GROUP LIMITED
was affixed hereto:-
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
/s/ [ILLEGIBLE]
/s/ [ILLEGIBLE]
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[MAP OMITTED]
<PAGE> 66
DATED THIS DAY OF 1992
-------------------------------
JOSEPH COSGRAVE, PETER COSGRAVE
AND MICHAEL COSGRAVE
1st Part:
PREMIER GROUP LIMITED
2nd Part:
LEASE
-----------------------
[ILLEGIBLE]
-----------------------
SHEEHAN & CO.,
Solicitors,
1, Clare Street,
Dublin 1.
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<PAGE> 1
Exhibit 10.8
DATED 24th April 1998
TODDS OF LINCOLN LIMITED (1)
IBIS SYSTEMS LIMITED (2)
COUNTERPART LEASE
of premises at
Centenary House
Whisby Way
Lincoln
Nelsons
Pennine House
8 Stanford Street
Nottingham
Page 1 of 34
<PAGE> 2
THIS LEASE is made the 24th day of April 1998
BETWEEN:
1. "The Landlord" TODDS OF LINCOLN LIMITED whose registered office is at
Centenary House Whisby Way Lincoln
2. "The Tenant" IBIS SYSTEMS LIMITED whose registered office is situate at 2
Twyford Place Lincoln's Inn Cressex Business Park High Wycombe
Buckinghamshire
Operative provisions:
1. Interpretation
1.1 Definitions
In this Lease the following words and expressions shall where the context so
admits be deemed to have the following meanings;
1.1.1 "CONDUCTING MEDIA" means drains sewers conduits flues gutters gullies
channels ducts shafts watercourses pipes cables wires and mains or any of them
in existence at the date of this Lease or such substituted conducting media as
the Landlord may construct in replacement of the same;
1.1.2 "THE DEMISED PREMISES" means the property described in Schedule 1 and
refers to each and every part of the Demised Premises;
1.1.3 "INSURED RISKS has the meaning given to it in Schedule 4
1.1.4 "INTEREST" means interest at the rate of 4 per cent over the base rate of
Barclays Bank PLC for the time being and from time to time prevailing as well
after as before judgement or such other comparable rate as the Landlord may
reasonably designate if the base rate shall cease to be published;
1.1.5 "THE LANDLORD" includes all persons entitled to the reversion immediately
expectant upon he determination of this Lease;
1.1.6 "THIS LEASE" is a reference to this lease and includes any instruments
supplemental to it;
1.1.7 "OUTGOINGS" means all non-domestic and business rates water rates water
charges and all existing and future taxes charges assessments impositions and
outgoings whatsoever whether parliamentary municipal parochial or otherwise
which are now or may at any time in the future be payable charged or assessed on
property or the owner or occupier of property
Page 2 of 34
<PAGE> 3
1.1.8"THE SCHEDULE OF CONDITION" means the Schedule of Condition to be prepared
[ ] and to be agreed between the parties and signed by them
1.1.9 "THE TENANT" includes the Tenant's successors in title and assigns in whom
this Lease shall for the time being be vested;
1.1.10 "THE TERM" means the term of years granted by this Lease and any
statutory continuation or extension of the term of years;
1.1.11 "THE ENCUMBRANCES" means the restrictions stipulations covenants rights
reservations provisions and other matters contained imposed by or referred to in
the instruments brief particulars of which are set out in Schedule 3
1.2 Interpretation of restrictions on the tenant
1.2.1 In any case where the Tenant is placed under a restriction by reason of
the covenants and conditions contained in this Lease the restriction shall be
deemed to include the obligation on the Tenant not to permit or allow the
infringement of the restriction by any person claiming rights to use enjoy or
visit the Demised Premises through under or in trust for the Tenant and where
the Tenant is obliged not to commit an act in breach of covenant this shall be
deemed an obligation not to omit to do any act required for compliance with that
covenant
1.2.2 References to "liability" include where the context allows claims demands
proceedings losses costs and expenses
1.3 Clauses and clause headings
1.3.1 The clause and paragraph headings in this Lease are for ease of reference
only and shall not be taken into account in the construction or interpretation
of any covenant condition or proviso to which they refer
1.3.2 References in this Lease to a clause Schedule or paragraph are references
where the context so admits to a clause Schedule or paragraph of a Schedule in
this Lease and references in a Schedule to a paragraph are unless the context
otherwise requires references to a paragraph of that Schedule
1.4 Singular and plural meanings
Words in this Lease reporting the singular meaning shall where the context so
admits include the Plural meaning and vice versa
1.5 Statutes and statutory instruments
References in this Lease to any statutes or statutory instruments shall include
and refer to any statute or statutory instrument amending consolidating or
replacing them respectively from time to time and for the time being in force
and references
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<PAGE> 4
to a statute include statutory instruments and regulations made pursuant to them
1.6 Gender
Words in this Lease of the masculine gender shall include the feminine and
neuter genders and vice versa and words denoting natural persons shall include
corporations and firms and all such words shall be construed interchangeably in
that manner
1.7 Joint and several obligations
Where the party of the second part to this Lease is or shall be two or more
persons the expression "the Tenant" shall include the plural number and
obligations in this Lease expressed or implied to be made with the Tenant or by
the Tenant shall be made or by such persons jointly and severally
2. The demise
In consideration of the rent and the covenants reserved by and contained in this
Lease:
2.1 the Landlord at the request of the Surety DEMISES to the Tenant:
2.1.1 ALL the Demised Premises subject to the Encumbrances;
2.2 for the TERM of 15 years commencing on [1st April 1998] and determinable as
provided by this Lease; and
2.3 the Tenant PAYING during the Term;
2.3.1 the yearly rent of (pound)60,000.00 for the first two years of the term
thereafter increasing to a yearly rent of (pound)70,000 unless the Tenant shall
have procured that a surety satisfactory to the Landlord enters into a guarantee
containing the terms and provisions set out in Clause 6 of this Lease for the
obligations of the Tenant under this Lease (in which case the yearly rent shall
be (pound)60,0O0 from the date that such guarantee is entered into or the
reviewed rent as provided for in Schedule 5 such rents to be paid by equal
quarterly payments in advance on the usual quarter days in every year the first
or a proportionate part of such payments in respect of the period commencing 1st
April 1998 and ending on the quarter day next following to be made on the grant
of this Lease
2.3.2 as additional rent the monies payable by the Tenant under Schedule 4
2.3.3 as additional rent any Value Added Tax chargeable on the rent and
additional rent reserved in clauses 2.3.1 and 2.3.2
3. Tenant's covenants
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<PAGE> 5
THE TENANT COVENANTS with the Landlord as follows:
3.1 Rent
3.1.1 To pay the yearly rent reserved by this Lease free from any deductions
and rights of set-off at the times and in the manner required under clause
2.3.1. and by means of a standing order to the Tenant's bankers and the
additional rents reserved by this Lease at the times and in the manner specified
in relation to each of them
3.1.2 If the whole or any Part of the rents and other monies due under this
Lease on the part of the Tenant shall remain unpaid seven days after they shall
have become due including where rent has been properly suspended by the Landlord
for breach of covenant (in the case of the yearly rent whether formally demanded
or not) on the part of the Tenant then to pay Interest on such rents or part of
the rents and other monies as from the date they become due until they are paid
to or accepted by the Landlord
3.2 Outgoings
3.2.1 To pay and discharge all rates and other Outgoings in respect of the
Demised Premises other than taxes imposed on the Landlord in respect of income
arising from rents or from a disposal or dealing with the reversionary interest
in the Demised Premises
3.2.2 To reimburse the Landlord for loss of relief from non-domestic rate of an
occupied property which would have been available to the Landlord in respect of
vacancy of the Demised Premises after the termination of this Lease but for the
allowance of relief to the Tenant or any other person formerly in occupation of
the Demised Premises for vacancy commencing before the termination of this Lease
3.3 Party expenses and service charge
To pay to the Landlord within 7 days of demand a fair proportion of any costs
incurred in respect of facilities enjoyed in common by the Demised Premises and
the occupiers of any adjoining or neighbouring property
3.4 Repair
3.4.1 From time to time and at all times well and substantially to repair and
clean the Demised Premises and to keep the Demised Premises in good and
substantial repair and condition and where necessary to replace rebuild or renew
the same provided that the Tenant shall not be obliged to keep the Demised
Premises in any better repair that that evidenced by the Schedule of Condition
3.4.2 The obligations in clause 3.4.1 extend to all improvements and additions
to the Demised Premises and all landlord's fixtures and fittings and
appurtenances of whatever nature affixed or fastened to the Demised Premises
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<PAGE> 6
3.4.3 To notify the Landlord forthwith of any damage by the Insured Risks
3.5 Decorations
3.5.1 In the year 2003 and thereafter in every fifth year of the Term and in the
last three months of the Term howsoever determined to decorate the inside of the
Demised Premises with two coats of good quality paint or good quality polish and
with paper for those parts normally papered or other suitable and appropriate
materials of good quality in a workmanlike manner such decorations in the last
three months of the Term to be executed in such colours patterns and materials
as the Landlord may reasonably and properly require
3.5.2 In the year 2001 and thereafter in every third year of the Term and also
in the last three months of the Term howsoever determined to decorate the
exterior of the Demised Premises with three coats of good quality paint or good
quality polish or other appropriate and suitable material or treatment of good
quality in a proper and workmanlike manner
3.5.3 Not without the consent of the Landlord to alter cover up or change any
part of the architectural decorations or the external colour of the Demised
Premises
3.6 Landlord's right of inspection and right of repair
3.6.1 To permit the Landlord and its servants or agents at all reasonable times
upon reasonable written notice being given (save in case of emergency) to enter
into inspect and view the Demised Premises and examine their condition and also
to take a schedule of fixtures in the Demised Premises
3.6.2 If any breach of covenant defects disrepair removal of fixtures or
unauthorised alterations or additions shall be found upon inspection for which
the Tenant is liable then upon notice by the Landlord to the Tenant to execute
all repairs works replacements or removals required within three months or
sooner if necessary after the receipt of such notice to the reasonable,
satisfaction of the Landlord or its surveyor
3.6.3 In the case of default it shall be lawful for workmen or agents of the
Landlord to enter into the Demised Premises and execute such repairs works
replacements or removals
3.6 4 To pay to the Landlord on demand all expenses so incurred with Interest
from the date of demand until the date they are paid by the Tenant to the
Landlord such expenses and interest to be recoverable as if they were rent in
arrear
3.7 Yield up in repair at the end of the term
At the expiration or earlier determination of the Term or such later time as the
Landlord recovers possession of the Demised Premises from the Tenant;
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<PAGE> 7
3.7.1 quietly to yield up the Demised Premises together with all additions and
improvements to the Demised Premises and all fixtures which during the Term may
be fixed or fastened to or upon the Demised Premises other than Tenant's
fixtures removable by the Tenant decorated repaired cleaned and kept in
accordance with the Tenant's covenants contained in this Lease (except in
respect of damage by the Insured Risks as allowed in Schedule 4);
3.7.2 if so requested by the Landlord to remove from the Demised Premises all
the Tenant's belongings that is to say trade fixtures and fittings and all
notices notice boards and signs bearing the name of or otherwise relating to the
Tenant including in this context any person deriving title to the Demised
Premises under the Tenant or its business; and
3.7.3 to make good to the satisfaction of the Landlord all damage to the Demised
Premises resulting from the removal of the Tenant's belongings from the Demised
Premises
3.7.4 if the Tenant fails to leave the Demised Premises in such condition as
aforesaid then and in such case the Landlord may do or effect all such repairs
renovations and decorations for which the Tenant is liable hereunder and the
cost thereof shall be paid by the Tenant to the Landlord on demand and the
Tenant shall also pay to the Landlord mesne profits at the rate of the rent
payable hereunder immediately prior to the said expiration or determination
during the period reasonably required for carrying out such work and the amount
or such mesne profits shall be added to the cost of carrying out such work as
aforesaid
3.8 Landlord's right of entry for repairs etc.-
3.8.1 To permit the Landlord and the agents workmen and others employed by the
Landlord or by the other owners tenants or occupiers of any adjoining or
neighbouring property at reasonable times after giving to the Tenant written
notice except in an emergency to enter upon the Demised Premises;
3.8.1.1 to alter maintain or repair the adjoining premises or property of the
Landlord or person so entering; or
3.8.1.2 to construct add to alter maintain repair or fix anything serving such
property and running through or on the Demised Premises including the Conducting
Media; or
3.8.1.3 to comply with any obligation to any third party having legal rights
over the Estate; or
3.8.1.4 in exercise of a right or to comply with any obligation under this
Lease; or
3.8.1.5 in connection with the development of any adjoining or neighbouring land
or premises including the right to build on or onto or in prolongation of any
boundary wall of the Demised Premises;
Page 7 of 34
<PAGE> 8
without payment of compensation for any nuisance annoyance inconvenience or
damage caused to the Tenant subject to the Landlord or other person so entering
exercising such right in a reasonable manner and making good any damage caused
to the Demised Premises without unreasonable delay
3.9 Alterations
3.9.1 Not to make any alterations or additions to or affecting the structure or
exterior of the Demised Premises or the appearance of the Demised Premises as
seen from the exterior
3.9.2 Not without the consent of the Landlord to make any other alteration or
additions to the Demised Premises
3.9.3 At the expiration or earlier determination of the Term if and to the
extent required by the Landlord to reinstate the Demised Premises to the same
condition as they were in at the grant of this Lease such reinstatement to be
carried out under the supervision and to the reasonable satisfaction of the
Landlord or the Landlord's Surveyor
3.9.4 To procure that any alterations or additions to the Demised Premises
permitted by the Landlord under clause 3.9.2. shall be carried out only by a
contractor approved by the Landlord such approval not to be unreasonably
withheld
3.10 Alienation
3.10.1 Unless otherwise permitted under this Clause or otherwise agreed in
writing by the Landlord the Tenant shall not;
3.10.1.1 hold the Demised Premises expressly or impliedly on trust for
another person;
3.10.1.2 part with possession of the Demised Premises;
3.10.1.3 share possession of the Demised Premises with another person;
3.10.1.4 allow anyone other than the Tenant and its officers and
employees to occupy the Demised Premises (except that the
Tenant may share occupation of the Demised Premises in a
mariner which does not transfer or create a legal estate with
a company that is a member of the same group (as defined by
Section 42 of the Landlord & Tenant Act 1954);
(i) for so long as both the Tenant and that company remain
members of the same group; and
(ii) provided that within 21 days of such sharing the
Landlord receives notice of the Company sharing
occupation and the
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<PAGE> 9
address of its registered office and its written
acknowledgement that for so long as it occupies the
Demised Premises the Landlord has the same right to
distrain against the assets on the Demised Premises as
against the assets of the Tenant.
3.10.2 The Tenant shall not assign a part (as distinct from the whole) of the
Demised Premises
3.10.3 (Subject to the provisions of sub-paragraphs 3.10.3.1 and 3.10.3.2
below) the Tenant shall not assign the whole of the Demised Premises
without first obtaining the written licence of the Landlord which shall
not be unreasonably withheld or delayed PROVIDED THAT
3.10.3.1 The Landlord may withhold licence to an assignment if any of
the following circumstances (which are specified for the
purposes of Section 19 (lA) of the Landlord and Tenant Act
1927) shall apply either at the date when application for the
licence to assign is made or after that date but before such
licence is given and if after such licence has been given but
before completion of the assignment any such circumstances
apply the Landlord may revoke such licence:
(i) any sum due from the Tenant under this Lease remains
unpaid; or
(ii) in the reasonable opinion of the Landlord's surveyor
there are any material outstanding breaches of any
covenant relating to the state and condition of the
Demised Premises being either:-
(A) a Tenant covenant under this lease; or
(B) a personal covenant undertaken by the Tenant making
the application for the licence to assign.
(iii) the proposed assignee or any guarantor for the proposed
assignee has the benefit of state or diplomatic
immunity; or
(iv) the proposed assignee is a corporation registered in (or
otherwise resident in) a jurisdiction in which the order
of a Court obtained in England and Wales will not
necessarily be enforced without any consideration of the
merits of the case
(v) in the reasonable opinion of the Landlord the proposed
assignee is not of sufficient financial standing to
enable it to comply with the tenants covenants in the
Lease
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<PAGE> 10
(vi) in the reasonable opinion of the Landlord the value of
the Landlord's interest in the Property would be
diminished or otherwise adversely affected by the
Proposed Assignment on the assumption (whether or not a
fact) that the Landlord wished to sell it's interest the
day following completion of the Proposed Assignment of
this Lease to the Proposed Assignee
3.10.3.2 The Landlord may impose any or all of the following conditions
(which are specified for the purpose of Section 9(1A) of the
Landlord and Tenant Act 1927) on giving any licence for an
assignment by the Tenant of the whole premise:-
(i) upon or before the assignment and before giving
occupation to the proposed assignee the Tenant making
the application for the licence to assign shall covenant
by way of indemnity and guarantee with the Landlord in
the terms of an Authorised Guarantee Agreement with the
Landlord in a deed on the terms of Schedule 3 to this
Lease with such amendments thereto as the Landlord shall
require
(ii) if so required by the Landlord the proposed assignee
(being a company) shall upon or before any assignment
and before taking occupation obtain guarantors
reasonably acceptable to the Landlord who shall enter
into a deed of covenant in the terms set out in Clause 6
of this Lease or such other provisions as the Landlord
shall reasonably require and/or shall provide the
Landlord with a rent deposit on terms to be reasonably
determined by the Landlord
(iii) that all material breaches of the Tenant's covenants and
conditions in this Lease have been remedied
(iv) the payments to the Landlord of all rents and other sums
which have fallen due under the Lease prior to the date
of the assignment
3.10.3.3 The provisos contained in Clauses 3.10.3.1 and 3.10.3.2 shall
operate without prejudice to the right of the Landlord to
withhold such consent on any other ground or grounds where
such withholding of consent would be reasonable or to impose
any further condition or conditions upon the grant of consent
where the imposition of such condition or conditions would be
reasonable
3.10.4 The Tenant shall not charge a part (as distinct from the whole) of the
Demised Premises
3.10.5 Not to underlet the whole or part of the Demised Premises except in
accordance with the following provisions:-
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<PAGE> 11
3.10.5.1 Any consent of the Landlord to an underletting of the whole of the
Demised Premises will be subject to conditions that:
3.10.5.1.1 the undertenant enters into a deed with the Landlord in
which the undertenant covenants that during the period when
the undertenant is bound by the tenant covenants contained
in the underlease together with any additional period during
which the undertenant is bound by an authorised guarantee
agreement the undertenant will observe and perform the
provisions of this Lease (excluding the covenant as to the
payment of rent) and the provisions of the underlease
3.10.5.1.2 the underlease is granted without a fine or premium at a
rent no lower than the then open market rent approved by the
Landlord (such approval not to be unreasonably withheld)
3.10.5.1.3 the rent is payable in advance on the same days as rent is
payable under this Lease
3.10.5.1.4 the underlease contains provisions approved by the Landlord
(such approval not to be unreasonably withheld):
(a) for the upwards-only review of the rent on the basis set out
in Schedule 5 or in such other form as the Landlord
reasonably requires or approves
(b) for the rent to be reviewed either on the Review Dates or on
such other dates approved by the Landlord by which the rent
is reviewed no less frequently
3.10.5.2 Any consent of the Landlord to an underletting of the whole or part of
the Demised Premises will be subject to further conditions:-
(a) prohibiting the undertenant from doing or allowing any act or thing in
relation to the Property inconsistent with or in breach of the provisions of
this Lease
(b) for re-entry by the underlandlord on breach of any covenant by the
undertenant
(c) imposing an absolute prohibition against all dealings with the Property
other than an assignment or charge of the whole
(d) prohibiting any assignment of the whole of the Property without the consent
of the Landlord under this Lease and except on the basis set out in this clause
3.10 of this Lease such provisions being incorporated into the underlease
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<PAGE> 12
(e) prohibiting any charge of the whole of the Property without the
consent of the Landlord under this Lease
(f) prohibiting the undertenant from parting with possession or permitting
another to share or occupy or hold on trust for another the Property or
any part of it
(g) imposing in relation to any permitted assignment the same obligations
for registration with the Landlord as are in this Lease in relation to
dispositions by the Tenant
(h) excluding the provisions of the 1954 Act, sections 24-28 from the
letting created by the underlease
3.10.6 The Tenant covenants with the Landlord:
3.10.6.1 to enforce the performance by every undertenant of the provisions
of the underlease and not at any time to waive any breach of the
covenants or conditions on the part of any undertenant or
assignee of any underlease nor (without the consent of the
Landlord such consent not to be unreasonably withheld) to vary
the terms of any underlease
3.10.6.2 in the case of an underletting of whole not to agree any reviewed
rent with the undertenant without the approval of the Landlord
such approval not to be unreasonably withheld
3.10.6.3 in the case of an underletting of whole not to agree any
appointment of a person as the third party determining the
revised rent without the approval of the Landlord such approval
not to be unreasonably withheld
3.10.6.4 in the case of an underletting of whole to incorporate as part of
its representations to that third party representations required
by the Landlord
3.10.6.5 in the case of an underletting of whole to give the Landlord
details of every rent review within twenty-eight days of its
outcome
3.10.6.6 not to grant the underlease or permit the undertenant to occupy
the Property unless an order has been obtained under the 1954
Act, section 38(4)
3.11 Insolvency of covenantors
The Tenant covenants with the Landlord:
3.11.1 to give notice to the Landlord within 14 days if any person who has
entered into covenants with the Landlord under the provisions of this clause
(where that
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<PAGE> 13
person has not been released from these obligations) becomes Insolvent (as
defined in clause 4.1.3) or dies
3.11.2 if requested by the Landlord following the service of a notice under
clause 3.12.1 to procure that within 14 days of the request some other person
reasonably acceptable to the Landlord enters into covenants with the Landlord in
substantially the same form
3.12 Registration of dispositions of this Lease
Within one month after the execution of any disposition of this Lease or the
Demised Premises whether by charge or assignment or upon any transmission by
reason of a death or otherwise affecting the Demised Premises to produce to and
leave with Solicitors for the time being of the Landlord the deed instrument or
other document or disposition (and in each case a certified copy for retention
by the Landlord) and on each occasion to pay to such Solicitors a registration
fee of (pound)30.00 plus VAT
3.13 User
3.13.1 Not to use the Demised Premises otherwise than a use falling within Class
B1 or B8 of the Town & Country Planning (Use Classes) Order 1987 (the Authorised
Use)
3.13.2 Nothing contained in this lease shall imply or be treated as a warranty
to the effect that the use of the Demised Premises for the purposes above
mentioned is in compliance with all Town Planning laws and regulations now or
from time to time in force
3.14 Restrictions affecting use of the demised premises
3.14.1 Not to erect nor install in the Demised Premises any engine furnace or
machinery whether driven by steam oil or electric energy or otherwise which
causes noise fumes or vibration which can be heard smelled or felt outside the
Demised Premises
3.14.2 Not to store in the Demised Premises any petrol or other specially
inflammable explosive or combustible substance
3.14.3 Not to use the Demised Premises for any noxious noisy or offensive trade
or business nor for any illegal or immoral act or purpose
3.14.4 Not to hold any sales by auction on the Demised Premises
3.14.5 Not to hold in or on the Demised Premises any exhibition public meeting
or public entertainment
3.14.6 Not to permit any vocal or instrumental music in the Demised Premises so
that it can be heard outside the Demised Premises
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<PAGE> 14
3.14.7 Not to permit livestock of any kind to be kept on the Demised Premises
3.14.8 Not to do in or upon the Demised Premises anything which may be or grow
to be a nuisance annoyance disturbance inconvenience or damage to the Landlord
or its other Tenants of the Estate or to the owners tenants and occupiers of
adjoining and neighbouring properties
3.14.9 Not to load or use the floors walls ceilings or structure of the Demised
Premises in any manner which will cause strain damage or interference with the
structural parts loadbearing framework roof foundations joists and external
walls of the Demised Premises
3.14.10 Not to overload the electrical installation Conducting Media in the
Demised Premises
3.14.11 Not to do or omit to do anything which interferes with or which imposes
an additional loading on any electrical systems hot water systems ventilation
heating or other plant or machinery serving the Demised Premises
3.14.12 Not to use the Demised Premises as a betting shop or betting office
3.14.13 Not to use the Demised Premises for the sale of wines spirits beers or
any intoxicating liquor for consumption either on or off the Demised Premises
3.14.14 Not to allow any person to sleep in the Demised Premises nor to use the
Demised Premises for residential purposes
3.14.15 Not at any time to place in the passages corridors staircases lavatories
access ways and service areas serving or demised with the Demised Premises any
goods mats trade empties rubbish or other obstruction
3.14.16 Not to accumulate trade empties upon the Demised Premises
3 14.17 Not to place or install any articles merchandise goods or other things
in front of or elsewhere outside the buildings forming part of the Demised
Premises
3.14.18 Not to permit the drains to be obstructed by oil grease or other
deleterious matter but to keep the Demised Premises and the drains serving the
Demised Premises thoroughly cleaned as often as may be necessary
3.14.19 Not to use any portion of any access roads or service area for the
parking of vehicles but to use them as a means of access to and egress from the
Demised Premises only
3.15 Advertisements and signs
3.15.1 Not to place or display on the exterior of the Demised Premises or on the
windows or inside the Demised Premises so as to be visible from the exterior of
the
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<PAGE> 15
Demised Premises any name writing notice sign illuminated signed display of
lights placard poster sticker or advertisement other than;
3.15.1.1 a suitable sign of a size and kind first approved by the Landlord or
the Landlord's Surveyor showing the Tenant's name and trade;
3.15 1.2 such other notices as the Landlord may in its absolute discretion
approve
3.16 Loading and deliveries
Not to load or unload vehicles except in the servicing areas or loading bays
provided for such purpose and in the course of such loading or unloading;
3.16.1 to comply with any regulations of the Landlord and the requirements of
the local highway authority; and
3.16.2 not to cause any avoidable obstruction
3.17 Compliance with statutes etc...
3.17.1 To comply in all respects with the provisions of all statutes and
instruments pursuant to them for the time being in force and requirements of any
competent authority relating to the Demised Premises or anything done in or upon
them by the Tenant and to indemnify the Landlord against all actions proceedings
claims or demands which may be brought or made by reason of such statutes or
requirements or any default in compliance with them
3.17.2 In particular but without prejudice to the generality of clause 3.17.1;
3.17.2.1 to execute all works and do all things on or in respect of the Demised
Premises which are required under the Office Shops and Railway Premises Act
1963;
3.17.2.2 to comply with all requirements under any present or future Act of
Parliament order by-law or regulation as to the use or occupation of or
otherwise concerning the Demised Premises;
3.17.2.3 to execute with all due diligence commencing work within one month or
sooner if necessary and then proceeding continuously all works to the Demised
Premises for which the Tenant is liable in accordance with this clause 3.17;
3.17.2.4 if the Tenant shall not comply with clause 3.17.2.3 to permit the
Landlord to enter the Demised Premises to carry out such works and to pay to the
Landlord on demand the reasonable expense of so doing including surveyors' and
other professional advisers fees together with Interest from the date of
expenditure until payment by the Tenant to the Landlord such monies to be
recoverable as if they were rent in arrear
Page 15 of 34
<PAGE> 16
3.18 Planning permissions
3.18.1 Not without the consent in writing of the Landlord to make any
application under the Town and Country Planning Act 1990 to any local planning
authority for permission to develop including change of use of the Demised
Premises
3.18.2 To indemnify the Landlord against any development charges other charges
and expenses payable in respect of such applications and to reimburse to the
Landlord the costs they may properly incur in connection with such consent
3.18.3 To pay to the Landlord within 7 days of demand any sum or sums which may
become payable in consequence of the use of the Demised Premises reverting to
that existing prior to such application being made
3.18.4 Forthwith to give to the Landlord full particulars in writing of the
grant of planning permission
3.18.5 Not to implement any planning permission if the Landlord shall object to
any of the conditions subject to which it has been granted
3.19 Compliance with town planning requirements and receipt of notices
3.19.1 To perform and observe all the provisions and requirements of all
statutes and regulations relating to town and country planning in relation to
the Demised Premises and to obtain any development or other consent permit or
licence which may be requisite by reason of the development or manner of use of
or on the Demised Premises by the Tenant
3.19.2 To indemnify the Landlord from and against any loss or expense suffered
by the Landlord by reason of the Tenant's failure to obtain any necessary
development or other consents permits or licence as aforesaid
3.19.3 To give full particulars to the Landlord of any notice or proposal for a
notice or order or proposal for an order made given or issued to the Tenant
under or by virtue of any statute or regulation within seven days of the receipt
of any such by the Tenant and if so required by the Landlord to produce such
notice or proposal for a notice or order to the Landlord
3.19.4 Forthwith to take all reasonable and necessary steps to comply with any
such notice or order
3.19.5 At the request and cost of the Landlord to make or join with the Landlord
in making such objections or representations against or in respect of any
proposal for such a notice or order as the Landlord may deem expedient
3.20 Claims made by third parties
3.20.1 To the Landlord against any claims proceedings or demands and the costs
and expenses so incurred which may be brought against the
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<PAGE> 17
Landlord by any employees workpeople agents or visitors of the Tenant or other
in respect of any accident loss or damage whatsoever to person or property
howsoever caused or occurring in or upon the Demised Premises
3.20.2 To keep the landlord indemnified against liability by the Landlord by
reason of breach by the Tenant of its obligations in the Lease
3.21 Expenses of the Landlord
To pay all expenses on an indemnity basis including Solicitors costs bailiff's
fees and Surveyors' and Architects fees incurred by the Landlord;
3.21.1 incidental to or in contemplation of the collection of rent arrears and
of the preparation and service of a Schedule of Dilapidations and/or a notice
under sections 146 and 147 of the Law of Property Act 1925 notwithstanding that
forfeiture is avoided otherwise than by relief granted by the Court; and
3.21.2 in connection with every application for any consent or approval made
under this Lease whether or not such consent or approval shall be granted or
given
3.22 Obstruction of windows or lights
3.22.1 Not to stop up darken or obstruct any windows or lights belonging to the
Demised Premises or any other buildings belonging to the Landlord nor permit any
new windows light opening doorway path passage drain or other restriction
encroachment or easement to be made
3.22.2 Not to permit any easement to be made or acquired into against or upon
the Demised Premises
3.22.3 Where any such -window light opening doorway path passage drain or other
restriction encroachment or easement shall be made or attempted to be made or
acquired forthwith to give notice of the circumstances to the Landlord and at
the request and cost of the Landlord to adopt such course as may be reasonably
required or deemed proper by the Landlord for preventing any such restriction
encroachment or the acquisition of any such easement
3.23 Cleaning of windows
To keep the glass in the windows of the Demised Premises clean
3.24 Value added tax
3.24.1 To pay any value added tax lawfully imposed upon and added to any fee
rent charge cost or expense in respect of goods and services supplied by or on
behalf of the Landlord in connection with this Lease
3.24.2 To indemnify the Landlord to the extent that input value added tax for
which the Landlord may be liable to third parties in respect of goods and
services
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supplied to the Landlord in connection with this Lease is not recoverable by the
Landlord by credit against output value added tax or repayment to the Landlord
by the Commissioners of Customs and Excise
3.25 Notices to let and for sale
3.25.1 To allow the Landlord or its agents to enter on the Demised Premises at
any time:
3.25.1.1 within six months next before the expiration or earlier determination
of the Term to fix upon the Demised Premises a notice board for reletting the
Demised Premises;
3.25.1.2 to fix on some part of the Demised Premises a notice board for sale of
the interest of the Landlord;
3.25.2 not to remove or obscure any such notice board; and
3.25.3 to permit all persons authorised by the Landlord or its agents to view
the Demised Premises at reasonable hours without interruption in connection with
any such letting or sale
3.26 Tenants Negligence
To indemnify the Landlord against all claims demands actions proceedings
liabilities costs charges and expenses in respect of or incurred in connection
with any damage or injury occasioned to the Demised Premises or the Estate or
any adjacent or neighbouring premises or any person or any other property
moveable or immovable by any act default or negligence of the Tenant or of the
servants agents licensees of the Tenant or by any breach of the covenants on the
part of the Tenant herein contained
4. Provisos:
THE PARTIES AGREE to the following provisos:
4.1 Proviso for re-entry
4.1.1 The Landlord may terminate this Lease by re-entering the Demised Premises
(or a part of them) itself or by an authorised agent if:
4.1.1.1 any or any part of the rents reserved by the Lease shall be unpaid for
fourteen days after any of the days when they become due for payment (whether or
not they shall have been lawfully demanded); or
4.1.1.2 the Tenant shall at any time fail or neglect to perform or observe any
of the covenants conditions or agreements contained in this Lease to be
performed or observed by the Tenant or shall allow any distress or execution to
be levied on the Tenant's goods; or
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<PAGE> 19
4.1.1.3 an event of insolvency shall occur in relation to the Tenant or one of
the Tenants or any guarantor of the Tenant or one of the Tenants;
4.1.2 Re-entry in exercise of the rights contained in clause
4.1.1 shall be without prejudice to any right of action or remedy of the
Landlord in respect of any antecedent breach of any of the covenants by the
Tenant contained in the Lease
4.1.3 The expression "an event of insolvency" in clause 4.1.1.3 includes (in
relation to a company or other corporation which is the Tenant or one of the
Tenants or a guarantor) inability of the company to pay its debts entry into
liquidation either compulsory or voluntary (except for the purpose of
amalgamation or reconstruction) the passing of a resolution for a creditors
winding up, the making of a proposal to the company and its creditors for a
composition in satisfaction of its debts or a scheme of arrangement of its
affairs, the application to the court for an administration order, and the
appointment of a receiver or an administrative receiver, and in relation to an
individual who is the Tenant or a guarantor inability to pay or having no
reasonable prospect of being able to pay his debts, the presentation of a
bankruptcy petition, the making of a proposal to his creditors for a composition
in satisfaction of his debts or a scheme of an arrangement of his affairs, the
application to the court for an interim order, and the appointment of a
receiver, and in relation to the various events of insolvency they shall
wherever appropriate be interpreted in accordance and conjunction with the
relevant provisions of the Insolvency Act 1986
4.2 Arbitration of disputes between tenants
If any dispute or disagreement shall at any time arise between the Tenant and
the tenants and occupiers of any adjoining or contiguous property or premises
belonging to the Landlord relating to the Conducting Media serving the Estate or
any adjoining or contiguous premises or any easements or privileges whatsoever
affecting or relating to the Estate or any adjoining or contiguous property or
premises the dispute or disagreement shall from time to time be settled and
determined by the Landlord to which determination the Tenant shall from time to
time submit
4.3 Accidents
The Landlord shall not be responsible to the Tenant or the Tenant's licensees
nor to any other person for any:
4.3.1 accident happening or injury suffered in the Demised Premises; or
4.3.2 damage to or loss of any goods or property sustained in the Demised
Premises whether or not due to any failure of any security system for which the
Landlord is any way responsible; or
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<PAGE> 20
4.3.3 act omission or negligence of any employee of the Landlord in respect of
the Demised Premises
4.4 Compensation for disturbance
Except to the extent that any statutory provision prohibits the Tenant's rights
to compensation being reduced or excluded by agreement the Tenant shall not be
entitled on quitting the Demised Premises to claim from the Landlord any
compensation under the Landlord and Tenant Act 1954
4.5 Removal of property after determination of term
4.5.1 If at such time as the Tenant has vacated the Demised Premises after the
determination of this Lease any property of the Tenant shall remain in or on the
Demised Premises and the Tenant shall fail to remove the same within 14 days
after being requested by the Landlord so to do by a notice 10 that effect then
the Landlord may as the agent of the Tenant sell such property and shall then
hold the proceeds of sale after deducting the costs and expenses or removal
storage and sale reasonably and properly incurred by it to the order of the
Tenant
4.5.2 The Tenant shall indemnify the Landlord against any liability incurred by
it to any third party whose property shall have been sold by the Landlord in the
bona fide mistaken belief (which shall be presumed unless the contrary be
proved) that such property belonged to the Tenant and was liable to be dealt
with as such pursuant to this clause
4.6 Notices consents and approvals
4.6.1 Any notice served under or in connection with this Lease shall be in
writing and be properly served if compliance is made with the provisions of
section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery
Service Act 1962
4.6.2 Any consent or approval under this Lease shall be required to be obtained
before the act or event to which it applies is carried out or done and shall be
effective only when the consent or approval is given in writing
5. Landlords' covenants:
THE LANDLORD COVENANTS with the Tenant as follows:
5.1 Quiet enjoyment
That the Tenant paying rents and performing the Tenant's covenants reserved by
and contained in this Lease may lawfully and peaceably enjoy the Demised
Premises throughout the Term without any lawful suit eviction or interruption by
the Landlord or by any person lawfully claiming through under or in trust for
the Landlord
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6 Guarantee provision:
6.1 Guarantee
6.1.1 The Surety guarantees to the Landlord that the Tenant will pay the rents
reserved by and perform and observe all the Tenant's covenants in this Lease
throughout the Term and any extension by statute of the tenancy created by this
Lease and the Surety will pay and make good to the Landlord on demand any losses
damages costs and expenses suffered or incurred by the Landlord by reason of any
failure of the Tenant to do so
6.1.2 the guarantee in Clause 6.1.1 remains in force for so long as and to the
extent that the Tenant is not released by law from the liability for the
Tenant's covenants in this Lease
6.1.3 The Surety also guarantees to the Landlord that the Tenant will observe
and perform it's obligations under the Authorised Guarantee Agreement to be
entered into by the Tenant under the terms of this Lease and will pay and make
good to the Landlord on demand any losses damages costs and expenses suffered or
incurred by the Landlord if the Tenant fails to do so
6.1.4 For the purpose of this Clause 6 references to the Tenant are to the
Tenant in relation to whom the surety guarantee is given but not to a lawful
assignee of that Tenant
6.2 No waiver or release of liability
The Surety is not to be released from liability under these provisions by reason
of
6.2.1 any forbearance the granting of time or any other indulgence on the part
of the Landlord including (but without affecting the general operation of this
clause 6.2) any granting or extension of time under or varying the procedure set
out in Schedule 5 paragraph 5; or
6.2.2 any variation of this Lease whether or not made with the consent of the
Surety and the guarantee of the Surety in clause 6.1 is to operate in relation
to this Lease as it may be varied from time to time
6.3 Surety to accept new lease upon disclaimer
6.3.1 if this Lease is determined by re-entry by the Landlord or is effectively
determined by disclaimer or shall otherwise be prematurely determined the Surety
shall if the Landlord by notice within three months after the date of
determination so requires take from the Landlord a lease of the Premises
6.3.2 the Lease to be granted to the Surety under clause 6.3.1 is to be on the
following terms:-
Page 21 of 34
<PAGE> 22
6.3.2.1 the term is to commence on the date of termination of this Lease and to
be equal to the residue of the Term which would have remained unexpired at that
date if this Lease had not then been terminated;
6.3.2.2 the yearly rent is to be the same as would have been payable under this
Lease if it had continued undetermined and, if a rent review operative from a
review date before the grant of the lease had not been completed the Surety will
complete the rent review with the Landlord as if it had been the Tenant under
this Lease in order to establish the commencing yearly rent under the Lease;
6.3.2.3 the Lease is otherwise to be on the same terms and conditions as would
have applied under this Lease if it had continued undetermined; and
6.3.2.4 the Surety is to succeed to the rights and assume the liability of the
Tenant under this Lease as if the Lease had continued undetermined
6.4 Subordination of rights of the Surety
6.4.1 With respect to any sums paid by the Surety under this clause 6 and to any
other rights which may accrue to the Surety in respect of any turns so paid or
liabilities incurred under this guarantee or in the observance performance or
discharge of the obligations and covenants of the Tenant in this Lease the
Surety is to rank and be entitled to enforce its rights only after all
obligations and covenants under this guarantee have been fully observed and
performed and if they have not the Surety may not:-
6.4.1.1 seek to recover from the Tenant or any third party whether directly or
by way of set-off lien counterclaim or otherwise or accept any money or other
property or security or exercise any rights in respect of any sum which may be
or become due to the Surety on account of the failure by the Tenant to observe
and perform or discharge such obligations or covenants in this Lease;
6.4.1.2 claim prove or accept any payment in composition by way of winding-up
liquidation bankruptcy or other form of insolvency of the Tenant in competition
with the Landlord for any amount whatsoever owing to the Surety by the Tenant;
nor
6.4.1.3 exercise any right or remedy in respect of any amount pad by the Surety
under this Lease or any liability incurred by the Surety in observing performing
or discharging the obligations and covenants of the Tenant
6.4.2 The Surety warrants that it has not taken and undertakes with the Landlord
that it will not without the consent of the Landlord:
6.4.2.1 take any security from the Tenant in respect of this guarantee and if
any such security is so taken notwithstanding it is to be held on trust for the
Landlord as security for the respective liabilities of the Surety and the Tenant
Page 22 of 34
<PAGE> 23
7. Obligations in Schedules to this Lease
The Landlord and the Tenant mutually covenant to observe and perform their
respective obligations and the conditions in the Schedules
8. Stamp Certificate
The Landlord and the Tenant certify that there is no agreement for lease to
which this Lease gives effect
SCHEDULE 1
Description of the demised premises
ALL THOSE premises situate at and known as Centenary House Whisby Way Lincoln
and shown edged red on the Plan attached hereto and each and every part thereof
SCHEDULE 2
Authorised Guarantee Agreement
DATE:
PARTIES:
(1) "the Landlord"
of
(2) "the Tenant"
of
1. Definitions and recitals
1.1 This Deed is supplemental to a lease [an underlease] ("the Lease") dated
the [**] and made between (1) [the Landlord] and (2) [the Tenant] by which
the property known as [**] ("the Property") was demised for a term of [**]
years from [and including] the [**] ("the Term") subject to the payment of
the rent[s] reserved by and the performance of the provisions of the Lease
1.2 The reversion immediately expectant on the determination of the Term
[remains or is now] vested in the Landlord and the unexpired residue of
the Term [remains or is now] vested in the Tenant
1.3 The Lease contains provisions prohibiting the Tenant from assigning the
Property without the consent of the Landlord such consent not to be
Page 23 of 34
<PAGE> 24
[FLOOR PLAN OMITTED]
<PAGE> 25
unreasonably withheld in certain circumstances and further provides that
any consent will be subject to a condition that the Tenant enters into an
authorised guarantee agreement as defined in the Landlord and Tenant
(Covenants) Act 1995 ("the 1995 Act")
1.4 The Landlord has agreed (at the request of the Tenant) to grant a licence
to the Tenant to assign its estate and interest in the Property to of [**]
("Assignee") subject to the Tenant and the Assignee entering into a formal
Licence in the form required by the Landlord and the Tenant entering into
this Authorised Guarantee Agreement
1.5 All terms defined in the Lease have the same meanings when used in this
deed except where the contrary appears
2. Authorised Guarantee Agreement
2.1 This Deed is an authorised guarantee agreement as defined in the 1995 Act
Section 16
2.2 Nothing in this Deed imposes on the Tenant:
o any requirement to guarantee the performance under the Lease of any person
other than the Assignee or
o any liability restriction or other requirement (of whatever nature) in
relation to any time after the Assignee is released by the 1995 Act from
its obligations under the Lease
3. Tenant's covenants
The Tenant covenants with the Landlord and (without the need for any express
assignment) with all of its successors in title:
3.1 if the Assignee does not pay the Rent or any other sum due under the Lease
on the date on which it is due to pay to the Landlord on demand the Rent
or other sum outstanding
3.2 if the Assignee is in breach of any provision of the Lease to remedy that
breach on demand and to indemnify and keep indemnified the Landlord
against all Losses suffered by the Landlord as a result (directly or
indirectly) of that breach
3.3 in addition to the obligations set out in clauses 3.1 and 3.2 and if this
Lease is disclaimed by the Assignee's trustee in bankruptcy or liquidator:
3.3.1 to pay to the Landlord on demand an amount equal to the Rent and other
sums of a recurring nature that would have been payable under this Lease
for the period beginning on the date of disclaimer and ending on the
earliest of:
o the date upon which the Property is re-let
Page 24 of 34
<PAGE> 26
o the expiry of the Term
o the expiry of the period of one year beginning on the date of the
disclaimer or
3.3.2 if requested by the Landlord within ninety days of disclaimer to take from
the Landlord a lease of the Property from the date of disclaimer for the
residue of the Term at the Rent payable at the time of disclaimer or
(where a rent review is pending at the time of disclaimer at the Rent that
is subsequently agreed or determined under clause 4 of the Lease to have
been payable at the time of disclaimer) and upon the same terms as those
contained in the Lease with all provisions of a periodical nature
(including for example those relating to review of the Rent) expressed to
apply on the actual dates that would have applied if the Lease had not
been disclaimed and
3.3.3 to pay the costs of the Landlord incurred in relation to the disclaimer
and where appropriate the grant of the lease to the Tenant
4. Application of Tenant's covenants
The obligations of the Tenant set out in clause 3 will continue to apply even if
4.1 the Landlord grants any time or indulgence to the Assignee or fails to
enforce payment of the Rent or other sum or the performance of the terms
of the Lease
4.2 the Landlord refuses to accept the Rent tendered when the Landlord was
entitled (or would after the service of a notice under the Law of Property
Act 1925 section 146 be entitled) to re-enter the Property
4.3 the terms of the Lease are varied except where the variation is a relevant
variation as defined in the 1996 Act section 18(4)
4.4 a revised Rent has been agreed or determined under Schedule 6 of the Lease
[including any stepped rent phased rent or other rental formula that may
be agreed]
4.5 the Assignee surrenders part of the Demised Premises and where this
happens the liability of the Tenant under this Lease continues for the
part of the Demised Premises not surrendered after making any necessary
apportionments under the Law of Property Act 1926 section 140
4.6 the Tenant would have been released by any other event
5. Duration of the Tenant's covenant
5.1 The obligations of the Tenant set out in clause 3 above apply for the
period beginning on the date upon which the Lease is assigned to the
Assignee and ending on the date upon which the Assignee is released by the
1995 Act from its obligations under the Lease
Page 25 of 34
<PAGE> 27
5.2 The Landlord covenants with the Tenant that it will notify the Tenant in
writing within [**] days of the Assignee being released by the 1995 Act
from its obligations under the Lease]
6. Recovery of Payments
6.1 The Landlord covenants that before attempting to recover any such payment
as is described in clause 6.2 from the Tenant it will serve on the Tenant
a notice as if that payment was a fixed charge under the 1995 Act
6.2 The payment referred to in clause 6.1 is any amount payable in respect of
any breach of covenant by the Assignee which:
6.2.1 has been finally determined by a court or in binding arbitration; or
6.2.2 has been agreed between the Landlord and the Assignee
6.3 The notice in respect of the payments referred to in clause 6.2 shall be
in the form prescribed by Section 27 of the 1995 Act with such variations
as may be appropriate to the circumstances
6.4 The Tenant shall not be liable for any of the payments referred to in
clause 6.2 unless within the period of six months of the payment being
determined or agreed the Landlord serves on the Tenant a notice under this
clause
SCHEDULE 3
Encumbrances
All matters contained mentioned or referred to in the Landlord's title to the
Property registered at H M Land Registry under Title Number LL 64757
SCHEDULE 4
Insurance Provisions
1. Insured Risks
1.1 "Insured Risks" means the risks and other contingencies against which the
Demised Premises are required to be or which may from time to time be insured
under this Lease but subject to any exclusions limitations and conditions in the
policy of insurance
1.2 insured Risks include without limitation fire lightning explosion storm
tempest flood bursting and overflowing of water tanks apparatus or pipes
Page 26 of 34
<PAGE> 28
earthquake aircraft (but not hostile aircraft) and other aerial devices dropped
from aircraft riot and civil commotion malicious damage and such other risks as
the Landlord may consider it prudent to insure
1.3 If a risk or contingency itemised or otherwise included as an Insured Risk
can no longer be insured or can only be insured at an uneconomic rate the risk
or contingency shall cease to be treated as an Insured Risk from the time that
cover is withdrawn and the Landlord has notified the Tenant of its withdrawal
2. Tenant's liability for insurance premiums
2.1 The Tenant will pay to the Landlord on demand the cost of the insurance
premiums incurred by the Landlord
2.2 Insurance premiums are to include all monies expended or required to be
expended by the Landlord in effecting and maintaining cover (including such
professional valuations as shall be required) against:
2.2.1 Insured Risks;
2.2.2 three years' loss of rent insurance;
2.2.3 such professional fees as may be incurred in connection with rebuilding or
reinstatement of the Building;
2 2.4 the costs of demolition shoring up and site clearance works;
2.2.5 third party and public liability risks; and
2.2.6 value added tax liability on such items
2.3 The insurance cover may take into account cover for the effects of inflation
and escalation of costs and fees and the Landlord's estimate of the market rent
of the Demised Premises as defined in Schedule 5 in the context of ensuing rent
reviews and the termination of the Lease
3. Tenant's obligations in relation to insurance cover
3.1 The Tenant will not do anything which may render void or voidable the
insurance of the Landlord on the whole or a part of the Building or which may
cause insurance premiums to be increased
3.2 The Tenant will provide efficient fire extinguishers of a type approved by
the Landlord and will adopt such other precautions against Insured Risks as the
Landlord or its insurers may consider appropriate
3.3 If the insurance of the Landlord is vitiated in whole or in part in
consequence of an act or omission of the Tenant persons occupying or enjoying
the use of the Premises through or under the Tenant or their respective
employees workmen
Page 27 of 34
<PAGE> 29
agents or visitors the Tenant will pay to the Landlord or demand a sum equal to
the amount of the insurance monies which have become recoverable in consequence
of that act or omission
3.4 The Tenant may not insure the Demised Premises for any of the Insured Risks
in such a manner as would permit the Insurer of the Landlord to average the
proceeds of insurance or cancel insurance cover
3.5 The Tenant will notify the Landlord forthwith of the occurrence of damage to
the Demised Premises by any of the Insured Risks
3.6 If the Demised Premises are damaged by Insured Risks the tenant will pay to
the Landlord on demand the due proportion of the amount of any uninsured excess
to which the insurance cover of the Landlord is subject
3.7 The obligations of the Tenant to repair and to yield up in repair the
Demised Premises are to remain operative to the extent that the insurance of the
Landlord in respect of Insured Risks is vitiated or insurance monies are
withheld by reason of an act or omission of the Tenant persons occupying or
enjoying the use of the Demised Premises through or under the Tenant or their
respective employees workmen agents or visitors but do not otherwise operate in
respect of damage to the Premises by Insured Risks
4. Landlord's obligation to insure and reinstate
4.1 The Landlord will keep the Building insured with an insurer of repute
against Insured Risks and other items referred to in paragraph 2.2 for the full
cost of reinstatement subject to such uninsured excess as the insurer may
reasonably apply
4.2 Following the occurrence of damage to or destruction of the Demised Premises
by an Insured Risk the Landlord will diligently apply or procure the application
of the proceeds of the insurance covering reinstatement and rebuilding costs for
those purposes
4.3 The obligations of the Landlord in paragraph 4.2 do not apply:
4.3.1 if the Landlord is unable after using its reasonable endeavours to do so
to obtain any requisite planning permission or other consents for the
reinstatement or rebuilding of the Building or of a building of similar size
character and amenity; or
4.3.2 if the Landlord's insurance is vitiated by reason of an act or omission of
the Tenant persons occupying or enjoying the use of the Demised Premises through
or under the Landlord or their respective employees workmen agents or visitors
5. Landlord's obligations in relation to insurance
5.1 The Landlord will use its reasonable endeavours to procure that its insurers
waive entitlement to rights of subrogation against the Tenant persons occupying
Page 28 of 34
<PAGE> 30
or enjoying the use of the Demised Premises through or under the Landlord and
their respective employees workmen agents or visitors
5.2 The Landlord will notify its insurers of the Tenant's interest in the
Demised Premises and that of any sub-tenant and if practicable have it noted on
the policies of insurance
5.3 The Landlord shall provide the Tenant with a copy of its policies (or other
evidence of the conditions of insurance) on the Building and at the request of
the Tenant with for the payment of the last premium or other evidence and up to
date details of the amount of cover
5.4 The Landlord will promptly notify the Tenant of any changes in its insurance
cover or of the terms on which cover has been effected
5.5 The Landlord may retain for its exclusive benefit any discount on the
insurance premiums or commission offered to it by its insurer
6. Suspension of Rent
6.1 Paragraph 6.2 applies if the Building or any part of it is at any time
during the Term so damaged by an Insured Risk as to render the Demised Premises
or any part of them unfit for occupation use & enjoyment except in the
circumstances referred to in paragraph 4.3.2
6.2 The rent and additional rent reserved by this Lease or a fair proportion of
them according to the nature and extent of the damage sustained is to be
suspended and cease to be payable until the Demised Premises (excluding fitting
out works and replacement of contents) have been reinstated and made fit for
occupation use and enjoyment or if earlier until the expiry of three years from
the occurrence of the damage
6.3 A dispute as to the amount of the abatement of the rent or the duration of
the period of abatement is to be submitted to a single arbitrator by whose
decision the parties are to be bound who is to be appointed by the parties
jointly if they can agree on one but if they do not agree then by the President
for the time being of the Royal Institution of Chartered Surveyors at the
request of either party and the arbitration is to be conducted under the
Arbitration Act 1996
7. Options to determine
7.1 If the Building or a substantial part of it (whether or not directly
affecting the Demised Premises) is destroyed or damaged by an Insured Risk so as
to make continued use of the Demised Premises impracticable the Landlord may
terminate this Lease by giving to the Tenant notice to that effect at any time
within 12 months after the occurrence of the damage
7.2 If for any reason beyond the control of the Landlord it proves impossible to
commence rebuilding or reinstatement of the Building within two years of the
Page 29 of 34
<PAGE> 31
occurrence of the damage by an Insured Risk the Landlord may terminate this
Lease by giving to the Tenant notice to that effect
7.3 If the rebuilding or reinstatement of the Building has not been commenced
two years after the occurrence of the damage by an Insured Risk the Tenant may
give notice to the Landlord of intention to terminate this Lease and if the
rebuilding or reinstatement work has not commenced within six months of the
giving of the notice this Lease is to terminate at the expiry of the notice
7.4 The termination of this Lease under this paragraph 7 is not to affect any
liability which has accrued at any time before the time of termination
8. Retention of insurance proceeds
On the termination of this Lease under paragraph 7 or if this Lease is
terminated by the operation of the doctrine of frustration the Landlord may
retain for its exclusive benefit the proceeds of insurance
SCHEDULE 5
Rent Review
1. Yearly rent review
The yearly rent payable under this Lease shall be reviewed on the expiration of
each consecutive period of five years from the commencement date of the term and
the terms "review dates" and "relevant review date" shall be construed
accordingly and as from each review date the reviewed rent (agreed or determined
in accordance with the following provisions of this Schedule) shall become
payable in all respects as if it were the yearly rent reserved by this Lease
2. Upward only rent reviews
The reviewed rent shall be the greater of:
2.1 the yearly rent payable under this Lease immediately preceding the relevant
review date; and
2.2 the market rent of the Demised Premises at the relevant review date
3. The market rent
The expression "the market rent" shall for the purpose of this Lease mean the
yearly rental value of the Demised Premises having regard to open market rental
values as between a willing landlord and a willing tenant for property at the
review date let without a premium for a term of 15 years from the review date
taking into account the Tenant's right to apply to the Court for the grant of a
new tenancy under part II of the Landlord and Tenant Act 1954 and on the
assumption that the Landlord would not oppose the grant and otherwise on the
terms and conditions
Page 30 of 34
<PAGE> 32
contained in this Lease other than the amount of rent but including these
provisions for rent review but upon the assumption if not the fact that at the
relevant review date:
3.1 the Demised Premises are available to be let with vacant possession;
3.2 the Tenant has received and has already enjoyed the full benefit of any
concessionary rent rent free period or other inducement that a willing landlord
might grant or give to a willing tenant on such a letting with vacant
possession;
3.3 the Demised Premises have been fitted out and are therefore ready for
immediate occupation and commencement of the business of the Tenant so that:
3.3.1 the Tenant shall not be entitled to any allowance at the relevant review
date for time for fitting out of the Demised Premises; but
3.3.2 the Landlord shall not in consequence of the operation of this assumption
be entitled to claim a higher market rent for the Demised Premises to reflect
increased demand by reason only of the readiness of the Demised Premises for
immediate occupation and commencement of the business of the Tenant
3.4 No work has been carried out to the Demised Premises by the Tenant or any
predecessor-in-title of the Tenant which has diminished the market rent;
3.5 In case the Demised Premises have been destroyed or damaged or have become
inaccessible by reason of damage they have been fully reinstated or rendered
accessible;
3.6 The Demised Premises are in a state of full repair and the covenants of the
Tenant have been fully observed and performed;
3.7 There is not in operation any statute order or instrument regulation or
direction which has the effect of regulating or restricting the amount of rent
of the Demised Premises which might otherwise be payable; and
3.8 The Demised Premises may be lawfully used for any purpose permitted by the
use class (under the Schedule to the Town and Country Planning (Use Classes)
Order 1987) in which the Authorised Use falls and there shall be disregarded any
actual restriction or qualification which may be imposed on such use by the
terms of the user covenant in clause 3 or otherwise and that no capital is
required to be expended upon the Demised Premises to enable them to be so used;
3.9 The Tenant and anyone who may become the Tenant is a taxable person who
makes only taxable supplies and no exempt supplies (words and expressions used
in this paragraph 3.9 having meanings assigned to them respectively in the Value
Added tax Act 1953 and the regulations made under that Act) and that demand for
the Demised Premises on the open market would not be reduced by reason
Page 31 of 34
<PAGE> 33
of the Landlord having elected to waive exemption from Value Added tax in
respect of them;
and in this paragraph 3 references to `the Tenant' include a hypothetical tenant
bidding in the open market
4. Matters to be disregarded
In agreeing or determining the market rent the effect upon it of the following
matters shall be disregarded:
4.1 the occupation of the Demised Premises by the Tenant or any
predecessor-in-title of the Tenant;
4.2 any goodwill attached to the Demised Premises by reason of the carrying out
on the Demised Premises of the business of the Tenant or predecessors-in-title
of the Tenant to that business;
4.3 any improvements to the Demised Premises made by the Tenant with the consent
of the Landlord other than those:
4.3.1 made in pursuance of an obligation to the Landlord; or
4.3.2 completed by the Tenant and/or its predecessors in title more than 21
years before the relevant review date
4.3.3 for which the Landlord has made a financial contribution
5. Procedure for determination of market rent
5.1 The Landlord and the Tenant shall endeavour to agree the market rent at any
time not being earlier than 12 months before the review date but if they shall
not have agreed the market rent three months before the review date the amount
of the market rent shall be determined by a surveyor ("the Surveyor") acting at
the Landlord's discretion as either an expert or as an arbitrator and who shall
be appointed by agreement between the parties or failing agreement nominated by
the President for the time being of the Nottinghamshire Law Society at the
request of the Landlord or of the Tenant
5.2 The reference to and award of the Surveyor acting as arbitrator shall be
governed by the Arbitration Act 1996 and the decision of the arbitrator shall be
final and binding on the parties
5.3 The Surveyor when acting as an expert shall act as an expert and not as an
arbitrator and shall be required to:
5.3.1 Give notice to the Landlord and the Tenant allowing each of them an
opportunity to submit to him within such reasonable time as he may stipulate a
Page 32 of 34
<PAGE> 34
proposal for the market rent accompanied (if either of them so wish) by a
statement of reasons, and a professional rental valuation or report; and
5.3.2 Permit each of the Landlord and the Tenant to make submissions in respect
of the other's reasons valuation and report;
but the Surveyor shall not be bound by any such proposal or submission and he
may make his determination as he thinks fit
5.4 If the Surveyor refuses to act becomes incapable of acting or dies the
Landlord or the Tenant may require the appointment of another Surveyor as
provided in clause 5.1
5.5 The fees and expenses of the Surveyor acting as expert including the cost of
his nomination shall be borne in such manner and proportions as the Surveyor may
direct but in the absence of any such direction they shall be borne by the
Landlord and the Tenant in equal shares
5.6 The determination of the Surveyor shall be final and binding on the parties
except in case of a mistake of law
6.7 The Surveyor shall be a chartered surveyor having experience of leasehold
valuation of property being put to the same or similar use as the Demised
Premises and of property in the same region in which the Demised Premises are
situated
6. Time limits
Time shall not be of the essence in agreeing or determining the reviewed rent
or of appointing an arbitrator
7 Rental adjustments
If the market rent shall not have been agreed or determined in accordance with
the provisions of this clause before the review date then until the market rent
shall have been so agreed or determined the Tenant shall continue to pay rent at
the rate of the yearly rent payable immediately before the relevant review date
and when the market rent shall have been agreed or determined the Tenant shall
within 7 days forthwith pay to the Landlord the reviewed element of rent then
falling due in respect of the earlier period and all arrears of reviewed rent
which shall have accrued with Interest upon such payments in respect of the
period commencing on the review date and ending with the payment of such
payments by the Tenant to the Landlord
8. Memorandum of rent review
The parties shall cause a memorandum of the reviewed rent duly signed by the
Landlord and the Tenant to be endorsed on or securely annexed to this Lease and
the counterpart of this Lease
Page 33 of 34
<PAGE> 35
Counterpart
THE COMMON SEAL of IBIS SYSTEMS
LIMITED was hereunto affixed
in the presence of:-
Director /s/ Peter Angle
Secretary
Page 34 of 34
<PAGE> 1
EXHIBIT 10.9
INTEGRITY SOFTWARE, INC.
2000 STOCK OPTION PLAN
Integrity Software, Inc., a Delaware corporation, wishes to
attract key employees, directors and officer to the Company and its Subsidiaries
and induce key employees, directors and officers to remain with the Company and
its Subsidiaries, and encourage them to increase their efforts to make the
Company's business more successful whether directly or through its Subsidiaries.
In furtherance thereof, the Integrity Software, Inc. 2000 Stock Option Plan is
designed to provide equity-based incentives to key employees, directors and
officers of the Company and its Subsidiaries.
1. Definitions.
Whenever used herein, the following terms shall have the
meanings set forth below:
"Award Agreement" means a written agreement in a form approved
by the Committee to be entered into by the Company and the Optionee of an
Option, as provided in Section 4.
"Board" means the Board of Directors of the Company.
"Cause" means, unless otherwise provided in the Optionee's
Award Agreement, (i) engaging in (A) willful or gross misconduct or (B) willful
or gross neglect, (ii) repeatedly failing to adhere to the directions of
superiors or the Board or the written policies and practices of the Company or
its Subsidiaries or its affiliates, (iii) the commission of a felony or a crime
of moral turpitude, or any crime involving the Company or its Subsidiaries, or
any affiliate thereof, (iv) fraud, misappropriation or embezzlement, (v) a
material breach of the Optionee's employment agreement (if any) with the Company
or its Subsidiaries or its affiliates, or (vi) any illegal act detrimental to
the Company or its Subsidiaries or its affiliates.
"Change in Control" shall mean the happening of any of the
following:
(i) any "person," including a "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act, but excluding
the Company, any entity controlling, controlled by or under
common control with the Company, any
<PAGE> 2
employee benefit plan of the Company or any such entity, and,
with respect to any particular Optionee, the Optionee and any
"group" (as such term is used in Section 13(d)(3) of the
Exchange Act) of which the Optionee is a member), is or
becomes the "beneficial owner" (as defined in Rule 13(d)(3)
under the Exchange Act), directly or indirectly, of securities
of the Company representing 25% or more of either (A) the
combined voting power of the Company's then outstanding
securities or (B) the then outstanding Shares (in either such
case other than as a result of an acquisition of securities
directly from the Company); or
(ii) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the
consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, shares representing in the aggregate 50% or more
of the combined voting power of the securities of the
corporation issuing cash or securities in the consolidation or
merger (or of its ultimate parent corporation, if any); or
(iii) there shall occur (A) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all
or substantially all of the assets of the Company, other than
a sale or disposition by the Company of all or substantially
all of the Company's assets to an entity, at least 50% of the
combined voting power of the voting securities of which are
owned by Persons in substantially the same proportion as their
ownership of the Company immediately prior to such sale or (B)
the approval by stockholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company; or
(iv) the members of the Board at the beginning of any
consecutive 24-calendar-month period (the "Incumbent
Directors") cease for any reason other than due to death to
constitute at least a majority of the members of the Board;
provided that any director whose election, or nomination for
election by the Company's stockholders, was approved by a vote
of at least a majority of the members of the Board then still
in office who were members of the Board at the beginning of
such 24-calendar-month period, shall be deemed to be an
Incumbent Director.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee appointed by the
Board under Section 3.
"Common Stock" means the Company's Common Stock, par value
$.0025, either currently existing or authorized hereafter.
"Company" means Integrity Software, Inc., a Delaware
corporation.
"Disability" means, unless otherwise provided by the Committee
in the Optionee's Award Agreement, a disability which renders the Optionee
incapable of performing
2
<PAGE> 3
all of his or her material duties for a period of at least 180 consecutive or
non-consecutive days during any consecutive twelve-month period.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" per Share as of a particular date means
(i) if Shares are then listed on a national stock exchange, the closing sales
price per Share on the exchange for the last preceding date on which there was a
sale of Shares on such exchange, as determined by the Committee, (ii) if Shares
are not then listed on a national stock exchange but are then traded on an
over-the-counter market, the average of the closing bid and asked prices for the
Shares in such over-the-counter market for the last preceding date on which
there was a sale of such Shares in such market, as determined by the Committee,
or (iii) if Shares are not then listed on a national stock exchange or traded on
an over-the-counter market, such value as may be determined by the Committee in
its discretion or as may be determined in accordance with such methodologies,
procedures or other rules (which may provide, without limitation, that
determinations of Fair Market Value shall be made by an independent third party)
as may be established by the Committee in its discretion; provided that, where
the Shares are so listed or traded, the Committee may make discretionary
determinations, or implement such methodologies, procedures or other rules,
where the Shares have not been traded for 10 trading days.
"Option" means the right to purchase, at a price and for the
term fixed by the Committee in accordance with the Plan, and subject to such
other limitations and restrictions in the Plan and the applicable Award
Agreement, a number of Shares determined by the Committee.
"Optionee" means an employee, director or officer of the
Company to whom an Option is granted, or the Successors of the Optionee, as the
context so requires.
"Option Price" means the exercise price per Share.
"Plan" means this Integrity Software, Inc. 2000 Stock Option
Plan, as set forth herein and as the same may from time to time be amended.
"Retirement" means, unless otherwise provided by the Committee
in the Optionee's Award Agreement, the termination (other than for Cause) of
employment (or other termination of service, in the case of directors) of an
Optionee on or after the Optionee's attainment of age 65 or on or after the
Optionee's attainment of age 55 with five consecutive years of service with the
Company and or its Subsidiaries or its affiliates.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of Common Stock of the Company.
"Subsidiary" means any corporation (other than the Company)
that is a "subsidiary corporation" with respect to the Company under Section
424(f) of the Code. In the event the Company becomes a subsidiary of another
company, the provisions hereof applicable to subsidiaries shall, unless
otherwise determined by the Committee, also be applicable to any company that is
a "parent corporation" with respect to the Company under Section 424(e) of the
Code.
3
<PAGE> 4
"Successor of the Optionee" means the legal representative of
the estate of a deceased Optionee or the person or persons who shall acquire the
right to exercise an Option by bequest or inheritance or by reason of the death
of the Optionee.
2. Effective Date and Termination of Plan.
The effective date of the Plan is March 22, 2000. The Plan
shall not become effective unless and until it is approved by the stockholders
of the Company. The Plan shall terminate on, and no Option shall be granted
hereunder on or after, the 10-year anniversary of the earlier of the approval of
the Plan by the stockholders of the Company; provided, however, that the Board
may at any time prior to that date terminate the Plan.
3. Administration of Plan.
The Plan shall be administered by the Committee appointed by
the Board. The Committee shall consist of at least two individuals each of whom
shall be a "nonemployee director" as defined in Rule 16b-3 as promulgated by the
Securities and Exchange Commission ("Rule 16b-3") under the Exchange Act and
shall, at such times as the Company is subject to Section 162(m) of the Code (to
the extent relief from the limitation of Section 162(m) of the Code is sought
with respect to Options), qualify as "outside directors" for purposes of Section
162(m) of the Code. The acts of a majority of the members present at any meeting
of the Committee at which a quorum is present, or acts approved in writing by a
majority of the entire Committee, shall be the acts of the Committee for
purposes of the Plan. If and to the extent applicable, no member of the
Committee may act as to matters under the Plan specifically relating to such
member. If no Committee is designated by the Board to act for these purposes,
the Board shall have the rights and responsibilities of the Committee hereunder
and under the Award Agreements.
4. Eligibility and Grant of Options; Committee Authority.
4
<PAGE> 5
Subject to the provisions of the Plan, the Committee shall, in
its discretion as reflected by the terms of the Award Agreements: (i) authorize
the granting of Options to key employees, directors and officers of the Company
and its Subsidiaries; (ii) determine and designate from time to time those key
employees, directors and officers of the Company and its Subsidiaries to whom
Options are to be granted and the number of Shares to be optioned to each
employee, director and officer; (iii) determine the time or times when and the
manner and condition in which each Option shall be exercisable and the duration
of the exercise period; and (iv) determine or impose other conditions to the
grant or exercise of Options under the Plan as it may deem appropriate. In
determining the eligibility of an employee, director or officer to receive an
Option, as well as in determining the number of Shares to be optioned to any
employee, director and officer, the Committee may consider the position and
responsibilities of the employee, director or officer, the nature and value to
the Company of the employee's, director's or officer's services and
accomplishments whether directly or through its Subsidiaries, the employee's,
director's or officer's present and potential contribution to the success of the
Company whether directly or through its Subsidiaries and such other factors as
the Committee may deem relevant. The Award Agreement shall contain such other
terms, provisions and conditions not inconsistent herewith as shall be
determined by the Committee. The Optionee shall take whatever additional actions
and execute whatever additional documents the Committee may in its reasonable
judgment deem necessary or advisable in order to carry out or effect one or more
of the obligations or restrictions imposed on the Optionee pursuant to the
express provisions of the Plan and the Award Agreement.
5
<PAGE> 6
5. Number of Shares Subject to Options.
Subject to adjustments pursuant to Section 17, Options with
respect to an aggregate of no more than 1,650,000 Shares may be granted under
the Plan. Notwithstanding the foregoing provisions of this Section 5, Shares as
to which an Option is granted under the Plan that remains unexercised at the
expiration, forfeiture or other termination of such Option may be the subject of
the grant of further Options. Subject to adjustments pursuant to Section 17, in
no event may any Optionee receive in the aggregate Options for more than 500,000
Shares of Common Stock over the life of the Plan. Shares of Common Stock issued
hereunder may consist, in whole or in part, of authorized and unissued shares or
treasury shares. The certificates for Shares issued hereunder may include any
legend which the Committee deems appropriate to reflect any rights of first
refusal or other restrictions on transfer hereunder or under the Award
Agreement, or as the Committee may otherwise deem appropriate.
6. Option Price.
The Option Price shall be determined by the Committee on the
date the Option is granted and reflected in the Award Agreement, as the same may
be amended from time to time. Any particular Award Agreement may provide for
different exercise prices for specified amounts of Shares subject to the Option.
The Option Price with respect to each Option shall not be less than 100% of the
Fair Market Value of a Share on the day the Option is granted.
7. Period of Option and Vesting.
(a) Unless earlier expired, forfeited or otherwise terminated,
each Option shall expire in its entirety upon the 10th anniversary of the date
of grant or shall have such other term as is set forth in the applicable Award
Agreement. The Option shall also expire, be forfeited and
6
<PAGE> 7
terminate at such times and in such circumstances as otherwise provided
hereunder or under the Award Agreement.
(b) Each Option, to the extent that there has been no
termination of the Optionee's employment (or other service, if applicable) and
the Option has not otherwise lapsed, expired, terminated or been forfeited,
shall first become exercisable according to the terms and conditions set forth
in the Award Agreement, as determined by the Committee at the time of grant.
Unless otherwise provided in the Award Agreement or herein, no Option (or
portion thereof) shall ever be exercisable if the Optionee's employment or other
service with the Company and its Subsidiaries has terminated before the time at
which such Option would otherwise have become exercisable, and any Option that
would otherwise become exercisable after such termination shall not become
exercisable and shall be forfeited upon such termination. Notwithstanding the
foregoing provisions of this Section 7(b), Options exercisable pursuant to the
schedule set forth by the Committee at the time of grant may be fully or more
rapidly exercisable or otherwise vested at any time in the discretion of the
Committee. Upon and after the death of an Optionee, such Optionee's Options, if
and to the extent otherwise exercisable hereunder or under the applicable Award
Agreement after the Optionee's death, may be exercised by the Successors of the
Optionee.
8. Exercisability Upon and After Termination of Optionee.
(a) The Committee shall provide in the Award Agreement the
extent (if any) to which any Option may be exercised upon and after the
Optionee's termination of employment (or other service).
(b) Except as may otherwise be expressly set forth in this
Section 8, and
7
<PAGE> 8
except as may otherwise be expressly provided under the Award Agreement, no
provision of this Section 8 is intended to or shall permit the exercise of the
Option to the extent the Option was not exercisable upon cessation of employment
or other service.
9. Exercise of Options.
Subject to vesting, restrictions on exercisability and other
restrictions provided for hereunder or otherwise imposed in accordance herewith,
an Option may be exercised, and payment in full of the aggregate Option Price
made, by an Optionee only by written notice (in the form prescribed by the
Committee) to the Company specifying the number of Shares to be purchased.
10. Payment.
(a) The aggregate Option Price shall be paid in full upon the
exercise of the Option. Payment must be made by one of the following methods:
(i) a certified or bank cashier's check;
(ii) the proceeds of a Company loan program or
third-party sale program or a notice acceptable to
the Committee given as consideration under such a
program, in each case if permitted by the Committee
in its discretion, if such a program has been
established and the Optionee is eligible to
participate therein;
(iii) if approved by the Committee in its discretion,
Shares of previously owned Common Stock having an
aggregate Fair Market Value on the date of exercise
equal to the aggregate Option Price;
(iv) if approved by the Committee in its discretion,
through the written election of the Optionee to have
Shares withheld by the Company from the Shares
otherwise to be received, with such withheld Shares
having an aggregate Fair Market Value on the date of
exercise equal to the aggregate Option Price; or
(v) by any combination of such methods of payment or
any other method acceptable to the Committee in its
discretion.
(b) The Committee, in its discretion, may also permit the
Optionee to elect to
8
<PAGE> 9
exercise an Option by receiving a combination of Shares and cash, or, in the
discretion of the Committee, either Shares or solely in cash, with an aggregate
Fair Market Value (or, to the extent of payment in cash, in an amount) equal to
the excess of the Fair Market Value of the Shares with respect to which the
Option is being exercised over the aggregate Option Price, as determined as of
the day the Option is exercised.
(c) Except in the case of Options exercised by certified or
bank cashier's check, the Committee may impose limitations and prohibitions on
the exercise of Options as it deems appropriate, including, without limitation,
any limitation or prohibition designed to avoid accounting consequences which
may result from the use of Common Stock as payment upon exercise of an Option.
Any fractional Shares resulting from an Optionee's election that is accepted by
the Company shall in the discretion of the Committee be paid in cash.
11. Tax Withholding.
The Committee may, in its discretion, require the Optionee to
pay to the Company at the time of exercise of any Option the amount that the
Committee deems necessary to satisfy the Company's obligation to withhold
applicable income or other taxes incurred by reason of the exercise. Upon
exercise of the Option, the Optionee may, if approved by the Committee in its
discretion, make a written election to have Shares then issued withheld by the
Company from the Shares otherwise to be received, or to deliver previously owned
Shares, in order to satisfy the liability for such withholding taxes. In the
event that the Optionee makes, and the Committee permits, such an election, the
number of Shares so withheld or delivered shall have an aggregate Fair Market
Value on the date of exercise sufficient to satisfy the applicable withholding
taxes. Where the exercise of an Option does not give rise to an obligation by
the Company to withhold
9
<PAGE> 10
federal, state or local income or other taxes on the date of exercise, but may
give rise to such an obligation in the future, the Committee may, in its
discretion, make such arrangements and impose such requirements as it deems
necessary or appropriate. Notwithstanding anything contained in the Plan or the
Award Agreement to the contrary, the Optionee's satisfaction of any
tax-withholding requirements imposed by the Committee shall be a condition
precedent to the Company's obligation as may otherwise be provided hereunder to
provide Shares to the Optionee, and the failure of the Optionee to satisfy such
requirements with respect to the exercise of an Option shall cause such Option
to be forfeited.
12. Exercise by Successors.
An Option may be exercised, and payment in full of the
aggregate Option Price made, by the Successors of the Optionee only by written
notice (in the form prescribed by the Committee) to the Company specifying the
number of Shares to be purchased. Such notice shall state that the aggregate
Option Price will be paid in full, or that the Option will be exercised as
otherwise provided hereunder, in the discretion of the Company or the Committee,
if and as applicable.
13. Nontransferability of Option.
Each Option granted under the Plan shall be nontransferable by
the Optionee except by will or the laws of descent and distribution of the state
wherein the Optionee is domiciled at the time of his death; provided, however,
that the Committee may (but need not) permit other transfers, where the
Committee concludes that such transferability (i) does not result in accelerated
income taxation and (ii) is otherwise appropriate and desirable.
14. Regulations and Approvals.
10
<PAGE> 11
(a) The obligation of the Company to sell Shares with respect
to Options granted under the Plan shall be subject to all applicable laws, rules
and regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Committee.
(b) The Committee may make such changes to the Plan as may be
necessary or appropriate to comply with the rules and regulations of any
government authority or to obtain tax benefits applicable to stock options.
(c) Each Option is subject to the requirement that, if at any
time the Committee determines, in its discretion, that the listing, registration
or qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions in a manner acceptable to the
Committee.
(d) In the event that the disposition of stock acquired
pursuant to the Plan is not covered by a then current registration statement
under the Securities Act, and is not otherwise exempt from such registration,
such Shares shall be restricted against transfer to the extent required under
the Securities Act, and the Committee may require any individual receiving
Shares pursuant to the Plan, as a condition precedent to receipt of such Shares,
to represent to the Company in writing that the Shares acquired by such
individual are acquired for investment only and not with a view to distribution
and that such Shares will be disposed of only if registered for
11
<PAGE> 12
sale under the Securities Act or if there is an available exemption for such
disposition.
15. Administrative Rules; Interpretation.
The Committee may make such rules and regulations and
establish such procedures for the administration of the Plan as it deems
appropriate. Without limiting the generality of the foregoing, the Committee may
(i) determine (A) the conditions under which an Optionee will be considered to
have retired or become disabled and (B) whether any Optionee has done so; (ii)
establish or assist in the establishment of a program (which need not be
administered in a nondiscriminatory or uniform manner) under which the Company
or a third party may make bona-fide loans on arm's-length terms to any or all
Optionees to assist such Optionees with the satisfaction of any or all of the
obligations that such Optionees may have hereunder or under which third-party
sales may be made for such purpose (including, without limitation, a loan
program under which the Company or a third party would advance the aggregate
Option Price to the Optionee and be repaid with Option stock or the proceeds
thereof and a sale program under which funds to pay for Option stock are
delivered by a third party upon the third party's receipt from the Company of
stock certificates); (iii) determine the extent, if any, to which Options or
Shares shall be forfeited (whether or not such forfeiture is expressly
contemplated hereunder); (iv) interpret the Plan and the Award Agreements
hereunder, with such interpretations to be conclusive and binding on all persons
and otherwise accorded the maximum deference permitted by law; and (v) take any
other actions and make any other determinations or decisions that it deems
necessary or appropriate in connection with the Plan or the administration or
interpretation thereof. Unless otherwise expressly provided hereunder, the
Committee, with respect to any Option, may exercise its discretion hereunder at
the time of the award or thereafter.
12
<PAGE> 13
In the event of any dispute or disagreement as to the interpretation of the Plan
or of any rule, regulation or procedure, or as to any question, right or
obligation arising from or related to the Plan, the decision of the Committee
shall be final and binding upon all persons.
16. Amendments.
The Board may amend the Plan as it shall deem advisable,
except that no amendment may adversely affect an Optionee with respect to
Options previously granted unless such amendments are in connection with
compliance with applicable laws; provided that the Board may not make any
amendment in the Plan that would, if such amendment were not approved by the
holders of the Common Stock, cause the Plan to fail to comply with any
requirement of applicable law or regulation, unless and until the approval of
the holders of such Common Stock is obtained. Without limiting the generality of
the foregoing, the Committee may (subject to such considerations as may arise
under Section 16 of the Exchange Act, or under other corporate, securities or
tax laws) take any steps it deems appropriate, that are not inconsistent with
the purposes and intent of the Plan, to take into account the provisions of
Section 162(m) of the Code.
17. Changes in Capital Structure.
If (i) the Company shall at any time be involved in a merger,
consolidation, dissolution, liquidation, reorganization, exchange of shares,
sale of all or substantially all of the assets or stock of the Company or a
transaction similar thereto, (ii) any stock dividend, stock split, reverse stock
split, stock combination, reclassification, recapitalization or other similar
change in the capital structure of the Company, or any distribution to holders
of Common Stock other than cash dividends, shall occur or (iii) any other event
shall occur which in the judgment
13
<PAGE> 14
of the Committee necessitates action by way of adjusting the terms of the
outstanding Options, then the Committee may forthwith take any such action as in
its judgment shall be necessary to preserve to the Optionees rights
substantially proportionate to the rights existing prior to such event, and to
maintain the continuing availability of Shares under Section 5 (if Shares are
otherwise then available) in a manner consistent with the intent hereof,
including, without limitation, adjustments in (x) the number and kind of shares
or other property subject to Options, (y) the Option Price, and (z) the number
and kind of shares available under Section 5. To the extent that such action
shall include an increase or decrease in the number of Shares (or units of other
property then available) subject to outstanding Options, the number of Shares
(or units) available under Section 5 shall be increased or decreased, as the
case may be, proportionately, as may be provided by Committee in its discretion.
If a Change in Control shall occur, then the Committee as
constituted immediately before the Change in Control may make such adjustments
as it, in its discretion, determines are necessary or appropriate in light of
the Change in Control (including, without limitation, the substitution of stock
other than stock of the Company as the stock optioned hereunder, the
acceleration of the exercisability of the Options, and the "cash-out of
Options), provided that the Committee determines that such adjustments do not
have a substantial adverse economic impact on the Optionee as determined at the
time of the adjustments.
The judgment of the Committee with respect to any matter
referred to in this Section 17 shall be conclusive and binding upon each
Optionee without the need for any amendment to the Plan.
18. Notices.
14
<PAGE> 15
All notices under the Plan shall be in writing, and if to the
Company, shall be delivered to the Board or mailed to its principal office,
addressed to the attention of the Board; and if to the Optionee, shall be
delivered personally, sent by facsimile transmission or mailed to the Optionee
at the address appearing in the records of the Company. Such addresses may be
changed at any time by written notice to the other party given in accordance
with this Section 18.
19. Rights as Stockholder.
Neither the Optionee nor any person entitled to exercise the
Optionee's rights in the event of death shall have any rights of a stockholder
with respect to the Shares subject to an Option, except to the extent that a
certificate for such Shares shall have been issued upon the exercise of the
Option as provided for herein.
20. Rights to Employment.
Nothing in the Plan or in any Option granted pursuant to the
Plan shall confer on any individual any right to continue in the employ or other
service of the Company or its Subsidiaries or interfere in any way with the
right of the Company or its Subsidiaries and its stockholders to terminate the
individual's employment or other service at any time.
21. Exculpation and Indemnification.
The Company shall indemnify and hold harmless the members of
the Board and the members of the Committee from and against any and all
liabilities, costs and expenses incurred by such persons as a result of any act
or omission to act in connection with the performance of such person's duties,
responsibilities and obligations under the Plan, if such person acts in good
faith and in a manner that he or she reasonably believes to be in, or not
opposed to, the best interests of the Company, to the maximum extent permitted
by law.
15
<PAGE> 16
22. Captions.
The use of captions in this Plan is for convenience. The
captions are not intended to and do not provide substantive rights.
23. Severability.
The invalidity or unenforceability of any provision of the
Plan shall not affect the validity or enforceability of any other provision of
the Plan, which shall remain in full force and effect.
24. Governing Law.
THE PLAN SHALL BE GOVERNED BY THE LAWS OF NEW YORK, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
16
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
Integrity Software Inc,
Dublin, Ireland.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 23, 2000 relating to the
financial statements of Integrity Software, Inc, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO International
Simpson Xavier Court,
Merchants Quay,
Dublin 8,
Ireland.
16 March 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
Integrity Software Inc,
Dublin, Ireland.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 23, 2000 relating to the
financial statements of Integrity Software, Inc, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Simpson Xavier
Simpson Xavier Court,
Merchants Quay,
Dublin 8,
Ireland.
16 March 2000
<PAGE> 1
Ex 23.3
CONSENT OF INDEPENDENT AUDITORS
INTEGRITY SOFTWARE INC., DUBLIN, IRELAND
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated 4 November 1999 relating to the
financial statements of Total Asset Limited, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Maxdov House Levy Gee
337/341 Chapel Street
Salford
Manchester
M3 5JY
16 March 2000
<PAGE> 1
EXHIBIT 23.4
REPORT OF INDEPENDENT AUDITORS
Integrity Software, Inc
Dublin, Ireland
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated 17 June 1998 relating to the
financial statements of Ibis Systems Limited, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Wilkins Kennedy
Bridge House,
London Bridge,
London SE1 9QR
England.
16 March 2000
<PAGE> 1
EXHIBIT 23.5
REPORT OF INDEPENDENT AUDITORS
Integrity Software Inc,
Dublin, Ireland.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated 3 August 1999 relating to the
financial statements of Computer Foundations Limited, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Scrutton Bland
Chartered Accountants &
Registered Auditors.
18 Sir Issac's Walk,
Colchester CO1 1JL
England.
16 March 2000
<PAGE> 1
EXHIBIT 23.6
REPORT OF INDEPENDENT AUDITORS
Integrity Software Inc,
Dublin, Ireland.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated 15 January 1998, as amended 24
January 2000, relating to the financial statements of Saracen Computer Systems
Limited, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Moore Stephens
Chartered Accountants &
Registered Auditors
Charterhouse
165 Newhall Street
Birmingham B3 1SW
16 March 2000
<PAGE> 1
EXHIBIT 23.7
REPORT OF INDEPENDENT AUDITORS
Integrity Software Inc,
Dublin, Ireland.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated 26 July 1999 relating to the
financial statements of Softly Aware Limited, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Hayes & Co.
Chartered Accountants &
Registered Auditors
4 St Andrews Place
Blackburn
Lancashire
BB1 8AL
16 March 2000
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS &
REGISTERED AUDITORS
Integrity Software Inc,
Dublin, Ireland.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated 28 January 2000 relating to the
financial statements of Total Assets Limited, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Haslam Tunstall
14 Bold Street,
Warrington,
Cheshire WA1 1DL,
England.
16 March 2000
<PAGE> 1
EXHIBIT 23.9
REPORT OF INDEPENDENT CHARTERED CERTIFIED
ACCOUNTANTS & REGISTERED AUDITORS
Integrity Software, Inc
Dublin, Ireland
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated 10 July 1998 relating to the
financial statements of Information Support Limited, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Karia Owen & Company
Selby Centre,
Selby Road,
London N17 8JL
March 16 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 1,965,313 1,070,492 91,473
<SECURITIES> 0 0 0
<RECEIVABLES> 12,132,456 4,681,014 499,530
<ALLOWANCES> (807,501) (462,786) 0
<INVENTORY> 532,241 207,016 0
<CURRENT-ASSETS> 16,045,999 7,244,259 595,116
<PP&E> 6,762,147 1,437,513 122,620
<DEPRECIATION> (3,034,552) (145,000) (83,484)
<TOTAL-ASSETS> 38,302,581 15,358,202 634,252
<CURRENT-LIABILITIES> 28,601,819 9,006,494 (443,362)
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 29,462 24,403 594
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 38,302,581 15,358,202 634,252
<SALES> 49,158,099 10,403,131 2,002,210
<TOTAL-REVENUES> 49,158,099 10,403,131 2,002,210
<CGS> (25,131,986) (7,230,519) (1,557,510)
<TOTAL-COSTS> (26,796,798) (2,415,646) (380,785)
<OTHER-EXPENSES> 652,427 72,205 3,677
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (113,162) (12,000) (583)
<INCOME-PRETAX> (2,118,258) 829,171 67,592
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (1,881,192) 640,159 45,471
<DISCONTINUED> (237,066) 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (2,386,566) 640,159 45,471
<EPS-BASIC> (0.21) 0.32 0.19
<EPS-DILUTED> (0.21) 0.20 0.19
</TABLE>
