AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1997
REGISTRATION NO._____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INFODATA SYSTEMS INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
VIRGINIA 16-0954695
(STATE OR JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
7372
(PRIMARY STANDARD
INDUSTRIAL CLASSIFICATION CODE NUMBER)
12150 MONUMENT DRIVE
FAIRFAX, VIRGINIA 22033
(703) 934-5205
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
12150 MONUMENT DRIVE
FAIRFAX, VIRGINIA 22033
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
JAMES UNGERLEIDER, PRESIDENT
INFODATA SYSTEMS INC.
12150 MONUMENT DRIVE
FAIRFAX, VIRGINIA 22033
(703) 934-5205
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
MONICA LORD, ESQ. DAVID ALAN MILLER, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL GRAUBARD MOLLEN & MILLER
919 THIRD AVENUE 600 THIRD AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10016
(212) 715-9100 (212) 818-8800
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
------------------
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
------------------
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
------------------
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [_]
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
Proposed
Maximum Proposed
Offering Maximum Amount of
Amount To Be Price Per Aggregate Registration
Title of Each Class of Securities to be Registered Registered (1) Share (2) Offering Price (2) Fee
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<S> <C> <C> <C> <C>
Common Stock..................................... 1,150,000 $11.00 $12,650,000.00 $3,731.75
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Representatives' Purchase Option................. 1 $100.00 $ 100.00 (3)
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Common Stock Underlying
Representatives' Purchase Option............... 100,000 $ 13.20 $ 1,320,000.00 $ 389.40
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Total............................................ -- -- -- $4,121.15
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</TABLE>
(1) Includes 150,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) promulgated under the Securities Act, based on the average
of the high and low prices for the shares reported on the Nasdaq SmallCap
Market on December 11, 1997.
(3) Pursuant to Rule 457(g), no registration fee is payable.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be
sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1997
PROSPECTUS
INFODATA SYSTEMS INC.
1,000,000 SHARES OF COMMON STOCK
All of the shares of Common Stock offered hereby ("Offering") are being sold by
Infodata Systems Inc. ("Infodata" or "Company"). The Common Stock is currently
traded on the Nasdaq SmallCap Market under the symbol "INFD." On December 12,
1997, the last sale price of the Common Stock was $11.250 per share.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AT PAGE 7 HEREOF AND "DILUTION" AT PAGE 17 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
- -------------------------------------------------------------------------------------------------------------------------------
Total(3)................................. $ $ $
===============================================================================================================================
</TABLE>
(1) Does not include a 2% nonaccountable expense allowance which the Company
has agreed to pay to Southeast Research Partners, Inc. and GKN Securities
Corp. as representatives of the Underwriters ("Representatives"). The
Company also has agreed to sell to the Representatives an option to
purchase up to 100,000 shares of Common Stock ("Representatives' Purchase
Option") and to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance, estimated at approximately $ .
(3) The Company has granted the Underwriters an option, exercisable within 45
business days from the date of this Prospectus, to purchase up to an
additional 150,000 shares of Common Stock on the same terms as set forth
above, solely for the purpose of covering over-allotments, if any. If such
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the Underwriters subject to
prior sale, when, as, and if delivered to and accepted by the Underwriters and
subject to the approval of certain legal matters by counsel and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the shares of Common Stock will be made
against payment therefor at the offices of GKN Securities Corp. in New York City
on or about , 1998.
SOUTHEAST RESEARCH PARTNERS, INC. GKN SECURITIES CORP.
, 1998
<PAGE>
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
---------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ SMALLCAP MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
This Prospectus includes references to trademarks of entities other than the
Company, which have reserved all rights with respect to their respective
trademarks.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission ("Commission"). Reports, proxy statements and other information filed
by the Company can be inspected and copied at the principal office of the
Commission, Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60651-2511
and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies can be
obtained from the Commission at prescribed rates by writing to the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such Web site is http://www.sec.gov. The Common Stock of the
Company is quoted on the Nasdaq SmallCap Market (Symbol: INFD) and such reports,
proxy statements and other information concerning the Company also can be
inspected at the offices of the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a registration statement
("Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with respect to sales of the shares of Common Stock offered
hereby. This Prospectus omits certain information contained in the Registration
Statement. For further information, reference is made to the Registration
Statement, the exhibits and financial statements filed as a part thereof, which
may be examined without charge at the office of the Commission, and photocopies
of which, or any portion thereof, may be obtained upon payment of the prescribed
fee.
Statements contained in this Prospectus as to the contents of any
agreement or other document referred to are not complete, and where such
agreement or other document is an exhibit to the Registration Statement, each
statement is deemed to be qualified and amplified in all respects by the
provisions of the exhibit.
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<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus, including the information set forth
under "Risk Factors." Each prospective investor is urged to read this Prospectus
in its entirety. Certain statements contained in this Prospectus regarding
matters that are not historical facts such as statement regarding expected
future sales cycles for the Company's products and expected revenues from
licensing arrangements are forward-looking statements (as such term is defined
in the Securities Act). Since forward-looking statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed herein under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as those discussed elsewhere in
this Prospectus.
Unless otherwise indicated, all share information in this Prospectus
gives effect to: (i) a two-for-one stock split in the form of a 100% share
distribution on the Company's Common Stock effected in August 1996; (ii) a one-
for-six Common Stock dividend paid in May 1996; and (iii) the conversion of all
outstanding shares of Preferred Stock and all accrued unpaid dividends thereon
into 199,883 shares of Common Stock effected in 1996. Except as otherwise
specified, the information in this Prospectus does not give effect to exercise
of the Underwriters' over-allotment option or the Representatives' Purchase
Option. Unless the context otherwise requires, references herein to the
"Company" or "Infodata" refer to Infodata Systems Inc. and its subsidiaries.
THE COMPANY
Infodata provides electronic document management software and systems
to corporate and government workgroups, departments and enterprises. Infodata's
newest product, Virtual File Cabinet(TM) ("VFC(TM)"), has been designed to
address what DataPrOpinion has called one of the biggest problems facing global
organizations: the fact that their critical assets are often contained in
documents stored in disparate and incompatible systems. According to
DataPrOpinion, "accessing and sharing that information among different
departments across the enterprise has been a nightmare."
VFC is a family of intranet-based software products that, together,
will enable users to easily retrieve, organize and share desktop files
irrespective of the location or type of document management system in which they
are stored with virtually no integration effort and without the need to
replicate documents. The VFC family of products consists of the VFC Document Web
Server, extensions and enablers. The VFC Document Web Server is the heart of
VFC, and is required in order to utilize all other components of VFC. This core
package consists of software installed on a server that establishes links to
documents, organizes access to stored information and acts as an independent
document sharing system. The Company has been shipping the VFC Document Web
Server since the second quarter of 1997. Extensions are software components that
are installed on an individual user's computer to add functionality to the VFC
Document Web Server. In October 1997, the Company began shipping its first
extension and expects to introduce other extensions in the future. Enablers
provide the capability to bridge multiple document management systems or
repositories. The first enablers are expected to be available for shipment in
the second quarter of 1998.
The Company's VFC technology has been endorsed by leading industry
vendors, including Lotus Development Corporation ("Lotus"), PC DOCS, Inc. ("PC
DOCS"), Verity, Inc. ("Verity"), and NovaSoft Systems, Inc. ("NovaSoft"), and
has received numerous favorable industry trade analyst and press reviews. At the
April 1997 Association for Information and Imaging Management ("AIIM") trade
show, with more than 35,000 attendees and 325 exhibitors, Imaging World Magazine
identified VFC as "#1 TO WATCH". VFC has been sold to large organizations with
significant document processing requirements, such as the Department of Energy,
AT&T Corp. ("AT&T"), State Street Bank and Trust Company ("State Street Bank")
and the U.S. Army Signal Corps.
In December 1997, the Company and Adobe Systems Incorporated ("Adobe"),
a major software company with reported 1996 revenues of greater than $750
million, entered into an agreement to cross license and market certain
technologies. Adobe has a significant presence in the Internet marketplace with,
according to Adobe, more than 20 million downloads of its Adobe Acrobat Reader
viewing product. Under the agreement, the Company expects to receive more than
$700,000 in consulting fees for modifications to certain of its technology so
that it may be incorporated into certain Adobe products. Upon successful
completion of these modifications, the Company will earn a license fee of
$1,000,000. Certain components of VFC that will be licensed to Adobe will be
incorporated in future Adobe products. In addition, certain Adobe products will
display a "VFC button" that will provide a direct
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<PAGE>
link to VFC or to VFC marketing information if the user does not have VFC. Adobe
will receive royalties based on sales of VFC arising out of this marketing
arrangement, and will also receive commissions for any VFC sales that it makes
directly.
The Company's other products include Re:mark(R), a plug-in product for
Adobe Acrobat(TM) software that enables users to mark up and review documents
electronically in a workgroup setting; Compose(R), a suite of plug-in tools for
Adobe Acrobat Exchange that automate and streamline a variety of document
production tasks; Aerial(TM), a plug-in that enables Adobe Acrobat to print any
document that needs to be magnified by formatting the document for printing on
multiple pages that are then pieced together to form one page, such as a large
spreadsheet or a CAD drawing; Signet(TM), a security solution for Web or CD-ROM
publishers who want to permit only authorized users to read their documents;
INQUIRE(R)/Text, a full-text retrieval product used for storing, indexing,
retrieving and managing large collections of documents on IBM and IBM-compatible
mainframes; and WebINQUIRE(TM), an extension product that provides Web browser
access to INQUIRE/Text collections. In addition, the Company offers document
systems consulting services, training and customer support for its own products
and those of other vendors, including Adobe, Verity, PC DOCS and Documentum,
Inc. ("Documentum"), for each of whom it is a value-added reseller ("VAR").
For nearly thirty years, the Company has developed and sold its own
products and acted as a VAR of client/server and Internet/intranet document
systems products. Recently, the Company made two acquisitions to broaden its
product and service offerings: Merex, Inc. ("Merex"), acquired in October 1995,
and AMBIA Corporation ("AMBIA"), acquired in July 1997. Merex provided a staff
experienced in Internet and client-server document technologies, and AMBIA
provided both an experienced technical staff and products focusing on document
creation, collaboration, and presentation.
The Company targets both commercial and government markets. The
Company's products and consulting services are used by many major companies,
including Ford Motor Company ("Ford"), Allen-Bradley Co., Inc. ("Allen
Bradley"), The Boeing Company ("Boeing"), RJR Nabisco, Inc. ("Nabisco"), AT&T,
Chase Manhattan Bank ("Chase"), State Street Bank and The Riggs National Bank
("Riggs"), and by government organizations, including NASA, the Department of
Energy, the U.S. Army Signal Corps, the Government Accounting Office and various
agencies within the intelligence community. Sales to government customers
represented approximately 45% of revenues in 1996 and approximately 39% for the
first nine months of 1997; however, no one customer accounted for more than 10%
of the Company's revenues in either period. The Company has repeat business from
a number of its customers, and management believes that there is a high degree
of customer satisfaction with its products, services and solutions. The
Company's existing services, training, and products provide a base of business
that complements VFC product sales. Developing custom solutions for customers
keeps the Company's technical professionals abreast of client needs,
facilitating the conception and development of new products, such as VFC, and
the improvement of existing products.
The Company conducts its sales and marketing efforts through several
channels, including a network of VARs, its own sales force, marketing alliances,
marketing communications and training programs. The Company's VARs and its sales
force receive direct support from the Company's technical staff. Consulting
services leads are also provided to the Company by the vendors for whom it acts
as a VAR. The Company believes this diversity of sales and marketing channels
permits it to distribute its products and sell its services in an efficient and
effective manner, while reducing reliance on any one sales channel.
The Company's objectives are to establish VFC as the de facto industry
standard for document access and to become a leading provider of electronic
document information management software and systems. To accomplish these
objectives, the Company intends to (i) maintain its technological leadership,
(ii) add strategic relationships (iii) expand its sales and marketing
capabilities, and (iv) pursue acquisitions of businesses, products or
technologies that complement the Company's existing business. As of the date of
this Prospectus, the Company has no agreement, arrangement or understanding with
respect to any acquisition.
In 1996, the Company's revenues were $9,560,000 with net income of
$503,000. For the first nine months of 1997, revenues were $7,033,000. The
Company incurred losses of $2,579,000 for the first nine months of 1997, due
primarily to the continuing investment in VFC technology and the expenses of
building the infrastructure to market VFC.
The Company was incorporated in the State of New York in May 1968 and
reincorporated in the State of Virginia in March 1995. The Company's principal
offices are located at 12150 Monument Drive, Fairfax, Virginia 22033. Its
telephone number is (703) 934-5205 and its fax number is (703) 934-7154.
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<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered...................................... 1,000,000 shares
Common Stock to be Outstanding after the
Offering (1).......................................... 3,749,791 shares
Use of Proceeds........................................... Sales and marketing; research and development;
repayment of institutional debt; and working
capital and general corporate purposes. See
"Use of Proceeds."
Nasdaq SmallCap Market Symbol............................. INFD
</TABLE>
- --------------------
(1) Excludes: (i) 200,000 shares of Common Stock reserved for issuance under
the Company's 1997 Employee Stock Purchase Plan; (ii) 1,511,000 shares of
Common Stock reserved for issuance upon the exercise of stock options
granted and to be granted under the Company's 1995 Stock Option Plan, of
which options to purchase 1,350,366 shares of Common Stock are outstanding;
and (iii) 4,666 warrants to purchase Common Stock issued pursuant to the
Company's 1987 Stock Warrant Purchase Plan, which terminated on January 1,
1997. See "Management--1995 Stock Option Plan" and "--Stock Purchase Plan"
and "Principal Shareholders."
RISK FACTORS
An investment in the securities offered hereby involves a high degree
of risk, including, without limitation, risks relating to the Company's
continued losses and accumulated and working capital deficits, uncertainty of
future operating results and fluctuations in quarterly operating results, change
in mix of products, decline in INQUIRE/Text sales and reliance on VFC, lengthy
sales and implementation cycles, rapid technological change and product
obsolescence, risks associated with sales channels and dependence on government
contracts and security clearances. See "Risk Factors."
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, including
the Notes thereto, included elsewhere in this Prospectus. The consolidated
statement of operations data for the years ended December 31, 1995 and 1996 and
the consolidated balance sheet data at December 31, 1996 are derived from the
Company's audited Consolidated Financial Statements, which have been audited by
Arthur Andersen LLP, independent auditors, included elsewhere in this
Prospectus. The consolidated statement of operations data for the nine months
ended September 30, 1996 and 1997 and the consolidated balance sheet data at
September 30, 1997 have been derived from unaudited interim financial statements
included elsewhere in this Prospectus and include all adjustments that the
Company considers necessary for a fair presentation of the financial position
and results of operations at that date and for such periods. The operating
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year or for any future
period.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------------------------
1995 1996 1996 1997(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues.................................... $7,049 $9,560 $7,355 $7,033
Cost of revenues............................ 4,166 5,457 4,412 4,037
Gross profit................................ 2,883 4,103 2,943 2,996
Operating expenses
Research and development................ 187 816 537 1,696
Selling, general and administrative..... 2,657 2,869 2,007 3,920
Operating income (loss)..................... 39 418 399 (2,620)
Net income (loss)........................... $ 131 $ 503 $ 453 $(2,579)
Primary net income (loss) per common
share .................................... $ 0.01 $ 0.20 $ 0.19 $(0.92)
Weighted average number of
shares outstanding........................ 1,694 2,162 2,085 2,796
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 SEPTEMBER 30, 1997
-------------------- ---------------------------------------------
ACTUAL ACTUAL(1) AS ADJUSTED(2)
-------------------- ---------------------------------------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................ $1,266 $ 278 $
Working capital ..................................... 1,612 (892)
Total current assets................................. 3,920 3,156
Goodwill............................................. 274 2,624
Total assets......................................... 4,891 6,514
Current liabilities.................................. 2,308 4,048
Total liabilities.................................... 2,435 4,135
Shareholders' equity................................. $2,456 $2,379 $
</TABLE>
(1) Includes results of operations of AMBIA since July 22, 1997. The
Consolidated Financial Statements of AMBIA and the Notes thereto are
included elsewhere in this Prospectus.
(2) Gives effect to the sale of the shares of Common Stock offered hereby and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
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<PAGE>
RISK FACTORS
The securities offered hereby involve a high degree of risk.
Accordingly, in analyzing an investment in these securities, prospective
investors should carefully consider, along with the other matters referred to
herein, the following risk factors. No investor should participate in this
Offering unless such investor can afford a complete loss of his investment.
CONTINUED LOSSES; ACCUMULATED AND WORKING CAPITAL DEFICITS; UNCERTAINTY OF
FUTURE OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
For the nine months ended September 30, 1997, due primarily to the
continuing investment in VFC technology and the expenses of building the
infrastructure to market VFC, the Company reported a net loss of $2,579,000. In
addition, as of September 30, 1997, the Company had an accumulated deficit of
$9,246,000 and a working capital deficit of $892,000. The Company expects to
continue to incur net losses through at least the end of 1998. Future operating
results will depend upon many factors, including the demand for the Company's
products, the effectiveness of the Company's efforts to integrate various
products it has developed or acquired and to achieve the desired levels of sales
from such product integration, the level of product and price competition, the
length of the Company's sales cycle, seasonality of individual customer buying
patterns, the size and timing of individual transactions, the delay or deferral
of customer purchases and implementations, the budget cycles of the Company's
customers, the timing of new product introductions and product enhancements by
the Company and its competitors, the mix of sales by products, services and
distribution channels, acquisitions by competitors, the ability of the Company
to develop and market new products and control costs, and general domestic
economic and political conditions. As a result of these factors, revenues and
operating results for any quarter are subject to variation and are not
predictable with any significant degree of accuracy. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CHANGE IN MIX OF PRODUCTS; DECLINE IN INQUIRE/TEXT SALES; RELIANCE ON VFC
The Company's historical consolidated financial statements include
results of operations relating to sales of its INQUIRE/Text products and
maintenance services related to INQUIRE/Text. INQUIRE/Text maintenance revenues
represented 25% of the Company's revenues in 1996 and approximately 23% for the
first nine months of 1997. INQUIRE/Text-related revenues decreased 14% in 1996,
as compared to 1995, and a similar decline is expected in 1997. Declines are
expected each year as the market matures and customers either migrate off
mainframe platforms or opt not to renew maintenance contracts. The Company
expects the VFC family of products to account for a substantial part of its
future revenues. As a result, factors adversely affecting the pricing of or
demand for VFC products, such as competition or technological change, could have
a material adverse effect on the Company's business, operating results and
financial condition. The Company's future performance will depend, in
significant part, on the successful development, introduction and market
acceptance of new and enhanced versions of VFC products. The success of the
Company's VFC family of products, the first release of which was shipped in the
second quarter of 1997, will depend upon the acceptance of intranet and
Web-based technologies. As the commercial market for products for use on
corporate intranets has only recently begun to develop, there can be no
assurance that the Company's new products or enhancements will meet customer
requirements or be compatible with emerging standards. There can be no assurance
that the Company will be successful in developing and marketing VFC and its
related products. As a result of the changing mix of products and services
offered by the Company, the Company's historical consolidated financial
statements may not be indicative of future operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Products and Services," "--Sales and Marketing," "--Research and
Development" and "--Competition."
LENGTHY SALES AND IMPLEMENTATION CYCLES
The license of the Company's software products and the use of the
Company's systems solutions services generally require the Company to provide a
significant level of education to prospective customers regarding the use and
benefits of the Company's products, resulting in a lengthy sales cycle
(typically between three and six
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<PAGE>
months). Additionally, the implementation by customers of the Company's products
may involve a significant commitment of resources by such customers over an
extended period of time. For these and other reasons, the sales and customer
implementation cycles are subject to a number of significant delays over which
the Company has little or no control. Delay in the sale or customer
implementation of the Company's products and services could have a material
adverse effect on the Company's business and operations and cause the Company's
operating results to vary significantly from quarter to quarter. Therefore, the
Company believes that its quarterly operating results are likely to vary in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Sales and Marketing."
RAPID TECHNOLOGICAL CHANGE; PRODUCT OBSOLESCENCE
The document management software market is characterized by rapid
technological developments, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements, which
often lead to product obsolescence. There can be no assurance that the Company
will be successful in developing and marketing enhancements to its existing
products, or new products, on a timely basis or that any new or enhanced
products will adequately address the changing needs of the marketplace. If the
Company is unable to develop and introduce new products or enhancements to
existing products in a timely manner in response to changing market conditions,
technological changes or customer requirements, the Company's business and
operating results could be adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business--Competition" and "--Research & Development."
COMPETITION
The market for the Company's products and services is intensely
competitive and subject to rapid change caused by new product introductions and
other market activities of industry participants. The Company currently
encounters direct and indirect competition from a number of public and private
companies involved in groupware, document management, and collaboration
software, including Xerox Corporation ("Xerox"), Open Text Corporation ("Open
Text"), Net-it Software Corporation ("Net-it Software"), Hummingbird
Communications Ltd. ("Hummingbird") and Fulcrum Technologies, Inc. ("Fulcrum
Technologies"). The Company is aware that other companies have announced
products with some features similar to VFC. In addition, the Company may face
competition from new market entrants. Competitors may have longer operating
histories, significantly greater financial, marketing, service, support,
technical and other resources and name recognition, and a larger installed
customer base than the Company. As a result, such competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sale of their products than the Company. See "Business--Competition."
RISKS ASSOCIATED WITH SALES CHANNELS
The Company's ability to achieve significant revenue growth in the
future will depend, in large part, upon its ability to establish and maintain
relationships with VARs and strategic alliances with systems integrators and
computer software and hardware distributors, its ability to attract qualified
sales personnel and the success of its direct sales campaigns and telemarketing
efforts. Furthermore, the Company's ability to market its products successfully,
including its new products under development, will depend on its ability to
adapt its sales channels to address the evolving markets for such products. The
failure of the Company to expand its VAR network, enter into new strategic
alliances and recruit and train its own sales personnel, and the failure of the
Company to adapt its marketing methods and sales channels to address market
needs, could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the gross profit margin on
indirect sales will be lower than gross profit margins on direct sales. See
"Business--Strategy" and "--Sales and Marketing."
Even if the Company is successful in expanding its sales channels,
there can be no assurance that its sales channels will be successful in
increasing the Company's revenue to a sufficient extent to cover the increased
expenses associated with such expansion. Moreover, the Company's agreements with
its VARs generally are nonexclusive and may be terminated by either party at any
time without cause. The Company's VARs are not
- 8 -
<PAGE>
within the control of the Company, are not obligated to purchase products from
the Company and may also represent or refer product lines of the Company's
competitors. VARs' sales tend to fluctuate based on their implementation
schedules and internal resources, which are beyond the control of the Company.
There can be no assurance that VARs will continue their current relationships
with the Company or that they will not give higher priority to the sale or
referral of other products, which could include products of the Company's
competitors. A reduction in sales efforts or discontinuance of sales or
referrals of the Company's products by its VARs could lead to reduced sales and
could materially adversely affect the Company's business, operating results and
financial condition. See "Business--Sales and Marketing."
DEPENDENCE ON GOVERNMENT CONTRACTS; SECURITY CLEARANCES
Sales to agencies of the United States Government account for a
significant portion of the Company's revenues. The Company believes that the
success and development of its business will continue to be dependent on its
ability to participate in government contract programs. Accordingly, the
Company's financial performance may be directly affected by changes in
government contracting policies. Among the factors that could materially
adversely affect the Company's government contracting business are budgetary
constraints, budget cycles, changes in fiscal policies or available funding,
changes in government programs or requirements, including curtailment of the
government's use of technology service firms, the adoption of new laws or
regulations, technological developments and general economic conditions.
The Company's government contracts contain standard termination clauses
that permit the government to terminate the contracts at any time, without
cause, for the convenience of the government. In addition, government contracts
require compliance with various procurement regulations. The adoption of new or
modified procurement regulations could materially adversely affect the Company
or increase its costs of competing for or performing government contracts. Any
violation of these regulations could result in the termination of the contracts,
imposition of fines, damages and/or debarment from award of additional
government contracts. The termination of the Company's government contracts or
the imposition of fines, damages or suspension and/or debarment from bidding on
additional government contracts could have a material adverse effect on the
Company. Most government contracts are also subject to modification or
termination in the event of changes in funding, and the Company's contractual
costs and revenue are subject to adjustment as a result of audits by the Defense
Contract Audit Agency ("DCAA") and other government auditors. Further,
government contract awards may be subject to protest by competitors.
Many of the Company's government contracts require the Company and
certain of its employees to maintain security clearances complying with the
requirements of various government agencies. If these clearances are lost, it
could have a material adverse effect on the Company. See "Business--Customers."
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyrights,
trademarks, trade secrets, confidentiality procedures and contractual provisions
to protect its proprietary rights. For example, the Company licenses rather than
sells its software. The licenses impose certain restrictions on the licensees'
ability to utilize the software. In addition, the Company seeks to avoid
disclosure of its trade secrets, including, but not limited to, (i) requiring
those persons with access to the Company's proprietary information to execute
confidentiality agreements with the Company and (ii) restricting access to the
Company's source codes. Trade secret and copyright laws afford only limited
protection. Although the Company may apply for certain design patents, the
Company presently has no patents or patent applications pending. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and while the Company may be unable to determine the
extent to which piracy of its software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to as great an extent
as the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not develop similar technology independently. There
can be no assurance, that third parties will not claim infringement by the
Company
- 9 -
<PAGE>
with respect to current or future products. The Company expects software product
developers increasingly to be subject to infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition. In addition, the Company also relies
on certain software that it licenses from third parties, including software that
is integrated with internally developed software and used in the Company's
products to perform key functions. There can be no assurances that such firms
will remain in business, that they will continue to support their products or
that their products otherwise will continue to be available to the Company on
commercially reasonable terms. See "Business--Proprietary Rights."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, in significant part, upon the continued
services of its key technical, marketing, sales and management personnel,
including James Ungerleider, its President and Chief Executive Officer, Richard
Tworek, its Chief Technology Officer and Executive Vice President, and Razi
Mohiuddin, its Vice President, and on its ability to continue to attract,
motivate and retain highly qualified employees. The loss of key personnel could
have a material adverse effect on the Company's business, operating results and
financial condition. Competition for technical, marketing, sales and management
employees is intense and the process of locating personnel with the combination
of skills and attributes required to execute the Company's strategy can be
difficult, time-consuming and expensive. There can be no assurance that the
Company will be successful in attracting, assimilating or retaining highly
skilled technical, management, sales and marketing personnel. The failure to
attract, hire, assimilate or retain such personnel could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Management."
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this Offering, the present directors, executive
officers and principal shareholders of the Company and their affiliates will
beneficially own approximately 33.5% of the Company's Common Stock. As a result,
these shareholders will be able to exercise significant influence over all
matters requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. Such concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Principal Shareholders."
PRODUCT DEFECTS
Due to the complexity and sophistication of the Company's software
products, the Company's products from time to time contain defects or "bugs"
that can be difficult to correct. Furthermore, as the Company continues to
develop and enhance its products, there can be no assurance that the Company
will be able to identify and correct defects in such a manner as will permit the
timely introduction of such products. Moreover, the Company may from time to
time discover defects only after its systems have been used by many customers.
There can be no assurance that, in the future, software defects will not cause
delays in product introductions and shipments, result in increased costs,
require design modifications, or impair customer satisfaction with the Company's
products. Any such event could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Research and
Development."
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. However, it is possible that the limitation of liability
provisions contained in the Company's license agreements may not be effective
under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support
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<PAGE>
of products by the Company may entail the risk of such claims, and there can be
no assurance that the Company will not be subject to such claims in the future.
A successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business--Customers."
ACQUISITIONS
The Company may, from time to time, pursue acquisitions of businesses,
products or technologies that complement or expand its existing business and, in
fact, acquired Merex in 1995 and AMBIA in 1997. The Company evaluates potential
acquisition opportunities from time to time, including those that could be
material in size and scope. Acquisitions involve a number of risks, including
the diversion of management's attention from day-to-day operations to the
assimilation of the operations and personnel of the acquired companies and the
incorporation of acquired operations, customer bases, products or technologies.
Such acquisitions could also have adverse short-term effects on the Company's
operating results and could result in dilutive issuances of equity securities,
the incurrence of debt and the loss of key employees. In addition, many business
acquisitions must be accounted for as purchases and, because most
software-related acquisitions involve the purchase of significant intangible
assets, these acquisitions typically result in substantial amortization charges
and charges for acquired research and development projects, which could have a
material adverse effect on the Company's operating results. There can be no
assurance that any such acquisitions will occur or that, if such acquisitions do
occur, the acquired businesses, customer bases, products or technologies will
generate sufficient revenue to offset the associated costs or effects. See
"Business--Strategy."
BROAD DISCRETION IN ALLOCATION OF NET PROCEEDS; USE OF NET PROCEEDS TO REPAY
DEBT
Approximately $___, or ___% (assuming a $_____ per share offering
price), of the estimated net proceeds of the Offering has been allocated to
working capital and general corporate purposes. Accordingly, the Company's
management will have broad discretion as to the application of these proceeds. A
portion of the proceeds allocated to working capital may be used by the Company
to pay salaries, including salaries of its executive officers, and for
acquisitions. Although the Company currently has no agreement, arrangement or
understanding with respect to any acquisition, should an acquisition opportunity
be identified by the Company, the Board may have the ability to approve the
acquisition without seeking shareholder approval. Approximately $1,000,000 of
the estimated net proceeds of the Offering has been allocated to repayment of
institutional debt and will not be available to be used for other purposes. See
"Use of Proceeds."
DILUTION
The public offering price is substantially higher than the net tangible
book value per share of the currently outstanding Common Stock. Investors
purchasing shares of Common Stock in the Offering will therefore experience
immediate dilution in net tangible book value of $ ___ per share (approximately
__%), assuming a public offering price of $______ per share. See "Dilution."
LACK OF DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any dividends in the foreseeable future.
See "Dividend Policy."
LOW TRADING VOLUME; POSSIBLE VOLATILITY OF STOCK PRICE
For the nine months ended September 30, 1997, the average daily trading
volume of the Common Stock was approximately 8,892 shares. This low trading
volume may have had a significant effect on the market price of the Common Stock
and, accordingly, historical prices may not necessarily be indicative of market
prices in a more liquid market. The trading price of the Company's Common Stock
is subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant orders, announcements of
technological innovations or new products by the Company or its competitors,
general conditions in the software
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<PAGE>
and computer industries and other events or factors, including factors outside
the Company's control. In addition, the stock market in general has experienced
extreme price and volume fluctuations which have affected the market price for
many companies in industries similar or related to that of the Company and which
have been unrelated to the operating performance of these companies. These
market fluctuations may adversely affect the market price of the Company's
Common Stock. See "Price Range of Common Stock."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BYLAW AND STATUTORY PROVISIONS;
POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company's Articles of Incorporation ("Articles") and Bylaws, as
well as Virginia corporate law, contain certain provisions that could have the
effect of making it more difficult for a third party to acquire, or discouraging
a third party from attempting to acquire, control of the Company. These
provisions could limit the price that certain investors might be willing to pay
in the future for shares of the Company's Common Stock. Certain of these
provisions allow the Company to issue, without shareholder approval, preferred
stock having rights senior to those of the Common Stock. Other provisions impose
various procedural and other requirements that could make it more difficult for
shareholders to effect certain corporate actions. See "Description of
Securities--Virginia Anti-Takeover Law and Certain Charter and Bylaw
Provisions."
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL EXERCISE OF OPTIONS AND WARRANTS
Sales of the Company's Common Stock in the public market after this
Offering could adversely affect the market price of the Common Stock or
outstanding warrants. See "Shares Eligible for Future Sale."
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
As of the date of this Prospectus, there are outstanding options to
purchase 1,350,366 shares of Common Stock and outstanding warrants to purchase
4,666 shares of Common Stock. In addition, in connection with this Offering, the
Company will issue the Representatives' Purchase Option. The exercise of such
outstanding options and warrants would dilute the then-existing shareholders'
percentage ownership of the Company's stock, and any sales in the public market
of Common Stock underlying such securities could adversely affect prevailing
market prices for the Common Stock. Moreover, the terms upon which the Company
would be able to obtain additional equity capital could be adversely affected
since the holders of such securities can be expected to exercise them at a time
when the Company would, in all likelihood, be able to obtain any needed capital
on terms more favorable to the Company than those provided by such securities.
See "Description of Securities" and "Underwriting."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM
The Company's Common Stock is listed on The Nasdaq SmallCap Market
("Nasdaq"). In August 1997, the Company received a notice from Nasdaq that it
was not in compliance with Nasdaq's requirement that listed issuers maintain a
minimum of $1,000,000 in capital and surplus. In November 1997, the Company
appeared at a hearing before a Nasdaq Listing Qualifications Panel to
demonstrate compliance with the minimum capital and surplus requirement and to
request continued listing on Nasdaq. The panel agreed to allow the Company to
continue to be listed if (i) on or before February 16, 1998, the Company makes a
public filing with the Commission and Nasdaq evidencing the closing of this
Offering and a minimum of $5,500,000 in net tangible assets and (ii) the Company
is able to evidence compliance with Nasdaq's new standards for continued
listing, which go into effect in February 1998. Such public filing is a
condition to the closing of this Offering. Thereafter, the Company must continue
to meet Nasdaq's standards for continued listing. The failure to meet these
standards may result in the delisting of the Company's securities from Nasdaq
and trading, if any, in the Company's securities would thereafter be conducted
on the OTC Bulletin Board. If such delisting occurs, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, the Company's securities. In addition, if the Common Stock were to
become delisted from trading on Nasdaq and the trading price of the Common Stock
were to fall below $5.00 per share, trading in the Common Stock also would be
subject to the requirements of certain rules promulgated under the Exchange Act
that require additional disclosure by broker-dealers in connection with any
trades involving a stock defined as a penny stock (generally, any non-Nasdaq
equity security that has a market price
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<PAGE>
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage them
from effecting transactions in the Company's securities, which could severely
limit the liquidity of the Company's securities and the ability of purchasers in
this Offering to sell such securities in the secondary market.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be approximately $[ ] ($[ ] if the Underwriters'
over-allotment option is exercised in full), assuming a public offering price of
$[ ] per share, and after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company. The Company intends to
apply the net proceeds as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
- ----------------------- ------ -------
<S> <C> <C>
Sales and Marketing ........................................... $ 2,250,000 %
Research and Development....................................... 2,000,000
Repayment of Institutional Debt ............................... 1,000,000
Working Capital and General Corporate Purposes................. ------------ ------------
Total ..................................... ============ ============
</TABLE>
Approximately $2,250,000 of the net proceeds of this Offering are
expected to be used to expand the Company's sales and marketing activities by
hiring additional sales and marketing personnel, increasing advertising,
participating in trade shows and other promotional activities, developing
indirect sales channels and enhancing the Company's customer service
capabilities. See "Business--Sales and Marketing."
Approximately $2,000,000 of the net proceeds of this Offering are
expected to be used for research and development, including enhancement of
existing features and development of new functions for the VFC family of
products and the salaries and related payroll costs for new and existing
research and development personnel. See "Business--Research and Development."
Approximately $1,000,000 of the net proceeds of this Offering are
expected to be used to repay institutional debt owed to Merrill Lynch Business
Financial Services, Inc. pursuant to a line of credit maintained by the Company
for up to $1,000,000 based upon eligible receivables. Interest on this debt is
calculated at a per annum rate equal to the sum of 2.9% plus the 30-day
commercial paper rate. Currently, this per annum rate approximates prime. The
facility expires in December 1997, and management expects that the line will be
renewed through July 1998. The line of credit is contingent upon the Company
continuing to meet certain financial covenants. At November 28, 1997, the
Company had outstanding borrowings of approximately $986,000, including accrued
interest, under this line of credit. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The balance of the net proceeds of this Offering are expected to be
allocated to working capital and general corporate purposes, including payment
of salaries, including salaries of its executive officers, and acquisitions. As
of the date of this Prospectus, the Company has no agreement, arrangement or
understanding with respect to any acquisition. If the Underwriters exercise the
over-allotment option in full, the Company will realize additional net proceeds
of $____________, which will be added to working capital. Management will have
significant discretion regarding how and when such proceeds will be applied.
The allocation of the net proceeds of the Offering set forth above
represents the Company's best estimates based upon its current plans and certain
assumptions regarding industry and general economic conditions and the Company's
future revenues and expenditures. If any of these factors change, the Company
may find it necessary or advisable to reallocate some of the proceeds within the
above-described categories.
Proceeds not immediately required for the purposes described above will
be invested temporarily, pending their application as described above, in
short-term United States government securities, short-term bank certificates of
deposit, money market funds or other investment grade, short-term,
interest-bearing instruments.
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<PAGE>
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations (including the costs associated with its
growth strategy), that the proceeds of the Offering, together with its existing
financial resources and cash flow from operations, should be sufficient to
satisfy its anticipated cash requirements through the end of the year 2000;
however, there can be no assurance that this will be the case. The Company's
actual cash requirements may vary materially from those now planned and will
depend upon numerous factors, including the general market acceptance of the
Company's new and existing products and services, the growth of the Company's
distribution channels, technological advances, activities of competitors and
other factors. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock. The Company expects to retain all available earnings generated by its
operations for the development and growth of its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently traded on the Nasdaq SmallCap
Market ("Nasdaq") under the symbol "INFD." The following table sets forth, for
each of the periods indicated, the high and low sale prices for the Common
Stock, as reported by Nasdaq, which is the principal trading market for the
Company's securities. These per share prices represent inter-dealer prices, do
not include retail markups, markdowns or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
High Low
1995
<S> <C> <C>
First Quarter................................................. $ 2.57 $ 1.29
Second Quarter ............................................... 1.82 1.45
Third Quarter................................................. 2.57 1.39
Fourth Quarter................................................ 2.03 1.50
1996
First Quarter................................................. $ 3.27 $ 1.93
Second Quarter................................................ 7.87 2.81
Third Quarter................................................. 10.12 4.25
Fourth Quarter................................................ 12.62 4.62
1997
First Quarter................................................. $ 12.63 $ 6.75
Second Quarter................................................ 8.63 6.00
Third Quarter................................................. 10.38 7.00
Fourth Quarter (through December 12, 1997).................... 12.75 8.50
</TABLE>
On December 12, 1997, the closing sale price of the Common Stock as
reported by Nasdaq was $11.25 per share. As of such date, there were 2,749,791
shares of Common Stock outstanding, held of record by 629 holders. As of such
date, the Company believes that there are more than 1,645 beneficial holders of
its Common Stock.
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization
of the Company (i) as of September 30, 1997, and (ii) as adjusted to reflect the
consummation of the Offering (assuming a price of $___ per share) and the
application of the estimated net proceeds therefrom, after deducting the
underwriting discounts and commissions and estimated offering expenses. The
table should be read in conjunction with the Consolidated Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------
Actual As Adjusted
-------------------------------------
(in thousands)
<S> <C> <C>
Short-term debt .................................................. $ 958 $ 0
Shareholders' equity:
Preferred Stock, par value $1.00 per share:
340,000 shares authorized, no shares
issued and outstanding................................. __ __
Common Stock, par value $.03 per share:
6,666,666 shares authorized, 2,742,377
shares issued and outstanding; 3,942,377
shares issued and outstanding as adjusted................ 82 112
Additional paid-in capital...................................... 11,543
Accumulated deficit............................................. (9,246)
--------- _________
Total shareholders' equity............................... 2,379
--------- _________
Total capitalization (including short-term debt).................. $ 3,337 $
========= =========
</TABLE>
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<PAGE>
DILUTION
As of September 30, 1997, the Company's net tangible book value was
approximately $(357,000), or $(0.13) per share. Net tangible book value per
share represents the amount of tangible assets less total liabilities, divided
by the number of shares of Common Stock outstanding. After giving effect to the
consummation of the Offering at an assumed price of $[ ] per share (after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company), the net tangible book value of the Company as
of September 30, 1997 would have been $[ ], or $[ ] per share. This represents
an immediate increase in net tangible book value of $[ ] per share to existing
shareholders and an immediate dilution of $[ ] per share to new investors
purchasing the Common Stock in this Offering. Dilution is determined by
subtracting net tangible book value per share after the Offering from the amount
of cash paid by a new investor for a share of Common Stock.
<TABLE>
<CAPTION>
The following table illustrates this per share dilution:
<S> <C> <C>
Public offering price per share...................................... $
Net tangible book value per share as
of September 30, 1997 ....................................
Increase per share attributable to this Offering............ $
______
Net tangible book value per share after this Offering................ ______
Dilution per share to new investors.................................. $
======
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, including
the Notes thereto, included elsewhere in this Prospectus. The consolidated
statement of operations data for the years ended December 31, 1995 and 1996 and
the consolidated balance sheet data at December 31, 1996 are derived from the
Company's Consolidated Financial Statements, which have been audited by Arthur
Andersen LLP, independent auditors, included elsewhere in this Prospectus. The
consolidated statement of operations data for the nine months ended September
30, 1996 and 1997 and the consolidated balance sheet data at September 30, 1997
have been derived from unaudited interim financial statements included elsewhere
in this Prospectus and include all adjustments that the Company considers
necessary for a fair presentation of the financial position and results of
operations at that date and for such periods. The operating results for the nine
months ended September 30, 1997 are not necessarily indicative of the results to
be expected for the full year or for any future period.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------------------------
1995 1996 1996 1997(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues.................................... $7,049 $9,560 $7,355 $7,033
Cost of revenues............................ 4,166 5,457 4,412 4,037
Gross profit................................ 2,883 4,103 2,943 2,996
Operating expenses
Research and development................ 187 816 537 1,696
Selling, general and administrative..... 2,657 2,869 2,007 3,920
Operating income (loss)..................... 39 418 399 (2,620)
Net income (loss)........................... $ 131 $ 503 $ 453 $(2,579)
Primary net income (loss) per common
share .................................... $ 0.01 $ 0.20 $ 0.19 $(0.92)
Weighted average number of
shares outstanding........................ 1,694 2,162 2,085 2,796
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 SEPTEMBER 30, 1997
-------------------- ---------------------------------------------
ACTUAL ACTUAL(1) AS ADJUSTED(2)
-------------------- ---------------------------------------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................ $1,266 $ 278 $
Working capital ..................................... 1,612 (892)
Total current assets................................. 3,920 3,156
Goodwill............................................. 274 2,624
Total assets......................................... 4,891 6,514
Current liabilities.................................. 2,308 4,048
Total liabilities.................................... 2,435 4,135
Shareholders' equity................................. $2,456 $2,379 $
</TABLE>
(1) Includes results of operations of AMBIA since July 22, 1997. The
Consolidated Financial Statements of AMBIA and the Notes thereto are
included elsewhere in this Prospectus.
(2) Gives effect to the sale of the shares of Common Stock offered hereby and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below should be read in conjunction with
the Consolidated Financial Statements of the Company, including the Notes
thereto, included elsewhere in this Prospectus.
COMPANY OVERVIEW
The Company provides electronic document management software and
systems to corporate and government workgroups, departments and enterprises.
Prior to 1994, substantially all of the Company's business was derived from the
sale, support, and maintenance of INQUIRE/Text, a full-text retrieval product
used for storing, indexing, retrieving and managing large collections of
documents on IBM and IBM-compatible mainframes. The Company expects INQUIRE/Text
revenues to decrease over time due to the decreasing reliance of users on
mainframe hardware and the maturity of the market. In 1994, the Company shifted
its focus to providing a broader range of document and information management
solutions deliverable through client/server and intranet technology. As a
result, client/server, intranet consulting revenues and third-party software
product revenues increased from 23% of the Company's revenues in 1995 to 51% in
1996 and to 55% for the first three quarters of 1997.
In January 1997, the Company introduced VFC, and began to market VFC in
the second quarter of 1997. The Company anticipates that VFC will constitute an
increasing percentage of the Company's revenue for the foreseeable future. In
December 1997, the Company entered into an agreement with Adobe to cross-license
and market certain technologies. The Company expects to receive more than
$700,000 in consulting fees for modifications to certain of its technology so
that it can be incorporated into future Adobe products. Upon successful
completion of these modifications, the Company will earn a license fee of
$1,000,000. Although the Company has received approximately 50% of the licensing
fees under this agreement, any licensing fees received by the Company are
subject to refund if the Company fails to deliver an acceptable final product to
Adobe. The Company will not recognize any revenue with respect to these fees
until the product has been accepted and the fees are no longer refundable, which
is expected to occur in 1998. The Company will recognize revenue from its
product development services in both 1997 and 1998 on a percent of completion
basis. Certain components of VFC that will be licensed to Adobe will be
incorporated in future Adobe products. In addition, certain Adobe products will
display a "VFC Button" that will provide a direct link to VFC or to VFC
marketing information if the user does not have VFC. Adobe will receive
royalties based on any sales of VFC arising out of this marketing arrangement,
and will also receive commissions for any VFC sales that it makes directly.
As of the date of this Prospectus, VFC has been sold to large
organizations with significant document processing requirements, such as the
Department of Energy, AT&T, State Street Bank and the U.S. Army Signal Corps.
Due to limited sales and support resources and the recent introduction of VFC,
the Company has focused on selling VFC to customers that have multiple
applications that can utilize VFC. The Company expects that these customers will
help it in the future both as references and through further sales within the
customers' organizations. Evaluation copies of VFC software have been installed
at a number of large organizations. Most of these installations have resulted in
orders, although a few customers have returned the evaluation software without
placing an order. The sales cycle for initial sales of VFC has ranged from three
to six months. The Company believes that the sales cycle for repeat sales to
customers may be shorter. VFC is licensed at a price of $4,995. The Company
plans to increase the price of VFC with its next release, which will have
additional features. The Company also provides support packages and extension
products at an additional price. The Company offers annual maintenance for VFC
at a cost of 20% of the purchase price.
On October 11, 1995, the Company purchased substantially all the assets
and assumed certain liabilities of Merex in consideration of 210,000 shares of
the Company's common stock with a fair value estimated by the Company's Board of
Directors at $1.125 per share. The total acquisition cost was approximately
$361,000, including the direct costs of acquisition. Approximately $60,000 was
allocated to identified acquired intangibles, $312,000 to goodwill, including
purchase accounting adjustments of approximately $25,000 relating to termination
of the Merex office lease, and $35,000 relating to costs the Company is
obligated to pay in connection with the registration of securities held by the
former shareholders of Merex. For the year ended December 31, 1994, Merex had
revenues of $2,174,000 and net income of $185,000.
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On July 22, 1997, the Company acquired all of the common stock of AMBIA
in consideration for 400,000 shares of the Company's Common Stock with a fair
value as determined by the Company's Board of Directors of $5.425 per share. The
total acquisition cost was approximately $2,300,000, including the direct costs
of the acquisition. Approximately $25,000 was allocated to acquired tangible
assets, $60,000 to acquired intangible assets, and $2,213,000 to goodwill. The
acquisition was treated as a purchase. For the eight months ended December 31,
1996 (AMBIA was incorporated on May 1, 1996), AMBIA's revenues were $558,000,
and its net loss was $3,000.
AMBIA is now a subsidiary of the Company.
At December 31, 1996, the Company had a net operating loss ("NOL")
aggregating approximately $5,347,000 available to effect future taxable income.
Under Section 382 of the Internal Revenue Code of 1986, as amended ("Code"),
utilization of prior NOLs is limited after an ownership change, as defined in
Section 382, to an amount equal to the value of the loss corporation's
outstanding stock immediately before the date of the ownership change multiplied
by the federal long-term tax-exempt rate in effect during the month that the
ownership change occurred. As a result of the AMBIA acquisition, the Company is
subject to limitations on the use of its NOL as provided under Section 382.
Accordingly, there can be no assurance that a significant amount of NOLs will be
utilized by the Company.
Future operating results will depend upon many factors, including the
demand for the Company's products, the effectiveness of the Company's efforts to
integrate various products it has developed or acquired and to achieve the
desired levels of sales from such product integration, the level of product and
price competition, the length of the Company's sales cycle, seasonality of
individual customer buying patterns, the size and timing of individual
transactions, the delay or deferral of customer purchases and implementations,
the budget cycles of the Company's customers, the timing of new product
introductions and product enhancements by the Company and its competitors, the
mix of sales by products, services and distribution channels, acquisitions by
competitors, the ability of the Company to develop and market new products and
control costs, and general domestic economic and political conditions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Revenues increased by $535,000, or 21%, from $2,502,000 for the three
months ended September 30, 1996 to $3,037,000 for the three months ended
September 30, 1997. The Company derived revenues from consulting services, sales
of third party products, sales of INQUIRE/Text-related products and services and
maintenance related thereto, and sales of the Company's software products.
During the quarter, VFC sales were minimal. Revenues from consulting services
and third party products, as well as training, increased by $261,000, or 28%,
from $933,000 for the three months ended September 30, 1996, to $1,194,000 for
the three months ended September 30, 1997, due to an increase in product sales,
and, to a lesser extent, related consulting services. AMBIA contributed $253,000
to the Company's revenues for the quarter ended September 30, 1997.
Gross profit increased by $247,000, or 21%, from $1,168,000 for the
three months ended September 30, 1996, to $1,415,000 for the three months ended
September 30, 1997. The increase was due to the increase in revenue for the
quarter and the acquisition of AMBIA. Gross profit as a percent of sales was
consistent for the three months ended September 30, 1997 compared to the same
period in 1996.
The Company continues to invest heavily in the development of VFC. This
resulted in an increase of $470,000, or 167%, in research and development
expenditures from $281,000 for the three months ended September 30, 1996, to
$751,000 for the three months ended September 30, 1997. The Company expects this
investment to increase throughout 1998 and for the foreseeable future as VFC
product enhancements and capabilities are added.
Selling, general and administrative expenses increased by $679,000, or
92%, from $739,000 for the three months ended September 30, 1996, to $1,418,000
for the three months ended September 30, 1997. The increase is due primarily to
the expansion of the sales and marketing staff and an increase in marketing
expenses associated with VFC. The Company expects these expenses to increase
throughout 1998 as new versions of VFC are released, new sales channels are
established and potential markets are explored.
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Interest income decreased by $9,000, or 39%, from $23,000 for the three
months ended September 30, 1996 to $14,000 for the three months ended September
30, 1997. The decrease was due to lower balances of cash, cash equivalents, and
short term investments during the three months ended September 30, 1997,
compared to the three months ended September 30, 1996. Interest expense
increased by $9,000, or 450%, from $2,000 for the three month period ended
September 30, 1996 to $11,000 for the three months ended September 30, 1997.
This was due to the increased utilization of a line of credit during the third
quarter.
As a result of the foregoing, the Company reported a net loss of
$754,000 for the three months ended September 30, 1997, compared to net income
of $169,000 for the same period in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Revenues decreased by $322,000, or 4%, from $7,355,000 for the nine
months ended September 30, 1996 to $7,033,000 for the nine months ended
September 30, 1997. The primary cause of this decrease was a decline in revenues
from consulting services and third party product sales of $735,000, or 26%, from
$2,867,000 for the nine months ended September 30, 1996 to $2,132,000 for the
nine months ended September 30, 1997, resulting from the shift of certain of the
Company's engineering personnel to research and development to accelerate the
development of VFC. In addition, INQUIRE/Text-related revenue decreased by
$118,000, or 5%, from $2,362,000 for the nine months ended September 30, 1996 to
$2,244,000 for the nine months ended September 30, 1997. Due to the maturity of
the product and the market, the Company expects INQUIRE/Text-related revenue to
continue to decline. The decrease in revenues was partially offset by AMBIA
revenues of $253,000 from July 22, the date of its acquisition, to September 30,
1997 and by an increase in intelligence-related revenues of $278,000, or 13%,
from $2,127,000 for the nine months ended September 30, 1996, to $2,405,000 for
the nine months ended September 30, 1997.
Gross profit increased by $53,000, or 2%, from $2,943,000 for the nine
months ended September 30, 1996, to $2,996,000 for the nine months ended
September 30, 1997. The slight increase was due to the acquisition of AMBIA.
Research and development expenditures increased by $1,159,000, or 216%,
from $537,000 for the nine months ended September 30, 1996, to $1,696,000 for
the nine months ended September 30, 1997. The Company continues to spend heavily
on the development of its VFC products.
Selling, general and administrative expenses increased by $1,913,000,
or 95%, from $2,007,000 for the nine months ended September 30, 1996, to
$3,920,000 for the nine months ended September 30, 1997. The increase was due
primarily to the expansion of the sales and marketing staff and an increase in
marketing expenses associated with VFC.
As a result of the foregoing, the Company reported a net loss of
$2,579,000 for the nine months ended September 30, 1997, compared to net income
of $453,000 for the same period in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues increased by $2,511,000, or 36%, from $7,049,000 for the
year ended December 31, 1995 to $9,560,000 for the year ended December 31, 1996.
Client/server related revenues increased by $3,270,000, or 204%, from $1,603,000
for the year ended December 31, 1995, to $4,874,000 for the year ended December
31, 1996, in part reflecting a full year of revenues from Merex. Revenues from
third party client/server related product sales increased by $898,000, or 357%,
from $251,000 for the year ended December 31, 1995 to $1,150,000 for the year
ended December 31, 1996. INQUIRE/Text-related revenues decreased by $773,000, or
14%, from $5,446,000 for the year ended December 31, 1995, to $4,672,000 for the
year ended December 31, 1996. The decrease was primarily attributable to the
decline in maintenance contracts.
Gross profit increased by $1,220,000, from $2,883,000, a 42% margin, at
December 31, 1995, to $4,103,000 for the year ended December 31, 1996. The
increase in the gross profit margin was due primarily to
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increased commercial client/server consulting during 1996, offset in part by the
decline in high margin INQUIRE/Text maintenance revenues.
Research and development expense increased by $629,000, or 336%, from
$187,000 for the year ended December 31, 1995, to $816,000 for the year ended
December 31, 1996. The principal cause of the increase was the development of
VFC software products.
Selling, general and administrative expenses increased by $212,000, or
8%, from $2,657,000 for the year ended December 31, 1995 to $2,869,000 for the
year ended December 31, 1996. The increase was due primarily to an increase in
the sales staff for the planned release of VFC.
Interest income decreased by $23,000, or 19%, from $119,000 for the
year ended December 31, 1995, to $96,000 for the year ended December 31, 1996.
The decrease was primarily due to a lower average market yield on cash and cash
equivalents in 1996 compared to 1995. The Company invested only in short-term,
highly liquid money market instruments.
Interest expense decreased by $13,000, or 54%, from $24,000 for the
year ended December 31, 1995 to $11,000 for the year ended December 31, 1996.
The expense was related primarily to capital equipment leases which expire
through 1998.
Net income increased by $372,000, or 284%, from $131,000 for the year
ended December 31, 1995, to $503,000 for the year ended December 31, 1996. The
increase in net income was due to the factors discussed above. As a result of
preferred stock dividends of $120,000 and $58,000 paid in 1995 and 1996,
respectively, net income available to holders of common stock amounted to
$11,000, or $.01 per share, and $445,000, or $.20 per share ($.18 fully
diluted), respectively. During 1996, all of the outstanding preferred stock was
converted into common stock and, therefore, no preferred stock dividends will be
paid in 1997.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
Total revenues decreased by $453,000, or 6%, from $7,502,000 for the
year ended December 31, 1994 to $7,049,000 for the year ended December 31, 1995.
The primary cause was a $971,000 decline in INQUIRE/Text related revenue from
the prior year, primarily reflecting reduced product license fees, offset by
client/server related consulting revenue, which increased 79% to $1,364,000 from
$763,000 in the prior year. The acquisition of Merex in October 1995 resulted in
approximately $550,000 in client/server consulting revenue during the fourth
quarter of 1995, which represents most of the increase. Total fourth quarter
revenues increased from $1,837,000 in 1994 to $2,156,000 in 1995.
Gross profit decreased by $532,000, or 16%, from $3,415,000
(representing a 46% gross margin) to $2,883,000 (representing a 41% gross
margin) for the year ended December 31, 1994. The decrease was due in part to
the effect of a 6% decline in revenues and also certain lower margin government
contracts acquired from Merex. The Company changed its methodology for overhead
allocation in 1995 to more accurately reflect certain indirect costs of revenues
which resulted in a reclassification of the 1994 statement of operations from a
gross profit of 40% to a revised 45% but had no effect on operating income.
Research and development expense decreased by $221,000, or 54%, from
$408,000 for the year ended December 31, 1994 to $187,000 for the year ended
December 31, 1995. The principal cause of the decrease was cost reduction due to
outsourcing of mainframe-related computer costs in the fourth quarter of 1994
which had a full year impact on 1995. The Company believes that substantially
all of the impact of cost reduction has been realized.
Selling, general and administrative expenses increased by $175,000, or
7%, from $2,482,000 for the year ended December 31, 1994, to $2,657,000 for the
year ended December 31, 1995. The increase was due in part to the costs of
building a marketing and sales force, an increase in consulting fees relating to
execution of the Company's strategic plan to expand into client/server based
consulting, and the impact of integration costs arising
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from the Merex acquisition. The decline in revenues and increase in expenses
resulted in an increase in expenses to 38% from 33% in the prior year.
Interest income increased by $73,000, or 159%, from $46,000 for the
year ended December 31, 1994, to $119,000 for the year ended December 31, 1995.
respectively. The increase was primarily due to a higher average balance of cash
and cash equivalents in 1995 over 1994. The Company invested only in short-term,
highly liquid money market instruments. Interest expense decreased to $24,000 in
1995 from $42,000 in the prior year. The expense is primarily related to certain
capital equipment leases which expire through 1998.
Net income decreased by $387,000, or 75%, from $518,000 for the year
ended December 31, 1994 to $131,000 for the year ended December 31, 1995. The
decrease was due to the factors discussed above. The Company expects the Merex
acquisition to favorably impact net income in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash, cash equivalents and short
term investments of $703,000 and a working capital deficit of $892,000. The
Company maintains a line of credit with Merrill Lynch Business Financial
Services, Inc. for up to $1,000,000 based upon eligible receivables. Interest on
this debt is calculated at a per annum rate equal to the sum of 2.9% plus the
30-day commercial paper rate. Currently, this per annum rate approximates prime.
The facility expires on December 31, 1997, and management expects that the line
will be renewed through July 1998. The line of credit is contingent upon the
Company continuing to meet certain financial covenants. At November 28, 1997,
the Company had outstanding borrowings of approximately $986,000, including
accrued interest, under this line of credit.
Net cash used in operating activities for the nine months ended
September 30, 1997 of $2,293,000 was due to the Company's net loss for the
period of $2,579,000, and an increase in accounts receivable, offset by non-cash
expenses such as depreciation and amortization, and a significant increase in
accounts payable. Accounts receivable are derived from sales made to customers
on 30-day (or less) terms. Net cash provided by investing activities of $182,000
for the nine months ended September 30, 1997 was derived primarily from the
maturity of short term investments, offset by purchases of property and
equipment. Net cash provided by financing of $1,123,000 came from proceeds of
short-term borrowing for the nine months ended September 30, 1997.
Net cash provided by operating activities for the year ended December
31, 1996 of $1,140,000 was primarily due to the Company's net income, a decrease
in accounts receivable, significant non-cash expenses such as depreciation and
amortization, and an increase in accrued expenses, partially offset by a
decrease in deferred revenue. Net cash used in investing activities for the year
ended December 31, 1996 of $1,396,000 was due to the purchase of short term
investments and property and equipment. Net cash provided by financing for the
year ended December 31, 1996 of $46,000 was due to the issuance of stock, offset
by payments on capital lease obligations and preferred stock dividends. At
December 31, 1996, the Company had cash, cash equivalents, and short-term
investments of $2,213,000.
The Company incurred net losses of $2,579,000 for the nine months ended
September 30, 1997 and was in a negative working capital position of $892,000 at
September 30, 1997. Since September, the Company has continued to incur losses
and management's projections indicate that the Company will continue to generate
operating losses and negative cash flow, although at a declining rate. The
Company anticipates, based on currently proposed plans and assumptions relating
to its operations (including the costs associated with its growth strategy),
that the proceeds of the Offering, together with its existing financial
resources and cash flow from operations, should be sufficient to satisfy its
anticipated cash requirements through the end of the year 2000. However, there
can be no assurance that this will be the case. The Company's actual cash
requirements may vary materially from those now planned and will depend upon
numerous factors, including the general market acceptance of the Company's new
and existing products and services, the growth of the Company's distribution
channels, the technological advances and activities of competitors, and other
factors.
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NEW ACCOUNTING PRONOUNCEMENTS
Statement of Accounting Standards No. 128, "Earnings per Share",
changes the reporting requirements for earnings per share ("EPS") for publicly
traded companies by replacing primary EPS with basic EPS and changing the
disclosures associated with this change. The Company is required to adopt this
standard for its December 31, 1997 year-end and is currently evaluating the
impact of this standard. The Company does not expect that this pronouncement
will have a material impact on the Company's financial statements.
Statement of Accounting Standards No. 129, "Disclosure of Information
about Capital Structure", establishes standards for disclosing information about
an entity's capital structure. The Company is required to adopt this standard
for its December 31, 1997 year-end. The Company does not expect that this
pronouncement will have a material impact on the Company's financial statements.
Statement of Accounting Standards No. 130, "Reporting Comprehensive
Income", establishes standards for the reporting and display of comprehensive
income in a full set of general purpose financial statements. The Company is
required to adopt this standard for its December 31, 1998 year-end and is
currently evaluating the impact of this standard.
Statement of Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information", requires that public business
enterprises report certain information about operating segments. The Company is
required to adopt this standard for its December 31, 1998 year-end and is
currently evaluating the impact of this standard.
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BUSINESS
The Company provides electronic document management software and
systems to corporate and government workgroups, departments and enterprises. The
Company's newest product, VFC, has been designed to address what DataPrOpinion
has called one of the biggest problems facing global organizations: the fact
that their critical assets are often contained in documents stored in disparate
and incompatible systems. According to DataPrOpinion, "accessing and sharing
that information among different departments across the enterprise has been a
nightmare."
VFC is a family of intranet-based software products that, together,
will enable users to easily retrieve, organize and share desktop files
irrespective of the location or type of document management system in which they
are stored with virtually no integration effort and without the need to
replicate documents. The VFC family of products consists of the VFC Document Web
Server, extensions and enablers. The VFC Document Web Server is the heart of
VFC, and is required in order to utilize all other components of VFC. This core
package consists of software installed on a server that establishes links to
documents, organizes access to stored information and acts as an independent
document sharing system. The Company has been shipping the VFC Document Web
Server since the second quarter of 1997. Extensions are software components that
are installed on an individual user's computer to add functionality to the VFC
Document Web Server. In October 1997, the Company began shipping its first
extension and expects to introduce other extensions in the future. Enablers
provide the capability to bridge multiple document management systems or
repositories. The first enablers are expected to be available for shipment in
the second quarter of 1998.
The Company's VFC technology has been endorsed by leading industry
vendors, including Lotus, PC DOCS, Verity, and NovaSoft, and has received
numerous favorable industry trade analyst and press reviews. At the April 1997
AIIM trade show, with more than 35,000 attendees and 325 exhibitors, Imaging
World Magazine identified VFC as "#1 TO WATCH". VFC has been sold to large
organizations with significant document processing requirements such as the
Department of Energy, AT&T, State Street Bank and the U.S. Army Signal Corps.
In December 1997, the Company and Adobe, a major software company with
reported 1996 revenues of greater than $750 million, entered into an agreement
to cross license and market certain technologies. Adobe is a significant
presence in the Internet marketplace with, according to Adobe, more than 20
million downloads of its Adobe Acrobat Reader viewing product. Under the
agreement, the Company expects to receive more than $700,000 in consulting fees
for modifications to certain of its technology so that it may be incorporated
into certain Adobe products. Upon successful completion of these modifications,
the Company will earn a license fee of $1,000,000. Certain components of VFC
that will be licensed to Adobe will be incorporated in future Adobe products. In
addition, certain Adobe products will display a "VFC Button" that will provide a
direct link to VFC or to VFC marketing information if the user does not have
VFC. Adobe will receive royalties based on any VFC sales arising out of this
marketing arrangement, and will also receive commissions for any VFC sales that
it makes directly.
For nearly thirty years, the Company has developed and sold its own
products and acted as a VAR of client/server and Internet/intranet document
systems products. Recently, the Company made two acquisitions to broaden its
product and service offerings: Merex, acquired in October 1995, and AMBIA,
acquired in July 1997. Merex provided a staff experienced in Internet and
client-server document technologies, and AMBIA provided both an experienced
technical staff and products focusing on document creation, collaboration, and
presentation. The Company now provides a range of services, including training,
customer support, and consulting to ensure that customers achieve the full
benefits of the Company's products. See "Certain Transactions."
INDUSTRY BACKGROUND
Document management products were originally introduced to solve
problems associated with the production of complex and mission-critical
documentation, such as new drug applications or aircraft operating manuals.
These documents are characterized not only by complex content such as graphs and
images as well as text, but also by a heavily controlled or regulated process by
which documents are written and reviewed. These document management systems have
been expensive to procure and difficult to install and implement because they
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require unique user interfaces for which specialized training is necessary.
Their usage is controlled centrally, with little flexibility for the end user.
Many people who work in office environments are familiar with the
difficulties of filing and retrieving documents from their hard drives or from
network file systems. Individuals are forced to remember artificial file names
and folder or directory locations because the documents generally are not
organized in an intuitive manner. Naming and storage requirements might apply
only to an individual's own workgroup or department, or they might apply across
the enterprise. Systems to address the needs of these users need to be simple to
deploy and easy to administer. They also need to be scalable to accommodate
wider deployment of applications and additional users.
With the increasing departmental, as opposed to enterprise-wide, use of
document management systems, it is not uncommon for different departments within
an enterprise to use different document management systems or to store
electronic documents in separate repositories that are tailored to the needs of
the individual department. For example, an organization's legal department may
use one document management system specialized for legal applications, while the
engineering department uses another for engineering drawings. Without a bridge
to link the two systems, the two departments are unable to share information
electronically.
Attempts to address these issues have included:
Developing Web Browser Access to Document Management Systems. Some
vendors of document management systems have introduced add-on Web browser
products that allow users to access files stored on that vendor's system. The
Web-based user interface is familiar to the user, but this solution does not
permit information to be shared across different document management systems.
Posting Documents on the Company's Web Site. Many organizations are
using their internal Web sites for electronic publication of commonly used
documents such as human resource policy manuals. The primary drawback is that
"posting" documents to the organization's Web site typically requires
intervention of a "Webmaster," whose responsibility is to maintain the Web site.
The Webmaster may become a bottleneck as the Web site grows. Also, documents
posted to the Web site are usually not updated concurrently with the original
document. For example, when the human resources department updates its policy
manual, there is typically a delay before the new version is converted to the
appropriate format and approved for posting on the Web site.
Using Groupware Products. Groupware products are designed to foster
collaboration among members of workgroups. Examples include Lotus Notes, Novell
Groupwise 5, Netscape SuiteSpot and Microsoft Exchange. Although some of these
products incorporate some document management functionality, they still create
"islands" of information since users are able to access only that information
residing within the groupware product's own proprietary databases.
The Company created VFC to provide a reasonably priced, easy to
implement solution to the problems associated with the exchange and bridging of
information between parties that can benefit from access to that information,
irrespective of where it is stored.
VIRTUAL FILE CABINET
VFC is a family of intranet-based software products that, together,
will enable users to easily retrieve, organize and share desktop files
regardless of the location or type of document management system in which they
are stored with virtually no integration effort and without the necessity of
replicating documents.
The VFC family of products consists of:
o The VFC Document Web Server. This is the heart of VFC, and is required
in order to utilize all other components of VFC. This core package
consists of software installed on a server that establishes links to
documents, organizes access to stored information and acts as an
independent document sharing system. The VFC Document Web Server
interacts with the user's desktop via
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a browser such as Netscape or Microsoft Internet Explorer. The Company
has been shipping the VFC Document Web Server since the second quarter
of 1997.
o Extensions. Extensions are software components that are installed on
an individual user's computer. Extensions add functionality to the VFC
Document Web Server. In October 1997, the Company began shipping
Re:mark as an extension to enable seamless electronic annotation of
Adobe Acrobat Portable Document Format ("PDF") documents. Other
extensions are expected to be introduced in the future.
o Enablers. Enablers provide the capability to bridge multiple document
management systems or repositories. The first enablers are expected to
be available for shipment in the second quarter of 1998.
VFC combines the following features:
o Adaptability to Individual Users and Groups. Using VFC, an individual
can search all of the servers of an enterprise for electronic
documents or containers without leaving his or her office, then place
the documents into a private virtual office, where they can be
organized according to personal style and preferences. Departments or
workgroups can organize a space that is optimal for the group.
o Instant Updates of Documents. If the original document is updated, all
of the "virtual documents" residing in every virtual location are
updated at the same time. Thus, every user always has access to the
most current version of a document.
o Eliminates Webmaster Bottleneck. Since users can easily post new
documents to the VFC Document Web Server without converting them to
special formats, such as HTML, intervention by a Webmaster is not
required and the delays typically associated with such intervention
are avoided.
o Optimizes Use of System Resources. Each document that is placed in the
virtual office is linked to the original. Each link in the user's
virtual office behaves and looks just like the original. No copy of
the document is made. This saves significant network and client
resources because only a single copy of a document needs to be
maintained for it to be available to everyone who needs it.
o Minimal Implementation Costs. VFC is delivered ready to plug into a
user's network. No programmers or developers are needed, and users can
capture and share documents immediately. VFC is designed for rapid
implementation, requiring low overhead and a minimal amount of
training.
o Universal Desktop Access. The intranet infrastructure behind VFC
provides the interface for the information-sharing functionality.
Essentially a private Web site, VFC is an intranet solution that
provides all the benefits of Web access, including hypertext linking
and cross-platform connection via a Web browser, and allows users to
"jump" to any location at the click of a mouse and view documents
regardless of their original format or where they are stored.
o Easy-to-Understand Organizational Scheme. Under the VFC document
management format, documents are stored in a hierarchy of icons
depicted as buildings, offices, file cabinets, folders and documents.
This hierarchy is meaningful to anyone familiar with a traditional
office and filing system.
o Easy-to-Use Search Tools. In addition to navigating through the
virtual office hierarchy to locate a document, users can employ the
VFC search tool to locate any document easily and quickly by
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specifying simple search criteria such as the document's title or
author or by searching the document's content for words or phrases
specified by the user.
o Effective, Flexible Security Mechanisms. VFC can be managed centrally
by a single system administrator who can restrict access via password
protection and group permission. The administrator can also assign
administrative rights to certain individuals such as department heads
or workgroup leaders, who in turn can grant or restrict access to
individuals within their groups. An individual who has not been
granted read access to a particular document will not only be
prevented from opening and viewing the document, but also will not be
informed of its existence since it will not appear on a results list
generated from a search command.
o Easily Expandable Functionality. Extensions will allow VFC to take
advantage of functionality in other software or systems. For example,
using the Company's Re:mark extension, users can collaborate and
simultaneously annotate documents viewed with the Adobe Acrobat
Reader.
o Ability to Link Diverse Document Systems. The VFC enabler bridging
technology, when introduced, will permit users to access documents
stored in multiple and disparate document management systems or
repositories from their personal VFC desktop as if all of the separate
systems and repositories were one.
OTHER PRODUCTS
Re:mark. Re:mark is a plug-in product for Adobe Acrobat software that
enables users to mark up, redline and review documents electronically in a
workgroup setting. By annotating any document in PDF, Re:mark enables users
to type text on the document page, draw on the document, indicate approval
of the document itself or specific sections, attach any file anywhere in
the document, consolidate comments from multiple reviews, personalize
comments and set annotation security. Redlining features include
highlighting, strike-through and "sticky notes." Annotations may be shared
among users.
Compose. Compose is a suite of plug-in tools for Adobe Acrobat Exchange
that automate and streamline a variety of document production tasks, such
as the creation of tables of contents, hyperlinks, document indexes, and
other document navigation features.
Aerial. Aerial enables Adobe Acrobat to print any document that needs to be
magnified by formatting the document for printing on multiple pages which
are then pieced together to form one page, such as a large spreadsheet or a
CAD drawing. Aerial also enables Adobe Acrobat to format tables into
spreadsheets, and converts PDF to a text format that can be edited with
Microsoft Word or other word processors.
Signet. Signet is a security solution for Web or CD-ROM publishers who want
to permit only authorized users to read their documents. Signet allows
publishers to control the time and circumstances of the expiration of
users' privileges.
INQUIRE/Text. INQUIRE/Text is a full-text retrieval product used for
storing, indexing, retrieving, and managing large collections of documents
on IBM and IBM-compatible mainframes. INQUIRE/Text software is widely used
by major companies, utilities, hospitals, and government agencies for
automating document-centered applications such as on-line manuals,
legislative tracking and regulatory compliance, library management,
litigation support, medical records, and government and military
intelligence. The system has been installed at over 350 sites.
WebINQUIRE. WebINQUIRE is an extension product that provides Web browser
access to INQUIRE/Text collections. It enables users to utilize their
mainframe as an intranet superserver with all the search capabilities of
INQUIRE/Text. WebINQUIRE permits users to store documents created using
desktop software on a mainframe computer, retrieve documents from the
mainframe and edit them on their desktop using desktop applications, such
as Microsoft Excel and Microsoft Word. In addition,
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WebINQUIRE's search formats and views can be easily customized. Although
WebINQUIRE and other INQUIRE/Text options carry a high gross margin, they
are not expected to amount to a significant percentage of the Company's
future revenues.
In addition to its proprietary products described above, the Company,
acting as a VAR, also sells third party products such as Verity's Search '97
Information Server, PC DOCS software and Documentum software. This allows the
Company to provide document management solutions that are tailored to each
customer's needs.
In conjunction with product sales, the Company provides training,
maintenance and technical support services, including business analysis,
requirements definition, design and development. In some instances, the
Company's services are provided in connection with the sale of the Company's
products and those of third parties for whom it acts as a VAR. In other
instances, product sales are made in connection with the solutions provided by
the Company's consulting services.
STRATEGY
The Company's objectives are to establish VFC as the de facto industry
standard for document access and to become a leading provider of electronic
document management software and systems. To accomplish these objectives, the
Company intends to:
Maintain Technological Leadership. The Company's technology enables
organizations to effectively manage, share and store critical documents and
information across the enterprise. The Company intends to continue to develop
what it believes are innovative technologies and features to address the
specific document management needs of organizations. The Company plans to
continue to develop new products and to improve its existing products. The
Company intends to continue to invest in its technology and to use a portion of
the proceeds of this Offering for research and development.
Add Strategic Relationships. To facilitate the adoption of VFC as a de
facto industry standard, the Company plans to continue to form strategic
relationships with providers of document management software applications, tools
and services. The Company believes that strategic relationships, such as that
formed with Adobe, enhance the visibility of the Company's products and leverage
the Company's sales and marketing efforts by expanding the number of salespeople
marketing the Company's products without burdening the Company with the need to
identify and hire a large sales force. The Company believes that the development
of these relationships will enable the Company to devote additional resources to
product development and marketing activities.
Expand Sales and Marketing Capabilities. The Company intends to expand
its sales and marketing capabilities by creating additional VAR and original
equipment manufacturer relationships, expanding its direct sales force, offering
training, and participating in trade shows. The Company intends to use a portion
of the proceeds from this Offering to enhance its sales and marketing
capabilities.
Acquisitions. In October 1995, the Company acquired Merex, which
provided electronic document management solutions to business and government
customers, and in July 1997, the Company acquired AMBIA, a leading developer of
Adobe Acrobat add-on products and services. The acquisitions of both AMBIA and
Merex brought experienced management and staff, a diverse client base and an
established market reputation to the Company. The Company plans to continue to
pursue acquisitions of businesses, products and technologies that complement the
Company's existing business. As of the date of this Prospectus, the Company has
no agreement, arrangement, or understanding with respect to any acquisition. See
"Certain Transactions."
SALES AND MARKETING
The Company conducts its sales and marketing efforts through several
channels, including a network of VARs, its own sales force, marketing alliances,
marketing communications and training programs. The Company's VARs and its sales
force receive direct support from the Company's technical staff. Consulting
services leads are provided to the Company by those vendors for whom it acts as
a VAR. The Company believes this diversity of
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sales and marketing channels permits it to distribute its products and sell its
services in an efficient and effective manner, while reducing reliance on any
one sales channel.
Value-added Resellers. The Company's primary sales channel for its products
is its VARs. The Company's VARs market and resell the Company's products
and offer training, installation, implementation
and customization services to their own contacts and to prospective
customers identified by the Company. The Company manages a program to train
and certify all of its VARs. It also conducts joint marketing campaigns,
including direct mail and trade show appearances, with its VARs. As of
December 1997, the Company had relationships with VARs, including GE
Capital IT Solutions and BTG Inc. VARs buy VFC and other products from the
Company at a discount from the suggested retail price.
Company Sales Force. The Company has a sales force of 15 people, including
field sales, telemarketing, channel liaisons, and sales management. The
channel liaisons work specifically with the Company's VARs. The
telemarketing staff qualifies prospective customers, schedules product
demonstrations, and refers prospective customers to a VAR or, if a VAR is
not in place in the particular territory, to the Company's sales force. The
Company's sales force also sells upgrades and add-on products, and refers
leads for services opportunities to VARs or to the Company's services
divisions.
Marketing Alliances. The Company itself is a VAR of products from other
software companies, including Adobe, Verity, Documentum, and PC DOCS. The
Company incorporates these products into its document management solutions.
The Company earns a reseller commission ranging from 10% to 40% on sales of
these products.
Marketing Communications. The Company generates awareness of, and interest
in, its products and consulting services through public relations,
telemarketing, periodic direct mail campaigns, seminars, trade shows and
other marketing efforts. In 1997, the Company conducted joint seminars with
Adobe, cooperative direct mail campaigns with several of its VFC VARs, and
exhibited at trade shows including Lotusphere, AIIM, Documation, Seybold,
and Internet World West.
Training. The Company believes that training is an integral part of a
complete customer solution, and that students in each class are potential
customers for the Company's other products and services. Consequently, in
1996, the Company established a training division to offer customer
training in the Adobe Acrobat and Verity Topic products. In 1997, the
Company added training for the Company's own products including VFC,
Re:mark, Compose, INQUIRE/Text, as well as Adobe's Framemaker, Framemaker
SGML, and Photoshop products. The Company employs a full-time training
staff and maintains a state-of- the-art training facility at its
headquarters office in Fairfax, Virginia. The training division also offers
courses at customer locations. The Company is currently the authorized
Verity East Coast Training Center.
The Company sells its products under a variety of licensing
arrangements. For domestic sales of VFC, Re:mark, Compose, Aerial and Signet, a
shrink-wrap license is used to protect the Company's proprietary rights and
limit liability. For all other products, the Company enters into written
agreements with its customers containing similar provisions. The Company also
employs evaluation and beta test agreements that provide for the protection of
the Company's intellectual property. For consulting services, the Company enters
into written agreements with its customers, which provide for indemnification,
limits on liability, payment terms, period of performance, and other terms and
conditions.
The license of the Company's software products and the use of the
Company's systems solutions services generally require the Company to provide a
significant level of education to prospective customers regarding the use and
benefits of the Company's products, resulting in a lengthy sales cycle
(typically between three and six months). Additionally, the implementation by
customers of the Company's products may involve a significant commitment of
resources by such customers over an extended period of time. For these and other
reasons, the sales and customer implementation cycles are subject to a number of
significant delays over which the Company has little or no control. Delay in the
sale or customer implementation of the Company's products and services could
have a material adverse effect on the Company's business and operations and
cause the Company's operating results to
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vary significantly from quarter to quarter. Therefore, the Company believes that
its quarterly operating results are likely to vary in the future.
The sales cycle for initial sales of VFC has ranged from three to six
months. The Company believes that the sales cycle for repeat sales may be
shorter. VFC is licensed at a price of $4,995. The Company plans to increase the
price of VFC with its next release, which will have additional features. The
Company also provides support packages and extension products at an additional
price. The Company offers annual maintenance for VFC at a cost of 20% of the
purchase price.
CUSTOMERS
The Company targets both commercial and government markets. The
Company's products and consulting services are used by many major companies,
including Ford, Allen-Bradley, Boeing, Nabisco, AT&T, Chase, State Street Bank
and Riggs Bank, and by government organizations, including NASA, the Department
of Energy, the U.S. Army Signal Corps, the Government Accounting Office and
various agencies within the intelligence community. Sales to government
customers represented approximately 45% of revenues in 1996 and approximately
39% for the first nine months of 1997; however, no one customer accounted for
more than 10% of the Company's revenues in either period.
The Company has repeat business from a number of its customers, and
management believes that there is a high degree of customer satisfaction with
its products, services and solutions. The Company's existing services, training,
and products provide a base of business that the Company expects will complement
VFC product sales. Developing custom solutions for customers keeps the Company's
technical professionals abreast of client needs, which facilitates the
conception and development of new products, such as VFC, and the improvement of
existing products.
Certain of the Company's contracts with government organizations are
competitively awarded after a formal bid and proposal competition among
qualified bidders. These government contracts may be either cost-reimbursement
contracts (both cost-plus-fixed-fee and cost-plus-award-fee), time and materials
contracts, and fixed price contracts. Cost-plus-fixed-fee contracts provide for
the reimbursement of incurred costs during contract performance, to the extent
that such costs are allowable and allocable, and the payment of a fixed fee. The
size of the fee is limited by federal guidelines to a set proportion of the
contract value. Cost-plus-award-fee contracts typically provide for the
reimbursement of costs with a base fee and an additional fee that is based upon
a periodic evaluation of the Company's performance against specified criteria.
Under time and materials contracts, the Company agrees to provide certain
categories of labor that satisfy established education and experience
qualifications at a fixed hourly rate. In these cases, the Company bears the
risk that costs may differ from the fixed hourly rate, and the Company realizes
all of the benefits or detriment resulting from decreases or increases in the
cost of performing the work. Under fixed-price contracts, the Company agrees to
perform certain work for a fixed price and, accordingly, realizes all the
benefit or detriment resulting from decreases or increases in the cost of
performing the work.
The Company's government contracts contain standard termination clauses
that permit the government to terminate the contracts at any time, without
cause, for the convenience of the government. The Company has not had any
contracts terminated for convenience. In addition, government contracts require
compliance with various procurement regulations. The adoption of new or modified
procurement regulations could materially adversely affect the Company or
increase its costs of competing for or performing government contracts. Any
violation of these regulations could result in the termination of the contracts,
imposition of fines, and/or debarment from award of additional government
contracts. Most government contracts are also subject to modification or
termination in the event of changes in funding, and the Company's contractual
costs and revenue are subject to adjustment as a result of audits by the DCAA
and other government auditors. The DCAA routinely audits cost-reimbursement
contracts to verify that costs have been properly charged to the government.
Further, government contract awards may be subject to protest by competitors.
Many of the Company's government contracts require the Company and
certain of its employees to maintain security clearances complying with the
requirements of various government agencies.
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RESEARCH AND DEVELOPMENT
The Company's research and development programs are intended to
anticipate and take advantage of new technologies, and to anticipate and respond
to market requirements. The Company believes that its future success will depend
in large part on its ability to maintain and enhance its leadership in document
management and related technologies and to develop new products that meet an
expanding range of customer requirements.
The market for the Company's products is characterized by rapid
technological developments, evolving industry standards, changes in customer
requirements, and frequent new product introductions and enhancements, which
often lead to product obsolescence. The Company believes that the speed of
technological advancement in its industry requires a significant investment in
research and development in order to maintain its competitive product position.
The Company will continue to invest substantially in product development as it
believes that its future success will depend upon its ability to develop and
market new products and enhancements to existing products on a cost-effective
and timely basis. Software development expenses increased from $187,000 in 1995
to $816,000 in 1996. For the nine months ended September 30, 1997, the Company
expended $1,696,000 on software development.
Due to the complexity and sophistication of the Company's software
products, the Company's products from time to time contain defects or "bugs"
that can be difficult to correct. Furthermore, as the Company continues to
develop and enhance its products, there can be no assurance that the Company
will be able to identify and correct defects in such a manner as will permit the
timely introduction of such products. Moreover, the Company may from time to
time discover defects only after its systems have been used by many customers.
There can be no assurance that, in the future, software defects will not cause
delays in product introductions and shipments, result in increased costs,
require design modifications, or impair customer satisfaction with the Company's
products. Any such event could have a material adverse effect on the Company's
business, operating results and financial conditions.
COMPETITION
The market for the Company's products and services is intensely
competitive and subject to rapid change caused by new product introductions and
other market activities of industry participants. The Company currently
encounters direct and indirect competition from a number of public and private
companies involved in groupware, document management, and collaboration
software, including Xerox, Open Text, Net-It Software, Hummingbird and Fulcrum
Technologies. The Company is aware that other companies have announced products
with some features similar to VFC. In addition, the Company may face competition
from new market entrants. Competitors may have longer operating histories,
significantly greater financial, marketing, service, support, technical and
other resources and name recognition and a larger installed customer base than
the Company. As a result, such competitors may be able to respond more quickly
to new or emerging technologies and changes in customer requirements or to
devote greater resources to the development, promotion and sale of their
products than the Company.
The Company also faces indirect competition from system integrators.
The Company relies on a number of system integration firms for implementation
and other services, as well as for recommendations of its products during the
evaluation stage of the purchasing process. Although the Company seeks to
maintain close relationships with these service providers, many of these third
parties have similar, and often more established, relationships with some of the
Company's competitors. It is also possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. In
addition, the Company expects competition to increase as a result of software
industry consolidation.
The Company believes that the competitive factors affecting the market
for its products and services include vendor and product reputation, ability to
attract and retain quality personnel, product quality, performance and price,
the availability of products on multiple platforms, product salability, product
integration with other enterprise applications, product functionality and
features, product ease-of-use, and the quality of customer support services and
training. The relative importance of each of these factors depends upon the
specific customer involved. While the Company believes it competes favorably in
each of these areas, there can be no assurance that it will continue
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to do so. Moreover, the Company's present or future competitors may be able to
develop products comparable or superior to those offered by the Company, offer
lower priced products or adapt more quickly than the Company to new technologies
or evolving customer requirements. In order to be successful, the Company must
respond to technological change, customer requirements and competitors' current
products and innovations. There can be no assurance that the Company will be
able to compete effectively in its market or that competition will not have a
material adverse effect on its business, operating results and financial
condition.
PROPRIETARY RIGHTS
The Company has registered copyrights, trademarks and servicemarks to
protect its proprietary rights in the names Infodata and INQUIRE. In addition,
the Company has submitted trademark applications in order to protect its VFC,
WebINQUIRE, Aerial, Compose and Re:mark names.
The Company relies primarily on a combination of copyrights and
trademarks, trade secrets, confidentiality procedures and contractual provisions
to protect its proprietary rights. For example, the Company licenses rather than
sells its software. The licenses impose certain restrictions on the licensees'
ability to utilize the software. In addition, the Company seeks to avoid
disclosure of its trade secrets, including, but not limited to, (i) requiring
those persons with access to the Company's proprietary information to execute
confidentiality agreements with the Company and (ii) restricting access to the
Company's source codes. Trade secret and copyright laws afford only limited
protection. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy the Company's products or to obtain and
use information that the Company regards as proprietary. Although the Company
may apply for certain design patents, the Company presently has no patents or
patent applications pending. Policing unauthorized use of the Company's products
is difficult, and while the Company may be unable to determine the extent to
which piracy of its software products exists, software piracy can be expected to
be a persistent problem. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to as great an extent as the laws of
the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not develop similar technology independently. There can be no
assurance that third parties will not claim infringement by the Company with
respect to current or future products. The Company expects software product
developers increasingly to be subject to infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition. In addition, the Company also relies
on certain software that it licenses from third parties, including software that
is integrated with internally developed software and used in the Company's
products to perform key functions. There can be no assurances that such firms
will remain in business, that they will continue to support their products or
that their products will otherwise continue to be available to the Company on
commercially reasonable terms.
EMPLOYEES
As of December 12, 1997, the Company had a total of 116 employees, of
which 74 were technical professionals, 15 comprise the sales and marketing
staff, and the remainder were involved in management, administration, and
accounting.
MANUFACTURING
The Company contracts for the manufacture of its software and
packaging. The Company believes that there are adequate sources of supply and
manufacturing capacity to address the Company's requirements.
PROPERTY
The Company leases professional office space for its headquarters and
operations in Fairfax, Virginia and recently expanded its space and extended the
term of its lease through July 31, 2003, pending execution by the
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landlord. Leased space now totals 25,950 square feet. Payments under the lease
were approximately $368,316 in 1997, are expected to be $462,000 in 1998, and
will increase to $599,124 by 2003.
The Company also maintains an office of approximately 3,400 square feet
in Mountain View, California. Payments under the lease were approximately
$72,968 in 1997. The lease expires May 31, 1998 and the Company is discussing
the possibility of extending the lease with the landlord.
LEGAL PROCEEDINGS
The Company is presently not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current executive officers and directors of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard T. Bueschel (1)(2) 64 Chairman of the Board and Director
James Ungerleider (1) 48 President, Chief Executive Officer and Director
Harry Kaplowitz (1) 54 Executive Vice President and Director
Richard M. Tworek (1) 41 Chief Technology Officer, Executive Vice President and
Director
Christopher P. Dettmar 44 Chief Financial Officer
Dr. Robert J. Loane 59 Senior Vice President
Razi Mohiuddin 36 Vice President
Alan S. Fisher (5) 37 Director
Laurence C. Glazer (3)(4)(5) 52 Director
Robert M. Leopold (1)(2)(3)(5) 71 Director
Isaac M. Pollak (2)(4) 47 Director
Millard H. Pryor, Jr. (3)(4)(5) 64 Director
</TABLE>
- --------------
(1) Member of Executive Committee.
(2) Member of Nominating Committee.
(3) Member of Audit Committee.
(4) Member of Compensation Committee.
(5) Member of Finance Committee
Richard T. Bueschel has been the Chairman of the Board of Directors and the
Chairman of the Executive Committee of the Company since January 1993 and was
acting Chief Executive Officer of the Company from April 1997 to November 1997.
Since 1988, he has been the Chief Executive Officer of Northern Equities, Inc.,
an investment and management firm. Mr. Bueschel is Chairman of the Board of
Communications Management Systems, Inc. and a director of Study.Net Corporation.
He co-founded Time Share Corporation, TSC, Inc., Computer Environments Corp. and
DataMarket Corp., each of which are software companies, and has served on the
boards of directors of numerous technology companies. Mr. Bueschel has a B.A.
from Dartmouth College and an M.B.A. from Northeastern University.
James Ungerleider has been the President and Chief Executive Officer of the
Company since November 1997. From 1973 until joining the Company, Mr.
Ungerleider was associated with American Management Systems, Inc. ("AMS") and
served as its Vice President, European Finance Industry Business Area from 1991
to November 1997. Prior to joining AMS, Mr. Ungerleider was a senior research
scientist with the National Biomedical Research Foundation in Washington, D.C.
He has a BS in Electrical Engineering from Princeton University and an MBA from
the Harvard Business School.
Harry Kaplowitz, a founder of the Company, has been an Executive Vice President
of the Company since November 1997 and a director since 1980. From 1991 to
January 1993, Mr. Kaplowitz served as Chairman of the Board of Directors and
from 1991 to November 1997 he served as President of the Company. From 1980 to
1989, he served as Executive Vice President of the Company. From 1973 to 1980,
he was a Vice President of the Company. Mr. Kaplowitz holds a B.S. in Electrical
Engineering from the Massachusetts Institute of Technology and an M.B.A. from
the Wharton Graduate School.
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Richard M. Tworek has been an Executive Vice President of the Company since
October 1995, a Director since July 1996 and Chief Technology Officer since
April 1997. Mr. Tworek was the founder of Merex and served as its President from
April 1987 to October 1995. Mr. Tworek originated the VFC concept and is
responsible for its development. Mr. Tworek holds a B.S. in Mathematics from
Eastern Michigan University and an M.S. (equivalent) in Nuclear Engineering from
the U.S. Navy Nuclear Power School.
Christopher P. Dettmar has been Chief Financial Officer of the Company since May
1997. From November 1993 to April 1997, he served as Vice President, Chief
Financial Officer and a Director of TWS, Inc. and its predecessor company,
Encompass, Inc., both of which are telecommunications service firms. From
November 1989 to November 1993, he served as Vice President, Chief Operating
Officer and a Director of the Hunter Companies, an asset management and real
estate brokerage firm. From 1984 to 1989, Mr. Dettmar served as a regional
controller with Cincinnati Bell Information Systems and from 1979 to 1983, he
worked for Price Waterhouse & Co. He is a certified public accountant, holds a
B.S. in Commerce from the University of Virginia and an M.B.A. from Pennsylvania
State University.
Dr. Robert J. Loane has been the Senior Vice President and Chief Scientist of
the Company since 1981. He is the principal architect and developer of the
INQUIRE family of products and is now involved with the architecture of future
products and provides consulting services to many of the Company's customers.
Dr. Loane holds a Ph.D. in Computer Sciences from Princeton University and a
B.E.E. from Cornell University.
Razi Mohiuddin has been a Vice President of the Company and manager of the
Company's West Coast facilities since July 1997. From 1988 to July 1997, he
served as Vice President of Software Partners, Inc., a firm that developed
products for online services and was the parent of AMBIA, and from 1995 to July
1997, Mr. Mohiuddin also served as Vice President, Engineering, of AMBIA. In
1994, Mr. Mohiuddin co-founded ONSALE, Inc., a publicly held Web-based service
that specializes in selling computers and consumer electronics using auctions,
markdowns, and other close-out techniques. Mr. Mohiuddin has a B.S. in Computer
Science from the University of Illinois, Chicago.
Alan S. Fisher has been a director of the Company since July 1997. In July 1994,
he co-founded ONSALE, Inc. Mr. Fisher has been the Chief Technical Officer of
ONSALE, Inc. since 1994. Mr. Fisher was a co- founder, and, from 1988 to July
1997, President and Chairman of Software Partners, Inc. Prior to founding
Software Partners, from 1984 to 1988, Mr. Fisher was a Project Manager at
Teknowledge, Inc., a developer of artificial intelligence products. From 1981 to
1984, Mr. Fisher was a member of the technical staff at AT&T Bell Laboratories.
Mr. Fisher received a B.S. in Electrical Engineering from the University of
Missouri and an M.S. in Electrical Engineering from Stanford University.
Laurence C. Glazer has been a director of the Company since August 1993. In
1970, Mr. Glazer founded Buckingham Properties, a real estate development firm
specializing in redevelopment and enhancement of urban property in Rochester,
New York. Since 1970, he has been a Partner of Buckingham Properties. Mr. Glazer
is a member of the Board of Directors of Rochester Institute of Technology
College of Business. From January 1980 to September 1984, he was Co-Chief
Executive Officer of Great Lakes Paper. Mr. Glazer holds a B.A. from the
University of Buffalo and an M.B.A. from Columbia University.
Robert M. Leopold has been a director of the Company since 1992. Since 1977, Mr.
Leopold has been President of Huguenot Associates, Inc., a financial and
business consulting firm. From 1986 to 1989, Mr. Leopold served as Chief
Executive Officer of Insituform of North America, a provider of materials and
technology for rehabilitation of underground pipes. Currently, he is a Director
of Windsor Capital, Standard Security Life Insurance Company of New York, a
wholly owned subsidiary of Independence Holding Company, Inc., H.E.R.C. Products
Incorporated, and Dental Services of America, Inc. Mr. Leopold has a B.S. from
Georgia Institute of Technology and completed course work for an M.B.A. at New
York University.
Isaac M. Pollak has been a director of the Company since March 1993. Since 1980,
Mr. Pollak has been President and Chief Executive Officer of LGP Ltd., a
developer and marketer of promotional items. Mr. Pollak has an M.B.A. from City
College, CUNY and an M.S. from Long Island University.
- 36 -
<PAGE>
Millard H. Pryor, Jr. has been a director of the Company since 1992. He has been
Managing Director of Pryor & Clark Company, an investment holding company, since
September 1970. From 1988 to 1992, he was Chairman of Corcap, Inc., a
corporation engaged in supplying services and products to the government. From
1972 to 1991, Mr. Pryor was Chairman of Lydall, Inc., which manufactured
technical fiber materials. He is a Director of CompuDyne Corporation, Corcap,
Inc., Wiremold Company, Hoosier Magnetics, Inc., Pacific Scientific Company, and
The Hartford Funds. Mr. Pryor has a B.A. and an M.B.A. from the University of
Michigan.
BOARD OF DIRECTORS
Each director is elected to hold office until the next succeeding
annual meeting of shareholders and until his successor is elected and qualified
or until his death, resignation or removal. The Board has delegated certain
authority to several committees.
The Executive Committee members are Richard T. Bueschel, James
Ungerleider, Harry Kaplowitz, Robert M. Leopold and Richard M. Tworek. The
Executive Committee may exercise any of the powers and perform any of the duties
of the Board of Directors, subject to the provisions of the law and certain
limits imposed by the Board of Directors.
The Audit Committee members are Robert M. Leopold, Laurence C. Glazer
and Millard H. Pryor, Jr. The Audit Committee is responsible for recommending
the accounting firm to be engaged as independent auditors; consulting with the
independent auditors regarding the adequacy of internal accounting controls; and
reviewing the scope of the audit and the results of the audit examination. The
Audit Committee is also responsible for reviewing transactions between the
Company and its officers, directors or other affiliates.
The Nominating Committee members are Richard T. Bueschel, Robert M.
Leopold, and Isaac M. Pollak. The Nominating Committee reviews and makes
recommendations to the Board of Directors regarding the selection of nominees to
serve as committee members of the Board as well as directors of the Company.
The Compensation Committee members are Millard H. Pryor, Jr., Laurence
C. Glazer and Isaac M. Pollak. The Compensation Committee reviews and makes
recommendations to the Board of Directors regarding the compensation and
benefits policies and practices of the Company. The Compensation Committee also
administers the Company's 1995 Stock Option Plan. In addition, the Committee is
assigned responsibility for reviewing and approving the compensation of officers
of the Company.
The Finance Committee members are Alan S. Fisher, Laurence C. Glazer,
Robert M. Leopold and Millard H. Pryor, Jr. The Finance Committee is responsible
for overseeing the Company's financing activities.
- 37 -
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the Company's president and all
executive officers whose total annual salary and bonuses exceeded $100,000
(collectively, the "Named Officers") for the years ended December 31, 1994, 1995
and 1996, the amount and nature of all compensation awarded to, earned by or
paid to such Named Officers for the year indicated for services rendered in all
capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------------------------------
SECURITIES
FISCAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James Ungerleider (1) -- $ -- $ -- --
President, Chief Executive Officer and Director
- --------------------------------------------------------------------------------------------------------------------------------
Harry Kaplowitz (2) 1996 $138,000 $ -- 20,000
Executive Vice President and Director 1995 $132,000 $10,251 --
1994 $120,000 $69,600 41,218
- --------------------------------------------------------------------------------------------------------------------------------
Dr. Robert J. Loane (3) 1996 $100,000 $ -- 6,000
Senior Vice President 1995 $100,000 $ 2,238 --
1994 $ 96,000 $13,290 7,000
- --------------------------------------------------------------------------------------------------------------------------------
Richard M. Tworek (4) 1996 $131,000 -- 20,000
Chief Technology Officer, Executive Vice 1995 $ 22,277 -- --
President and Director
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) Mr. Ungerleider's employment commenced on November 5, 1997.
(2) The 1995 bonus was paid in April 1996. $41,760 of the 1994 bonus was paid
in March 1995.
(3) The 1995 bonus was paid in April 1996. $8,352 of the 1994 bonus was paid in
March 1995.
(4) Mr. Tworek's employment commenced on October 11, 1995.
- 38 -
<PAGE>
OPTIONS GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
The following table summarizes the number of shares and the terms of
stock options granted to the Named Officers in 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
% OF TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN FISCAL
NAME GRANTED (#) YEAR 1996 EXERCISE PRICE ($/SH) EXPIRATION DATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harry Kaplowitz 20,000(1) 8.1 $3.813 April 30, 2001
- --------------------------------------------------------------------------------------------------------------------------------
Richard M. Tworek 20,000(1) 8.1 $3.813 April 30, 2001
- --------------------------------------------------------------------------------------------------------------------------------
Dr. Robert J. Loane 6,000(1) 2.4 $3.813 April 30, 2001
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Exercisable in three equal annual installments, commencing May 1, 1996,
with the exercise price equal to market price on the date of the grant.
The following table sets forth information concerning the number of
unexercised options and the fiscal 1996 year-end value of unexercised options on
an aggregated basis held by the Named Officers. The Company has not granted any
stock appreciation rights; 5,444 options were exercised in fiscal 1996.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR-END
OPTIONS AT FISCAL YEAR-END (#) ($)(1)
- -----------------------------------------------------------------------------------------------------------------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harry Kaplowitz - - 93,251 19,295 $652,757 135,065
- -----------------------------------------------------------------------------------------------------------------------------------
Dr. Robert J. Loane 5,444 $27,220 21,436 4,000 150,052 28,000
- -----------------------------------------------------------------------------------------------------------------------------------
Richard Tworek - - 6,667 13,333 46,669 93,331
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The value of unexercised in-the-money options at fiscal year end was
calculated by obtaining the product of the last sale price on December 31,
1996 (which was $7.00 per share) multiplied by the number of in-the-money
exercisable options or the number of in-the-money unexercisable options, as
the case may be.
AGREEMENTS WITH EXECUTIVES
The Company has entered into Executive Separation Agreements with Mr.
Kaplowitz and Dr. Loane. In the event that either officer's employment is
terminated involuntarily, without cause, following a change in control of the
Company, as defined, that officer is entitled to separation pay equal to two
years' base salary and continuation of life and health insurance coverage for
two years. Additionally, any type of pension or profit-sharing credited service
will be extended for two years. There were no separation payments accrued or
paid under the Executive Separation Agreements in 1996.
As part of the acquisition of Merex by the Company in October 1995, the
Company entered into an Employment and Non-Compete Agreement ("Employment
Agreement"), dated October 11, 1995, with Richard M.
- 39 -
<PAGE>
Tworek. Pursuant to the Employment Agreement, Mr. Tworek is serving as Executive
Vice President of the Company until October 11, 1999, and receives a minimum
base salary of $125,000 per year, plus any bonus compensation as may be
determined by the Company's Board of Directors. The Employment Agreement also
provides that Mr. Tworek may not compete with the Company for two years with
respect to any then existing client, customer or supplier of the Company
following the expiration or termination of the Employment Agreement or his
earlier resignation.
The Company entered into a letter employment agreement ("Letter
Agreement") with James Ungerleider on November 5, 1997. Pursuant to the Letter
Agreement, Mr. Ungerleider is serving as the Company's President and Chief
Executive Officer and receives an annual base salary of $200,000 plus an annual
incentive bonus based on the achievement of certain management objectives and
financial performance measures. In addition, Mr. Ungerleider received options to
acquire 250,000 shares of the Company's Common Stock at a price of $9.50 per
share, vesting over a three year period from the date of the Letter Agreement, a
$50,000 hiring bonus to be paid on January 2, 1998, health insurance and life
insurance. Mr. Ungerleider's employment at the Company is terminable at will and
is not for a definite term. However, if Mr. Ungerleider is terminated by the
Company, other than "for cause," as defined in the Letter Agreement, he will
continue to be paid his base salary in monthly increments for a period of 18
months, and he will continue to receive various insurance benefits during such
period. These insurance and salary benefits will cease should Mr. Ungerleider
begin employment elsewhere with a new employer during such 18 month period. The
Letter Agreement also provides that, if during Mr. Ungerleider's first 12 months
of employment with the Company, Mr. Bueschel is no longer Chairman of the Board
and during that same 12 month period Mr. Ungerleider is terminated other than
for cause, the aforementioned salary and benefit provision will apply for a 24
month period.
As part of the acquisition of AMBIA, on July 22, 1997 the Company and
AMBIA entered into a two-year employment agreement with Razi Mohiuddin
("Mohiuddin Employment Agreement"). Pursuant to the Mohiuddin Employment
Agreement, Mr. Mohiuddin is serving as a Vice President of the Company and
manager of the Company's West Coast facilities for a term of 24 months, unless
extended by the mutual agreement of the Company and Mr. Mohiuddin, with a base
salary of $110,000 per year, subject to adjustment based on performance reviews.
The Mohiuddin Employment Agreement also provides that if Mr. Mohiuddin is
terminated for cause, Mr. Mohiuddin will be subject to a noncompetition
provision for a period of two years and a nonsolicitation provision for a period
of one year following the date of termination.
DIRECTOR COMPENSATION
During 1996, non-employee directors received an annual fee of $3,000
plus $500 per Board meeting or meeting of a committee of the Board (fees for
committee meetings held on the same day as Board meetings are $100). During
1996, no Executive Committee meeting fees were accrued or paid to Executive
Committee members. During 1996, Laurence C. Glazer, Isaac M. Pollak and Millard
H. Pryor, Jr., members of the Compensation Committee, were each granted a
non-qualified option under the Company's 1995 Stock Option Plan to purchase
4,666 shares of Common Stock at an exercise price of $5.0313 per share. During
1997, non-employee directors will receive an annual fee amounting to $10,000,
payable quarterly in shares of the Company's Common Stock, plus $1,000 per board
meeting attended. Any director who is an employee of the Company receives no
additional compensation for serving as a director.
1995 STOCK OPTION PLAN
In 1995, the Board of Directors adopted, and the Company's shareholders
approved, the 1995 Stock Option Plan ("1995 Plan"), which (i) consolidated the
Company's 1991 Incentive Stock Option Plan and 1992 Non-Qualified Stock Option
Plan and (ii) provided for the automatic grant of stock options to the members
of the Compensation Committee of the Company's Board of Directors ("Compensation
Committee"). The purpose of the 1995 Plan is to attract, retain and motivate
directors, officers, selected employees and consultants of the Company, as well
as officers and selected employees of any subsidiary thereof, by affording them
an opportunity to acquire a proprietary interest in the Company and to thereby
create in such persons an increased interest and a greater concern for the
welfare of the Company. The 1995 Plan is administered by the Compensation
Committee, which consists of not less
- 40 -
<PAGE>
than two members of the Board of Directors who qualify as "non-employee
directors" of the Company within the meaning of Rule 16b-3 under the Exchange
Act.
Subject to possible adjustment in the event of a recapitalization,
stock split or similar transaction, a total of 1,511,000 shares of Common Stock
may be issued upon the exercise of options granted under the 1995 Plan. Options
to purchase an aggregate of 1,439,381 shares of Common Stock under the 1995 Plan
have been issued in the past, of which options to purchase 287,234 shares have
been exercised and options to purchase 49,625 shares have either terminated or
lapsed. As of December 12, 1997, options to purchase a total of 1,350,366 shares
of Common Stock under the 1995 Plan, at prices ranging from $1.085 to $11.00 per
share, were outstanding. Of the currently outstanding options, options for
620,114 shares are currently vested and exercisable. The 1995 Plan also provides
that if any shares underlying outstanding options cease to be subject to
purchase thereunder due to expiration or termination of the options, such shares
thereafter will be available to underlie newly granted options under the 1995
Plan.
The Compensation Committee may grant options under the 1995 Plan to (i)
certain selected employees and officers of the Company or any subsidiary thereof
who are regularly employed on a salaried basis; (ii) directors of the Company,
other than members of the Compensation Committee, who are not officers or
employees of the Company; and (iii) consultants or advisors to the Company,
provided that the services rendered by such persons are not in connection with
the offer or sale of securities in a capital-raising transaction. Members of the
Compensation Committee receive awards of options pursuant to a formula set forth
in the 1995 Plan.
The 1995 Plan provides that upon the occurrence of an event
constituting a "change of control," all options granted under the 1995 Plan
immediately become fully exercisable. A "change of control" will be deemed to
have occurred under the 1995 Plan if any person or organization becomes the
beneficial owner, directly or indirectly, of either (i) a majority of the
Company's outstanding shares of Common Stock or (ii) securities of the Company
representing a majority of the combined voting power of the Company's then
outstanding voting securities.
As a result of the Company's acquisition of AMBIA, outstanding options
to purchase 390,000 shares of AMBIA common stock were converted into options
("Replacement Options") to acquire approximately 35,000 shares of Common Stock
of the Company at an exercise price of $1.69 per share. The Replacement Options
are subject to the terms of the 1995 Plan. The Company has agreed to file a
registration statement on Form S-8 to register the shares underlying the
Replacement Options by January 5, 1998.
STOCK PURCHASE PLAN
On April 23, 1997, the Board of Directors of the Company approved the
adoption of the Company's 1997 Employee Stock Purchase Plan ("SPP"), and on May
28, 1997, the holders of a majority of the Company's outstanding shares of
Common Stock present or represented at the Annual Meeting duly adopted the SPP.
The purpose of the SPP is to provide eligible employees the opportunity to
purchase Common Stock through payroll deductions. The SPP is intended as an
employment incentive and to encourage stock ownership such that participating
employees can share in the Company's progress.
The SPP is administered by the Board of Directors of the Company. Any
employee of the Company is eligible to participate, on a voluntary basis, in the
SPP, except that persons who own or hold stock, including stock underlying
options, or as a result of participation in the SPP would own stock, including
stock underlying options, amounting to 5% or more of the total combined voting
power or value of all classes of stock of the Company are not entitled to
participate in the SPP. Currently, approximately 115 persons are eligible to
participate in the SPP. 200,000 shares of the authorized but unissued Common
Stock of the Company have been reserved for issuance under the SPP.
The purchase price per share at which shares of the Common Stock are
sold in an offering under the SPP is set by the Board; provided that the
purchase price may not be less than 85% of the lesser of the fair market value
of the Common Stock on the first or the last day of the offering period. Subject
to certain limitations, the number of shares of the Common Stock a participant
purchases in an offering period is determined by dividing the total
- 41 -
<PAGE>
amount of payroll deductions withheld from the participant's compensation during
the offering period by the purchase price per share.
EMPLOYEE BENEFIT PLAN
In 1988, the Company established an employee benefit plan ("Benefit
Plan"), which qualifies under Section 401(k) of the Code. The Benefit Plan
allows salaried employees to contribute a part of their compensation toward
their retirement on a tax deferred basis. Required Company contributions equate
to 10% of the employee's contribution to the Benefit Plan and totaled
approximately $32,000 in 1996 and $23,000 in 1995. In addition to these
contributions, the Company, at the sole discretion of its Board of Directors,
may make profit-sharing contributions to the Benefit Plan; no such contributions
were made in 1996 or 1995.
CERTAIN TRANSACTIONS
For the period beginning January 1, 1996 through November 30, 1997, the
Company made business management consulting fee payments totaling $230,000 to
Bermuda Capital for the services of Mr. Richard T. Bueschel, the Company's
Chairman, for his services as acting Chief Executive Officer of the Company from
1996 to 1997. The Company does not have a written consulting agreement with
Bermuda Capital or Mr. Bueschel.
For the period beginning January 1, 1996 through November 30, 1997, the
Company made payments totaling $160,500 to Huguenot Associates, Inc. for the
consulting services of its President, Robert M. Leopold, a director of the
Company. The Company is currently making payments of $7,500 per month to
Huguenot Associates, Inc. for financial consulting services. In January 1996,
the Company issued 8,000 shares of its Common Stock to Mr. Leopold for services
rendered by him to the Company in connection with the acquisition of certain
assets and liabilities of Merex on October 11, 1995.
On October 3, 1996, the Company extended a loan to Richard M. Tworek, a
director and executive officer of the Company, in the principal amount of
$70,000. The loan bears annual interest of prime plus 1% and is payable by him
on or before October 2, 1999. As of the date of the Prospectus, the principal
amount of the loan was $70,000.
In October 1995, the Company purchased substantially all of the assets
and assumed certain liabilities of Merex in consideration for the issuance of
210,000 shares of Common Stock to Richard M. Tworek, Mary Margaret Styer and
Andrew M. Fregly (collectively, "Merex Shareholders"), with a fair value as
determined by the Company's Board of Directors of $1.125 per share. 158,754 of
such shares were issued to Richard M. Tworek. The purchase was effected pursuant
to an Asset and Purchase Agreement and Plan of Reorganization, dated as of
October 6, 1995 ("Merex Agreement"), among the Company, Merex and the Merex
Shareholders. Pursuant to the Merex Agreement, the Company agreed, until October
11, 1998, to register the shares issued to the Merex Shareholders within 30 days
of their written request to do so. Mr. Tworek has agreed to waive his
registration rights for a period of six months following the Effective Date. The
total acquisition cost was approximately $361,000, including the direct costs of
the acquisition. As part of the Merex Agreement, the Company entered into the
Employment Agreement with Mr. Tworek, pursuant to which Mr. Tworek is serving as
Executive Vice President of the Company until October 11, 1999, and receives a
minimum base salary of $125,000, plus any bonus compensation as may be
determined by the Company's Board of Directors.
On July 22, 1997, the Company acquired 100% of the issued and
outstanding capital stock of AMBIA through the issuance of 400,000 shares of
Common Stock to AMBIA's shareholders, Alan Fisher and Razi Mohiuddin
(collectively, "AMBIA Shareholders"), with a fair value as determined by the
Company's Board of Directors of $5.425 per share. Pursuant to a registration
rights agreement by and among the Company and the AMBIA Shareholders, the
Company granted the AMBIA Shareholders a one-time demand registration right,
exercisable until July 22, 2000 at the request of both AMBIA Shareholders. The
agreement also entitles the AMBIA Shareholders to piggyback registration rights
until July 22, 2000. The AMBIA Shareholders have agreed to waive their
registration rights for a period of six months following the Effective Date. The
acquisition was accomplished by means of a merger of AMBIA Acquisition
Corporation, a Delaware corporation ("Acquisition") and wholly-
- 42 -
<PAGE>
owned subsidiary of the Company, with and into AMBIA, pursuant to the terms of
the Agreement of Merger and Plan of Reorganization, dated as of July 22, 1997
("AMBIA Agreement"), by and among the Company, AMBIA, the AMBIA Shareholders,
Software Partners, Inc., a Delaware corporation ("SPI"), and Acquisition. As a
result of the Merger, all of the issued and outstanding shares of AMBIA were
exchanged for and converted into 400,000 shares of the Company's Common Stock,
339,999 shares were delivered to the AMBIA Shareholders, 60,000 shares were
delivered to an escrow agent and one share was delivered to the AMBIA
Shareholders in cash in lieu of a fractional share. The escrow is being
maintained to secure the Company against breaches of representations, warranties
and covenants made under the AMBIA Agreement by the AMBIA Shareholders, SPI and
AMBIA. The total acquisition cost was approximately $2,300,000, including the
direct costs of the acquisition. As a part of the acquisition of AMBIA, the
Company and AMBIA entered into a two-year employment agreement with Mr.
Mohiuddin, pursuant to which Mr. Mohiuddin is serving as a Vice President of the
Company and manager of the Company's West Coast facilities at a base salary of
$110,000 per year. In addition, as part of the acquisition of AMBIA, the Company
agreed to appoint Alan Fisher to its Board of Directors, subject to certain
provisions in the AMBIA Agreement.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Common Stock as of the date of this
Prospectus for (i) each person or group that is a beneficial owner of more than
5% of the outstanding shares of Common Stock, (ii) each of the Named Officers
and directors, and (iii) all directors and executive officers of the Company as
a group. Except as otherwise indicated, the Company believes that such
beneficial owners, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws, where applicable. Unless otherwise indicated, the address of all
persons named in the table is 12150 Monument Drive, Fairfax, Virginia 22033.
<TABLE>
<CAPTION>
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED (1) OFFERING OFFERING
---------------- --------- -------- --------
<S> <C> <C> <C> <C>
Richard T. Bueschel (2) .............................. 171,681 6.0% 4.4%
Suite 198
48 Par-La-Ville Road
Hamilton HM 11 Bermuda
James Ungerleider (3)................................. 75,000 2.7% 2.0%
Harry Kaplowitz (4) .................................. 152,533 5.3% 4.0%
Richard M. Tworek (5) ................................ 197,083 7.1% 5.2%
Dr. Robert J. Loane (6) .............................. 67,355 2.4% 1.8%
Alan S. Fisher (7) ................................... 253,138 9.2% 6.8%
1861 Landings Drive
Mountain View, California 94043
Razi Mohiuddin (8).................................... 147,121 5.4% 3.9%
1953 Landings Drive
Mountain View, California 94043
Laurence C. Glazer (9)................................ 67,330 2.4% 1.8%
Robert M. Leopold(10) ................................ 110,958 3.9% 2.9%
Isaac M. Pollak (11).................................. 124,714 4.5% 3.3%
Millard A. Pryor, Jr. (12)............................ 29,088 1.1% *%
All directors and executive officers
of the Company as a group (12 persons) (13)........... 1,401,035 44.0% 33.5%
</TABLE>
* Less than 1%
- 43 -
<PAGE>
(1) A person is deemed to be the beneficial owner of voting securities that can
be acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
convertible securities, options or warrants that are held by such person
(but not those held by any other person) and which are exercisable within
60 days of this Prospectus have been exercised. Unless otherwise noted, the
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(2) Includes 122,051 shares subject to presently exercisable stock options or
stock options exercisable within 60 days. Excludes 36,667 shares subject to
options not exercisable within 60 days.
(3) Includes 75,000 shares subject to presently exercisable stock options or
stock options exercisable within 60 days. Excludes 175,000 shares subject
to options not exercisable within 60 days.
(4) Includes 103,547 shares subject to presently exercisable stock options or
options exercisable within 60 days. Excludes 14,167 shares subject to
options not exercisable within 60 days.
(5) Includes 13,333 shares subject to presently exercisable stock options or
options exercisable within 60 days. Excludes 26,667 shares subject to
options not exercisable within 60 days.
(6) Includes 14,886 shares subject to presently exercisable stock options or
options exercisable within 60 days. Excludes 2,000 shares subject to
options not exercisable within 60 days.
(7) Includes 37,931 shares subject to an Escrow Agreement dated July 22, 1997,
by and among Alan Fisher, Razi Mohiuddin, the Company and SETTLEMENT CORP.
as escrow agent, pursuant to which Mr. Fisher shall be entitled to vote
such shares.
(8) Includes 22,069 shares subject to an Escrow Agreement, dated July 22, 1997,
by and among Alan Fisher, Razi Mohiuddin, the Company and SETTLEMENT CORP.
as escrow agent, pursuant to which Mr. Mohiuddin shall be entitled to vote
such shares.
(9) Includes 4,666 shares subject to presently exercisable options or options
exercisable within 60 days.
(10) Includes 64,270 shares subject to presently exercisable stock options or
stock options exercisable within 60 days. Excludes 27,500 shares subject to
options not exercisable within 60 days.
(11) Includes 12,200 shares owned by LGP Ltd., a profit sharing trust for which
Mr. Pollak has sole voting and investment power. Includes 26,440 shares
subject to presently exercisable stock options and options exercisable
within 60 days.
(12) Includes 9,332 shares subject to presently exercisable stock options and
options exercisable within 60 days.
(13) Includes 438,525 shares subject to presently exercisable stock options or
stock options exercisable within 60 days. Includes 60,000 shares subject to
an Escrow Agreement dated July 22, 1997, by and among Alan Fisher, Razi
Mohiuddin, the Company and SETTLEMENT CORP. as escrow agent, pursuant to
which Mr. Fisher shall be entitled to vote 37,931 of such shares and Mr.
Mohiuddin shall be entitled to vote 22,069 of such shares. Includes 12,200
shares owned by LGP Ltd., a profit sharing trust for which Mr. Pollak has
sole voting and investment power.
- 44 -
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company is 7,006,666 shares,
consisting of 6,666,666 shares of Common Stock, par value $0.03 per share, and
340,000 shares of Preferred Stock, par value $1.00 per share. As of December 12,
1997, there were 2,749,791 shares of Common Stock outstanding. No shares of
Preferred Stock are currently outstanding. Upon completion of this Offering,
there will be approximately 3,749,791 shares of Common Stock outstanding
(3,899,791 if the Underwriters' over-allotment option is exercised in full) and
no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted can elect all of the
directors then being elected. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of liabilities and after provision has been made for each class of stock, if
any, having preference over the Common Stock. Holders of shares of Common Stock,
as such, have no redemption, preemptive or other subscription rights, and there
are no conversion provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby, when issued and paid for as set forth in this Prospectus, will be, fully
paid and nonassessable.
PREFERRED STOCK
The Company's authorized shares of Preferred Stock may be issued in one
or more series. The Board of Directors is expressly vested with the authority to
fix by resolution the designations, powers, preferences, qualifications,
limitations or restrictions of and upon shares of each series, including,
without limitation, voting, dividend, conversion, redemption and liquidation
rights. In addition, the Board of Directors may fix the number of shares
constituting any such series and increase or decrease the number of shares in
any such series.
The Company believes that the availability of Preferred Stock issuable
in series will provide increased flexibility for structuring possible future
financings and acquisitions, if any, and in meeting other corporate needs. It is
not possible to state the actual effect of the authorization and issuance of any
series of Preferred Stock upon the rights of holders of Common Stock until the
Board of Directors determines the specific terms, rights and preferences of a
series of Preferred Stock. However, such effects might include, among other
things, restricting dividends on the Common Stock, diluting the voting power of
the Common Stock, or impairing liquidation rights of such shares without further
action by holders of the Common Stock. In addition, under various circumstances,
the issuance of Preferred Stock may have the effect of facilitating, as well as
impeding or discouraging, a merger, tender offer, proxy contest, the assumption
of control by a holder of a large block of the Company's securities or the
removal of incumbent management. The issuance of Preferred Stock could also
adversely affect the market price of the Common Stock.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
As permitted by the Virginia Stock Corporations Act ("VSCA"), the
Company's Articles and Bylaws limit the personal liability of a director or
officer to the Company for monetary damages for breach of fiduciary duty of care
as a director. Liability is not eliminated if the officer or director engaged in
willful misconduct or a knowing violation of the criminal law or of any federal
or state securities law, including, without limitation, any claim of unlawful
insider trading or manipulation of the market for any security. Furthermore, a
director who votes for or
- 45 -
<PAGE>
assents to distributions made in violation of the VSCA or the Company's Articles
will be personally liable to the Company and its creditors for the amount of the
distribution that exceeds what could have been distributed without violating the
VSCA or the Company's Articles, pursuant to Section 13.1-692 of the VSCA.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles and Bylaws require the Company to indemnify any
director or officer of the Company, or any person who is or was serving at the
request of the Company as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted by law. The Company has obtained officers' and directors' liability
insurance of $1,000,000 for members of its Board of Directors and executive
officers. In addition to the indemnification provided in the Company's Bylaws,
the Company intends to enter into agreements to indemnify its directors and
officers.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended, may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
VIRGINIA ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is subject to the provisions of Section 13.1-725.1 of the
VSCA. Subject to certain exceptions, these provisions apply to Virginia
corporations having more than 300 shareholders of record and provide that for
three years following the time that a shareholder becomes an owner of 10% of the
outstanding voting shares (an "Interested Shareholder"), a Virginia corporation
cannot engage in any "Affiliated Transaction" with such Interested Shareholder
without the approval of two-thirds of the voting shares other than those shares
beneficially owned by the Interested Shareholder, and the approval of a majority
of the disinterested directors (as defined in Section 13.1-725 of the VSCA).
After the expiration of the three-year period, the statute requires, subject to
certain exceptions, approval of Affiliated Transactions by two-thirds of the
voting shares other than those beneficially owned by the Interested Shareholder.
Affiliated Transactions subject to this approval requirement include mergers,
share exchanges, material dispositions of corporate assets not in the ordinary
course of business, any guarantee by the corporation of a material amount of
indebtedness of any Interested Shareholder, certain dispositions to an
Interested Shareholder of voting shares of the corporation, any dissolution of
the corporation proposed by or on behalf of an Interested Shareholder, or any
reclassification, including reverse stock splits, recapitalization or merger of
the corporation with its subsidiaries, which increases the percentage of voting
shares owned beneficially by an Interested Shareholder by more than 5%. Virginia
law also provides that, with respect to Virginia corporations having 300 or more
shareholders of record, shares acquired in a transaction that would cause such
holder's voting strength to meet or exceed any of three thresholds (20%, 33 1/3%
or 50%) have no voting rights with respect to such shares unless granted by a
majority vote of shares not owned by the acquiring person or any officer or
employee-director of the corporation. This provision empowers such holder to
require the Virginia corporation to hold a special meeting of shareholders to
consider the matter within 50 days of its request.
Article 3 of the Company's Articles provides that the Board of
Directors, without action by the shareholders, may issue and fix the rights and
preferences of shares of Preferred Stock. Article 2 of the Company's Bylaws
further provides that a director may only be removed upon the affirmative vote
of a majority of the voting power of the shareholders of record entitled to
elect a successor and present in person or by proxy at a special meeting of such
shareholders for which express notice of the intention to transact such business
was given and at which a quorum is present. These provisions may have the effect
of delaying, deferring or preventing a change of control of the Company without
further action by the shareholders, may discourage bids for the Common Stock at
a premium over the market price of, and the voting and other rights of the
holders of, Common Stock.
The provisions of Virginia law and the provisions contained in the
Company's Articles and Bylaws, discussed above, could prohibit or delay mergers
or other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
- 46 -
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have approximately
3,749,791 shares of Common Stock outstanding. All 1,000,000 shares of Common
Stock being offered hereby will be immediately tradable without restriction or
further registration under the Securities Act. In addition, substantially all of
the currently outstanding shares of Common Stock have been or will be registered
for sale under the Securities Act or are eligible for sale under an exemption
therefrom. The directors and executive officers and certain shareholders of the
Company holding, in the aggregate, 962,510 shares of Common Stock and options to
purchase an aggregate of 730,526 shares of Common Stock, have agreed not to sell
or otherwise dispose of any of such shares for twelve months from the date of
this Prospectus without the prior written consent of GKN Securities Corp.
("GKN"); provided, however, that (a) at any time beginning six months after the
effective date ("Effective Date") of the Registration Statement of which this
Prospectus is a part, the directors, executive officers and certain shareholders
may sell, without GKN's consent, up to 20% of the shares owned by them, if (i)
the last sales price of the Common Stock has been at least 125% of the per share
public offering price for at least 10 consecutive trading days ending the day
prior to the proposed sale and (ii) the sales price of the shares to be sold is
no less than 125% of the per share public offering price, (b) at any time
beginning three months after the Effective Date, (i) Richard T. Bueschel may
sell up to an aggregate of 7,500 shares, (ii) Harry Kaplowitz may sell up to an
aggregate of 12,500 shares, (iii) Dr. Robert J. Loane may sell up to an
aggregate of 2,500 shares and (iv) Robert M. Leopold may sell up to an aggregate
of 7,500 shares, in each case without GKN's consent, and (c) at any time after
the Effective Date, Richard M. Tworek may sell up to an aggregate of 15,000
shares without GKN's consent. GKN may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. Additionally, as of the date of this Prospectus, the Company has
reserved an aggregate of 1,646,000 shares of Common Stock for issuance upon
exercise of outstanding options and the Representatives' Purchase Option. All
but 635,000 of the shares of Common Stock underlying such securities have been
registered under the Securities Act.
Pursuant to the asset purchase agreement by and among the Company and
the Merex Shareholders, the Company agreed, until October 11, 1998, to register
the 210,000 shares issued to the Merex Shareholders, 158,754 of which have been
issued to Richard M. Tworek, within 30 days of their written request to do so.
Mr. Tworek has agreed to waive his registration rights for a period of six
months following the Effective Date.
Pursuant to a registration rights agreement by and among the Company
and the AMBIA Shareholders, executed in connection with the acquisition of
AMBIA, the Company granted the AMBIA Shareholders a one-time demand registration
right with respect to the 400,000 shares (including 60,000 held in escrow)
issued to them. The demand registration right is exercisable until July 22, 2000
at the request of both Razi Mohiuddin and Alan Fisher. The registration rights
agreement also provides, subject to certain exceptions, for unlimited piggyback
registration rights until July 22, 2000. The AMBIA Shareholders have agreed to
waive their registration rights for a period of six months following the
Effective Date.
UNDERWRITING
The Underwriters named herein, for whom Southeast Research Partners,
Inc. and GKN Securities Corp. are acting as representatives ("Representatives"),
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase a total of 1,000,000 shares of Common Stock from the
Company. The number of shares of Common Stock that each Underwriter has agreed
to purchase is set forth opposite its name:
- 47 -
<PAGE>
Underwriter Number of Shares
- ----------- ----------------
Southeast Research Partners Inc. ----------------
GKN Securities Corp.
Total 1,000,000
================
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to approval of certain legal matters by counsel to the
Underwriters and various other conditions precedent, and that the Underwriters
are obligated to purchase all the shares of Common Stock offered hereby (other
than the shares of Common Stock covered by the over-allotment option described
below) if any are purchased.
The Representatives have advised the Company that the Underwriters
propose to offer the shares of Common Stock to the public at the price set forth
on the cover page of this Prospectus and to certain dealers at those prices less
a concession not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain other
dealers. After the Offering, the offering prices and other terms may be changed
by the Representatives.
The Company has granted to the Underwriters an option, exercisable
during the 45-day period after the date of this Prospectus, to purchase from the
Company at the offering price set forth on the cover page of this Prospectus,
less underwriting discounts and commissions, up to 150,000 shares of Common
Stock.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company also
has agreed to pay the Representatives an expense allowance on a nonaccountable
basis equal to 2% of the gross proceeds derived from the sale of the shares of
Common Stock underwritten (including the sale of any shares of Common Stock
subject to the Underwriters' over-allotment option), $50,000 of which has been
paid to date.
In connection with the Offering, the Company has agreed to sell to the
Representatives, for an aggregate of $100, an option to purchase up to an
aggregate of 100,000 shares of Common Stock ("Representatives' Purchase
Option"). The Representatives' Purchase Option is exercisable at $ per share
(120% of the offering price) for a period of four years commencing one year from
the date of this Prospectus. The Representatives' Purchase Option grants to the
holders thereof certain "piggyback" and demand rights for periods of seven and
five years, respectively, from the date of this Prospectus with respect to the
registration under the Securities Act of the shares issuable upon exercise of
the Representatives' Purchase Option. The Representatives' Purchase Option
cannot be transferred, sold, assigned or hypothecated during the one year period
following the date of this Prospectus, except to officers of the Representatives
and to Underwriters and selected dealers and their officers or partners.
Pursuant to the Underwriting Agreement, the directors and executive
officers and certain shareholders of the Company (collectively, "Insiders")
holding, in the aggregate, 962,510 shares of Common Stock and options to
purchase an aggregate of 730,526 shares of Common Stock, have agreed not to sell
or otherwise dispose of any of such shares for a period of 12 months following
the Effective Date without obtaining the prior written consent of GKN; provided
however, that (a) at any time beginning six months after the Effective Date each
of the Insiders may sell, without GKN's consent, up to 20% of the shares owned
by him, if (i) the last sales price of the Common Stock has been at least 125%
of the per share public offering price for at least 10 consecutive trading days
ending the day prior to the proposed sale and (ii) the sales price of the shares
to be sold is no less than 125% of the per share public offering price, (b) at
any time beginning three months after the Effective Date, (i) Richard T.
Bueschel may sell up to an aggregate of 7,500 shares, (ii) Harry Kaplowitz may
sell up to an aggregate of 12,500 shares, (iii) Dr. Robert J. Loane may sell up
to an aggregate of 2,500 shares and (iv) Robert M. Leopold may sell up to an
aggregate of 7,500 shares, in each case without GKN's consent, and (c) at any
time after the Effective Date, Richard M. Tworek may sell up to an aggregate of
15,000 shares without GKN's consent. GKN may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements.
- 48 -
<PAGE>
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate short covering transactions and penalty bids in
accordance with Regulation M under the Exchange Act. Over-allotment involves
sales by the underwriting syndicate in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the shares of Common Stock so long as the stabilizing bids do not
exceed a specified maximum. Syndicate short covering transactions involve
purchases of the shares of Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
selling group member when the shares of Common Stock originally sold by such
selling group member are repurchased in the open market by the Underwriters.
Such stabilizing transactions, syndicate short covering transactions and penalty
bids may cause the price of the shares of Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on the Nasdaq SmallCap Market or otherwise and, if commenced, may be
discontinued at any time.
In general, the rules of the Commission will prohibit the Underwriters
from making a market in the Common Stock during a "restricted period" commencing
up to five days prior to the pricing of the offering of Common Stock offered
hereby and extending until completion of the Offering. The Commission has,
however, adopted exceptions from these rules that permit passive market making
under certain conditions. These rules permit an underwriter to continue to make
a market subject to the conditions, among others, that its bid not exceed the
highest bid by a market maker not connected with the Offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to these
exemptions, the Underwriters, selling group members (if any) or their respective
affiliates may engage in passive market making in the Company's Common Stock
during the restricted period.
Southeast Research Partners, Inc. and GKN are both wholly-owned
subsidiaries of GKN Holding Corp.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Kramer, Levin, Naftalis & Frankel, New York, New York 10022.
Graubard Mollen & Miller, New York, New York, has served as counsel to the
Underwriters in connection with this Offering.
EXPERTS
The audited consolidated financial statements and schedule of the
Company as of and for the years ended December 31, 1995 and 1996 included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The audited financial statements of AMBIA as of and for the years ended
December 31, 1995 and 1996 included in this Prospectus and elsewhere in the
Registration Statement have been audited by Seiler & Company, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
- 49 -
<PAGE>
INFODATA SYSTEMS INC.
INDEX TO FINANCIAL STATEMENTS
INFODATA SYSTEMS INC. AND SUBSIDIARIES PAGE
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 F-3
and September 30, 1997 (unaudited)
Consolidated Statements of Operations for the Years Ended F-4
December 31, 1995 and 1996 and the Nine Months Ended
September 30, 1996 (unaudited) and 1997 (unaudited)
Consolidated Statements of Changes in Shareholders' Equity for F-5
the Years Ended December 31, 1995 and 1996 and the Nine
Months Ended September 30, 1997 (unaudited)
Consolidated Statements of Cash Flows for the Years Ended F-6
December 31, 1995 and 1996 and the Nine Months Ended
September 30, 1996 (unaudited) and 1997 (unaudited)
Notes to the Consolidated Financial Statements F-7
AMBIA CORPORATION, INC.
Independent Auditor's Report F-20
Balance Sheets as of December 31, 1995 and F-22
1996 and June 30, 1997 (unaudited)
Statements of Loss and accumulated deficit for the Years Ended F-23
December 31, 1995 and 1996 and the Six Months Ended
June 30, 1997 (unaudited)
Statements of Stockholders' Deficit for the Years F-24
Ended December 31, 1995 and 1996 and the Six
Months Ended June 30, 1997 (unaudited)
Statements of Cash Flows for the Years Ended F-25
December 31, 1995 and 1996 and the Six Months Ended
June 30, 1997 (unaudited)
Notes to Financial Statements F-26
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME F-31
Pro Forma Condensed Consolidated Statement of Income for the Year F-32
Ended December 31, 1996 (unaudited)
Pro Forma Condensed Consolidated Statement of Income for the Nine F-33
Months Ended September 30, 1997 (unaudited)
Notes to the Pro Forma Condensed Consolidated Statements of
Income (unaudited) F-34
F-1
<PAGE>
Report of Independent Public Accountants
To Infodata Systems Inc.:
We have audited the accompanying consolidated balance sheets of Infodata Systems
Inc. (a Virginia corporation) and subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Company has incurred accumulated and working capital
deficits. While the Company has developed a plan to obtain additional financing
to mitigate its liquidity risk, there can be no assurance that such funds will
be secured.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Infodata Systems Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Washington, D. C.
December 18, 1997
F-2
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
- ------ --------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $1,476 $1,266 $278
Short term investments 33 947 425
Accounts receivable, net of allowance of $30, $80 and $80 1,901 1,522 2,219
Prepaid royalties 18 -- --
Other current assets 146 185 234
-------- -------- --------
Total current assets 3,574 3,920 3,156
-------- -------- --------
Property and equipment, at cost
Furniture and equipment 2,046 2,373 2,713
Less accumulated depreciation and amortization (1,633) (1,897) (2,136)
-------- -------- --------
413 476 577
Goodwill, net of accumulated amortization of $6, $31 and $76 264 274 2,624
Other assets
68 137 105
Software development costs, net of accumulated amortization
of $2,010, $2,052 and $2,084 126 84 52
-------- -------- --------
Total assets $4,445 $4,891 $6,514
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Current portion of capital lease obligations 106 46 30
Note payable 2 -- 958
Accounts payable 335 327 1,135
Accrued expenses 677 823 822
Deferred revenue 1,171 1,079 1,070
Preferred dividend payable 30 -- --
Current portion of deferred rent 33 33 33
-------- -------- --------
Total current liabilities 2,354 2,308 4,048
-------- -------- --------
Capital lease obligations 82 33 12
Deferred revenue 192 75 75
Deferred rent 52 19 --
-------- -------- --------
Total liabilities 2,680 2,435 4,135
Shareholders' equity
Preferred stock 132 -- --
Common stock 44 68 82
Additional paid-in capital 8,056 9,055 11,543
Accumulated deficit (6,467) (6,667) (9,246)
-------- -------- --------
Total shareholders' equity 1,765 2,456 2,379
-------- -------- --------
Total liabilities and shareholders' equity $4,445 $4,891 $6,514
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-3
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- --------------------
1995 1996 1996 1997
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $7,049 $9,560 $7,355 $7,033
Cost of revenues 4,166 5,457 4,412 4,037
------- ------- ------- -------
Gross profit 2,883 4,103 2,943 2,996
------- ------- ------- -------
Operating expenses:
Research and development 187 816 537 1,696
Selling, general and administrative 2,657 2,869 2,007 3,920
------- ------- ------- -------
2,844 3,685 2,544 5,616
------- ------- ------- -------
Operating income (loss) 39 418 399 (2,620)
Interest income 119 96 70 54
Interest expense (24) (11) (9) (18)
------- ------- ------- -------
Income (loss) before income taxes 134 503 460 (2,584)
Provision for income taxes 3 -- 7 (5)
------- ------- ------- -------
Net income (loss) $131 $503 $453 ($2,579)
======= ======= ======= =======
Preferred dividends 120 58 58 --
Net income (loss) available to common shareholders $11 $445 $395 ($2,579)
======= ======= ======= =======
Per share:
Net income (loss) per common
and equivalent share:
Primary $0.01 $0.20 $0.19 ($0.92)
======= ======= ======= =======
Fully diluted $0.01 $0.18 $0.16 ($0.92)
======= ======= ======= =======
Weighted average shares:(*)
Primary 1,694 2,162 2,085 2,796
Fully diluted 1,465 2,718 2,448 2,796
</TABLE>
(*) All share and per share amounts retroactively reflect a 1-for-6 common
stock dividend in May 1996 and a 2-for-1 common stock split in the form of
a 100% stock distribution made in August 1996.
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
( AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------ PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 133,500 $134 1,204,748 $37 $7,768 ($6,478) $1,461
Conversion of preferred stock for
common stock (2,000) (2) 5,146 -- 2 -- --
Issuance of shares for business
acquisition -- -- 210,000 6 230 -- 236
Issuance of shares for services -- -- 8,000 -- 9 -- 9
Exercise of stock options -- -- 37,442 1 47 -- 48
Dividends on preferred stock -- -- -- -- -- (120) (120)
Net income -- -- -- -- -- 131 131
----------------------------------------------------------------------------------------
Balance at December 31, 1995 131,500 132 1,465,336 44 8,056 (6,467) 1,765
1:6 common stock dividend -- -- 241,063 7 636 (643) --
Redemption of preferred shares
for common (131,500) (132) 394,614 12 120 -- --
Fractional share redemption -- -- -- -- -- (2) (2)
Exercise of stock options -- -- 176,852 5 243 -- 248
Dividends on preferred stock -- -- -- -- -- (58) (58)
Net income -- -- -- -- -- 503 503
----------------------------------------------------------------------------------------
Balance at December 31, 1996 -- -- 2,277,865 68 9,055 (6,667) 2,456
Issuance of shares for business
acquisition (unaudited) -- -- 400,000 12 2,286 -- 2,298
Issuance of shares for services -- -- 2,000 -- 11 -- 11
(unaudited)
Exercise of stock options -- -- 49,939 2 165 -- 167
(unaudited)
Employee stock purchase plan -- -- 3,952 -- 26 -- 26
(unaudited)
Net loss (unaudited) -- -- -- -- -- (2,579) (2,579)
----------------------------------------------------------------------------------------
Balance at September 30, 1997 -- -- 2,733,756 $82 $11,543 ($9,246) $2,379
(unaudited) ========================================================================================
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-5
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ --------------------
1995 1996 1996 1997
------- ------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES: (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss) $131 $503 $453 ($2,579)
Adjustments to reconcile net income (loss) to cash provided by
(used in) operating activities:
Depreciation and amortization 275 264 195 239
Software amortization 373 42 32 31
Goodwill and other intangible amortization 10 48 34 (44)
Cancellation of debt on note payable (85) -- -- --
Investment discount amortization 7 -- -- --
Write-down of leased assets 20 -- -- --
Other -- -- (6) --
Changes in operating assets and liabilities:
Accounts receivable (464) 379 (185) (696)
Prepaid royalties and other current assets 117 (21) (20) (49)
Other assets -- -- -- 32
Accounts payable 94 (8) (122) 808
Accrued expenses (12) 175 196 (8)
Deferred revenue (226) (209) (285) (8)
Deferred rent (32) (33) (31) (19)
------- ------- ------- -------
Net cash provided by (used in) operating activities 208 1,140 261 (2,293)
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (84) (357) (200) (340)
Business acquisition (47) (23) (12) --
Loan to officer -- (70) -- --
Purchases of short term investments -- (943) -- --
Proceeds from maturity of short term investments 47 29 29 522
Other (3) (32) -- --
------- ------- ------- -------
Net cash (used in) provided by investing activities (87) (1,396) (183) 182
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (122) (108) (84) (37)
Proceeds from short term borrowing -- -- -- 1,280
Payments on notes payable (21) (2) (2) (324)
Retirement of acquisition-related note payable (155) -- -- --
Preferred stock dividends (120) (88) (87) --
Issuance of common stock 48 244 155 204
------- ------- ------- -------
Net cash (used in) provided by financing activities (370) 46 (18) 1,123
------- ------- ------- -------
Net (decrease) increase in cash and cash equivalents (249) (210) 60 (988)
Cash and cash equivalents, at beginning of period 1,725 1,476 1,476 1,266
------- ------- ------- -------
Cash and cash equivalents, at end of period $1,476 $1,266 $1,536 $278
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-6
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS:
THE COMPANY
Infodata Systems Inc. (the "Company" or "Infodata") provides electronic document
systems to corporate and government workgroups, departments and enterprises.
Prior to 1994, substantially all of the Company's business was derived from the
sale, support and maintenance of INQUIRE/Text, which was the leading independent
full-text retrieval product in the IBM and IBM-compatible mainframe market. In
1994, the Company shifted its focus to providing a broader range of document and
information management solutions deliverable through client/server and intranet
technology. The Company created the Virtual File Cabinet ("VFC") to address
these markets in the current electronic document management systems landscape.
The Company provides consulting services, third party software products, its own
software products, maintenance and integration services to both corporate and
government customers.
The Company's operations are subject to certain risks and uncertainties,
including uncertainty of future operating results, fluctuations in quarterly
results, change in mix of products, decline in INQUIRE/Text sales and reliance
on VFC, lengthy sales and implementation cycles, rapid technological changes and
product obsolescence, competition, risks associated with sales channels, and
dependence on government contracts and security clearances. As of September 30,
1997, the Company had incurred a net loss and accumulated and working capital
deficits. Management has developed a plan to obtain additional financing to
mitigate the Company's liquidity risk through a public offering and sale of
1,000,000 shares of common stock pursuant to a registration statement to be
filed in December 1997 with the Securities and Exchange Commission ("SEC").
However, there can be no assurance that such funds will be secured. The lack of
such funds could have a material adverse impact on the Company's financial
condition.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Infodata and its wholly-owned subsidiaries, Infodata Systems International Inc.
and Infodata Research and Development Corporation. These entities are
collectively referred to herein as the "Company". All significant intercompany
accounts and transactions have been eliminated in consolidation.
F-7
<PAGE>
2. ACQUISITION:
On July 22, 1997, the Company acquired all of the common stock of AMBIA
Corporation ("AMBIA") in consideration for 400,000 shares of the Company's
common stock (restricted as to sale) with a fair value as determined by the
Company's Board of Directors of $5.425 per share. The total acquisition cost was
approximately $2,300,000 including the direct costs of the acquisition.
Approximately $25,000 was allocated to acquired tangible assets, $60,000 to
acquired intangible assets, and $2,213,000 to goodwill. The acquisition was
treated as a purchase and was accomplished by means of a merger of a
wholly-owned subsidiary of the Company into AMBIA. AMBIA develops, markets and
sells software products and consulting services, which are complementary to
those being developed, marketed and sold by the Company.
The unaudited pro forma financial information presented below reflects the
acquisition of AMBIA as if the acquisition had occurred on January 1, 1996.
These results are not necessarily indicative of future operating results or of
what would have occurred had the acquisition been consummated at that time.
<TABLE>
<CAPTION>
For the For the
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
(Dollar Amounts in Thousands, except per share data)
(Unaudited)
<S> <C> <C>
Revenue $ 10,395 $ 7,958
Net loss available to common shareholders (577) (2,916)
Net loss per share $ (0.23) $ (.94)
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM REPORTING
The financial information as of September 30, 1997, and for the nine months
ended September 30, 1996 and 1997, has been prepared by the Company, without
audit, and includes, in the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of the
interim period results. Operating results for any interim period are not
necessarily indicative of the results for any other period or for an entire
year.
F-8
<PAGE>
REVENUE RECOGNITION
The Company recognizes revenue from software licenses upon delivery of the
software product to the customer or upon customer acceptance if a trial period
exists. Revenues from post contract support, including revenue bundled with the
initial license fee, are recognized ratably over the period that customer
support services are provided. Software service revenue is recognized as
performed.
Revenues from consulting and professional services contracts are recognized on
the percentage-of-completion method for fixed price contracts and on the basis
of hours incurred at contract rates for time and materials contracts. Revenues
from cost reimbursement contracts are recognized as costs are incurred.
The American Institute of Certified Public Accountants has issued Statement of
Position ("SOP") 97-2, Software Revenue Recognition, that supersedes SOP 91-1.
SOP 97-2 provides additional guidance with respect to multiple elements,
returns, exchanges, and platform transfer rights; resellers; services; funded
software-development arrangements; and contract accounting. SOP 97-2 is to be
implemented for fiscal years beginning after December 15, 1997. The Company
believes that the adoption of SOP 97-2 will not have a material impact on the
Company's financial statements.
CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
All highly liquid investments with an original maturity of 90 days or less at
the time of purchase are considered to be cash equivalents. At December 31, 1995
and 1996, and September 30, 1997, the Company had $1,269,000, $768,000 and $0,
respectively, of cash equivalents invested in commercial paper.
Short term investments include certificates of deposit and securities available
for sale. Securities available for sale at December 31, 1995 and 1996, and
September 30, 1997, totaled approximately $0, $943,000 and $425,000,
respectively. At December 31, 1995 and 1996, the securities available for sale
consisted of commercial paper and U.S. Treasury Bills with maturities greater
than 90 days for which the carrying value approximated market value.
At September 30, 1997, the securities available for sale consisted of U.S.
Treasury Bills. Available for sale securities are carried at fair value, with
unrealized gains and losses reported as a separate component of shareholders'
equity. No unrealized gains or losses were recorded for the years ended December
31, 1995 and 1996, nor for the nine month period ended September 30, 1997.
Realized gains and losses and declines in value judged to be other than
temporary on available for sale securities are included in other income.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest totaled $22,000 and $11,000 for the years ended
December 31, 1995 and 1996, respectively. Cash payments for interest totaled
$9,000 and $18,000 for the nine months ended September 30, 1996 and 1997,
respectively. Cash payments for income taxes totaled $7,000 and $4,000 for the
years ended December 31, 1995 and 1996,
F-9
<PAGE>
respectively. The Company did not make any cash payments for income taxes during
the nine month periods ended September 30, 1996 and 1997.
PROPERTY AND EQUIPMENT
Property and equipment is depreciated using the straight-line method. Computers
and related equipment are depreciated over three years and furniture and
equipment are depreciated over five to six years. Leasehold improvements are
amortized over the shorter of the useful life of the asset or the lease term.
GOODWILL
Goodwill created by the Merex, Inc. acquisition is amortized using the
straight-line method over ten years. Goodwill created by the AMBIA acquisition
is amortized using the straight-line method over seven years. The amount of
goodwill impairment, if any, would be measured based on the projected discounted
cash flows using a discount rate reflecting the Company's average cost of funds.
As of September 30, 1997, the Company does not believe there has been an
impairment of goodwill.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
NET INCOME PER COMMON SHARE
For the years ended December 31, 1995 and 1996, the weighted average number of
common shares used in the calculation of primary net income per share was
approximately 1,694,000 and 2,162,000, respectively. On a fully diluted basis
for December 31, 1995 and 1996, the weighted average number of common and common
equivalent shares was approximately 1,465,000 and 2,718,000, respectively. The
weighted average number of common shares used in calculation of primary net
income per share was 2,796,000 for the nine months ended September 30, 1997. Due
to the anti-dilutive impact of common equivalent shares on net loss per share
for the nine month period ended September 30, 1997, common equivalent shares are
excluded from the weighted average number of shares on a fully diluted basis.
Net income for the years ended December 31, 1995 and 1996, and the nine months
ended September 30, 1996, have been decreased for preferred stock dividends of
$120,000, $58,000 and $58,000, respectively, to arrive at net income available
to common shareholders. The Company's preferred stock was converted into common
stock during 1996, thus no preferred stock dividends were declared in 1997 (see
Note 7).
SUPPLEMENTAL PRO FORMA NET LOSS PER SHARE
The Company anticipates repaying approximately $1 million in certain notes
payable with proceeds from the offering contemplated by a registration statement
to be filed in December 1997, with the SEC (See Note 1). Assuming such
repayment, supplemental pro forma net loss per share, adjusted to give effect
for the elimination of interest associated with such debt, would have been
$(.85)
F-10
<PAGE>
for the nine month period ended September 30, 1997. For purposes of this
supplemental pro forma presentation, weighted average shares outstanding have
been adjusted for the estimated number of shares that the Company would need to
issue to repay the note payable discussed above, using the midpoint of the
anticipated offering range.
SIGNIFICANT CUSTOMERS
Sales to U.S. government agencies totaled approximately $2,586,000 and
$4,255,000 for the years ended December 31, 1995 and 1996, respectively,
representing 37% and 45% of revenues. As of December 31, 1995 and 1996, accounts
receivable due from U. S. government agencies approximated $678,000 and
$655,000, respectively. Sales to U.S. government agencies totaled approximately
$2,901,000 and $2,773,000 for the nine months ended September 30, 1996 and 1997,
respectively, representing 39% of revenues for each of the years then ended. At
September 30, 1997, accounts receivable from U.S. government agencies
approximated $568,000.
SOFTWARE DEVELOPMENT COSTS
Capitalization of software development costs begins upon the establishment of
technological feasibility. Capitalization ceases when the products are available
for general release to customers. The establishment of technological feasibility
and the continuing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
gross revenue, estimated economic life and changes in software and hardware
technologies. Amortization expense is determined on an individual product basis
and is computed as the greater of the amount calculated on a revenue basis or
straight-line basis over the economic life of the product, generally three to
five years. Amortization of software development costs is included in cost of
revenue in the accompanying consolidated statements of operations.
Periodically, the Company reviews the estimated lives and amounts assigned to
software development costs. In light of changing technology, the Company makes
revisions to estimated lives and adjusts amounts assigned as appropriate. On
December 31, 1995, the Company extended the remaining amortization period to
expire in 1998 to reflect the continued life of the INQUIRE product as reflected
by the substantial revenue stream associated with maintenance renewals. The
impact of such revision in estimated remaining useful life increased net income
by approximately $22,000 in 1996.
RECENT AUTHORITATIVE PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", changes the reporting requirements for earnings per share ("EPS") for
publicly-traded companies by replacing primary EPS with basic EPS and changing
the disclosures associated with this change. The Company is required to adopt
this standard for its December 31, 1997 year-end. The Company does not expect
that this pronouncement will have a material impact on its financial statements.
F-11
<PAGE>
SFAS No. 129, "Disclosure of Information about Capital Structure," establishes
standards for disclosing information about an entity's capital structure. The
Company is required to adopt this standard for its December 31, 1997 year-end.
The Company does not expect that this pronouncement will have a material impact
on its financial statements.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive income in a full set of general purpose
financial statements. The Company is required to adopt this standard for its
December 31, 1998 year-end and is currently evaluating the impact of the
standard.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires that public business enterprises report certain
information about operating segments. The Company is required to adopt this
standard for its December 31, 1998 year-end and is currently evaluating the
impact of the standard.
4. INCOME TAXES:
At December 31, 1996 and September 30, 1997, the Company had approximately
$5,347,000 and $7,643,000, respectively, in net operating loss carryforwards for
income tax reporting purposes. The operating loss carryforwards expire in
varying amounts from 1998 through 2012. The acquisition of AMBIA during 1997
(see Note 2) could limit the extent to which the Company may utilize these
carryforwards in any one year. In addition, at December 31, 1996 and September
30, 1997, the Company had $70,000 in research and development tax credit
carryforwards expiring in 1997 and $55,000 in investment tax credit
carryforwards expiring in 1997 through 2000.
The actual income tax expense for the years ended December 31, 1995 and 1996,
differed from the amount computed by applying the Federal statutory rate of 34
percent as a result of the following:
Year Ended Year Ended Nine Months
December December 31, Ended
31, 1995 1996 September 30,
1997
--------- --------- ---------
Tax at statutory rate $46,000 $171,000 $(949,000)
Benefit of operating loss carryforwards (55,000) -- 892,000
Benefit of stock options exercised -- (192,000) --
Nondeductible amortization 3,000 16,000 54,000
Miscellaneous items 6,000 5,000 3,000
Federal Alternative Minimum Tax 3,000 -- --
--------- --------- ---------
$3,000 $0 $0
F-12
<PAGE>
The 1995 provision for income taxes relates solely to the Federal Alternative
Minimum Tax.
The significant components of net deferred tax (liabilities) assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Net software development costs $(48,000) $ -- $(20,000)
Other (10,000) (32,000) (--)
----------- ----------- -----------
$(58,000) $(32,000) $(20,000)
Deferred tax assets:
Net operating loss carryforward 1,974,000 2,030,000 2,901,000
Investment tax credit and research and
development tax credits carry forward 207,000 125,000 125,000
Other 55,000 92,000 122,000
----------- ----------- -----------
2,236,000 2,247,000 3,148,000
Net deferred tax asset before valuation 2,178,000 2,215,000 3,128,000
allowance
Valuation allowance (2,178,000) (2,215,000) (3,128,000)
----------- ----------- -----------
Net deferred tax asset $ -- $ -- $ --
</TABLE>
Under the provisions of SFAS No. 109, the tax effect of the net operating loss
and investment tax credit carryforwards, together with net temporary
differences, represents a net deferred tax asset against which management has
fully reserved due to the uncertainty of future taxable income. The
carryforwards will be benefited for financial reporting purposes when utilized
to offset future taxable income.
5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial instruments are defined as cash, evidence of an ownership interest in
an entity or a contract that imposes an obligation to deliver cash or other
financial instruments to a second party. The carrying amounts of current assets
and current liabilities approximate fair value due to the short maturity of
these instruments.
6. NOTE PAYABLE:
In November 1996, the Company entered into a working capital line of credit with
Merrill Lynch Business Financial Services Inc. This loan facility provides the
Company with up to a $1,000,000 line of credit at a per annum rate equal to the
sum of 2.9 percent plus the 30 day commercial paper rate. This per annum rate
was 8.4% as of September 30, 1997. The weighted average interest rate for the
nine months ended September 30, 1997 was 8.4%. The advances on the facility are
based on eligible billed accounts receivable fewer than 90 days old, which
constitute collateral for the line of credit. The facility expires on December
31, 1997. As of December 31, 1996, the Company had no
F-13
<PAGE>
borrowings under this line of credit. As of September 30, 1997, the Company had
borrowed $958,000 under this line of credit.
7. SHAREHOLDERS' EQUITY:
PREFERRED STOCK
During 1996, all the outstanding shares of preferred stock were converted into
common stock, and all dividends in arrears were satisfied through the issuance
of an equivalent number of common shares.
At December 31, 1995, 131,500 shares of convertible preferred stock were
outstanding. The preferred shares had the following provisions:
o Cumulative, preferential dividends paid quarterly if declared by the Board
of Directors at an annual rate of 9 percent ($.90 per share).
o The option to convert one share of preferred stock for 1.111 common
shares.
o Full voting rights, to the extent of common shares that would be held upon
conversion.
o Pre-emptive rights relating to future stock offerings.
o Preference in the distribution of corporate assets up to $10.00 per share
plus cumulative unpaid dividends.
o All the preferred stock was redeemable at the option of the Company at a
price of $10.00 per share.
Dividends on preferred stock were paid upon declaration by the Board of
Directors. Cash dividends of $120,000 ($0.90 per preferred share) and $58,000
($0.45 per preferred share) were declared during 1995 and 1996, respectively.
OPTIONS AND WARRANTS
In April 1995, the Company's shareholders approved the adoption of the 1995
Stock Option Plan (the "1995 Plan") which consolidates and is the successor to
the Company's Incentive Stock Option Plan approved by shareholders in 1991 and
the Non-Qualified Stock Option Plan approved in 1992 (together, the "Predecessor
Plans"). Options have been granted to employees as well as to members of the
Board of Directors. The 1995 Plan also provides for the automatic granting of a
fixed number of options each year to members of the Compensation Committee of
the Company's Board of Directors and increases the total number of shares
authorized for issuance upon the exercise of options from the 777,779 shares
previously authorized to l,011,000 shares. In August 1997, an additional 500,000
shares were authorized for issuance.
Under the 1995 Plan, options may be granted at prices not less than 100 percent
of the fair market value of the common stock at the date of grant. Options vest
over varying years of service. Vested options are exercisable until the earlier
of ten years from the date of grant or three months after termination of
employment for options granted
F-14
<PAGE>
under the Predecessor Plans, five years from the date of grant or one month
after termination of employment for options issued under the 1995 Plan.
As of September 30, 1997, warrants remained outstanding for the right to
purchase 15,556 shares of common stock issued to certain former members of the
Board of Directors and to certain non-affiliated parties. All of the outstanding
warrants were issued over the years ended December 31, 1990 and 1991. These
warrants, which are exercisable for seven years from date of grant, are
exercisable upon grant. Warrants to purchase an additional 7,777 shares of
common stock are authorized for future issuance.
A summary of option and warrant activity under the 1995 Plan and the Predecessor
Plans is presented below:
<TABLE>
<CAPTION>
NUMBER OF EQUIVALENT SHARES
---------------------------
Incentive Stock Non-Qualified
Options Stock Options Warrants
--------------- --------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 526,146 87,112 15,556
Granted 29,166 14,000 --
Exercised (43,681) -- --
Expired or canceled (142,770) -- --
--------------- --------------- --------------
Outstanding at December 31, 1995 368,861 101,112 15,556
Granted 246,655 92,998 --
Exercised (52,322) (124,530) --
Expired or canceled (13,196) -- --
--------------- --------------- --------------
Outstanding at December 31, 1996 549,998 69,580 15,556
Granted 190,777 72,941 --
Exercised (39,885) (10,054) --
Expired or canceled (26,666) (2,832) --
--------------- --------------- --------------
Outstanding at September 30, 1997 674,224 129,635 15,556
Exercise price $1.08 to $11.00 $1.08 to $11.00 $2.17 to $2.73
</TABLE>
In November 1997, the Company granted 250,000 stock options to the Company's
President and Chief Executive Officer pursuant to an employment agreement. The
options may be exercised at $9.50 per share and vest over a three year period.
The fair value of the options on the date of grant was $9.75 per share. The
difference will be recognized as compensation expense ratably as the options
vest.
The Company adopted the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," effective for the Company's December 31, 1996,
financial statements. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, compensation cost has
been recognized for its stock plans based on the intrinsic value of the stock
option at date of grant (i.e., the difference between the exercise price and the
fair value of the Company's stock). Had compensation cost for the Company's
stock-based compensation plans been determined
F-15
<PAGE>
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1995 1996 1996 1997
---- ---- ---- ----
Net income (loss) as reported $131 $503 $453 $(2,579)
Pro forma compensation expense 3 134 101 237
--------- --------- --------- ---------
Pro forma net income (loss) $128 $369 $352 $(2,816)
Per share:
Net income (loss) available to
common shareholders per
common and equivalent share:
Primary, as reported $.01 $.20 $.19 $(.92)
Primary, pro forma $.01 $.14 $.17 $(1.01)
Fully diluted, as reported $.01 $.18 $.16 $(.92)
Fully diluted, pro forma $.01 $.13 $.14 $(1.01)
The weighted average fair value of options granted in 1995 and 1996 was $1.61
and $4.31, respectively. The fair value of each option is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1995 and 1996: no dividend yield, expected
volatility of 63.0 percent, risk-free interest rate of 6.21 percent and expected
life of five years. At September 30, 1997, the weighted average exercise price
for outstanding options was $4.66 per share.
Because SFAS No. 123 has not been applied to options granted prior to January 1,
1995, the resulting pro forma compensation cost may not be representative of
that to be expected in future years.
On March 15, 1996, the Board of Directors declared a one for six common stock
dividend payable to shareholders of record as of April 17, 1996, and distributed
on May 17, 1996. Accordingly, the fair market value (based upon quoted market
prices, as adjusted) of the additional 241,063 shares issuable, which totaled
$643,000, was charged to accumulated deficit and the respective amount was
credited to common stock and additional paid-in capital.
On July 30, 1996, the Company's Board of Directors approved a two-for-one common
stock split in the form of a 100 percent stock distribution. The distribution
was made on August 26, 1996, to common shareholders of record as of August 12,
1996. The stated par value per share of common stock was not changed from $.03
and the number of authorized shares of common stock increased from 3,333,333 to
6,666,666 shares.
F-16
<PAGE>
Accordingly, the par value of the additional shares issued was transferred from
additional paid-in capital to common stock, and all share and per share amounts
have been restated to retroactively reflect the stock split.
8. COMMITMENTS AND CONTINGENCIES:
CAPITAL LEASE OBLIGATIONS
The Company leases certain fixed assets under long-term capital lease
agreements. These assets are included in the accompanying consolidated balance
sheets as follows:
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
---- ---- ----
Property and equipment $580,000 $549,000 $182,000
Less - Accumulated
depreciation and amortization (403,000) (474,000) (98,000)
--------- --------- ---------
$177,000 $75,000 84,000
Depreciation and amortization of these assets is computed using the
straight-line method over the shorter of the useful lives of the assets or the
term of the lease obligation.
The future maturities of capital lease obligations as of December 31, 1996, are
as follows:
1997 .................................. $51,000
1998 .................................. 28,000
1999 .................................. 6,000
-----
Total minimum payments ................ 85,000
Less - Amounts representing interest .. (6,000)
------
Present value of minimum lease payments 79,000
Less - Current portion ................ (46,000)
-------
Long-term portion ..................... $33,000
F-17
<PAGE>
OPERATING LEASES
Effective August 1, 1993, the Company entered into a lease for its corporate
headquarters facility in Fairfax, Virginia. This lease expires July 31, 1998.
The minimum commitment under this agreement amounts to $307,000. Under the terms
of the lease, the landlord provided various incentives, which have been deferred
and classified as deferred rent in the accompanying consolidated balance sheets.
These amounts are being amortized over the life of the lease.
For the years ended December 31, 1995 and 1996, and the nine months ended
September 30, 1996 and 1997, rent expense was $297,000, $290,000, $212,000 and
$258,000. During 1996, the Company incurred $53,000 of rent expense related to
space and equipment for an off-site training facility under a month-to-month
lease. During the first nine months of 1997, the Company incurred $81,000 of
rent expense related to the off-site training facility.
Effective September 1997, the Company entered into a one-year agreement with a
third party to procure outside mainframe-related data processing services. The
minimum commitment under this agreement amounts to $60,000 until termination in
August 1998.
EMPLOYEE BENEFIT PLAN
In 1988, the Company established an employee benefit plan (the "Benefit Plan")
which qualifies under Section 401(k) of the Internal Revenue Code. The Benefit
Plan allows salaried employees to contribute a portion of their compensation
toward their retirement on a tax deferred basis. The Company is required to make
contributions equal to 10 percent of the employee's contribution to the Benefit
Plan and totaled approximately $23,000 and $32,000 for the years ended December
31, 1995 and 1996, respectively, and $26,000 and $33,000 for the nine months
ended September 30, 1996 and 1997, respectively. In addition to the
aforementioned contributions, the Company, at the sole discretion of its Board
of Directors, may make profit-sharing contributions to the Benefit Plan. No
contributions were made in 1995, 1996 or 1997.
F-18
<PAGE>
CONTINGENCIES
A customer has asserted that the Company did not perform on a contract and seeks
a $90,000 refund. The Company vigorously denies the assertion and management
believes that based upon the current facts it is not probable that a loss will
occur. Accordingly, no accrual has been made for this claim at December 31,
1996, or September 30, 1997.
Costs charged to cost-type U.S. Government contracts are subject to annual audit
by the Defense Contract Audit Agency or other duly authorized representatives of
the Federal government. No audits have been completed for any periods commencing
after September 30, 1991, and in the opinion of management, adjustments
resulting from the completion of such audits are not expected to have a material
impact on the Company's financial position or results of future operations.
RELATED-PARTY TRANSACTIONS
The Company incurred management consulting fees of approximately $168,000 and
$195,000 for the years ended December 31, 1995 and 1996, respectively, and
$143,000 and $158,000 for the nine months ended September 30, 1996 and 1997,
respectively, for services rendered by certain Directors of the Company. Amounts
payable for these services to companies employing these Directors were $15,000
and $12,500 at December 31, 1995 and 1996, respectively, and $0 at September 30,
1997. Amounts receivable from a company employing a director was $13,000 at
December 31, 1996.
In October 1996, the Company executed a note receivable from an officer and
shareholder for $70,000 due in full on September 30, 1999 with quarterly
interest payments at an annual rate of 1 percent over prime (approximately 9.25
percent at December 31, 1996 and 9.50% at September 30, 1997) adjusted
quarterly.
The Company issued 8,000 shares of restricted common stock to a Director for a
total compensation expense of $9,000 in consideration for services rendered
during 1995.
F-19
<PAGE>
To the Board of Directors
AMBIA
Independent Auditors' Report
----------------------------
We have audited the accompanying combined balance sheets of Ambia
Corporation and Software Partners, Inc. - AMBIA Division, hereafter referred to
as AMBIA as of December 31, 1995 and 1996 and the related statements of loss and
accumulated deficit and cash flows for the years then ended. The financial
statements are the responsibility of AMBIA's management. Our responsibility is
to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examing, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AMBIA as of December
31, 1995 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
We have reviewed the balance sheet of AMBIA as of June 30, 1997 and
the related statements of income (loss) and accumulated deficit and cash flows
for the six months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of AMBIA.
A review consists principally of inquires of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
F-20
<PAGE>
Based on our review, we are not aware of any material modifications
that should be made to the financial statements as of June 30, 1997 and for the
six months then ended in order for them to be in conformity with generally
accepted accounting principles.
Seiler & Company
Redwood City, California
June 3, 1997 as to the 1995 and 1996 financial statements
and June 11, 1997 as to the 1997 financial statements
F-21
<PAGE>
AMBIA
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF (UNAUDITED)
DECEMBER 31, AS OF
1995 1996 JUNE 30, 1997
---------- ---------- --------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ -- $ --
Accounts receivable trade, net 233,258 119,101 133,181
Accounts receivable others, net -- 15,448 --
Prepaid expenses -- -- 6,465
Inventories 14,476 -- --
---------- ---------- ----------
Total current assets 247,734 134,549 139,646
INTANGIBLE ASSETS 13,183 13,386 13,441
---------- ---------- ----------
Total assets $260,917 $147,935 $153,087
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 407,089 $ -- $ 67,961
Due to Software Partners, Inc. -- -- 152,679
Deferred revenue 25,500 128,889 --
---------- ---------- ----------
Total current liabilities 432,589 128,889 220,640
---------- ---------- ----------
Total liabilities 432,589 128,889 220,640
---------- ---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT):
Additional paid in capital -- 867,118 867,118
Common stock no par value,
4,500,000 shares issued
and outstanding
Accumulated deficit (171,672) (848,072) (934,671)
---------- -----------------------
Total stockholders's
equity (deficit)
(171,672) 19,046 (67,553)
---------- ----------------------
Total liabilities
and stockholders'
equity (deficit) $ 260,917 $ 147,935 $ 153,087
========== =======================
</TABLE>
See accompanying notes.
F-22
<PAGE>
AMBIA
STATEMENTS OF LOSS AND ACCUMLATED DEFICIT
(Unaudited)
Year Ended Six months
December 31, ended
1995 1996 June 30, 1997
----------- ----------- -----------
REVENUES:
Consulting income $ 498,800 $ 253,438 $ 413,352
Product sales 193,189 581,430 460,353
----------- ----------- -----------
Total revenues 691,989 834,868 873,705
----------- ----------- -----------
EXPENSES:
Wages 525,223 960,312 567,439
Software development 55,858 169,481 149,900
Advertising and promotion 53,760 70,530 16,775
Rent 39,645 53,343 41,148
Employee benefits 46,209 48,134 58,612
Telephone 20,166 28,378 24,824
Services - postage 11,000 27,561 28,364
Cost of goods sold 7,968 23,981 8,848
Travel 14,278 21,856 4,064
Accounting 6,028 19,089 8,511
Professional services 22,106 18,306 3,840
Office supplies 23,853 16,085 4,142
Legal 3,336 13,393 895
Services - shipping 14,771 10,409 11,412
Amortization 3,228 8,371 5,698
Bank charges 1,845 7,387 5,192
Insurance 1,136 6,818 8,499
Bad debt -- 3,237 9,000
Business meals 1,915 1,914 1,421
Software 8,936 1,784 --
Data entry -- 899 280
Franchise taxes -- -- 800
Dues and subscriptions -- -- 640
Sales commission 2,400 -- --
----------- ----------- -----------
Total expenses 863,661 1,511,268 960,304
----------- ----------- -----------
NET LOSS (171,672) (676,400) (86,599)
ACCUMULATED DEFICIT,
BEGINNING OF YEAR -- (171,672) (848,072)
----------- ------------ -----------
ACCUMULATED DEFICIT,
END OF YEAR $ (171,672) $ (848,072) $ (934,671)
============ ============ ============
See accompanying notes
F-23
<PAGE>
AMBIA
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- -------- ----------- -----
<S> <C> <C> <C> <C>
Balance as of
December 31, 1994 $ -- $ -- $ -- $ --
Net income (loss) -- -- (171,672) (171,672)
---------- ------------ ---------- ---------
Balance as of
December 31, 1995 -- -- (171,672) (171,672)
Additional paid in
capital -- 867,118 -- 867,118
Net income (loss) -- -- (676,400) (676,400)
---------- ------------ ---------- ----------
Balance as of
December 31, 1996 -- 867,118 (848,072) 19,046
Net Income (loss) (Unaudited) -- -- (86,599) ($ 86,599)
---------- ----------- ---------- ---------
Balance as of
June 30, 1997 (Unaudited) $ -- $ 867,118 $(934,671) $ (67,553)
========== =========== ========== ==========
</TABLE>
See accompanying notes
F-24
<PAGE>
AMBIA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended (Unaudited)
December 31, Six months ended
1995 1996 June 30, 1997
--------- --------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(171,672) $(676,400) $ (86,599)
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities
Depreciation and amortization 3,228 8,371 5,698
Changes in operating assets
and liabilities
Accounts receivable (233,258) 98,709 1,368
Prepaid expenses -- -- (6,465)
Inventories (14,476) 14,476 --
Accounts payable -- -- 67,961
Deffered revenue 25,500 103,389 (128,889)
---------- --------- ---------
Net cash provided (used)
by operating activities (390,678) (451,455) (146,926)
---------- --------- --------
INVESTING ACTIVITIES:
Purchase of intangible assets (16,411) (8,574) (5,753)
---------- --------- --------
Net cash provided (used)
by investing activities (16,411) (8,574) (5,753)
---------- --------- --------
FINANCING ACTIVITIES:
Short-term borrowings 407,089 -- 152,679
Additional paid in capital -- 460,029 --
---------- --------- --------
Net cash provided (used)
by financing activities 407,089 460,029 152,679
---------- --------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ -- $ -- $ --
========== ========= =========
SUPPLEMENTARY NON-CASH TRANSACTIONS:
Amounts due to Software Partners,
Inc. at December 31, 1995 were
converted to additional paid in
capital in 1996 $ 407,089
=========
</TABLE>
See accompanying notes
F-25
<PAGE>
AMBIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND JUNE 30, 1997
NOTE 1 - ACCOUNTING POLICIES
A. Nature of Business
Software Partners, Inc. - Ambia Division and Ambia Corporation, hereafter
referred to as AMBIA, develops and markets Acrobat add-on products for the
electronic publishing market in North America and Europe. Acrobat is a product
from Adobe Systems, Inc. that helps organizations publish documents on multiple
platforms from any software product.
In May 1996, Software Partners, Inc., a Delaware corporation, located in
Mountain View, California, spun-off its Ambia Division into a separate
corporation, Ambia Corporation. As a result of the spin-off, all intellectual
property was transferred, at cost, into Ambia Corporation in exchange for common
stock. Amounts due to Software Partners' other divisions were recorded as
additional paid-in capital.
The operations were carried on as Software Partners, Inc. - Ambia Division from
January 1, 1995 to April 30, 1996, and as Ambia Corporation since May 1, 1996.
The accompanying financial statements include the results of operations of
Software Partners, Inc. - Ambia Division and Ambia Corporation.
B. Use of Estimates
The preparation of 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 reporting period.
Actual results could differ from those estimates.
C. INTANGIBLE ASSETS AND DEFERRED CHARGES
Trademarks and patents, stated at cost less accumulated amortization, are being
amortized on the straight-line method over a three year period.
Product design costs, stated at costs less accumulated amortization, are being
amortized on a straight-line method over a two year period.
F-26
<PAGE>
AMBIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND JUNE 30, 1997
NOTE 1 - ACCOUNTING POLICICES (Continued)
D. RECOGNITION OF INCOME
AMBIA recognizes income on its products upon shipment. Consulting revenue is
recognized as services are provided. AMBIA provides a 30-60 day warranty on its
products and services.
E. Advertising Costs
AMBIA expenses advertising production costs as they are incurred and advertising
communication costs the first time advertising takes place.
F. Research and Development
Current operations are charged with all research, engineering and product
development expenses.
G. Income Taxes
AMBIA accounts for its income taxes using the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109), which requires the establishment of a deferred tax
asset or liability for the recognition of future deductible or taxable amounts
and operating loss and tax credit carryforwards. Deferred tax expense or benefit
is recognized as a result of the changes in the assets and liabilities during
the year. There was no deferred tax asset or liability at December 31, 1995,
1996 and June 30, 1997.
NOTE 2 - ACCOUNTS RECEIVABLE, TRADE
Accounts receivable, trade consists of the following:
December 31, June 30,
1995 1996 1997
---- ---- ----
Trade $233,258 $119,101 $142,181
Less allowance for doubtful
accounts -- -- 9,000
-------- --------- --------
Total $233,258 $119,101 $133,181
======== ======== ========
The Company also had goods on consignment, valued at approximately $14,600, with
Adobe Systems Europe Ltd. as of June 30, 1997. The goods on consignment were not
included in accounts receivable.
F-27
<PAGE>
AMBIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND JUNE 30, 1997
NOTE 3 - INTANGIBLE ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- --------
Intangible assets consist of the following: 1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Trademarks and patents $10,496 $13,252 $19,005
Product design 5,915 11,733 11,733
------- ------- ------
16,411 24,985 30,738
Less accumulated amortization 3,228 11,599 17,297
------- ------- ------
Total $13,183 $13,386 $13,441
======= ======= =======
</TABLE>
Amortization charged to earnings for 1995, 1996 and 1997 was $3,228, $8,371, and
$2,969, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
All activities were carried out by Software Partners, Inc. (SPI), on behalf of
AMBIA.
Revenues and expenses on the accompanying financial statements represent
revenues earned and expenses incurred and allocated by SPI to Ambia.
Software Partners, Inc. leases office space in Mountain View, California. The
lease expires on May 31, 1998. Rent is allocated to AMBIA based on the number of
employees, and totaled $39,645, $18,400 and $19,199 during 1995, 1996 and 1997,
respectively. Estimated future obligations of AMBIA under the lease are as
follows:
Year ending
June 30,
-----------
1998 88,116
NOTE 5 - ECONOMIC DEPENDENCY
AMBIA earned a substantial portion of its revenue from three, four and two
customers in 1995, 1996 and 1997, respectively. During the year ended December
31, 1995, 1996 and six months ended June 30, 1997 revenue from these customers
totaled $288,730, $216,852, and $135,600, respectively. At June 30, 1997 no
amounts were due from these customers.
NOTE 6 - COMMON STOCK OPTIONS
AMBIA has a fixed stock-based compensation plan. Under the plan, the Company may
F-28
<PAGE>
AMBIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND JUNE 30, 1997
grant options for up to 500,000 shares of common stock. The exercise price of
each option is equal to the market price of the Company's stock on the date of
grant. The maximum term of the options is ten years, and they vest at the end of
four years.
The Company applies APB Opinion 25 in accounting for its fixed stock-based
compensation plan. Accordingly, no compensation costs has been recognized for
the plan. Had compensation cost been determined on the basis of fair value
pursuant to Financial Accounting Standards No. 123, net loss would have been
increased as follows:
1995 1996 1997
---- ---- ----
Loss as reported $171,672 $676,400 $86,599
Loss proforma 171,672 693,180 86,599
The fair value of each option granted is estimated on the grant date using the
Black-Scholes model. The following assumptions were made in estimating fair
value:
Assumption Fixed Plan
---------- ----------
Dividend yield -
Risk-free interest
rate 8.5%
Expected life 4 years
Summary of the status of the fixed plan is as follows:
Number of shares Weighted average remaining
1996 1997 price
------- -------- --------------------------
Outstanding exercisable,
beginning of year -- 395,000 $0.15
Granted 395,000 --
Exercised -- --
Fortfeited -- (4,062)
------- --------- --------
Outstanding exercisable,
end of year 395,000 390,938 $0.15
======= ======= =======
F-29
<PAGE>
AMBIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND JUNE 30, 1997
The status of fixed options outstanding are as follows:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
--------------------------------- ---------------------------------
Weighted
average Weighted Weighted
remaining average average
Exercise contractual exercise exercise
Price Shares life price Shares price
----- ------ ---- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, $0.15 390,938 4 years $0.15 390,938 $0.15
1996
June 30, 1997 $0.15 395,000 4 years $0.15 395,000 $0.15
</TABLE>
As of December 31, 1996 and June 30, 1997 no options had been exercised.
F-30
<PAGE>
INFODATA SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
On July 22, 1997, Infodata Systems Inc. (the "Company") acquired all of
the outstanding common stock of AMBIA Corporation ("AMBIA") in consideration for
400,000 shares of the Company's common stock (restricted as to sale) with a fair
value as determined by the Company's Board of Directors at $5.425 per share. The
total acquisition cost was approximately $2,300,000 including the direct costs
of the acquisition. Approximately $25,000 was allocated to acquired tangible
assets, $60,000 to acquired intangible assets, and $2,213,000 to goodwill. The
acquisition is being accounted for in accordance with the purchase method of
accounting and was accomplished by means of a merger of a wholly owned
subsidiary of the Company into AMBIA.
The following unaudited Pro Forma Condensed Consolidated Statements of
Income give effect to the acquisition of AMBIA by the Company as if the
acquisition had occurred on January 1, 1996 and 1997, respectively. These pro
forma statements of income give effect, for the periods presented to the
following pro forma adjustments: (a) the increase in amortization associated
with goodwill resulting from the acquisition; and (b) the change in weighted
average common shares outstanding resulting from the issuance of 400,000 shares
of common stock in connection with the acquisition.
The following unaudited Pro Forma Condensed Consolidated Statements of
Income should be read in conjunction with the notes thereto included herewith,
with the Company's audited and unaudited consolidated financial statements and
notes thereto for the periods presented and with AMBIA's audited and unaudited
financial statements and notes thereto for the periods presented. The unaudited
Pro Forma Condensed Consolidated Statements of Income are not necessarily
indicative of future operating results or of what would have occurred had the
acquisition been consummated at the time specified. The pro forma adjustments
are based on available information and certain adjustments that management
believes to be reasonable. In the opinion of management, all material
adjustments have been made that are necessary to present fairly the pro forma
information.
F-31
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
PRO FORMA PRO FORMA
INFODATA AMBIA (1) ADJUSTMENTS CONSOLIDATED
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 9,560 $ 835 $ -- $ 10,395
Cost of revenues 5,457 24 -- 5,481
-------- -------- -------- --------
Gross profit 4,103 811 -- 4,914
Operating expenses:
Research and development 816 169 -- 985
Selling, general and administrative 2,869 1,318 346(A) 4,533
-------- -------- -------- --------
3,685 1,487 346 5,518
-------- -------- -------- --------
Operating income (loss) 418 (676) (346) (604)
Interest income 96 -- -- 96
Interest expense (11) -- -- (11)
-------- -------- -------- --------
Income (loss) before income taxes 503 (676) (346) (519)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net income (loss) $ 503 $ (676) $ (346) $ (519)
======== ======== ======== ========
Preferred dividends 58 -- -- 58
-------- -------- -------- --------
Net income (loss) available to
common shareholders $ 445 $ (676) $ (346) $ (577)
======== ======== ======== ========
Pro forma net income (loss) per share (2) $ 0.20 -- -- $ (0.23)
======== ========
Pro forma weighted average shares
outstanding (2) 2,162 -- 400 2,562
========
</TABLE>
F-32
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------------
PRO FORMA PRO FORMA
INFODATA AMBIA (3) ADJUSTMENTS CONSOLIDATED
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 7,033 $ 925 $ -- $ 7,958
Cost of revenues 4,037 10 -- 4,047
------- ------- ------- -------
Gross profit 2,996 915 -- 3,911
Operating expenses:
Research and development 1,696 162 -- 1,858
Selling, general and administrative 3,920 869 221(A) 5,010
------- ------- ------- -------
5,616 1,031 221 6,868
------- ------- ------- -------
Operating income (loss) (2,620) (116) (221) (2,957)
Interest income 54 -- -- 54
Interest expense (18) -- -- (18)
------- ------- ------- -------
Loss before income taxes (2,584) (116) (221) (2,921)
Provision for income taxes (5) -- -- (5)
------- ------- ------- -------
Net Loss $(2,579) $ (116) $ (221) $(2,916)
======= ======= ======= =======
Pro forma net loss per share (2) $ (0.92) -- -- $ (0.94)
======= =======
Pro forma weighted average shares 2,796 -- 298 3,094
outstanding (2) =======
</TABLE>
F-33
<PAGE>
INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(1) Reflects the results of AMBIA Corporation on a stand alone basis for the
year ended December 31, 1996.
(2) Pro forma net income (loss) per share and pro forma weighted average
shares outstanding reflect the issuance of 400,000 shares of Infodata
Systems, Inc. common stock issued to the shareholders of Ambia Corporation
as if the transaction had been consummated as of the beginning of the
period.
(3) Reflects the results of AMBIA Corporation on a stand alone basis for the
period January 1, 1997 through July 21, 1997, the day before the date of
acquisition.
(A) Reflects increase in amortization expense associated with goodwill on the
AMBIA Corporation acquisition and amortization of acquired intangible
assets.
F-34
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES BY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
-----------------
TABLE OF CONTENTS
Page
----
Available Information.......................................
The Company.................................................
Summary.....................................................
Risk Factors................................................
Use of Proceeds.............................................
Price Range of Common Stock.................................
Dividend Policy.............................................
Capitalization..............................................
Dilution....................................................
Selected Financial Data.....................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..............................................
Business....................................................
Management..................................................
Certain Transactions........................................
Principal Shareholders......................................
Description of Capital Stock................................
Shares Eligible for Future Sale.............................
Underwriting................................................
Legal Matters...............................................
Experts.....................................................
- --------------------------------------------------------------------------------
INFODATA SYSTEMS INC.
1,000,000 SHARES OF COMMON STOCK
PROSPECTUS
SOUTHEAST RESEARCH PARTNERS, INC.
GKN SECURITIES CORP.
January , 1998
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 10 ("Article 10") of Chapter 9 of Title 13.1 of the Virginia Stock
Corporation Act ("VSCA") authorizes a Virginia corporation to indemnify its
officers, directors, employees and agents under certain circumstances against
expenses and liabilities incurred in legal proceedings involving such persons
because of their holding or having held such positions with the corporation and
to purchase and maintain insurance for such indemnification. The Company's
Bylaws and Paragraph 10 of its Articles of Incorporation provide that the
Company shall indemnify its officers and directors to the fullest extent
permitted by Article 10 of the VSCA.
Section 13.1-692.1 of the VSCA limits the personal liability of an officer
or director to the corporation for damages arising out of certain alleged
breaches of the director's duties to the corporation. No such limitation of
liability is available if the officer or director engaged in: (i) willful
misconduct or (ii) a knowing violation of the criminal law or of any federal or
state securities law, including, without limitation, any claim of unlawful
insider trading or manipulation of the market for any security. Paragraph 9 of
the Company's Articles of Incorporation eliminates the personal liability of the
directors and officers of the Company to the fullest extent permitted by Section
13.1-692.1 of the VSCA.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement (other
than the underwriting discount and commissions and reasonable expense allowance)
will be as follows:
SEC registration fee...................................... $ 4,121.15
NASD filing fee .......................................... $ 1,897.01
Nasdaq filing fees........................................ $*
Printing and engraving expenses........................... $*
Accounting fees and expenses.............................. $*
Legal fees and expenses (except Blue Sky)................. $*
Blue sky fees and expenses................................ $*
Miscellaneous............................................. $*
--------------------
Total.......................................... $ *
====================
* To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On July 22, 1997, the Company issued an aggregate of 400,000 shares of
Common Stock to Alan Fisher and Razi Mohiuddin, the former shareholders of
AMBIA, as consideration for the purchase of all of the outstanding shares of
capital stock of AMBIA, pursuant to an Agreement of Merger and Plan of
Reorganization. The Company relied on Section 4(2) of the Securities Act, as the
basis for an exemption from registration, because the transaction did not
involve any public offering.
On October 11, 1995, the Company issued an aggregate of 210,000 shares
to Richard Tworek, Mary Margaret Styer and Andrew Fregly, the shareholders of
Merex, as consideration for the acquisition of Merex pursuant to an Asset
Purchase Agreement and Plan of Reorganization. The Company relied on Section
4(2) of the Securities Act as the basis for an exemption from registration,
because the transaction did not involve any public offering.
II-1
<PAGE>
The Company has agreed to issue shares of Common Stock on a quarterly
basis to each of Richard Bueschel, Lawrence Glazer, Robert Leopold, Millard
Pryor, Jr., Isaac Pollak and Alan Fisher, the non-employee directors of the
Company as payment of consulting fees for 1997 in the amount of $10,000 per
non-employee director. Through September 30, 1997, each non-employee director
was entitled to 872 shares of Common Stock. Certificates evidencing such shares
and the number of shares to which the non-employee directors will be entitled
for the last quarter of 1997 will be issued in January, 1998. The Company is
relying on Section 4(2) of the Securities Act as the basis for an exemption from
registration, because these shares will be issued by the Company solely to its
non-employee directors, and thus will not involve any public offering.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
Exhibit
Number Description of Document
- ------ -----------------------
1.1** Form of Underwriting Agreement.
2.1* Plan and Agreement of Merger, dated as of March 10, 1995, by and
between Infodata Systems Inc. and Virginia Infodata Systems,
Inc.
2.2 Asset Purchase Agreement and Plan of Reorganization, dated as of
October 6, 1995, among the Company, Merex, Inc. and Richard M.
Tworek, Mary Margaret Styer and Andrew M. Fregly (incorporated
by reference to the Company's Current Report on Form 8-K dated
October 11, 1995).
2.3 Agreement of Merger and Plan of Reorganization, dated as of July
22, 1997, by and among the Company, AMBIA Corporation, Alan
Fisher and Razi Mohiuddin, Software Partners, Inc. and Ambia
Acquisition Corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated August 6, 1997 and
Form 8-K/A dated October 6, 1997).
3.1 Articles of Incorporation (incorporated by reference to Exhibit
A of the Company's Proxy Statement dated April 10, 1996).
3.2* Articles of Amendment of Articles of Incorporation of the
Company, dated as of August 12, 1996.
3.3 By-Laws (incorporated by reference to Exhibit B to the Company's
Proxy Statement dated April 10, 1995).
4.1** Form of Representatives' Purchase Option granted to GKN
Securities Corp. and Southeast Research Partners, Inc.
5.1** Opinion of Kramer, Levin, Naftalis & Frankel regarding the
validity of the Company's Common Stock to be issued in the
public offering.
10.1** Cross License Agreement, dated as of December 3, 1997, by and
between the Company and Adobe Systems Incorporated.
10.2 Office Building Lease, dated as of April 12, 1993, by and
between the Company and Monument Fairfax Associates for One
Monument Drive (incorporated by reference to Exhibit 10(dd) to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994).
10.3* Lease Agreement, dated as of July 20, 1993, between The Landmark
and Software Partners, Inc. for 2013 Landings Drive, Mountain
View California.
10.4 Lease for Data Processing Service Agreement, dated as of July
29, 1994, between the Company and Financial Technologies Inc.
(incorporated by reference to Exhibit 10(ee) to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1994).
10.5 Executive Separation Agreement, dated as of October 20, 1986,
between the Company and Harry Kaplowitz (incorporated by
reference to Exhibit 10(a) to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993).
10.6 Executive Separation Agreement, dated as of October 20, 1986,
between the Company and Robert Loane (incorporated by reference
to Exhibit 10(b) to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1993).
10.7* Employment and Non-Compete Agreement, dated as of July 22, 1997,
between the Company, AMBIA Corporation and Razi Mohiuddin.
10.8* Employment and Non-Compete Agreement, dated as of October 11,
1995, between the Company and Richard M. Tworek.
10.9* Letter Employment Agreement, dated as of November 5, 1997,
between the Company and James Ungerleider.
10.10* Note, Loan and Security Agreement, dated as of October 31, 1997,
between the Company and Merrill Lynch Business Financial
Services Inc.
10.11* Loan and Registration Right Agreement, dated as of October 3,
1996, between the Company and Richard M. Tworek.
II-3
<PAGE>
10.12 1995 Stock Option Plan (incorporated by reference to Exhibit
4(a) to the Company's Registration Statement on Form S-8, dated
as of June 13, 1995).
10.13 1997 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 4(a) to the Company's Registration Statement on Form
S-8, dated as of June 27, 1997).
21.1* Subsidiaries of the Company.
23.1** Consent of Arthur Andersen LLP, Independent Auditors.
23.2** Consent of Seiler & Company, Independent Auditors.
23.3** Consent of Kramer, Levin, Naftalis & Frankel (contained in
Exhibit 5.1).
27.1* Financial Data Schedule.
- -------------
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules
Schedule Description
-------- -----------
II Valuation and
Qualifying
Accounts
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to;
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information in the
Registration Statement;
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration of the securities offered,
and the offering of such securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the 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
II-4
<PAGE>
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of New
York, State of New York, on December 17, 1997.
INFODATA SYSTEMS INC.
By:/s/ James Ungerleider
---------------------
James Ungerleider
(President)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints James
Ungerleider and Robert Leopold, and each of them, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments to this Registration
Statement (including post-effective amendments and amendments thereto) and any
registration statement relating to the same Offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing, ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James Ungerleider President, Chief Executive December 17, 1997
- -------------------------------- Officer and Director
James Ungerleider
/s/ Christopher P. Dettmar Chief Financial Officer December 17, 1997
- -------------------------------
Christopher P. Dettmar
/s/ Richard T. Bueschel Chairman of the Board December 17, 1997
- ------------------------------- and Director
Richard T. Bueschel
/s/ Alan S. Fisher Director December 17, 1997
- -------------------------------
Alan S. Fisher
/s/ Laurence C. Glazer Director December 17, 1997
- -------------------------------
Laurence C. Glazer
/s/ Harry Kaplowitz Director December 17, 1997
- -------------------------------
Harry Kaplowitz
/s/ Robert Leopold Director December 17, 1997
- -------------------------------
Robert Leopold
II-5
<PAGE>
/s/ Isaac M. Pollak Director December 17, 1997
- -------------------------------
Isaac M. Pollak
/s/ Millard H. Pryor, Jr. Director December 17, 1997
- -------------------------------
Millard H. Pryor, Jr.
/s/ Richard M. Tworek Director December 17, 1997
- ---------------------------
Richard M. Tworek
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Infodata Systems Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Infodata Systems Inc. (a Virginia corporation) and
subsidiaries (the "Company") as of and for the years ended December 31, 1995 and
1996, included in this registration statement and have issued our report thereon
dated December 18, 1997. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in item 27(b) is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
December 18, 1997
S - 1
<PAGE>
SCHEDULE II
INFODATA SYSTEMS INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
- ----------- ------- -------- ---------- -----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1995,
Deducted from assets accounts:
Allowance for doubtful accounts................ $30 $-- $-- $30
For the year ended December 31, 1996,
Deducted from assets accounts:
Allowance for doubtful accounts ............... $30 $50 $-- $80
</TABLE>
S - 2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description of Document Number
- ------ ----------------------- ----------
<S> <C>
1.1** Form of Underwriting Agreement.
2.1* Plan and Agreement of Merger, dated as of March 10, 1995, by and
between Infodata Systems Inc. and Virginia Infodata Systems,
Inc.
2.2 Asset Purchase Agreement and Plan of Reorganization, dated as of
October 6, 1995, among the Company, Merex, Inc. and Richard M.
Tworek, Mary Margaret Styer and Andrew M. Fregly (incorporated
by reference to the Company's Current Report on Form 8-K dated
October 11, 1995).
2.3 Agreement of Merger and Plan of Reorganization, dated as of July
22, 1997, by and among the Company, AMBIA Corporation, Alan
Fisher and Razi Mohiuddin, Software Partners, Inc. and Ambia
Acquisition Corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated August 6, 1997 and
Form 8-K/A dated October 6, 1997).
3.1 Articles of Incorporation (incorporated by reference to Exhibit
A to the Company's Proxy Statement dated April 10, 1995).
3.2* Articles of Amendment of Articles of Incorporation of the
Company, dated as of August 12, 1996.
3.3 By-Laws (incorporated by reference to Exhibit B to the Company's
Proxy Statement dated April 10, 1995).
4.1** Form of Representatives' Purchase Option granted to GKN
Securities Corp. and Southeast Research Partners, Inc.
5.1** Opinion of Kramer, Levin, Naftalis & Frankel regarding the
validity of the Company's Common Stock to be issued in the
public offering.
10.1** Cross License Agreement, dated as of December 3, 1997, by and
between the Company and Adobe Systems Incorporated.
10.2 Office Building Lease, dated as of April 12, 1993, by and
between the Company and Monument Fairfax Associates for One
Monument Drive (incorporated by reference to Exhibit 10(dd) to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994).
10.3* Lease Agreement, dated as of July 20, 1993, between The Landmark
and Software Partners, Inc. for 2013 Landings Drive, Mountain
View California.
10.4 Lease for Data Processing Service Agreement, dated July 29,
1994, between the Company and Financial Technologies Inc.
(incorporated by reference to Exhibit 10(ee) to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1994).
10.5 Executive Separation Agreement, dated as of October 20, 1986,
between the Company and Harry Kaplowitz (incorporated by
reference to Exhibit 10(a) to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993).
10.6 Executive Separation Agreement, dated as of October 20, 1986,
between the Company and Robert Loane (incorporated by reference
to Exhibit 10(b) to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1993).
10.7* Employment and Non-Compete Agreement, dated as of July 22, 1997,
between the Company, AMBIA Corporation and Razi Mohiuddin.
10.8* Employment and Non-Compete Agreement, dated as of October 11,
1995, between the Company and Richard M. Tworek.
10.9* Letter Employment Agreement, dated as of November 5, 1997,
between the
<PAGE>
Company and James Ungerleider.
10.10* Note, Loan and Security Agreement, dated as of October 31, 1997,
between the Company and Merrill Lynch Business Financial
Services Inc.
10.11* Loan and Registration Right Agreement, dated as of October 3,
1996, between the Company and Richard M. Tworek.
10.12 1995 Stock Option Plan (incorporated by reference to Exhibit
4(a) to the Company's Form S-8, dated as of June 13, 1995).
10.13 1997 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 4(a) to the Company's Form S-8, dated as of June 27,
1997).
21.1* Subsidiaries of the Company.
23.1* Consent of Arthur Andersen LLP, Independent Auditors.
23.2* Consent of Seiler & Company, Independent Auditors.
23.3** Consent of Kramer, Levin, Naftalis & Frankel (contained in
Exhibit 5.1).
27.1* Financial Data Schedule.
- -------------
* Filed herewith
** To be filed by amendment
</TABLE>
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger, dated as of March 10, 1995, is
executed and entered into pursuant to the New York Business Corporation Law and
the Virginia Stock Corporation Act, by and between Infodata Systems Inc., a New
York Corporation ("Infodata"), and Virginia Infodata Systems, Inc., a Virginia
Corporation and a wholly-owned subsidiary of Infodata ("Infodata Virginia"),
such corporations being hereinafter sometimes collectively referred as the
"Constituent Corporations."
WITNESSETH
WHEREAS, Infodata Virginia is a corporation duly organized and existing
under the laws of the State of Virginia, having been incorporated on March 9,
1995, and having an authorized capital stock of (i) 3,333,333 shares of common
stock, par value $.03 per share, of which 1,000 shares are issued and
outstanding and which 1,000 shares are owned by Infodata, and (ii) 500,000
shares of preferred stock, par value $1.00 per share, none of which are issued;
and
WHEREAS, Infodata is a corporation duly organized and existing under the
laws of the State of New York, having been originally incorporated on May 13,
1968, and having a current authorized capital stock of 3,333,333 shares of
common stock, par value $.03 per share, of which 604,874 shares are issued and
outstanding, and 500,000 shares of preferred stock, par value $1.00 per share,
of which 133,500 shares are issued and outstanding; and
WHEREAS, the respective Boards of Directors of Infodata and Infodata
Virginia deem it advisable and in the best interests of said corporations that
Infodata be merged with and into Infodata Virginia as the surviving corporation
as authorized by the statutes of the States of New York and Virginia under and
pursuant to the terms and conditions hereinafter set forth, and each of such
boards has duly approved this form of Plan and Agreement of Merger (the "Plan").
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements herein contained, and for the purpose of setting forth the terms
and conditions of said merger, the mode of carrying the same into effect, the
manner and basis of converting the shares of each Constituent Corporation into
shares of the Surviving Corporation (as hereinafter defined) and such other
details and provisions as are deemed necessary or desirable, the parties hereto
have agreed and do hereby agree, subject to the approval or adoption of the Plan
by the requisite vote of the shareholders of each Constituent Corporation and to
the conditions hereinafter set forth, as follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
At the Effective Time of the merger (as hereinafter defined), Infodata
shall be merged with and into Infodata Virginia, which is hereby designated as
the "Surviving Corporation" which shall continue its corporate existence as a
Virginia corporation to be governed by the laws of the State of Virginia, the
name of which shall be changed to Infodata Systems Inc. and which shall maintain
a registered office in the State of Virginia at 12150 Monument Drive (Suite 400)
Fairfax, Virginia 22033. The registered agent of the Surviving Corporation at
such address shall be Harry Kaplowitz, President of the Surviving Corporation.
A-1
<PAGE>
ARTICLE II
TERMS AND CONDITIONS OF MERGER
The terms and conditions of the merger (in addition to those set forth
elsewhere in the Plan) are as follows;
(a) Upon and following the Effective Time of the merger:
(1) The Constituent Corporations shall be merged into a single corporation,
which shall be Infodata Virginia, the corporation designated herein as the
Surviving Corporation.
(2) The separate existence of Infodata shall cease.
(3) The Surviving Corporation shall thereupon and thereafter possess all
the rights, privileges, powers, immunities and franchises, of a public as well
as of a private nature, and be subject to all the restrictions, disabilities and
duties of each Constituent Corporation; and the rights, privileges, powers and
franchises of each Constituent Corporation, and all property, real, personal and
mixed, and all debts due to either Constituent Corporation on whatever account,
including subscriptions for stock, and all other choses in action and all and
every other interest, of or belonging to each Constituent Corporation, shall be
taken and deemed to be transferred to and vested in the Surviving Corporation
without further act or deed; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the respective
Constituent Corporations, and the title to any real estate vested by deed or
otherwise in either Constituent Corporation shall not revert or be in any way
impaired by reason of the merger, but all rights of creditors and all liens upon
any property of either Constituent Corporation shall be preserved unimpaired,
and all debts, liabilities and duties of the respective Constituent Corporations
shall thenceforth attach to the Surviving Corporation and may be enforced
against it to the same extent as if said debts, liabilities and duties had been
incurred or contracted by it. Specifically, but not by way of limitation, the
Surviving Corporation shall be responsible and liable to dissenting shareholders
of Infodata and any action or proceeding whether civil, criminal or
administrative, pending by or against either Constituent Corporation shall be
prosecuted as if the merger had not taken place, or the Surviving Corporation
may be substituted in such action or proceeding.
(4) All corporate acts, plans, policies, contracts, approvals and
authorizations of Infodata and its shareholders, Board of Directors, committees
elected or appointed by the Board of Directors, officers and agents, which were
valid and effective immediately prior to the Effective Time of the merger shall
be taken for all purposes as the acts, plans, policies, contracts, approvals and
authorizations of the Surviving Corporation and shall be as effective and
binding thereon as the same were with respect to Infodata. The employees of
Infodata shall become the employees of the Surviving Corporation and continue to
be entitled to the same rights and benefits which they enjoyed as employees of
Infodata.
(5) The assets, liabilities, reserves and accounts of each Constituent
Corporation shall be recorded on the books of the Surviving Corporation at the
amounts at which they, respectively, shall then be carried on the books of such
Constituent Corporation subject to such adjustments or eliminations of
intercompany items as may be appropriate in giving effect to the merger.
(6) All obligations of Infodata under any and all employee benefit plans in
effect as of the Effective Time of the merger, or with respect to which employee
rights or accrued benefits are outstanding as of such time, including the
assumption of all outstanding stock options issued under the Incentive Stock
Option Plan and the Non-Qualified Stock Option Plan of Infodata, the proposed
1995 Stock Option Plan of Infodata, if adopted, and any warrants issued by
Infodata pursuant to its Stock Warrant Purchase Plan, shall be assumed by
Infodata Virginia as of the Effective Time of the merger; provided, however,
that the common stock of Infodata Virginia shall be substituted for common stock
of Infodata thereunder, without any action on the part
A-2
<PAGE>
of the holder thereof. As of the Effective Time of the merger, Infodata shall
adopt and continue in effect all such employee benefit and warrant purchase
plans, upon the same terms and conditions as were in effect immediately prior to
the merger and Infodata Virginia shall reserve that number of shares of Infodata
Virginia common stock which is equal to the number of shares of common stock of
Infodata that is reserved under any and all employee benefit and warrant
purchase plans of Infodata as of the Effective Time of the merger.
(b) The Board of Directors, and the members thereof, the committees of the
Board of Directors, and the members thereof, and the officers of Infodata
immediately prior to the Effective Time of the merger shall be and constitute
the Board of Directors, and the members thereof, the committees of the Board of
Directors, and the members thereof, and the officers of the Surviving
Corporation, respectively, to serve in accordance with the Bylaws of the
Surviving Corporation until their respective successors shall have been duly
elected and qualified.
ARTICLE III
CAPITALIZATION OF SURVIVING CORPORATION
AND MANNER AND BASIS OF CONVERTING SHARES
The total authorized capital stock of the Surviving Corporation shall be
as set forth in the Articles of Incorporation of the Surviving Corporation, that
is 3,333,333 shares of common stock, $.03 par value per share (the "Common Stock
of Surviving Corporation"), and 500,000 shares of preferred stock, $1.00 par
value per share (the "Preferred Stock of Surviving Corporation").
The manner and basis of converting shares of each Constituent
Corporation into shares of the Surviving Corporation and the mode of carrying
the merger into effect are as follows:
(a) The 1,000 shares of common stock of Infodata Virginia owned and held
by Infodata immediately prior to the Effective Time of the merger shall, at the
Effective Time of the merger, be deemed to have been cancelled immediately prior
thereto and no stock of the Surviving Corporation shall be issued on account
thereof.
(b) At the Effective Time of the merger, each share of common stock of
Infodata outstanding at the Effective Time of the merger shall be converted into
one fully paid and nonassessable share of Common Stock of the Surviving
Corporation, without any action on the part of the holder thereof. After the
Effective Time of the merger, each holder of an outstanding certificate which
prior thereto represented shares of common stock of Infodata shall be entitled,
upon surrender thereof to any transfer agent for the Common Stock of the
Surviving Corporation, to receive in exchange therefor a certificate or
certificates representing the number of shares of Common Stock of the Surviving
Corporation into which the shares of the common stock of Infodata so surrendered
shall have been converted as aforesaid of such denominations and registered in
such names as such holder may request. Until so surrendered, each such
outstanding certificate which, prior to the Effective Time of the merger
represented shares of common stock of Infodata shall for all purposes evidence
the ownership of the shares of Common Stock of the Surviving Corporation into
which such shares shall have been so converted.
(c) At the Effective Time of the merger, each share of preferred stock of
Infodata outstanding at the Effective Time of the merger shall be converted into
one fully-paid and nonassessable share of Preferred Stock of the Surviving
Corporation, without any action on the part of the holder thereof. After the
Effective Time of the merger, each holder of an outstanding certificate which
prior thereto represented shares of preferred stock of Infodata shall be
entitled upon surrender thereof to any transfer agent for the Preferred Stock of
the Surviving Corporation, to receive in exchange therefore a certificate or
certificates representing the number of shares of Preferred Stock of the
Surviving Corporation into which the shares of preferred stock of Infodata so
surrendered shall have been converted as aforesaid, of such denominations and
registered in such names as such holder may request. Until so surrendered, each
such outstanding certificate which, prior to the Effective Time of the merger,
represented shares of preferred stock of Infodata shall for all purposes
evidence the ownership of shares of Preferred Stock of the Surviving Corporation
into which such shares shall have been so converted.
A-3
<PAGE>
(d) All shares of Common Stock and Preferred Stock of the Surviving
Corporation into which shares of common stock and preferred stock of Infodata
shall have been converted pursuant to this ARTICLE III shall be issued in full
satisfaction of all rights pertaining to such converted shares.
(e) If any certificate of shares of Common Stock or Preferred Stock of
the Surviving Corporation is to be issued in a name other than that in which the
certificate surrendered in exchange therefore is registered, it shall be a
condition of the issuance thereof that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange pay to the Surviving Corporation or any agent
designated by it any transfer or other taxes required by reason of the issuance
of a certificate for shares of Common Stock or Preferred Stock of the Surviving
Corporation in any name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of the Surviving
Corporation or any agent designated by it that such tax has been paid or is not
payable.
(f) Notwithstanding the provisions of this ARTICLE III, any outstanding
shares of common stock or preferred stock of Infodata held by shareholders who
shall have elected to dissent from the merger and who shall have exercised and
perfected appraisal rights with respect to such shares in accordance with
Section 623 of the New York Business Corporation Law ("Dissenting Shareholders")
shall not be converted into shares of Common Stock or Preferred Stock of the
Surviving Corporation but shall be entitled to receive only such consideration
as shall be provided in said Section 623, except that common stock and preferred
stock of Infodata outstanding at the Effective Time of the merger and held by a
Dissenting Shareholder who shall thereafter withdraw his election to dissent
from the merger or lose his right to dissent from the merger as provided in said
Section 623, shall be deemed converted as of the Effective Time of the merger,
into such number of shares of Common Stock or Preferred Stock of the Surviving
Corporation as such holder otherwise would have been entitled to receive as a
result of the merger.
ARTICLE IV
ARTICLES OF INCORPORATION AND BYLAWS
(a) The Articles of Incorporation of Infodata Virginia as existing and
constituted immediately prior to the Effective Time of the merger shall, upon
the merger's becoming effective, be and constitute the Articles of Incorporation
of the Surviving Corporation until amended in the manner provided by law.
(b) The Bylaws of Infodata Virginia as existing and constituted
immediately prior to the Effective Time of the merger shall, upon the merger's
becoming effective, be and constitute the Bylaws of the Surviving Corporation
until amended in the manner provided by law.
ARTICLE V
OTHER PROVISIONS WITH RESPECT TO MERGER
(a) The Plan shall be submitted to the shareholders of each Constituent
Corporation as provided by the applicable laws of the States of New York and
Virginia, respectively. As soon as practicable after the approval and adoption
thereof by the shareholders of each Constituent Corporation in accordance with
the requirements of the laws of the States of New York and Virginia and the
obtaining of all necessary regulatory approvals, all required documents shall be
executed, filed and recorded and all required acts shall be done in order to
accomplish the merger under the provisions of the applicable statutes of the
States of New York and Virginia.
(b) The Plan may be terminated at any time prior to the Effective Time
of the merger, whether before or after action thereon by the shareholders of the
Constituent Corporations, (i) by mutual consent of the Constituent Corporations,
expressed by action of their respective Boards of Directors, (ii) by consent of
Infodata, expressed by action of its Board of Directors, if the holders of more
than 5% of the outstanding shares of common stock of Infodata
A-4
<PAGE>
elect to exercise the right to dissent under applicable provisions of New York
law in connection with the merger contemplated hereby, or (iii) by action of the
Board of Directors of either of the Constituent Corporations if there shall not
have been received an opinion of counsel to the effect that (A) the merger of
Infodata and Infodata Virginia as provided herein will constitute a
reorganization under the Internal Revenue Code of 1986, as amended, (B) no gain
or loss will be recognized by the shareholders of Infodata upon the conversion
in the merger of their existing capital stock into capital stock of Infodata
Virginia, (C) the tax basis of the shares of stock of the Surviving Corporation
received by the shareholders of Infodata will be the same as the tax basis of
the shares of capital stock of Infodata exchanged therefor, (D) the holding
period of the shares of capital stock received by the shareholders of Infodata
will include the holding period of the shares of capital stock of Infodata
exchanged therefor, provided that such shares of capital stock of Infodata were
held as capital assets at the Effective Time of merger, (E) no gain or loss will
be recognized by Infodata Virginia or Infodata as the result of the receipt by
Infodata Virginia of all the assets of Infodata in exchange for shares of
capital stock of Infodata Virginia and the assumption by Infodata Virginia of
all the liabilities of Infodata and (F) the tax basis of the assets of Infodata
acquired by Infodata Virginia pursuant to the merger will be the same as the tax
basis and holding period of those assets in the hands of Infodata immediately
prior to the Effective Time of the merger.
(c) If the merger is consummated, the Surviving Corporation shall bear
and pay all costs and expenses incurred by each of the Constituent Corporations.
If the merger is not consummated, each Constituent Corporation shall bear and
pay all costs and expenses incurred by it or on its behalf.
(d) The Surviving Corporation, from and after the Effective Time of the
merger, agrees that it may be sued and served with process in the State of New
York in any proceeding for the enforcement of the rights of a Dissenting
Shareholder of Infodata against the Surviving Corporation. The Surviving
Corporation irrevocably appoints the Secretary of the State of New York as its
agent to accept service of process in any such proceeding. The Surviving
Corporation will promptly pay to the Dissenting Shareholders of Infodata the
amounts, if any, to which they shall be entitled under the New York Business
Corporation Law with respect to the rights of Dissenting Shareholders, provided
such Dissenting Shareholders act in strict compliance with the provisions of the
New York Business Corporation Law governing rights of Dissenting Shareholders in
the case of a merger.
(e) Infodata shall duly convene the 1995 Annual Meeting of Shareholders
of Infodata (the "Annual Meeting") in connection with which, among other things,
the approval by such shareholders of the Plan and the transactions contemplated
hereby, shall be solicited. Infodata shall use its reasonable best efforts to
obtain such approval. Infodata, as the sole shareholder of Infodata Virginia,
shall consent in writing to the execution of this Plan promptly after the date
of this Plan.
ARTICLE VI
APPROVAL AND EFFECTIVE TIME OF THE MERGER
(a) The merger shall become effective when all the following actions
shall have been taken
(1) The Plan shall be adopted and approved by the affirmative
vote of the holders of two-thirds of the shares of Infodata capital
stock outstanding at the record date of the Annual Meeting in accordance
with the New York Business Corporation Law,
(2) Articles of Merger setting forth the information required by,
and executed and verified in accordance with, the New York Business
Corporation Law, shall be filed in the office of the Department of State
of the State of New York, and
(3) The Plan, when executed and acknowledged in accordance with
the Virginia Stock Corporation Act, shall be filed in the office of the
Secretary of State of the State of Virginia (the particular time
A-5
<PAGE>
and date of filing of the Plan with the Secretary of State of the State of
Virginia being herein referred to as the "Effective Time")
(b) The Surviving Corporation shall cause duplicate, certified copies of
the Plan to be filed in the office of the Secretary of State of the State of
Virginia and with the Department of State of the State of New York. If at any
time the Surviving Corporation shall consider or be advised that any further
assignment or assurance in law or other action is necessary or desirable to
vest, perfect or confirm in the Surviving Corporation the title, or record or
otherwise, to any property or rights of Infodata acquired or to be acquired by
or as a result of the merger, the proper officers and directors of Infodata and
the Surviving Corporation, respectively, shall be and they hereby are severally
and fully authorized to execute and deliver such deeds, assignments and
assurances in law and take such other action as may be necessary or proper in
the name of Infodata or the Surviving Corporation to vest, perfect or confirm
title to such property or rights in the Surviving Corporation and otherwise
carry out the purposes of the Plan.
(c) For the convenience of the parties and to facilitate the filing and
recording of the Plan, any number of counterparts hereof may be executed, and
each such counterpart shall be deemed to be an original instrument.
(d) The Plan and the legal relations between the parties hereto shall be
governed by and construed in accordance with the laws of the State of Virginia
except insofar as the internal law of the State of New York shall mandatorily
apply to the merger.
(e) The Plan cannot be altered or amended except pursuant to an
instrument in writing signed on behalf of the parties hereto.
IN WITNESS WHEREOF, Infodata Virginia has caused the Plan to be signed
by its Chief Executive Officer and its Secretary and its corporate seal to be
affixed hereto pursuant to authorization contained in a resolution adopted by
its Board of Directors approving the Plan, and Infodata has caused the Plan to
be signed by its Chief Executive Officer and its Secretary and its corporate
seal to be affixed hereto pursuant to authorization contained in a resolution
adopted by its Board of Directors approving the Plan, all on the date first
above written.
VIRGINIA INFODATA SYSTEMS INC. INFODATA SYSTEMS INC.
a Virginia corporation a New York corporation
By HARRY KAPLOWITZ By HARRY KAPLOWITZ
---------------------- ---------------------
Harry Kaplowitz Harry Kaplowitz
President President
DAVID A. KARISH DAVID A. KARISH
--------------------- ---------------------
David A. Karish David A. Karish
Senior Vice President Senior Vice President
and Secretary/Treasurer and Secretary/Treasurer
A-6
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
INFODATA SYSTEMS INC.
The undersigned, pursuant to Chapter 9 of Title 13.1 of the Code of
Virginia, states as follows:
1. The name of the corporation (hereinafter referred to as the
"Corporation") is INFODATA SYSTEMS INC.
2. As a result of a two-for-one stock split declared by the
Corporation's Board of Directors on July 30, 1996, and to be distributed on
August 26, 1996 to shareholders of record on August 12, 1996, the following
amendments to the Corporation's Articles of Incorporation have been adopted:
(a) ARTICLE 2 of the Corporation's Articles of Incorporation
is hereby amended to read as follows:
"2. The total number of shares of capital
stock which the Corporation has authority to
issue is 7,006,666 shares."
(b) The first two sentences of ARTICLE 3 of the Corporation's
Articles of Incorporation are hereby amended to read as follows:
"3. The Corporation shall be authorized to issue two classes
of capital stock to be designated Common Stock, par value $.03
per share, and Preferred Stock, par value $1.00 per share.
There shall be 6,666,666 authorized shares of Common Stock and
340,000 authorized shares of Preferred Stock."
3. The foregoing amendments were adopted on July 30, 1996, by the
Corporation's Board of Directors without shareholder action pursuant to Section
13.1-706.3 of the Code of Virginia.
The undersigned, being the President of the Corporation, declares that
the facts herein stated are true as of this 12th day of August, 1996.
INFODATA SYSTEMS INC.
By: /s/Harry Kaplowitz
-------------------
Harry Kaplowitz
President
LEASE AGREEMENT
between
THE LANDMARK
and
SOFTWARE PARTNERS, INC.
for
2013 Landings Drive
Mountain View, CA 94043
Date: July 20, 1993
<PAGE>
LANDMARK BUILDING LEASE
1. PARTIES. This Lease dated, for reference purposes only, July 20, 1993, by and
between LANDMARK INVESTMENTS, LIMITED ("Landlord") and SOFTWARE PARTNERS, INC.
("Tenant"), who agree as follows:
2. PREMISES. Landlord leases to Tenant, and Tenant leases from Landlord the
office space located in Mountain View, California, 94043, described as 2013
Landings L\Drive, outlined in Exhibit "A" ("Premises"). Premises have an agreed
area o approximately One Thousand One Hundred and One (1,101) rentable square
feet.
3. TERM. The term of this Lease shall be for three (3) years, commencing on
September 1, 1993 and ending on August 31, 1996.
4. RENT.
4.1 Tenant shall pay to Landlord as rent for the Premises, without demand,
deduction, or off-set, the sum of One Thousand Seven Hundred Six and 55/100
Dollars ($1,706.55) on or before the first day of each and every month of the
term of this Lease, the first monthly payment to be made concurrently with the
execution hereof. If the commencement date is not the first day of a month or if
the Lease termination date is not the last day of a month, the rent payable
hereunder shall be prorated, based upon a thirty day month, at the current rate
for the fractional month during which this Lease commences and/or terminates.
Any rent payable for a partial month directly following the commencement date
shall be payable on the first day of the first full calendar month of the term.
Rent shall be paid to Landmark Investments, limited, at 2093 Landings Drive,
Mountain View, CA 94043.
4.2 Rent provided for in 4.1 above shall not be subject to consumer price
adjustments.
4.3 Late Charges. Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include,
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but are not limited to, processing and accounting charges, and late charges
which may be imposed upon Landlord by terms of any mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent or of a sum due
from Tenant shall not be received by Landlord or Landlord's designees by 12:00
noon on the fifth (5th) day of each month of the term hereof, then Tenant shall
pay to Landlord a late charge equal to five percent (5%) of such overdue amount.
The parties hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Landlord will incur by reason of the late payment by
Tenant. Acceptance of such late charges by the Landlord shall in no event
constitute a waiver of
Tenant's default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
5. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with
Landlord $1,706.55 as a security deposit for the performance by Tenant of the
provisions of this Lease. If Tenant is in default, Landlord can use the security
deposit, or any portion of it, to cure the default or to compensate Landlord for
all damage sustained by Landlord resulting from Tenant's default. Tenant shall
immediately on demand pay to Landlord a sum equal to the portion of the security
deposit expended or applied by Landlord as provided in this paragraph so as to
maintain the security deposit in the sum initially deposited with Landlord. If
Tenant is not in default at the expiration or termination of this Lease,
Landlord shall, no later than fourteen (14) days after lease expiration or
termination, return to Tenant (or at Landlord's option, to the last assignee of
Tenant's interest hereunder), the balance of the security deposit. Landlord
shall not be required to keep this security deposit separate from its general
funds, and Tenant shall not be entitled to interest on such deposit.
6. POSSESSION.
6.1 If Landlord, for any reason cannot deliver possession of the Premises on
Tenant at the commencement of the term hereof, this Lease shall not be void or
voidable nor shall Landlord be liable to Tenant for any loss or damage resulting
therefrom, nor shall the expiration date of the above term be extended, but, in
that event, all rent shall be abated during the period between the commencement
of said term and the time when Landlord delivers possession.
6.2 In the event that Landlord shall permit Tenant to occupy the Premises prior
to the commencement date of the term, such occupancy shall be subject to all of
the provisions of this Lease and said early possession shall not advance the
termination date hereinabove provided. Rent shall be prorated and prepaid for
early occupancy at the current rate.
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<PAGE>
7. USE.
7.1 Use. The Premises shall be used and occupied by Tenant for general office
purposes and for no other purpose without the prior written consent of the
Landlord.
7.2 Uses Prohibited.
a. Tenant shall not do or permit anything to be done in or about the Premises
nor bring or keep anything therein which will increase the existing rate or
affect any fire or other insurance upon the building or any of its contents, or
cause a cancellation of any insurance policy covering said building or any part
thereof or any of its contents, nor shall Tenant sell or permit to be kept used
or sold in or about said Premises any articles or substances, inflammable or
otherwise, which may be prohibited by a standard form policy of fire insurance.
b. Tenant shall not do or permit anything to be done in or about the Premises
which will in any way obstruct or interfere with the rights of other tenants of
the building or injure or annoy them or use or allow the Premises to be used for
any unlawful or objectionable purpose.
c. Tenant shall not use the Premises or permit anything to be done in or about
the Premises which will in any way conflict with any law now in force or which
may hereafter be enacted. Tenant shall at its cost promptly comply with all laws
not in force or which may hereafter be in force and with the requirements of any
board of fire underwriters or other similar body relating to Tenant's
improvements or acts.
8. ALTERATIONS AND ADDITION. Tenant shall not make or allow any alterations,
additions or improvements of or to the Premises without Landlord's prior written
consent. Any such alterations, additions or improvements, including, but not
limited to, wallcovering, paneling and built-in cabinet work, but excepting
movable furniture and trade fixtures, shall become a part of the realty, shall
belong to the Landlord and shall be surrendered with the Premises at expiration
or termination of the Lease. If Landlord consents to any such alterations,
additions or improvements by Tenant, they shall be made by Tenant at Tenant's
cost, and any contractor or person selected by Tenant to perform the work shall
first be approved of, in writing, by Landlord. Upon expiration, or sooner
termination of the term hereof, Tenant shall, upon written demand by Landlord
promptly remove any alterations, additions or improvements made by Tenant and
designated by Landlord to be removed. Such removal and repair of any damage to
the premises caused by such removal shall be at Tenant's cost.
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<PAGE>
9. LIENS. Tenant shall keep the Premises and the property in which the Premises
are situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by Tenant. Landlord may require Tenant to
provide Landlord, at Tenant's cost, a lien and completion bond in an amount
equal to one and one-half (1-1/2) times the estimated cost of any improvements,
additions, or alterations by Tenant, to insure Landlord against liability for
mechanic's and materialmen's liens and to insure completion for the work.
10. REPAIRS AND MAINTENANCE. By taking possession of the Premises, Tenant shall
be deemed to have accepted the Premises as being in good sanitary order,
condition and repair. Tenant shall at Tenant's cost, keep the premises and every
part thereof in good condition and repair except for damages from causes beyond
the control of Tenant and ordinary wear and tear. Tenant shall upon the
expiration or sooner termination of this Lease surrender the Premises to the
Landlord in good condition, ordinary wear and tear and damage from causes beyond
the reasonable control of the Tenant excepted. Unless specifically provided in
an addendum to this Lease, Landlord shall have no obligation to alter, remodel,
improve repair, decorate or paint the Premises or any part thereof and the
parties hereto affirm that Landlords has made no representations to Tenant
respecting the condition of the premises or the building except as specifically
herein set forth. Notwithstanding the above provisions, Landlord shall repair
and maintain the structural portions of the building, including the standard
plumbing, air conditioning, heating and electrical systems furnished by
Landlord, unless such maintenance and repairs are caused in part or in whole by
the act, neglect, fault or omission of any duty by the Tenant, its agents,
employees or invitees, in which case Tenant shall pay to Landlord the reasonable
cost of such maintenance and repairs. Tenant shall give Landlord written notice
of any required repairs or maintenance. Landlord shall not be liable for any
failure to repair or to perform any maintenance unless such failure shall
persist for an unreasonable time after written notice. Any repairs or
maintenance to supplemental cooling equipment required for Tenant's special
needs are the responsibility of Tenant. Except as specifically herein set forth,
there shall be no abatement of rent or liability of Landlord by reason of any
injury to or interference with Tenant's business arising from the making of any
repairs, alterations or improvements to any portion of the building or the
Premises or to fixtures, appurtenances and equipment therein. Tenant waives the
right to make repairs at Landlord's expense under any law, statute or ordinance
now or hereafter in effect.
11. ASSIGNMENTS AND SUBLETTING. Tenant shall not,
4
<PAGE>
voluntarily or by operation of law, assign, transfer, or encumber its interest
under this Lease or in the Premises nor sublease all or any part of the premises
or allow any other person or entity (except Tenant's employees, agents and
invitees) to occupy or use all or any part of the premises without the prior
written consent of Landlord. Landlord's consent shall not be unreasonably
withheld. Any such consent shall not release Tenant from liability hereunder,
and a consent to one assignment, subletting, occupation or use shall not be
deemed a consent to any subsequent assignment, subletting, occupation or use.
Any such purported assignment, subletting, or permission to occupy or use
without such consent from Landlord shall be void and shall, at the option of
Landlord, constitute a default under this Lease. Tenant immediately and
irrevocably assigns to Landlord, as security for Tenant's obligations under this
Lease, all rent from any subletting of all or a part of the Premises as
permitted by this Lease, and Landlord, as assignee and as attorney-in-fact for
Tenant, or a receiver for Tenant appointed on Landlord's application, may
collect such rent and apply it toward Tenant's obligations under this Lease;
except that, until the occurrence of an act of default by Tenant, Tenant shall
have the right to collect such rent.
12. HOLD HARMLESS. Except as to claims based on the sole negligence or willful
misconduct of Landlord, its agents or employees, Tenant shall hold Landlord
harmless from any claims arising from Tenant's use of the premises or from any
activity permitted by Tenant in or about the Premises, and any claims arising
from any breach or default in Tenant's performance of any obligation under the
terms of this Lease. If any action or proceeding is brought by reason of any
such claim in which Landlord is named as a party, Tenant shall defend Landlord
therein at Tenant's expense by counsel reasonably satisfactory to Landlord.
Landlord and its agents shall not be liable for any damage to property entrusted
to employees of the building, nor for loss or damage to any property by theft or
otherwise, nor from any injury to or damage to persons or property resulting
from any cause whatsoever, unless caused by or due to the sole negligence or
willful misconduct of Landlord, its agents, or employees. Landlord shall not be
liable for any latent defect in the Premises or in the building of which they
are a part. Tenant shall give prompt notice to Landlord in case of fire or
accidents in the Premises or in the building or of alleged defects in the
building, fixtures or equipment.
13. INSURANCE.
13.1 Coverage. Tenant shall assume the risk of damage to any fixtures, goods,
inventory, merchandise, equipment, furniture and leasehold improvements, and
Landlord shall not be liable for injury to Tenant's business or any loss of
5
<PAGE>
income therefrom relative to such damage. Tenant shall, at all times during the
term of this Lease, and at its own cost, procure and continue in force the
following insurance coverage.
a. Comprehensive public liability insurance, insuring Landlord and Tenant
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto.
13.2 Insurance Policies. The limits of said insurance policies shall not,
however, limit the liability of the Tenant hereunder. Tenant may carry said
insurance under a blanket policy, providing, however, said insurance by Tenant
shall name Landlord as an additional insured. If Tenant shall fail to procure
and maintain said insurance, Landlord may, but shall not be required to, procure
and maintain same, but at the expense of Tenant. Insurance required hereunder
shall be in companies that rate B+ or better in "Best's Insurance Guide". Tenant
shall deliver to Landlord prior to occupancy of the premises copies of policies
of insurance required herein or certificates evidencing the existence and
amounts of such insurance with loss payable clauses, satisfactory to Landlord.
No policy shall be cancelable or subject to reduction of coverage except after
fifteen (15) days prior written notice to Landlord. The minimum acceptable
amount of comprehensive liability insurance is $1,000,000 against claims in any
occurrence, and property damage insurance in an amount of not less than $100,000
per occurrence, or combined single limit of $1,000,000 comprehensive liability
and property damage insurance.
13.3 Waiver of Subrogation. As long as their respective insurers so permit,
Landlord and Tenant each hereby waive any and all rights of recovery against the
other for any loss or damage occasioned to such waiving party or its property of
others under its control to the extent that such loss or damage is insured
against under any fire or extended coverage insurance policy which either may
have in force at the time of such loss or damage. Each party shall obtain any
special endorsement, if required by their insurer, to evidence compliance with
the aforementioned waiver.
14. SERVICE AND UTILITIES.
14.1 Landlord's Obligations. Landlord agrees to furnish to the Premises during
reasonable hours of generally recognized business days to be determined by
Landlord, and subject to the Rules and Regulations of the building, electricity
for normal lighting and fractional horsepower office machines, heat and air
conditioning required in Landlord's judgment for the comfortable use and
occupancy of the Premises, janitorial, window washing and elevator service.
Landlord
6
<PAGE>
shall also maintain the common areas and keep lighted the common stairs,
gallerias, entries and toilet room and the parking areas until late evening.
Landlord shall not be liable for and Tenant shall not be entitled to any
reduction of rental by reason of Landlord's failure to furnish any of the
foregoing when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or by
any other cause, similar or dissimilar, beyond the reasonable control of
Landlord.
14.2 Tenant's Obligation. Tenant shall pay for, prior to delinquency, all
telephone and all other materials and services, not expressly required to be
paid by Landlord, which may be furnished to or used in, on or about the Premises
during the term of this Lease. Tenant will not, without the prior written
consent of Landlord and subject to any conditions which Landlord may impose, use
any apparatus or device in the Premises which will in any way increase the
amount of electricity or water usually furnished for use of the Premises as
general office space If Tenant shall require water or electric current in excess
of that usually furnished or supplied for use of the Premises as general office
space, Tenant shall first procure the consent of Landlord. Wherever heat
generating machines or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost installation, operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord. Landlord shall not be liable for Landlord's failure to furnish any of
the foregoing when such failure is caused by any cause beyond the reasonable
control of Landlord. Landlord shall not be liable under any circumstances for
loss of or injury to property, however occurring, in connection with failure to
furnish any of the foregoing.
15. PROPERTY TAXES. Tenant shall pay before delinquency, all personal property
taxes levied or assessed and which become payable during the term hereof upon
all Tenant's equipment, furniture, fixtures and personal property located in the
Premise. Landlord shall pay all property taxes on the land and building, except
should the California Constitution be changed in a way that results in a higher
or lower tax on the Premises than the annual increases now a matter of law, any
such increase or decrease shall be passed through to tenant on a prorated basis
as an item separate from any CPI adjustments. Tenant shall pay to Landlord its
share of such taxes, if any, within thirty days after delivery to Tenant by
Landlord of a statement in writing setting forth the amount of such taxes.
16. RULES AND REGULATIONS. Tenant shall faithfully observe
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<PAGE>
and comply with the rules and regulations attached as Exhibit "B" to this Lease,
as well as such rules and regulations that Landlord shall from time to time
promulgate. Landlord reserves the right from time to time to make all reasonable
modifications to those rules which shall be binding to Tenant upon delivery of a
copy of them to Tenant. Landlord shall not be responsible to Tenant for the
nonperformance of any of said rules by any other tenant.
17. HOLDING OVER. If Tenant remains in possession without Landlord's consent,
after termination of the Lease, by lapse of time or otherwise, Tenant shall pay
Landlord for each day of such retention one-fifteenth (1/15th) of the amount of
the monthly rental for the last month prior to such termination and Tenant shall
also pay all costs, expenses and damages sustained by Landlord by reason of such
retention, including, without limitation, claims made by a succeeding tenant
resulting from Tenant's failure to surrender the Premises.
18. ENTRY BY LANDLORD. Landlord reserves the right to enter the premises at any
time to inspect the Premises, to provide any service for which landlord is
obligated hereunder, to submit the Premises to prospective purchasers or
tenants, to post notices of nonresponsibility, and to alter, improve, maintain
or repair the Premises or any portion of the building of which the Premises are
a part that Landlord deems necessary or desirable, all without abatement of
rent. Landlord may erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, but shall not
block entrance to the Premises and not interfere with tenant's business, except
as reasonably required for the particular activity by Landlord. Landlord shall
not be liable in any manner for any inconvenience, disturbance, loss of
business, nuisance, interference with quiet enjoyment, or other damage arising
out of Landlord's entry on the Premises as provided in this paragraph, except
damage, if any, resulting from the negligence or wilful misconduct of Landlord
of its authorized representative. Landlord shall retain a key with which to
unlock all doors into, within and about the Premises, excluding Tenant's vaults,
safes and files. In an emergency Landlord shall have the right to use any means
which Landlord deems reasonably necessary to obtain entry to the Premises,
without liability to Tenant, except for any failure to exercise due care for
Tenant's property. Any such entry to the Premises by Landlord shall not be
construed or deemed to be forcible or unlawful entry into or a detainer of the
Premises or an eviction of Tenant from the Premises or any portion thereof.
19. RECONSTRUCTION. If the Premises or the building of which the Premises are a
part are damaged by fire or other peril covered by extended coverage insurance,
Landlord agrees to make repairs and restorations to the extent and in the manner
possible at a cost not exceeding the proceeds of the
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<PAGE>
insurance received by Landlord. If the cost of repair and restoration exceeds
the amount of proceeds received from insurance, Landlord may elect to terminate
this Lease by giving notice to Tenant within twenty (20) days after determining
that the cost will exceed such proceeds. If Landlord proceeds with repair and
restoration, this Lease shall remain in full force and effect, except that
Tenant shall be entitled to a proportionate reduction of rent while such repairs
are being made. The rent reduction shall be based upon the extent to which
repair and restoration activity materially interferes with Tenant's business at
the Premises, provided, however, that if the damage was occasioned by the fault
or neglect of Tenant, its agents or employees, there shall not be an abatement
of rent.
20. DEFAULT; REMEDIES.
20.1 Default. The occurrence of any of the following shall constitute a default
by Tenant:
a. Failure by Tenant to pay the rent or other monies when due, where such
failure continues or three (3) business days after written notice by Landlord to
Tenant.
b. Abandonment of the Premises by Tenant.
c. Failure by Tenant to perform any other provision of this Lease where such
failure to perform is not cured within thirty (30) days after notice has been
given to Tenant; provided, however, that if the nature of the default is such
that the same cannot reasonably be cured within said thirty (30) day period,
Tenant shall not be deemed to be in default if Tenant shall within such period
commence such cure and thereafter diligently prosecute the same to completion.
d. The making by Tenant of any general assignment or general arrangement for the
benefit of creditors; the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petitio for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, same is dismissed within sixty (60) days; the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged within thirty (30) days.
20.2 Remedies. In the event of any such default Landlord may:
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Maintain this Lease in full force and effect and recover the rent and other
monetary charges as they become due, without terminating Tenant's right to
possession irrespective of whether Tenant shall have abandoned the Premises. In
the event Landlord elects not to terminate the Lease, Landlord shall have the
right to attempt to re-let the Premises at such rent and upon such condition and
for such a term, and to do all acts necessary to maintain or preserve the
Premises as Landlord deems reasonable and necessary without being deemed to have
elected to terminate the Lease, including removal of all persons and property
from the Premises. Such property may be removed and stored in a public warehouse
or elsewhere at the cost of and for the account of Tenant. In the event any such
reletting occurs, this Lease shall terminate automatically upon the new tenant
taking possession of the Premises. Notwithstanding that Landlord fails to elect
to terminate the Lease initially, Landlord at any time during the term of this
Lease may elect to terminate this Lease by virtue of such previous default of
Tenant.
Terminate Tenant's right to possession by any lawful means, in which case this
Lease shall terminate and Tenant shall immediately surrender possession of the
Premises to Landlord. In such event Landlord shall be entitled to recover from
Tenant all damages incurred by Landlord by reason of Tenant's default, including
without limitation thereto, the following: (1) the worth at the time of award of
any unpaid rent which would have been earned at the time of such termination;
plus (2) the worth at the time of award of the amount by which the unpaid rent
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that is proved could have reasonably avoided;
plus (3) the worth at the time of award of the amount by which unpaid rent for
the balance of the term after the time of award exceeds the amount of such
rental loss that is proved could be reasonably avoided; plus (4) any other
amount necessary to compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform his obligations under this Lease or which in the
ordinary course of events would be likely to result therefrom; plus (5) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from tie to time by applicable law. Upon any such
re-entry Landlord shall have the right to make any reasonable repairs,
alterations or modifications to the Premises, which Landlord in its sole
discretion deems reasonable and necessary. As used in (1) above, the "worth at
the time of award" is computed by allowing interest at the rate of ten percent
(10%) per annum from the date of default. As used in (2) and (3) above, the
"worth at the time of award" is computed by discounting such amount at the
discount rate of the U.S. Federal Reserve Bank at the time of award plus one
percent (1%).
Remedies of Landlord contained in this Lease shall be
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construed and held to be cumulative, and Landlord shall have the right to pursue
any one or all of such remedies or any other remedy or relief which may be
provided by law. No waiver of any default of Tenant hereunder shall be implied
from any acceptance by Landlord of any rent or other payments due hereunder or
any omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver. The consent or approval of Landlord to
or of any act by Tenant requiring Landlord's consent or approval shall not be
deemed to waive or render unnecessary Landlord's consent or approval to or of
any subsequent similar acts by Tenant.
21. EMINENT DOMAIN. If more than twenty-five percent (25%) of the Premises is
taken or appropriated by any public or quasi-public authority under powers of
eminent domain, either party hereto shall have the right at its option, to
terminate this Lease. If less than twenty-five percent (25%) of the Premises is
taken (or neither party elects to terminate as above, provided if more than
twenty-five percent (25%) is taken), the Lease shall continue, but the rental
thereafter to be paid shall be equitably reduced. If any part of the building of
which the Premises are a party is so taken or appropriated, whether or not any
part of the Premises is involved, Landlord shall be entitled to the entire award
and compensation for the taking which is paid or made by the public or
quasi-public agency, and Tenant shall have no claim against said award.
22. STATEMENT TO LENDER. Tenant shall at any time and from time to time, upon
not less than ten (10) days prior written notice from Landlord, execute,
acknowledge, and deliver to Landlord a statement in writing, (a) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modifications and certifying that this Lease as so modified,
is in full force and effect), and the date to which the rental and other charges
are paid in advance, if any, and (b) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of the Landlord hereunder,
or specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or encumbrancer of all or any portion of the
real property of which the Premises are a part.
23. PARKING. Tenant shall have the right to use, in common with other tenants or
occupants of the building, parking facilities, provided by Landlord for Tenants
of The Landmark, subject to the rules and regulations established by Landlord.
Said parking shall be at no expense to the Tenant unless a tax, fee or levy is
imposed directly or indirectly by a Federal, State or local agency or
jurisdiction for parking. If such a tax, fee or levy is imposed tenant agrees to
pay
11
<PAGE>
its portion of said fee as reasonably determined by the Landlord.
24. AUTHORITY OF PARTIES.
24.1 Corporate authority. If Tenant is a corporation, each individual executing
this Lease on behalf of said corporation represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said corporation, in
accordance with a duly adopted resolution of the Board of Directors of said
corporation or in accordance with the by-laws of said corporation, and that this
Lease is binding upon said corporation in accordance with its terms.
24.2 Limited Partnerships. Landlord herein is a limited partnership. It is
understood and agreed that any claims by Tenant on Landlord shall be limited to
the assets of the limited partnership. And furthermore, Tenant expressly waives
any and all rights to proceed against the individual partners or the officers,
directors or shareholders of any corporate partner, except to the extent of
their interest in said limited partnership.
25. GENERAL PROVISIONS.
25.1 Exhibits. Exhibits attached hereto, and addendums initialed by the parties,
are deemed to constitute a part hereof.
25.2 Waiver. The waiver by Landlord of any provision of this Lease shall not be
deemed to be a waiver of any subsequent breach of the same or any other
provisions of this Lease herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any provision of this Lease, other than the failure of the Tenant
to pay the particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of the acceptance of such rent.
25.3 Notices. All notices and demands which may or are required to be given by
either party to the other hereunder shall be in writing. All notices and demands
by the Landlord to the Tenant shall be sufficient if delivered in person or sent
by first class mail, postage prepaid, addressed to the Tenant at the Premises or
to such other place as Tenant may from time to time designate in a written
notice to the Landlord. All written notices and demands by the tenant to the
Landlord shall be sufficient if delivered in person or sent by first class mail,
postage prepaid, addressed to the Landlord at the office of the building or to
such other person or place as the Landlord may from time to time designate in a
notice to the Tenant. Any such notice is effective at the time of delivery or 48
hours after mailing.
12
<PAGE>
25.4 Rentable Area. Rentable square footage, as herein used, is the actual
square footage of the office suite plus a load factor for gallerias, restrooms,
hallways and other common areas. The stated rentable area will not be used as a
basis for either party making any claim against the other.
25.5 Joint and Several Obligations. If there be more than one Tenant, the
obligations hereunder imposed upon tenants shall be joint and several.
25.6 Captions. The captions of the paragraphs of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part hereof.
25.7 Time. Time is of the essence hereof.
25.8 Successors and Assigns. The provisions of this Lease, subject to the
provisions as to assignment, apply to and bind the successors and assigns of the
parties hereto.
25.9 Recording. Neither Landlord nor Tenant shall record this Lease or a short
form memorandum hereof without the prior written consent of the other party.
25.10 Scope and Amendments. This Lease is and shall be considered to be the only
agreement between the parties hereto. All negotiations and oral agreements
acceptable to both parties are included herein. No amendment or other
modification of this Lease shall be effective unless in a writing signed by
Landlord and by Tenant.
25.11 Legal Fees. In the event of any action brought by either party against the
other under this Lease, the prevailing party shall be entitled to recover all
costs including the fees of its attorneys as the court may adjudge reasonable.
25.12 Sale. In the event of any sale of the building, Landlord shall be released
of any liability under this Lease, and the purchaser of the Premises shall be
deemed to have assumed and agreed to carry out all of the obligations of the
Landlord under this Lease.
25.13 Lender Requirements. Upon request of the Landlord, Tenant will, in
writing, subordinate its rights hereunder to the lien of any mortgagee, or deed
of trust to any bank, insurance company or other lending institution, now or
hereafter in force against the land and building of which the Premises are a
part, and to all advances made or hereafter to be made upon the security
thereof. If any proceedings are brought for foreclosure, or in the event of the
exercise of the power of sale under any mortgage or deed of trust made by the
Landlord covering the Premises, the Tenant shall
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<PAGE>
recognize such purchaser as the Landlord under this Lease.
25.14 Name. Tenant shall not use the name of the development in which the
Premises are situated for any purpose other than as an address of the business
to be conducted by the Tenant in the Premises, unless written authorization is
obtained from Landlord.
25.15 Severability. any provision of this Lease which shall prove to be invalid,
void or illegal shall in no way affect, impair or invalidate any other provision
hereof.
25.16 Applicable Law. This Lease shall be governed by the laws
of the State of California.
25.17 Toxics. Landlord and Tenant acknowledge that they have been advised that
numerous federal, state, and/or local laws, ordinances and regulations ('law")
affect the existence and removal, storage, disposal, leakage of contamination by
materials designated as hazardous or toxic ("Toxics"). Many materials, some
utilized in everyday business activities and property maintenance, are
designated as hazardous or toxic. Some of the Laws require that Toxics be
removed or cleaned up without regard to whether the party required to pay for
the "clean up" caused the contamination, owned the property at the time the
contamination occurred or even knew about the contamination. Some items, such as
asbestos or PCB's, which were legal when installed, now are classified as
Toxics, and are subject to removal requirements. Civil lawsuits for damages
resulting from Toxics may be filed by third parties in certain circumstances.
26. BROKERS. Tenant warrants that it has had no dealing with any real estate
broker or agent in connection with the negotiation of this Lease.
27. TENANT IMPROVEMENTS. Prior to Tenant's occupancy, Landlord, at its expense,
shall replace the carpet, paint the office and install mini blinds in narrow
windows on the side of the front door. 28. LEASE AMENDMENTS. Landlord and Tenant
agree to amend the
foregoing as follows.
Page 8. 17. Add the following: LANDLORD'S CONSENT FOR HOLDING OVER SHALL NOT BE
UNREASONABLY WITHHELD.
14
<PAGE>
The parties hereto have executed this Lease on the dates specified immediately
adjacent to their respective signatures.
LANDLORD: LANDMARK INVESTMENTS, LIMITED
By: THRUST IV, INC., General Partner
By: /s/Gordon Call Date: July 29, 1993
---------------------------- ---------------------
Gordon Call, Vice President
TENANT: SOFTWARE PARTNERS, INC.
By: /s/Alan S. Fisher President Date: July 29, 1993
---------------------------- --------------------
(SIGNATURE) (TITLE)
Alan S. Fisher
----------------------------
(PRINT NAME)
15
<PAGE>
MODIFICATION NO. 1
Software Partners, Inc. / Landmark Investments, LTD
Lease Agreement For Suite 2013
Dated July 20, 1993
This Modification No. 1 to Lease Agreement between LANDMARK
INVESTMENTS, LTD, (Landlord) and SOFTWARE PARTNERS, INC. (Tenant)
dated July 20, 1993, is entered into as of the 7th day of
November, 1994 by and between Landlord and Tenant.
Landlord and Tenant herein agree to change the terms of their Lease Agreement,
as follows:
1. The Premises are increased by adding the space known as 1971 Landings
Drive, Mountain View, CA, consisting of a total of One Thousand Four
Hundred and Two (1,402) rentable square feet.
2. The term of this lease shall be for Twenty one (21) Months, commencing
December 1, 1994 and ending on August 31, 1996.
3. The rent for 1971 Landings Drive, shall be Two Thousand Three Hundred
Eighty Three Dollars and 40/100 ($2,383.40) per month.
4. The security deposit shall be increased in the amount of $2,383.40.
5. Tenant shall have access to the Premises for the purpose of installing
communication, network cabling and general office set up, commencing upon
full execution of this Modification. Tenant shall not commence operations
of business until December 1, 1994.
6. The following shall be added to the Lease as paragraph 29. ELECTRICAL
COMMUNICATIONS AND ALARMS.
29.1 Tenant shall contact the Landlord prior to installing or repairing any
electrical, telephone, network, LAN, intercom, doorbell, or alarm system at
the Landmark Office Center.
29.2 All electrical wiring shall be installed by a licensed contractor in
expanded metal tubing in accordance with the most current electrical code.
29.3 All communication cabling shall be installed by a licensed contractor
and shall be plenum rated and shall not be installed as to "lay" on ceiling
tile or t-bar
<PAGE>
grid systems.
A certificate of compliance shall be provided by contractor to Landlord at
time of completion.
A certificate of compliance shall be provided by contractor to Landlord at
time of completion.
29.4 Landlord shall not be financially responsible for any repair or
replacement of any communication cables, telephone lines, telephone
feeders, or trunk lines beyond the M.P.O. (minimum point of entry)
established by Pacific Bell. If one or more of these serve several tenants,
the cost of installation and repair shall be divided among tenants
currently being served by said cables.
29.5 Not all existing telephone rooms/punchdown boards are permanent.
Tenant and his contractor must verify location of termination points with
the Landlord prior to installation.
29.6 No audible alarm systems will be permitted. Landlord will not assume
any financial responsibility for any alarms attributable to its employees,
contractors, including janitors, guards, or service personnel.
29.7 Any work requiring access to adjoining tenants spaces shall be
prearranged so that Landlord can obtain permission for the
intrusion/interruption of the space. Tenant shall reasonably cooperate in
arranging access to contractors for adjoining tenant when requested by
landlord.
29.8 Upon request of Landlord, Tenant shall remove all communication cables
which they have installed in the Premises upon expiration of this Lease and
repair all damage caused by said removal.
7. The following shall be added to the Lease as Paragraph 30. AMERICANS WITH
DISABILITIES ACT. Landlord believes the Premises complies with the
"Americans With Disabilities Act" (ADA), but no independent investigation
has been made to ensure compliance with the "Americans With Disabilities
Act" (ADA). This act may require a variety of changes to a facility,
including potential removal of barriers to access by disabled persons and
provision of auxiliary aids and services for hearing, vision or speech
impaired persons, some of which would be the Landlord's responsibility and
some would be the Tenant's responsibility. Landlord urges all parties to
obtain independent legal and technical advice with respect to the physical
and environmental condition and ADA compliance of the
2
<PAGE>
Property. The Parties agree that they will rely solely on their own
investigations and/or that of a licensed professional specializing in these
areas, and not of Landlord or Broker, if any.
8. Prior to Tenant's occupancy, Landlord shall paint the Premises and clean
the carpet.
Except as herein modified all the terms and conditions set forth in the Lease
shall remain unchanged.
LANDLORD: LANDMARK INVESTMENTS, LIMITED
By: THRUST IV, INC., General Partner
By: /s/Hugh P. Bikle Date: 11/14/94
---------------------------- ----------------------
Hugh P. Bikle, President
TENANT: SOFTWARE PARTNERS, INC.
By: /s/Alan S. Fisher President Date: Nov. 9, 1006
---------------------------- ----------------------
(SIGNATURE) (TITLE)
Alan S. Fisher
---------------------------- Tax ID# 94-3074544
(PRINT NAME) -------------------
3
<PAGE>
MODIFICATION NO. 2
To Software Partners, Inc. / Landmark Lease Agreement
Dated July 20, 1993
This Modification No. 2 to Lease Agreement between LANDMARK
INVESTMENTS, LTD. (Landlord) and SOFTWARE PARTNERS, INC. (Tenant)
dated July 20, 1993, as modified November 7, 1994 is entered into
as of the 10th day of May, 1995 by and between Landlord and
Tenant.
Landlord and tenant herein agree to change the terms of their Lease Agreement,
as follows:
1. The Premises are increased by adding the space known as 1953 Landings
Drive, Mountain View, CA, consisting of an additional Three Thousand Four
Hundred and Thirteen (3,413) rentable square feet.
2. The term of the Lease for 1953 Landings shall be for Three (3) years,
commencing June 1, 1995 and ending on May 31, 1998.
3. The lease term on Tenant's other two (2) suites shall remain unchanged.
4. The additional rent for 1953 Landings Drive only, shall be as follows:
Jun. 1, 1995 thru May. 31, 1996 = $5,802.10/mo.
Jun. 1, 1996 thru May. 31, 1997 = $5,976.16/mo.
Jun. 1, 1997 thru May. 31, 1998 = $6,155.45/mo.
5. The security deposit shall be increased in the amount of $5,802.10, which
amount shall be paid on or before 6/1/95.
6. Tenant shall have immediate possession of 1953 Landings Drive commencing
upon full execution of this Modification at no cost prior to 6/1/95.
Except as herein modified all the terms and conditions set forth in the Lease
shall remain unchanged.
LANDLORD: LANDMARK INVESTMENTS, LIMITED
By: THRUST IV, INC., General Partner
By: /s/Hugh P. Bikle, Date: May 18, 1995
---------------------------- ---------------------
Hugh P. Bikle, President
TENANT: SOFTWARE PARTNERS, INC.
By: /s/Razi Mohiuddin Date: 5/10/95
---------------------------- ----------------------
(SIGNATURE) (TITLE)
Razi Mohiuddin
---------------------------- Tax ID# 94-3074544
(PRINT NAME) -------------------
<PAGE>
MODIFICATION NO. 3
To Software Partners, Inc. / Landmark Lease Agreement
Dated July 20, 1993
This Modification No. 3 to Lease Agreement between LANDMARK
INVESTMENTS, LTD. (Landlord) and SOFTWARE PARTNERS, INC. (Tenant)
dated July 20, 1993, as modified November 7, 1994 and further
Modified May 10, 1995 is entered into as of the 5th day of March,
1996 by and between Landlord and Tenant.
Landlord and Tenant herein agree to change the terms of their Lease Agreement
and Modifications as follows:
1. the term of the Lease for 2013 and 1971 Landings shall be extended by
Twenty One (21) Months, commencing September 1, 1996 and ending on May 31,
1998.
2. The rent for 2013 and 1971 Landings Drive only, shall be Four Thousand
Eight Hundred Eighty Dollars and 85/100 ($4,880.85) per month.
3. the base rent provided for above shall increase three percent (3%) per year
on the anniversary date of the commencement of the term of this
modification.
4. the lease term and rent on Tenant's other suite shall remain unchanged.
Except as herein modified all the terms and conditions set forth in the Lease,
as modified shall remain unchanged.
LANDLORD: LANDMARK INVESTMENTS, LIMITED
By: THRUST IV, INC., General Partner
By: /s/Hugh P. Bikle, Date: May 18, 1995
---------------------------- ---------------------
Hugh P. Bikle, President
TENANT: SOFTWARE PARTNERS, INC.
By: /s/Alan S. Fisher Date: 5/10/95
---------------------------- ----------------------
(SIGNATURE) (TITLE)
Alan S. Fisher
---------------------------- Tax ID# 94-3074544
(PRINT NAME) -------------------
<PAGE>
EXHIBIT B
Rules and Regulations
1. Keys are issued, in a reasonable number, by Landlord to Tenant at no charge.
2. Access cards, used to open the electronic lock of the front entry door of a
particular building after normal business hours, are assigned to individual
people pursuant to a list submitted by Tenant to Landlord. A $10.00 deposit per
card is charged upon issuance and refundable upon return. when a card holder is
no longer entitled to a card (left employment, etc.) Tenant shall notify
Landlord of a new holder, or if the card has been taken or lost. By so notifying
Landlord, a particular card code can be removed from the authorized list, sot
hat it no longer will activate the lock.
3. No sign or notice shall be displayed by Tenant outside of its office space
without written consent of Landlord. If approval is not given, Landlord shall
have the right to remove such sign or notice without notice to and at expense of
the Tenant. All signs on access doors to the Premises shall be approved by
Landlord. The original standard company sign on the main door to the Premises
will be installed at Landlord's expense. Tenant may, at its expense, install a
different sign, after written design approval by Landlord. Design criteria
should be obtained from Landlord in advance.
Tenant shall not place anything within the Premises which may appear unsightly
from outside of the Premises.
Tenant shall not install any curtains, blinds, shades, or screens on any windows
or doors of the Premises without Landlord's consent.
4. Sidewalks, halls, passages, exits, entrances, elevators, and stairways shall
not be obstructed by any of the tenants, or used by them for any purpose other
than for ingress or egress from their respected offices.
5. Tenant shall not alter any lock or install any new or additional locks or
bolts on any doors or windows without the written consent of Landlord.
6. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than for which they were installed.
7. Tenant shall not overload the floor of the office complex. Tenant shall not
mark, drive nails, screw or drill
<PAGE>
into the partitions, woodwork, or plaster or in any way deface the
Premises, except for hanging of small items such as pictures with nail type of
hangers, without Landlord's approval.
8. No unusually large or heavy equipment shall be brought into the complex
without prior notice to Landlord and all moving of the same into or out of the
office complex shall be done at such time and such a manner as Landlord shall
designate.
All damage done to the office complex by moving or maintaining any such
equipment shall be repaired at the expense of Tenant.
9. Tenant shall not use the office complex in a manner offensive or
objectionable to the Landlord or other occupants by reason of noise, odors,
and/or vibrations, or interfere in any way with other tenants or those having
business herein, nor shall any animals or birds be brought in or about the
office complex.
10. No lodging, washing clothes, cooking, excluding use of coffee makers and
microwave ovens, shall be done or permitted by any Tenant on the Premises.
11. Tenant shall not use or keep on the Premises any foul or noxious gas,
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord.
12. Landlord will direct electricians as to where and how telephone wires are to
be installed. No changing of wires will be allowed without the consent of the
Landlord. The location of the telephones, call boxes and other office equipment
affixed to the office complex shall be subject to the approval of Landlord.
13. No aerial satellite dish or other item shall be erected on the roof or
exterior walls of the complex, or on the grounds, without in each instance, the
written consent of the Landlord. Any such item so installed without such written
consent shall be subject to removal without notice at any time.
14. No loud speakers, televisions, radios or other devices shall be used in a
manner so as to be heard or seen outside of the Premises without prior written
consent of the Landlord.
15. On Saturdays, Sundays, legal holidays, and on other days between the hours
of 7:00 P.M. and 7:00 A.M. the following day, access to the office complex, or
to the Premises may be refused unless the person seeking is known to the person
or
2
<PAGE>
employee of the office complex in charge or is properly identified. The Landlord
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the office complex of any person.
16. Any person whose presence on the Premises may in the judgment of the
Landlord be prejudicial to the safety, character, reputation and interest of the
office complex or of its tenants may be denied access to the office complex or
may be ejected therefrom.
17. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
18. tenant shall not disturb, solicit, or canvass any occupant of the office
complex and shall cooperate to prevent the same.
19. Landlord shall control and operate the public portions of the office
complex, in such manner as it deems best for the benefit of the tenants
generally.
20. All windows and entrance doors in the office complex shall be left locked
when the Premises are not in use, and all doors opening to public corridors
shall be kept closed except for normal ingress and egress from the office
complex.
21. In case of invasions, mob riot, public excitement, or other emergency, the
Landlord reserves the right to prevent access to the office complex during the
continuance of the same by closing of the doors or otherwise, for the safety of
the tenants and protection of property in the office complex. Landlord will also
direct tenants as necessary in an emergency and will not assume any liability
for damages suffered by tenants as the result of such directions.
3
EMPLOYMENT & NON-COMPETE AGREEMENT
This Agreement is made as of July 22, 1997, between Infodata Systems
Inc., a Virginia Corporation (the "Company"), AMBIA Corporation, a California
corporation ("AMBIA"), and Razi Mohiuddin ("Employee"). The Company and Employee
agree as follows:
1. Employment. The Company and AMBIA agree to employ Employee and
Employee accepts such employment by the Company upon the terms and conditions
set forth in this Agreement, for the period beginning on the date of this
agreement and ending upon termination pursuant to paragraph 4 (the "Employment
Period"). During the Employment Period, employee shall serve: (a) the Company as
Vice President, West Coast Operations, and shall be responsible for (i) vertical
integration of the Company's Business into the pharmaceutical industry, and (ii)
the Company's United States consulting and integration activities west of the
Mississippi River; and (b) AMBIA as Executive Vice President, provided that and
for so long as AMBIA remains a subsidiary of the Company. Employee shall perform
his duties in California, unless the parties mutually agree in writing
otherwise.
2. Compensation and Benefits. In consideration for the valuable
services to be rendered by Employee and for his agreement not to compete against
the Company as described in paragraph 5, the Company hereby agrees that during
the two years of the Employment Period, the Company will pay employee a gross
salary at the annual rate of $110,000 per annum (the "Base Salary"). Employee's
Base Salary may be adjusted annually based on an annual performance salary
review as determined in the reasonable discretion of the Board of Directors of
the Company (the "Board"); provided, however, that employee's Base Salary may
not be adjusted to an amount which is less than the initial Base Salary amount
stated above. Employee will also be eligible for participation in the Company's
incentive compensation program, 1995 Stock Option Plan, as amended, 1997 Stock
Purchase Plan and other employee benefit and welfare benefit plans and programs
provided to other employees of the Company from time to time. The Company shall
reimburse (or pay on his behalf) reasonable expenses incurred by Employee at the
request of, or on behalf of, the Company in the performance of Employee's duties
pursuant to this Agreement and in accordance with the Company's employment
policies.
3. Services. During the Employment Period, Employee agrees to devote
his best efforts and substantially all of his business time and attention to the
business affairs of the Company (except for reasonable vacation periods subject
to the reasonable approval of the Board of reasonable periods of illness or
other incapacity). During the Employment Period, Employee agrees to render such
services as the Board may from time to time direct. During the Employment
Period, Employee agrees that he will not, except with the prior written consent
of the Board or President of the Company, become engaged in or render services
for any business other than the Business of the Company; provided, however, that
Employee may purchase or otherwise acquire up to (but not more than) five
percent (5%) of any class of securities of any enterprise (but without otherwise
actively participating in the activities of such enterprise) and up to (but not
more than one percent (1%) of any class of securities of any enterprise (but
without otherwise actively participating in the activities of such enterprise)
if such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of 1934,
as amended. Notwithstanding anything to the contrary in this Agreement, the
Board and the President of the Company hereby agree that Employee may render
services for the businesses listed on Exhibit "A" hereto so long as Employee's
services to such other businesses does not unreasonably interfere, in the
opinion of the Board of the President of the Company, with Employee's
performance of his duties to the Company or the Company's Business.
<PAGE>
4. Termination. The Employment Period will continue from the date of
this Agreement for a period of twenty-four (24) months, unless extended by the
mutual agreement of the Company and Employee or unless terminated earlier by (a)
Employee's death or permanent disability which renders the Employee unable to
perform his duties hereunder (as determined by the provider of the Company's
disability insurance under the terms of the Company's disability insurance
policy), (b) by Employee's resignation upon prior written notice to the Company
of sixty (60) days or (c) the Board for Cause. For purpose of this paragraph
"Cause" shall mean (i) the failure or refusal of Employee to follow the lawful
directives of the Board or a designee (except due to sickness, injury or
disabilities), which directives are substantially consistent with Employee's
employment responsibilities hereunder, (ii) gross inattention to duty or any
other willful, reckless or grossly negligent act (or omission to act) by
Employee, which, in the good faith judgment of the Board, materially injures the
Company, including the failure to follow the policies and procedures of the
Company, (iii) a material breach of this Agreement by Employee, or (iv) the
commission by Employee of a felony or other crime involving moral turpitude or
the commission by Employee of an act of financial dishonesty against the
Company.
5. Noncompetition.
(a) The non-compete provisions of this paragraph 5 will apply
to Employee during the Employment Period and upon the expiration of the
Employment Period or the earlier termination of the Employment Period under
paragraphs 4(b) or 4(c) above. In the event the Employment Period is earlier
terminated without Cause, then no part of this paragraph 5 will apply to
Employee.
(b) Employee recognizes and acknowledges that by virtue of
accepting employment hereunder, Employee will acquire valuable knowledge,
enhance his professional skills and experience, and learn proprietary trade
secrets and Confidential Information (as hereinafter defined in Paragraph 6) of
the Company. In consideration of the foregoing and this employment contract,
Employee agrees that during the Employment Period and for two (2) years
thereafter (the "Non-Compete Period"), Employee will not directly or indirectly:
(i) except in connection with any duties as an
employee of the Company, divert or attempt to divert any party who is
or was an existing or prospective client, customer or supplier of AMBIA
and/or the Company within the last 28 months prior to the date of
termination from engaging in business with the Company or any of its
Affiliates, or provide any services or products to or engage in any
business that is competitive with Infodata's or AMBIA's Business;
(ii) during the one-year period immediately following
the date of termination of employment under this Agreement, solicit for
employment or encourage to leave their employment, in each case, either
as an employee, agent or representative, any person who was during the
two-year period prior to such solicitation or encouragement or is an
officer, employee, agent or representative of AMBIA or the Company;
(iii) disturb, or attempt to disturb, any business
relationship between any third party and AMBIA or the Company; or
- 2 -
<PAGE>
(iv) make any statement to any third party, including
the press or media, which is false or defamatory regarding either AMBIA
or the Company.
Employee and the Company each agree that the restraints imposed under this
paragraph 5 are reasonable and not unduly harsh or oppressive.
(c) If, at the time of enforcement of any provision of
paragraph 5(b) above, any of the provisions of this paragraph 5 shall be
determined to be invalid or unenforceable by reason of being vague or
unreasonable as to duration, area, scope of activity or otherwise, then this
paragraph shall be considered divisible (with the other provisions to remain in
full force and effect) and the invalid or unenforceable provisions shall become
and be deemed to be immediately amended to include only such time, area, scope
of activity and other restrictions, as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter, and
Employee expressly agrees that this Agreement, as so amended, shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein.
(d) Since a material purpose of this Agreement is to protect
the Company's and AMBIA's investment in the Employee and to secure the benefits
of his background and general experience in the industry, the parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any
breach of the provisions of this paragraph 5. Therefore, in the event of a
breach by Employee of any of the provisions of this paragraph 5, the Company,
AMBIA or their successors or assigns may, in addition to other rights and
remedies existing in their favor apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions of this
Agreement.
6. Confidential Information. Employee acknowledges that the
information, observations, data and trade secrets (collectively, "Confidential
Information") obtained by him during the course of his performance under this
Agreement concerning AMBIA's and the Company's Business are the property of the
AMBIA and/or the Company. For purposes of this Agreement, "trade secret" means
any method, program or compilation of information which is used in AMBIA's or
the Company's Business, including but not limited to: (a) techniques, plans and
materials used by either AMBIA or the Company, (b) business and marketing
methods and strategies employed by either AMBIA or the Company, (c) all computer
hardware and software developed or utilized by either AMBIA or the company in
its Business and (d) all lists of past, present or prospective clients,
customers and suppliers of either AMBIA or the Company; provided, however, that
such term shall not include any such items Employee lawfully used, owned,
possessed or developed prior to the formation of AMBIA and was using for
purposes unrelated to AMBIA's Business at any time prior to the date of this
Agreement. Employee agrees that he will not disclose to any unauthorized Person
or use for his own account any of such Confidential Information without the
Board's written consent, unless and to the extent that the aforementioned
matters becoming generally known to and available for use by the public other
than as a result of Employee's acts or omissions to act or become known to
Employee lawfully outside the scope of his employment under this Agreement.
Employee agrees to deliver to the Company at the termination of his employment,
or at any other time the Company may request, all memoranda, notes, plans,
records, reports and other documents (and copies thereof) relating to the
Business of either AMBIA or the Company which he may then possess or have under
his control.
7. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either
- 3 -
<PAGE>
personally delivered, sent by overnight courier
(e.g., Federal Express) or mailed by first class certified mail, return receipt
requested, to the recipient at the address below indicated:
To the Company: Infodata Systems Inc.
12150 Monument Drive, Suite 400
Fairfax, Virginia 22033
Attention: Mr. Harry Kaplowitz, President
To Employee: Razi Mohiuddin
19805 Oakhaven Drive
Saratoga, CA 95070
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered,
sent or mailed.
8. Miscellaneous. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. The parties agree that (i) the provisions of this Agreement shall be
severable in the event that any of the provisions hereof are for any reason
whatsoever invalid, void or otherwise unenforceable, (ii) such invalid, void or
otherwise unenforceable provisions shall be automatically replaced by other
provisions which are as similar as possible in terms to such invalid, void or
otherwise unenforceable provisions but are valid and enforceable and (iii) the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. This Agreement, the Merger Agreement and the other agreements and documents
executed in connection with the Merger Agreement contain the entire agreement
and understanding among the parties with respect to the subject matter hereof
and supersede and preempt any and all prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way. This Agreement may be executed on
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement. This Agreement is
intended to bind and inure to the benefit of and benefit of and
be enforceable by Employee and the Company, and their respective successors and
assigns. Employee may not assign his rights or delegate his obligations
hereunder without the prior written consent of the Company. The Company may
assign its rights and delegate its duties hereunder without the consent of
Employee to Permitted Transferees. All questions concerning the construction,
validity and interpretation of the Agreement will be governed by the internal
law, and not the law of conflicts, of the State of California. Any provision of
this Agreement maybe amended or waived only with the prior written consent of
the Company and Employee.
- 4 -
<PAGE>
9. Definitions. "PERSON" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a governmental entity or any department or agency thereof.
"PERMITTED TRANSFEREE" shall mean (a) any successor by merger or consolidation
to the Company or any Permitted Transferee; (b) any purchaser of all or
substantially all of the Company's or any Permitted Transferee's assets; and (c)
any lender to (i) the Company, (ii) any Permitted Transferee and/or (iii) any
affiliate of the Company or of any Permitted Transferee. "BUSINESS" shall mean
with respect to either AMBIA or the Company, (i) the design, development,
installation, implementation, sale, support, maintenance, marketing and
management of electronic document management systems, including the performance
of integration services and the design, development, sale, and re-sale of
software products relating to such systems, and (ii) the design, development,
support, maintenance, sale, re-sale and integration of software products that
are being produced or are in the process of being produced, designed or
developed by either AMBIA or the Company as of the date of this Agreement.
IN WITNESS WHEREOF, the parties have executed the Agreement on the day
and year first above written.
WITNESS/ATTEST: INFODATA SYSTEMS INC.
By: /s/Harry Kaplowitz
- ----------------------- --------------------------
Harry Kaplowitz, President
/s/Razi Mohiuddin
- ----------------------- --------------------------
Razi Mohiuddin
- 5 -
<PAGE>
SCHEDULE A
LIST OF BUSINESSES FOR WHICH RAZI MOHIUDDIN
MAY RENDER SERVICES PURSUANT TO HIS
EMPLOYMENT AGREEMENT DATED AS OF JULY 22, 1997
ONSALE, Inc.*
Software Partners, Inc.*
*-Provided that such services do not compete with the products or services of
Infodata or AMBIA, as set forth in the Employment Agreement.
- 6 -
EMPLOYMENT & NON-COMPETE AGREEMENT
This Agreement is made as of October 11, 1995 between Infodata Systems Inc., a
Virginia corporation (the "Company"), and Richard M. Tworek ("Employee"). The
Company and Employee agree as follows:
1. Employment. The Company agrees to employ Employee and Employee accepts such
employment by the Company upon the terms and conditions set forth in this
Agreement, for the period beginning on the date of this Agreement and ending
upon termination pursuant to paragraph 4 (the "Employment Period").
2. Compensation. In consideration for the valuable services to be rendered by
Employee and for his agreement not to compete against the Company as described
in paragraph 5, the Company hereby agrees that during the two years of the
Employment Period, the Company will pay Employee a gross salary at the annual
rate of $125,000 per annum (the "Base Salary"). Employee's Base Salary may be
adjusted annually based on an annual performance salary review as determined in
the reasonable discretion of the Board of Directors of the Company (the
"Board"); provided, however, that Employee's Base Salary may not be adjusted to
an amount which is less than the initial base salary amount stated above.
Employee will also be eligible for participation in the Company's incentive
compensation program and Stock Option Plan. Employee will be appointed as a
corporate senior vice president of the Company and the president of the Merex
Division of the Company, as well as appointed to serve on the Company's
Management Committee, all for such time as may be determined in the reasonable
discretion of the Board.
3. Services. During the Employment Period, Employee agrees to devote his best
efforts and substantially all of his business time and attention to the business
affairs of the Company (except for reasonable vacation periods subject to the
reasonable approval of the Board or reasonable periods of illness or other
incapacity). During the Employment Period, Employee agrees to render such
services as the Board may from time to time direct. During the Employment
Period, Employee agrees that he will not, except with the prior written consent
of the Board or President of the Company, become engaged in or render services
for any business other than the business of the Company. The Board and the
President of the Company hereby agree that Employee may render services for the
businesses listed on Exhibit "A" hereto so long as Employee's services to such
other businesses does not unreasonably interfere, in the opinion of the Board or
the President of the Company, with Employee's performance of his duties to the
Company.
4. Termination. The Employment Period will continue from the date of this
Agreement for a period of twenty-four (24) months, unless extended by the mutual
agreement of the Company and Employee or unless terminated earlier by (a)
Employee's death or permanent disability which renders the Employee unable to
perform his duties hereunder (as determined by the provider of the Company's
disabili-
<PAGE>
ty insurance under the terms of the Company's disability insurance policy), (b)
by Employee's resignation upon prior written notice to the Company of sixty (6)
days or (c) the Board for Cause. For purpose of this paragraph 4, "Cause" shall
mean (i) the failure or refusal of Employee to follow the lawful directives of
the Board or its designee (except due to sickness, injury or disabilities), (ii)
inattention to duty or any other willful, reckless or negligent act (or omission
to act) by Employee, which, in the good faith judgment of the Board, materially
injures the Company, including the failure to follow the policies and procedures
of the Company, (iii) a material breach of this Agreement by Employee or (iv)
the commission by Employee of a felony or other crime involving moral turpitude
or the omission by Employee of an act of financial dishonesty against the
Company.
5. Non-Compete.
(a) The non-compete provisions of this paragraph 5 will apply to
Employe during the Employment Period and upon the expiration of the Employment
Period or the earlier termination of the Employment Period under paragraphs 4(b)
or 4(c) above. In the event the Employment Period is earlier terminated without
Cause, then no part of this paragraph 5 will apply to Employee.
(b) Employee recognizes and acknowledges that by virtue of accepting
employment hereunder, Employee will acquire valuable knowledge, enhance his
professional skills and experience, and learn proprietary trade secrets and
Confidential Information (as hereinafter defined in paragraph 6) of the Company.
In consideration of the foregoing and this employment contract, Employee agrees
that during the Employment Period and for two (2) years thereafter (the
"Non-Compete Period"), Employee will not directly or indirectly (i) request,
induce or attempt to influence any then existing client, customer or supplier of
the Company to curtail any business they are currently, or in the last 36 months
have been, transacting with the Company or Merex, Inc.; (ii) distrub, or attempt
to disturb, any business relationship between any third party and the Company or
Merex, Inc.; or (iii) make any statement to any third party, including the press
or media, likely to result in adverse publicity for the Company or Merex, Inc.
(the "Non-Compete"). Furthermore, during the Non- Compete Period, Employee shall
not, without the Company's prior written consent, directly or indirectly,
solicit, encourage or attempt to influence any employee to leave the employment
of the Company or Merex, Inc. Employee agrees that for a one (1) year period
immediately following the Employment Period, Employee shall not employ any
person who is or was an employee of the Company or Merex, Inc. Employee agress
that the restraint imposed under this paragraph 5 is reasonable and not unduly
harsh or oppressive.
(c) If, at the time of enforcement of any provision of paragraph 5(b) above, a
court or arbitrator holds that the
- 2 -
<PAGE>
restrictions stated therein are unreasonable under circumstances then existing,
the Company and Employee agree that the maximum period, scope, or geographical
area reasonable under such circumstances will be substituted for the stated
period, scope or area.
(d) Since a material purpose of this Agreement is to protect the
Company's investment in the Employee and to secure the benefits of his
background and general experience in the industry, the parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this paragraph 5. Therefore, in the event of a breach by
Employee of any of the provisions of this paragraph 5, the Company or its
successors or assigns may, in addition to other rights and remedies existing in
its favor, apply to any court or law or equity of competent jurisdiction for
specific performance and/or inunctive or other relief in order to enforce or
prevent any violations of the provisions of this Agreement.
6. Confidential Information. Employee acknowledges that the information,
observations, data and trade secrets (collectively, "Confidential Information")
obtained by him during the course of his performance under this Agreement
concerning the business or affairs of the Company are the property of the
Company. For purposes of this Agreement, "trade secret" means any method,
program or compilation of information which is used in the Company's business,
including but not limited to: (a) techniques, plans and materials used by the
Company, (b) business and marketing methods and strategies employed by the
Company, (c) all computer hardware and software developed or utilized by the
Company in its business and (d) all lists of past, present or prospective
clients, customers and suppliers of the Company. For purposes of this Agreement,
all such Confidential Information of the Company shall include all Confidential
Information of Merex, Inc. Employee agress that he will not disclose to any
unauthorized person or use for his own account any of such Confidential
Information without the Board's writen consent, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Employee's acts or omissions to act or
become known to Employee lawfully outside the scope of his employment under this
Agreement. Employee agrees to deliver to the Company at the termination of his
employment, or at any other time the Company may request, all memoranda, notes,
plans, records, reports and other documents (and copies thereof) relating to the
business of the Company which he may then possess or have under his control.
7. Notices. Any notice provided for in this Agreement shall be in writing and
shall be either personally delivered, sent by overnight courier (e.g. Federal
Express) or mailed by first class certified mail, return receipt requested, to
the recipient at the address below indicated:
- 3 -
<PAGE>
To the Company: Infodata Systems Inc.
12150 Monument Drive, Suite 400
Fairfax, Virginia 22033
Attention: Mr. Harry Kaplowitz, President
To Employee: Richard M. Tworek
3856 St. Clair Court
Monrovia, Maryland 21770
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior writen notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered,
sent or mailed.
8. Miscellaneous. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law.
The parties agree that (i) the provisions of this Agreement shall be severable
in the event that any of the provisions hereof are for any reason whatsoever
invalid, voidor otherwise unenforceable, (ii) such invalid, void or otherwise
unenforceable provisions shall be automatically replaced by other provisions
which are as similar as possible in terms to such invalid, void or otherwise
unenforceable provisions but are valid and enforceable and (iii) the remaining
provisions shall remain enforceable to the fullest extent permitted by law. This
Agreement embodies the complete agreement and understanding among the parties
and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way. This Agreement may be executed on
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement. This Agreement is
intended to bind and inure to the benefit of and be enforceable by Employee and
the Company, and their respective successors and assigns. Employee may not
assign his rights or delegate his obligations hereunder without the prior
written consent of the Company. The Company may assign its rights and delegate
its duties hereundfer without the consent of Employee to Permitted Transferees.
All questions concerning the construction, validity and interpretation of the
Agreement will be governed by the internal law, and not the law of conflicts, of
the State of Virginia. Any provision of this Agreement may be amended or waived
only with the prior written consent of the Company and Employee.
9. Definitions. "PERSON" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
governmental entity or any department or agency thereof. "PERMITTED TRANSFEREE"
shall mean (a) any successor by merger or consolidation to the Company or any
Permitted Transferee; (b) any purchaser of all or substantially all of the
Company's or any Permitted Transferee's assets; and (c) any lender to (i) the
Company, (ii) any Permitted Transferee and/or
- 4 -
<PAGE>
(iii) any affiliate of the Company or of any Permitted Transferee.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
INFODATA SYSTEMS INC.
By: /s/Harry Kaplowitz /s/Richard M. Tworek
--------------------- ------------------------
Harry Kaplowitz Richard M. Tworek
President
- 5 -
November 5, 1997
Mr. James Ungerleider
7210 Marlin Drive
Alexandria, VA 22307
Dear Jim,
We are pleased to offer you the position of President and Chief Executive
Officer of Infodata Systems Inc. In this position, you will report to the Board
of Directors and its Chairman, Richard T. Bueschel.
As the Company's Chief Executive Officer, your annual base salary will be
$200,000, payable monthly. You will participate in an annual incentive bonus
plan with a target bonus potential of up to fifty percent of base salary. This
bonus will be based upon mutually agreed performance achievements against both
personal management objectives for the year and selected company financial
performance measures. We will agree on these measures during your first sixty
days of employment. In recognition of your leadership role at Infodata, you will
be awarded options to acquire 250,000 shares of stock at a price of $9.50 per
share, which will vest to you as follows: 75,000 options upon employment, two
increments of 50,000 on the first and second anniversaries of employment, and
the remaining 75,000 options on the third anniversary of your employment. This
vesting is contingent only on your continued employment on those respective
dates.
The level of your salary and bonus will be reviewed annually by the Board. You
will, of course, be eligible to participate in the Company's Stock Option grant
program going forward. The amounts of any such future grants are subject to
approval of the Board of Directors. In addition, you will receive a $50,000
hiring bonus to be paid on January 2, 1998. You will participate in the
Company's benefit plans available to our other senior executives, including
health insurance, life insurance, and other programs. Infodata will provide you
with a life insurance policy with a death benefit equal to two times your base
salary, and disability coverage equal to sixty (60) percent of your base salary.
It is understood that your employment at Infodata is terminable-at-will and is
not for any definite term. However, Infodata agrees that in the event that your
employment is terminated by the Company, other than for cause, you will continue
to be paid your base salary in monthly increments for a period of eighteen
months, along with your various insurance benefits. A termination for cause will
be defined as a termination by the Company of your employment due to (a) your
willful disregard and failure to perform the duties for which employed (not
including
<PAGE>
Mr. James Ungerleider
November 5, 1997
Page 2
failure to perform due to a disability
entitling you to disability benefits) so as to result in material harm to the
Company, or (b) your indictment for a crime constituting a felony involving
moral turpitude and resulting in material harm to the Company.
Should you begin employment elsewhere with a new employer during this
eighteen-month period, these Infodata benefits (but not Salary Continuation)
will cease upon your eligibility for the new employer's similar programs.
Further, if during your first twelve months of employment at Infodata, I am not
Chairman of the Board, and during that same twelve month period you are
terminated other than for cause, the above salary and benefit provisions will
apply to a twenty-four month period following your departure.
Please confirm your acceptance of this offer and its terms by signing below and
returning a signed copy of this agreement to me.
As I am sure you know already from the time we have been together, we are
excited about your coming to Infodata and leading the next steps in our growth
and business performance. On behalf of our entire board, we look forward to
working together in the years ahead.
Sincerely,
/s/ Richard T. Bueschel
- -----------------------
Richard T. Bueschel
Chairman of the Board,
Infodata Systems Inc.
Accepted:
/s/ James Ungerleider
---------------------
James Ungerleider
WCMA(R) NOTE, LOAN AND SECURITY AGREEMENT
WCMA NOTE, LOAN AND SECURITY AGREEMENT ("Loan Agreement") dated as of October
31, 1996, between INFODATA SYSTEMS INC., a corporation organized and existing
under the laws of the State of Virginia having its principal office at 12150
Monument Drive, Fairfax, VA 22033 ("Customer"), and MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., a corporation organized and existing under the laws of
the State of Delaware having its principal office at 33 West Monroe Street,
Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 749-07U18 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.
(iii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations.
(iv) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(v) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 9 (b) hereof.
(vi) "Commitment Expiration Date" shall mean November 30, 1996.
(vii) "General Funding Conditions" shall mean each of the following conditions
to any WCMA Loan by MLBFS hereunder: (A) no Event of Default, or event which
with the giving of notice, passage of time, or
<PAGE>
both, would constitute an Event of Default, shall have occurred and be
continuing or would result from the making of any WCMA Loan hereunder by MLBFS;
(B) there shall not have occurred any material adverse change in the business or
financial condition of Customer; (C) all representations and warranties of
Customer herein or in any Additional Agreements shall then be true and correct
in all material respects; (D) MLBFS shall have received this Loan Agreement and
all of the Additional Agreements, duly executed and filed or recorded where
applicable, all of which shall be in form and substance reasonably satisfactory
to MLBFS; (E) MLBFS shall have received evidence reasonably satisfactory to it
as to the ownership of the Collateral and the perfection and priority of MLBFS'
liens and security interest thereon, as well as the ownership of and the
perfection and priority of MLBFS' liens and security interests on any other
collateral for the Obligations furnished pursuant to any of the Additional
Agreements; (F) MLBFS shall have received evidence reasonably satisfactory to it
of the insurance required hereby or by any of the Additional Agreements; and (G)
any additional conditions specified in the "WCMA Line of Credit Approval" letter
executed by MLBFS with respect to the transactions contemplated hereby shall
have been met to the reasonable satisfaction of MLBFS.
(viii) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 2.90% and the 30-Day Commercial Paper Rate. The "30-Day Commercial
Paper Rate" shall mean, as of the date of any determination, the interest rate
from time to time published in the "Money Rates" section of The Wall Street
Journal for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The
Wall Street Journal of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30- Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.
(ix) "Line Fee" shall mean a fee of $5,000.00 payable to MLBFS in connection
with the WCMA Line of Credit for the period from the Activation Date to the
Maturity Date.
(x) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(xi) "Maturity Date" shall mean November 30, 1997 or such later date as may be
consented to in writing by MLBFS.
(xii) "Maximum WCMA Line of Credit" shall mean an amount equal to the lesser of:
(A) 80% of Customer's Domestic Accounts and Chattel Paper, as shown on its
regular books and records (excluding Accounts over 90 days old, Chattel Paper
with installments or other sums more than 90 days past due, and Accounts and
Chattel Paper directly or indirectly due from any shareholder, officer or
employee of Customer or any affiliated entity), or (B) $1,000,000.00.
(xiii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement.
(xiv) "Permitted Liens" shall mean (A) liens for current taxes not delinquent,
other non-consensual liens arising in the ordinary course of business for sums
not due, and, if MLBFS' rights to and interest in the Collateral are not
materially and adversely affected thereby, any such liens for taxes or other
non-consensual liens arising in the ordinary course of business being contested
in good faith by appropriate proceedings; (B) liens in favor of MLBFS; (C) liens
which will be discharged with the proceeds of the initial WCMA Loan; and (D) any
other liens expressly permitted in writing by MLBFS.
(xv) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 749-07U18.
(xvi) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
- 2 -
<PAGE>
(b) OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meaning set
forth in the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, the aggregate unpaid principal amount of
all WCMA Loans (the "WCMA Loan Balance"); (b) interest at the Interest Rate on
the outstanding WCMA Loan Balance, from and including the date on which the
initial WCMA Loan is made until the date of payment of all WCMA Loans in full;
and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the Line Fee and any late charges. Except as
otherwise expressly set forth herein, Customer hereby waives presentment, demand
for payment, protest and notice of protest, notice of dishonor, notice of
acceleration, notice of intent to accelerate and all other notices and
formalities in connection with this WCMA Promissory Note and this Loan
Agreement.
3. WCMA LOANS
(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof. Customer hereby authorizes MLBFS to pay out of and charge to
Customer's WCMA Account on the Activation Date all amounts necessary to fully
pay off any bank or other financial institution having a lien upon any of the
Collateral other than a Permitted Lien.
(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the Maturity Date: (i) MLBFS will make
WCMA Loans to Customer in such amounts as Customer may from time to time request
in accordance with the terms hereof, up to an aggregate outstanding amount not
to exceed the Maximum WCMA Line of Credit, and (ii) Customer may repay any WCMA
Loans in whole or in part at any time without premium or penalty, and request a
reborrowing of amounts repaid on a revolving basis. Customer may request WCMA
Loans by use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other
means of access to the WCMA Line of Credit as may be permitted by MLBFS from
time to time; it being understood that so long as the WCMA Line of Credit shall
be in effect, any charge or debit to the WCMA Account which but for the WCMA
Line of Credit would under the terms of the WCMA Agreement result in an
overdraft, shall be deemed a request by Customer for a WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and is continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any Event
of Default, and shall not prevent MLBFS at any time thereafter while any
conditions shall not have been met from refusing to honor any request by
Customer for a WCMA Loan.
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(d) FORCE MAJEURE. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor an
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) INTEREST. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any provision to the contrary in
this Agreement or any of the Additional Agreements, no provision of this
Agreement or any of the Additional Agreements should require the payment or
permit the collection of any amount in excess of the maximum amount of interest
permitted to be charged by law ("Excess Interest"). If any Excess Interest is
provided for, or is adjudicated as being provided for, in this Agreement or any
of the Additional Agreements, then: (a) Customer shall not be obligated to pay
any Excess Interest; and (b) any Excess Interest that MLBFS may have received
hereunder or under any of the Additional Agreements shall, at the option of
MLBFS, be: (i) applied as a credit against the then unpaid balance of the WCMA
Line of Credit, (iii) any combination of the foregoing. Except as otherwise
provided herein, accrued and unpaid interest on the WCMA Loan Balance shall be
payable monthly on the last Business Day of each calendar month, commencing with
the last Business Day of the calendar month in which the Activation Date shall
occur. Customer hereby irrevocably authorizes and directs MLPF&S to pay MLBFS
such accrued interest from any available free credit balances in the WCMA
Account, and if such available free credit balances are insufficient to satisfy
any interest payment due, to liquidate any investments in the Money Accounts
(other than any investments constituting any Minimum Money Accounts Balance
under the WCMA Directed Reserve program) in an amount up to the balance of such
accrued interest, and pay to MLBFS the available proceeds on account thereof. If
available free credit balances in the WCMA Account and available proceeds of the
Money Accounts are insufficient to pay the entire balance of accrued interest,
and Customer otherwise fails to make such payment when due, MLBFS may, in its
sole discretion, make a WCMA Loan in an amount equal to the balance of such
accrued interest and pay the proceeds of such WCMA Loan to itself on account of
such interest. The amount of any such WCMA Loan will be added to the WCMA Loan
Balance. If MLBFS declines to extend a WCMA Loan to Customer under these
circumstances, Customer hereby authorizes and directs MLPF&S to make all such
interest payments to MLBFS from any Minimum Money Accounts Balance. If there is
no Minimum Accounts Balance, or it is insufficient to pay all such interest,
MLBFS will invoice Customer for payment of the balance of the accrued interest,
and Customer shall pay such interest as directed by MLBFS within 5 Business Days
of receipt of such invoice.
(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.
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(g) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.
(h) LINE FEE; EXTENSIONS. (i) In consideration of the extension of the WCMA Line
of Credit by MLBFS to Customer during the period from the Activation Date to the
Maturity Date, Customer has paid or shall pay the Line Fee to MLBFS. If such fee
has not heretofore been paid by Customer, Customer hereby authorizes MLBFS, at
its option, to either cause said fee to be paid with a WCMA Loan which is added
to the WCMA Loan Balance, or invoice Customer for said fee (in which event
Customer shall pay said fee within 5 Business Days after receipt of such
invoice). No delay in the Activation Date, howsoever caused, shall entitle
Customer to any rebate or reduction in the Line Fee or extension of the Maturity
Date.
(ii) In the event MLBFS and Customer, in their respective sole discretion agree
to renew the WCMA Line of Credit beyond the current Maturity Date, Customer
agrees to pay a renewal Line Fee or Line Fees (if the Maturity Date is extended
for more than one 12-month period), in the amount per 12-month period or other
applicable period then set forth in the writing signed by MLBFS which extends
the Maturity Date; it being understood that any request by Customer for a WCMA
Loan or failure of Customer to pay any WCMA Loan Balance outstanding on the
immediately prior Maturity Date, after the receipt by Customer of a writing
signed by MLBFS extending the Maturity Date, shall be deemed a consent by
Customer to both the renewal Line Fees and the new Maturity Date. If no renewal
Line Fees are set forth in the writing signed by MLBFS extending the Maturity
Date, the renewal Line Fee for each 12-month period shall be deemed to be the
same as the immediately preceding periodic Line Fee. Each such renewal Line Fee
may, at the option of MLBFS, either be paid with a WCMA Loan which is added to
the WCMA Loan Balance or invoiced to Customer, as aforesaid, on or at any time
after the first Business Day of the first Business Day of the first month of the
12-month period for which such fee is due.
(i) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(j) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. On the Activation Date, a
WCMA will be made to pay any indebtedness of Customer to a third party secured
by all or any part of the Collateral. The proceeds of each subsequent WCMA Loan
shall be used by Customer solely for working capital in the ordinary course of
its business, or, with the prior written consent of MLBFS, for other lawful
business purposes of Customer not prohibited hereby. Customer agrees that under
no circumstances will funds borrowed from MLBFS through the WCMA Line of Credit
be used: (i) for personal, family or household purposes of any person
whatsoever, (ii) to purchase, carry or trade in securities, including shares of
the Money Accounts, or (iii) to repay debt incurred to purchase, carry or trade
in securities; nor will any such funds be remitted, directly or indirectly, to
an account of Customer with MLPF&S or any other broker or dealer in securities,
by WCMA Check, check, FTS, wire transfer, or otherwise.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Virginia and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will not violate or conflict with any law or other governmental
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requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement and the Additional Agreements to which it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements to
which it is a party are the legal, valid and binding obligations of Customer,
enforceable against it in accordance with their respective terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) COLLATERAL. Subject to any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.
(f) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's financial
statements, all financial statements of Customer furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
(g) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or the continued
operations of Customer.
(h) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer, or the continued operations of Customer).
(i) COLLATERAL LOCATION. All of the tangible Collateral is located at a Location
of Tangible Collateral.
Each of the foregoing representations and warranties are continuing and shall be
deemed remade by Customer concurrently with each request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual audited financial statements of Customer consisting of at
least a balance sheet as at the close of such fiscal year and related statements
of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.
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(b) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a
balance sheet as at the close of such fiscal quarter, all in reasonable detail
and certified by its chief financial officer.
(c) AGING OF ACCOUNTS. Within 15 days after the close of each fiscal month of
Customer, Customer shall furnish or cause to be furnished to MLBFS an aging of
its Accounts and any Chattel Paper, certified by its chief financial officer.
(d) OTHER INFORMATION. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer or the Collateral.
6. OTHER COVENANTS
Customer further agrees during the term of this Loan Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real or personal), operations, books and records.
(b) TAXES. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or the continued operations of Customer.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, or the financial condition
or the continued operations of Customer.
(d) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer will not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets or stock of, or any material partnership or
joint venture interest in, any person or entity, or sell, transfer or lease all
or any substantial part of its assets if any such action causes a material
change in its control or principal business, or a material adverse change in its
financial condition or operations; (ii) Customer will preserve its existence and
good standing in the jurisdictions of establishment and operation, and will not
operate in any material business other than a business substantially the same as
its business as of the date of application by Customer for credit from MLBFS;
and (iii) Customer will not cause or permit any material change in its
controlling ownership, controlling senior management or, except upon not less
than 30 days prior written notice to MLBFS, its name or principal place of
business.
7. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
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(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and is continuing, Customer may in the ordinary course of its business: (i) sell
any inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its inventory and other Collateral and the collection of its
Accounts as MLBFS may from time to time reasonably request.
(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Customer shall make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations being contested
by Customer in good faith by appropriate proceedings.
(g) LOCATION. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as may be required by law
or is customarily maintained by companies in a similar business or otherwise
reasonably required by MLBFS. All such insurance shall provide that MLBFS will
receive not less than 10 days prior written notice of any cancellation, and
shall otherwise be in form and amount and with an insurer or insurers reasonably
acceptable to MLBFS. Customer shall furnish MLBFS with a copy or certificate of
each such policy or policies and, prior to any expiration or cancellation, each
renewal or replacement thereof.
(i) EVENT OF LOSS. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of either Customer or
MLBFS that it disclaims liability in respect of such Event of Loss, Customer
shall, at Customer's option, either replace the Collateral subject to such Event
of Loss with comparable Collateral free of all liens other than Permitted Liens
(in which event Customer shall be entitled to utilize the proceeds of insurance
on account of such Event of Loss for such purpose, and may retain any excess
proceeds of such insurance), or consent to a reduction the WCMA Line of Credit
in an amount equal to the actual cash value of such Collateral as determined by
either the applicable insurance company's payment (plus any applicable
deductible) or, in absence of insurance company payment, as reasonably
determined by
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MLBFS. Notwithstanding the foregoing, if at the time of occurrence of such Event
of Loss or any time thereafter prior to replacement or line reduction, as
aforesaid, an Event of Default shall occur hereunder, then MLBFS may at its sole
option, exercisable at any time while such Event of Default shall be continuing,
require Customer to either replace such Collateral or, on its own volition and
without the consent of Customer, reduce the WCMA Line of Credit, as aforesaid.
(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(k) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
8. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any amount owing or required to be deposited by Customer under
this Loan Agreement, or shall fail to pay when due any other Obligations, and
any such failure shall continue for more than 5 Business Days after written
notice thereof shall have been given by MLBFS to Customer.
(b) FAILURE TO PERFORM. Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under the
Loan Agreement or any of the Additional Agreements (not constituting an Event of
Default under any other clause of this Section), and such default shall continue
unremedied for 10 Business Days after written notice thereof shall have been
given by MLBFS to Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by Customer
contained in this Loan Agreement or any of the Additional Agreements shall at
any time prove to have been incorrect in any material respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, MLPF&S or any of their affiliates, and any
required notice shall have been given and required passage of time shall have
elapsed.
(e) BANKRUPTCY, ETC. A proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt or receivership law or statute
shall be filed by Customer, or any such proceeding shall be filed against
Customer and shall not be dismissed or withdrawn within 60 days after filing, or
Customer shall make an assignment for the benefit of creditors, or Customer
shall become insolvent or generally fail to pay, or admit in writing its
inability to pay, its debts as they become due.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer has been materially impaired.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer to another creditor under any indenture, agreement, undertaking, or
otherwise.
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(h) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuses, or any
levy, attachment, seizure or confiscation which is not released within 10
Business Days.
9. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer; and upon any such termination MLBFS
shall be relieved of all such obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived.
(iii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient, or may take possession of the Collateral
and the records pertaining to the Collateral without the use of any judicial
process and without any prior notice to Customer.
(v) SALE. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining liable for any amount remaining unpaid after such application.
(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
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securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLBF&S a security interest in all such property as
additional Collateral.
(c) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(d) NOTICES. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking actions. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
10. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS is exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms of this Loan Agreement or any of the
Additional Agreements shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer to
any other or further notice or demand in similar or other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorize MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the
- 11 -
<PAGE>
enforcement of this Loan Agreement or any of the Additional Agreements or the
protection of MLBFS' rights hereunder or thereunder, excluding, however,
salaries and expenses of MLBFS' employees. The obligations of Customer under
this paragraph shall survive the expiration or termination of this Loan
Agreement and the discharge of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 days written notice is sent
to Customer (or such lesser notice, including no notice, as is reasonable under
the circumstances) do the same or cause it to be done or remedy any such breach,
and may expend its funds for such purpose. Any and all reasonable amounts so
expended by MLBFS shall be repayable to MLBFS by Customer upon demand, with
interest at the Interest Rate during the period from and including the date
funds are so expended by MLBFS to the date of repayment, and all such amounts
shall be additional Obligations. The payment or performance by MLBFS of any of
Customer's obligations hereunder shall not relieve Customer of said obligations
or of the consequences of having failed to pay or perform the same, and shall
not waive or be deemed a cure of any Event of Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within 10 days of the applicable due date shall be
subject to a late charge in an amount equal to the lesser of: (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charge shall be payable on demand, or, without demand, may in the sole
discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in
the same manner as provided herein for accrued interest.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any the Additional Agreements, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations reasonably satisfactory
to MLBFS with respect to any rights in such Collateral.
(h) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,shall
continue in effect so long thereafter as the WCMA Line of Credit shall be in
effect or there shall be any Obligations outstanding.
- 12 -
<PAGE>
(m) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. Without limiting the foregoing, Customer acknowledges
that: (i) no promise or commitment has been made to it by MLBFS, MLPF&S or any
of their respective employees, agents or representatives to extend the
availability of the WCMA Line of Credit or the due date of the WCMA Loan Balance
beyond the current Maturity Date, or to increase the Maximum WCMA Line of
Credit, or otherwise extend any other credit to Customer or any other party;
(ii) no purported extension of the Maturity Date, increase in the Maximum WCMA
Line of Credit or other extension or agreement to extend credit shall be valid
or binding unless expressly set forth in a written instrument signed by MLBFS;
and (iii) except as otherwise expressly provided herein, this Loan Agreement
supersedes and replaces any and all proposals, letters of intent and approval
and commitment letters from MLBFS to Customer, none of which shall be considered
an Additional Agreement. No amendment or modification of this Agreement or any
of the Additional Agreements to which Customer is a party shall be effective
unless in a writing signed by both MLBFS and Customer.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY ALL RIGHTS TO
CONTEST SAID JURISDICTION AND VENUE. CUSTOMER WAIVES ANY AND ALL RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
- 13 -
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
INFODATA SYSTEMS INC.
By: /s/ Harry Kaplowitz /s/ Richard M. Tworek
------------------- ---------------------
Harry Kaplowitz Richard M. Tworek
Signature (1) Signature (2)
Harry Kaplowitz Richard M. Tworek
Printed Name Printed Name
President Executive Vice President
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By:
-----------------------------
- 14 -
<PAGE>
CERTIFICATE OF SECRETARY
(WCMA Line of Credit)
THE UNDERSIGNED HEREBY CERTIFIES that the undersigned is the duly appointed and
acting Secretary (or Assistant Secretary) of INFODATA SYSTEMS INC., a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia, and that the following is a true, accurate and
compared transcript of resolutions duly, validly and lawfully adopted on the 29
day of October, 1996 by the Board of Directors of said corporation acting in
accordance with the laws of the state of incorporation:
"RESOLVED, that it its advisable and in the best interests of this
Corporation that in connection with Working Capital Management Account
No. 749-07U18 that this Corporation is subscribing from Merrill Lynch,
Pierce, Fenner & Smith Incorporated it obtain from MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC. ("MLBFS") a commercial line of credit
referred to by MLBFS as a "WCMA Line of Credit"; and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer,
Secretary or other officer of this Corporation, or any one or more of
them, be and each of them hereby is authorized and empowered for and on
behalf of this Corporation to: (a) execute and deliver to MLBFS: (i) a
WCMA Note, Loan and Security Agreement and all other agreements,
instruments and documents required by MLBFS in connection with said Line
of Credit, and (ii) any present or future extensions of and amendments
to any of the foregoing; all in such form as such officer shall approve,
as conclusively evidenced by his signature thereon; (b) grant to MLBFS
such liens and security interests on any of the assets of this
Corporation as collateral therefor and/or the other obligations of this
Corporation to MLBFS as may be required by MLBFS; and (c) do and perform
all such acts and things deemed by any such officer to be necessary or
advisable to carry out and perform the undertakings and agreements of
this Corporation in connection therewith; and all prior acts of said
officers in these premises are hereby ratified and confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or
revocation, which change or revocation shall not in any event affect the
obligations of this Corporation with respect to any transaction
committed to by MLBFS or having its inception prior to the receipt of
such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that the foregoing resolutions have not been
rescinded, modified or repealed in any manner and are in full force and effect
as of the date of this Certificate, and that the following individuals are now
the duly elected and acting officers of said corporation:
President: /s/ Harry Kaplowitz
-----------------------------
Harry Kaplowitz
Executive
Vice President: /s/ Richard M. Tworek
-----------------------------
Richard M. Tworek
Secretary: /s/ Gregory T. Pennell
-----------------------------
Treasurer: N/A
------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said corporation hereto, pursuant to due authorization, all
as of this 11th day of November, 1996.
/s/ Gregory T. Pennell
(Corporate Seal) ---------------------------------
Secretary
Gregory T. Pennell
---------------------------------
Printed Name
LOAN AND REGISTRATION RIGHT AGREEMENT
Pursuant to this Agreement, dated October 3, 1996, INFODATA SYSTEMS INC.
(the "Company") and RICHARD M. TWOREK (the "Borrower") hereby agree as follows:
1. Loan. The Company hereby loans the Borrower $70,000, which loan will
bear interest at an annual rate of 1% over prime, adjusted quarterly, with
interest only payable quarterly for three years at which time the loan is to be
repaid. The Borrower hereby agrees to repay the loan in accordance with the
terms of the Promissory Note attached as Exhibit A hereto.
2. Registration Right. The Company hereby agrees to use its best
efforts, at its own expense and within 30 days of the Company's receipt of a
written request received from the Borrower subsequent to March 31, 1997 and
prior to October 11, 1998, to file a Registration Statement on a Form S-3 with
the Securities and Exchange Commission in order to register the 158,754 shares
of common stock, par value $ .03 per share, of the Company (the "Shares") held
by the Borrower, which Shares were acquired by the Borrower from the Company on
October 11, 1995, pursuant to the terms of an Asset and Purchase Agreement and
Plan of Reorganization, dated as of October 6, 1995, among the Company, Merex
Inc. and the Borrower and two other persons. The Company will use its best
efforts to maintain the effectiveness of such Registration Statement for a
period of three years following its effective date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
INFODATA SYSTEMS INC.
By: /s/ Harry Kaplowitz
-------------------
Harry Kaplowitz
President
RICHARD M. TWOREK
/s/ Richard M. Tworek
---------------------
Richard M. Tworek
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$70,000.00 Fairfax, Virginia
October 3, 1996
FOR VALUE RECEIVED, the undersigned, RICHARD M. TWOREK (the "Maker"),
does hereby promise to pay to the order of INFODATA SYSTEMS INC. (the "Holder"),
the principal sum of SEVENTY THOUSAND DOLLARS ($70,000.00) on September 30,
1999, and to make quarterly payments of interest thereon at an annual rate of
one percent (1%) over prime, adjusted quarterly.
1. Quarterly payments of interest only shall be made by the Maker to the
Holder on December 31, March 31, June 30 and September 30 of each year, with the
first such quarterly payment due on December 31, 1996 and the last quarterly
payment due on September 30, 1999. The interest rate for a quarterly period
shall be based on the prime rate of interest published by Chase Manhattan Bank,
N.A., on the first day of the quarterly period. The Maker shall make all such
payments to the Holder at 12150 Monument Drive (Suite 400), Fairfax, Virginia
22033 or such other address as may be designated by Holder.
2. Payment of the $70,000 principal amount of this Promissory Note shall
be made by the Maker to the Holder on September 30, 1999; provided, however,
that this Promissory Note may be prepaid in whole or in part at any time,
without premium or penalty, with interest to the date of payment.
3. If Maker fails to pay any installment of interest when due hereunder,
which failure continues for a period of ten (10) days after the due date
thereof, then the principal amount of this Promissory Note and interest thereon
shall forthwith become due and payable immediately without any notice or demand
therefor.
4. This Promissory Note (i) is Exhibit A to the Loan and Registration
Right Agreement, dated October 3, 1996, between the Maker and the Holder, (ii)
may not be changed, waived, discharged or terminated except by an instrument in
writing signed by the party against whom enforcement of such change, waiver,
discharge or termination is sought, (iii) shall be binding upon the Maker and
his heirs, executors, administrators, distributees and personal representatives,
(iv) shall inure to the benefit of Holder and its successors and assigns, and
(v) shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia.
IN WITNESS WHEREOF, the Maker has caused this Promissory Note to be
executed below.
/s/ Richard M. Tworek
---------------------
Richard M. Tworek
EXHIBIT 21.1
The following is a list of subsidiaries of the Company and the states
in which they are incorporated:
Subsidiary State of Incorporation
Infodata Systems International Inc. New York
Infodata Systems Research and Development New York
AMBIA Corporation California
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Washington, D.C.
December 18, 1997
SEILER & COMPANY, LLP
C E R T I F I E D P U B L I C A C C O U N T A N T S
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statement on Form SB-2, of Infodata Systems Inc. to be filed
December 16, 1997 of our reports dated June 3, 1997 with respect to the
financial statements of AMBIA for the years ended December 31, 1995 and December
31, 1996.
/s/ Seiler & Company, LLP
- --------------------------
REDWOOD CITY, CALIFORNIA
DECEMBER 18, 1997
1100 Marshall Street, Redwood City CA 94063-2098 Tel.
(650) 365-4646 FAX (650) 368-4055
- --------------------------------------------------------------------------------
120 Montgomery Street, Suite 2250, San Francisco, CA 94104-1303
Tel (415) 392-2123 FAX (415) 392-1720
e-mail: [email protected]
A MEMBER OF____________
(Club)HLB INTERNATIONAL
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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<RECEIVABLES> 2299
<ALLOWANCES> 80
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<CURRENT-ASSETS> 3156
<PP&E> 5494
<DEPRECIATION> 2136
<TOTAL-ASSETS> 6514
<CURRENT-LIABILITIES> 4048
<BONDS> 87
0
0
<COMMON> 82
<OTHER-SE> 2297
<TOTAL-LIABILITY-AND-EQUITY> 6514
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<INCOME-PRETAX> (2584)
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<CHANGES> 0
<NET-INCOME> (2579)
<EPS-PRIMARY> (.92)
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