FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: July 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to
Commission file number 0-11485
ACCELR8 TECHNOLOGY CORPORATION
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(Name of small business issuer in its charter)
Colorado 84-1072256
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
303 East Seventeenth Avenue, Suite 108, Denver, Colorado 80203
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(Address of principal executive offices)
Issuer's telephone number: (303) 863-8088
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $2,897,984
As of October 29, 1999, the aggregate market value for the 6,282,867 shares of
the Common Stock, no par value per share, held by non-affiliates was
approximately $8,048,353.
The number of shares of Common Stock of the registrant outstanding as of July
31, 1999, was 7,794,617.
Documents incorporated by reference
None
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TABLE OF CONTENTS
PART I PAGE
Item 1. Description of Business .............................. 1
Item 2. Description of Property .............................. 20
Item 3. Legal Proceedings .................................... 20
Item 4. Submission of Matters to a Vote of Security Holders .. 21
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters .................................. 21
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........ 23
Item 7. Financial Statements ................................. 28
Item 8. Changes in and Disagreements With Accountant
on Accounting and Financial Disclosure ............... 28
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act .................................. 28
Item 10. Executive Compensation ............................... 30
Item 11. Security Ownership of Certain Beneficial
Owners and Management ................................ 34
Item 12. Certain Relationships and Related Transactions ....... 35
Item 13. Exhibits and Reports on Form 8-K ..................... 35
SIGNATURES ............................................................. 36
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PART I
Item 1 - Description of Business
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Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below under "Factors That May Affect Future
Results," as well as those discussed elsewhere in this Form 10-KSB.
Certain capitalized terms used in this Form 10-KSB are defined in the
Glossary beginning at the end of "Item 1-Description of Business" beginning on
page 18.
Introduction
Accelr8 Technology Corporation (the "Company") is a provider of software
tools and consulting services for system modernization solutions for VMS legacy
systems that were developed by Digital Equipment Corporation ("DEC") and which
are proprietary to Compaq Corporation ("COMPAQ") as a result of its purchase of
DEC. The Company will refer to both DEC and COMPAQ in referencing VMS legacy
systems developed by DEC. The Company's system modernization solutions encompass
two distinctly different approaches. First, for those enterprises that have made
the decision to rely upon the VMS operating system for continued deployment of
mission critical custom applications, the Company offers services and tools that
emphasize and enable a strategy of preservation and retention of VMS running on
COMPAQ Alpha platforms. Second, for those enterprises that have chosen a
modernization strategy that focuses on a move to "open systems" featuring Unix
and/or NT operating systems, the Company offers tools and services that support
migration from VMS platforms to client/server systems offered by COMPAQ
(Tru64Unix), Hewlett-Packard (HP/UX), Sun Microsystems (Solaris) and other Unix
vendors and Microsoft Corporation's Windows NT. The Company's "Open Evalu8"
servicesoffering provides an in-depth analysis of existing legacy systems. The
objective of this analysis is to identify specific functionalities in a given
legacy application that must be carried over to the new environment of
e-commerce because there is no commercial off the shelf (COTS) equivalent.
Likewise, this assessment may conclude that the application should be preserved
in the existing VMS environment, and its data made available by implementation
of the Company's newest product (which is in the final stages of development),
XML for RMS, an XML (extensible mark-up language) server. The primary purpose of
the XML for RMS server is to support any Business to Business application that
needs access to data that may reside in the VMS legacy application. By its very
nature, a proprietary operating system is not accessible to any inquiry made
from outside the environment, such as those often originating from the worldwide
web (the Internet). The Company believes that its XML server will be the only
"non-relational" data XML server available for general use with VMS legacy data
when completed.
The Company was incorporated in 1982 under the laws of the State of
Colorado. The Company's executive offices are located at 303 East 17th Avenue,
Suite 108, Denver, Colorado 80203, and its telephone number is (303) 863-8088.
Migration to Open Systems. In the 1970's many businesses and governmental
organizations relied on proprietary mainframe and minicomputers for critical
business functions. Each hardware manufacturer sought to establish a competitive
advantage by developing "closed" environments, which were compatible only with
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the manufacturer's proprietary equipment, operating systems and software
applications. Thus, a customer was locked into a mission-critical application
environment which would only operate on a closed proprietary system, which
ultimately became known as "Legacy Systems." These systems were never designed
to be accessed from external sites such as inquiries emanating from the
worldwide web (the Internet).
Management believes that there has been a trend away from purchasing all of
a company's hardware and software from one vendor. This trend was originally
started by the federal government as a means to ensure competitive pricing among
vendors, and is now being followed by most commercial/private sector entities.
Under this approach, bids are obtained from many suppliers, and one company
generally acts as the primary contractor. Recently, the United States'
Government has suggested that federal agencies operate under a "common operating
environment." Management believes that this will increase the federal
government's demand for Accelr8's software tools and services.
Management believes that large hardware manufacturers, like International
Business Machines ("IBM") and COMPAQ, can no longer control the entire
purchasing decision for large computer enterprises without including an element
of competitive price and offering access to open architecture systems such as
UNIX or NT. Further, end users have realized that dependence on a single
supplier is non-economic in terms of performance increases at reasonable prices.
In more recent years, the trend away from a single vendor has been accelerated
by technological advances which make possible widely distributed client/server
environments.
Mid-range computers are either older Legacy Systems or newer "Open Systems"
servers. Legacy Systems are almost always provided by a single vendor and
feature a proprietary operating system, while the newer, Open System servers are
supplied by numerous vendors and usually specify one of several different
versions of the UNIX operating system. One of the most popular legacy computers
was manufactured by DEC (now COMPAQ) and is called the VAX hardware system. The
VAX proprietary operating system is called VMS. While many different hardware
manufacturers have licensed the right to resell the UNIX operating system, the
major suppliers of hardware that feature UNIX as their operating system are
Hewlett Packard ("HP"), Sun Microsystems ("SUN"), Silicon Graphics, Inc.
("SGI"), International Business Machines ("IBM") and COMPAQ. COMPAQ has ceased
producing VAX computers.
Management believes that, within the computer user community, open
operating systems of UNIX and NT are considered more desirable than proprietary
systems, such as VMS systems or IBM mainframe MVS systems for the following
reasons: (i) significant upgraded power at lower cost (price/performance) than
older VAX/VMS systems; (ii) viewed as being "open" since they are compatible
with a variety of hardware types (interoperability); (iii) industry-wide
standards allow software applications to run unchanged across a wide variety of
hardware platforms; (iv) de-facto development environment for new applications;
and (v) significant savings can be realized from reduced maintenance overhead.
As a result of these open systems characteristics, VMS users requiring
increased performance from their older, existing proprietary system, may
consider the Company's conversion services to UNIX and NT for: (i) preserving
the already sizable investment in existing custom applications; (ii) a cost
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effective approach to maintaining user productivity; (iii) avoiding expensive
user re-training on a new operating system; (iv) allowing competitive bidding of
hardware and software for best price and service from several vendors; and (v)
extending the usable life of older systems.
Notwithstanding the above, Management is aware of several large VAX/VMS
environments where the VMS user has executed a modernization effort while
maintaining a commitment to VMS mission critical custom legacy applications.
The Company believes that the primary deterrent to switching from a VMS
Legacy System to a newer UNIX or NT system is: (i) the cost, time and risk of
rewriting a critical, dependable legacy application program to run in a new and
different environment, (ii) uncertainty as to outcome, and (iii) lack of
available personnel to undertake the task and the costly re-training process
associated with learning a new operating system. These factors have contributed
to users and information technology managers delaying the decision to make the
transition to faster, less expensive, open systems hardware platforms. Adding to
the crisis, in many cases, the original developers of the code are no longer
available for consultation as to design goals and/or specifications.
It therefore becomes necessary to evaluate, condense and consider other
strategies that support modernization while maintaining a VMS operating
environment. The most common reasons for staying on VMS are 1) high reliability
as compared to Unix and/or NT, 2) no readily available COTS package that
provides similar functionality, 3) strong desire to preserve investment in
existing hardware and software.
The Company offers several services to this installed base of committed VMS
users, including: 1) Modernization and upgrades of internal networks from DEC
Net to TCP/IP, 2) XML for RMS file server for access to data on an internal
network, and 3) an XML server for access to data from an external source such as
the Internet. Although the XML for RMS server is in the final stages of
development and is expected to be released for sale as a stand-alone product in
the near future, management believes that the Company can provide clients with
an operable XML for RMS file server with its existing product implemented
through the Company's consulting services.
While most users, given the option, would elect to rewrite their familiar
legacy application to the faster environments of UNIX and NT, the uncertainty of
a conversion causes slow decision making. In recent years, concern over the
effects of the Year 2000 problem has also slowed decision making.
The Company has sought to address VMS users' conversion concerns by
offering a service called "Situational Analysis" that provides the user an
accurate assessment of code (line count, system calls, etc.) and gives the user
a rating of "Portability" as to the degree of difficulty in moving critical
legacy applications in advance of doing the conversion. Based upon the Company's
experience in performing this service and further development of its Year 2000
for the Enterprise software, the Company now offers a much broader assessment
service called "Open Evalu8 Service."
In general, the limited functionality of many existing tools, together with
the inability of some organizations to fully use available technology, has
created increasing demand for integrated software development tools and
professional services to help organizations fully use available technology and
improve their own maintenance and redevelopment processes. The Company believes
that the developing client/server market will create additional demand for
software tools and professional services that enable organizations to reduce the
cost of maintenance and redevelopment of existing systems and redeploy these
resources for client/server implementation. In addition, management believes
that organizations will seek to reuse existing DEC VMS applications in
client/server environments to leverage their existing systems investment.
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In order to attain the advantages of open client/server environments while
preserving their investment in existing software applications, many VMS users
must undertake complex conversions to NT or UNIX operating systems. The
Company's consulting services and software conversion tools enable the Company's
clients to analyze and implement their conversions in a predictable and
cost-effective manner. The Company's clients include a number of Fortune 1000
companies and government agencies, including Electronic Data Systems Corp.
(EDS), Boeing, Northrop Grumman (for the US Air Force), Delta Air Lines Corp.,
DaimlerChrysler, SAIC, Raytheon, the United States Army, the United States Navy
and the Department of Energy.
The Company continues the development of additional software tools that
will complement its existing suite of transition tools and services.
The Company has completed development one of its newest tools Open EVALU8,
which is based upon the Company's core technology. This tool will be offered
with the services of the Company's technical staff for front end assessment of
legacy code that is being modernized to interface with E-Business, B2B, and
Internet based operating systems.
Market Opportunity
Systems Modernization
Based on published data from DEC and related industry analysts, the Company
estimates that there were in excess of 600,000 VMS systems installed at over
60,000 sites. Recent figures from COMPAQ suggest that over 400,000 VMS systems
remain in operation today. Most computer manufacturers, employing the latest
advances in "reduced instruction set computing" (RISC) chip technology are
selling UNIX Operating Systems. UNIX systems are less costly and provide greater
interoperability than DEC's VMS Legacy Systems. For this reason, UNIX platforms
are gaining substantial market share in DEC's traditional markets, including the
manufacturing, engineering and scientific industry segments. The Company's
software products are designed to meet the needs of those industry segments
wishing to convert their existing software and data from VMS systems to UNIX
systems. The Company has available a version of its MIGR8 conversion tools,
which provides a conversion tool set for conversion from VMS systems to both
UNIX and NT systems.
In addition to direct sales to Fortune 1000 end users, third-party software
application solution providers, driven by market demand to offer their solutions
on UNIX and NT operating systems, have used the Company's tools to convert their
old VMS software applications to the new environments. For example Union Carbide
and EDS resell software applications that embed Accelr8's conversion software.
The Company has targeted several segments of the engineering and commercial
sectors. These include aerospace, telecommunications, banking and financial
services, defense and government contractors, pharmaceutical firms, large
manufacturers, oil and gas producers and distribution and warehousing for
consumer goods. Major UNIX hardware vendors, including COMPAQ, HP, IBM and SUN,
include the Company's products in their materials for UNIX systems. COMPAQ lists
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the Company's products in its price book as well as in the General Services
Administration (GSA) and Software Enterprise Workstation Program (SEWP)
schedules.
Conversion to UNIX and/or NT environments has enabled many organizations to
reduce maintenance costs, provide universal access to critical data and have
choices in COTS applications. The Company's products and services allow
organizations to adopt these new technologies and fix old problems without
abandoning enormous investments in Legacy Systems.
e-Business Access to Legacy Environments
With increased pressure on established companies to get their businesses
operating with distributable e-Commerce interfaces, Java client-server systems
have stepped in to provide the mechanism for Intranet and Internet application
interfaces. While this works for new applications, the programming efforts grow
dramatically for legacy applications, especially those that use proprietary data
files instead of SQL databases. The Company's XML offerings for Legacy systems
provide data access capabilities to extend Legacy applications, making them
available to meet e-Business, Business-to-Business and internal data exchange
strategies.
Business Strategy
The Company's objective is to enhance its position as a leading provider of
integrated solutions that meet the modernization needs of users through either
the migration option or providing e-Commerce access to legacy systems. Key
elements of the Company's strategy include:
Develop New Line of Business in Support of e-Commerce Market. The Company
intends to develop a new line of business helping enterprises integrate their
Legacy Systems with the Internet, Intranet, e-Commerce and Business-to-Business
strategies. Included as part of this business are XML tools to access Legacy
data, as well as a set of comprehensive services including data analysis, data
replication and custom design.
Commercialization of the Company's Open Evalu8 Tool Set. The Company
intends to continue to add to its software analysis tools which will allow
existing and new customers to assess their modernization requirements, including
the adaptability of legacy applications to E-Business implementations.
Continue Emphasis on Consulting Services in Support of UNIX/NT Conversion
Sales. The Company intends to continue to emphasize the sale of its integrated
consulting services in conjunction with its suite of software tools.
Develop New Products and Services. The Company intends to continue to
develop software tools and consulting services which address the needs and
problems encountered in conversion of Legacy Systems as well as other
information technology environments. Management believes that the successful
development of complementary products and services will allow the Company to
leverage its products and services into new and significantly larger markets.
The Company is presently developing an implementation of XML for VMS users as
well as developing a Fortran compiler to run on the LINUX operating system.
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Outsourcing. The Company intends to position its software so that it may be
licensed by large outsourcing providers such as Lockheed Martin Corp., EDS,
SAIC, Logicon, Inc., Northrop Grumman and Raytheon thereby increasing the
Company's license fees and consulting service fees. Outsourcing offers
organizations a complete information technology system on a contract basis. Many
larger corporations have undertaken this approach in order to reduce personnel
costs and operating overhead. The outsourcing provider is generally able to
provide the services on a more cost-effective basis because of economies of
scale and volume purchases that are not available to the typical user. The
Company assists the outsourcing provider in obtaining such cost savings by
providing a quick and efficient assessment of the presence of proprietary
systems, and the opportunity for efficient conversion from those systems. The
Company can enable the rapid transition to Open Systems thereby reducing
hardware and software maintenance costs for the outsourcing provider.
Expand International Marketing Activities. In fiscal 1998 and 1999 revenues
derived from international clients totaled approximately $337,080 and $399,400,
respectively. The Company's international clients have included DaimlerChrysler,
Renault V.I., Compagnie Financiere and Alcatel. The Company intends to continue
to expand its international marketing activities to increase its market
penetration in Europe and Asia through advertising and reseller support.
Secure Additional Consulting Projects. In the course of performing UNIX
conversion services, the Company's software engineers and technical support
staff establish close relationships with the information technology personnel of
client organizations. Through these relationships, the Company will attempt to
secure additional consulting projects, which are within the expertise of the
Company's staff. Such projects may, but need not, be related to the client's
UNIX or NT conversion needs, as well as making legacy data available to support
Internet and Intranet applications. The Company believes that this strategy will
enhance client relationships while generating profitable consulting fees.
Target Large Corporations and Government Agencies. The Company believes
that there are in excess of 400,000 VMS systems currently in operation. Large
corporations and government agencies generally operate these systems. The
Company will continue to identify and direct its marketing efforts to
organizations which have extensive information technology environments supported
by substantial budgets.
Investment in or Acquisition of Complementary Businesses, Technologies or
Product Lines. The Company continues to evaluate opportunities for growth or
expansion of its business through investment in or acquisition of complementary
businesses, current or emerging technologies or product lines. Management
believes that opportunities to expand will be available to the Company and
intends to investigate opportunities that are consistent with the Company's
goals and its expertise.
Services and Products
Services
The Company historically focused its marketing and sales efforts on selling
its various software conversion tools on a "stand-alone" basis. Since fiscal
1995, the Company has focused its efforts on selling an integrated package
consisting of both software tools and the consulting services of its highly
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trained and experienced personnel. The Company intends to continue this strategy
in the future.
The Company now offers a full spectrum of services that are carried out by
the Company's personnel, who are experienced in both the VMS and the UNIX and NT
environments. The Company's personnel use the Company's tools that automatically
identify and diagnose difficult areas in modernizing an application. This
enables them to implement conversion techniques that ensure successful
converting and/or porting, as well as making legacy data available to Internet
applications. The Company offers the following services:
1) Evalu8 for Data-Analysis: This service, presently limited to
evaluation and identification of RMS data, is a service that performs
the application and software engineering analysis that is required to
provide access to VMS legacy data.
2) XML Pipeline Design: The Company's consultants work with the client's
staff to design XML queries to address the specified business needs
and then build XML to EDI interfaces to existing EDI pipelines.
3) Data Replication Services: In support of a Data Replication initiative
the Company can develop custom drivers that could perform a variety of
specialized tasks. For example, a driver the would regularly query a
legacy application and move the requested data to an XML friendly
relational database. Another application might be to move all of the
existing legacy formatted data into an XML friendly relational
database as a part of an abandonment plan.
4) Business-to-Business Integration: B2B is the business analysis, legacy
application Internet enablement, and e-Commerce pipeline integration
service the Company can provide as a B2B solution package. The
Company's software developers can build the custom components needed
to address specific requirements.
5) Application Design & Development: The Company's field engineering
staff can design and develop Java-based applications to interface XML
data to EDI systems, duplicate legacy application algorithms for web
enablement, and any other custom requirements required to support
intranet, or extranet real-time reporting, or presentation involving
legacy data integration.
6) Legacy Renewal: This custom service offering, supported where
appropriate with the Company's application conversion tools, is
designed to help enterprises meet the requirements of the rapidly
emerging e-Economy.
7) XML for RMS Installation and Training: The Company's field engineering
staff will provide installation, data analysis, setup, and XML query
construction services.
8) Open Evalu8 Services: The Company's personnel use automated software
tools and their expertise to evaluate a company's code on site and
deliver a report that will detail: the user interfaces, third party
software dependencies, special device dependencies, reliability
issues, input and output processing, network interfaces and protocols,
operating system and file system dependencies, process management and
interprocess communication, data organization (within files and/or
database management systems), programming languages, security issues,
performance issues, file management and number of lines of code. Open
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Evalu8 Services are for companies that seek to understand the resource
allocation and cost of migrating an entire software application or
applications. Open Evalu8 Services replaces Accelr8's earlier
"Situational Analysis" service which was limited to understanding the
requirements for migrating computer code from VMS to an open system.
9) Implementation Planning/Consulting: The Company's analysts work with
the customer to select the appropriate solutions for their conversion
issues. These answers are assembled into a project plan that is used
by the project manager to control and synchronize the conversion
effort as well as measure progress.
10) Application Port: The Company's analysts perform the code conversion.
Where suitable, the Company performs automatic conversion using the
Company's tools, as well as engineering of modules, which must be
redesigned to work on UNIX and/or NT. This is followed by complete
testing and certification. The Company's service can be contracted as
a turnkey port or as part of a cooperative team effort with the
customer's personnel.
11) Implementation Assistance: In addition to industry standard support
and update contracts, the Company offers both on-site and off-site
porting assistance agreements.
12) VMS to Alpha Conversion: Analysis of requirements and production of a
plan for converting from VAX/VMS to VAX/Alpha operating systems.
13) Custom Programming: Programming is done on either a fixed price or
time and materials basis for the purpose of re-engineering and
modernizing Legacy Code or for porting custom applications that run in
front of or after COTS applications.
14) Training: Including VMS Users Introduction to UNIX and Application
Conversion.
The Company provides its services to each client using any of the following
three methods, designed to meet the specific project requirements of the
customer.
On-site Services. Company technicians at the client's facilities
perform analysis and implementation services.
Factory Services. Company technicians at the Company's facilities in
Denver, Colorado can analyze and process data and code.
Corporate Licenses. Large organizations that have decided to complete
a portion of the work internally or through a value added reseller may
purchase a corporate license. Pricing is determined after an assessment of
the amount of code that will be processed over the course of the
conversion.
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Products
COMPAQ/DEC Legacy System Modernization. The Company's conversion products
are part of a sophisticated tool set that assists in the following tasks: (i)
comprehensive analysis of Legacy Code to determine Portability to open systems;
(ii) thorough analysis and planning for conversion; (iii) performance of actual
conversion, if required by the customer; (iv) creation of quality assurance
models for the enforcement of external and internal standards applicable to new
target environments; and (v) planning and implementation for modernization and
re-engineering databases and user interfaces.
The Company has developed an offering called "Open Evalu8 Services", that
quickly and accurately examines large quantities of legacy code, and informs a
customer of: user interfaces, third party software dependencies, special device
dependencies, reliability issues, input and output processing, network
interfaces and protocols, operating system and file system dependencies, process
management and interprocess communication, data organization (within files
and/or database management systems), programming languages, security issues,
performance issues, file management and number of lines of code. The resulting
report assists a company in determining budget and resource allocation for
porting its legacy software. The Company has completed development of is first
release of Open Evalu8. Open Evalu8 will assist those companies that desire to
plan their code conversion internally.
When the decision is made to "port" or "re-host" an application, the
Company's conversion process relies on Company owned and developed tools to
provide a level of "transparency" to VMS, NT and UNIX users, thus preserving
user productivity while accessing the higher power/lower cost of UNIX and NT.
Additionally, the conversion tools support users as they learn UNIX and NT at
their own pace and enable large batch jobs to be moved to the new, faster UNIX
and NT platforms, thereby freeing up the VAX to perform other tasks more
efficiently.
Other Company software features include the ability to share information
between UNIX and NT and VMS systems and to transfer files and records over a
network. The Company's conversion offerings are available on a wide range of
UNIX systems, including SGI, HP, Sun, DEC and IBM. Features are discussed in
greater detail below as each of the Company's products and services are
individually described.
The rendering of conversion services is the core business that generates
revenues. The Company believes that clients experience greater value from the
modernization and re-engineering process if their personnel are involved in
understanding what has been done to change the computer environment. Therefore,
various phases of the conversion process are deployed at the customer site with
client personnel as observers. Additionally, the Company conducts training
classes for the client end user groups in the operation of the new environment.
Ongoing training and software updates are a component of gross revenue in each
services contract.
The Company's conversion products--Open MIGR8, Open LIBR8 and Open
ACCLIM8--embody the Company's core technological advantages and competencies;
however, the following groups of tools are integral to all conversion projects.
User Productivity
Tools are designed to provide the user with familiar screen formats and
command scripts thereby preserving productivity while learning a
new operating system (UNIX/NT). The Company's User Productivity
Tools include:
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Open DCL VMS
command line interface (recall/editing);
login shell nu TPU
VAX-style editor for UNIX and NT (TPU, EDT, WPS modes)
Open SUBMIT VAX
to UNIX batch submission utility
Open JBC . . . . . . . . VMS batch on UNIX and NT
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Porting Tools are designed to move and support the running of legacy code
applications in UNIX or NT environments, providing the same
original functionality on the new target platform. The
Company's Porting Tools include:
Open COBOL VAX COBOL source code converter and linker
Open ACCLIM8 Pre-compiler for VAX FORTRAN; indexed file support
Open BASIC Re-targetable BASIC to C Compiler; VAX BASIC compatibility
C/Fix Translator forVMS specific C constructs (sold with LIBR8)
Ada Bindings Source code interface routines for all Ada Compilers and
LIBR8
Open LIBR8 VMS runtime library support (ast, qio, event flags,
mailboxes, etc.)
Open RMS UNIX equivalent of VMS I/O calls. (sold with LIBR8)
Open SMG VAX compatible Screen Management facility for Open Systems
FMS/UNIX FMS for UNIX; FMS Editor (100% compatibility) sold
separately
Open DCL Command language interpreter; VMS-style error handling
Open MIGR8 Bundled Porting System (user selected language support)
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Data Management Utilities
Open TRANSL8 ..Data transfer and conversions of binary files and records
Open INTEGR8 ..Remote record access system
Development Tools
Open ISAM .....Indexed File Manager
Decision Support Tools
Evalu8 Toolset.Modernization Requirements and Analysis
XML for RMS(TM)XML for RMS is a file access system that will read and write to
RMS data files allowing structured queries and data sharing between VMS legacy
systems and modern SQL databases and web applications across the network. With
XML for RMS, users will be able to easily replicate their legacy data into ERP
systems, interface with modern EDI systems, add legacy data to
Business-to-Business (B2B) pipelines, and provide clients with real-time
reporting of data stored in legacy systems. The XML server will be a Java based
product that runs on Solaris and Windows NT. It should be noted that the Company
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expects its XML for RMS product to be completed in the near future, and that
management believes that the Company could provide this product to customers at
this time in conjunction with its consulting services.
The XML server will provide true Internet data access for applications by
translating legacy RMS data into XML, the Internet data language. Queries will
be able to request the entire data file or any subpart of the mapped data. The
XML server will be able to view and report on all of the RMS files available in
the Open VMS network. Because of its unique design, XML for RMS saves developer
resources. Once the RMS data has been analyzed and described in Accelr8's DTD,
typical Internet RAD tools can be used to query and display the data. With
modern SQL databases that understand XML, Accelr8's XML documents will be able
to be automatically replicated into the existing SQL database.
The Company's XML for RMS parser, used in conjunction with web clients, will
allow end-users to view, calculate, manipulate, and store data from the
organization's VAX or Alpha (VMS) legacy system and from modern systems in a
real-time interactive browser based GUI. Of higher long-term value is the
capability of XML to replace Electronic data Interchange (EDI) and Electronic
Contracting (EC) rigid data formats with highly flexible XML formats that
provide the same data.
With this capability working within the network, including the legacy VMS
system(s), an enterprise can enable web browser applications to have access to
the data needed to run the business over both the Intranet and Internet. This
access is not limited to the data from one application; this server can provide
data from all of the applications that operate within the business. XML for RMS
will allow business users to take the data that the XML Server supplies from the
VMS-based manufacturing, inventory, customer service, and sales systems and
integrate that information with the information in web-friendly financial and
accounting packages running on Unix or NT. A single web application can combine
any piece or all of this information on a screen to allow fully informed
decision-making or support B2B data/order exchange from a single site.
Customers
The Company's software migration and/or Year 2000 tools have been sold to
over 900 customers, including installation in over 100 US Department of Defense
sites. The Company's customers are principally users of VMS Legacy Systems that
are either commercial enterprises or government or quasi-government agencies.
During fiscal 1999, two customers accounted for approximately 29% of the
Company's revenues (approximately 17% and 12%, respectively). Set forth below is
a partial list of the Company's customers.
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US Commercial Clients International Commercial Clients US Gov't. Clients
- --------------------- -------------------------------- -----------------
Intel Unisys Commerce Dept.
Eli Lilly Sony Bureau of Census
Delta Air Lines Inc. Meidensha Electric NASA
Ford Motor Company Ricoh NSA
Corning Renault US Army
Kellogg Co. International Heavy Industries US Navy
Kroger Co. DaimlerChrysler Dept. of Energy
Lockheed Martin Corp. Yamatake Corporation
McDonnell Douglas Corp. Fidia
Procter and Gamble Japan Atomic Energy
TRW SAIC
Union Carbide Corp.
Raytheon
Dow Chemical
Chase Manhattan Bank
COMPAQ
Boeing
Citibank
Genentech
RJ Reynolds
LTV Steel
Maher Terminals
The Gap
Merrill Lynch
EDS
Dillon Companies
Honeywell
Rite Aid Corporation
Lordacs
MCI
Arco Refinery
Nils Publishing
Northrop Grumman
Union Carbide Corp. and EDS have embedded the Company's software in their
UNIX solutions, yielding the potential for recurring run-time license fees for
the Company.
During the fiscal year ended July 31, 1999, the Company's customers for its
Year 2000 products and services included: MCI, Maher Terminals, the U.S.
Department of Energy (for use in nuclear power plants in the Ukraine, Russia and
Lithuania), COMPAQ through its Year 2000 factories, and Raytheon. During the
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<PAGE>
fiscal year ended July 31, 1999, the Company's customers for its migration
products and services included: SAIC, Lordacs, EDS, and Union Carbide.
Marketing and Distribution
The Company utilizes several marketing approaches including direct mail
advertising, advertising in trade publications, press releases, trade shows,
Company sponsored seminars, speaking engagements and independent software vendor
catalog listings. The Company's sales personnel contact the leads generated by
these activities. The Company's services and products are electronically
advertised on the Company's web page at www.accelr8.com, a cost effective and
efficient method of reaching the Company's target market. The Company will
continue to emphasize attendance at trade shows, vendor sponsored seminars,
press releases, speaking engagements and independent software vendor catalog
listings in its marketing efforts. The Company has also initiated a quarterly
newsletter for its customers. Management intends to continue its marketing
efforts toward further market penetration in international markets, with its
primary emphasis upon Europe and Asia through advertising and reseller support.
The Company's on-site personnel often have the opportunity to market
additional Company services to existing customers. The Company's conversion
teams have and will continue to focus upon educating customers as to the full
range of the Company's products and services, and to providing solutions to the
customers' problems.
Production
The Company's production facilities are located at its headquarters in
Denver, Colorado, and are primarily used for software development and extensive
testing and quality control of software products.
The Company does not believe that, for the foreseeable future, the
Company's products will be subject to any significant fluctuations in supply
costs. Components and systems used to develop products and the actual media on
which software is placed can be obtained from a variety of vendors, none of
which holds a controlling position within the market. The Company believes that
it has the ability to fill any anticipated future sales orders it receives.
Competition
Management is aware of two companies that compete directly with the Company
with respect to its conversion/migration products. Advanced Systems Concepts of
New Jersey has a product available that directly competes with the Company's
Open DCL product for NT. Sector 7, formerly known as Software Translations, of
Austin, Texas, offers a software conversion service for moving from VMS to UNIX
and NT. Management believes that the Company offers a broader range of products
and services than either of these competitors, and is therefore able to compete
successfully against them. Although COMPAQ does not offer its own products for
conversion from its VMS Legacy Systems to UNIX, should COMPAQ choose to do so,
the Company could be materially and adversely affected.
Intellectual Property
The Company relies on a combination of copyright, trademark and trade
secret laws, employee and third party disclosure agreements, license agreements
and other intellectual property protection methods to protect its proprietary
rights. The Company protects the source code version of its products as a trade
secret and as an unpublished copyrighted work. The Company's proprietary
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<PAGE>
software products are generally licensed to customers on a "right to use" basis
pursuant to a perpetual, nontransferable license that generally restricts use to
the customer's internal purposes and to a specific computer platform that has
been assigned a "key code." However, it may be possible for unauthorized parties
to copy or reverse engineer certain portions of the Company's products or obtain
and use information the Company regards as proprietary. The Company currently
has no patents and existing copyright and trade secret laws offer only limited
protection. Further, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. The Company has been and may be required from time to time to enter into
source code escrow agreements with certain customers, providing for release of
source code in the event the Company files bankruptcy or ceases to continue
doing business. Although the Company's competitive position may be adversely
affected by unauthorized use of its proprietary information, management believes
that the ability to fully protect its intellectual property is less significant
to the Company's success than are other factors, such as the knowledge, ability
and experience of its employees and its ongoing product development and customer
support activities. There can be no assurance that the protections in place by
the Company will be adequate.
There can be no assurance that third parties will not assert infringement
or other claims against the Company with respect to any existing or future
products, or that licenses would be available if any Company technology were
successfully challenged by a third party, or if it became desirable to use any
third-party technology to enhance the Company's products. Litigation to protect
the Company's proprietary information or to determine the validity of any
third-party claims could result in significant expense to the Company and divert
the efforts of the Company's technical and management personnel, whether or not
such litigation is determined in favor of the Company.
While the Company has no knowledge that it is infringing upon the
proprietary rights of any third party, there can be no assurance that such
claims will not be asserted in the future with respect to existing or future
products. Any such assertion by a third party could require the Company to pay
royalties, to participate in costly litigation and defend licensees in any such
suit pursuant to indemnification agreements, or to refrain from selling an
alleged infringing product or service.
Employees
The Company has 26 employees at its facilities in Denver, Colorado,
including eight employees in sales and marketing and administrative positions
with the balance in engineering and development. The Company anticipates hiring
additional employees to staff its modernization consultant teams. There are no
collective bargaining agreements, and the Company considers its relations with
its employees to be good.
Factors That May Affect Future Results
Dependence on Key Employees. The Company's success depends to a significant
extent upon a number of key management and technical personnel, the loss of one
or more of whom could have a material adverse effect on the Company's results of
operations. The Company carries key man life insurance in the amount of $5
million on Thomas V. Geimer, as well as life insurance on seven of its key
employees, including Thomas V. Geimer, Harry J. Fleury, Franz Huber and Timothy
Fitzpatrick, in the amount of $250,000 for each individual. The Board of
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<PAGE>
Directors has adopted resolutions under which one-half of the proceeds of any
such insurance will be dedicated to a beneficiary designated by the insured.
There can be no assurance that the proceeds from such life insurance policies
would be sufficient to compensate the Company for the loss of any of these
employees, and these policies do not provide any benefits to the Company if
these employees become disabled or are otherwise unable to render services to
the Company. Although the Company has entered into employment agreements with
certain members of it senior management team, there can be no assurance that
these individuals will remain in the employ of the Company. The Company believes
that its continued success will depend in large part upon its ability to attract
and retain highly skilled technical, managerial, sales and marketing personnel.
There can be no assurance that the Company will be successful in attracting and
retaining the personnel it requires to develop and market new and enhanced
products and to conduct its operations successfully.
Dependence on Conversion of DEC VMS Legacy Systems and Year 2000 Market .
The Company's revenues in fiscal 1999 resulted primarily from demand for its
conversion products and services as demand for Year 2000 software tools has
decreased. It is the Company's strategy to continue to utilize customer
relationships and knowledge of customer application systems derived from its
Year 2000 solutions to market other products and services beyond the Year 2000
market. However, there can be no assurance that this strategy will be
successful, and should the Company be unable to market other products and
services as demand in the Year 2000 market declines, whether as a result of
technological change, competition or other factors, the Company's business,
results of operations and financial condition will be materially and adversely
affected.
The Company's other software products and services are designed for
conversion from VMS Legacy Systems to UNIX and NT open client/server
environments. Future revenues from this line of business are dependent upon
users of VMS Legacy Systems electing to convert their data and applications to
UNIX and NT environments. To the extent that users of VMS Legacy Systems elect
to abandon their VMS applications and data and to re-write their information
technology systems entirely in UNIX or NT environments without conversion, the
Company's revenues and future prospects could be materially and adversely
affected.
Concentration of Revenues. A significant portion of the Company's revenues
has been derived from substantial orders placed by a small number of customers.
As a result, the Company's revenues have been concentrated among a relatively
small number of customers. In fiscal 1999 and 1998, two customers accounted for
an aggregate of 29% and 30% of the Company's revenues, respectively. The Company
expects that it will continue to be dependent upon a limited number of customers
for significant portions of its revenues in future periods. Generally, the
Company is hired for a specific project that will be completed within a fixed
period of time. Once a project has been completed, customers generally will not
require significant services in the future. However, during particular periods,
certain customers may be significant. There can be no assurance that revenues
from customers that accounted for significant revenues in past periods,
individually or as a group, will continue or, if continued, will reach or exceed
historical levels in any future period. The Company's operating results may in
the future be subject to substantial period-to-period fluctuations as a
consequence of such customer concentration.
Ability to Respond to Technological Change. The Company's future success
will depend significantly on its ability to enhance its current products and
develop or acquire and market new products which keep pace with technological
developments and evolving industry standards as well as respond to changes in
customer needs. There can be no assurance that the Company will be successful in
developing or acquiring product enhancements or new products to address changing
technologies and customer requirements adequately, that it can introduce such
products on a timely basis or that any such products or enhancements will be
successful in the marketplace. The Company's delay or failure to develop or
acquire technological improvements or to adapt its products to technological
change would have a material adverse effect on the Company's business, results
of operations and financial condition.
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<PAGE>
Dependence Upon Proprietary Technology; Intellectual Property Rights. The
Company relies primarily on a combination of copyright, trademark and trade
secret laws, employee and third party disclosure agreements, license agreements
and other intellectual property protection methods to protect its proprietary
rights. The Company's proprietary software products are generally licensed to
customers on a "right to use" basis pursuant to a perpetual, nontransferable
license that generally restricts use to the customer's internal purposes and to
a specific computer platform that has been assigned a "key code." However, it
may be possible for unauthorized third parties to copy or reverse engineer
certain portions of the Company's products or obtain and use information the
Company regards as proprietary. The Company currently has no patents and
existing trade secret and copyright laws provide only limited protection. The
Company's competitive position and operations may be adversely affected by
unauthorized use of its proprietary information, and there can be no assurance
that the protections put in place by the Company will be adequate.
There can be no assurance that third parties will not assert infringement
or other claims against the Company with respect to any existing or future
products, or that licenses would be available if any Company technology were
successfully challenged by a third party, or if it became desirable to use any
third-party technology to enhance the Company's products. Litigation to protect
the Company's proprietary information or to determine the validity of any
third-party claims could result in significant expense to the Company and divert
the efforts of the Company's technical and management personnel, whether or not
such litigation is determined in favor of the Company.
Competition. The market for the Company's products and services is
competitive and subject to rapid change. There can be no assurance that
competitors will not develop products or alternative technologies that: (i) are
superior to the Company's products; (ii) achieve greater market acceptance; or
(iii) make the Company's products obsolete. Further, there can be no assurance
that the Company will be able to compete successfully with its present or
potential competition, or that competition will not have a material adverse
effect on the Company's results of operations and financial condition.
Possible Volatility of Stock Price; Dividend Policy; and Trading Market.
The market price of the Company's Common Stock could be subject to significant
fluctuations in response to variations in actual and anticipated quarterly
operating results, changes in earnings estimates by analysts, announcements of
new products or technological innovations by the Company or its competitors, and
other events or factors. In addition, the stocks of many technology companies
have experienced extreme price and volume fluctuations that have often been
unrelated to the companies' operating performance. The Company does not intend
to pay any cash dividends on its Common Stock in the foreseeable future.
Although the Company's management believes that trading in the Company's common
stock on the NASDAQ National Market System will begin as soon as the Company has
filed its Form 10-KSB for the year ended July 31, 1999, and its Form 10-QSB's
for the quarters ended October 31, 1999, and January 31, 2000, with the United
States Securities and Exchange Commission, investors are cautioned that there
can be no assurance that trading will in fact commence or that if commenced it
will continue.
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Control by Management. At July 31, 1999, the officers, directors and key
employees of the Company owned of record approximately 1,511,750 or 19.39% of
the outstanding shares of Common Stock. If they exercise all of the options and
warrants that they currently hold, they will own 2,228,250 shares of the
Company's Common Stock or 26.18% of the Company's outstanding shares of Common
Stock. Due to their stock ownership, the officers, directors and key employees
may be in a position to elect the Board of Directors and, therefore, to control
the business and affairs of the Company, including certain significant corporate
actions such as acquisitions, the sale or purchase of assets and the issuance
and sale of the Company's securities.
Shares Eligible for Future Sale. As of July 31, 1999, the Company had
reserved 1,475,000 shares of Common Stock for issuance upon exercise of options
which have been or may be granted pursuant to its stock option plans, of which
options to purchase 905,000 shares were outstanding as of July 31, 1999 ("Plan
Options"). An aggregate of 335,000 of the Plan Options are exercisable at $0.36
per share; 100,000 Plan Options are exercisable at $2.50 - $7.25 per share, and
470,000 Plan Options are exercisable at $2.50 - $23.50 per share. The 1,140,000
warrants exercised by Mr. Geimer ("Geimer Warrants") were exercised at $0.24 per
share on October 14, 1997, and contributed to a Rabbi Trust. Under the terms of
the Rabbi Trust the shares will be held in the trust, and carried as treasury
stock by the Company. The Rabbi Trust provides that upon Mr. Geimer's death,
disability or termination of his employment, the shares will be released ratably
over the subsequent ten (10) years, unless the Board of Directors determines
otherwise. See Note 2 to the Financial Statements for further information. Sales
of Common Stock underlying Plan Options may adversely affect the price of the
Common Stock.
Important Factors related to Forward-Looking Statements and Associated
Risks. This Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the products and
future economic performance of the Company. The forward-looking statements
included herein are based on current expectations that involve a number of risks
and uncertainties. These forward-looking statements are based on assumptions
that the Company will continue to provide services and develop, market and ship
products on a timely basis, that competitive conditions within the software
industry will not change materially or adversely, that demand for the Company's
products and services will remain strong, that the Company will retain key
management personnel, that the Company's forecasts will accurately anticipate
market demand and that there will be no material adverse change in the Company's
operations or business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the results
contemplated in forward-looking information will be realized. In addition, as
disclosed elsewhere in this Report, the business and operation of the Company
are subject to substantial risks that increase the uncertainty inherent in such
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
17
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GLOSSARY OF TERMS
B2B Business to Business
Client/Server The model of interaction in distributed data processing in
which a program at one site sends a request to a program at
another site and awaits a response. The requesting program
is called a client, and the answering program is called
a server.
COMPAQ Acronym for "Compaq Computer Corporation."
COTS Acronym for "Commercial Off The Shelf" which means
hardware and/or software that is readily available for
purchase.
Compiler A program that converts another program from some
source language (or programming language) to machine
language (object code).
DEC Acronym for "Digital Equipment Corporation."
DTD Data Type Definition.
GUI Acronym for "Graphical User Interface."
Interoperability The ability of software and hardware, on multiple machines,
from multiple vendors to communicate.
Legacy Code Existing software, including proprietary applications,
out-dated commercial vendor applications, data bases and
element relationships, that have been in use for an extended
period of time, thus accumulating the "legacy" of corporate
memory, files and information system functionality that may
no longer adequately satisfy the owner.
Legacy System Existing hardware and network systems, especially
proprietary, closed mainframe environments or out-dated
architectures that have been in use for an extended period
of time, typically with limited functionality and limited or
no compatibility with more modern systems. DEC's VMS
operating system is an example of a Legacy System.
LINUX Refers to a version of the UNIX operating system.
MVS Refers to Multiple Virtual Storage, and is the name of the
proprietary multi-user, multi-tasking, virtual memory system
provided by IBM with certain of its mainframe computers.
Network Hardware and software data communication systems.
NT Refers to the Windows NT operating system, which is the
latest Open System architecture for Windows developed by
Microsoft Corporation.
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Open Systems Computer and communications environments based on formal and
de facto interface standards. Such interfaces should not be
controlled by a single vendor and must be freely available.
Systems built using these standard interfaces provide
portability of software across standard computer platforms,
Interoperability between systems and much greater choice and
flexibility in systems procurement.
Operating System The software that schedules tasks, allocates storage,
handles the interface to hardware and presents a default
interface to the user when no application program is
running.
Portability The ease with which a software application can be made to
run in a new environment.
Porting The process or ability to electronically "port" or move
data, files and software from one computer or Network
environment to another computer or Network environment.
Proprietary A product not conforming to Open System standards, that was
typically developed by a particular hardware manufacturer
for its own computers.
Re-engineering The examination and modification of a system to reconstitute
it in a new form and the subsequent implementation of the
new form.
RISC Acronym for "Reduced Instruction Set Computing."
RMS Acronym for "Record Management System."
SQL Acronym for "Structured Query Language."
UNIX A widely used multi-user, general purpose operating system.
A trademark of X/Open Company Limited, for an operating
system originally developed at the Bell Laboratories of AT&T
in the late 1960's and early 1970's and subsequently
enhanced by the University of California at Berkeley, AT&T,
the Open Software Foundation (OSF) and others.
VAX Virtual address extension. Digital Equipment Corporation's
proprietary 32-bit minicomputer, considered one of the most
successful designs in industry history.
VAX/VMS As used in this Report, shall refer to DEC's VAX
minicomputers, which utilize DEC's VMS operating system.
VMS The brand name of the proprietary multi-user, multi-tasking,
virtual memory operating system provided by DEC with its VAX
minicomputers.
Workstation A general purpose computer designed to be used by one person
at a time and which offers higher performance than normally
found in a personal computer, especially with respect to
graphics, processing power and the ability to carry out
several tasks at the same time.
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XML Extensible mark-up language.
Year 2000 Problem The Year 2000 problem arises from the widespread use of
computer programs that rely on two-digit date codes to
perform computations and decision-making functions. Many of
these computer programs may fail due to an inability to
properly interpret date codes. For example, such programs
may misinterpret "00" as the year 1900 rather than 2000.
Item 2 - Description of Property
- --------------------------------
The Company currently leases approximately 13,382 square feet of office
and research facility space at 303 E. 17th Avenue, Suite 108, Denver, Colorado
80203, at a monthly rental of approximately $11,661. The lease expires on
December 31, 1999, with an option to extend the lease for an additional year.
Item 3 - Legal Proceedings
- --------------------------
The Company is a party to certain legal proceedings, the outcome of which
management believes will not have a significant impact upon the financial
position of the Company.
Further, on May 27, 1999, United States Securities and Exchange Commission
("SEC") issued a formal order of investigation directing an investigation into
among other things; (i) whether the Company violated federal securities laws by
filing periodic reports with the SEC that contained false and misleading
financial information, false and misleading information with respect to the
capabilities of the Company's Year 2000 software tools, false and misleading
information with respect to the Company's financial condition, including its
revenue recognition and software amortization and capitalization practices, and
other false and misleading statements; (ii) whether the Company's officers,
directors, employees and others, directly or indirectly, may have violated the
books and records provisions of the Securities Exchange Act of 1934, as amended
(the "1934 Act"); and (iii) whether the Company's officers and directors may
have made or caused to be made materially false or misleading statements, or may
have omitted to state or caused another person to omit to state any material
facts necessary in order to make the statements made not misleading to Company's
accountants in connection with an audit or examination of the financial
statements of Company or in the preparation or filing of Company's documents or
reports filed with the SEC. On November 16, 1999, the SEC filed a complaint in
the United States District Court for the District of Colorado (Civil Action No.
99-D-2203) against the Company, Thomas V. Geimer, Harry J. Fleury, and James
Godkin. The SEC alleges that: (i) the Company made fraudulent misrepresentations
concerning the Company's Year 2000 software capabilities and financial condition
and that these misrepresentations were the responsibility of Messrs. Geimer,
Fleury, and Godkin (collectively "the Senior Officers"); (ii) from 1997 to the
present, the Company made numerous fraudulent misrepresentations regarding the
capabilities of the Company's Year 2000 products in filings with the SEC, press
releases, and marketing materials distributed to investors; (iii) from October
1998 through April 1999, the Company filed annual and quarterly reports with the
SEC containing materially false financial statements that artificially inflated
the Company's revenues, (iv) the Company has violated Sections 10(b) and
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13(b)(2) of the 1934 Act, and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder;
(v) Messrs. Geimer and Godkin have violated Sections 10(b), and 13(b)(5) of the
1934 Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and Messrs. Geimer and
Godkin have aided and abetted the Company's violation of 13(a) and 13(b)(2) of
the 1934 Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder; and (vi) Harry J.
Fleury has violated Section 10(b) of the 1934 Act and Rule 10b-5 thereunder, and
Mr. Fleury has aided and abetted the Company's violations of Section 13(a) of
the 1934 Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. The SEC's
complaint seeks an injunction to restrain and enjoin the Company and the Senior
Officers from violations of the federal securities laws, and seeks civil
penalties against the Senior Officers in an amount to be determined by the
Court. Although the outcome of the legal proceeding cannot be predicted with any
degree of certainty, management does not believe that the allegations of the SEC
have merit and intends to vigorously contest any action. Further, none of the
Company's assets have been misappropriated or were otherwise misapplied for the
personal benefit of any member of the management team or the Board of Directors.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted by the Company to a vote of the Company's
shareholders through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year covered by this report.
PART II
-------
Item 5 - Market For Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
From November 19, 1996, until November 17, 1999, the Company's Common Stock
traded on the NASDAQ National Market under the symbol "ACLY." Prior to November
19, 1996, the Common Stock was traded in the over-the-counter market on the
NASDAQ Electronic Bulletin Board. On November 17, 1999, the NASDAQ Stock Market
suspended the Company's common stock from trading. The NASDAQ Stock Market has
advised the Company that it will permit trading in the Company's common stock to
begin again on the National Market System if certain conditions are met,
including but not limited to: (i) the Company filing its delinquent reports with
the Securities and Exchange Commission for the fiscal year ended July 31, 1999,
and the quarters ended October 31, 1999, and January 31, 2000 with the SEC on or
before March 15, 2000, including financial statements audited by its new
independent auditor as of and for the fiscal years ended July 31, 1997, 1998,
and 2000; (ii) no material restatement occurring with respect to the audited
financial statements being filed with the SEC; and (iii) filing future reports
with the SEC on a timely basis.
The table set forth below presents the range, on a quarterly basis, of high
and low sales prices per share of Common Stock as reported by NASDAQ. The
quotations represent prices between dealers and do not include retail markup,
markdown or commissions and may not necessarily represent actual transactions.
The prices for the quarter ended October 31, 1996 present high and low bid
prices as reported by the National Quotation Bureau, Inc.
Quarter Ended High Low
- ------------- ---- ---
Fiscal 1998
October 31, 1997 25.125 12.00
January 31, 1998 27.25 18.50
April 30, 1998 28.25 14.00
July 31, 1998 19.00 4.188
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Quarter Ended High Low
- ------------- ---- ---
Fiscal 1999
October 31, 1998 6.250 2.125
January 31, 1999 7.438 2.500
April 30, 1999 5.375 2.625
July 31, 1999 3.188 2.000
- --------------------------------
(1) These prices have been adjusted to reflect the one-for-four reverse stock
split that was effected at the close of business on November 18, 1996.
The Company had approximately 119 shareholders of record as of July 31,
1999, which does not include shareholders whose shares are held in street or
nominee names. Management of the Company believes that there are over 2,000
beneficial owners of its Common Stock.
Holders of Common Stock are entitled to receive dividends as may be
declared by the Board of Directors out of funds legally available therefor. No
dividends have been declared to date by the Company, nor does the Company
anticipate declaring and paying cash dividends in the foreseeable future.
22
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Item 6 - Management's Discussion and Analys7s of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
Overview
The Company began to develop software conversion tools for VMS users to
convert to UNIX environments in 1987. The Company's total revenues decreased
from $7,381,445 in fiscal 1998 to $2,897,984 in fiscal 1999. Income before
income tax decreased from $4,448,068 in fiscal 1998 to $39,052 in fiscal 1999,
while net income decreased from $2,878,451 in fiscal 1998 to $70,432 in fiscal
1999. The decline in revenues and net income from the previous fiscal year
reflects the broad Y2K industry trend of slowing project starts and declining
volumes of code being assessed, and less reliance on commercially developed Y2K
tool sets.
During the past fiscal year the Company's sales of migration software tools
and services were negatively impacted because many IT organizations simply
"locked down" their computer environments, thus minimizing business
interruptions caused by the introduction of new software into a "stabilized"
environment. Additionally, most organizations have postponed software
modernization projects until after Y2K problems have been quantified and fixed.
The Company is aware of at least two large federal government modernization
projects that should commence by the third quarter of 2000. The federal
directive calling for a "common operating environment" by 2002 is driving these
initiatives. The Company anticipates supporting both of these projects directly
or as a sub-contractor to major system integrators.
The Company's migration expertise has been packaged in a new services
offering called Evalu8 that provides companies with assessment and planning for
modernization of legacy applications in transition to new operating systems that
feature e-commerce and Internet interoperability. At least one major hardware
vendor has requested a fixed price bid for delivery of this service to a large
bank customer.
The Company believes that its new XML offerings will be of significant
interest to enterprises now seeking post Y2K integration of their Legacy systems
with e-business strategies. The Company intends to license its XML server
technology on an OEM basis to other XML tool providers
The Company derives its revenue primarily from software license fees,
software maintenance fees and professional service fees. The Company's software
is licensed to primarily Fortune 1,000 companies and governmental organizations
worldwide. Professional services are provided in conjunction with software
products and also are sold separately if required by the customer. In addition,
the Company realizes license revenue from sales of software by licensees who
have embedded the Company's software in their software pursuant to run time
licenses. The Company's products and services are marketed through its sales
force, both domestically and internationally.
Selected Financial Data
The following selected financial data should be read in conjunction with
the financial statements and related notes thereto appearing elsewhere in this
Form 10-KSB. The selected financial data as of July 31, 1997, 1998 and 1999 and
for each of the three years in the period ended July 31, 1999 have been derived
from the financial statements of the Company which have been audited by the
Company's independent auditors and are included elsewhere in this Form 10-KSB.
The selected financial data for each of the three years in the period ended July
31, 1997 have been derived from the audited financial statements of the Company
not included herein. The selected financial data provided below is not
necessarily indicative of the future results of operations or financial
performance of the Company.
23
<PAGE>
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------------
Statement of Operations Data: 1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Product license and $751 $684 $1,055 $6,244 $2,277
customer support fees
Resale of purchased software 338 338 343 452 394
Consulting fees 294 1075 1090 685 227
Total revenue 1,383 2,097 2,488 7,381 2,898
Income(loss) from operations 370 1,114 835 3,911 (527)
Net income (loss) 382 1,193 965 2,878 70
Weighted average and shares outstanding(2)
Basic 5,492,500(1) 5,492,500(1) 6,639,174 7,610,490 7,821,855
Diluted 5,492,500(1) 6,977,339(1) 8,036,453 8,125,030 8,036,492
Net income(loss) per share(2)
Basic $.07 $.22 $.15 $.38 $.01
Diluted .07 .17 .12 .35 $.01
</TABLE>
Balance Sheet Data: 1998 1999
---- ----
Working capital $11,236 $10,967
Current assets 12,026 11,658
Current liabilities 790 691
Total assets 13,975 14,073
Total liabilities 1,619 1,837
Shareholders' equity 12,356 12,236
- -------------------
(1) Adjusted to reflect the one-for-four reverse stock split effected by the
Company in November 1996.
(2) Restated to reflect adoption of Statement of Financial Accounting Standard
No. 128 "Earnings Per Share" during the year ended July 31, 1998.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's Statements
of Operations:
- --------------------------------------------------------------------------------
Fiscal year ended July 31,
1998 1999
---- ----
Total revenues 100.00% 100.00%
Cost of services 14.66 40.55
Cost of software purchased for resale 1.90 1.84
General and administrative 12.96 34.43
Marketing and advertising 17.49 41.36
Income from operations 52.99 (18.18)
Investment income 7.27 19.53
Income tax benefit (provision) (21.26) 1.08
------- ------
Net income 39.00% 2.43%
===== ====
24
<PAGE>
Year Ended July 31, 1999 Compared to Year Ended July 31, 1998
Total revenues for the year ended July 31, 1999, were $2,897,984 a decrease of
$4,483,461, or 60.7%, as compared to the year ended July 31, 1998. Consulting
fees for the year ended July 31, 1999, were $226,411, a decrease of $458,664, or
67.0% as compared to the year ended July 31, 1998, and represented 7.8% of total
revenues. This decrease was primarily due to a decrease in Year 2000 code
processing and services that provide training on sales of Year 2000 tools.
Product license and customer support fees for the year ended July 31, 1999, were
$2,277,266, a decrease of $3,967,330, or 63.5%, as compared to the year ended
July 31, 1998, and represented 78.6% of total revenues. This decrease is
primarily due to the lack of Year 2000 tool sales and Y2K factory royalties
offset to some extent by increased migration tool sales and maintenance revenue.
Revenues from the resale of purchased software for the year ended July 31, 1999,
were $394,307, a decrease of $57,467, or 12.7%, as compared to the year ended
July 31, 1998, and represented 13.6% of total revenues.
During the year ended July 31, 1999, revenues from the Company's two largest
customers were $479,983 and $333,200, representing 16.7% and 11.6% of total
revenues. In comparison, revenues from two customers were $1,385,952 and
$804,997, representing 18.8% and 10.9%, of the total revenue for the year ended
July 31, 1998. The loss of a major customer could have a significant impact on
the Company's financial performance in any given year.
Cost of services for the year ended July 31, 1999, was $1,175,193 an increase of
$92,853, or 8.6%, as compared to the year ended July 31, 1998. Cost of services
as a percentage of revenues from both consulting fees and product license and
customer support fees increased from 15.6% for the year ended July 31, 1998, to
46.9% for the year ended July 31, 1999. This increase occurred principally
because revenues decreased 63.9%, due to the decrease in Year 2000 code
processing and services that provide training on sales of Year 2000 tools plus
increased amortization of software costs capitalized.
Cost of software purchased for resale for the year ended July 31, 1999, was
$53,438, a decrease of $86,546 or 61.8%, as compared to the year ended July 31,
1998.
General and administrative expenses for the year ended July 31, 1999, were
$997,830, an increase of $41,163, or 4.3%, as compared to the year ended July
31, 1998. This increase was primarily due to increases in employee costs.
Marketing and sales expenses for the year ended July 31, 1999 was $1,198,413, a
decrease of $92,853, or 7.2%, as compared to the year ended July 31, 1998. This
decrease was principally due to decreased advertising expenses offset by
increased employee expenses and website development.
25
<PAGE>
As a result of these factors, loss from operations for the year ended July 31,
1999, was $526,890, a decrease of $4,438,078, or 113.5%, as compared to income
from operations of $3,911,188 in the year ended July 31, 1998. Investment income
for the year ended July 31, 1999, was $565,942 an increase of 5.41%, as compared
to the year ended July 31, 1998.
Income taxes decreased from an expense of $1,569,617 in 1998 to a benefit of
$31,380 in 1999 because of the decrease in net income plus tax credits. The
benefit in 1999 is primarily the result of recognizing general business tax
credits.
Net income for the year ended July 31, 1999, was, $70,432 a decrease of
$2,808,019 or 97.6% as compared to the year ended July 31, 1998. This decrease
was primarily due to the decrease in revenues.
Year Ended July 31, 1998 Compared to Year Ended July 31, 1997
Total revenues for the year ended July 31, 1998, were $7,381,445 an increase of
$4,893,071, or 196.6%, as compared to the year ended July 31, 1997. Consulting
fees for the year ended July 31, 1998, were $685,075, a decrease of $405,398, or
37.2% as compared to the year ended July 31, 1997, and represented 9.3% of total
revenues. This decrease resulted from the Company's decision to market tools to
third party firms that were providing Year 2000 services and not compete with
our customers. Product license and customer support fees for the year ended July
31, 1998, were $6,244,596, an increase of $5,189,570, or 491.9%, as compared to
the year ended July 31, 1997. This increase is due to the acceptance of the
Company's Year 2000 tools by major companies as well as Year 2000 service
providers. Revenues from the resale of purchased software for the year ended
July 31, 1998, were $451,774, an increase of $108,899, or 31.8%, as compared to
the year ended July 31, 1997. Management estimates that approximately 90% of its
revenues were derived from sales of Year 2000 products and services. Management
expects that this trend will continue; however, revenues derived from the
migration of Legacy Systems to the UNIX and NT environments are also expected to
be a significant source of revenue in the future.
During the year ended July 31, 1998, revenues from the Company's two largest
customers were $1,385,952 and $804,997, representing 18.8% and 10.9% of total
revenues. In comparison, revenues from a single customer was $317,800,
representing 12.8%, of the Company's revenues for the year ended July 31, 1997.
The loss of a major customer could have a significant impact on the Company's
financial performance in any given year.
Cost of services for the year ended July 31, 1998, was $1,082,340, an increase
of $615,827, or 154.8%, as compared to the year ended July 31, 1997. Cost of
services as a percentage of revenues from both consulting fees and product
license and customer support fees decreased from 18.5% for the year ended July
31, 1997, to 14.6% for the year ended July 31, 1998. This increase in costs
incurred principally because of the increased concentration of Company resources
and personnel required to service the additional customer base and increased
revenues. The major components of this increase were salaries and related
overhead, depreciation, and development costs. The decrease in percent of cost
related to revenues results from revenues increasing at a greater rate than
costs.
Cost of software purchased for resale for the year ended July 31, 1998, was
$139,984, an increase of $37,201 or 36.2%, as compared to the year ended July
31, 1997.
General and administrative expenses for the year ended July 31, 1998, were
$956,667, an increase of $445,695, or 87.2%, as compared to the year ended July
31, 1997. This increase resulted from an expanded infrastructure made necessary
by increasing sales and is due to additional salaries expense and related costs
such as employee benefits, payroll taxes, rent, supplies and increased costs
associated with the Company's expanded shareholder base.
Marketing and sales expenses for the year ended July 31, 1998 was $1,291,266, an
increase of $711,123, or 122.6%, as compared to the year ended July 31, 1997.
This increase was principally due to increased employee costs, attendance at
several major Year 2000 trade shows, advertising in trade publications,
production of marketing materials and direct mailing costs.
26
<PAGE>
Research and development expenses for the year ended July 31, 1998, were
$68,772, an increase of $7,398, or 12.2%, as compared to the year ended July 31,
1997. Technical personnel normally involved in research and development also
provided a substantial amount of technical assistance in connection with the
Company's consulting services, so that the actual amount classified as research
and development is less than would be the case if such expenses were not
allocable to specific contracts.
As a result of these factors, operating income for the year ended July 31, 1998,
was $3,911,188, an increase of $3,075,777, or 368.2%, as compared to the year
ended July 31, 1997. Investment income for the year ended July 31, 1998, was
$536,880 an increase of 62.3%, as compared to the year ended July 31, 1997. This
increase resulted from the investment in interest bearing instruments of net
proceeds from the Company's public securities offering that closed on November
22, 1996, plus excess cash generated from operations.
The percent of tax to taxable income increased to 35.3% in the fiscal year ended
July 31, 1998, compared to 17.2% for the like period in 1997. This increase
resulted from utilization of carryover tax credits available in 1997.
Net income for the year ended July 31, 1998, was $2,878,451, an increase of
$1,913,233, or 198.2%, as compared to the year ended July 31, 1997.
Capital Resources and Liquidity
At July 31, 1999, as compared to at July 31, 1998, the Company's current assets
decreased 3.1% from $12,025,820 to $11,658,167 and the Company's liquidity, as
measured by cash and cash equivalents, decreased by 1.7% from $10,439,233 to
$10,257,175. During the same period, shareholders' equity decreased 1.0% from
$12,355,892 to $12,235,964 as a result of the Company's profitability less
repurchase of Company stock. Management believes its current cash balances plus
anticipated cash flow from operations will be adequate to cover its future
financial needs.
Year 2000 COMPLIANCE
The Year 2000 Problem referred to existing computer programs' ability to
appropriately distinguish the year 2000 from the year 1900 when processing
transactions. The Company developed and executed a plan to achieve compliance
with Year 2000 issues that included reviewing its hardware and software that
support its operations and infrastructure, as well as its internal systems that
support the Company's administrative functions. For each of these areas, the
plan called for the Company to identify the systems, address their compliance
with the Year 2000 Problem, test their compliance and make any upgrades
considered necessary to ensure compliance. As of this date, the Company is
successfully running all of its systems and has encountered no issues or
malfunctions related to the Year 2000 Problem. No contingency plans had to be
initiated; and no additional costs were incurred.
27
<PAGE>
Item 7 - Financial Statements
- -----------------------------
The response to this item is submitted as a separate section of this report
beginning on page F-1.
Item 8 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
On November 22, 1999, the firm of Deloitte & Touche LLP ("DT") notified the
Company's Chief Executive Officer that the client-auditor relationship had
ceased, and that information had come to DT's attention which, had it been known
to them would have affected their report issued under the date of September 15,
1998, which reported on the balance sheets of the Company as of July 31, 1998
and 1997, and the related statements of operations, shareholders' equity and
cash flows for each of the years then ended (collectively the "Financial
Statements"). DT also advised that their report dated September 15, 1998, should
no longer be relied upon or associated with the Company's balance sheets as of
July 31, 1998 and 1997 and the related statements of operations, shareholders'
equity, and cash flows for each of the years then ended. Further, DT verbally
advised the Company's Chief Executive Officer that it was unable to complete its
audit of the Company's Financial Statements for the year ended July 31, 1999,
because DT was no longer able to rely on management's representations.
In addition, DT requested that the Company immediately notify all entities and
individuals whom the Company knew to be relying upon or who were likely to rely
upon the Financial Statements and the report of DT's thereon, that their report
must no longer be relied upon or associated with the Financial Statements. DT's
report on the Company's financial statements for the fiscal years ended July 31,
1998 and 1997 did not contain an adverse opinion or a disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope, or accounting
principles.
In connection with the audits of the Company's financial statements for the
fiscal years ended July 31, 1998 and 1997, and during the subsequent unaudited
interim periods, there were no disagreements with DT on matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the satisfaction of DT, would have caused
DT to make reference to the matter in their report.
The Company authorized DT to respond fully to any successor independent
accounting firm regarding DT's audit of the Company's financial statements, and
DT's resignation as auditors of the Company.
The Company engaged Levine Hughes & Mithuen, Inc. ("LH&M") as its new
independent accountants to audit and report on the Company's balance sheets as
of July 31, 1997, 1998, and 1999. and the related statements of income,
shareholders' equity and cash flows for each of the years in the three-year
period ended July 31, 1999. LH&M will also audit the Company's financial
statements for the fiscal year ending July 31, 2000.
PART III
Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
- --------------------------------------------------------------------------------
Set forth below is certain information concerning the directors, executive
officers and key employees of the Company as of the date hereof.
Name Age Position
---- --- --------
Directors and Executive Officers
Thomas V. Geimer 53 Secretary, Chief Financial Officer,
Chief Executive Officer
Harry J. Fleury 53 President
David C. Wilhelm(1) 80 Director
A. Alexander Arnold III(1) 58 Director
Key Employees
Timothy Fitzpatrick 44 Vice President Sales and Marketing
Dr. Franz Huber 55 Chief Scientist
- --------------------------
(1) Members of the Audit and Compensation Committees
28
<PAGE>
Officers are appointed by and serve at the discretion of the Board of
Directors. Each director holds office until the next annual meeting of
shareholders or until a successor has been duly elected and qualified. All of
the Company's officers devote their full-time to the Company's business and
affairs. There are no family relationships between any directors, executive
officers or key employees.
Thomas V. Geimer has been the Chairman of the Board of Directors and a
director of the Company since 1984. He currently serves as the Chief Executive
Officer, Chief Financial Officer and Secretary of the Company. Mr. Geimer is
responsible for development of the Company's business strategy, day to day
operations, accounting and finance functions and federal government sales
relationships. Before assuming full-time responsibilities at the Company, Mr.
Geimer founded and operated an investment banking firm.
Harry J. Fleury has served as President of the Company since June 1995. Mr.
Fleury is responsible for engineering activities and strategies of the Company,
and for international sales. From March 1993 until June 1995, Mr. Fleury was
Vice President of International Sales of the Company with responsibility for
developing and directing international sales. Prior to joining the Company in
1993, Mr. Fleury was employed by Digital Equipment Corporation serving in a
variety of engineering and management positions for over 26 years. Mr. Fleury
managed DEC's European, Asian and Pacific corporate engineering groups that were
responsible for service capability worldwide, for internal and external products
and for strategic, operational and tactical direction. Mr. Fleury received an
electrical engineering degree in 1967 from Vermont Technical Engineering
College.
David C. Wilhelm has been a director of the Company since June 1988. For
the past 30 years, Mr. Wilhelm has been President of Wilhelm Co., an
agribusiness company located in Denver, Colorado, which is principally engaged
in the cattle feeding and commodity business. Since 1972, Mr. Wilhelm has been a
director of Colorado National Bank located in Denver, Colorado. Mr. Wilhelm is a
member of the International Executive Service Corp., and was formerly the
Director of the Colorado Cattlemen's Association. Mr. Wilhelm received a
Bachelor of Arts in American History from Yale University in 1942.
A. Alexander Arnold III has served as a director of the Company since
September 1992. For the past 25 years, Mr. Arnold has served as a Managing
Director of Trainer, Wortham & Co., Inc., a New York City-based investment
counselor firm, which Mr. Arnold co-founded. Mr. Arnold received a Bachelor of
Arts degree from Rollins College in 1964 and a Masters of Business
Administration from Boston University in 1966.
29
<PAGE>
Timothy Fitzpatrick has served as Vice President of Sales and Marketing of
the Company since 1992. Mr. Fitzpatrick is responsible for domestic marketing
and sales of the Company's products and services. From 1989 to 1992, Mr.
Fitzpatrick was employed as Vice President of Software Translations, Inc. He was
General Manager of Datavision (UK) Ltd. from 1987 to 1989. Mr. Fitzpatrick
received a Bachelor of Arts Degree in City Planning from Michigan State
University.
Dr. Franz Huber has served as Chief Scientist of the Company since 1988.
Dr. Huber is responsible for the design and development of the Company's
software products. Prior to joining the Company, Dr. Huber (i) taught Computer
Science at the University of Colorado; (ii) taught Computer Applications in
Biomedical Research at the University of Colorado Medical Center; and (iii)
worked for several technology companies in various research and development,
scientific and technical positions. Dr. Huber received his Ph.D. in Physics from
the University of Vienna, Austria in 1968.
Board Committees
The Board of Directors maintains a Compensation Committee and an Audit
Committee. The members of the Compensation Committee and the Audit Committee are
Messrs. Arnold and Wilhelm, the Company's non-management directors. Neither the
Audit Committee nor the Compensation Committee had any meetings during the last
fiscal year. However, since July 31, 1999, the Audit Committee has held four (4)
meetings, and one member of the Audit Committee has met separately with the
Company's former auditors.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
generally requires the Company's directors and executive officers and persons
who own more than 10% of a registered class of the Company's equity securities
("10% owners") to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Directors and executive officers and 10%
owners are required by Securities and Exchange Commission regulation to furnish
the Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on review of copies of such reports furnished to the
Company and verbal representations that no other reports were required to be
filed during the fiscal year ended July 31, 1999, all Section 16(a) filing
requirements applicable to its directors, executive officers and 10% owners were
met except that: (i) David Wilhelm, a director of the Company, failed to file a
Form 4 in 1999 to report the purchase of shares in the open market, which will
be reported in an appropriate filing with the Securities and Exchange
Commission, and (ii) A. Alexander Arnold III, a director of the Company, failed
to file a Form 4 in 1999 to report the purchase of shares in the open market,
which will be reported in an appropriate filing with the Securities and Exchange
Commission,
Item 10 - Executive Compensation
- --------------------------------
Summary Compensation Table. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company in the
three fiscal years ended July 31, 1999, of Thomas V. Geimer and Harry J. Fleury,
who are the Company's most highly compensated executive officers, and Timothy
Fitzpatrick, a key employee of the Company.
30
<PAGE>
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------------------------------- ------------
Other Securities
Name and Fiscal Annual Underlying
Principal Position Year Salary Bonus Compensation Options
- ------------------ ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Thomas V. Geimer 1999 $100,000 $ 75,000(1) $ 8,593(2) 100,000(3)
Chief Executive Officer 1998 $100,000 $ 75,000(1) $ 6,324(2) 100,000(4)
and Chief Financial 1997 $ 89,423 $ 75,000(1) $ 3,000(2) --
Officer
Harry J. Fleury 1999 $ 64,760 $ 14,708(5) $ -- 50,000(6)
President 1998 $ 75,000 $ 47,570(5) $ -- --
1997 $ 69,076 $ 6,025(5) $ -- --
Timothy Fitzpatrick 1999 $ 65,000 $ 99,156(7) $ -- 50,000(6)
Vice President 1998 $ 65,000 $ 166,422(7) $ -- --
Sales and Marketing 1997 $ 62,885 $ 40,443(7) $ -- --
</TABLE>
- ----------------------------
(1) Represents deferred compensation for Mr. Geimer pursuant to the Company's
deferred compensation plan, $75,000 of which vested during each of the
fiscal years ended July 31, 1997, 1998 and 1999.
(2) Represents reimbursement of premium on life insurance.
(3) Represents stock options to purchase 100,000 shares at an exercise price of
$2.50 per share.
(4) Represents stock options to purchase 100,000 shares at an exercise price of
$12.00 per share.
(5) Includes sales commissions earned by Mr. Fleury on revenues from certain
international sales.
(6) Represents stock options to purchase 50,000 shares at an exercise price of
$2.50 per share, 10,000 of which vested as of July 31, 1999 and 10,000 of
which will vest on each of July 31, 2000, 2001, 2002 and 2003.
(7) Represents sales commissions earned by Mr. Fitzpatrick on revenues from
certain domestic sales.
31
<PAGE>
Option Values. The following table provides certain information concerning
the fiscal year end value of unexercised options held by Mr. Fleury, Mr. Geimer
and Mr. Fitzpatrick.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1999 Fiscal Year
and Fiscal Year End Option Values
Shares Number of Unexercised Value of Unexercised
Acquired on Value Options at Fiscal Year In-the-Money Options
Name Exercise Realized End at Fiscal Year End(1)_
- ---- -------- -------- --- ----------------------
Exer- Unexer- Exer- Unexer-
cisable cisable cisable cisable
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Harry J. Fleury 0 0 110,000 40,000 $180,000 0
Thomas V. Geimer 0 0 200,000 0 $ 0 0
Timothy Fitzpatrick 0 0 105,000 40,000 $171,000 0
</TABLE>
- --------------------------
(1) Value calculated by determining the difference between the closing sales
price on July 31, 1999, of $2.16 per share and the exercise price of the
options. Fair market value was not discounted for restricted nature of any
stock purchased on exercise of these options.
Employment Agreements
The Company has entered into employment agreements with Thomas V. Geimer,
Harry J. Fleury, James Godkin, and Franz Huber. Mr. Geimer's employment
agreement is for a two year term, is automatically renewable for one year
increments, and provides for a yearly salary of $100,000 per year with deferred
compensation of $75,000 per year. Mr. Geimer's agreement also contains
provisions under which the Company will be obligated to pay Mr. Geimer five
times his annual salary and deferred compensation in the amount of $50,000
(i.e., an aggregate of $750,000) if a change of control as defined in the
agreement occurs. The two year employment agreements for Messrs. Fleury, Godkin,
and Huber are automatically renewable for one year increments, and provide for
annual salary payments of $75,000, $58,000, and $80,000, respectively. The
employment agreements also provide for annual bonuses in the discretion of the
Company, and Mr. Fleury will be paid commissions relating to the generation of
foreign sales of the Company's products and services. The agreements for Messrs.
Fleury, Godkin, and Huber also contain provisions under which the Company will
be obligated to pay them two times their annual salary in the event that change
of control as defined in their agreements occurs.
Compensation Pursuant to Plans
Employee Retirement Plan. During fiscal year 1996, the Company established
a SARSEP-IRA employee pension plan that covers substantially all full-time
employees. Under the plan, employees have the option to contribute up to the
lesser of 15% of their compensation or $10,000. The Company may make
discretionary contributions to the plan based on recommendations from the Board
of Directors. The Company made no contribution for the fiscal years ended July
31, 1998 or 1999.
Deferred Compensation Plan. In January 1996, the Company established a
deferred compensation plan for the Company's employees. The Company may make
discretionary contributions to the plan based upon recommendations from the
Board of Directors. For each of the fiscal years ended July 31, 1998 and 1999,
the Company contributed $75,000 to the plan.
32
<PAGE>
Options. The Company currently has outstanding an aggregate of 335,000
options issued to employees of the Company pursuant to the Company's 1987
non-qualified stock option plan (the "1987 Plan"). The 335,000 options are
exercisable at a price of $0.36 per share. The Company's Board of Directors
during the 1994 fiscal year adopted a resolution providing that for so long as a
recipient of an option grant remains in the employ of the Company, the options
held will not expire and if the recipient's employment is terminated, the holder
will have up to 90 days after termination to exercise any vested but previously
unexercised options. In 1997, the Board of Directors passed a further resolution
clarifying that upon the death of an optionee, an unexercised option will remain
exercisable for a period of one year by, and only by, the person to whom the
optionee's rights have passed by will or by the laws of descent and
distribution. All options previously granted are administered by the Company's
Board of Directors. The options provide for adjustment of the number of shares
issuable in the case of stock dividends or stock splits or combinations and
adjustments in the case of recapitalization, merger or sale of assets.
On October 14, 1997, Thomas V. Geimer exercised an aggregate of 1,140,000
warrants and options to acquire 1,140,000 shares of the Company's common stock
at an exercise price of $0.24 per share. Under the terms of the Rabbi Trust the
shares will be held in the trust, and carried as shares held for employee
benefit by the Company. The Rabbi Trust provides that upon Mr. Geimer's death,
disability, or termination of his employment the shares will be released ratably
over the subsequent ten (10) years, unless the Board of Directors determines
otherwise. See Note 6 to the Financial Statement for further information.
The 1996 Stock Option Plans.
The Board of Directors of the Company has adopted an incentive stock option
plan (the "Qualified Plan") which provides for the grant of options to purchase
an aggregate of not more than 700,000 shares of the Company's Common Stock. The
purpose of the Qualified Plan is to make options available to management and
employees of the Company in order to provide them with a more direct stake in
the future of the Company and to encourage them to remain with the Company. The
Qualified Plan provides for the granting to management and employees of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code").
The Board of Directors of the Company has adopted a non-qualified stock
option plan (the "Non-Qualified Plan") which provides for the grant of options
to purchase an aggregate of not more than 300,000 shares of the Company's Common
Stock. The purpose of the Non-Qualified Plan is to provide certain key
employees, independent contractors, technical advisors and directors of the
Company with options in order to provide additional rewards and incentives for
contributing to the success of the Company. These options are not incentive
stock options within the meaning of Section 422 of the Code.
The Qualified Plan and the Non-Qualified Plan (the "Stock Option Plans")
will be administered by a committee (the "Committee") appointed by the Board of
Directors which determines the persons to be granted options under the Stock
Option Plans and the number of shares subject to each option. No options granted
under the Stock Option Plans will be transferable by the optionee other than by
will or the laws of descent and distribution and each option will be
exercisable, during the lifetime of the optionee, only by such optionee. Any
options granted to an employee will terminate upon his ceasing to be an
employee, except in limited circumstances, including death of the employee, and
where the Committee deems it to be in the Company's best interests not to
terminate the options.
33
<PAGE>
The exercise price of all incentive stock options granted under the
Qualified Plan must be equal to the fair market value of such shares on the date
of grant as determined by the Committee, based on guidelines set forth in the
Qualified Plan. The exercise price may be paid in cash or (if the Qualified Plan
shall meet the requirements of rules adopted under the Securities Exchange Act
of 1934) in Common Stock or a combination of cash and Common Stock. The term of
each option and the manner in which it may be exercised will be determined by
the Committee, subject to the requirement that no option may be exercisable more
than 10 years after the date of grant. With respect to an incentive stock option
granted to a participant who owns more than 10% of the voting rights of the
Company's outstanding capital stock on the date of grant, the exercise price of
the option must be at least equal to 110% of the fair market value on the date
of grant and the option may not be exercisable more than five years after the
date of grant.
The Stock Option Plans were approved by the Company's shareholders at a
Special Shareholders Meeting held on November 8, 1996. As of July 31, 1999,
25,000 options, exercisable at $7.25 per share of Common Stock plus an
additional 25,000 options exercisable at $2.50 per share of Common Stock, had
been issued to each of Messrs. Wilhelm and Arnold pursuant to the Non-Qualified
Plan. As of July 31, 1999, a total of 470,000 options exercisable at $2.50 to
$23.50 per share of Common Stock had been issued to employees pursuant to the
Qualified Plan.
Item 11 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 31, 1999 by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's executive officers,
directors and key employees; and (iii) all executive officers and directors as a
group. Common Stock not outstanding but deemed beneficially owned by virtue of
the right of an individual to acquire shares is treated as outstanding only when
determining the amount and percentage of Common Stock owned by such individual.
Except as noted, each person or entity has sole voting and sole investment power
with respect to the shares shown.
- --------------------------------------------------------------------------------
Name and Address Shares Beneficially Owned
of Beneficial Owner Number Percent
- ------------------- ------ -------
Thomas V. Geimer(1), (2) 440,700 5.51%
Harry J. Fleury(1), (3), (4) 278,750 3.50%
Timothy Fitzpatrick(1),(4), (5) 145,000 1.83%
Dr. Franz Huber(1),(6) 96,500 1.22%
A. Alexander Arnold III(7) 991,000 12.63%
845 Third Ave., 6th Flr
New York, NY 10021
David C. Wilhelm(8) 276,300 3.52%
333 Logan St. Suite 100
Denver, CO 80203
Executive Officers and Directors 1,986,750 24.02%
as a Group (4 persons)
- ---------------------------------
(1) The address for Messrs. Geimer, Fleury, Fitzpatrick and Huber is 303 E.
17th Ave., #108, Denver, CO 80203.
(2) Does not include 1,140,000 shares, which were purchased by Mr. Geimer upon
exercise of warrants and options. Mr. Geimer exercised these options and
warrants on October 14, 1997, and simultaneously contributed the shares
acquired to a Rabbi Trust. See Note 2 to Financial Statements for further
information. Includes 200,000 shares, which may be purchased by Mr. Geimer
upon exercise of options.
34
<PAGE>
(3) Includes 135,000 shares, which may be purchased by Mr. Fleury upon exercise
of options.
(4) Includes options to purchase 40,000 shares which are currently not
exercisable but which will vest 10,000 shares on the last day of the
Company's fiscal year ending in 2000, 2001, 2002 and 2003, respectively.
(5) Represents 105,000 shares, which may be acquired by Mr. Fitzpatrick upon
exercise of options.
(6) Represents 96,500 shares, which may be acquired by Mr. Huber upon exercise
of options.
(7) Includes 800,000 shares held by four trusts. Mr. Arnold merely serves as
trustee for each of those trusts but is not a beneficiary of and has no
pecuniary interest in any of those trusts. Also includes 141,000 shares
held in investment advisory accounts for which Mr. Arnold serves as the
investment advisor. Also includes 50,000 shares, which may be purchased by
Mr. Arnold upon exercise of options.
(8) Includes 162,225 shares held by the Jean C. Wilhelm Trust, of which Mr.
Wilhelm and his children are the lifetime beneficiaries, and 64,075 shares
held by the David C. Wilhelm Living Trust, of which Mr. Wilhelm is the
beneficiary, and 50,000 shares which may be purchased by Mr. Wilhelm upon
exercise of options.
Item 12 - Certain Relationships and Related Transactions
- --------------------------------------------------------
During fiscal year 1996, the Company established a deferred compensation
plan for the Company's employees. The Company may make discretionary
contributions to the plan based on recommendations from the Board of Directors.
As of July 31, 1999, the deferred compensation agreement was funded in the
amount of $300,000 for Thomas V. Geimer, and Mr. Geimer was vested in $300,000
of this amount.
There were no other transactions or series of transactions for the fiscal
year ended July 31, 1999, nor are there any currently proposed transactions, or
series of the same to which the Company is a party, in which the amount involved
exceeds $60,000 and in which, to the knowledge of the Company, any director,
executive officer, nominee, 5% shareholder or any member of the immediate family
of the foregoing persons, have or will have a direct or indirect material
interest.
Item 13 - Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
The following exhibits are being filed with this report:
Exhibit Number Description
- -------------- ------------
10.01 Form of Employment Agreement with Thomas V. Geimer.
10.02 Form of Employment Agreement with Harry Fleury.
10.03 Form of Employment Agreement with James Godkin.
10.04 Form of Employment Agreement with Franz Huber.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
the fiscal year ended July 31, 1999.
35
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
FINANCIAL STATEMENTS
JULY 31, 1999, 1998 AND 1997
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-1
BALANCE SHEETS F-2
STATEMENTS OF INCOME F-3
STATEMENTS OF SHAREHOLDERS' EQUITY F-4
STATEMENTS OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6 - F-16
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
Accelr8 Technology Corporation
Denver, Colorado
We have audited the accompanying balance sheets of Accelr8 Technology
Corporation (the "Company") as of July 31, 1999, 1998 and 1997, and the related
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended July 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of July 31,
1999, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended July 31, 1999 in conformity with
generally accepted accounting principles.
/S/ LEVINE, HUGHES & MITHUEN, INC.
Englewood, Colorado
March 1, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
BALANCE SHEETS
JULY 31, 1999, 1998 AND 1997
ASSETS
1999 1998 1997
------------ ------------ ------------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 10,257,175 $ 10,439,233 $ 7,877,932
Accounts receivable 1,108,095 944,692 910,334
Prepaid expenses 58,023 99,377 26,800
Income taxes receivable 13,422 470,620 --
Deferred tax assets 221,452 71,898 181,400
------------ ------------ ------------
Total current assets 11,658,167 12,025,820 8,996,466
Property and equipment, net 258,237 293,321 167,136
Software development cost, less accumulated amortization
of $1,762,217, $1,137,325 and $875,046, respectively 1,638,086 1,350,547 506,322
Investments 453,053 305,089 179,020
Other assets 65,000 -- --
------------ ------------ ------------
Total assets $ 14,072,543 $ 13,974,777 $ 9,848,944
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 223,398 $ 402,173 $ 97,499
Income taxes payable -- -- 47,394
Accrued liabilities 61,422 192,087 56,360
Other deferred revenue 140,000 -- 46,252
Deferred maintenance revenue 265,883 195,595 103,878
------------ ------------ ------------
Total current liabilities 690,703 789,855 351,383
------------ ------------ ------------
Long-term liabilities:
Deferred tax liabilities 627,823 523,941 203,400
Deferred license fee revenue 65,000 -- --
Other long-term liabilities 453,053 305,089 141,520
------------ ------------ ------------
Total long-term liabilities 1,145,876 829,030 344,920
------------ ------------ ------------
Total liabilities 1,836,579 1,618,885 696,303
------------ ------------ ------------
Commitments and Contingencies (Notes 6 and 8)
Shareholders' equity:
Common stock, no par value; 11,000,000 shares
authorized; 7,794,617, 7,858,617 and 6,692,507
shares issued and outstanding, respectively 8,353,117 8,543,477 8,218,677
Contributed capital 315,049 315,049 41,449
Retained earnings 3,841,398 3,770,966 892,515
Shares held for employee benefit (1,129,110 shares at cost) (273,600) (273,600) --
------------ ------------ ------------
Total shareholders' equity 12,235,964 12,355,892 9,152,641
------------ ------------ ------------
Total liabilities and shareholders' equity $ 14,072,543 $ 13,974,777 $ 9,848,944
============ ============ ============
See independent auditors' report
and notes to financial statements
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED JULY 31, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
Revenues:
<S> <C> <C> <C>
Consulting fees $ 226,411 $ 685,075 $ 1,090,473
Product license and customer support fees 2,277,266 6,244,596 1,055,026
Resale of purchased software 394,307 451,774 342,875
----------- ----------- -----------
Total revenues 2,897,984 7,381,445 2,488,374
----------- ----------- -----------
Cost and expenses:
Costs of services 1,175,193 1,082,340 459,065
Cost of software purchased for resale 53,438 139,984 102,783
General and administrative 997,830 956,667 510,972
Marketing and sales 1,198,413 1,291,266 580,143
----------- ----------- -----------
Total expenses 3,424,874 3,470,257 1,652,963
----------- ----------- -----------
Income (loss) from operations (526,890) 3,911,188 835,411
Investment income 565,942 536,880 330,807
----------- ----------- -----------
Income before income taxes 39,052 4,448,068 1,166,218
Income tax benefit (provision) 31,380 (1,569,617) (201,000)
----------- ----------- -----------
Net income $ 70,432 $ 2,878,451 $ 965,218
=========== =========== ===========
Net income per share:
Basic $ 0.01 $ 0.38 $ 0.15
=========== =========== ===========
Diluted $ 0.01 $ 0.35 $ 0.12
=========== =========== ===========
Weighted average shares outstanding:
Basic 7,821,855 7,610,490 6,639,174
=========== =========== ===========
Diluted 8,036,492 8,125,030 8,036,453
=========== =========== ===========
See independent auditors' report
and notes to financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1999, 1998 AND 1997
Common Stock Retained Shares Held Total
---------------------- Contributed Earnings For Employee Shareholders'
Shares Amount Capital (Deficit) Benefit Equity
------ ------ ------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances, July 31, 1996 5,492,507 $ 1,970,970 $ 41,449 $ (72,703) $ -- $ 1,939,716
Proceeds from issuance of
common stock, net of offering
costs of $817,093 1,000,000 6,182,907 -- -- -- 6,182,907
Proceeds from exercise of
stock options 200,000 64,800 -- -- -- 64,800
Net income -- -- -- 965,218 -- 965,218
------------ ------------ ------------ ------------ ------------ ------------
Balances, July 31, 1997 6,692,507 8,218,677 41,449 892,515 -- 9,152,641
Proceeds from exercise of
stock options and warrants
and other 1,166,110 324,800 273,600 -- (273,600) 324,800
Net income -- -- -- 2,878,451 -- 2,878,451
------------ ------------ ------------ ------------ ------------ ------------
Balances, July 31, 1998 7,858,617 8,543,477 315,049 3,770,966 (273,600) 12,355,892
Cost of repurchasing common
stock (64,000) (190,360) -- -- -- (190,360)
Net income -- -- -- 70,432 -- 70,432
------------ ------------ ------------ ------------ ------------ ------------
Balances, July 31, 1999 7,794,617 $ 8,353,117 $ 315,049 $ 3,841,398 $ (273,600) $ 12,235,964
============ ============ ============ ============ ============ ============
See independent auditors' report
and notes to financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1999, 1998 AND 1997
1999 1998 1997
------------- ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 70,432 $ 2,878,451 $ 965,218
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 702,532 328,009 166,819
Unrealized gain on investments (72,964) (51,069) (29,020)
Write-off of product development advance payable -- -- (50,000)
Deferred income tax provision (benefit) (45,672) 430,043 75,500
Net change in assets and liabilities:
Accounts receivable (228,403) (34,358) (479,082)
Prepaid expenses 41,354 (72,577) 22,895
Income taxes receivable 457,198 (470,620) --
Accounts payable (178,775) 304,674 45,408
Income taxes payable -- (47,394) 29,394
Accrued liabilities (130,665) 135,727 36,044
Other deferred revenue 205,000 (46,252) (45,472)
Deferred maintenance revenue 70,288 91,717 28,418
Other long-term liabilities 147,964 163,569 141,520
------------ ------------ ------------
Net cash provided by operating activities 1,038,289 3,609,920 907,642
------------ ------------ ------------
Cash flows from investing activities:
Software development (912,431) (1,106,504) (474,788)
Purchase of property and equipment (42,556) (191,915) (134,655)
Purchase of investments (75,000) (75,000) (75,000)
------------ ------------ ------------
Net cash used in investing activities (1,029,987) (1,373,419) (684,443)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of
offering costs -- 324,800 6,247,707
Repurchase of common stock (190,360) -- --
------------ ------------ ------------
Net cash provided by (used in) financing activities (190,360) 324,800 6,247,707
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents: (182,058) 2,561,301 6,470,906
Cash and cash equivalents,
Beginning of year: 10,439,233 7,877,932 1,407,026
------------ ------------ ------------
Cash and cash equivalents,
End of year: $ 10,257,175 $ 10,439,233 $ 7,877,932
============ ============ ============
Supplemental information:
Cash paid (received) for income taxes $ (442,900) $ 1,723,000 $ 98,000
============ ============ ============
See independent auditors' report
and notes to financial statements
F-5
</TABLE>
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business:
Accelr8 Technology Corporation ("Accelr8" or the "Company") is a
provider of software tools and consulting services for the modernization
of solutions for VMS legacy systems that were developed by Digital
Equipment Corporation ("DEC") and which are proprietary to Compaq
Corporation as a result of its purchase of DEC. The Company's consulting
services and software conversion tools enable the Company's customers to
analyze and implement their UNIX conversions in a predictable and cost-
effective manner. The Company's clients include a number of Fortune 1000
companies and government agencies.
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
as of 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.
Cash and Cash Equivalents:
All highly liquid investments with an original maturity of three months
or less at time of purchase are considered to be equivalent to cash.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and
accounts receivable, including accounts receivable from major customers
(see Note 4). The Company places its cash equivalents with a high credit
quality financial institution. The Company grants credit to domestic and
international clients in various industries. Exposure to losses on
accounts receivable is principally dependent on each client's financial
position. The Company performs ongoing credit evaluations of its
clients' financial condition.
Bad Debts:
Bad debts are provided for using the allowance method based on
historical experience and ongoing evaluation of outstanding accounts
receivable. Based on the Company's collection experience, management
determined no allowance for bad debts was necessary for the years ended
July 31, 1999, 1998 and 1997.
Property and Equipment:
Property and equipment are recorded at cost. Maintenance and repairs are
charged to expense as incurred and expenditures for major improvements
are capitalized. Gains and losses from retirement or replacement are
included in operations. Depreciation of property and equipment is
computed using the straight-line method over the estimated useful life
of the assets, ranging from five to seven years. Depreciation expense
for the fiscal years ended July 31, 1999, 1998 and 1997 was $77,640,
$65,730 and $38,032, respectively.
F-6
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Software Development Costs:
Costs incurred internally to develop computer software products and the
costs to acquire externally developed software products (which have no
alternative future use) to be sold, leased or otherwise marketed are
charged to expense until the technological feasibility of the product
has been established. After technological feasibility has been
established and until the product is available for general release,
software development, product enhancements and acquisition costs are
capitalized.
Amortization of capitalized software development costs is computed on a
product-by-product basis over (a) the period equal to the future revenue
stream of the product using the ratio that current revenues bears to the
total of current and future anticipated revenues of the product, or (b)
the remaining estimated economic life of the product (three years) using
the straight-line method, whichever method results in the greater
amount. Amortization expense relating to software development costs for
the fiscal years ended July 31, 1999, 1998 and 1997 was $624,892,
$262,279 and $128,787, respectively. Research and development costs
charged to operations for the years ended July 31, 1999, 1998 and 1997
was $0, $68,772 and $61,324, respectively.
Long-Lived Assets:
The Company evaluates the potential impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". As of
July 31, 1999, 1998 and 1997 management believes there was no impairment
of the Company's long-lived assets.
Revenue Recognition:
Consulting services:
--------------------
For fiscal years ended July 31, 1999, 1998 and 1997 Consulting revenue
is recognized as services are performed.
Software license contracts ("SLC"):
-----------------------------------
For fiscal years ended July 31, 1999, 1998 and 1997 SLC revenue is
recognized when the Company substantially completes its obligations
under the agreement and the customer has accepted the product.
Post contract support ("PCS"):
------------------------------
For fiscal years ended July 31, 1998 and 1997 the Company recognized
revenue from PCS services involving two types of transactions:
a) PCS agreements sold separately from the SLC were generally
recognized using the straight-line method over the life of the
agreement.
b) PCS agreements with a one-year term sold with the SLC's were
bundled and included in revenue at time of sale.
For fiscal year ended July 31, 1999 the Company recognized revenue using
either the straight-line method or ratably over the term of the PCS
agreement based upon historical evidence.
F-7
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition: (continued)
Reseller of purchased software and post contract support ("PCS"):
-----------------------------------------------------------------
For fiscal years ended July 31, 1999, 1998 and 1997, the Company
periodically functioned as a value-added reseller of computer software
and bundled PCS agreements to its customers. The Company recognized
revenue when the computer software was delivered.
Effective August 1, 1998 the Company adopted the provisions of the
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 97-2, "Software Revenue Recognition". SOP 97-2 has not
changed the basic rules of revenue recognition previously contained in
SOP 91-1 but does provide additional guidance, particularly with respect
to multiple deliverables and "when and if" available products. The
affect of adopting SOP 97-2 was not significant.
Deferred Revenue:
Deferred consulting revenue represents amounts billed but not yet earned
under consulting agreements. Deferred maintenance revenue represents
amounts billed but not yet earned under maintenance agreements. Deferred
license fee revenue represents amounts billed but not yet earned under
license agreements.
An agreement dated January 30, 1998 with a major company provided for
licensing of tools and providing support for a three-year period.
Lacking any historical data on this contract, the Company began
amortizing deferred maintenance revenue ratably over the thirty-six
month term. At the end of the first year of the contract, this
amortization method was modified as a result of a review of the actual
costs of servicing the contract in the initial year and the
then-estimated costs expected to be incurred in future years. This
review indicated approximately 85% of the expected costs were incurred
in the first contract year and, accordingly, amortization was increased
by an additional $310,000 during the year ended July 31, 1999.
Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement basis and the income tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future. Such
deferred income tax computations are based on enacted tax laws and rates
applicable to the years in which the differences are expected to affect
taxable income. A valuation allowance is established when necessary to
reduce deferred income tax assets to the amounts expected to be
realized.
Earnings Per Share:
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". SFAS No. 128 requires companies to present basic earnings
per share and diluted earnings per share. The Company adopted this
statement in fiscal year 1998 and all earnings per share data have been
restated to reflect the new standard.
F-8
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings Per Share: (continued)
The following table is a reconciliation of basic and diluted earnings
per share for the years ended July 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------- ----------------------------------- -----------------------------------
Income Shares Earnings Income Shares Earnings Income Shares Earnings
(Numerator) (Denominator) Per Share (Numerator) (Denominator) Per Share (Numerator) (Denominator) Per Share
----------- ------------- --------- ----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $ 70,432 -- -- $2,878,451 -- -- $ 965,218
========== ========== ==========
Basic earnings
per share:
Income available
to common
shareholders $ 70,432 7,821,855 $ 0.01 $2,878,451 7,610,490 $ 0.38 $ 965,218 6,639,174 $ 0.15
======== ========= ==========
Effect of dilutive
securities:
Stock options
and warrants -- 214,637 -- 514,540 -- 1,397,279
---------- ---------- ---------- ---------- ---------- ----------
Diluted earnings
per share $ 70,432 8,036,492 $ 0.01 $2,878,451 8,125,030 $ 0.35 $ 965,218 8,036,453 $ 0.12
========== ========== ======== ========== ========== ========= ========== ========== ==========
</TABLE>
Stock Based Compensation:
The Company accounts for stock based compensation to employees and
directors using the intrinsic value method in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company accounts for stock based compensation to
non-employees in accordance with SFAS No. 123, "Accounting for Stock
Based Compensation".
Comprehensive Income:
The Company adopted SFAS No. 130, "Reporting Comprehensive Income"
effective August 1, 1998. SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general purpose
financial statements. The Company, as of July 31, 1999, 1998 and 1997,
does not have any items that would be included in comprehensive income.
NOTE 2 PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are comprised of the
following at July 31:
1999 1998 1997
--------- --------- ---------
Computer equipment $ 386,274 $ 344,258 $ 231,254
Furniture and fixtures 111,927 111,387 32,476
--------- --------- ---------
Total property and equipment 498,201 455,645 263,730
Less accumulated depreciation (239,964) (162,324) (96,594)
--------- --------- ---------
Net property and equipment $ 258,237 $ 293,321 $ 167,136
========= ========= =========
F-9
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3 SHAREHOLDERS' EQUITY
Authorized Shares and Reverse Stock Split:
On November 18, 1996, shareholders approved a reduction in the number of
authorized shares of the Company's common stock from 55,000,000 to
11,000,000. Simultaneously, the Company effected one-for-four reverse
stock split. All share and per share amounts have been restated to
reflect the reverse stock split.
Stock Option Plans:
The company has option and warrant agreements with a key executive and
three stock-based compensation plans which are discussed below:
Option and Warrant Agreement with Key Executive:
In fiscal 1998, options and warrants for the purchase of 1,129,110
shares held by the Chairman of the Board ("Executive Options and
Warrants") were exercised and placed into a "Rabbi" Trust as discussed
in Note 6. Such shares are issuable upon the occurrence of retirement,
death or termination of the Chairman over a ten-year period after such
occurrence or sooner at the Company's discretion. In accordance with
generally accepted accounting principles the Company has included the
assets and liabilities of the "Rabbi" Trust in its financial statements
and the shares of the Company's common stock held by the "Rabbi" Trust
have been treated as treasury stock for financial reporting purposes.
Employee Stock Option Plan:
The Employee Stock Option Plan (the "Employee Plan") permits the grant
of non-qualified stock options to employees, officers and directors of
the Company. The exercise price of each option, which do not expire as
long as the recipient remains an employee of the Company, is equal to
the market price of the Company's common stock on the date of grant. The
Company has reserved 475,000 shares of its authorized but unissued
common stock for stock options to be granted under the Employee Plan.
There are no shares which remain available under the Employee Plan for
future grants. Under the terms of the Employee Plan, options vest at 25%
annually. As of July 31, 1999, 335,000 options have been granted and
remain outstanding under the Employee Plan.
Incentive Stock Option Plan:
The Company has reserved 700,000 shares of its authorized but unissued
common stock for stock options to be granted to officers and employees
of the Company under its Incentive Stock Option Plan (the "Incentive
Plan"). The exercise price of each option, which have a maximum ten-year
life, is equal to the market price of the Company's common stock on the
date of grant. Under the terms of the Incentive Plan, options vest 100%
upon grant. During fiscal 1999 the Company issued 390,000 options and
73,500 options expired under this plan, resulting in 470,000 options
being outstanding at July 31, 1999.
F-10
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3 SHAREHOLDERS' EQUITY (continued)
Non-Qualified Stock Option Plan:
The Company has reserved 300,000 shares of its authorized but unissued
common stock for stock options to be granted to employees, independent
contractors, technical advisors and directors of the Company under its
Non-Qualified Stock Option Plan (the" Non-Qualified Plan"). The exercise
price of each option, which as a maximum ten-year life, is established
by the Company's compensation committee on the date of grant. Under the
terms of the Non-Qualified Plan, options vest 100% upon grant. During
fiscal 1999 the Company issued an additional 50,000 options under the
Non-Qualified Plan. As of July 31, 1999, 100,000 options have been
granted and remain outstanding under the Non-Qualified Plan.
Accounting For Employee Based Option Plans:
The Company accounts for employee stock-based compensation arrangements
using the intrinsic value method in accordance with APB No. 25 and has
adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no
compensation expense has been recognized for options issued in
conjunction with the stock option and warrant agreements and stock-based
compensation plans discussed above. Had compensation cost been
determined based upon the fair value at the grant date under these
agreements consistent with SFAS No. 123, the Company's 1999, 1998, and
1997 net income and earnings per share amounts would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
July 31, 1999 July 31, 1998 July 31, 1997
--------------- --------------- -------------
<S> <C> <C> <C>
Net income $ 70,432 $ 2,878,451 $ 965,218
=============== =============== ===========
Net income (loss) - pro forma $ (871,229) $ 1,088,591 $ 635,594
=============== =============== ===========
Earnings per share - as reported:
Basic $ 0.01 $ 0.38 $ 0.15
=============== =============== ===========
Diluted $ 0.01 $ 0.35 $ 0.12
=============== =============== ===========
Earnings per share - pro forma:
Basic $ (0.11) $ 0.14 $ 0.10
=============== =============== ===========
Diluted $ (0.11) $ 0.13 $ 0.08
=============== =============== ===========
</TABLE>
The fair value of options granted under the stock option and warrant
agreements and stock-based compensation plans discussed above is
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants in
1999: no dividend yield; risk-free interest rate of 5.61%; expected life
of 10 years; and expected volatility of 106.73%. 1998: no dividend
yield; risk-free interest rate of 5.61%; expected life of 10 years; and
expected volatility of 81.93%. 1997: no dividend yield; risk free
interest rate of 6.50%, expected life of 10 years; and expected
volatility of 95.61%. The weighed average fair value of options granted
in 1999, 1998, and 1997 was $2.19, $10.95 and $6.57, respectively. The
weighted average remaining contractual life of options outstanding at
July 31, 1999 was seven years.
F-11
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3 SHAREHOLDERS' EQUITY (continued)
Accounting For Employee Based Option Plans: (continued)
The following table summarizes information on stock option activity for
the Executive Options and Warrants, the Employee Plan, the Incentive
Plan and the Non-Qualified Plan:
<TABLE>
<CAPTION>
Weighted Average
Number of Exercise Price Exercise Price
Shares Per Share Per Share
------ --------- ---------
<S> <C> <C> <C> <C>
Options and warrants outstanding,
July 31, 1996 1,675,000 $ 0.24 $ 0.36 $ 0.27
Option and warrants granted 50,000 7.25 -- 7.25
Options exercised (200,000) 0.24 0.36 0.32
----------
Options and warrants outstanding,
July 31, 1997 1,525,000 $ 0.24 $ 7.25 $ 0.50
Options granted 206,000 12.00 23.88 13.11
Options and warrants exercised (1,142,500) 0.24 14.00 0.27
----------
Options and warrants outstanding,
July 31, 1998 588,500 $ 0.36 $23.88 $ 6.25
Options granted 390,000 2.50 5.00 3.00
Options and warrants expired or cancelled (73,500) 4.00 23.88 18.96
----------
Options outstanding, July 31, 1999 905,000 $ 0.36 $23.50 $ 3.82
==========
</TABLE>
As of July 31, 1999, 775,000 options outstanding are currently
exercisable.
Warrants to Purchase Common Stock:
In conjunction with the common stock issued during the secondary public
offering in November 1996, the Company issued warrants to purchase
34,500 shares of common stock to the underwriter. Each warrant entitles
the underwriter to purchase one share of no par value common stock of
the Company at an exercise price equal to 120% of the initial price to
the public ($8.40 per share). The warrants were exercised during the
fiscal year ended July 31, 1998.
Repurchase of Common Stock:
The Board of Directors has authorized the repurchase of shares of the
Company's common stock. At July 31, 1999, the Company had repurchased
64,000 shares of its common stock in open market purchases. Subsequent
to July 31, 1999, the Company has repurchased an additional 30,000
shares of its common stock in open market purchases for a total of
$47,728. In accordance with Colorado State law, the Company's
repurchases of shares of common stock shall constitute authorized but
unissued shares.
NOTE 4 MAJOR CUSTOMERS AND FOREIGN REVENUE
In fiscal year 1999, revenue of $479,983 (17%) and $333,200 (12%) was
derived from sales to two separate customers. In fiscal year 1998,
revenue of $1,385,952 (19%) and $804,997 (11%) was derived from sales to
two separate customers. In fiscal year 1997, revenue of $317,800 (13%),
was derived from sales to a single customer. The Company's operations
are located entirely within the United States. However, in fiscal years
1999, 1998 and 1997, $399,400 (14%), $337,080 (5%) and $539,635 (22%),
respectively, of the Company's revenues were to foreign customers.
F-12
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 5 INCOME TAXES
Income tax benefit (provision)consists of the following for the years
ended July 31:
1999 1998 1997
----------- ----------- -----------
Current $ (14,292) $(1,139,574) $ (125,500)
Deferred 45,672 (430,043) (75,500)
----------- ----------- -----------
$ 31,380 $(1,569,617) $ (201,000)
=========== =========== ===========
Income tax benefit (provision) includes the following federal and state
components for the years ended July 31:
1999 1998 1997
----------- ----------- -----------
Federal $ 50,953 $(1,391,436) $ (145,035)
State (19,573) (178,181) (55,965)
----------- ----------- -----------
$ 31,380 $(1,569,617) $ (201,000)
=========== =========== ===========
The following items comprise the Company's net deferred tax assets
(liabilities) as of July 31:
1999 1998 1997
--------- --------- ---------
Deferred tax assets:
Net operating loss $ 71,004 $ -- $ --
Deferred revenue 95,718 71,898 55,999
General business credit 54,730 -- 125,401
--------- --------- ---------
Total 221,452 71,898 181,400
Deferred tax liabilities -
depreciation and amortization (627,823) (523,941) (203,400)
--------- --------- ---------
Net deferred tax liabilities $(406,371) $(452,043) $ (22,000)
========= ========= =========
A reconciliation of the expected income tax expense at the federal
statutory income tax rate to the Company's actual income tax expense at
its effective income tax rate for the years ended July 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory income tax rate 34% 34% 34%
Computed "expected" income taxes $ (13,278) $(1,512,343) $ (396,514)
Change in taxes resulting from:
State income taxes, net of federal tax benefit (19,573) (117,600) (37,945)
General business credit 54,730 64,003 236,473
Other 9,501 (3,677) (3,014)
----------- ----------- -----------
Income tax benefit (provision) $ 31,380 $(1,569,617) $ (201,000)
=========== =========== ===========
F-13
</TABLE>
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 5 INCOME TAXES (continued)
The Company has net operating losses of approximately $197,000 that are
available to be carried back or forward. The net operating loss will
expire in year 2014. Additionally, the Company has unused general
business credit of approximately $54,000 that is available to offset
future income taxes. The general business tax credit will expire in year
2014.
NOTE 6 COMMITMENTS
Operating Leases:
The Company has an operating lease agreement for office space through
December 31, 2000. Future minimum lease payments for the years ending
July 31, 2000 and 2001 are $123,300 and $30,600, respectively. Total
rent expense was $134,674, $99,567 and $52,781 in 1999, 1998 and 1997,
respectively.
The Company also leases its telephone equipment under the terms of an
operating lease. The lease calls for monthly payments of $3,000 and
expires August 31, 2002. Future minimum lease payments are as follows:
Year Ending July 31 Amount
------------------- ------
2000 $ 36,000
2001 36,000
2002 36,000
2003 3,000
-----------
$ 111,000
===========
Rent expense was $33,000 for the year ended July 31, 1999.
Employee Retirement Plan:
During the year ended July 31, 1996, the Company established a
SARSEP-IRA employee pension plan that covers substantially all full-time
employees. Under the plan, employees have the option to contribute up to
15% of their compensation subject to dollar limitations of the Internal
Revenue Code. The Company may make discretionary contributions to the
plan based on recommendations from the Board of Directors. For the year
ended July 31, 1997, the Board of Directors authorized contributions
totaling $15,360. There were no contributions for the years ended July
31, 1999 and 1998.
Investments and Deferred Compensation Arrangement:
During the year ended July 31, 1996, the Company established a deferred
compensation plan for key employees of the Company using a "Rabbi"
Trust. The Company may make discretionary contributions to the plan
based on recommendations from the Board of Directors. Awards of $75,000
were granted and funded with a deposit to the "Rabbi" Trust during each
of the years ended July 31, 1999, 1998 and 1997. The funds are subject
to the general claims of creditors and are included in investments as of
July 31, 1999, 1998 and 1997.
F-14
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 6 COMMITMENTS (continued)
Deferred Compensation Arrangement and Investments: (continued)
The following information is provided related to the trust assets which
primarily consist of equity securities as of July 31, 1999, 1998 and
1997 which based upon the Company's intended use of the investments have
been classified as trading securities. Unrealized holding gains on
trading securities are included in income.
1999 1998 1997
-------- -------- --------
Amortized cost basis $300,000 $225,000 $150,000
Unrealized holding gains 153,053 80,089 29,020
-------- -------- --------
Aggregate fair value $453,053 $305,089 $179,020
======== ======== ========
NOTE 7 ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, investments and other
long-term liabilities approximates fair value at July 31, 1999, 1998 and
1997.
The carrying value of all other financial instruments potentially
subject to valuation risk, principally consisting of accounts receivable
and accounts payable, also approximate fair value.
The following methods and assumptions were used to estimate the fair
value of financial instruments:
Cash and Cash Equivalents - The carrying amount approximates fair
value.
Investments - The carrying amount is based on quoted market prices.
Other Long-Term Liabilities - The carrying amount approximates fair
value.
NOTE 8 LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings, the outcome of
which management believes will not have a significant impact upon the
financial position of the Company. On November 16, 1999, the SEC filed a
complaint in the United States District Court for the District of
Colorado (Civil Action No. 99-D-2203) against the Company, Thomas V.
Geimer, Harry J. Fleury and James Godkin. The SEC alleges that: (i) the
Company made fraudulent misrepresentations concerning the Company's Year
2000 software capabilities and financial condition and that these
misrepresentations were the responsibility of Messrs. Geimer, Fleury and
Godkin (collectively "the Senior Officers"); (ii) from 1997 to the
present, the Company made numerous fraudulent misrepresentations
regarding the capabilities of the Company's Year 2000 products in
filings with the SEC, press releases, and marketing materials
distributed to investors; (iii) from October 1998 through April 1999,
the Company filed annual and quarterly reports with the SEC containing
materially false financial statements that artificially inflated the
Company's revenues; (iv) the Company has violated Sections 10(b) and
13(b)(2) of the 1934 Act, and Rules 10b-5, 12b-20, 13a-1, and 13a-13
thereunder; (v) Messrs. Geimer and Godkin have violated Sections 10(b),
and 13(b)(5) of the 1934 Act, and Rules 10b-5, 13b2-1, and 13b2-2
thereunder, and Messrs. Geimer and Godkin have aided and abetted the
Company's violation of 13(a) and 13(b)(2) of the 1934 Act, and Rules
F-15
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 8 LEGAL PROCEEDINGS (continued)
12b-20, 13a-1, and 13a-13 thereunder; and (vi) Harry J. Fleury has
violated Section 10(b) of the 1934 Act and Rule 10b-5 thereunder, and
Mr. Fleury has aided and abetted the Company's violations of Section
13(a) of the 1934 Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
The SEC's complaint seeks an injunction to restrain and enjoin the
Company and the Senior Officers from violations of the federal
securities laws, and seeks civil penalties against the Senior Officers
in the amount to be determined by the Court. Although the outcome of the
legal proceeding cannot be predicted with any degree of certainty,
management does not believe that the allegations of the SEC have merit
and intends to vigorously contest any action. Further, none of the
Company's assets have been misappropriated or were otherwise misapplied
for the personal benefit of any member of the management team or the
Board of Directors.
NOTE 9 SUBSEQUENT EVENT
Employment Agreements:
The Company has entered into employment agreements with Thomas V.
Geimer, Harry J. Fleury, James Godkin and Franz Huber. Mr. Geimer's
employment agreement is for a two year term, is automatically renewable
for one year increments, and provides for a yearly salary of $100,000
per year with deferred compensation of $75,000 per year. Mr. Geimer's
agreement also contains provisions under which the Company will be
obligated to pay Mr. Geimer five times his annual salary and deferred
compensation in the amount of $50,000 (i.e., an aggregate of $750,000)
if a change of control as defined in the agreement occurs. The two year
employment agreements for Messrs. Fleury, Godkin and Huber are
automatically renewable for one year increments, and provide for annual
salary payments of $75,000, $58,000 and $80,000, respectively. The
employment agreements also provide for annual bonuses in the discretion
of the Company, and Mr. Fleury will be paid commissions relating to the
generation of foreign sales of the Company's products and services. The
agreements for Messrs. Fleury, Godkin and Huber also contain provisions
under which the Company will be obligated to pay them two times their
annual salary in the event that change of control as defined in their
agreements occurs.
F-16
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACCELR8 TECHNOLOGY CORPORATION
Date: March 13, 2000 By: /s/ Harry J. Fleury
--------------- ----------------------------------
Harry J. Fleury, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 13, 2000 /s/ Thomas V. Geimer
-------------- ---------------------------------------
Thomas V. Geimer, Secretary,
Chief Executive Officer and
Chief Financial Officer
Date: March 13, 2000 /s/ A. Alexander Arnold III
-------------- ---------------------------------------
A. Alexander Arnold III
Date: March 13, 2000 /s/ David C. Wilhelm
-------------- ---------------------------------------
David C. Wilhelm
36
EXHIBIT 10.01
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective this 1st day
of December, 1999, by and between Accelr8 Technology Corporation, a Colorado
corporation (the "Company"), and Thomas V. Geimer, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as its Chairman of the
Board of Directors, Chief Executive Officer, Chief Financial Officer, and
Treasurer.
2. Term. The term of this Agreement shall be for a period of twenty-four
months commencing on December 1, 1999, and ending on November 30, 2001 ("Initial
Term"), unless terminated earlier pursuant to Section 7 below; provided,
however, that Executive's obligations in Sections 6 and 8 below shall continue
in effect after such termination. This Agreement shall be automatically renewed
for successive one year periods ("Renewal Term") unless, at least 90 days prior
to the expiration of the Initial Term or any Renewal Term, either party gives
written notice to the other party specifically electing to terminate this
Agreement at the end of the Initial Term or any such Renewal Term.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of One Hundred Thousand
Dollars ($100,000) per year (the "Base Salary"). Base Salary shall be payable in
equal, consecutive monthly installments; provided, however, that no Salary shall
be paid to Executive under this Agreement for any period subsequent to the
termination of Executive's employment unless otherwise provided for herein.
Payment of the Salary shall be subject to the customary withholding tax and
other employment taxes as required with respect to compensation paid by a
corporation to an employee. It is expressly understood and agreed that the Base
Salary may be increased upon the approval of the Company's compensation
committee (if such a committee exists) or a subcommittee of the Board of
Directors consisting only of members of the Board who are not employees of the
Company (if a Compensation Committee does not exist).
<PAGE>
3.2 Deferred Compensation. In addition to the Base Salary provided for in
Section 3.1, the Company shall contribute at least Seventy Five Thousand Dollars
per year to the Company's deferred compensation plan for Executive ("Deferred
Compensation").
3.3 Bonus. In addition to the Base Salary provided for in Section 3.1 and
the Deferred Compensation provided for in Section 3.2, the Company shall pay
Executive such Bonus or Bonuses as the Board of Directors shall determine in
their sole discretion.
3.4 Additional Benefits. In addition to the Base Salary and Bonuses,
Executive shall be entitled to all other benefits of employment provided to the
employees of the Company.
3.5 Reimbursement. Executive shall be reimbursed for all reasonable
"out-of-pocket" business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement
(1) so long as such expenses constitute business deductions from taxable income
for the Company and are excludable from taxable income to Executive under the
governing laws and regulations of the Internal Revenue Code (provided, however,
that Executive shall be entitled to full reimbursement in any case where the
Internal Revenue Service may, under Section 274(n) of the Internal Revenue Code,
disallow to the Company some percentage of meals and entertainment expenses);
and (2) to the extent such expenses do not exceed the amounts allocable for such
expenses in budgets that are approved from time to time by the Company. The
reimbursement of Executive's business expenses shall be upon monthly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may be
assigned to him from time to time by the Company's Board of Directors
commensurate with his experience and responsibilities in the positions for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Board of Directors of the Company.
4.2 General Specification of Duties. Executive's duties shall include, but
not be limited to those duties that are generally associated with the positions
of Chairman of the Board of Directors, Chief Executive Officer, and Chief
Financial Officer of a company similarly situated to the Company, and as such
duties and responsibilities are more particularly described in the Company's
Bylaws.
The foregoing specifications are not intended as a complete itemization of
the duties which Executive shall perform and undertake on behalf of the Company
in satisfaction of his employment obligations under this Agreement.
4.3 Executive's Devotion of Time. Executive hereby agrees to devote his
full time abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and forwarding of the business affairs of
the Company, and not to divert any business opportunities from the Company to
himself or to any other person or business entity.
4.4 Conflicting Activities.
(a) Executive may, during the Initial Term or any Renewal Term of this
Agreement, be engaged in other business activities without the prior consent of
the Board of Directors of the Company; provided, however, that Executive may not
compete directly with the Company. Further, nothing in this Agreement shall be
construed as preventing Executive from investing his personal assets in passive
investments in business entities which are not in competition with the Company
or its affiliates, or from pursuing business opportunities as permitted by
Section 4.4(b).
(b) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
<PAGE>
future business of the Company, in a manner consistent with the best interests
of the Company and with his duties under this Agreement. Should Executive
discover a business opportunity that does not relate to the current or
anticipated future business of the Company, he shall first offer such
opportunity to the Company. Should the Board of Directors of the Company not
exercise its right to pursue this business opportunity within a reasonable
period of time, not to exceed sixty (60) days, then Executive may develop the
business opportunity for himself; provided, however, that such development may
in no way conflict or interfere with the duties owed by Executive to the Company
under this Agreement. Further, Executive may develop such business opportunities
only on his own time, and may not use any service, personnel, equipment,
supplies, facility or trade secrets of the Company in their development. As used
herein, the term "business opportunity" shall not include business opportunities
involving investment in publicly traded stocks, bonds or other securities, or
other investments of a personal nature.
5. Change of Control. If any time during the Initial Term or any Renewal
Term of this Agreement there is a change of control of the Company, as defined
below, and Executive's employment is terminated by the Company under Section
7.1(a),(b), (d) or (e) within the greater of one (1) year following the change
of control or the remaining term of this Agreement, the Company shall pay to
Executive (a) an amount equal to five times the sum of (i) his annual Base
Salary as in effect on the date of termination plus (ii) the amount of $50,000
in recognition of Deferred Compensation payments made on behalf of Executive,
and (b) any other amounts due to Executive under any other provision of this
Agreement. This amount shall be paid to Executive in one lump sum as soon as
practicable, but in no event later than one hundred twenty (120) days, after the
date that Executive's employment terminated. In addition to the lump sum payment
referenced in the preceding sentence, the Company shall pay to Executive any
accrued and unpaid Bonuses as provided for in Section 3.3 at the same time as
the lump sum payment is made. For example, if a change of control occurred and
Mr. Geimer's Base Salary was $100,000, then the amount to be paid to Mr. Geimer
would be equal to $750,000 ( [$100,000 + $50,000] X 5).
For purposes of this subsection, a change of control shall mean the
occurrence of one or more of the following three events:
(1) After the effective date of this Agreement, any person becomes a
beneficial owner (as such term is defined in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) directly or indirectly of securities
representing 33% or more of the total number of votes that may be cast for
the election of directors of the Company;
(2) Within two years after a merger, consolidation, liquidation or sale of
assets involving the Company, or a contested election of a Company
director, or any combination of the foregoing, the individuals who were
directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board; or
(3) Within two years after a tender offer or exchange offer for voting
securities of the Company, the individuals who were directors of the
Company immediately prior thereto shall cease to constitute a majority of
the Board.
6. Confidentiality of Trade Secrets and Other Materials.
6.1 Executive acknowledges that in his employment hereunder, he will be
making use of, acquiring and adding to the Company's trade secrets and its
confidential and proprietary information of a special and unique nature and
value relating to such matters as, but not limited to, the Company's business
operations, manufacturing processes, manufacturing techniques, manufacturing
methods, manufacturing technology, internal structure, financial affairs,
programs, software, systems, procedures, manuals, confidential reports, lists of
clients and prospective clients and sales and marketing methods, as well as the
amount, nature and type of services, equipment and methods used and preferred by
the Company's clients and the fees paid by such clients, all of which shall be
<PAGE>
deemed to be confidential information. Executive acknowledges that such
confidential information has been and will continue to be of central importance
to the business of the Company and that disclosure of it to or its use by others
could cause substantial loss to the Company. In consideration of employment by
the Company, Executive agrees that during the term of this Agreement and any
renewal or extension of his employment by the Company and upon and after leaving
the employ of the Company for any reason whatsoever, Executive shall not, for
any purpose whatsoever, directly or indirectly, divulge or disclose to any
person or entity any of such confidential information which was obtained by the
Executive as a result of Executive's employment with the Company or any trade
secrets of the Company, but shall hold all of the same confidential and
inviolate.
6.2 All contracts, agreements, financial books, records, instruments and
documents; client lists; memoranda; data; reports; programs; software; tapes;
rolodexes; telephone and address books; letters; research; card decks; listings;
programming; and any other instruments, records or documents relating or
pertaining to clients serviced by the Company or the Executive, the services
rendered by the Executive, or the business of the Company (collectively, the
"Records") shall at all times be and remain the property of the Company. Upon
termination of this Agreement and the Executive's employment under this
Agreement for any reason whatsoever, Executive shall return to the Company all
Records (whether furnished by the Company or prepared by the Executive), and
Executive shall neither make nor retain any copies of any of such Records after
such termination.
6.3 All inventions and other creations, whether or not patentable or
copyrightable, made or conceived in whole or in part by Executive while employed
by the Company and within eighteen months thereafter, which relate directly to
the business, existing or proposed, of the Company or any other business or
research or development effort in which the Company or any of its subsidiaries
or affiliates engages during Executive's employment by the Company will be
disclosed promptly by Executive to the Company and shall be the sole and
exclusive property of the Company. All copyrightable works created by Executive
and covered by this Section 6.3 shall be deemed to be works for hire. Executive
shall cooperate with the Company in patenting or copyrighting all such
inventions and other creative works, shall execute, acknowledge, seal and
deliver all documents tendered by the Company to evidence its ownership thereof
throughout the world, and shall cooperate with the Company in obtaining,
defending, and enforcing its rights therein.
7. Termination.
7.1 Bases for Termination.
(a) Executive's employment hereunder may be terminated at any time by
mutual agreement of the parties.
(b) This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Company's Board of Directors based upon a
certification of such incapacity by, in the discretion of the Company's Board of
Directors, either Executive's regularly attending physician or a duly licensed
physician selected by the Company's Board of Directors, rendering Executive
unable to perform substantially all of his duties hereunder and which appears
reasonably certain to continue for at least six consecutive months without
substantial improvement. Executive shall be deemed to have "become permanently
incapacitated" on the date the Company's Board of Directors has determined that
Executive is permanently incapacitated and so notifies Executive.
<PAGE>
(c) Executive's employment may be terminated by the Company "with cause,"
effective upon delivery of written notice to Executive given at any time
(without any necessity for prior notice) if any of the following shall occur:
(1) any action by Executive which would be grounds for termination
under applicable law (currently covering any willful breach of duty, and
habitual neglect of duty);
(2) any material breach of Executive's obligations in Sections 4 or 6
above; or
(3) any material acts or events which inhibit Executive from fully
performing his responsibilities to the Company in good faith, such as (i) a
felony criminal conviction; (ii) any other criminal conviction involving
Executive's lack of honesty or Executive's moral turpitude; (iii) drug or
alcohol abuse; or (iv) acts of dishonesty, gross carelessness or gross
misconduct.
(d) Executive's employment may be terminated by the Company "without cause"
(for any reason or no reason at all) at any time by giving Executive 60 days
prior written notice of termination, which termination shall be effective on the
60th day following such notice. If Executive's employment under this Agreement
is so terminated, the Company shall (i) make a lump sum cash payment to
Executive within 10 days after termination is effective of an amount equal to
(1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed
expenses accrued to the date of termination; (3) an amount equal to the greater
of (a) Executive's annual Base Salary (i.e., 12 months of Base Salary), or (b)
amounts remaining due to Executive as Base Salary (assuming that payments under
this Agreement were made until expiration of the Initial Term or if applicable
the Renewal Term), and (4) any other amounts due to Executive under any other
provision of this Agreement. For purposes of this provision, Executive's annual
Base Salary and the remaining portion of the term of the Agreement shall be
calculated as of the termination date. After the Company's termination of
Executive under this provision, the Company shall not be obligated to provide
the benefits to Executive described in Section 3.3 (except as may be required by
law). In addition to the lump sum payment referenced in the preceding sentence,
the Company shall pay to Executive the Bonus provided for in Section 3.2 based
upon the number of days in the year that Executive was employed by the Company,
within one hundred five days after the end of the fiscal year in which Executive
was terminated.
(e) Executive may terminate his employment hereunder by giving the Company
60 days prior written notice, which termination shall be effective on the 60th
day following such notice.
7.2 Payment Upon Termination. Upon termination under Sections 7.1(a), (b),
(c) or (e), the Company shall pay to Executive within 10 days after termination
an amount equal to the sum of (1) Executive's Base Salary accrued to the date of
termination; (2) unreimbursed expenses accrued to the date of termination, and
(3) any other amounts due to Executive under any other provision of this
Agreement. Except for the foregoing compensation then due and owing and the
compensation provided for in Section 8.1(d), the Company shall not be obligated
to compensate Executive, his estate or representatives after any such
termination. Further, Executive shall not be entitled to any of the benefits
described in Section 3.3 (except as provided by law) after such termination.
7.3 Dismissal from Premises. At the Company's option, Executive shall
immediately leave the Company's premises on the date notice of termination is
given by either Executive or the Company.
8. Restrictive Covenants.
8.1 The Company and Executive acknowledge and agree that Executive's
services are of a special and unusual character which have a unique value to the
<PAGE>
Company, the loss of which cannot be adequately compensated by damages in an
action at law and if used in competition with the Company could cause serious
harm to the Company. Further, Executive and the Company also recognize that an
important part of Executive's duties will be to develop good will for the
Company through his personal contact with customers, agents and others having
business relationships with the Company, and that there is a danger that this
good will, a proprietary asset of the Company, may follow Executive if and when
his relationship with the Company is terminated. Accordingly, Executive
covenants that for a period of eighteen months after Executive ceases to be
employed by the Company for any reason whatsoever, Executive shall not, without
the prior written consent of the Company, directly or indirectly:
(a) Offer to render any services or solicit the rendition of any services
which were rendered by the Company during the two year period immediately
preceding such cessation of Executive's employment with the Company to any
clients, customers or accounts of the Company who were such at any time during
such two year period to or for the benefit or account of Executive or to or for
the benefit or account of any other person or entity.
(b) Render or attempt to render any services which were rendered by the
Company during the two year period immediately preceding such cessation of
Executive's employment with the Company to any clients, customers or accounts of
the Company who were such at any time during such two year period to or for the
benefit or account of Executive or to or for the benefit or account of any other
person or entity.
(c) Solicit for employment or employ to or for the benefit or account of
Executive or to or for the benefit or account of any other person or entity any
employee of the Company, nor shall Executive urge, directly or indirectly, any
client or referrer of clients, customers, or accounts of the Company to
discontinue, in whole or in part, business with the Company or not to do
business with the Company. For purposes of this Section 8.1(c) of this
Agreement, the term "referrer of clients" shall mean any person or entity who or
which referred a client, customer or account to the Company at any time prior to
such cessation of Executive's employment with the Company.
(d) Engage, either as a consultant, independent contractor, proprietor,
stockholder, partner, officer, director, employee or otherwise, in any business
which designs or sells software for the migration or conversion of computer
applications or software or Year 2000 compliance or remediation, or otherwise
competes with the Company in any state of the United States or in any foreign
country, in each such case where the Company sold, licensed or otherwise
provided software or related services at any time during the two year period
immediately preceding such cessation of Executive's employment with the Company.
The Company and the Executive agree that the Company may elect to either enforce
or waive this Section 8.1(d); provided however, that if the Company elects to
enforce this Section 8.1(d), then subject to the provisions of the immediately
following sentence, the Company agrees to pay Executive on a monthly basis an
amount equal to his monthly Base Salary at the time of termination for each
month that the Company elects to keep this provision in effect. It is expressly
understood and agreed that if Executive is paid any amounts pursuant to Section
7.1(d), then the provisions of this Section 8.1(d) shall remain in full force
and effect without the Company being obligated to make the additional payments
contemplated in the immediately preceding sentence.
8.2 The parties hereto agree that to the extent that any provision or
portion of Section 8.1 of this Agreement shall be held, found or deemed to be
unreasonable, unlawful or unenforceable by a court of competent jurisdiction,
<PAGE>
then any such provision or portion thereof shall be deemed to be modified to the
extent necessary in order that any such provision or portion thereof shall be
legally enforceable to the fullest extent permitted by applicable law; and the
parties hereto do further agree that any court of competent jurisdiction shall,
and the parties hereto do hereby expressly authorize, request and empower any
court of competent jurisdiction to, enforce any such provision or portion
thereof or to modify any such provision or portion thereof in order that any
such provision or portion thereof shall be enforced by such court to the fullest
extent permitted by applicable law.
8.3 The provisions of Sections 8.1(a), 8.1(b), 8.1(c) and 8.1(d) of this
Agreement are cumulative. Compliance with Sections 8.1(a), 8.1(b), 8.1(c) and
8.1(d) of this Agreement is a condition precedent to the Company's obligation to
make any payments of any nature to Executive, whether under this Agreement or
otherwise. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available to it for a breach or
threatened breach of Sections 6 and 8 of this Agreement.
8.4 As used in this Section 8, "clients", "customers" and "accounts" shall
include any person or entity that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
any such "clients", "customers" or "accounts".
9 Injunctive Relief. The Company and Executive hereby acknowledge and agree
that any violation of the provisions of Sections 6 or 8 hereunder will cause
irreparable injury to the Company and there is no adequate remedy at law for
such violation. Accordingly, in addition to any other relief to which the
Company may be entitled, the Company shall be entitled to such injunctive relief
as may be ordered by any court of competent jurisdiction including, but not
limited to, an injunction restraining any violation of Sections 6 or 8 above
without the proof of actual damages.
10. Miscellaneous.
10.1 Transfer and Assignment. This Agreement is personal as to Executive
and shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
10.2 Severability. Nothing contained herein shall be construed to require
the commission of any act contrary to law. Should there be any conflict between
any provisions hereof and any present or future statute, law, ordinance,
regulation or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
10.3 Governing Law. This Agreement is made under and shall be construed
pursuant to the laws of the State of Colorado.
10.4 Counterparts. This Agreement may be executed in several counterparts
and all documents so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts.
10.5 Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, arrangements and understandings
with respect thereto. No representation, promise, inducement, statement or
intention has been made by any party hereto that is not embodied herein, and no
party shall be bound by or liable for any alleged representation, promise,
inducement or statement not so set forth herein.
<PAGE>
10.6 Modification. This Agreement may be modified, amended, superseded or
cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation or waiver.
10.7 Attorneys' Fees and Costs. In the event of any dispute arising out of
the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
10.8 Waiver. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
10.9 Cumulative Remedies. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one or such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
10.10 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
10.11 Notices. Any notice under this Agreement must be in writing, may be
telecopied provided that evidence of the transmission and receipt is created at
the time of transmission, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
If to the Company: Accelr8 Technology Corporation
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
If to Executive: Thomas V. Geimer
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
10.12 Survival. Any provision of this Agreement which imposes an obligation
after termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement and be binding on Executive and the Company.
10.13 Right of Set-Off. Upon termination or expiration of this Agreement,
the Company shall have the right to set-off against the amounts due Executive
hereunder the amount of any outstanding loan or advance from the Company to
Executive.
<PAGE>
10.14 Effective Date. This Agreement shall become effective as of the date
set forth on page 1 when signed by Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
THOMAS V. GEIMER ACCELR8 TECHNOLOGY CORPORATION
________________________________ By:_________________________________
David Wilhelm, Director
EXHIBIT 10.02
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective this 1st day
of December, 1999, by and between Accelr8 Technology Corporation, a Colorado
corporation (the "Company"), and Harry Fleury, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as its President.
2. Term. The term of this Agreement shall be for a period of twenty-four
months commencing on December 1, 1999, and ending on November 30, 2001 ("Initial
Term"), unless terminated earlier pursuant to Section 7 below; provided,
however, that Executive's obligations in Sections 6 and 8 below shall continue
in effect after such termination. This Agreement shall be automatically renewed
for successive one year periods ("Renewal Term") unless, at least 90 days prior
to the expiration of the Initial Term or any Renewal Term, either party gives
written notice to the other party specifically electing to terminate this
Agreement at the end of the Initial Term or any such Renewal Term.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of Seventy Five
Thousand Dollars ($75,000) per year (the "Base Salary"). Base Salary shall be
payable in equal, consecutive monthly installments; provided, however, that no
Salary shall be paid to Executive under this Agreement for any period subsequent
to the termination of Executive's employment unless otherwise provided for
herein. Payment of the Salary shall be subject to the customary withholding tax
and other employment taxes as required with respect to compensation paid by a
corporation to an employee. It is expressly understood and agreed that the Base
Salary may be increased upon the approval of the Company's compensation
committee (if such a committee exists) or a subcommittee of the Board of
Directors consisting only of members of the Board who are not employees of the
Company (if a Compensation Committee does not exist).
<PAGE>
3.2 Bonus. In addition to the Base Salary provided for in Section 3.1, the
Company shall pay Executive such Bonus or Bonuses as the Board of Directors
shall determine in their sole discretion.
3.3 Additional Benefits. In addition to the Base Salary and Bonuses,
Executive shall be entitled to all other benefits of employment provided to the
employees of the Company.
3.4 Reimbursement. Executive shall be reimbursed for all reasonable
"out-of-pocket" business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement
(1) so long as such expenses constitute business deductions from taxable income
for the Company and are excludable from taxable income to Executive under the
governing laws and regulations of the Internal Revenue Code (provided, however,
that Executive shall be entitled to full reimbursement in any case where the
Internal Revenue Service may, under Section 274(n) of the Internal Revenue Code,
disallow to the Company some percentage of meals and entertainment expenses);
and (2) to the extent such expenses do not exceed the amounts allocable for such
expenses in budgets that are approved from time to time by the Company. The
reimbursement of Executive's business expenses shall be upon monthly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may be
assigned to him from time to time by the Company's Board of Directors
commensurate with his experience and responsibilities in the position for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Board of Directors of the Company.
4.2 General Specification of Duties. Executive's duties shall include, but
not be limited to those duties that are generally associated with the position
of President of a company similarly situated to the Company, and as such duties
and responsibilities are more particularly described in the Company's Bylaws.
The foregoing specifications are not intended as a complete itemization of
the duties which Executive shall perform and undertake on behalf of the Company
in satisfaction of his employment obligations under this Agreement.
4.3 Executive's Devotion of Time. Executive hereby agrees to devote his
full time abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and forwarding of the business affairs of
the Company, and not to divert any business opportunities from the Company to
himself or to any other person or business entity.
4.4 Conflicting Activities.
(a) Executive may, during the Initial Term or any Renewal Term of this
Agreement, be engaged in other business activities without the prior consent of
the Board of Directors of the Company; provided, however, that Executive may not
compete directly with the Company. Further, nothing in this Agreement shall be
construed as preventing Executive from investing his personal assets in passive
investments in business entities which are not in competition with the Company
or its affiliates, or from pursuing business opportunities as permitted by
Section 4.4(b).
(b) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
<PAGE>
future business of the Company, in a manner consistent with the best interests
of the Company and with his duties under this Agreement. Should Executive
discover a business opportunity that does not relate to the current or
anticipated future business of the Company, he shall first offer such
opportunity to the Company. Should the Board of Directors of the Company not
exercise its right to pursue this business opportunity within a reasonable
period of time, not to exceed sixty (60) days, then Executive may develop the
business opportunity for himself; provided, however, that such development may
in no way conflict or interfere with the duties owed by Executive to the Company
under this Agreement. Further, Executive may develop such business opportunities
only on his own time, and may not use any service, personnel, equipment,
supplies, facility or trade secrets of the Company in their development. As used
herein, the term "business opportunity" shall not include business opportunities
involving investment in publicly traded stocks, bonds or other securities, or
other investments of a personal nature.
5. Change of Control. If any time during the Initial Term or any Renewal
Term of this Agreement there is a change of control of the Company, as defined
below, and Executive's employment is terminated by the Company under Section
7.1(a),(b), (d) or (e) within the greater of one (1) year following the change
of control or the remaining term of this Agreement, the Company shall pay to
Executive (a) an amount equal to two times his annual Base Salary as in effect
on the date of termination, and (b) any other amounts due to Executive under any
other provision of this Agreement. This amount shall be paid to Executive in one
lump sum as soon as practicable, but in no event later than one hundred twenty
(120) days, after the date that Executive's employment terminated. In addition
to the lump sum payment referenced in the preceding sentence, the Company shall
pay to Executive any accrued and unpaid Bonuses as provided for in Section 3.3
at the same time as the lump sum payment is made.
For purposes of this subsection, a change of control shall mean the
occurrence of one or more of the following three events:
(1) After the effective date of this Agreement, any person becomes a
beneficial owner (as such term is defined in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) directly or indirectly of securities
representing 33% or more of the total number of votes that may be cast for
the election of directors of the Company;
(2) Within two years after a merger, consolidation, liquidation or sale of
assets involving the Company, or a contested election of a Company
director, or any combination of the foregoing, the individuals who were
directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board; or
(3) Within two years after a tender offer or exchange offer for voting
securities of the Company, the individuals who were directors of the
Company immediately prior thereto shall cease to constitute a majority of
the Board.
6. Confidentiality of Trade Secrets and Other Materials.
6.1 Executive acknowledges that in his employment hereunder, he will be
making use of, acquiring and adding to the Company's trade secrets and its
confidential and proprietary information of a special and unique nature and
value relating to such matters as, but not limited to, the Company's business
operations, manufacturing processes, manufacturing techniques, manufacturing
methods, manufacturing technology, internal structure, financial affairs,
programs, software, systems, procedures, manuals, confidential reports, lists of
clients and prospective clients and sales and marketing methods, as well as the
amount, nature and type of services, equipment and methods used and preferred by
the Company's clients and the fees paid by such clients, all of which shall be
<PAGE>
deemed to be confidential information. Executive acknowledges that such
confidential information has been and will continue to be of central importance
to the business of the Company and that disclosure of it to or its use by others
could cause substantial loss to the Company. In consideration of employment by
the Company, Executive agrees that during the term of this Agreement and any
renewal or extension of his employment by the Company and upon and after leaving
the employ of the Company for any reason whatsoever, Executive shall not, for
any purpose whatsoever, directly or indirectly, divulge or disclose to any
person or entity any of such confidential information which was obtained by the
Executive as a result of Executive's employment with the Company or any trade
secrets of the Company, but shall hold all of the same confidential and
inviolate.
6.2 All contracts, agreements, financial books, records, instruments and
documents; client lists; memoranda; data; reports; programs; software; tapes;
rolodexes; telephone and address books; letters; research; card decks; listings;
programming; and any other instruments, records or documents relating or
pertaining to clients serviced by the Company or the Executive, the services
rendered by the Executive, or the business of the Company (collectively, the
"Records") shall at all times be and remain the property of the Company. Upon
termination of this Agreement and the Executive's employment under this
Agreement for any reason whatsoever, Executive shall return to the Company all
Records (whether furnished by the Company or prepared by the Executive), and
Executive shall neither make nor retain any copies of any of such Records after
such termination.
6.3 All inventions and other creations, whether or not patentable or
copyrightable, made or conceived in whole or in part by Executive while employed
by the Company and within eighteen months thereafter, which relate directly to
the business, existing or proposed, of the Company or any other business or
research or development effort in which the Company or any of its subsidiaries
or affiliates engages during Executive's employment by the Company will be
disclosed promptly by Executive to the Company and shall be the sole and
exclusive property of the Company. All copyrightable works created by Executive
and covered by this Section 6.3 shall be deemed to be works for hire. Executive
shall cooperate with the Company in patenting or copyrighting all such
inventions and other creative works, shall execute, acknowledge, seal and
deliver all documents tendered by the Company to evidence its ownership thereof
throughout the world, and shall cooperate with the Company in obtaining,
defending, and enforcing its rights therein.
7. Termination.
7.1 Bases for Termination.
(a) Executive's employment hereunder may be terminated at any time by
mutual agreement of the parties.
(b) This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Company's Board of Directors based upon a
certification of such incapacity by, in the discretion of the Company's Board of
Directors, either Executive's regularly attending physician or a duly licensed
physician selected by the Company's Board of Directors, rendering Executive
unable to perform substantially all of his duties hereunder and which appears
reasonably certain to continue for at least six consecutive months without
substantial improvement. Executive shall be deemed to have "become permanently
incapacitated" on the date the Company's Board of Directors has determined that
Executive is permanently incapacitated and so notifies Executive.
<PAGE>
(c) Executive's employment may be terminated by the Company "with cause,"
effective upon delivery of written notice to Executive given at any time
(without any necessity for prior notice) if any of the following shall occur:
(1) any action by Executive which would be grounds for termination
under applicable law (currently covering any willful breach of duty, and
habitual neglect of duty);
(2) any material breach of Executive's obligations in Sections 4 or 6
above; or
(3) any material acts or events which inhibit Executive from fully
performing his responsibilities to the Company in good faith, such as (i) a
felony criminal conviction; (ii) any other criminal conviction involving
Executive's lack of honesty or Executive's moral turpitude; (iii) drug or
alcohol abuse; or (iv) acts of dishonesty, gross carelessness or gross
misconduct.
(d) Executive's employment may be terminated by the Company "without cause"
(for any reason or no reason at all) at any time by giving Executive 60 days
prior written notice of termination, which termination shall be effective on the
60th day following such notice. If Executive's employment under this Agreement
is so terminated, the Company shall (i) make a lump sum cash payment to
Executive within 10 days after termination is effective of an amount equal to
(1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed
expenses accrued to the date of termination; (3) an amount equal to the greater
of (a) Executive's annual Base Salary (i.e., 12 months of Base Salary), or (b)
amounts remaining due to Executive as Base Salary (assuming that payments under
this Agreement were made until expiration of the Initial Term or if applicable
the Renewal Term), and (4) any other amounts due to Executive under any other
provision of this Agreement. For purposes of this provision, Executive's annual
Base Salary and the remaining portion of the term of the Agreement shall be
calculated as of the termination date. After the Company's termination of
Executive under this provision, the Company shall not be obligated to provide
the benefits to Executive described in Section 3.3 (except as may be required by
law). In addition to the lump sum payment referenced in the preceding sentence,
the Company shall pay to Executive the Bonus provided for in Section 3.2 based
upon the number of days in the year that Executive was employed by the Company,
within one hundred five days after the end of the fiscal year in which Executive
was terminated.
(e) Executive may terminate his employment hereunder by giving the Company
60 days prior written notice, which termination shall be effective on the 60th
day following such notice.
7.2 Payment Upon Termination. Upon termination under Sections 7.1(a), (b),
(c) or (e), the Company shall pay to Executive within 10 days after termination
an amount equal to the sum of (1) Executive's Base Salary accrued to the date of
termination; (2) unreimbursed expenses accrued to the date of termination, and
(3) any other amounts due to Executive under any other provision of this
Agreement. Except for the foregoing compensation then due and owing and the
compensation provided for in Section 8.1(d), the Company shall not be obligated
to compensate Executive, his estate or representatives after any such
termination. Further, Executive shall not be entitled to any of the benefits
described in Section 3.3 (except as provided by law) after such termination.
7.3 Dismissal from Premises. At the Company's option, Executive shall
immediately leave the Company's premises on the date notice of termination is
given by either Executive or the Company.
8. Restrictive Covenants.
8.1 The Company and Executive acknowledge and agree that Executive's
services are of a special and unusual character which have a unique value to the
<PAGE>
Company, the loss of which cannot be adequately compensated by damages in an
action at law and if used in competition with the Company could cause serious
harm to the Company. Further, Executive and the Company also recognize that an
important part of Executive's duties will be to develop good will for the
Company through his personal contact with customers, agents and others having
business relationships with the Company, and that there is a danger that this
good will, a proprietary asset of the Company, may follow Executive if and when
his relationship with the Company is terminated. Accordingly, Executive
covenants that for a period of eighteen months after Executive ceases to be
employed by the Company for any reason whatsoever, Executive shall not, without
the prior written consent of the Company, directly or indirectly:
(a) Offer to render any services or solicit the rendition of any services
which were rendered by the Company during the two year period immediately
preceding such cessation of Executive's employment with the Company to any
clients, customers or accounts of the Company who were such at any time during
such two year period to or for the benefit or account of Executive or to or for
the benefit or account of any other person or entity.
(b) Render or attempt to render any services which were rendered by the
Company during the two year period immediately preceding such cessation of
Executive's employment with the Company to any clients, customers or accounts of
the Company who were such at any time during such two year period to or for the
benefit or account of Executive or to or for the benefit or account of any other
person or entity.
(c) Solicit for employment or employ to or for the benefit or account of
Executive or to or for the benefit or account of any other person or entity any
employee of the Company, nor shall Executive urge, directly or indirectly, any
client or referrer of clients, customers, or accounts of the Company to
discontinue, in whole or in part, business with the Company or not to do
business with the Company. For purposes of this Section 8.1(c) of this
Agreement, the term "referrer of clients" shall mean any person or entity who or
which referred a client, customer or account to the Company at any time prior to
such cessation of Executive's employment with the Company.
(d) Engage, either as a consultant, independent contractor, proprietor,
stockholder, partner, officer, director, employee or otherwise, in any business
which designs or sells software for the migration or conversion of computer
applications or software or Year 2000 compliance or remediation, or otherwise
competes with the Company in any state of the United States or in any foreign
country, in each such case where the Company sold, licensed or otherwise
provided software or related services at any time during the two year period
immediately preceding such cessation of Executive's employment with the Company.
The Company and the Executive agree that the Company may elect to either enforce
or waive this Section 8.1(d); provided however, that if the Company elects to
enforce this Section 8.1(d), then subject to the provisions of the immediately
following sentence, the Company agrees to pay Executive on a monthly basis an
amount equal to his monthly Base Salary at the time of termination for each
month that the Company elects to keep this provision in effect. It is expressly
understood and agreed that if Executive is paid any amounts pursuant to Section
7.1(d), then the provisions of this Section 8.1(d) shall remain in full force
and effect without the Company being obligated to make the additional payments
contemplated in the immediately preceding sentence.
8.2 The parties hereto agree that to the extent that any provision or
portion of Section 8.1 of this Agreement shall be held, found or deemed to be
unreasonable, unlawful or unenforceable by a court of competent jurisdiction,
<PAGE>
then any such provision or portion thereof shall be deemed to be modified to the
extent necessary in order that any such provision or portion thereof shall be
legally enforceable to the fullest extent permitted by applicable law; and the
parties hereto do further agree that any court of competent jurisdiction shall,
and the parties hereto do hereby expressly authorize, request and empower any
court of competent jurisdiction to, enforce any such provision or portion
thereof or to modify any such provision or portion thereof in order that any
such provision or portion thereof shall be enforced by such court to the fullest
extent permitted by applicable law.
8.3 The provisions of Sections 8.1(a), 8.1(b), 8.1(c) and 8.1(d) of this
Agreement are cumulative. Compliance with Sections 8.1(a), 8.1(b), 8.1(c) and
8.1(d) of this Agreement is a condition precedent to the Company's obligation to
make any payments of any nature to Executive, whether under this Agreement or
otherwise. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available to it for a breach or
threatened breach of Sections 6 and 8 of this Agreement.
8.4 As used in this Section 8, "clients", "customers" and "accounts" shall
include any person or entity that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
any such "clients", "customers" or "accounts".
9 Injunctive Relief. The Company and Executive hereby acknowledge and agree
that any violation of the provisions of Sections 6 or 8 hereunder will cause
irreparable injury to the Company and there is no adequate remedy at law for
such violation. Accordingly, in addition to any other relief to which the
Company may be entitled, the Company shall be entitled to such injunctive relief
as may be ordered by any court of competent jurisdiction including, but not
limited to, an injunction restraining any violation of Sections 6 or 8 above
without the proof of actual damages.
10. Miscellaneous.
10.1 Transfer and Assignment. This Agreement is personal as to Executive
and shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
10.2 Severability. Nothing contained herein shall be construed to require
the commission of any act contrary to law. Should there be any conflict between
any provisions hereof and any present or future statute, law, ordinance,
regulation or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
10.3 Governing Law. This Agreement is made under and shall be construed
pursuant to the laws of the State of Colorado.
10.4 Counterparts. This Agreement may be executed in several counterparts
and all documents so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts.
10.5 Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, arrangements and understandings
with respect thereto. No representation, promise, inducement, statement or
intention has been made by any party hereto that is not embodied herein, and no
party shall be bound by or liable for any alleged representation, promise,
inducement or statement not so set forth herein.
<PAGE>
10.6 Modification. This Agreement may be modified, amended, superseded or
cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation or waiver.
10.7 Attorneys' Fees and Costs. In the event of any dispute arising out of
the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
10.8 Waiver. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
10.9 Cumulative Remedies. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one or such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
10.10 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
10.11 Notices. Any notice under this Agreement must be in writing, may be
telecopied provided that evidence of the transmission and receipt is created at
the time of transmission, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
If to the Company: Accelr8 Technology Corporation
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
If to Executive: Harry Fleury
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
10.12 Survival. Any provision of this Agreement which imposes an obligation
after termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement and be binding on Executive and the Company.
10.13 Right of Set-Off. Upon termination or expiration of this Agreement,
the Company shall have the right to set-off against the amounts due Executive
hereunder the amount of any outstanding loan or advance from the Company to
Executive.
<PAGE>
10.14 Effective Date. This Agreement shall become effective as of the date
set forth on page 1 when signed by Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
HARRY FLEURY ACCELR8 TECHNOLOGY CORPORATION
________________________________ By:_________________________________
Thomas V. Geimer, Chief Executive Officer
EXHIBIT 10.03
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective this 1st day
of December, 1999, by and between Accelr8 Technology Corporation, a Colorado
corporation (the "Company"), and James Godkin, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as its Financial
Controller.
2. Term. The term of this Agreement shall be for a period of twenty-four
months commencing on December 1, 1999, and ending on November 30, 2001 ("Initial
Term"), unless terminated earlier pursuant to Section 7 below; provided,
however, that Executive's obligations in Sections 6 and 8 below shall continue
in effect after such termination. This Agreement shall be automatically renewed
for successive one year periods ("Renewal Term") unless, at least 90 days prior
to the expiration of the Initial Term or any Renewal Term, either party gives
written notice to the other party specifically electing to terminate this
Agreement at the end of the Initial Term or any such Renewal Term.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of Fifty Eight Thousand
Dollars ($58,000) per year (the "Base Salary"). Base Salary shall be payable in
equal, consecutive monthly installments; provided, however, that no Salary shall
be paid to Executive under this Agreement for any period subsequent to the
termination of Executive's employment unless otherwise provided for herein.
Payment of the Salary shall be subject to the customary withholding tax and
other employment taxes as required with respect to compensation paid by a
corporation to an employee. It is expressly understood and agreed that the Base
Salary may be increased upon the approval of the Company's compensation
committee (if such a committee exists) or a subcommittee of the Board of
Directors consisting only of members of the Board who are not employees of the
Company (if a Compensation Committee does not exist).
<PAGE>
3.2 Bonus. In addition to the Base Salary provided for in Section 3.1, the
Company shall pay Executive such Bonus or Bonuses as the Board of Directors
shall determine in their sole discretion.
3.3 Additional Benefits. In addition to the Base Salary and Bonuses,
Executive shall be entitled to all other benefits of employment provided to the
employees of the Company.
3.4 Reimbursement. Executive shall be reimbursed for all reasonable
"out-of-pocket" business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement
(1) so long as such expenses constitute business deductions from taxable income
for the Company and are excludable from taxable income to Executive under the
governing laws and regulations of the Internal Revenue Code (provided, however,
that Executive shall be entitled to full reimbursement in any case where the
Internal Revenue Service may, under Section 274(n) of the Internal Revenue Code,
disallow to the Company some percentage of meals and entertainment expenses);
and (2) to the extent such expenses do not exceed the amounts allocable for such
expenses in budgets that are approved from time to time by the Company. The
reimbursement of Executive's business expenses shall be upon monthly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may be
assigned to him from time to time by the Company's Board of Directors
commensurate with his experience and responsibilities in the position for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Board of Directors of the Company.
4.2 General Specification of Duties. Executive's duties shall include, but
not be limited to those duties that are generally associated with the position
of the Financial Controller of a company similarly situated to the Company, and
as such duties and responsibilities may be more particularly described in the
Company's Bylaws.
The foregoing specifications are not intended as a complete itemization of
the duties which Executive shall perform and undertake on behalf of the Company
in satisfaction of his employment obligations under this Agreement.
4.3 Executive's Devotion of Time. Executive hereby agrees to devote his
full time abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and forwarding of the business affairs of
the Company, and not to divert any business opportunities from the Company to
himself or to any other person or business entity.
4.4 Conflicting Activities.
(a) Executive may, during the Initial Term or any Renewal Term of this
Agreement, be engaged in other business activities without the prior consent of
the Board of Directors of the Company; provided, however, that Executive may not
compete directly with the Company. Further, nothing in this Agreement shall be
construed as preventing Executive from investing his personal assets in passive
investments in business entities which are not in competition with the Company
or its affiliates, or from pursuing business opportunities as permitted by
Section 4.4(b).
(b) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
<PAGE>
future business of the Company, in a manner consistent with the best interests
of the Company and with his duties under this Agreement. Should Executive
discover a business opportunity that does not relate to the current or
anticipated future business of the Company, he shall first offer such
opportunity to the Company. Should the Board of Directors of the Company not
exercise its right to pursue this business opportunity within a reasonable
period of time, not to exceed sixty (60) days, then Executive may develop the
business opportunity for himself; provided, however, that such development may
in no way conflict or interfere with the duties owed by Executive to the Company
under this Agreement. Further, Executive may develop such business opportunities
only on his own time, and may not use any service, personnel, equipment,
supplies, facility or trade secrets of the Company in their development. As used
herein, the term "business opportunity" shall not include business opportunities
involving investment in publicly traded stocks, bonds or other securities, or
other investments of a personal nature.
5. Change of Control. If any time during the Initial Term or any Renewal
Term of this Agreement there is a change of control of the Company, as defined
below, and Executive's employment is terminated by the Company under Section
7.1(a),(b), (d) or (e) within the greater of one (1) year following the change
of control or the remaining term of this Agreement, the Company shall pay to
Executive (a) an amount equal to two times his annual Base Salary as in effect
on the date of termination, and (b) any other amounts due to Executive under any
other provision of this Agreement. This amount shall be paid to Executive in one
lump sum as soon as practicable, but in no event later than one hundred twenty
(120) days, after the date that Executive's employment terminated. In addition
to the lump sum payment referenced in the preceding sentence, the Company shall
pay to Executive any accrued and unpaid Bonuses as provided for in Section 3.3
at the same time as the lump sum payment is made.
For purposes of this subsection, a change of control shall mean the
occurrence of one or more of the following three events:
(1) After the effective date of this Agreement, any person becomes a
beneficial owner (as such term is defined in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) directly or indirectly of securities
representing 33% or more of the total number of votes that may be cast for
the election of directors of the Company;
(2) Within two years after a merger, consolidation, liquidation or sale of
assets involving the Company, or a contested election of a Company
director, or any combination of the foregoing, the individuals who were
directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board; or
(3) Within two years after a tender offer or exchange offer for voting
securities of the Company, the individuals who were directors of the
Company immediately prior thereto shall cease to constitute a majority of
the Board.
6. Confidentiality of Trade Secrets and Other Materials.
6.1 Executive acknowledges that in his employment hereunder, he will be
making use of, acquiring and adding to the Company's trade secrets and its
confidential and proprietary information of a special and unique nature and
value relating to such matters as, but not limited to, the Company's business
operations, manufacturing processes, manufacturing techniques, manufacturing
methods, manufacturing technology, internal structure, financial affairs,
programs, software, systems, procedures, manuals, confidential reports, lists of
clients and prospective clients and sales and marketing methods, as well as the
amount, nature and type of services, equipment and methods used and preferred by
the Company's clients and the fees paid by such clients, all of which shall be
<PAGE>
deemed to be confidential information. Executive acknowledges that such
confidential information has been and will continue to be of central importance
to the business of the Company and that disclosure of it to or its use by others
could cause substantial loss to the Company. In consideration of employment by
the Company, Executive agrees that during the term of this Agreement and any
renewal or extension of his employment by the Company and upon and after leaving
the employ of the Company for any reason whatsoever, Executive shall not, for
any purpose whatsoever, directly or indirectly, divulge or disclose to any
person or entity any of such confidential information which was obtained by the
Executive as a result of Executive's employment with the Company or any trade
secrets of the Company, but shall hold all of the same confidential and
inviolate.
6.2 All contracts, agreements, financial books, records, instruments and
documents; client lists; memoranda; data; reports; programs; software; tapes;
rolodexes; telephone and address books; letters; research; card decks; listings;
programming; and any other instruments, records or documents relating or
pertaining to clients serviced by the Company or the Executive, the services
rendered by the Executive, or the business of the Company (collectively, the
"Records") shall at all times be and remain the property of the Company. Upon
termination of this Agreement and the Executive's employment under this
Agreement for any reason whatsoever, Executive shall return to the Company all
Records (whether furnished by the Company or prepared by the Executive), and
Executive shall neither make nor retain any copies of any of such Records after
such termination.
6.3 All inventions and other creations, whether or not patentable or
copyrightable, made or conceived in whole or in part by Executive while employed
by the Company and within eighteen months thereafter, which relate directly to
the business, existing or proposed, of the Company or any other business or
research or development effort in which the Company or any of its subsidiaries
or affiliates engages during Executive's employment by the Company will be
disclosed promptly by Executive to the Company and shall be the sole and
exclusive property of the Company. All copyrightable works created by Executive
and covered by this Section 6.3 shall be deemed to be works for hire. Executive
shall cooperate with the Company in patenting or copyrighting all such
inventions and other creative works, shall execute, acknowledge, seal and
deliver all documents tendered by the Company to evidence its ownership thereof
throughout the world, and shall cooperate with the Company in obtaining,
defending, and enforcing its rights therein.
7. Termination.
7.1 Bases for Termination.
(a) Executive's employment hereunder may be terminated at any time by
mutual agreement of the parties.
(b) This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Company's Board of Directors based upon a
certification of such incapacity by, in the discretion of the Company's Board of
Directors, either Executive's regularly attending physician or a duly licensed
physician selected by the Company's Board of Directors, rendering Executive
unable to perform substantially all of his duties hereunder and which appears
reasonably certain to continue for at least six consecutive months without
substantial improvement. Executive shall be deemed to have "become permanently
incapacitated" on the date the Company's Board of Directors has determined that
Executive is permanently incapacitated and so notifies Executive.
<PAGE>
(c) Executive's employment may be terminated by the Company "with cause,"
effective upon delivery of written notice to Executive given at any time
(without any necessity for prior notice) if any of the following shall occur:
(1) any action by Executive which would be grounds for termination
under applicable law (currently covering any willful breach of duty, and
habitual neglect of duty);
(2) any material breach of Executive's obligations in Sections 4 or 6
above; or
(3) any material acts or events which inhibit Executive from fully
performing his responsibilities to the Company in good faith, such as (i) a
felony criminal conviction; (ii) any other criminal conviction involving
Executive's lack of honesty or Executive's moral turpitude; (iii) drug or
alcohol abuse; or (iv) acts of dishonesty, gross carelessness or gross
misconduct.
(d) Executive's employment may be terminated by the Company "without cause"
(for any reason or no reason at all) at any time by giving Executive 60 days
prior written notice of termination, which termination shall be effective on the
60th day following such notice. If Executive's employment under this Agreement
is so terminated, the Company shall (i) make a lump sum cash payment to
Executive within 10 days after termination is effective of an amount equal to
(1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed
expenses accrued to the date of termination; (3) an amount equal to the greater
of (a) Executive's annual Base Salary (i.e., 12 months of Base Salary), or (b)
amounts remaining due to Executive as Base Salary (assuming that payments under
this Agreement were made until expiration of the Initial Term or if applicable
the Renewal Term), and (4) any other amounts due to Executive under any other
provision of this Agreement. For purposes of this provision, Executive's annual
Base Salary and the remaining portion of the term of the Agreement shall be
calculated as of the termination date. After the Company's termination of
Executive under this provision, the Company shall not be obligated to provide
the benefits to Executive described in Section 3.3 (except as may be required by
law). In addition to the lump sum payment referenced in the preceding sentence,
the Company shall pay to Executive the Bonus provided for in Section 3.2 based
upon the number of days in the year that Executive was employed by the Company,
within one hundred five days after the end of the fiscal year in which Executive
was terminated.
(e) Executive may terminate his employment hereunder by giving the Company
60 days prior written notice, which termination shall be effective on the 60th
day following such notice.
7.2 Payment Upon Termination. Upon termination under Sections 7.1(a), (b),
(c) or (e), the Company shall pay to Executive within 10 days after termination
an amount equal to the sum of (1) Executive's Base Salary accrued to the date of
termination; (2) unreimbursed expenses accrued to the date of termination, and
(3) any other amounts due to Executive under any other provision of this
Agreement. Except for the foregoing compensation then due and owing and the
compensation provided for in Section 8.1(d), the Company shall not be obligated
to compensate Executive, his estate or representatives after any such
termination. Further, Executive shall not be entitled to any of the benefits
described in Section 3.3 (except as provided by law) after such termination.
7.3 Dismissal from Premises. At the Company's option, Executive shall
immediately leave the Company's premises on the date notice of termination is
given by either Executive or the Company.
8. Restrictive Covenants.
8.1 The Company and Executive acknowledge and agree that Executive's
services are of a special and unusual character which have a unique value to the
<PAGE>
Company, the loss of which cannot be adequately compensated by damages in an
action at law and if used in competition with the Company could cause serious
harm to the Company. Further, Executive and the Company also recognize that an
important part of Executive's duties will be to develop good will for the
Company through his personal contact with customers, agents and others having
business relationships with the Company, and that there is a danger that this
good will, a proprietary asset of the Company, may follow Executive if and when
his relationship with the Company is terminated. Accordingly, Executive
covenants that for a period of eighteen months after Executive ceases to be
employed by the Company for any reason whatsoever, Executive shall not, without
the prior written consent of the Company, directly or indirectly:
(a) Offer to render any services or solicit the rendition of any services
which were rendered by the Company during the two year period immediately
preceding such cessation of Executive's employment with the Company to any
clients, customers or accounts of the Company who were such at any time during
such two year period to or for the benefit or account of Executive or to or for
the benefit or account of any other person or entity.
(b) Render or attempt to render any services which were rendered by the
Company during the two year period immediately preceding such cessation of
Executive's employment with the Company to any clients, customers or accounts of
the Company who were such at any time during such two year period to or for the
benefit or account of Executive or to or for the benefit or account of any other
person or entity.
(c) Solicit for employment or employ to or for the benefit or account of
Executive or to or for the benefit or account of any other person or entity any
employee of the Company, nor shall Executive urge, directly or indirectly, any
client or referrer of clients, customers, or accounts of the Company to
discontinue, in whole or in part, business with the Company or not to do
business with the Company. For purposes of this Section 8.1(c) of this
Agreement, the term "referrer of clients" shall mean any person or entity who or
which referred a client, customer or account to the Company at any time prior to
such cessation of Executive's employment with the Company.
(d) Engage, either as a consultant, independent contractor, proprietor,
stockholder, partner, officer, director, employee or otherwise, in any business
which designs or sells software for the migration or conversion of computer
applications or software or Year 2000 compliance or remediation, or otherwise
competes with the Company in any state of the United States or in any foreign
country, in each such case where the Company sold, licensed or otherwise
provided software or related services at any time during the two year period
immediately preceding such cessation of Executive's employment with the Company.
The Company and the Executive agree that the Company may elect to either enforce
or waive this Section 8.1(d); provided however, that if the Company elects to
enforce this Section 8.1(d), then subject to the provisions of the immediately
following sentence, the Company agrees to pay Executive on a monthly basis an
amount equal to his monthly Base Salary at the time of termination for each
month that the Company elects to keep this provision in effect. It is expressly
understood and agreed that if Executive is paid any amounts pursuant to Section
7.1(d), then the provisions of this Section 8.1(d) shall remain in full force
and effect without the Company being obligated to make the additional payments
contemplated in the immediately preceding sentence.
8.2 The parties hereto agree that to the extent that any provision or
portion of Section 8.1 of this Agreement shall be held, found or deemed to be
unreasonable, unlawful or unenforceable by a court of competent jurisdiction,
<PAGE>
then any such provision or portion thereof shall be deemed to be modified to the
extent necessary in order that any such provision or portion thereof shall be
legally enforceable to the fullest extent permitted by applicable law; and the
parties hereto do further agree that any court of competent jurisdiction shall,
and the parties hereto do hereby expressly authorize, request and empower any
court of competent jurisdiction to, enforce any such provision or portion
thereof or to modify any such provision or portion thereof in order that any
such provision or portion thereof shall be enforced by such court to the fullest
extent permitted by applicable law.
8.3 The provisions of Sections 8.1(a), 8.1(b), 8.1(c) and 8.1(d) of this
Agreement are cumulative. Compliance with Sections 8.1(a), 8.1(b), 8.1(c) and
8.1(d) of this Agreement is a condition precedent to the Company's obligation to
make any payments of any nature to Executive, whether under this Agreement or
otherwise. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available to it for a breach or
threatened breach of Sections 6 and 8 of this Agreement.
8.4 As used in this Section 8, "clients", "customers" and "accounts" shall
include any person or entity that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
any such "clients", "customers" or "accounts".
9 Injunctive Relief. The Company and Executive hereby acknowledge and agree
that any violation of the provisions of Sections 6 or 8 hereunder will cause
irreparable injury to the Company and there is no adequate remedy at law for
such violation. Accordingly, in addition to any other relief to which the
Company may be entitled, the Company shall be entitled to such injunctive relief
as may be ordered by any court of competent jurisdiction including, but not
limited to, an injunction restraining any violation of Sections 6 or 8 above
without the proof of actual damages.
10. Miscellaneous.
10.1 Transfer and Assignment. This Agreement is personal as to Executive
and shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
10.2 Severability. Nothing contained herein shall be construed to require
the commission of any act contrary to law. Should there be any conflict between
any provisions hereof and any present or future statute, law, ordinance,
regulation or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
10.3 Governing Law. This Agreement is made under and shall be construed
pursuant to the laws of the State of Colorado.
10.4 Counterparts. This Agreement may be executed in several counterparts
and all documents so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts.
10.5 Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, arrangements and understandings
with respect thereto. No representation, promise, inducement, statement or
intention has been made by any party hereto that is not embodied herein, and no
party shall be bound by or liable for any alleged representation, promise,
inducement or statement not so set forth herein.
<PAGE>
10.6 Modification. This Agreement may be modified, amended, superseded or
cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation or waiver.
10.7 Attorneys' Fees and Costs. In the event of any dispute arising out of
the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
10.8 Waiver. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
10.9 Cumulative Remedies. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one or such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
10.10 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
10.11 Notices. Any notice under this Agreement must be in writing, may be
telecopied provided that evidence of the transmission and receipt is created at
the time of transmission, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
If to the Company: Accelr8 Technology Corporation
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
If to Executive: James Godkin
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
10.12 Survival. Any provision of this Agreement which imposes an obligation
after termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement and be binding on Executive and the Company.
10.13 Right of Set-Off. Upon termination or expiration of this Agreement,
the Company shall have the right to set-off against the amounts due Executive
hereunder the amount of any outstanding loan or advance from the Company to
Executive.
<PAGE>
10.14 Effective Date. This Agreement shall become effective as of the date
set forth on page 1 when signed by Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
JAMES GODKIN ACCELR8 TECHNOLOGY CORPORATION
________________________________ By:_________________________________________
Thomas V. Geimer, Chief Executive Officer
EXHIBIT 10.04
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective this 1st day
of December, 1999, by and between Accelr8 Technology Corporation, a Colorado
corporation (the "Company"), and Franz Huber, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as its Chief Scientist.
2. Term. The term of this Agreement shall be for a period of twenty-four
months commencing on December 1, 1999, and ending on November 30, 2001 ("Initial
Term"), unless terminated earlier pursuant to Section 7 below; provided,
however, that Executive's obligations in Sections 6 and 8 below shall continue
in effect after such termination. This Agreement shall be automatically renewed
for successive one year periods ("Renewal Term") unless, at least 90 days prior
to the expiration of the Initial Term or any Renewal Term, either party gives
written notice to the other party specifically electing to terminate this
Agreement at the end of the Initial Term or any such Renewal Term.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of Fifty Eight Thousand
Dollars ($58,000) per year (the "Base Salary"). Base Salary shall be payable in
equal, consecutive monthly installments; provided, however, that no Salary shall
be paid to Executive under this Agreement for any period subsequent to the
termination of Executive's employment unless otherwise provided for herein.
Payment of the Salary shall be subject to the customary withholding tax and
other employment taxes as required with respect to compensation paid by a
corporation to an employee. It is expressly understood and agreed that the Base
Salary may be increased upon the approval of the Company's compensation
committee (if such a committee exists) or a subcommittee of the Board of
Directors consisting only of members of the Board who are not employees of the
Company (if a Compensation Committee does not exist).
<PAGE>
3.2 Bonus. In addition to the Base Salary provided for in Section 3.1, the
Company shall pay Executive such Bonus or Bonuses as the Board of Directors
shall determine in their sole discretion.
3.3 Additional Benefits. In addition to the Base Salary and Bonuses,
Executive shall be entitled to all other benefits of employment provided to the
employees of the Company.
3.4 Reimbursement. Executive shall be reimbursed for all reasonable
"out-of-pocket" business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement
(1) so long as such expenses constitute business deductions from taxable income
for the Company and are excludable from taxable income to Executive under the
governing laws and regulations of the Internal Revenue Code (provided, however,
that Executive shall be entitled to full reimbursement in any case where the
Internal Revenue Service may, under Section 274(n) of the Internal Revenue Code,
disallow to the Company some percentage of meals and entertainment expenses);
and (2) to the extent such expenses do not exceed the amounts allocable for such
expenses in budgets that are approved from time to time by the Company. The
reimbursement of Executive's business expenses shall be upon monthly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may be
assigned to him from time to time by the Company's Board of Directors
commensurate with his experience and responsibilities in the position for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Board of Directors of the Company.
4.2 General Specification of Duties. Executive's duties shall include, but
not be limited to those duties that are generally associated with the position
of the Chief Scientist of a company similarly situated to the Company, and as
such duties and responsibilities may be more particularly described in the
Company's Bylaws.
The foregoing specifications are not intended as a complete itemization of
the duties which Executive shall perform and undertake on behalf of the Company
in satisfaction of his employment obligations under this Agreement.
4.3 Executive's Devotion of Time. Executive hereby agrees to devote his
full time abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and forwarding of the business affairs of
the Company, and not to divert any business opportunities from the Company to
himself or to any other person or business entity.
4.4 Conflicting Activities.
(a) Executive may, during the Initial Term or any Renewal Term of this
Agreement, be engaged in other business activities without the prior consent of
the Board of Directors of the Company; provided, however, that Executive may not
compete directly with the Company. Further, nothing in this Agreement shall be
construed as preventing Executive from investing his personal assets in passive
investments in business entities which are not in competition with the Company
or its affiliates, or from pursuing business opportunities as permitted by
Section 4.4(b).
(b) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
<PAGE>
future business of the Company, in a manner consistent with the best interests
of the Company and with his duties under this Agreement. Should Executive
discover a business opportunity that does not relate to the current or
anticipated future business of the Company, he shall first offer such
opportunity to the Company. Should the Board of Directors of the Company not
exercise its right to pursue this business opportunity within a reasonable
period of time, not to exceed sixty (60) days, then Executive may develop the
business opportunity for himself; provided, however, that such development may
in no way conflict or interfere with the duties owed by Executive to the Company
under this Agreement. Further, Executive may develop such business opportunities
only on his own time, and may not use any service, personnel, equipment,
supplies, facility or trade secrets of the Company in their development. As used
herein, the term "business opportunity" shall not include business opportunities
involving investment in publicly traded stocks, bonds or other securities, or
other investments of a personal nature.
5. Change of Control. If any time during the Initial Term or any Renewal
Term of this Agreement there is a change of control of the Company, as defined
below, and Executive's employment is terminated by the Company under Section
7.1(a),(b), (d) or (e) within the greater of one (1) year following the change
of control or the remaining term of this Agreement, the Company shall pay to
Executive (a) an amount equal to two times his annual Base Salary as in effect
on the date of termination, and (b) any other amounts due to Executive under any
other provision of this Agreement. This amount shall be paid to Executive in one
lump sum as soon as practicable, but in no event later than one hundred twenty
(120) days, after the date that Executive's employment terminated. In addition
to the lump sum payment referenced in the preceding sentence, the Company shall
pay to Executive any accrued and unpaid Bonuses as provided for in Section 3.3
at the same time as the lump sum payment is made.
For purposes of this subsection, a change of control shall mean the
occurrence of one or more of the following three events:
(1) After the effective date of this Agreement, any person becomes a
beneficial owner (as such term is defined in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) directly or indirectly of securities
representing 33% or more of the total number of votes that may be cast for
the election of directors of the Company;
(2) Within two years after a merger, consolidation, liquidation or
sale of assets involving the Company, or a contested election of a Company
director, or any combination of the foregoing, the individuals who were
directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board; or
(3) Within two years after a tender offer or exchange offer for voting
securities of the Company, the individuals who were directors of the
Company immediately prior thereto shall cease to constitute a majority of
the Board.
6. Confidentiality of Trade Secrets and Other Materials.
6.1 Executive acknowledges that in his employment hereunder, he will be
making use of, acquiring and adding to the Company's trade secrets and its
confidential and proprietary information of a special and unique nature and
value relating to such matters as, but not limited to, the Company's business
operations, manufacturing processes, manufacturing techniques, manufacturing
methods, manufacturing technology, internal structure, financial affairs,
programs, software, systems, procedures, manuals, confidential reports, lists of
clients and prospective clients and sales and marketing methods, as well as the
amount, nature and type of services, equipment and methods used and preferred by
the Company's clients and the fees paid by such clients, all of which shall be
<PAGE>
deemed to be confidential information. Executive acknowledges that such
confidential information has been and will continue to be of central importance
to the business of the Company and that disclosure of it to or its use by others
could cause substantial loss to the Company. In consideration of employment by
the Company, Executive agrees that during the term of this Agreement and any
renewal or extension of his employment by the Company and upon and after leaving
the employ of the Company for any reason whatsoever, Executive shall not, for
any purpose whatsoever, directly or indirectly, divulge or disclose to any
person or entity any of such confidential information which was obtained by the
Executive as a result of Executive's employment with the Company or any trade
secrets of the Company, but shall hold all of the same confidential and
inviolate.
6.2 All contracts, agreements, financial books, records, instruments and
documents; client lists; memoranda; data; reports; programs; software; tapes;
rolodexes; telephone and address books; letters; research; card decks; listings;
programming; and any other instruments, records or documents relating or
pertaining to clients serviced by the Company or the Executive, the services
rendered by the Executive, or the business of the Company (collectively, the
"Records") shall at all times be and remain the property of the Company. Upon
termination of this Agreement and the Executive's employment under this
Agreement for any reason whatsoever, Executive shall return to the Company all
Records (whether furnished by the Company or prepared by the Executive), and
Executive shall neither make nor retain any copies of any of such Records after
such termination.
6.3 All inventions and other creations, whether or not patentable or
copyrightable, made or conceived in whole or in part by Executive while employed
by the Company and within eighteen months thereafter, which relate directly to
the business, existing or proposed, of the Company or any other business or
research or development effort in which the Company or any of its subsidiaries
or affiliates engages during Executive's employment by the Company will be
disclosed promptly by Executive to the Company and shall be the sole and
exclusive property of the Company. All copyrightable works created by Executive
and covered by this Section 6.3 shall be deemed to be works for hire. Executive
shall cooperate with the Company in patenting or copyrighting all such
inventions and other creative works, shall execute, acknowledge, seal and
deliver all documents tendered by the Company to evidence its ownership thereof
throughout the world, and shall cooperate with the Company in obtaining,
defending, and enforcing its rights therein.
7. Termination.
7.1 Bases for Termination.
(a) Executive's employment hereunder may be terminated at any time by
mutual agreement of the parties.
(b) This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Company's Board of Directors based upon a
certification of such incapacity by, in the discretion of the Company's Board of
Directors, either Executive's regularly attending physician or a duly licensed
physician selected by the Company's Board of Directors, rendering Executive
unable to perform substantially all of his duties hereunder and which appears
reasonably certain to continue for at least six consecutive months without
substantial improvement. Executive shall be deemed to have "become permanently
incapacitated" on the date the Company's Board of Directors has determined that
Executive is permanently incapacitated and so notifies Executive.
<PAGE>
(c) Executive's employment may be terminated by the Company "with cause,"
effective upon delivery of written notice to Executive given at any time
(without any necessity for prior notice) if any of the following shall occur:
(1) any action by Executive which would be grounds for termination
under applicable law (currently covering any willful breach of duty, and
habitual neglect of duty);
(2) any material breach of Executive's obligations in Sections 4 or 6
above; or
(3) any material acts or events which inhibit Executive from fully
performing his responsibilities to the Company in good faith, such as (i) a
felony criminal conviction; (ii) any other criminal conviction involving
Executive's lack of honesty or Executive's moral turpitude; (iii) drug or
alcohol abuse; or (iv) acts of dishonesty, gross carelessness or gross
misconduct.
(d) Executive's employment may be terminated by the Company "without cause"
(for any reason or no reason at all) at any time by giving Executive 60 days
prior written notice of termination, which termination shall be effective on the
60th day following such notice. If Executive's employment under this Agreement
is so terminated, the Company shall (i) make a lump sum cash payment to
Executive within 10 days after termination is effective of an amount equal to
(1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed
expenses accrued to the date of termination; (3) an amount equal to the greater
of (a) Executive's annual Base Salary (i.e., 12 months of Base Salary), or (b)
amounts remaining due to Executive as Base Salary (assuming that payments under
this Agreement were made until expiration of the Initial Term or if applicable
the Renewal Term), and (4) any other amounts due to Executive under any other
provision of this Agreement. For purposes of this provision, Executive's annual
Base Salary and the remaining portion of the term of the Agreement shall be
calculated as of the termination date. After the Company's termination of
Executive under this provision, the Company shall not be obligated to provide
the benefits to Executive described in Section 3.3 (except as may be required by
law). In addition to the lump sum payment referenced in the preceding sentence,
the Company shall pay to Executive the Bonus provided for in Section 3.2 based
upon the number of days in the year that Executive was employed by the Company,
within one hundred five days after the end of the fiscal year in which Executive
was terminated.
(e) Executive may terminate his employment hereunder by giving the Company
60 days prior written notice, which termination shall be effective on the 60th
day following such notice.
7.2 Payment Upon Termination. Upon termination under Sections 7.1(a), (b),
(c) or (e), the Company shall pay to Executive within 10 days after termination
an amount equal to the sum of (1) Executive's Base Salary accrued to the date of
termination; (2) unreimbursed expenses accrued to the date of termination, and
(3) any other amounts due to Executive under any other provision of this
Agreement. Except for the foregoing compensation then due and owing and the
compensation provided for in Section 8.1(d), the Company shall not be obligated
to compensate Executive, his estate or representatives after any such
termination. Further, Executive shall not be entitled to any of the benefits
described in Section 3.3 (except as provided by law) after such termination.
7.3 Dismissal from Premises. At the Company's option, Executive shall
immediately leave the Company's premises on the date notice of termination is
given by either Executive or the Company.
8. Restrictive Covenants.
8.1 The Company and Executive acknowledge and agree that Executive's
services are of a special and unusual character which have a unique value to the
<PAGE>
Company, the loss of which cannot be adequately compensated by damages in an
action at law and if used in competition with the Company could cause serious
harm to the Company. Further, Executive and the Company also recognize that an
important part of Executive's duties will be to develop good will for the
Company through his personal contact with customers, agents and others having
business relationships with the Company, and that there is a danger that this
good will, a proprietary asset of the Company, may follow Executive if and when
his relationship with the Company is terminated. Accordingly, Executive
covenants that for a period of eighteen months after Executive ceases to be
employed by the Company for any reason whatsoever, Executive shall not, without
the prior written consent of the Company, directly or indirectly:
(a) Offer to render any services or solicit the rendition of any services
which were rendered by the Company during the two year period immediately
preceding such cessation of Executive's employment with the Company to any
clients, customers or accounts of the Company who were such at any time during
such two year period to or for the benefit or account of Executive or to or for
the benefit or account of any other person or entity.
(b) Render or attempt to render any services which were rendered by the
Company during the two year period immediately preceding such cessation of
Executive's employment with the Company to any clients, customers or accounts of
the Company who were such at any time during such two year period to or for the
benefit or account of Executive or to or for the benefit or account of any other
person or entity.
(c) Solicit for employment or employ to or for the benefit or account of
Executive or to or for the benefit or account of any other person or entity any
employee of the Company, nor shall Executive urge, directly or indirectly, any
client or referrer of clients, customers, or accounts of the Company to
discontinue, in whole or in part, business with the Company or not to do
business with the Company. For purposes of this Section 8.1(c) of this
Agreement, the term "referrer of clients" shall mean any person or entity who or
which referred a client, customer or account to the Company at any time prior to
such cessation of Executive's employment with the Company.
(d) Engage, either as a consultant, independent contractor, proprietor,
stockholder, partner, officer, director, employee or otherwise, in any business
which designs or sells software for the migration or conversion of computer
applications or software or Year 2000 compliance or remediation, or otherwise
competes with the Company in any state of the United States or in any foreign
country, in each such case where the Company sold, licensed or otherwise
provided software or related services at any time during the two year period
immediately preceding such cessation of Executive's employment with the Company.
The Company and the Executive agree that the Company may elect to either enforce
or waive this Section 8.1(d); provided however, that if the Company elects to
enforce this Section 8.1(d), then subject to the provisions of the immediately
following sentence, the Company agrees to pay Executive on a monthly basis an
amount equal to his monthly Base Salary at the time of termination for each
month that the Company elects to keep this provision in effect. It is expressly
understood and agreed that if Executive is paid any amounts pursuant to Section
7.1(d), then the provisions of this Section 8.1(d) shall remain in full force
and effect without the Company being obligated to make the additional payments
contemplated in the immediately preceding sentence.
8.2 The parties hereto agree that to the extent that any provision or
portion of Section 8.1 of this Agreement shall be held, found or deemed to be
unreasonable, unlawful or unenforceable by a court of competent jurisdiction,
<PAGE>
then any such provision or portion thereof shall be deemed to be modified to the
extent necessary in order that any such provision or portion thereof shall be
legally enforceable to the fullest extent permitted by applicable law; and the
parties hereto do further agree that any court of competent jurisdiction shall,
and the parties hereto do hereby expressly authorize, request and empower any
court of competent jurisdiction to, enforce any such provision or portion
thereof or to modify any such provision or portion thereof in order that any
such provision or portion thereof shall be enforced by such court to the fullest
extent permitted by applicable law.
8.3 The provisions of Sections 8.1(a), 8.1(b), 8.1(c) and 8.1(d) of this
Agreement are cumulative. Compliance with Sections 8.1(a), 8.1(b), 8.1(c) and
8.1(d) of this Agreement is a condition precedent to the Company's obligation to
make any payments of any nature to Executive, whether under this Agreement or
otherwise. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available to it for a breach or
threatened breach of Sections 6 and 8 of this Agreement.
8.4 As used in this Section 8, "clients", "customers" and "accounts" shall
include any person or entity that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
any such "clients", "customers" or "accounts".
9 Injunctive Relief. The Company and Executive hereby acknowledge and
agree that any violation of the provisions of Sections 6 or 8 hereunder will
cause irreparable injury to the Company and there is no adequate remedy at law
for such violation. Accordingly, in addition to any other relief to which the
Company may be entitled, the Company shall be entitled to such injunctive relief
as may be ordered by any court of competent jurisdiction including, but not
limited to, an injunction restraining any violation of Sections 6 or 8 above
without the proof of actual damages.
10. Miscellaneous.
10.1 Transfer and Assignment. This Agreement is personal as to Executive
and shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
10.2 Severability. Nothing contained herein shall be construed to require
the commission of any act contrary to law. Should there be any conflict between
any provisions hereof and any present or future statute, law, ordinance,
regulation or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
10.3 Governing Law. This Agreement is made under and shall be construed
pursuant to the laws of the State of Colorado.
10.4 Counterparts. This Agreement may be executed in several counterparts
and all documents so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts.
10.5 Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, arrangements and understandings
with respect thereto. No representation, promise, inducement, statement or
intention has been made by any party hereto that is not embodied herein, and no
party shall be bound by or liable for any alleged representation, promise,
inducement or statement not so set forth herein.
<PAGE>
10.6 Modification. This Agreement may be modified, amended, superseded or
cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation or waiver.
10.7 Attorneys' Fees and Costs. In the event of any dispute arising out of
the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
10.8 Waiver. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
10.9 Cumulative Remedies. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one or such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
10.10 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
10.11 Notices. Any notice under this Agreement must be in writing, may be
telecopied provided that evidence of the transmission and receipt is created at
the time of transmission, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
If to the Company: Accelr8 Technology Corporation
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
If to Executive: Franz Huber
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
10.12 Survival. Any provision of this Agreement which imposes an obligation
after termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement and be binding on Executive and the Company.
10.13 Right of Set-Off. Upon termination or expiration of this Agreement,
the Company shall have the right to set-off against the amounts due Executive
hereunder the amount of any outstanding loan or advance from the Company to
Executive.
<PAGE>
10.14 Effective Date. This Agreement shall become effective as of the date
set forth on page 1 when signed by Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
FRANZ HUBER ACCELR8 TECHNOLOGY CORPORATION
________________________________ By:_________________________________________
Thomas V. Geimer, Chief Executive Officer
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<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 70,432 2,878,451
<EPS-BASIC> .01 .38
<EPS-DILUTED> .01 .35
</TABLE>
