SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORTS UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-21662
Strategia Corporation
(formerly Dataguard Recovery Services, Inc.)
(Exact name of registrant as specified in its charter)
Kentucky 61-1064606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10301 Linn Station Road, P.O. Box 37144, Louisville, KY 40233-7144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 502-426-3434
Former name, former address, and former fiscal year, if changed since last
report.
Dataguard Recovery Services, Inc.
Indicate by check [X] whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date - 3,010,885.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Condensed Consolidated Balance Sheets
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,364,253 $ 170,636
Accounts receivable, net 1,622,155 1,128,407
Other current assets 136,855 490,124
Total current assets 3,123,263 1,789,167
Property and equipment 17,996,238 16,138,011
Less accumulated depreciation and amortization 9,207,054 7,376,653
8,789,184 8,761,358
Other assets 538,284 237,222
$12,450,731 $10,787,747
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 164,360 $ 304,139
Current installments of obligations under
capital leases 1,985,164 1,858,755
Notes payable to stockholders 800,000 991,176
Accounts payable 968,442 941,812
Accrued income taxes 110,410 133,630
Accrued expenses and other current liabilities 1,116,023 854,862
Total current liabilities 5,144,399 5,084,374
Long-term debt, excluding current installments 989,710 1,024,356
Obligations under capital leases,
excluding current installments 1,983,214 2,179,412
Customers' deposits 34,327 58,253
Deferred revenue 1,881,784 852,146
Deferred income taxes 319,563 309,938
Total liabilities 10,352,997 9,508,479
Stockholders' equity:
Preferred stock -- authorized 2,000,000 shares:
Series A Convertible Preferred ($10 stated value);
authorized 100,000 shares; issued and
outstanding 0 shares at September 30, 1996 and
34,167 shares at December 31, 1995 341,670
Series AA Convertible Preferred ($10 stated value);
authorized 100,000 shares; issued and
outstanding 64,546 shares at September 30, 1996
and 0 shares at December 31, 1995 645,460
Common stock without par value. Authorized
15,000,000 shares; issued and outstanding
3,010,885 shares at September 30, 1996 and
2,506,885 shares at December 31, 1995 4,253,834 3,029,833
Accumulated deficit (2,784,933) (2,119,092)
Foreign currency translation (16,627) 26,857
Total stockholders' equity 2,097,734 1,279,268
$12,450,731 $10,787,747
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Service revenues $2,287,694 $2,463,350 $7,007,412 $6,691,634
Operating expenses:
Cost of services 1,850,530 1,453,229 5,223,215 3,973,297
Selling, general and
administrative expenses 636,465 621,055 1,764,527 1,732,217
2,486,995 2,074,284 6,987,742 5,705,514
Operating income (loss) (199,301) 389,066 19,670 986,120
Other income (expense):
Interest expense (123,616) (195,226) (487,555) (512,251)
Other income, net 7,574 28,207 14,334 49,801
(116,042) 167,019 (473,221) (462,450)
Income (loss) before
income taxes $ (315,343) $ 222,047 $ (453,551) $ 523,670
Income taxes 23,636 176,600 129,723 416,900
Net income (loss) $ (322,305) $ 99,473 $ (583,274) $ 106,770
Net income (loss) per share
of common stock $ (.13) $ .04 $ (.25) $ .03
Weighted average number
of common shares
outstanding 2,535,320 2,497,580 2,523,790 2,489,537
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
<CAPTION>
Series A Series AA Foreign
Preferred Preferred Common Accumulated Currency
Stock Stock Stock Deficit Translation
Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995 $ 341,670 $ - $3,029,833 $(2,119,092) $ 26,857 $1,279,268
Issuance of
Common Stock - - 1,224,001 - - 1,224,001
Conversion of
Series A
Preferred
dividends in
arrears to
Series AA
Preferred (341,670) 341,670 - - - -
Conversion of
Series A
Preferred
dividends in
arrears to
Series AA
Preferred - 69,552 - (69,552) - -
Conversion of
stockholders'
notes and
interest to
Series AA
Preferred - 234,238 - - - 234,238
Payment of
dividends - - - (13,015) - (13,015)
Net loss for nine
months ended
September 30,
1996 - - - (13,015) - (13,015)
Translation
adjustment at
September 30,
1996 - - - - (43,484) (43,484)
Balance at
September 30,
1996 $ $645,460 $4,253,834 $(2,784,933) $(16,627) $2,097,734
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (583,274) $ 106,770
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,930,549 1,508,400
Deferred income taxes 14,657 291,840
Other (21,511) 2,596
Change in operating assets and liabilities:
Accounts receivable (546,450) (1,688,237)
Other current assets 331,306 (75,096)
Accounts payable 83,446 317,515
Accrued income taxes (801) 125,060
Accrued expenses and other current liabilities 308,376 791,296
(Increase) decrease in other assets (324,934) (20,805)
Increase (decrease) in deferred revenue 1,036,560 1,221,606
Increase (decrease) in customers' deposits (13,110) 31,684
Net cash provided by operating activities 2,214,814 2,612,629
Cash flows from investing activities:
Acquisition of property and equipment (301,526) (595,903)
Purchase of Twinsys (50,870)
Net cash used in investing activities (301,526) (646,773)
Cash flows from financing activities:
Proceeds from note payable to stockholder 500,000
Net proceeds from issuance of common stock 1,200,001
Proceeds from bank line of credit 250,000
Proceeds from long-term debt
Principal payments on long-term debt and
obligations under capital leases (2,156,657) (2,123,108)
Payment of preferred dividends (13,015) (38,528)
Net cash used in financing (719,671) (1,661,636)
activities
Net increase in cash and cash equivalents 1,193,617 304,220
Cash and cash equivalents at beginning of period 170,636 108,603
Cash and cash equivalents at end of period $ 1,364,253 $ 412,823
</TABLE>
See notes to unaudited condensed consolidated financial statements.
STRATEGIA CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1996
(1) In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of September 30, 1996 and the results of operations for the three and nine
months then ended and cash flows for the nine months then ended.
Certain reclassifications of amounts in the condensed consolidated
financial statements have been made to reflect comparability.
(2) This financial information should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the period ended December 31, 1995.
(3) For financial reporting purposes, income (loss) before income taxes for
the three and nine months ended September 30, 1996 and 1995, includes the
following components:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
Pretax income (loss): 1996 1995 1996 1995
<S> <C> <C> <C> <C>
United States $ (334,329) $ (109,367) $ (807,310) $ (603,320)
Foreign 18,986 331,414 353,759 1,125,990
$ (315,343) $ 222,047 $ (453,551) $ 523,670
</TABLE>
The provision for income tax expense is attributable to earnings from foreign
operations.
(4) In September 1996, the Company raised $1,200,001 in a private placement of
Common Stock and warrants to purchase Common Stock. Net proceeds from the sale
of those shares were used to reduce bank line of credit borrowings and accounts
payable.
(5) Income per share is based on net income less preferred dividends divided
by the weighted average number of common and equivalent shares outstanding
during the period. Common stock equivalents outstanding are calculated for
stock options and warrants using the treasury stock method. Fully diluted per
share amounts are not materially different from primary per share amounts.
(6) On July 29, 1996 the Company announced that the 1-for-2 reverse stock
split of its Common Stock and its change of name from Dataguard Recovery
Services, Inc. to Strategia Corporation had taken effect before the opening of
business that day. As a result of the 1-for-2 reverse stock split, every two
of the Company's common shares outstanding at the effective time were
automatically converted into one new common share of Strategia Corporation.
The Company's name change and reverse stock split had been approved by the
shareholders at the Company's 1996 annual meeting on July 12, 1996. All share
and per share amounts have been restated for the reverse stock split.
(7) On May 30, 1996, the Company's Board of Directors authorized the issuance
of Series AA Convertible Preferred Stock (Series AA Preferred) which provides
for an annual dividend of 8%, compared to 11.5% on the Series A Convertible
Preferred Stock (Series A Preferred). The Series AA Preferred like the Series
A Preferred is convertible into four shares of common stock for five years
after issuance through June 30, 2001. The limitations, preferences, and
relative rights of the Series AA Preferred are otherwise identical to those
of the Series A Preferred.
On June 30, 1996, all holders of Series A Preferred exchanged their shares
(34,167 shares) for the same number of Series AA Preferred Shares. In
addition, all dividends in arrears ($69,552) due to the original holders of
Series A Preferred at June 30, 1996 were converted to Series AA Preferred.
The Company had notes payable ($191,176) and accrued interest payable
($43,062) to certain stockholders at June 30, 1996. These amounts were also
converted to Series AA Preferred as of June 30, 1996.
(8) Approximately 580,000 French francs (approximately $117,000) has been
charged to operations during the quarter ended September 30, 1996 to account
for a judgment rendered in September 1996 by a French court in a lawsuit by a
former employee of Twinsys. The employee had claimed certain severance
benefits as a result of his dismissal.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Preliminary Note Regarding Forward Looking Information
The information set forth in "Management's Discussion and Analysis of Results of
Operations and Financial Condition" includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, and is subject to the safe harbor created by those sections. Factors that
realistically could cause results to differ materially from those projected in
the forward-looking statements are set forth in "Management's Discussion and
Analysis of Results of Operations and Financial Condition" below and in the
Company's Registration Statement on Form SB-2 filed October 15, 1996
(Registration No. 333-14055) under "Risk Factors."
Results of Operations
The Company reported revenue of $2,287,694 and $7,007,412 for the three and nine
months ended September 30, 1996, respectively. This compares to revenue of
$2,463,350 and $6,691,634 for the comparable periods in 1995. The Company
reported net losses of $322,305 and $583,274 for the three and nine months ended
September 30, 1996 after reporting net income of $99,473 and $106,770 for the
same periods in 1995. The increase in revenue in 1996 is attributable entirely
to the Company's subsidiary, Twinsys Dataguard S.A. (hereinafter referred to as
"Twinsys"). On February 3, 1995, Twinsys acquired certain operating assets and
assumed certain liabilities of Twinsys S.A. ("Seller"), a Paris, France-based
provider of disaster recovery services in Europe.
Consolidated service revenue decreased $175,656 and increased $315,778 for the
three and nine month periods ended September 30, 1996 when compared to the same
periods in 1995. Twinsys accounted for approximately 73% of consolidated
service revenue for these periods in 1996. Twinsys revenues decreased
approximately 4% for the three months ended September 30, 1996 when compared
to the same period in 1995 and increased approximately 19% for the nine months
ended September 30, 1996 compared to the comparable period in 1995, when Twinsys
operated for only eight months. The decrease in the third quarter resulted from
an adjustment in the level of optional services subscribed for by a Twinsys
client retroactive to February 1996. The reduction in monthly revenues for
eight months was recorded entirely in the third quarter. Partially offsetting
the increase in service revenue at Twinsys was a decrease in backup service
revenue for the Company's North American operations. This revenue decreased
approximately 11% and 23% during the three and nine month periods ended
September 30, 1996, respectively, compared to the same periods in 1995. Bull
backup service revenue decreased significantly due to the expiration of the
Company's then largest contract effective June 1, 1995, and to increased
competition. The expired contract generated approximately 9% of the Company's
consolidated revenue during the first nine months in 1995. Revenues receivable
under the Company's new contract with this customer decreased significantly
due to the customer's reduced backup service requirements. IBM backup service
revenue grew by 22% and 23% for the three and nine months ended September 30,
1996, respectively when compared to the same periods in 1995, but was more than
offset by the decrease in Bull backup service revenue. Consulting service
revenue for the three and nine month periods ended September 30, 1996 decreased
by 46% and 58% over the comparable periods in 1995. The Company's consulting
services are not recurring, and therefore significant changes in these revenues
can occur from year to year. The Company began marketing data center
outsourcing services in December 1995, completing its initial contract during
the second quarter of 1996. Two new outsourcing contracts are expected to
commence during the fourth quarter of 1996.
The Company's operating expenses increased to $2,486,995 from $2,074,284 and
$6,987,742 from $5,705,514 for the three and nine months ended September 30,
1996 when compared to the same periods in 1995, respectively. The increase is
principally due to higher maintenance and depreciation expenses that Twinsys
began to incur in April 1996. Twinsys' operating expenses were lower in 1995,
when Twinsys operated largely with equipment previously leased to Seller.
Twinsys was able to negotiate substantially lower lease payments for this
equipment following Seller's bankruptcy. Beginning in April 1996, Twinsys was
obligated to obtain additional computer equipment to meet the backup
requirements of some of its largest customers, resulting in higher depreciation
and maintenance expenses and consequently, smaller margins. Maintenance and
depreciation expenses for Twinsys are expected to remain at approximately
current levels through 1997. The cost of services for North American operations
increased slightly to $640,119 for the three months ended September 30, 1996
from $621,055 for the same period last year. This increase is attributable to
software licensing fees required for outsourcing services that began in 1996,
partially offset by reductions in Bull computer equipment lease and maintenance
costs. Consolidated selling, general and administrative expenses increased
slightly to $638,138 and $1,764,527 for the three and nine months ended
September 30, 1996 from $621,055 and $1,732,217 in 1995. These expenses had
increased throughout 1995 due primarily to the addition of personnel and
marketing expenses for Twinsys. Although the costs for establishing and
coordinating Twinsys' technical, sales and administrative procedures are
expected to decrease in 1996, selling, general and administrative expenses are
expected to increase for the year as the Company increases its marketing and
technical staffs in North America and Europe in anticipation of increased demand
for millennium services. Professional fees attributable to Twinsys are also
expected to be lower in 1996. Legal fees are higher for the year as a result
of litigation in the United States that was settled during the third quarter.
Interest expense totaled $123,616 and $487,555 for the three and nine months
ended September 30, 1996, respectively, as compared to $195,226 and $512,251 for
the same periods last year. Interest expense for Twinsys totaled $56,242 and
$229,786 for the three and nine months ended September 30, 1996, and is related
mainly to capital leases for computer equipment. Interest expense for North
America, which principally related to capital leases and debt incurred to
establish and provide working capital for Twinsys, decreased approximately 18%
when compared to the nine month period ended September 30, 1995.
The provision for income taxes totaled $129,723 and $122,761 for the nine month
periods ended September 30, 1996 and 1995, respectively, due to French income
taxes resulting from income of Twinsys. No income tax benefits can be
recognized currently for U.S. operating losses, but these losses are available
to offset any future U.S. taxable income.
Liquidity and Capital Resources
At September 30, 1996, the Company's consolidated current liabilities exceeded
current assets by $2,021,136. The principal resources available to reduce
the Company's liquidity deficiency are monthly revenues payable under its
backup service contracts. Backup services revenue for the Company's
customers are generated in most cases under multi-year contracts that will
provide a predictable revenue stream over the next several years. These
contractual revenues, though not recorded on the Company's balance sheet,
will be available to help meet the Company's liabilities as recorded at
September 30, 1996. In September 1996, the Company raised gross proceeds of
$1,200,000 in a private placement of Common Stock and warrants to purchase
Common Stock. Net proceeds from the sale of those shares and warrants were
used to reduce the Company's bank line of credit, accounts payable, and for
general working capital needs.
Income from Twinsys has provided a significant, positive impact upon the
consolidated cash flow of the Company. However, the timing and amount of
cash transfers between Twinsys and Strategia are subject to rules governing
dividend payments by French subsidiaries of multi-national corporations, as
well as practical considerations. The Company assesses the working capital
needs of its North American and European operations periodically and
determines appropriate allocations of cash throughout the year.
The Company's computer equipment is expected to meet the technological
requirements of current and prospective backup services customers in North
America and Europe without the need for any additional material capital
expenditure during 1996. Twinsys financed its acquisition of computer
equipment needed for the backup requirements of some of its largest customers
through a capital lease obligation totaling approximately $2,000,000. Twinsys
is also expected to incur increased equipment expense in 1997 as leases
negotiated in 1995 begin to expire and new leases take effect. To the extent
that additional computer hardware is required to meet the terms of future
contracts for data center outsourcing and millennium testing services, the
Company intends to finance the acquisition of readily available used equipment
from contract revenues whenever possible, and the proceeds of a planned public
offering of Common Stock discussed below.
The Company filed a registration statement with the Securities and Exchange
Commission on October 15, 1996 to offer 1,750,000 units to the public. The
units consist of one share of Common Stock and one Warrant to purchase one
share of Common Stock. The Company intends to use the net proceeds from
the offering to fund increases in marketing and technical personnel needed to
support the growth of its millennium services and outsoucing business and to
repay an $800,000 loan from a shareholder. The Company believes that the
addition of new customers for millennium services as well as for outsourcing,
backup, and consulting services will enable the Company to generate sufficient
cash from operations to finance its working capital requirements for at least
the next year and reduce its working capital deficit. To the extent that
amounts from these sources are insufficient to finance the Company's working
capital requirements, the Company will be required to raise additional funding
through equity and debt financing. There can be no assurance that such
financing will be available on terms acceptable to the Company, and if
available, such financing may result in further dilution to the Company's
stockholders and higher interest expense.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company entered into a settlement agreement dated September 17, 1996,
regarding the litigation styled Honeywell Inc. and Bull HN Information Systems,
Inc. v. Dataguard Recovery Services, Inc. (No. 95-1052-JLT United States
District Court, District of Massachusetts). In the settlement, Bull revised its
software license agreement with the Company regarding the Company's outsourcing
business. Bull also made commitments that will eliminate certain potential
obstacles for the Company's disaster recovery customers that use Bull software.
The Company released Bull from all prior agreements restricting Bull from
competing in the disaster recovery business. The settlement agreement also
contained mutual releases.
While the litigation with Bull was pending, the Company withheld payment on
a note with an outstanding balance of approximately $156,000. The note had
originally been given by the Company to Bull, but Bull had subsequently assigned
it to Wang Laboratories, Inc. Wang filed suit to collect on the note (Wang
Laboratories, Inc. v. Dataguard Recovery Services, Inc. (Civil Action No.
96-CI-03782, Jefferson Circuit Court)). Shortly after the Bull litigation was
settled, the Company settled the Wang litigation. Under that settlement, the
Company is to pay the entire amount outstanding under the note (without further
interest) over a six month period ending in March 1997.
On August 9, 1996, a French court awarded a former employee of Twinsys
approximately $117,000 in a lawsuit claiming certain severance benefits as a
result of his dismissal. The award was not appealed by either party. The
Company has charged this amount against operations for the third quarter. See
Note 8 of Notes to Financial Statements and Item 2 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Events.
In September 1996, the Company issued 480,000 Units at an offering price of
$2.50 cash per Unit in a private placement. Each Unit consists of one share of
Common Stock and a warrant to purchase one share of Common Stock for $3.75 per
share ("1996 Warrants"). The 1996 Warrants are redeemable by the Company, at
$.25 per share of Common Stock subject to the 1996 Warrants, upon thirty days
written notice, if the closing bid price per share of the Common Stock for the
ten consecutive trading days immediately preceding the date notice of redemption
is given equals or exceeds $7.50. Holders of the 1996 Warrants have a one-time
right to register the shares issuable upon exercise of the 1996 Warrants for
sale at the Company's expense upon the demand of holders of 50% of the shares
subject to the 1996 Warrants, and "piggy-back" registration rights through
September 30, 2001, subject to certain limitations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10 - Acquisition Assistance Agreement, as amended among Copex
Limited (UK), Copex Limited (Swiss), Dataguard Limited, and Strategia
Corporation.
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant
has caused this amendment to its quarterly report to be signed on its behalf by
the undersigned, hereunto duly authorized.
STRATEGIA CORPORATION
Date: October 29, 1996 By: \s\ Richard W. Smith
Richard W. Smith, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
\s\ Richard W. Smith President and Director October 29, 1996
Richard W. Smith (Chief Executive Officer)
(Chief Financial Officer)
(Chief Accounting Officer)
</TABLE>
ACQUISITION ASSISTANCE AGREEMENT
This is an agreement (this "Agreement"), dated as of December
1, 1994, among Copex Limited, a United Kingdom company ("Copex"),
Copex Limited, a Swiss company("Copex (Swiss)"), Dataguard Limited,
a Kentucky, U.S.A. corporation, and Dataguard Recovery Services,
Inc., a Kentucky U.S.A. corporation ("Dataguard").
Background
A. Dataguard Limited and Copex (Swiss) are parties to an
agreement dated as of July 18, 1994 (the "Promotion Agreement"),
pursuant to which Copex (Swiss) agreed, among other things, to
promote the sale of Dataguard's services in the territory defined
in the Promotion Agreement in consideration of the payment of
certain commissions.
B. Dataguard, with the assistance of Copex, is submitting a
bid in an insolvency proceeding (the "Proceeding") to purchase,
through a wholly-owned subsidiary to be formed ("Twinsys-Dataguard"), certain
portions of the business of Twinsys, S.A. ("Twinsys"). Should Dataguard
succeed in purchasing this business, the Promotion Agreement will be obsolete.
C. Copex wishes to assist Twinsys-Dataguard in (i)
renegotiating the terms of the leases by which Twinsys currently
leases equipment (the "Twinsys Equipment Leases") and (ii)
introducing Twinsys-Dataguard to prospective new customers.
D. The purpose of this Agreement is to (i) memorialize the
agreement between Dataguard and Copex concerning the amounts to be
paid to Copex as compensation for introducing Dataguard to, and
assisting Dataguard in, the acquisition of the Twinsys business and
for the services to be performed by Copex as outlined in paragraph
C. above, and (ii) terminate the Promotion Agreement.
Agreement
Section 1
Provisions Contingent on the
Acquisition of the Twinsys Business
If and only if Dataguard, directly or through Twinsys-Dataguard or
another subsidiary, acquires (the "Acquisition") the Twinsys business in
the Proceeding:
1.01 Compensation to Copex. Dataguard shall pay to Copex 2%
of the gross revenues of Twinsys-Dataguard for the calendar years
1995 through 1999 (the "Copex Consideration"). Payment for each
calendar quarter shall be made within 30 days after the end of that
calendar quarter.
1.02 Equipment Lease Negotiations. Copex shall promptly
assist Twinsys-Dataguard in renegotiating the Twinsys Equipment
Leases on terms most favorable to Twinsys-Dataguard as can be
reasonably obtained. If any of the Twinsys Equipment Leases cannot
be appropriately renegotiated, Copex shall obtain replacement
equipment and use its best efforts to obtain a replacement lessor
with lease terms as beneficial to Twinsys-Dataguard as can
reasonably be obtained . Copex shall, in negotiating the leases,
use its best efforts to obtain the following terms (the "Projected
Terms"):
* The aggregate amount to be paid over the life of all
of the leases shall range between 15 million and 20 million French
francs;
* The term of each of the leases shall be at least 36
months with no payments due during or with respect to at least the
first 3 to 6 months and level payments during and with respect to
each of the remaining months;
* The equipment to be leased shall not include the
equipment presently located at the Cergy location of Twinsys but
shall include all of the equipment presently located at Twinsys'
Tour Mirabeau location. The Equipment shall also include all
equipment currently required under existing Twinsys agreements with
its customers including, without limitation, an additional CMM 8501
(128 Mb memory module for the DPS 9000); and
* Such other terms as are customarily included in
equipment leases for this sort of equipment in France.
1.03 Termination of Promotion Agreement. The Promotion
Agreement shall immediately be terminated and of no further force
or effect and neither Copex (Swiss), Copex, Dataguard nor Dataguard
Limited shall have any liability to any of the others on account of
the Promotion Agreement; provided, that Section 4.03 of the
Promotion Agreement shall remain in full force and effect
notwithstanding the termination of the rest of the Promotion
Agreement and shall be enforceable by Dataguard or Dataguard
Limited against both Copex and Copex (Swiss).
1.04 Promotion of Twinsys-Dataguard Services. Copex shall
during the 3-year period immediately following the Acquisition (the
"Promotion Term") use its best efforts to promote the Twinsys-Dataguard
services including but not limited to, introducing prospective customers
to Twinsys-Dataguard. Copex shall carefully coordinate with Twinsys-
Dataguard all of its activities in promoting Twinsys-Dataguard.
Twinsys-Dataguard shall reimburse Copex for all reasonable expenses
incurred by Copex in promotion of Twinsys-Dataguard services provided
they have been approved in advance by Twinsys-Dataguard. The length of
the Promotion Term may be extended by agreement between Dataguard and Copex.
1.05 Commissions. Dataguard, as the sole compensation to
Copex for Copex's services provided under Section 1.04 of this
Agreement, shall pay to Copex the percentage set forth below of all
Fees (as defined below) accrued and received by Twinsys-Dataguard
with respect to customers ("Copex Referred Customers") who, as of
both the date of this Agreement and as of the date Copex introduces
the customer to Twinsys-Dataguard, are neither customers of Twinsys
or Twinsys-Dataguard nor are they considered by either Twinsys or
Twinsys-Dataguard as active prospects.
<TABLE>
<CAPTION>
Fees received under the initial term of first Fees received
contract with respect to a Copex Referred Customer under subsequent
terms of the
First year of initial term Subsequent years of first con-
of first contract with initial term of first tract with
respect to the Copex contract with respect to respect to a
Referred Customers the Copex Referred Copex Referred
Customer Customer and
all other
If first If first If first If first contracts
contract contract contract contract with respect
entered entered on entered entered on to that Copex
prior to or after prior to or after Referred
July 1, 1995 July 1, 1995 July 1, 1995 July 1, 1995 Customer
<S> <C> <C> <C> <C> <C>
Copex will receive 20% 15% 10% 7.5% 7.5%
the following
percentage of Fees
actually collected
by Twinsys-Dataguard
during the Promotion
Term
Copex will receive 20% 10% 15% 7.5% 0%
the following
percentage of Fees
actually collected
by Twinsys-Dataguard after
the Promotion Term
</TABLE>
For purposes of this Agreement, the term "Fees" shall mean the
consulting fees and ordinary and recurring payments accrued and
received from Twinsys-Dataguard's Copex Referred Customers with
respect to the provision of hot site and cold site services;
provided, however, the term "Fees" does not include any payment by
Copex Referred Customers for reimbursement of expenses or taxes or
similar payments, or the payment of extraordinary amounts such as
disaster notification fees, usage fees, excess testing fees, and
other similar extraordinary and nonrecurring amounts. Dataguard
shall have no liability to pay any amounts to Copex except with
respect to Fees actually accrued and received and collected by
Twinsys-Dataguard.
Section 2
Non-Compete
2.01 Covenant of Copex. During calendar years 1995 through
1999 (the years with respect to which the Copex Consideration is to
be paid) (the "Term") and for two years thereafter, Copex shall
not, and shall cause those individuals who are now or hereafter
become executive officers or holders of 10% or more of any class of
equity securities of Copex, not to engage directly or indirectly in
any capacity whatsoever (including, without limitation, as an
owner, shareholder, director, officer, employee, partner, etc.) in
the promotion, sale, or provision of any services that compete with
the services to be provided by Twinsys-Dataguard.
2.02 Covenant of Dataguard. During the Term and for two
years thereafter, Dataguard shall not, and shall cause those
individuals who are now or hereafter become executive officers or
holders of 10% or more of any class of equity securities of
Dataguard, not to engage directly or indirectly in any capacity
whatsoever in the promotion, sale, or provision of computer
equipment and computer equipment leasing in Europe.
2.03 Confidentiality. In the course of promoting the
Twinsys-Dataguard, Copex may have access from time to time to
proprietary information of Twinsys-Dataguard and Dataguard,
including customer lists (including the list of those customers
generated under this Agreement by Copex), pricing, know-how, etc.
(the "Confidential Information"). Copex shall, and shall cause
each of its employees, agents, officers, subcontractors, and others
that has access to the Confidential Information to, maintain the
confidentiality of the Confidential Information and to use the
Confidential Information solely for the purposes set forth in this
Agreement.
Section 3
Indemnification
Dataguard and Copex (each an "Indemnifying Party") shall each
indemnify and hold harmless the other (and "Indemnified Party")
from and against, and shall pay to the Indemnified Party the full
amount of any loss, claim, damage, liability or expense (including
reasonable attorneys' fees) resulting to the Indemnified Party from
or in connection with any breach by the Indemnifying Party of this
Agreement.
Section 4
Miscellaneous
4.01 Notices. Any notices or other communications required
or permitted hereunder shall be deemed to have been duly given if
(a) delivered in person, or (b) if sent by certified mail, postage
and fees prepaid, to the party notified as follows:
If to Dataguard or Dataguard Limited:
Dataguard Limited
Dataguard Recovery Services, Inc.
10301 Linn Station Road
Louisville, Kentucky, U.S.A. 40223
With a copy to:
James A. Huguenard
Brown, Todd & Heyburn
3200 Providian Center
Louisville, Kentucky, U.S.A. 40202-3363
If to Copex or Copex (Swiss):
Copex Limited
4, Rue Balzac
F-75008 Paris
Paris, France
4.02 Assignment and Subcontracting. Copex shall not
subcontract any of its obligations under this Agreement without the
prior written consent of Dataguard. Dataguard may withhold such
consent unless (i) Copex can establish to Dataguard's satisfaction
that the proposed subcontractor is financially stable and is
capable of performing any service that is proposed to be
subcontracted, and (ii) the proposed subcontractor contractually
obligates itself to Dataguard to comply with the terms of this
Agreement. Dataguard may, in its discretion, assign its
obligations under this Agreement to Twinsys-Dataguard. Upon such
an assignment and the assumption by Twinsys-Dataguard of
Dataguard's obligations hereunder, Dataguard shall have no further
obligations under this Agreement. Except as set forth above,
neither Dataguard nor Copex may assign this Agreement without the
prior written consent of the other. As used in this Agreement, (i)
subcontract means to have any individual or entity other than an
employer officer of Copex perform in whole or in part any of the
obligations of Copex hereunder, and (ii) subcontractor means any
individual or entity that is subcontracting.
4.03 Entire Agreement. This Agreement, including the
Exhibits hereto, contains the entire agreement, and supersedes any
and all prior or contemporaneous agreements, with respect to the
subject matter hereof. Any amendments to this Agreement shall be
of no effect unless set forth in writing and executed by both
parties.
4.04 Governing Law. The execution, interpretation, and
performance of this Agreement shall be governed by the laws of the
Commonwealth of Kentucky, U.S.A.
4.05 Expenses. Each party to this Agreement shall be
responsible for paying all expenses incurred by it in connection
with this Agreement and the acquisition the Twinsys business,
including the payment of all legal and accounting expenses incurred
at the request of that party; provided, that Dataguard shall pay or
reimburse Copex for up to $2,400 of the fees incurred by Copex's
lawyer in connection with the acquisition of the Twinsys business.
IN WITNESS WHEREOF, Dataguard, Dataguard Limited, Copex, and
Copex (Swiss) have each duly executed this Agreement as of the date
first written above.
DATAGUARD RECOVERY SERVICES, INC.
By /s/Richard W. Smith
Title: President
Date: 12/28/94
DATAGUARD LIMITED
By /s/ Richard W. Smith
Title: President
Date: 12/28/94
COPEX LIMITED (U.K.)
By /s/ F. Breuneval
Title: Director
Date: 27/12/94
COPEX LIMITED (SWISS)
By /s/ F. Breuneval
Title: Director
Date: 27/12/94
AMENDMENT TO
ACQUISITION ASSISTANCE AGREEMENT
This is an amendment (this "Amendment") dated as of January 6,
1995, to the agreement (the "Agreement"), dated as of December 1,
1994, among Copex Limited, a United Kingdom company ("Copex"),
Copex Limited, a Swiss company("Copex (Swiss)"), Dataguard Limited,
a Kentucky, U.S.A. corporation, and Dataguard Recovery Services,
Inc., a Kentucky U.S.A. corporation ("Dataguard"). Except as
hereby amended, the Agreement shall remain in full force and
effect. Capitalized terms used but not defined in this Amendment
shall have the meanings assigned them in the Agreement.
Sections 1.04 and 1.05 of the Agreement are hereby amended to
read as follows:
1.04 Promotion of Twinsys-Dataguard Services. Copex shall
during the 3-year period immediately following the Acquisition (the
"Promotion Term") use its best efforts to promote the Twinsys-Dataguard
services to data centers located in France, Germany, and Switzerland (the
"Territory"). Such efforts shall include, but not be limited to, introducing
prospective customers to Twinsys-Dataguard. Copex shall carefully coordinate
with Twinsys-Dataguard all of its activities in promoting Twinsys-Dataguard.
Twinsys-Dataguard shall reimburse Copex for all reasonable expenses incurred
by Copex in promotion of Twinsys-Dataguard services provided they have been
approved in advance by Twinsys-Dataguard. The length of the Promotion Term
may be extended by agreement between Dataguard and Copex.
1.05 Commissions. Dataguard, as the sole compensation to
Copex for Copex's services provided under Section 1.04 of this
Agreement, shall pay to Copex the percentage set forth below of all
Fees (as defined below) accrued and received by Twinsys-Dataguard
with respect to data centers located in the Territory operated by
customers ("Copex Referred Customers") who, as of both the date of
this Agreement and as of the date Copex introduces the customer to
Twinsys-Dataguard, are neither customers of Twinsys or Twinsys-Dataguard
nor are they considered by either Twinsys or Twinsys-Dataguard as active
prospects. For purposes of this Agreement, the term "Fees" shall mean
the consulting fees and ordinary and recurring payments accrued and
received from Twinsys-Dataguard's Copex Referred Customers with respect
to the provision of hot site and cold site services; provided, however,
the term "Fees" does not include any payment by Copex Referred Customers
for reimbursement of expenses or taxes or similar payments, or the payment
of extraordinary amounts such as disaster notification fees, usage
fees, excess testing fees, and other similar extraordinary and
nonrecurring amounts. Dataguard shall have no liability to pay any
amounts to Copex except with respect to Fees actually accrued and
received and collected by Twinsys-Dataguard.
<TABLE>
<CAPTION>
Fees received under the initial term of first Fees received
contract with respect to a Copex Referred Customer under subsequent
terms of the
First year of initial term Subsequent years of first con-
of first contract with initial term of first tract with
respect to the Copex contract with respect to respect to a
Referred Customers the Copex Referred Copex Referred
Customer Customer and
all other
If first If first If first If first contracts
contract contract contract contract with respect
entered entered on entered entered on to that Copex
prior to or after prior to or after Referred
July 1, 1995 July 1, 1995 July 1, 1995 July 1, 1995 Customer
<S> <C> <C> <C> <C> <C>
Copex will receive 20% 15% 10% 7.5% 7.5%
the following
percentage of Fees
actually accrued
and collected by
Twinsys-Dataguard
during the Promotion
Term
Copex will receive 20% 10% 15% 7.5% 0%
the following
percentage of Fees
actually accrued
and collected by
Twinsys-Dataguard
after the
Promotion Term
IN WITNESS WHEREOF, Dataguard, Dataguard Limited, Copex, and
Copex (Swiss) have each duly executed this Amendment as of the date
first written above.
DATAGUARD RECOVERY SERVICES,
INC.
By /s/ Richard W. Smith
Title: President
Date: 1/7/95
DATAGUARD LIMITED
By /s/ Richard W. Smith
Title: President
Date: 1/7/95
COPEX LIMITED (U.K.)
By /s/ F. Breuneval
Title: Director
Date: 07/01/95
COPEX LIMITED (SWISS)
By /s/ F. Breuneval
Title: Director
Date: 07/01/95
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> $ 1,364,253
<SECURITIES> 0
<RECEIVABLES> 1,622,155
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,123,263
<PP&E> 17,996,238
<DEPRECIATION> 9,207,054
<TOTAL-ASSETS> 12,450,731
<CURRENT-LIABILITIES> 5,144,399
<BONDS> 989,710
<COMMON> 4,253,834
0
645,460
<OTHER-SE> (2,784,933)
<TOTAL-LIABILITY-AND-EQUITY> 12,450,731
<SALES> 0
<TOTAL-REVENUES> 7,007,412
<CGS> 0
<TOTAL-COSTS> 6,987,742
<OTHER-EXPENSES> 473,221
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<INCOME-PRETAX> (453,551)
<INCOME-TAX> 129,723
<INCOME-CONTINUING> (583,274)
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<NET-INCOME> (583,274)
<EPS-PRIMARY> (.25)
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</TABLE>
